BIRMAN MANAGED CARE INC, SB-2, 1997-05-16

BIRMAN MANAGED CARE INC
SB-2, 1997-05-16
MANAGEMENT CONSULTING SERVICES

Previous: CARDIOTHORACIC SYSTEMS INC, 10-Q/A, 1997-05-16

Next: HTE INC, S-1/A, 1997-05-16

<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM SB-2

Registration Statement
Under the
Securities Act of 1933

BIRMAN MANAGED CARE, INC.

(Name of Small Business Issuer in Its Charter)

Delaware 6749 62-1584092
(State or Other (Primary Standard (I.R.S. Employer
Jurisdiction of Industrial Classification Identification No.)
Incorporation or Code Number)
Organization)

502 Gould Drive
Cookeville, Tennessee 38506
(800) 229-4118
(Address and Telephone Number of Principal Place of Business)

DAVID N. BIRMAN, M.D.
Chairman, President and C.E.O.
502 Gould Drive
Cookeville, Tennessee 38506
(615) 432-6532; (615) 432-6536
(Name, Address and Telephone Number of Agent for Service of Process)

---------------------

Copy to:

Clifton S. Smith, Jr.
Beverly S. Weitzman
Stanwood Smith - Lawyers
601 South Figueroa Street
Suite 2600
Los Angeles, California 90017
(213) 623-1059
(213) 623-7493

---------------------

Approximate Date of Proposed Sale to the Public: December 20, 1998

If this Form is filed to register additional securities for an offering
pursuant to rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]

If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration number of the earlier registration statement for the same
offering. [ ]

If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. [ ]

---------------------
<PAGE> 2

CALCULATION OF REGISTRATION FEE

<TABLE>
<CAPTION>
================================================================================
Title of Class of Securities Proposed Maximum Amount of
to be Registered Aggregate Offering Registration Fee
Price (1)
================================================================================
<S> <C> <C>
Common Stock,
par value $0.001 per share $2,914,450(2) $845.28

- --------------------------------------------------------------------------------
Total $2,914,450 $845.28
================================================================================
</TABLE>

(1) Estimated solely for purposes of computing the registration fee.

(2) Aggregate Offering Price determined pursuant to Rule 457(c) based on a per
share price of $6.25 per share.

The registrant hereby amends this registration statement on such date or dates
as may be necessary to delay its effective date until the registration shall
file a further amendment which specifically states that this registration
statement shall become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
================================================================================
<PAGE> 3
PROSPECTUS

[BIRMAN LOGO]

466,312 SHARES OF COMMON STOCK

Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such state.

This Prospectus covers 466,312 shares (the "Shares") of common stock
(the "Common Stock") of Birman Managed Care, Inc. (the "Company") to be sold by
certain selling stockholders (the "Selling Stockholders") who acquired the
Shares from the Company in private transactions. The Shares are being registered
by the Company as required by a "lock-up" agreement between the Company and the
Selling Shareholders. In that agreement, the Selling Shareholders agreed not to
sell any of the Shares until December 20, 1998, provided the Company files a
registration statement for the Shares.

When permitted by the lock-up agreements with the Company, the Selling
Shareholders may offer the Shares, or any part of them, from time to time
through ordinary business transactions in the Nasdaq National Market, in
negotiated transactions or otherwise, at market prices prevailing at the time of
the sale or at negotiated prices. The Company will receive none of the proceeds
from the sale of the Shares. The Company will pay for the expenses of this
offering which are estimated at $35,000.

THE SHARES REGISTERED HEREBY ARE SUBJECT TO A "LOCK-UP" AGREEMENT AND
CANNOT BE SOLD UNTIL ON OR AFTER DECEMBER 20, 1998.

The Company's Common Stock is traded in the Nasdaq National Market
under the symbol "BMAN."

THE SHARES OF COMMON STOCK OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK
AND IMMEDIATE AND SUBSTANTIAL DILUTION. SEE "RISK FACTORS" BEGINNING ON PAGE 6
AND "DILUTION."

The Company intends to furnish its stockholders with annual
reports containing financial statements audited and reported upon by its
independent certified public accountants after the end of each fiscal year, and
quarterly reports for the first three fiscal quarters of each year containing
unaudited summary consolidated financial information.

------------------------------

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.

================================================================================
Price to Public(1) Underwriting Proceeds to
Discounts and Selling
Commissions Shareholders
- --------------------------------------------------------------------------------
Per Share Public Market Price (2) (2)
- --------------------------------------------------------------------------------
Total Offering Public Market Price (2) (2)
================================================================================

(1) The Shares will be sold in individual transactions on the open market
commencing on or after December 20, 1998. No estimate of anticipated market
price can be given. As of the date of this Prospectus, the public market price
for the Shares is $_____.

(2) The Selling Shareholders have no underwriter. Sales commissions and
discounts will be determined on an individual case-by-case basis as the Shares
are sold. All proceeds will be paid to the Selling Shareholders. The Company
will receive none of the proceeds of this Offering.

The date of this Prospectus is ______________, 1997

<PAGE> 4
PROSPECTUS SUMMARY

The following summary should be read in conjunction with, and is
qualified in its entirety by, the more detailed information and financial
statements and notes thereto appearing elsewhere in this Prospectus. Unless
otherwise indicated, all information in this Prospectus does not give effect to
the issuance of shares of common stock issuable under the exercise of the
outstanding warrants or options.

THE COMPANY

The Company is a health care consulting and management company
dedicated to improving the quality, controlling the cost, and enhancing the
efficiency of the management and delivery of health care services by focusing on
the physician as the most important factor in the health care system. In
pursuing these goals, the Company currently provides its proprietary "Quality
Management Program" to hospitals to educate their medical staffs on patient
management. As an expansion of its business, the Company is developing and will
operate various managed care health programs ("health plans") in association
with physician networks, hospitals, and other health care providers based upon
its belief that it can apply its Quality Management Program experience to
improve the management and delivery of health care services in managed care
systems. As part of its health plan business, the Company will organize
physicians into independent practice associations, or networks, that will
provide services to the Company's health plans as well as independent health
plans. In addition, the Company intends to provide management services to its
health plans as well as to independent health plans. The Company concentrates
its efforts on rural communities, particularly in the south-central, southeast,
and central United States, with an initial focus for its health plans on
Mississippi and Tennessee, where the development of managed care programs has
lagged behind other areas of the country. The Company successfully completed an
initial public offering of 2,000,000 shares of Common Stock in February of 1997.
The Common Stock was sold at an offering price of $5.00 per share and the
Company received net proceeds of $7,653,000, after deducting underwriting
commissions, discounts and all related offering expenses.

Under its Quality Management Program, physicians employed by the
Company consult directly with attending physicians at hospitals regarding their
overall patient management program, as systematized in the medical record. The
Quality Management Program is designed (i) to improve patient care by
encouraging the use of the Company's proprietary methodology to assist
physicians in the identification of symptoms and conditions, to determine
appropriate treatment, and to prioritize the goals and objectives of the
treatment plan, (ii) to reduce the cost to its hospital-clients of patient care
as a result of the early intervention in identified health problems, and (iii)
to describe more accurately in the medical record the severity and complexity of
the patient's illness and the resources utilized to treat the patient. The
benefits of the Quality Management Program typically result in increased
Medicare reimbursements for the Company's hospital-clients.

The Company's strategy is to be an important provider of health care
consulting services and health plans. Key aspects of this strategy include (a)
concentrating the Company's Quality Management Program and health plan
operations in predominately rural areas in order to take advantage of the lack
of market penetration, the relative lack of competition, and the local
reputation and relationships it has developed; (b) focusing on the role of the
physician as the most important factor in the delivery of health care services
through co-ownership of the Company's health plans with physicians who provide
services to those health plans and through local physician participation in
developing and implementing treatment standards for their communities; (c)
increasing the number of clients for its Quality Management Program by offering
new services and expanding its marketing efforts in its existing market area and
by introducing its services into new market areas; and (d) applying the
experience it has gained through its Quality Management Program to the
development and operation of health plans.

1
<PAGE> 5
THE OFFERING

<TABLE>
<S> <C>
Common Stock offered.......................................... 466,312 shares

Common Stock outstanding prior to this offering............... 8,756,254(1)(2)

Common Stock to be outstanding after this offering............ 8,756,254 shares(1)(2)

Use of proceeds............................................... The Company will not receive
any proceeds from any sales of
Common Stock by the Selling
Stockholders

Nasdaq National Market Symbol................................. BMAN

Risk Factors and Dilution..................................... A purchase of shares of Common
Stock involves a high degree of
risk and immediate and substantial
dilution to the purchasers in this
offering. See "Risk Factors."
</TABLE>

- ----------------

(1) Includes 2,000,000 shares of Common Stock issued in the Company's
initial public offering on February 12, 1997. Excludes 867,061 shares
of Common Stock reserved for issuance upon the exercise of outstanding
stock options, (b) 15,000 shares of Common Stock subject to options
pursuant to the Company's 1996 Non-Employee Directors' Non-Qualified
Stock Option Plan; (c) 200,000 shares of Common stock reserved for
issuance upon exercise by Royce Investment Group, Inc., of its warrant
obtained in connection with its role as managing underwriter of the
Company's initial public offering; and (d) 57,805 shares of Common
Stock reserved for issuance upon the exercise of other outstanding
warrants. The warrants held by Royce Investment Group, Inc., first
become exercisable at a price of $6.00 per share on February 18, 1998.
The outstanding stock options vest over a three-year period. The
outstanding options and other warrants became exercisable February 1,
1997. See "Management -- Stock Option Plans" and "Description of
Securities -- Warrants."

(2) Includes 1,000,000 shares of Common Stock deposited into escrow
(the "Escrow Shares") by David N. Birman, M.D., Chairman of the Board,
President and Chief Executive Officer of the Company. The Escrow Shares
are included in the number of shares of Common Stock to be outstanding
after this offering. The Escrow Shares are subject to cancellation and
will be contributed to the capital of the Company if the Company does
not attain certain earnings levels. If such earnings levels are met,
the Company will record a substantial non-cash charge to operations,
for financial reporting purposes, as compensation expense relating to
the value of the Escrow Shares released to Dr. Birman. See "Risk
Factors -- Charge to Earnings in the Event of Release of Escrow Shares"
and "Principal Stockholders -- Escrow Shares."

---------------------

Unless the context otherwise requires, the term "Company" refers to
Birman Managed Care, Inc., a Delaware corporation, and its subsidiaries,
including Birman & Associates, Inc., BMC Health Plans, Inc., and Hughes &
Associates, Inc. The address of the Company is 502 Gould Drive, Cookeville,
Tennessee 38506, and its telephone number is (615) 432-6532. Except as otherwise
indicated, the information in this Prospectus has been adjusted to give effect
to the change of the state of incorporation of the Company from Tennessee to
Delaware on September 9, 1996 by means of a merger in which the shareholders of
the predecessor Tennessee corporation received 72.939 shares of the Company's
Common Stock for each 100 shares of common stock of the Tennessee corporation
then outstanding.

2
<PAGE> 6
SUMMARY FINANCIAL DATA

<TABLE>
<CAPTION>
HISTORICAL HISTORICAL
FISCAL YEAR ENDED NINE MONTHS ENDED
JUNE 30 MARCH 31,
----------------------------- ---------------------------
1995 1996 1996 1997
----------- ---------- ---------- ----------
(IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA)

<S> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF
OPERATIONS:

Revenue .................................... $ 4,818 $ 8,417 $ 5,790 $ 8,804

Costs and expenses:
Cost of revenue ................... 2,381 2,279 1,592 3,104

Selling, general and administrative 3,114 4,237 3,236 4,388
----------- ---------- ---------- ----------
Income (loss) from operations ..... (677) 1,901 962 1,312
----------- ---------- ---------- ----------

Income (loss) from continuing operations ... (483) 1,172 952 1,425
----------- ---------- ---------- ----------

Net income (loss) .......................... $ (699) $ 1,172 $ 628 $ 855
=========== ========== ========== ==========
Net income (loss) per share(1)
-- primary .............................. (.10) .17 .09 .12
=========== ========== ========== ==========
-- fully diluted ........................ $ (.10) .15 .08 .11
=========== ========== ========== ==========

Weighted average common shares
outstanding:
-- primary .............................. 6,703,517 6,703,517 6,703,517 6,894,169
=========== ========== ========== ==========
-- fully diluted ........................ 6,703,517 7,703,517 7,703,517 7,961,152
=========== ========== ========== ==========
</TABLE>

<TABLE>
<CAPTION>
ACTUAL
MARCH 31,
1997
-----------
<S> <C>
CONSOLIDATED BALANCE SHEET DATA:
Working capital ........... $ 9,274,100

Total assets .............. $12,646,517

Total liabilities ......... $ 1,792,425
Stockholders' equity ...... $10,854,092
</TABLE>

- --------------
(1) Earnings per share is based on the average number of shares of Common
Stock and Common Stock equivalents outstanding during the year. Shares
of Common Stock placed in escrow upon completion of the Company's
initial public offering on February 12, 1997, which are Common Stock
equivalents, have been included in the calculation of fully diluted
earnings per

<PAGE> 7
share. Shares of Common Stock issued at amounts substantially below the
initial public offering price within the one-year period prior to the
initial filing of the registration statement relating to this offering
are considered outstanding for all periods presented.

4
<PAGE> 8
RISK FACTORS

The purchase of shares of Common Stock involves a high degree of risk.
In addition to the other information contained in this Prospectus, prospective
purchasers should consider carefully the factors listed below in evaluating a
purchase of shares of Common Stock.

EXPANSION INTO NEW BUSINESS

Since it began its business in 1991, the Company has derived
substantially all of its revenue from its Quality Management Program activities.
The Company's health plan business is in the start-up stage. There can be no
assurance that the Company will be successful in introducing its health plans or
that the health plans will achieve or maintain profitability in the future.
Thus, historic operating results may not be indicative of future operating
results. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Business -- Growth Strategy."

GROWTH STRATEGY AND LIMITATIONS ON GROWTH

The Company's growth strategy involves the development and operation of
health plans, primarily in rural communities. The success of these health plans
will depend upon the Company's ability to obtain and maintain necessary state
licenses, organize physician networks, secure employers as subscribers to the
health plans, secure Medicare and Medicaid contracts for its health plans,
secure adequate numbers of enrollees to make its health plans economically
viable, and manage the health plans. Identifying and recruiting candidates to be
participating providers and obtaining the necessary licenses to offer and
operate health plans can be a lengthy, complex, and costly process. Although the
Company believes that its reputation and relationships with hospitals and
physicians in market areas in which it intends to establish health plans will
enable it to organize physician networks and enlist other providers for its
health plans, there can be no assurance that the Company will be able to do so,
that the Company will be able to obtain necessary licenses, or that the Company
will be able to operate profitably any health plan.

The Company has recently experienced rapid growth in its Quality
Management Program business. The continued rapid growth of that business may
impair the Company's ability to provide effectively its consulting services,
particularly if the Company is unable to recruit and train an adequate number of
qualified physicians and allied health specialists and adequately manage and
supervise its staff of physicians and allied health specialists. In addition,
there can be no assurance that the Company will manage its expanding operations
effectively or that it will be able to achieve its planned growth. See "Business
- -- Growth Strategy."

POTENTIAL FLUCTUATION IN OPERATIONS AND OPERATING RESULTS

The Company's operating results could vary from period to period as a
result of seasonality in discharges of Medicare patients by Quality Management
Program hospital-clients, fluctuations in severity of illness, changes in the
Medicare prospective payment system, the expiration of contracts to provide
Quality Management Program services coupled with a failure to replace such
contracts with comparable engagements, underperforming contract engagements, and
changes in governmental regulations. The Company's operating results will also
vary from period to period as a result of the development, marketing, start-up,
and management of its health plan business. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."

RISK OF MEDICARE AUDITS ON QUALITY MANAGEMENT PROGRAM BUSINESS

Hospitals and physicians providing services under Medicare are subject
to regulatory responsibilities imposed by the Health Care Financing
Administration ("HCFA"). Peer Review Organizations ("PROs") engaged by HCFA in
each state routinely review and audit reimbursement requests, including patient
admissions, quality of care, and appropriateness of diagnostic-related group
("DRG") selections, among other things. The depth of review varies from hospital
to hospital. There is always a risk that PRO attention may focus with increased
scrutiny on reimbursement requests submitted by hospital-clients of the Company
that achieve increased reimbursements as a result of the Quality Management
Program. In addition, HCFA investigates allegations of fraud and abuse of
Medicare and Medicaid and has instituted a multi-state program called "Operation
Restore Trust" to punish persons engaged in fraud and abuse of Medicare and
Medicaid, recover funds, identify areas of vulnerability, and prevent fraud.
Among the areas of investigatory interest to HCFA are billing code fraud,
billing schemes, contingent fees, and kickbacks involving providers.
Historically, the Quality Management Program has not been the cause of a focused
review or audit by a PRO or a formal investigation by HCFA. However, there can
be no assurance that focused reviews, audits, or investigations will not occur
in the future. A denial of reimbursement requests submitted by a hospital-client
as a result of the implementation of the Quality Management Program may result
in the Company being required to

5
<PAGE> 9
reimburse all or a portion of its fees to the hospital-client, could result in
one or more hospital-clients seeking to withdraw from their contracts, and could
result in a formal investigation by HCFA. Such events could have a material
adverse effect on the Company.

HEIGHTENED FEDERAL SCRUTINY OF MEDICARE PROVIDERS

The Health Insurance Portability and Accountability Act of 1996,
effective January 1, 1997, established funding for a Medicare Integrity Program
to combat Medicare fraud. Federal enforcement agencies are now expected to have
funding sufficient to undertake anti-fraud enforcement investigations and
prosecutions of what were previously viewed as minor offenses resolved in a
regulatory or civil forum. As decisions regarding coding and billing practices
generally employed throughout the health care industry require the exercise of
judgment in ambiguous or previously unresolved situations, there can be no
assurance that practices heretofore deemed proper will not be attacked by
Federal regulators as a consequence of heightened Federal scrutiny of those
practices.

PRINCIPAL CLIENTS

The Company has provided Quality Management Program services to various
hospitals operated by Quorum Health Care, Inc. ("Quorum") since 1991. Services
to hospitals operated by Quorum produced approximately 42% of the Company's
Quality Management Program revenue in fiscal 1996 and approximately 24% and 45%
of the Company's revenue for the nine months ended March 31, 1997 and 1996,
respectively. Historically, the on-site management of each Quorum hospital has
made its own decision regarding the engagement of the Company, and the Company
has entered into a separate contract with each engaging Quorum facility. The
Company is continuing to expand its Quality Management Program client base to
reduce its dependence on Quorum hospitals.

NEED TO PREDICT AND CONTROL HEALTH CARE COSTS

The profitability of the Company's health plans will depend in large
part upon the ability of the Company to predict health care costs accurately and
to control those costs through the negotiation of favorable provider contracts
and the imposition of utilization management, case management, and quality
assurance programs. The demographic characteristics in the rural communities to
be served by the Company's health plans may contribute to health care costs that
exceed Company projections or increase more rapidly than anticipated. In this
regard, persons in the rural communities to be served by the Company's health
plans may, among other things, be older and have lower incomes than persons in
other areas of the country. Changes in health care practices, inflation, new
technologies, major epidemics, diseases and catastrophes, clusters of high-cost
cases, and numerous other factors affecting the delivery and costs of health
care cannot be predicted or controlled and may adversely affect the Company's
ability to predict and control health care costs and claims. In addition, there
can be no assurance that provider agreements negotiated in the future will not
result in substantially higher costs to the Company that cannot be passed
through to payors. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."

In addition to the challenge of controlling health care costs, the
Company will face pressure from payors under employer-sponsored and
government-sponsored programs to contain premium costs by renegotiation. Fiscal
concerns regarding the continued viability of programs such as Medicare and
Medicaid may cause decreasing reimbursement rates for government-sponsored
programs. The Company's financial condition or results of operations could be
adversely affected by any limitation on the Company's ability to increase or
maintain its premium levels.

RISK OF LIMITED HEALTH PLANS

The Company intends to offer prospective payors three health plan
alternatives: a health maintenance organization ("HMO"), a preferred provider
organization ("PPO"), and a point-of-service option. Initially, it will offer
only HMOs to commercial and perhaps Medicaid enrollees. Because PPOs and the
point-of-service option require the additional component of indemnity insurance,
the availability of the PPOs and point-of-service option will require separate
licensure of an insurance company and agent and is not expected to be available
to payors and/or enrollees for at least six months following the launch of each
HMO plan. National Benefits Resources, Inc. ("NBR"), a managing general
underwriter of indemnity insurance products which is a stockholder in the
Company and a Selling Shareholder in this offering, is assisting the Company in
arranging the necessary insurance licenses. However, there can be no assurance
that the Company will be able to offer a PPO or a point-of-service option at the
time or times that it desires to do so or that any of the Company's health plans
that are launched will be successful in offering its intended spectrum of plans.

HEALTH CARE REFORM

As a result of the escalation of health care costs and the inability of
many individuals and employers to obtain affordable health insurance, numerous
health care reform proposals have been, and may continue to be, introduced in
the United States Congress and state legislatures. Among the proposals under
consideration are price controls on hospitals, insurance market reforms to
increase the availability of group health insurance to small businesses,
requirements that all businesses offer health care coverage to their employees,
the creation of a government health insurance plan or plans that would cover all
citizens, mandated health plan benefits, mandated provider payment arrangements,
and other proposals involving various aspects of health plan operations. There
can be no assurance which, if any, of these proposals will be adopted or the
effect on the Company of any such proposals that are adopted. See "Business --
Government Regulation."

6
<PAGE> 10
GOVERNMENT REGULATION

The Company, its Quality Management Program hospital-clients, the
health plans to be organized by the Company, and health insurance companies are
subject to substantial regulation at both the federal and state levels. The
Company is subject to a number of laws governing issues as diverse as
relationships between health care providers and their referral sources,
prohibitions against providers referring patients to an entity with which the
provider has a financial relationship, licensure and other regulatory approvals,
the corporate practice of medicine, and regulation of unprofessional conduct by
providers, including fee-splitting arrangements. Although the Company believes
that its current operations comply, and its proposed operations will comply,
with relevant federal and state laws, many aspects of the relationships between
the Company and its hospital-clients and the Company's health plans have not
been the subject of judicial or administrative interpretation. An adverse review
or determination by any court or applicable administrative agency or changes in
the regulatory requirements could have a material adverse effect on the
operations and financial condition of the Company.

Regulatory matters affecting HMOs and health insurance companies in
particular include regulations relating to cash reserves, minimum net worth,
licensing requirements, approval of policy language and benefits, mandatory
products and benefits, provider compensation arrangements, premium rates, and
periodic examinations by federal and state agencies. The Company will be subject
to state insurance laws if and to the extent it assumes the risk for the
provision of health services. In addition, the Company is subject to federal and
state antitrust laws, which prohibit the Company from engaging in
anticompetitive activities, such as monopolization and price fixing. State
regulations may also restrict the ability of Company HMOs to distribute funds to
the Company. Changes also could be made in Medicare and Medicaid reimbursement
rates. Many states have adopted, or are considering, regulations relating to
mandatory benefits, provider compensation, "any willing provider" provisions,
and the composition of physician networks. Changes in federal and state laws
could increase health care costs and administrative expenses. There can be no
assurance that any future regulatory action by governmental agencies will not
have an adverse impact on the profitability or marketability of the Company's
health plans in their respective jurisdictions. See "Business -- Government
Regulation."

DEPENDENCE UPON REIMBURSEMENT BY THIRD-PARTY PAYORS

Clients for the Company's Quality Management Program derive, and the
Company through its health plans will derive, substantial revenue from
third-party payors. The health care industry is undergoing cost-containment
pressures as third-party payors seek to impose lower reimbursement and
utilization rates and to negotiate reduced rate payments with medical service
providers. The Company believes that this trend will continue. Reductions in
payments to hospitals or other changes in reimbursements for health care
services could have a direct or indirect material adverse effect on the Company.

SUBSTANTIAL COMPETITION

The Company's Quality Management Program competes for hospitals as
clients in the revenue optimization sector of the health care consulting
business. The Company's health plans will compete in the managed care and
insurance sectors of the health care industry. Both sectors are highly
competitive. Within each sector, there are a large number of competitors, many
of which have substantially greater financial, technical, marketing, and
management resources than the Company. Although the Company believes the
acceptance of its Quality Management Program and its familiarity with and
reputation in rural areas will enable it to compete successfully, there can be
no assurance that the Company will be able to compete effectively against
existing competitors or that additional competitors will not enter the rural
markets the Company plans to serve. See "Business -- Competition."

RISKS ASSOCIATED WITH HEALTH PLAN CONTRACTS; CAPITATED FEE REVENUE

The Company's success will depend, in part, upon its ability to develop
and market its point-of-service options that offer enrollees the right to select
providers at the time services are sought from the HMO or the PPO or from
outside the system. The Company will offer its HMOs to payors on a prepaid
basis, pursuant to which the HMO will accept a capitated or prepaid per member
per month fee for providing all necessary covered services to a payor's
enrollees. Initially the Company will pay its providers in Mississippi on a
discounted fee-for-services basis. At such time that the HMO is fully
implemented in Mississippi, per member per month capitated fees will then be
paid by the HMO to the participating providers. HMO contracts shift much of the
financial risk of providing health care from the payor to the provider. The
proliferation of HMO elections by enrollees could result in greater
predictability of Company revenue and related expenses, while increased
elections for PPO and point of service options by enrollees could result in
greater unpredictability of expenses if enrollees that do not select the HMO
option require more frequent or extensive care than anticipated. As a result,
the Company may incur additional costs that would reduce or eliminate any
earnings under its contracts. The Company intends to reinsure catastrophic and
excess risks. There can be no

7
<PAGE> 11
assurance that the Company will be able to negotiate satisfactory contracts with
payors or with health care providers or obtain or maintain catastrophic
reinsurance.

PROVIDER RELATIONS

The Company will contract with physicians, hospitals, and other
providers in order to manage health care costs and utilization and monitor the
quality of care being delivered by its health plans. In some geographic markets,
certain providers, particularly hospitals and multi-specialty physician groups,
may have significant market positions or even monopolies that could make it
difficult for the Company's health plans to negotiate favorable contracts with
those providers. In addition, many of these providers may compete directly with
the Company's health plans. If such providers refuse to contract with the
Company's health plans or utilize their market position to negotiate contracts
that are not favorable to the Company's health plans or that place the Company's
health plans at a competitive disadvantage, the Company's ability to market
health plans that will be profitable in those geographic areas could be
adversely affected. Initially, the Company will rely upon its arrangements with
MedSouth and other providers to service its Mississippi health plan. Because
certain physicians in MedSouth will own equity interests in the MSO and Care3,
Inc., the Company currently believes it has a limited exposure to such provider
relations issues in that geographic region. In any particular market, however,
providers could refuse to contract with the Company, demand higher payments or
take other actions that could result in higher health care costs, less desirable
products for customers or enrollees, or difficulty meeting regulatory or
accreditation requirements.

LIABILITY AND INSURANCE

The physicians and allied health specialists employed by the Company in
its Quality Management Program do not treat patients, make any treatment or
diagnostic decisions, or provide any medical services. Although the Company
believes that the Quality Management Program activities of its physicians do not
constitute the practice of medicine or establish physician-patient
relationships for which the Company could incur liability, the Company may be
exposed to the risk that professional liability claims could be brought against
the Company by third parties.

In its health plan business, the Company will provide only non-medical
service. It will not control or direct the practice of medicine by the
physicians or the compliance with certain regulatory and other requirements
directly applicable to physicians or physician groups. However, Company-managed
networks may become subject to claims, suits, or complaints, relating to
services and products provided by the physicians in the network, and there can
be no assurance that such claims will not be asserted against the Company.

Although the Company maintains, and expects to continue to maintain,
insurance coverage for professional liability claims, such insurance, by its
nature, is limited in the scope of coverage and amount. Each of the Company's
health plans will maintain, and the Company will require each physician
participating in the Company's health plans to maintain, comprehensive
professional liability insurance. There can be no assurance that any claims
asserted against the Company will not be successful or, if successful, will not
exceed the limits of any insurance coverage available to pay such claims.
Furthermore, there can be no assurance that insurance coverage will continue to
be available at acceptable rates. See "Business - Potential Liability and
Insurance."

New forms of health care organizations have increasingly been subject
to liability for reasons such as failing to credential providers properly or
contributing to physician malpractice. In response, many health care
organizations obtain general liability, managed care, and professional
liability insurance coverage. In addition, medical directors have also faced
professional liability claims and state licensure challenges. The Health Care
Quality Improvement Act of 1986, however, provides immunity from damages for
professional review actions taken by professional review bodies, including
health plans, in good faith, provided that certain procedural standards are
met. The Company intends to comply with such procedures in its professional
review actions. However, no assurance can be given that the Company will satisfy
the indemnity requirements or that any insurance coverage the Company obtains
will be adequate to protect against all claims that may be asserted against the
Company.

Like HMOs and health insurers generally, the Company intends to exclude
certain health care services from coverage under its health plans. In the
ordinary course of its health plan business, the Company will be subject to
claims by its enrollees arising out of decisions made by its health plans to
restrict treatment or to restrict reimbursements for certain services. The loss
of any such claim, resulting in a significant punitive or other damage award or
a directive that the Company significantly change its operations, could have a
material adverse effect on the Company. In addition, the risk of potential
liability under punitive damage theories may increase significantly the
difficulty of obtaining reasonable settlements of coverage claims. There can be
no assurance that successful claims of enrollees will not have a material
adverse effect on the Company.

DEPENDENCE ON KEY EXECUTIVE

The Company depends to a significant extent on the efforts and skills
of its chairman, president and chief executive officer David N. Birman, M.D.
The Company has entered into an employment agreement with Dr. Birman. The loss,
incapacity, or unavailability of Dr. Birman could adversely affect the Company's
operations. The Company has applied for a $1,000,000 key man insurance policy on
the life of Dr. Birman. See "Management -- Employment Agreements."

FUTURE CAPITAL NEEDS

Implementing the Company's growth strategy will require substantial
additional capital for the development of its health plans and for the marketing
and expansion of its Quality Management Program. In particular, development of
additional health plans will require significant capital for organization,
licensure, marketing and meeting capital reserve requirements imposed by various
states. To date, the Company has financed its growth primarily through operating
income, a bank term loan, the proceeds of private offerings of shares of Common
Stock, the most recent offering being completed in June 1996 and the proceeds of
the Company's initial public offering of Common Stock on February 12, 1997. The
Company believes that its existing cash resources, cash flow from operations,
and available lines of credit will

8
<PAGE> 12
be sufficient to meet the Company's working capital and expansion needs for at
least the next 12 months.

Since the rate of expansion of the Company's business will depend on
the availability of capital, the Company may be required to raise additional
capital in the future. The Company may obtain such capital through additional
borrowings or the issuance of additional equity or debt securities, either of
which could have an adverse effect on the value of the shares of Common Stock
offered by this Prospectus. There can be no assurance that the Company will be
able to secure such financing, if necessary, on favorable terms. If the Company
is unable to secure additional financing in the future, its ability to pursue
its growth strategy and meet capital reserve requirements imposed upon HMOs may
be delayed, perhaps indefinitely, and its results of operations for future
periods could be adversely affected. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations -- Liquidity and Capital
Resources."

VOTING CONTROL

David N. Birman, M.D., the Chairman of the Board, President, and Chief
Executive Officer of the Company, has sole beneficial ownership, together with
his wife, Sue D. Birman, Executive Vice President and a director of the Company,
of approximately 60.0% (including the Escrow Shares of the outstanding shares of
the Common Stock of the Company. Consequently, absent a further issuance of
shares of Common Stock, Dr. Birman will continue to be able to control the
election of the Board of Directors of the Company and thereby determine the
Company's policies and the outcome of corporate actions requiring stockholder
approval.

CHARGE TO EARNINGS IN THE EVENT OF RELEASE OF ESCROW SHARES

The Company has outstanding 1,000,000 Escrow Shares. The Escrow Shares
will be released from escrow if the Company attains certain earnings levels over
the next one to three years. The Escrow Shares will not be deemed to be
outstanding for the purpose of calculating primary earnings per share until the
Company determines that it is probable that such conditions will be met. In the
event of the release of the Escrow Shares, the Company will recognize a
substantial non-cash charge to operations, equal to the then fair value of such
shares, during the period in which the earnings thresholds are probable of being
met, which would have the effect of significantly reducing or eliminating
earnings, if any, at such time. In addition, the non-cash compensation expense
will not be deductible for income tax purposes. The recognition of such
compensation expense may have a depressive effect on the market price of the
Company's securities. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Principal Stockholders -- Escrow
Shares." There can be no assurance that the Company's earnings will attain the
targets that would enable the Company to release the Escrow Shares.

ABSENCE OF DIVIDENDS

The Company has paid no cash dividends on its Common Stock since its
inception and does not anticipate paying cash dividends on its Common Stock in
the foreseeable future. Any future dividends will depend on the earnings, if
any, of the Company, its financial requirements, and other factors. See
"Dividend Policy."

LIMITED TRADING MARKET FOR COMMON STOCK; POSSIBLE VOLATILITY OF MARKET PRICE

Although the common stock is currently traded on the Nasdaq National
Market, there can be no assurance that an active trading market for the
Company's shares will continue to exist in the future. If an active trading
market for the Common Stock does not develop or is not sustained, it will be
more difficult for an investor desiring to liquidate his, her or its investment
in the Common Stock to do so in an orderly fashion and could result in a decline
in the market price for the Common Stock, perhaps below the price paid by the
investor for such Common Stock. From time-to-time, there may be significant
volatility in the market price for the Common Stock. Quarterly operating results
of the Company, the timing of the launch of health plans, changes in general
conditions in the economy or the health care industry, legislative and
regulatory actions, or other developments affecting the Company or its
competitors could cause the market price of the Common Stock to fluctuate
substantially. On occasion, the equity markets have experienced significant
price and volume fluctuations that have affected the market prices for many
companies' securities, at times for reasons unrelated to the operating
performance of those companies. Concern about the potential effects of health
care reform measures has contributed to the volatility of stock prices of
companies in health care and related industries and may similarly affect the
price of the Company's Common Stock.

9
<PAGE> 13
SHARES ELIGIBLE FOR FUTURE SALE

The sale of a substantial number of shares of Common Stock after this
offering, or the perception that such a sale could occur, could adversely affect
prevailing market prices for the Common Stock. In addition, any such sales or
perception of such sales could make it more difficult for the Company to sell
equity securities or equity-related securities in the future at a time and price
that the Company deems appropriate. After giving effect to the sale of 2,000,000
shares of Common Stock in the Company's initial public offering on February 12,
1997 and the tender of shares of Common Stock in repayment of a note payable to
the Company, the Company has 8,756,254 shares of Common Stock outstanding,
including the 2,000,000 shares issued in the Company's initial public offering
on February 12, 1997, and the Escrow Shares. The 2,000,000 shares issued in the
Company's initial public offering on February 12, 1997, are freely tradeable
without restriction or registration under the Securities Act of 1933, as amended
(the "Securities Act"). The remaining 6,756,254 shares are "restricted
securities" within the meaning of Rule 144 ("Rule 144") adopted under the
Securities Act. The restricted shares may be sold in the future in compliance
with Rule 144. Rule 144 generally provides that beneficial owners of Common
Stock who have held such common stock for two years may sell, within any
three-month period, a number of shares not exceeding the greater of 1% of the
total outstanding shares or the average weekly trading volume of the shares
during the four calendar weeks preceding such sale. The Company has agreed not
to sell any shares of its Common Stock, and its directors and officers have
agreed not to offer, sell, or otherwise dispose of any shares that they
currently own or that they may subsequently acquire upon exercise of options or
warrants for a period of 22 months after the date of closing of the Company's
initial public offering except as otherwise permitted by Royce Investment Group,
Inc., the representative of the various underwriters of the Company's initial
public offering (the "Representative"). The Selling Shareholders have agreed not
to sell any shares of Common Stock that they currently own or that they may
subsequently acquire upon exercise of options or warrants until December 20,
1998, provided the Company files a registration statement for the Shares. All
other shareholders of the Company have agreed not to sell their shares until
December 20, 1998. The Representative may consider permitting a sale of shares
subject to so-called "lock-up" agreements in private transactions or pursuant to
a registration statement effective under the Securities Act, if the
Representative reasonably determines that the sale of such shares would not
result in a material adverse effect on the value of the securities. See
"Description of Securities -- Registration Rights."

The Securities and Exchange Commission (the "Commission") has proposed
reducing the initial Rule 144 holding period to one year. It is unclear whether
or when such rule change will be enacted. If enacted, such modification will
reduce the time when certain shares of the Common Stock become eligible for
resale, although such shares will continue to be subject to the lockup
agreements described above.

STOCK ISSUABLE PURSUANT TO REPRESENTATIVE'S WARRANTS, OPTIONS, AND OTHER
WARRANTS

The Company has issued to Royce Investment Group, Inc., as
representative of the several underwriters of the Company's initial public
offering of Common Stock, warrants (the "Representative's Warrants") to purchase
200,000 shares of Common Stock at a purchase price of $6.00 per share, which is
120% of the offering price of the Common Stock in the Company's initial public
offering. The holders of the Representative's Warrants will have the right to
require the Company to register the Representative's Warrants or the shares of
Common Stock issuable upon exercise of the Representative's Warrants under the
Securities Act. The Representative's Warrants may be exercised February 18, 1998
and for four-years thereafter. The Company has also reserved 1,558,780 shares of
Common Stock for issuance under the Company's stock option plans (the "Stock
Option Plans") and 57,805 shares of Common Stock for issuance under warrants
previously issued by the Company. The exercise price of the previously granted
options is $1.37 per share. The exercise price is $5.00 per share for 55,000
options granted to two new employees, $5.00 for 12,000 options granted to
non-employee directors Rhodes and Von Soosten, and 3,000 options at $7.25 per
share granted to director Higgins. The weighted average exercise price of the
previously issued warrants is $1.39 per share. With the exception of one option
that is vested as to 20,058 shares, the previously granted options became
exercisable on February 1, 1997. The warrants previously issued which are not
Representative's Warrants are exercisable at any time on or after January 1,
1997 and before December 31, 2001.

The holders of the Representative's Warrants, options granted or that
may be granted under the Company's Stock Option Plans, and outstanding warrants
may profit from a rise in the market price of the Common Stock. The existence of
the Representative's Warrants, options, and warrants may adversely affect the
terms on which the Company may obtain additional equity financing. Moreover,
such holders are likely to exercise their rights at a time when the Company
would otherwise be able to obtain capital on terms more favorable than could be
obtained through the exercise of such warrants and options.

CERTAIN ANTI-TAKEOVER PROVISIONS

Certain provisions of the Company's Certificate of Incorporation and of
the Delaware General

10
<PAGE> 14
Corporation Law (the "Delaware GCL") could, together or separately, discourage
potential acquisition proposals, delay or prevent a change in control of the
Company, and limit the price that certain investors might be willing to pay in
the future for shares of Common Stock. Certain of these provisions (i) permit
the issuance, without further stockholder approval, of preferred stock with
rights and privileges that could be senior to the Common Stock, and (ii) require
a super-majority vote requirement in connection with the adoption of certain
corporate transactions not unanimously recommended to the stockholders by the
Board of Directors, including merger, sale of assets, and securities acquisition
transactions. Following this offering, the Company will also be subject to
Section 203 of the Delaware GCL which, subject to certain exceptions, prohibits
a Delaware corporation from engaging in any of a broad range of business
combinations with any "interested stockholder" for a period of three years
following the date that such stockholder became an interested stockholder. See
"Description of Securities." Because any person interested in acquiring the
Company or its business could be obligated to do so in a transaction negotiated
with management of the Company, the prospects of a disposition of the Company
through an auction process are reduced, thereby reducing the potential that a
significant premium over the market value of shares of Common Stock would occur.
However, because the directors of the Company owe a fiduciary duty to the
stockholders, if a decision to sell the Company is made the directors could have
an obligation to maximize the price paid for the Company or the shares of its
Common Stock.

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

Certain statements and information contained under "Risk Factors,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," and "Business" concerning future, proposed, and intended activities
of the Company and the health care industry, and other statements contained
herein regarding matters that are not historical facts are forward-looking
statements (as such term is defined in the Securities Act). Forward-looking
statements, by their very nature, include risks and uncertainties. Accordingly,
actual results may differ, perhaps materially, from those expressed in or
implied by such forward-looking statements. Factors that could cause actual
results to differ materially include those discussed under "Risk Factors."

11
<PAGE> 15
THE COMPANY

The Company was incorporated in 1994 in Tennessee under the name BA
Forum, Inc. Its name was changed to Birman Managed Care, Inc. in October 1995.
The Company was reincorporated in Delaware in September 1996. The Company serves
as the holding company for Birman & Associates, Inc. and BMC Health Plans, Inc.
Birman & Associates, Inc. has been engaged in the business of providing the
Quality Management Program since 1991. As of June 30, 1995, Birman & Associates,
Inc. distributed all of the shares of capital stock of Birman Farms, Inc., a
livestock breeding operation, as a dividend to its then sole shareholder, David
N. Birman, M.D. In July 1995, Dr. Birman contributed all of the outstanding
common stock of Birman & Associates, Inc. to the Company. BMC Health Plans, Inc.
was formed in November 1994 to pursue the development of the Company's health
plan business with Dr. Birman as its sole shareholder. In January 1995, Dr.
Birman contributed all of the outstanding common stock of BMC Health Plans, Inc.
to the Company.

In furtherance of its health plan business, in June 1996 the Company
acquired substantially all of the assets of Hughes & Associates, Inc.
("Hughes"), a Jackson, Mississippi-based provider of utilization review services
to insurance companies and health care plans.

On January 15, 1997, the Company acquired substantially all of the
issued and outstanding shares of capital stock of Canton, an inactive holder of
a certificate of authority to operate a HMO in Mississippi. Canton has been
renamed Care3, Inc.. As a result of the issuance of shares of Care3, Inc. to
certain of the founders of Canton, Care3, Inc. currently is a 69% subsidiary of
the Company. The Company may reduce its ownership percentage of Care3, Inc. to
60% by allowing selected physicians to acquire shares of Care3, Inc. common
stock. The Company anticipates that it will own not less than 60% of Care3, Inc.
The recent acquisition of Canton provides to the Company a Certificate of
Compliance to operate an HMO in certain counties in northern Mississippi. In
addition to those counties, the Department of Insurance of the State of
Mississippi issued a Certificate of Compliance dated February 10, 1997, for
Care3 to operate an HMO in the six-county southern Mississippi region on March
4, 1997. The Company's Mississippi HMO commenced operations on or about March
18, 1997. Insufficient business activities have taken place for the Company to
assess the prospects for such operations. The effect on the Company's operations
of the Mississippi HMO will depend to a large extent on the Company's ability to
attract enrollees to its Mississippi health plan which, in turn, will depend to
a significant extent upon the Company's ability to offer PPO and
point-of-service options to its enrollees in addition to the HMO option. Because
the Company's health plan business will be in a "start-up" phase for at least
six months after the HMO commences operations in Mississippi, the Company
anticipates that the Canton acquisition will result in a net operating loss
during at least the first half of calendar 1997.

Through another newly formed subsidiary, MMMC, Inc., the Company is
embarking into the management services organization ("MSO") business by entering
into an administrative services agreement with a network of private medical
practitioners in the Gulfport, Mississippi area, MedSouth, Inc. ("MedSouth").
The Company anticipates that it will hold a 90% interest in the MSO, with
MedSouth owning the balance of the capital stock.

By prospectus dated February 12, 1997 and its offering closed February
20, 1997, the Company completed its initial public offering of 2,000,000 shares
of Common Stock at a price of $5.00 per shares. The net proceeds of the offering
totaled approximately $7,615,000.

The Company's executive offices are located at 502 Gould Drive,
Cookeville, Tennessee 38506; its telephone number is (615) 432-6532.

12
<PAGE> 16
USE OF PROCEEDS

The Company will not receive any proceeds from any sale by the Selling
Stockholders of the Shares. The Company agreed to pay the expenses, currently
estimated to be $35,000, incurred by the Company in filing and through the
effective date of this offering .

DIVIDEND POLICY

To date, the Company has not paid any cash dividends on its Common
Stock. The payment of dividends in the future will be within the discretion of
the Board of Directors and will depend on the Company's earnings, capital
requirements, financial condition, and other relevant factors. The Company does
not intend to declare any cash dividends in the foreseeable future, but instead
intends to retain earnings for use in the Company's business operations. See
"Risk Factors -- Absence of Dividends" and "Description of Securities."

PRICE RANGE OF COMMON STOCK

The Company's common stock is traded in the Nasdaq National Market. Bid
and asked prices are quoted on the Nasdaq National Market under the symbol BMAN.
The high and low bid prices (based on the bid price) for the common stock, as
reported by the National Association of Securities Dealers, Inc., are indicate
below.

These amounts, which have been rounded to the nearest eighth, represent
quotations between dealers (not actual transactions) and do not include retail
markups, markdowns or commissions.

<TABLE>
<CAPTION>
1997 HIGH LOW
<S> <C> <C>
Third Quarter (1) 7 3/4 7 1/4
</TABLE>

(1) The Company's initial public offering at $5.00 per share was completed
on February 20, 1997. There was no prior market for the Company's
Common Stock prior to the initial public offering.

The closing sale price of the Company's Common Stock on April 30, 1997,
was $6.25. As of April 30, 1997, the number of stockholders of record
of the Company's Common Stock was approximately 800.

13
<PAGE> 17
CAPITALIZATION

The following table sets forth the capitalization of the Company as
of March 31, 1997.

<TABLE>
<CAPTION>
MARCH 31, 1997
ACTUAL
(unaudited)
<S> <C>
Long-term debt(1) ................................................... $ 612,598
-----------
Stockholders' equity:
Preferred Stock, $.001 par value, 5,000,000 shares authorized; no
shares issued and outstanding ................................... 0
Common Stock, $.001 par value, 25,000,000 shares authorized;
8,756,254 shares issued and outstanding(2)(3).................... 8,756
Additional paid-in capital .......................................... 8,588,845
Retained earnings ................................................... 2,256,491
-----------
Total stockholders' equity .......................................... 10,854,092
===========
Total capitalization ................................................ 11,466,690
===========
</TABLE>

- ---------------

(1) The Company has a $1,000,000 maximum principal amount working capital
revolving line of credit facility with American National Bank and Trust
Company of Chicago. The facility has an initial maturity date of
October 31, 1997. The facility provides for the accrual of interest on
the unpaid balance at an annual rate equal to the lender's prime rate,
adjusted daily. The facility is secured by the accounts receivable of
the Quality Management Program and of Hughes.

Excludes (a) 867,061 shares of Common Stock subject to options pursuant
to the Company's 1995 Option Plan at an exercise price of $1.37 per
share and 55,000 shares of Common Stock subject to options at an
exercise price of $5.00 per share; (b) 15,000 shares of Common Stock
subject to options pursuant to the Company's 1996 Non-Employee
Directors' Non-Qualified Stock Option Plan at an exercise price of
$5.00 per share for 12,000 shares and $7.25 for 3,000 shares; (c)
57,805 shares of Common Stock issuable upon exercise of outstanding
Common Stock purchase warrants at a weighted average exercise price of
$1.39 per share; and (d) 200,000 shares of Common Stock reserved for
issuance upon exercise of the Representative's Warrants. See
"Management -- Stock Option Plans" and "Description of Securities."

Includes 1,000,000 Escrow Shares. See "Principal Stockholders -- Escrow
Shares."

14
<PAGE> 18
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA

The following summary historical financial data have been derived from
the audited consolidated financial statements of the Company. The historical
consolidated statement of operations data set forth below with respect to the
fiscal years ended June 30, 1995 and June 30, 1996 are derived from, and are
qualified by reference to, the audited Consolidated Financial Statements
included elsewhere in this Prospectus and should be read in conjunction with
those financial statements and notes thereto. The selected financial data for
the nine months ended March 31, 1996 and 1997 have been derived from unaudited
financial statements that are included elsewhere in this Prospectus. In the
opinion of management of the Company, the unaudited financial statements have
been prepared on the same basis as the audited financial statements and include
all adjustments, consisting only of normal recurring adjustments, necessary for
a fair presentation of the financial position and the results of operations for
these periods. Operating results for the nine months ended March 31, 1997, are
not necessarily indicative of the results that may be expected for the year
ending June 30, 1997. This data should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the financial statements and related notes thereto included elsewhere in this
Prospectus.

Historical Historical
Fiscal Year ended Nine Months Ended
June 30, March 31,
----------------------------- ----------------------------
1995 1996 1996 1997
---------- ---------- ---------- -----------
(In thousands except share and per share data)
<S> <C> <C> <C> <C>
Consolidated Statement of Operations:

Revenue ................................... $ 4,818 $ 8,417 $ 5,790 $ 8,804

Costs and expenses:
Cost of revenue ........................ 2,381 2,279 1,592 3,104

Selling, general and administrative ....... 3,114 4,237 3,236 4,388
----------- ---------- ---------- ----------
Income (loss) from operations ............. (677) 1,901 962 1,312
----------- ---------- ---------- ----------
Income (loss) from continuing operations (483) 1,172 952 1,425
----------- ---------- ---------- ----------

Net income (loss) ...................... $ (699) 1,172 $ 628 $ 855
=========== ========== ========== ==========
Net income (loss) per share: (2)
-- primary .......................... $ (.10) $ .17 $ .09 $ .12
=========== ========== ========== ==========

-- fully diluted .................... $ (.10) $ .15 $ .08 $ .11
=========== ========== ========== ==========
Weighted average common shares outstanding:

-- primary .......................... 6,703,517 6,703,517 6,703,517 6,894,169
=========== ========== ========== ==========
-- fully diluted .................... 6,703,517 7,703,517 7,703,517 7,961,152
=========== ========== ========== ==========
</TABLE>

<TABLE>
<CAPTION>
MARCH 31,
1997
CONSOLIDATED BALANCE SHEET DATA: ACTUAL
------------
<S> <C>
Working capital ....................... $ 9,274,100
Total assets .......................... $12,646,517
Total liabilities ..................... $ 1,792,425
Stockholders' equity .................. $10,854,092
</TABLE>

- ----------

Earnings per share is based on the average number of shares of Common Stock and
Common Stock equivalents outstanding during the year. Shares of Common
Stock to be placed in escrow upon February 12, 1997, which are Common
Stock equivalents, have been included in the calculation of fully
diluted earnings per share. Shares of Common Stock issued at amounts
substantially below the initial public offering price within the
one-year period prior to the initial filing of the registration
statement relating to this offering are considered outstanding for all
periods presented.

15
<PAGE> 19
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

FORWARD LOOKING STATEMENTS

The following discussions contain forward-looking statements
regarding the Company, its business, prospects and results of operations that
are subject to certain risks and uncertainties posed by many factors and events
that could cause the Company's actual business, prospects and results of
operations to differ materially from those that may be anticipated by such
forward-looking statements. Factors that may affect such forward-looking
statements include, without limitation: the Company's ability to successfully
develop new products for new markets; the impact of competition on the
Company's revenues, changes in law or regulatory requirements that adversely
affect or preclude customers from using the Company's products for certain
applications; delays in the Company's introduction of new products; and failure
by the Company to keep pace with emerging technologies.

When used in this discussion, words such as "believes", "anticipates",
"expects", "intends" and similar expressions are intended to identify
forward-looking statements, but are not the exclusive means of identifying
forward-looking statements. Readers are cautioned not to place undue reliance
on these forward-looking statements, which speak only as of the date of this
report. The Company undertakes no obligation to revise any forward-looking
statements in order to reflect events or circumstances that may subsequently
arise. Readers are urged to carefully review and consider the various
disclosures made by the Company in this report and other reports filed with the
Securities and Exchange Commission that attempt to advise interested parties of
the risks and factors that may affect the Company's business.

BUSINESS AND ORGANIZATION

The Company is a health care consulting and management company
dedicated to improving the quality, controlling the cost, and enhancing the
efficiency of the management and delivery of health care services by focusing on
the physician as the most important factor in the health care system. The
Company commenced operations in 1991 as Birman & Associates, Inc. to provide its
proprietary Quality Management Program to hospitals to educate their medical
staffs on patient management. As an expansion of its business, the Company,
through BMC Health Plans, Inc., is developing and will operate various health
plans in association with physician networks and other health care providers
based upon its belief that it can apply its Quality Management Program
experience to improve the management and delivery of health care services in
managed care systems. As part of its health plan business, the Company will
organize physicians into independent practice associations, or networks, that
will provide services to health plans, including those operated by the Company.
The Company concentrates its efforts on rural communities, particularly in the
south-central, southeast, and central United States, with an initial focus for
its health plans in Mississippi and Tennessee, where the development of managed
care programs has lagged behind other areas of the country.

The Company has historically rendered its consulting services under
contracts with hospital- clients that typically provide for results oriented
compensation to the Company based upon increases in the hospital-clients'
revenue attributable to the Quality Management Program. The Company also has
fixed rate and combined fixed rate and results oriented engagements with certain
hospital-clients. Substantially all of the Company's revenue in its 1995 and
1996 fiscal years and the first nine months of fiscal 1997 was derived from
consulting fees from its Quality Management Program.

The Company intends to leverage the expertise and professional
relationships it has gained from providing its Quality Management Program and to
capitalize on the evolution from traditional fee-for-service to capitated
systems in rural communities. The Company currently is developing and will
operate a variety of community-based, physician-driven, comprehensive health
plans. To accelerate entry into the health plan business in Mississippi, the
Company acquired Canton (renamed "Care3, Inc."), an inactive holder of a
certificate of authority to operate an HMO in certain counties in northern
Mississippi. Also, the Company arranged for MedSouth Inc. to provide health care
services through its provider network consisting of approximately 350
physicians, twelve hospitals, and several ancillary health service providers in
the Gulfport, Mississippi area. The Company obtained a Certificate of Compliance
dated February 10, 1997, for Care3 to operate an HMO in the six-county southern
Mississippi region on March 4, 1997 and commenced operations there on or about
March 18, 1997. In addition, the Company plans to apply to the State of
Tennessee for an HMO license to utilize a physician network the Company is
developing in that state.

The Company was incorporated in 1994 as Birman Managed Care, Inc. in
Tennessee to be the holding company for Birman & Associates, BMC Health Plans
Inc., and any other future subsidiaries. In connection with the formation of the
Company as a holding company for its subsidiaries, in June 1995 Birman &
Associates, Inc. distributed to its then sole shareholder, David N. Birman,
M.D., all of the shares of capital stock of Birman Farms, Inc., a livestock
breeding operation. In September 1996, the Company was reincorporated as a
Delaware corporation.

The following discussion of the results of the operations and financial
condition of the Company should be read in conjunction with the Company's
Consolidated Financial Statements and Notes thereto included elsewhere in this
Prospectus. Historical results and percentage relationships among accounts are
not necessarily an indication of trends in operating results for any future
period. The consolidated financial statements present the accounts of Birman
Managed Care, Inc. and its wholly owned subsidiaries. All significant
intercompany balances and transactions have been eliminated in consolidation.
The Company changed its fiscal year end for financial reporting purposes from
December 31 to June 30 beginning with the 1995 fiscal year.

16
<PAGE> 20
RESULTS OF OPERATIONS

The following table sets forth the percentage of revenue represented by
certain items reflected in the Company's Consolidated Statements of Operations
for the periods indicated.

<TABLE>
<CAPTION>
Fiscal Year Nine Months
Ended Ended
June 30, March 31,
------------------- -------------------
1995 1996 1996 1997
----- ----- ---- -----
<S> <C> <C> <C> <C>
Revenue 100.0% 100.0% 100.0% 100.0%
Cost of revenue 49.4% 27.1% 27.5% 35.3%
Gross margin 50.6% 72.9% 72.5% 64.7%
Selling, general and administrative 64.7% 50.3% 55.9% 49.8%
expenses
Income (loss) from operations (14.1%) 22.6% 16.6% 14.9%
Other income (expense):
Interest expense (1.2%) (.5%) (.7%) --
Interest income .6% .5% .5% 1.3%
Loss of sale of assets -- (.1%) -- --
Income (loss) before provision for (14.7%) 22.5% 16.4% 16.2%
income taxes
Provision for income tax (expense) 4.7% (8.6%) (5.6%) (6.5%)
benefit
Income (loss) from continuing (10.0%) 13.9% 10.8% 9.7%
operations
Loss from discontinued operations . (4.5%) -- -- --
Net income (loss) (14.5%) 13.9% 10.8% 9.7%
</TABLE>

NINE MONTHS ENDED MARCH 31, 1997 COMPARED WITH THE NINE MONTHS ENDED MARCH 31,
1996.

Revenues. Revenue for the Company increased by 52%, to approximately
$8,804,000 for the nine months ended March 31, 1997, from approximately
$5,790,000 in the comparable period of the prior year. The growth in revenue was
attributable to management's action to initiate engagements of new
hospital-clients and to specifically target larger hospital-clients for the
Quality Management Program. Period to period changes in the volume of the
Quality Management Program business of the Company is measured in aggregate
annual Medicare discharges of the Company's hospital-clients. Aggregate Medicare
discharges is a factor of the size and number of hospital-clients. The aggregate
Medicare discharges of the hospital-clients increased by 76% to approximately
43,580 for the nine months ended March 31, 1997, from approximately 24,739 in
the comparable period of the prior year. The number of hospital-clients on
contract at March 31, 1997 was 31 as compared to 29 at March 31, 1996.
Additional revenue of $433,000 is attributable to the operations of Hughes and
Associates, Inc. which was acquired in June 1996 and not consolidated with the
financial statements in the comparable period of the prior year. The prior year
operating results of Hughes & Associates were not presented on a proforma basis
as they were considered immaterial.

Cost Of Revenue. The cost of revenue includes all costs directly
associated with the operations of the Quality Management Program and Hughes &
Associates, Inc., including compensation of physicians and allied medical
specialists, consulting staff travel and lodging, and other direct costs of the
Quality Management Program and the UR/QA division. The cost of revenue of the
Company increased by 95%, to approximately $3,104,000 for the nine months ended
March 31, 1997, from approximately $1,592,000 in the comparable period of the
prior year. The Company's cost of revenue as a percentage of revenue increased
to 35.3% for the nine months ended March 31, 1997 from 27.5% for the nine months
ended March 31, 1996, an increase of approximately 8%, due primarily to (i) a 4%
increase in recruitment and training costs for the Quality Management Program
due to the hiring of additional physicians and allied medical specialists for
hospital engagements scheduled or anticipated to start in the third and fourth
quarters, and (ii) a 2% increase in other costs related to the Quality
Management Program and (iii) a 2% increase in costs associated with the
operations of Hughes & Associates, Inc. which was acquired in June 1996 and not
consolidated with the financial statements in the comparable period of the prior
year. Due to the Company's expansion plans, the Company anticipates the cost of
revenue as a percentage of sales to remain at current levels.

Selling, General And Administrative Expenses. Selling, general and
administrative expenses increased by 38%, to approximately $4,466,000 for the
nine months ended March 31, 1997, from approximately $3,235,000 in the
comparable period of the prior year. The increase in selling, general and
administrative expenses for the nine months ended March 31, 1997 was primarily
attributable to (i) the expansion of the Company's management team and (ii)
selling, general and administrative expenses for Hughes & Associates, Inc.,
which was acquired in June 1996 and

17
<PAGE> 21
not consolidated with the financial statements in the comparable period of the
prior year, (iii) general and administrative costs associated with the
Mississippi and Tennessee health plans which began operations during the third
quarter; and (iv) accrual of bonuses pursuant to the Executive Bonus Plan.
However, as a percentage of revenue, selling, general and administrative
expenses decreased to 49.8% for the nine months ended March 31, 1997 from 55.9%
in the comparable period in the prior year.

Interest Income And Expense. Interest income increased to approximately
$115,000 for the nine months ended March 31, 1997, from approximately $29,000 in
the comparable period of the prior year. This increase was attributable to
interest earned on the increased balance of cash deposits held primarily in
money market accounts, certificates of deposit and commercial paper, and also on
the increased balance on loans made by the Company to Dr. Birman during the
first and second quarters in connection with the farm operations distributed to
him in fiscal 1995. Interest expense decreased approximately $36,000, a
reduction of 91% for the nine months ended March 31, 1997 from the comparable
period of the prior year, as a result of the Company repaying the entire
outstanding principal of its term loan in June 1996.

FISCAL YEAR ENDED JUNE 30, 1996 COMPARED TO THE FISCAL YEAR ENDED JUNE 30, 1995

Revenue. For the fiscal year ended June 30, 1996, revenue from the
Quality Management Program increased by $3.6 million to $8.4 million, or 75%,
over the revenue for fiscal 1995. Approximately 75% of this increase was
attributable to an overall improvement in the Company's results from the Quality
Management Program as measured by increases in the hospital-clients' Medicare
related revenue and approximately 25% of this increase was attributed to
management's action to initiate engagements by new hospital-clients. Period to
period changes in the volume of the Quality Management Program business of the
Company is measured in aggregate annual Medicare discharges of the Company's
hospital-clients. Aggregate Medicare discharges is a factor of the size and
number of hospital-clients. The aggregate Medicare discharges of the hospital-
clients increased from 30,000 in fiscal 1995 to 36,000 in fiscal 1996 and the
number of hospital-clients increased from 20 in June 1995 to 29 in June 1996.

Cost of Revenue. The cost of revenue includes all costs directly
associated with the operations of the Quality Management Program, including
compensation of physicians and allied medical specialists, consulting staff
travel and lodging, and other direct costs of the Quality Management Program. In
fiscal 1996, the Company changed the compensation program for its physicians and
allied medical specialists from fixed per diem rates to a combination of salary
and performance-based arrangements and implemented a geographically focused
marketing plan that was effective in improving the utilization of existing
consulting personnel and resources. These changes reduced the cost of revenue by
approximately $100,000 in fiscal 1996. This cost decrease, combined with
increased revenue, resulted in a 22% improvement in the gross margin from fiscal
1995 to fiscal 1996.

Selling, General and Administrative Expenses. For fiscal 1996, selling,
general and administrative expenses increased to $4.2 million from $3.1 million
in fiscal 1995. Approximately 72% of this increase is a result of a full year of
costs of executive and administrative personnel hired in mid-fiscal 1994 to
position the Company to develop its health plan business and the expenditure of
funds to develop the health plan business. In addition, the Company increased
its Quality Management Program marketing efforts and incurred costs associated
with the exploration of acquisition opportunities. As a percentage of revenue,
selling, general and administrative expenses decreased from 64.7% to 50.3% in
fiscal 1996, a 14% improvement, as a result of an enhanced marketing plan that
increased revenues significantly. The enhanced marketing plan included the
addition of new sales personnel, the expansion into new markets, and the
utilization of a team approach to marketing, which included involving physicians
in the marketing effort.

Interest Income and Expense. Interest income increased almost $20,000,
or 64%, in fiscal 1996 over fiscal 1995 as a result of the accrual of interest
on loans made by the Company to Dr. Birman in connection with the farm
operations distributed to him in fiscal 1995. See "Discontinued Operations"
below. Interest expense decreased approximately $13,000, an improvement of 23%
in fiscal 1996 over fiscal 1995, as a result of the Company repaying the
$483,896 outstanding principal balance of its term loan.

Discontinued Operations. The losses from discontinued operations for
fiscal 1995 related to a farm operated by the Company during the period that Dr.
Birman was the sole shareholder of Birman & Associates, Inc. All assets and
liabilities related to the farm operation were distributed by the Company to Dr.
Birman as of the close of fiscal 1995. During fiscal 1996, no expenses were
incurred by the Company in connection with this discontinued operation. However,
the Company lent Dr. Birman approximately $28,000 per month throughout fiscal
1996 to fund negative cash flow experienced by the farm. The total amount lent
to Dr. Birman during the period of July 1, 1995 through September 9, 1996 to
defray the operating and ownership costs of the farm was approximately $465,000.
Accordingly, as of September 9, 1996, Dr. Birman owed

18
<PAGE> 22
a total of $775,000 to the Company. See "Certain Transactions."

RECENT ACQUISITIONS

In furtherance of its health plan business, in June 1996 the Company
acquired substantially all of the assets of Hughes, a provider of utilization
review services to insurance companies and health plans. Hughes did not
contribute materially to the results of operations of the Company for fiscal
1996. The Company anticipates that Hughes will make a reasonable direct
contribution to the revenue and net operating income of the Company beginning in
fiscal 1997, particularly after the Company commences its health plan business.
In this regard, the utilization review and case management services of Hughes
are expected to enable the Company to market its physician networks and
management service organization services to large, self-funded employee groups.

The acquisition of Canton Management Group, Inc., renamed "Care3,
Inc.," provides to the Company a Certificate of Compliance to operate an HMO in
certain counties in northern Mississippi. In addition to those counties, the
Department of Insurance of the State of Mississippi issued a Certificate of
Compliance dated February 10, 1997, for Care3 to operate an HMO in the
six-county southern Mississippi region on March 4, 1997. The Company's
Mississippi HMO commenced operations on or about March 18, 1997. Insufficient
business activities have taken place for the Company to assess the prospects for
such operations. The effect on the Company's operations of the Mississippi HMO
will depend to a large extent on the Company's ability to attract enrollees to
its Mississippi health plan which, in turn, will depend to a significant extent
upon the Company's ability to offer PPO and point-of-service options to its
enrollees in addition to the HMO option. Because the Company's health plan
business will be in a "start-up" phase for at least six months after the HMO
commences operations in Mississippi, the Company anticipates that the Canton
acquisition will result in a net operating loss during at least the first three
quarters of calendar 1997. The prior year operating results of Canton Management
Group were not presented on a proforma basis as the Company was a development
stage company and the results were immaterial.

SEASONALITY

Revenue and operating results historically have varied significantly
from period to period based upon seasonality. The Company typically realizes a
substantial portion of its revenue during the calendar quarters ending December
31, March 31, and June 30, with significantly lower revenue realization during
the calendar quarter ended September 30. Additionally, revenue fluctuates from
month-to-month based on the total number of Medicare discharges experienced by
hospital-clients and hospital-clients' average case mix index reflecting
severity of illness. The Company anticipates that this seasonality will diminish
with the introduction of health plan revenue.

LIQUIDITY AND CAPITAL RESOURCES

The Company requires capital to market its Quality Management Program
and to develop and launch its health plan business including, among other costs,
the organization of the requisite management infrastructure necessary to
implement the Company's health plan business. During fiscal 1995, the Company
financed its operating and business development activities primarily through
operating revenue, net borrowings in excess of repayments of principal of
$542,930 under a term loan made available to the Company by First American
National Bank of Tennessee, net collections on notes receivable from Dr. Birman
and short-term borrowings from a director and unrelated third parties of
$171,854, and proceeds of $144,299 from the sale of assets.

During the nine months ended March 31, 1996, the Company financed its
operating and business development activities primarily through operating
revenue and $816,553 of proceeds from the private placement of shares of Common
Stock net of deferred offering costs. During the nine months ended March 31,
1996, the Company repaid approximately $372,000 of debt using proceeds from the
private placement of Company Stock. In addition, the Company advanced
approximately $420,000 against notes receivable from Dr. Birman and invested
approximately $72,000 in the purchase of property and equipment.

During fiscal 1996, the Company financed its operations and business
development activities primarily through operating revenue and the net proceeds
of a $1,605,043 private placement of Common Stock. In fiscal 1996, the Company
repaid the entire principal balance of its term loan using proceeds from the
private placement of Common Stock. In addition, the Company repaid $175,000 of
short-term borrowings through the exchange of 127,645 shares of Common Stock.

During the nine months ended March 31, 1997, the Company financed its
operating and business development activities primarily through operating
revenue and use of cash on hand at the beginning of the period. During the nine
months ended March 31, 1997, and the Company collected $804,078 on a note
receivable from Dr. Birman through the redemption of 174,800 shares of his

19
<PAGE> 23
Common Stock, valued at $4.60 per share, at the time of the closing of the IPO
(February 12, 1997). In addition, the Company invested $413,000 in the purchase
of property and equipment and repaid approximately $4,095 of debt and capital
leases using proceeds from operating activities. During the first and second
quarters, the Company advanced approximately $173,000 against notes receivable
from Dr. Birman which was subsequently repaid on February 12, 1997 through the
redemption of 174,800 shares of Common Stock.

On January 15, 1997, the Company acquired all of the outstanding
capital stock of Canton for $1,500,000, of which $700,000 was paid in cash and
$800,000 was paid by the issuance of promissory notes payable in four equal
annual installments of $200,000 each plus interest at the rate of 2% per annum
on the unpaid principal balance. Additional capital will be required to
establish the reserves required under Mississippi and Tennessee HMO regulations
and to further develop and market the Company's health plans.

The Company has a $1,000,000 maximum principal amount working capital
line of credit facility with American National Bank and Trust Company of
Chicago. The credit facility is secured by a pledge of the Company's Quality
Management Program and quality assurance/utilization review accounts receivable.
These receivables are obligations of the hospital-clients to the Company and of
insurance company and self-insured employer clients to Hughes, and are not
Medicare or Medicaid receivables.

Birman Managed Care, Inc. (the "Company"), successfully completed its
initial public offering of 2,000,000 shares of its common stock, par value $.001
per share, at a price of $5.00 per share sold under its registration statement
and prospectus dated February 12, 1997. The offering closed on February 19,
1997, and net proceeds of approximately $7,615,000 were received by the Company.

The Company believes that the net proceeds from the initial public
offering, together with its existing cash resources and available credit
facilities, will be sufficient to meet the Company's anticipated acquisition,
expansion, and working capital needs for the next 12 months. The Company,
however, may raise capital through the issuance of long-term or short-term debt
or the issuance of securities in private or public transactions to fund future
expansion of its business either before or after the end of the 12-month period.
There can be no assurance that acceptable financing for future transactions can
be obtained.

IMPACT OF ACCOUNTING STANDARDS

Escrowed Shares

The Company contemplates that the release of the Escrow Shares to Dr.
Birman, who is an officer and director of the Company, should it occur, will
result in a substantial non-cash compensation charge to operations, based on the
then fair market value of the shares. Such charge could cause the Company to
report a net loss or reduce or eliminate the Company's net income, for financial
reporting purposes, for the period during which such shares are or become
probable of being released from escrow. Although the amount of compensation
expense recognized by the Company will not affect the Company's total
stockholders' equity, it may have a depressive effect on the market price of the
Company's securities. See "Principal Stockholders -- Escrow Shares."

Recent Pronouncements

During March 1995, the Financial Accounting Standards Board ("FASB")
issued Statement No. 121 (SFAS 121), "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of," which requires
the Company to review for impairment of long-lived assets, certain identifiable
intangibles, and goodwill related to those assets whenever events or changes in
circumstances indicate that the carrying amount of an asset might not be
recoverable. In certain situations, an impairment loss would be recognized. SFAS
121 will become effective for the Company's fiscal year ending June 30, 1997.
The Company adopted this accounting standard on July 1, 1996, and its effects
on the financial position and results of the operations were immaterial.

During October 1995, the Financial Accounting Standards Board issued
Statement No. 123 (SFAS 123), "Accounting for Stock-Based Compensation," which
establishes a fair value-based method of accounting for stock-based compensation
plans and requires additional disclosures for those companies that elect not to
adopt the new method of accounting. The Company will continue to account for
employee purchase rights and stock options under APB Opinion No. 25, "Accounting
for Stock Issued to Employees." SFAS 123 disclosures will be effective for
fiscal years beginning after December 31, 1995.

Statements of Financial Accounting Standards No. 125, "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities"
(SFAS No. 125) issued by the

20
<PAGE> 24
Financial Accounting Standards Board (FASB) is effective for transfers and
servicing of financial assets and extinguishments of liabilities occurring after
December 31, 1996, and is to be applied prospectively. Earlier or retroactive
applications is not permitted. The new standard provides accounting and
reporting standards for transfers and servicing of financial assets and
extinguishments of liabilities. The Company does not expect adoption to have a
material effect on its financial position or results of operations.

On March 3, 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, "Earnings per Share" (SFAS
128). This pronouncement provides a different method of calculating earnings per
share than is currently used in accordance with APB 15, "Earnings per Share."
SFAS 128 provides for the calculation of Basic and Diluted earnings per share.
Basic earnings per share includes no dilution and is computed by dividing income
available to common shareholders by the weighted average number of common shares
outstanding for the period. Diluted earnings per share reflects the potential
dilution of securities that could share in the earnings of an entity, similar to
fully diluted earnings per share. This pronouncement is effective for fiscal
years and interim periods ending after December 15, 1997; early adoption is not
permitted. The Company has not determined the effect, if any, of adoption on its
earnings per share computations.

BUSINESS

OVERVIEW

The Company is a health care consulting and management company
dedicated to improving the quality, controlling the cost, and enhancing the
efficiency of the management and delivery of health care services by focusing on
the physician as the most important factor in the health care system. In
pursuing these goals, the Company currently provides its proprietary Quality
Management Program to hospitals to educate their medical staffs on patient
management. As an expansion of its business, the Company is developing and will
operate various health plans in association with physician networks, hospitals,
and other health care providers based upon its belief that it can apply its
Quality Management Program experience to improve the management and delivery of
health care services in managed care systems. As part of its health plan
business, the Company will organize physicians into independent practice
associations, or networks, that will provide services to the Company's health
plans as well as to independent health plans. In addition, the Company intends
to provide management services to its health plans as well as to independent
health plans. The Company concentrates its efforts on rural communities,
particularly in the south-central, southeast, and central United States, with an
initial focus for its health plans on Mississippi and Tennessee, where the
development of health care management systems and managed care programs has
lagged behind other areas of the country.

Under its Quality Management Program, physicians employed by the
Company consult directly with attending physicians at hospital-clients regarding
their overall patient management program, as systematized in the medical record.
The Quality Management Program is designed to (i) improve patient care by
encouraging the use of the Company's proprietary methodology to assist
physicians in the identification of symptoms and conditions, to determine
appropriate treatment, and to prioritize the goals and objectives of the
treatment plan, (ii) reduce the cost to its hospital-clients of patient care as
a result of the early intervention in identified health problems, and (iii) more
accurately describe in the medical record the severity and complexity of the
patient's illness and the resources utilized to treat the patient. The benefits
of the Quality Management Program typically result in increased Medicare
reimbursements for the Company's hospital-clients.

To leverage the expertise and professional relationships it has gained
from providing its Quality Management Program and to capitalize on the evolution
from traditional fee-for-service to capitated systems in rural communities, the
Company currently is developing and will operate a variety of community-based,
physician-driven, comprehensive health plans. The Company's health plans are
being designed to provide high-quality and cost-efficient health care by
aligning the interests of physicians and their patients by involving selected
community physicians in the development and implementation of treatment
standards, by including selected leaders in the physician community as owners of
the local health plans, and by providing participating physicians with the
opportunity to share in savings realized from their own practice management
through the return of a portion of the risk pools established to protect against
cost overruns. The Company's health plans will offer a number of programs,
including a point-of-service option that will enable patients to control their
health care costs while maintaining access to a broad range of providers. Under
the point-of-service option, patients will have the flexibility to select
physicians participating in the Company's HMO, PPO, or indemnity plan at the
time service is sought in order to control their health care costs while
maintaining access to a broad range of providers.

<PAGE> 25
INDUSTRY BACKGROUND
General

In response to escalating health care costs over the past 20 years,
federal and state governmental authorities have increasingly emphasized
stringent cost-containment measures and employers, consumers, and other
purchasers of health care have sought cost-effective alternatives to traditional
indemnity insurance, under which providers generally receive payment on a
fee-for-service basis.

Although traditional health insurance plans permit enrollees to select
any physician or hospital, enrollees are often responsible for significant
deductibles and provider charges in excess of reimbursement allowances.
Developed primarily as an alternative to traditional indemnity insurance, HMOs
arrange for the delivery of health care to enrollees through participating
health care providers for a fixed monthly premium with little or no deductibles
or copayments regardless of the frequency, value, or type of health care
services utilized. HMOs generally are able to arrange for health care delivery
at lower costs than those associated with traditional indemnity insurance plans
by managing the utilization of health care services, by imposing case management
procedures, by negotiating with providers for discounts from standard health
care provider rates, and through risk-sharing arrangements with the providers.

Since the mid-1980s, increased employer focus on health care costs,
employee choice, and flexibility in obtaining health care has led to the
development of additional managed health care options, some of which are
self-funded. These alternatives include PPOs and point-of-service options. In a
PPO, the enrollee obtains care from a network of preferred providers who provide
services on a discounted fee-for-service basis. A point-of-service option offers
a combination of HMO, PPO, and indemnity insurance. Option plans have gained
favor with some large employer groups because they allow consolidation of health
benefit programs and often permit the enrollee to choose providers within the
HMO or to select a PPO or unaffiliated provider at a higher out-of-pocket cost.
While increasingly popular as a means of expanding employee choice, these
alternatives also result in increased health care costs to employers to the
extent that employees select health care options without the managed care
features of HMOs.

Medicare and Medicaid

In 1965, Congress enacted the Medicare and Medicaid programs as a part
of the Social Security Amendments. Medicare is a national health insurance
program for disabled and aged Americans that separates coverage for inpatient
hospital services and physician services, compensates physicians on a "usual and
customary" charge basis, and pays hospitals on a reasonable cost basis. In
general, most Americans who either (i) are age 65 or older, (ii) receive
disability payments under Social Security, or (iii) need a kidney transplant or
renal dialysis are entitled to inpatient hospital services, commonly known as
Medicare Part A benefits. By paying a monthly fee, any person entitled to Part A
benefits also may choose to receive additional coverage for physician and
outpatient ambulatory service coverage, commonly known as Medicare Part B. The
Medicare program is administered by HCFA, a division of the Department of Health
and Human Services, although HCFA has assigned most of the day-to-day
administration of the Medicare program to private enterprises, such as insurance
companies, appointed as fiscal intermediaries.

In response to spiraling increases in Medicare expenditures,
significant amendments were made to the Medicare program in 1983, including a
conversion of the Part A program to the prospective payment system. Under Part A
of the Medicare program, the Medicare program currently pays a hospital a preset
amount on a per-case basis based upon a prospectively assigned reimbursement
value. A prospective payment is established by classifying each Medicare patient
admitted by the hospital into one of 495 diagnosis-related groups ("DRGs"). Each
DRG is cost-weighted based on an index of average costs set by HCFA. To
determine the reimbursement rate for the hospital, the relative cost weight for
an assigned DRG is then multiplied by a blended rate assigned to the hospital
that takes into account various factors, such as location, Medicare utilization,
and community economics.

The average value of all DRGs assigned to cases within a given time
frame is referred to as the case mix index ("CMI"). The CMI represents the
average severity of the cases treated by a hospital. The greater the severity of
illness, the higher the CMI; the greater the CMI, the higher the Medicare
reimbursement. A hospital must efficiently provide high-quality care and
accurately report its severity of illness through appropriate DRGs in order to
realize fair compensation under the Medicare system.

Medicaid is a federal/state program that provides medical assistance
for low income individuals who are aged, blind, disabled, or eligible for Aid to
Families with Dependent Children assistance. In general, each state administers
its own Medicaid program. The amount of federal payments contributed to each
state's Medicaid program is based upon the state's per-capita income level. To
qualify for federal Medicaid funds, a state Medicaid program must meet minimum
requirements regarding coverage and services. States also may elect to extend
coverage to larger populations or offer a broader range of services. Under
Medicaid, hospitals are

22
<PAGE> 26
generally paid based on their reasonable costs or variations on prospective
payment systems and physicians are paid using a charge-based system, fee
schedules, or relative value scales.

Managed Care

Managed care encompasses various arrangements among health care
providers, payors, and enrollees that apply utilization review, utilization of
authorization systems, case management, and allocation of risks and rewards to
increase the efficiency of delivery of health care services. Managed care
delivery systems may include coalitions of independent medical practices,
alliances between hospitals and individual medical practices or physician
networks, PPOs, and HMOs. The primary tools used to manage the allocation of
health care services are capitation and other prepayment arrangements that
transfer a portion of the financial risk of providing health care services to
the providers. Under capitation programs, health care providers receive payment
in advance in a fixed monthly amount per member per month or a fixed amount upon
the occurrence of a specific defined health problem. As a result, the provider
bears the economic risk that the actual cost of caring for plan enrollees
exceeds the capitation rate. Through contributions to and participation in risk
pool reserves, the health plans create economic incentives designed to encourage
providers to monitor enrollees, eliminate inefficiencies, and reduce unnecessary
utilization of services while maintaining and improving the quality of patient
care.

Managed care systems generally assign responsibility for a patient's
medical care to a primary care physician who monitors case history, coordinates
medical services, and typically authorizes, in advance, all specialty and
non-primary care services other than emergency care. Prepaid health plans are
designed to obligate providers to plan and coordinate the services administered
to enrollees, assure the continuity and appropriateness of care, and control the
use of medical resources through (i) utilization management, (ii) case
management, and (iii) associated quality assurance verifications (collectively,
"Treatment Standards"). Utilization management is a process occurring before
authorization of treatment that evaluates the need for and extent of treatment.
Case management is the process occurring after authorization of treatment to
monitor the actual administration of treatment. Quality assurance is the ongoing
evaluation of the level of care being provided to the patients. In many large
managed care organizations, Treatment Standards are set on a company-wide or
national basis by a panel of physicians, allied health professionals, and
business personnel employed by the health care company. The Company believes
that health plans that require local physicians to adhere strictly to
company-wide or national Treatment Standards often limit the physicians'
autonomy and thereby weaken the traditional physician-patient relationship.

Payors, including governmental entities and employers, increasingly
expect health care plans and providers to develop and maintain quality results
through utilization review and quality assurance programs and to accept an
allocable share of the risk of providing medical care. This focus on
cost-containment and financial risk sharing has placed independent providers and
small and mid-sized provider groups at a significant competitive disadvantage
because of their typically higher operating costs, limited purchasing power, and
limited risk management experience. Accordingly, many providers have sought to
affiliate with experienced organizations that manage the non-medical aspects of
their practices, such as office management and billing.

Company Position

Based upon its Quality Management Program experience, the Company
believes that providers in rural areas prefer management organizations that are
local in nature and permit physician ownership and involvement in setting
Treatment Standards. In both its Quality Management Program and its health plan
business, the Company recognizes the importance of the physician as the director
of the consumption of medical services for patients. In the Quality Management
Program, physicians employed by the Company work directly with a
hospital-client's attending physicians to improve their identification of
symptoms and conditions, diagnosis, utilization management, and case management.
The Company's health plan business will feature networks of community-based
physicians who will establish Treatment Standards at a local level and who will
have a financial interest in the efficient delivery of appropriate health care.
Through the unique involvement by physicians, the Company believes that its
Quality Management Program and health care systems address industry concerns and
create attractive and distinctive products.

GROWTH STRATEGY

The Company's strategy is to build on the strong reputation, health
care and management experience, and market position of its Quality Management
Program to expand that consulting business and to penetrate rapidly the managed
care segment of the industry. The Company plans to employ the following
strategies to reach these objectives:

Focus on Rural Markets. The Company plans to focus its Quality
Management Program and health plan operations predominantly in
rural areas in order to take advantage of the

23
<PAGE> 27
lack of market penetration, less competitive market conditions,
and the local reputation and relationships it has developed
through its Quality Management Program. Large, urban-based
medical consulting and managed care providers historically have
not concentrated their efforts on rural areas. As a result, rural
areas are served by fewer health care organizations than larger
metropolitan areas and competitive factors are less intense. In
addition, the Company's experience in serving rural areas through
its Quality Management Program has resulted in the Company
gaining a reputation and relationships in these areas and
enhancing its understanding of the special characteristics of
health care in these areas.

Focus on the Role of the Physician. The Company focuses on the role of
the physician as the most important factor in the delivery of
health care services. The Company's health plans will be
organized to align the interests of the participating physicians
with those of the patients, to enhance the physician-patient
relationship, and to reduce the influence of third parties in the
delivery of health care services in local communities. Local
physicians will participate in establishing Treatment Standards,
have an ownership interest in the Company's health plans serving
the physicians' community, and share in risk pools savings. The
Company believes that these factors will enable it to attract and
retain local physicians for its health plans and to utilize the
reputation of these local providers to attract payors and
enrollees.

Develop New Quality Management Program Clients and Services. The
Company plans to increase the number of its clients for its
Quality Management Program by expanding its marketing efforts in
its existing market areas, entering new market areas, and
offering new services to existing and new clients. The Company
intends to develop and offer to its Quality Management Program
clients a comprehensive line of additional services that will
ultimately include utilization review of patient care services,
medical information management, access to proprietary computer
database information to evaluate trends in patient treatment, and
development of billing procedures for third-party payors under
traditional indemnity, managed care, and governmental plans.

Launch Health Plans Applying the Quality Management Experience. The
Company plans to utilize the experience it has gained in its
Quality Management Program in the areas of patient case
management, efficient utilization of health care resources, and
proper substantiation of treatment to assist community physicians
in participating in the establishment of Treatment Standards for
the Company's health plans. The Company believes that this
expertise will enable it to transition providers in rural areas
successfully from traditional fee-for-service reimbursement to
capitated health care plans.

QUALITY MANAGEMENT PROGRAM

Concept

Under its Quality Management Program, the Company's specially trained
physicians provide consultation to attending physicians regarding the overall
treatment of patients and the documentation of such treatment with a view
towards improving patient care, containing the cost of patient care, optimizing
the receipt of appropriate Medicare reimbursements, working to reduce
malpractice claims, and improving patient satisfaction. The central premises of
the Quality Management Program are (i) recognizing the physician as the primary
director of medical services for the patient and (ii) assisting the physician to
develop a problem-oriented format that produces a complete, consistent, and
legible medical record that is essential to identify and prioritize quickly and
accurately disease conditions and treatment plans in order to improve patient
care and patient satisfaction, reduce the cost of health care by controlling
resource consumption, ensure receipt of appropriate Medicare reimbursement, and
reduce malpractice claims.

The attending physician is responsible for the initial patient contact,
the initial evaluation of symptoms and conditions, preliminary diagnosis,
hospital admissions, referrals to specialists, ordering of laboratory services,
and prescribing medication. This places the attending physician in the unique
position of influencing the hospital's reimbursement revenue, costs, and
liability. Since the writing of orders is the responsibility of the attending
physician, the attending physician in essence controls the process and usage of
almost all health care. As a result, a significant aspect of the Quality
Management Program involves consultation and training of the attending physician
at the hospital in facilitating efficient delivery of high-quality health care.

The medical record is the primary tool used by physicians to direct the
medical treatment of a patient, communicate instructions to other health care
service providers, evaluate the progress of the patient, support reimbursements
from third-party payors, including Medicare, and evidence compliance with
Treatment Standards and professional responsibilities. The Company believes that
complete, systemized, and legible medical records enable physicians to design
and

24
<PAGE> 28
record appropriate treatment plans, similar to a business plan, to address
symptoms and conditions that affect the patient from admission to discharge, and
to prioritize, in writing, goals and objectives for appropriate management.
Through the formulation of treatment plans and improved documentation, the
attending physician focuses on proper diagnosis and thereby becomes more
effective in measuring the patient's severity of illness and progress. The
Quality Management Program also typically results in a more accurate reporting
of the hospital's DRG elections, which often results in increased Medicare
reimbursement to the hospital.

The treatment plans and documentation may be applied to clinical
guidelines and quality assessment procedures to increase the total quality of
care and evidence compliance with Treatment Standards. Recognition of the
severity of illness and well-documented records of treatment reduces the
likelihood of errors and omissions, thereby decreasing the liability exposure to
the physician and the hospital.

Operations

Following engagement, the Company assigns a team consisting of a
physician and an allied health specialist to each hospital-client. The team
profiles the client's Medicare patient medical records and identifies problem
areas (such as legibility, proper documentation of patients' histories and
physical condition, discharge summaries, and patient education) in order to
identify the specific hospital-client's needs. After an extended program
introduction, the team interacts on a weekly basis with attending physicians and
allied health professionals in the hospital, on a peer-to-peer level, to assist
them in adopting in their daily routines the practice management methods
underlying the Quality Management Program. A Company executive informs the
hospital's chief executive officer or chief financial officer of the status of
the engagement through a monthly report that summarizes net revenue from
Medicare reimbursements to the client, changes in CMI, and other operating
information.

The Quality Management Program emphasizes a problem-solving approach.
Working with the hospital-client's medical records, the Company's physicians
conduct concurrent and retrospective reviews to train attending physicians to
present their findings of symptoms and conditions more thoroughly; to specify
clinical care; to prioritize treatment goals and objectives; to document
properly the process of patient management; and to work to use hospital-client
resources effectively. The Company's allied health specialists educate the
hospital-client's allied health staff regarding the reimbursement process,
encourage coding decisions recognizing legitimate resource expenditures, and
assure proper preparation and maintenance of supporting documentation. As a
result, this program supports the implementation of quality health care
services, while creating a medical record that supports the selection of coding
options that provide optimal and appropriate reimbursement. The physicians and
allied health specialists employed by the Company in its Quality Management
Program do not treat patients, make treatment or diagnostic decisions, or
provide medical services in connection with the Quality Management Program.

The Company knows of no principal competitor that features peer-to-peer
training of physicians. The Company believes that the use of physicians on its
consulting staff heightens the Company's professionalism and expertise, provides
greater flexibility in addressing client needs, and maximizes the Company's
impact and value for its clients. These factors distinguish the Company from
other firms offering competing services.

Fee Structures

A key feature of the Quality Management Program is the Company's fee
arrangements. The Company offers fee arrangements that are (i) results oriented,
(ii) fixed for the term of the contract, or (iii) a combination of fixed fee and
results oriented arrangements. Results oriented fees are measured by increases
in the hospital-client's revenue attributable to the Quality Management Program,
and are not based on physician reimbursements. While the Company's revenue from
each client varies depending on client size, the Company receives an average
monthly fee under all fee arrangements of approximately $30,000 per client. The
Company generally enters into two-year agreements with each hospital-client,
which are often renewed.

Client Benefits

The Company believes that its Quality Management Program provides
hospital-clients with improved quality of care and cost effectiveness, increased
patient satisfaction, better utilization of hospital resources, increased
compliance with Medicare coding and reimbursement requirements, increased net
revenue and realization of appropriate payment for services rendered, and
decreased liability exposure. While considerable variation in reimbursement
gains occur on a per-hospital basis as a result of factors such as hospital size
and patient population mix, Quality Management Program hospital-clients
typically experience increased Medicare reimbursements of between 10% and 25%
within the first year of the Company's engagement.

25
<PAGE> 29
HEALTH PLANS

Concept

To leverage the expertise and professional relationships it has
developed through its Quality Management Program, the Company currently is
developing a variety of community-based, physician-driven, comprehensive health
plans. To align the interests of the participating physicians with those of the
enrollees, local physicians will participate in establishing Treatment Standards
and will share in cost savings in patient care through the return of a portion
of risk pools established to protect against cost overruns. In addition,
selected physicians will have an ownership interest in the local health plans
and management service organizations to be organized by the Company. The Company
anticipates that the Treatment Standards will encourage participating physicians
to apply the Company's Quality Management Program in their practices in order to
improve the efficiency of the delivery of health care services and thereby
maximize their returns from the risk pools.

Through health-care providers, the Company's health plans will offer
enrollees a comprehensive range of health care services, including ambulatory
and outpatient physician care, hospital care, and ancillary diagnostic and
therapeutic services. The Company also intends to provide vision, prescription
drug, and dental services on an indemnity basis through arrangements with
insurers.

The Company's health plans will include HMO, PPO, and point-of-service
options. The point-of-service option will allow enrollees to choose from among
participating and non-participating providers each time medical attention is
desired. The point-of-service option will be available for all types of
enrollees, including Medicare and Medicaid enrollees, if applicable. See "Risk
Factors -- Risk of Limited Health Plans." In order to provide the PPO and
point-of-service options, the Company has entered into an alliance with NBR
under which NBR will arrange licensing, product development, indemnity insurance
coverage, reinsurance coverage, provider excess insurance coverage,
underwriting, and insurance compliance services. The Company will pay NBR a fee
equal to 4.5% of the gross premium revenues derived from the health plans. The
Company and NBR are addressing a more comprehensive alliance agreement that
will, among other things, clarify and place time limits on the performance under
the strategic alliance. To this end, the Company entered into a managing
underwriter agreement with NBR in late February, 1997.

Because of the Company's presence in the rural south-central,
southeast, and central United States health care market, the initial market area
for the Company's health plans will be in Mississippi and Tennessee. Currently,
the Company is establishing provider networks for its health plan business and
initiating the licensure process to operate health plans in these states. The
Company's first health plan began operations in Mississippi on March 18, 1997.

Plan Management

The Company plans to organize separate community-based management
service organizations ("MSOs") to provide administrative services to each
community health plan and physician network. The Company will centralize each
MSO's management and administrative services. Each MSO will be owned by the
Company and selected participating physicians. These MSOs will afford providers
with access to the experience of the Company in the health care business and in
the Quality Management Program. The economies of scale inherent in a MSO will
enable the Company to reduce operating costs by centralizing certain clerical
functions, group purchasing, claims processing, and negotiation of health plan
contracts.

Once physician networks are established in a market, the Company will
administer capitated contracts by profiling costs of care based on patient
populations, analyzing physician treatment patterns, and monitoring specific
health plan contract requirements. The Company believes that its Quality
Management Program experience in the areas of information systems, utilization
management, physician relationships, reimbursement, and case management will
provide it with an advantage in providing these aspects of its health plan
business.

Unlike many large national organizations, each MSO will have its own
committee in which local physicians will participate. The committee will
implement a quality assurance program for the health plan, conduct peer reviews
to assure compliance with MSO rules and other Treatment Standards, and implement
and review other Treatment Standards. The Company will encourage providers to
apply the Quality Management Program methodology in their delivery of
cost-effective, quality care.

After formation of the MSOs, the Company intends to represent the
physician networks in arranging access by other health plans operating in the
local communities and to market the physician networks and MSO administrative
services to large, self-funded employer groups. Under

26
<PAGE> 30
self-funded plans, employers self-insure their health care expenses and pay for
health care claims as such claims are incurred. The Company will offer
utilization review, case management, provider network discounts, and claims
processing for these self-insured plans. To provide utilization review and case
management services to the health plans, in June 1996 the Company acquired
Hughes & Associates, Inc., a Jackson, Mississippi-based company. Hughes acts as
the health care authorization service for a number of indemnity insurance
companies and health plans and is certified to provide utilization review
services in Tennessee, Mississippi, and Louisiana.

Anticipated Sources of Revenue

The Company expects to generate health plan revenue from (i) premium
charges to employers and enrollees, (ii) Medicare and state welfare system
payments, and (iii) network access fees charged to self-funded employers and
other health care plans. The Company intends to structure its premium rates
primarily through community rating, based upon the aggregate costs of basic
benefit plans for the Company's entire membership population calculated on a
per-member/per-month basis and converted into premium rates based on coverage.
The Company intends to adjust the premium rates for various groups based upon
the average age, sex, claims experience, utilization experience, incurred but
not reported claims, inflationary factors, credibility, and reinsurance pooling
levels. The enrollees will pay copayments, coinsurance, or deductibles at the
time certain services are provided in order to encourage appropriate utilization
of health care services by enrollees.

The Company envisions that it will contract with Medicaid and state
welfare systems to provide its health care services. Mississippi has recently
enacted legislation that encourages state welfare participation in managed care
programs. Tennessee provides state welfare system access to HMOs and PPOs
through TennCare(TM).

The Company's MSOs will receive a percentage of the premiums paid to
the Company's health plans as fees for its management services. Each of the
Company's health plans will contract with its applicable MSO for the provision
of management services.

The Company intends to represent its provider networks in negotiating
with self-insured employers and other health care systems for access to the
provider network. Access fees will vary depending upon the number of providers
in the network. The Company also may provide administrative, utilization review,
case management services, provider network discounts, and claims processing to
self-insured employers for a fee.

Provider Fees

The Company's health plans will compensate physicians, hospitals, and
other health care providers through capitation or discounted fee-for-service
payments. When the Company has sufficient enrollees in a plan, the Company
intends to compensate its capitated providers at a flat per-member/per-month
rate, utilizing financial participation in risk pools to encourage physicians to
provide high-quality medical care through the application of the Company's
Quality Management Program. The PPO providers will be compensated on a
discounted fee-for-service basis, and the indemnity providers will be paid on
pre-established fee schedule rates, less deductibles and coinsurance amounts
paid by enrollees. Providers generally will be required to obtain
pre-authorization for certain treatments and will be obligated to deliver health
care according to the health plan's Treatment Standards in order to assure
proper treatment and prevent inappropriate charges. The Company will obtain
reinsurance of catastrophic and excess claims through NBR. Thus, the health
plans will allocate financial risk among the Company, participating providers,
insurers, and enrollees.

Recent Developments

Mississippi. The Company launched its first health plan in Mississippi
during the first quarter of calendar year 1997. To accelerate entry into the
health plan business in Mississippi, the Company acquired Canton (renamed
"Care3, Inc."), an inactive holder of a certificate of authority to operate an
HMO in certain counties in northern Mississippi. Also, it has arranged for
MedSouth to provide health care services through its provider network consisting
of approximately 350 physicians, four hospitals, and several ancillary health
service providers in the Gulfport, Mississippi area. The Company has also
established a MSO to provide administrative and management services to MedSouth.
The Company has obtained necessary state health department and insurance
department authorizations to provide HMO health care services to enrollees in
six counties in southern Mississippi. The Company then intends to enlist other
service providers, primarily in the northern and the Delta regions of
Mississippi. The Company has applied for qualification to provide services to
Medicaid beneficiaries in Mississippi. Certain of the sellers of Canton and
MedSouth will be minority owners of the Mississippi health plan, and MedSouth
will have an ownership interest in the MSO that will provide administrative
services to MedSouth. The Company anticipates that it also soon will be in a
position to offer point-of-service options to enrollees in Mississippi and that
it will be in a position to offer PPO options to enrollees

27
<PAGE> 31
in Mississippi approximately six months after the introduction of the HMO.

Tennessee. The Company, together with 35 local primary care
physician-shareholders, has organized a provider network for a health plan to
serve 16 counties in the Cumberland Valley region of Tennessee. The physician
network has contracted with over 285 primary care physicians and 650 specialty
physicians to provide services on a capitated fee and discounted fee for service
basis. The Company is in the process of contracting with hospitals and other
providers to complete this network. The Company plans to apply to the state of
Tennessee for an HMO license utilizing this network in the first half of
calendar 1997. The Company also has organized a MSO to provide administrative
services to the network and the health plan.

Kentucky. The Company has identified Kentucky as a natural extension of
its health plan business because of its proximity to Tennessee, a favorable
regulatory environment, and the Company's experience in Kentucky with its
Quality Management Program.

SALES AND MARKETING

The Company markets its Quality Management Program through a direct
sales force consisting of three full-time sales professionals. The sales force
employs a team marketing approach utilizing Company physicians. The Company
participates in hospital trade shows and utilizes a proprietary database to
identify prospective hospital-clients on the basis of CMI and demographic
information. The Company has found that its most successful engagements have
evolved from acceptance of its Quality Management Program by each of the
hospital-prospect's administrative, attending physician, and medical records
staff groups. Once the Company has identified a prospective hospital-client, it
provides introductory information designed to demonstrate the effectiveness and
potential benefits of the program to the prospect's senior administrative and
financial officers. Thereafter, the Company follows a coordinated effort to
include the hospital's attending physicians and medical records specialists in
the engagement decision making process.

The Company currently plans to market its health plans through a small
full-time sales force that will include members of the Company's senior
management and local and national third-party brokers and agents. The Company
will market its health plans to local commercial employers, individuals, and
self-funded employers. In addition, the Company will contract with sponsors of
government programs such as state welfare agencies. Once a payor has selected
the Company to provide health plan services, the Company will shift its
marketing focus to prospective enrollees through newsletters, brochures,
enrollee education programs, seminars, direct mail advertising, and responses to
satisfaction surveys. The Company intends to develop print advertising directed
at payors and direct advertising to prospective enrollees through consumer media
campaigns. The Company's marketing programs will emphasize the local physician
ownership of the health plan, commitment to preventative care, access to quality
providers and services, understanding of the particular local market, variety of
products, and price stability. The Company believes that the local physician
ownership of its health plans will be advantageous to its marketing effort in
the Gulfport, Mississippi area where it will offer its first health plan.

The Company's application for Medicaid approval of its health plan in
Mississippi was accepted and is now under consideration for approval. The
Company intends to apply for Medicaid approval of its health plan in Tennessee.
Once a plans is so approved, the welfare agency in each state assigns
Medicaid-qualified residents to the Company's health plan after giving
consideration to the patient's choice of physician and choice of available
health plans. The Company's physician network will provide services to Medicaid
recipients in return for capitated payments. The Company believes that its name
recognition and reputation as a locally owned health plan will be significant
factors in encouraging Medicaid recipients to select the Company's health plan
over competing plans. The Company intends to apply for Medicare risk contracts
after each health plan reaches minimum commercial membership requirements.

CUSTOMERS

Since 1991, the Company has provided its Quality Management Program in
approximately 90 hospitals located in 17 states. Currently, the Company is
providing its Quality Management Program at approximately 31 hospitals in 15
states. The Company's clients are located principally in rural markets where
health care facilities frequently lack the resources to develop internal quality
training programs. The Company seeks two-year agreements with each Quality
Management Program client. The Company's engagement is often continued beyond
the initial two-year term on a fixed fee basis. Out of approximately 90
engagements, only six have been terminated prior to the end of the contract
term.

Services provided to hospitals operated by Quorum resulted in
approximately 42% of the Company's revenue in fiscal 1996 and approximately 24%
and 45% of the Company's revenue for the nine month periods ended March 31,
1997, and 1996, respectively. Quorum operates 300 acute care

28
<PAGE> 32
facilities in 43 states. Over the past five years, the Company has provided its
Quality Management Program at 34 Quorum-operated facilities. Currently, the
Company is providing Quality Management Program services at 10 Quorum-operated
facilities. Historically, the on-site management of each Quorum hospital has
made its own decision regarding the engagement of the Company and the Company
has entered into a separate contract with each engaging Quorum facility. The
Company has no long-term contractual or other relationships with Quorum.

The Company recently contracted to provide Quality Management Program
services to Community Medical Center in Toms River, New Jersey, under an
agreement that provides for an initial fixed fee of $225,000 per month. The
monthly fee is subject to quarterly adjustment based upon the case mix index
experience of the hospital during the preceding quarterly period of the
agreement. The agreement with Community Medical Center has an initial term of 30
months commencing December 1, 1996, subject to early termination rights
beginning in April 1997, and is renewable annually.

The Company anticipates that the customers of its health plan business
will include employees and individuals located in its health plan market areas
and state welfare agencies servicing Medicaid recipients located in those areas.
Large employers offering self-funded health plans will be sought as customers of
the Company's MSOs. See "Business -- Sales and Marketing."

COMPETITION

Although its Quality Management Program services are significantly
different from those offered by other hospital consulting services, the Company
competes for consulting business primarily with revenue-optimization service
companies. Approximately 500 to 700 companies of varying size offer
revenue-optimization services that may be considered competitive with the
Company. Competitors include the health care consulting practice groups of
Andersen Consulting, the Gailer Review Group, Health Care Management Advisors,
Inc., Iameter, MC Strategies, Inc., National Coding Service, Inc., Quality
Medical Consultants, Inc., and J. A. Thomas & Associates, Inc., an Ernst & Young
preferred provider. Most of these firms have substantially greater financial,
technical, marketing, and management resources than the Company. The Company
does not believe that any single company commands significant market share.
Larger, more established consulting firms have an enhanced competitive position
due, in part, to established name recognition and direct access to
hospital-clients through the provision of other services. Smaller firms,
although not necessarily offering services comparable to those of the Company,
compete on the basis of price. There can be no assurance that the Company will
continue to be able to compete successfully. The Company competes for its
Quality Management Program clients by distinguishing its services from those
provided by revenue optimization service companies, which generally do not use a
physician-dominated consulting staff comparable to that of the Company or
embrace a peer-to-peer teaching approach.

The managed care industry is highly competitive. The Company's health
plans will compete with other providers of health care services, including
regional hospitals and physician practice groups. Competitors include large
indemnity insurers with established managed care operations, such as Aetna, Blue
Cross & Blue Shield, CIGNA, and Prudential; HMOs, such as U.S. Health Care,
Humana, Kaiser Permanente, and Quorum; physician management companies, such as
MedPartners/Mulliken; and physician sponsored organizations. Many competitors
offer a broader range of health care services than the Company's health plans
will offer, have extensive relationships with group specialty practices, and
have financial, managerial, marketing, and technical resources that are much
greater than those of the Company.

The managed health care industry has experienced significant changes in
recent years, primarily as a result of rising health care costs. Employer groups
have demanded a variety of health care options, such as traditional indemnity
insurance, HMOs, PPOs, and point-of-service options. The Company's proposed
operations ultimately will compete with providers of all of these products. The
Company will be required to respond to various competitive factors affecting the
health care industry generally, including new medical technologies that may be
introduced, general trends relating to demand for health care services,
regulatory, economic, and political factors, changes in patient demographics,
and competitive pricing strategies by HMOs and other health care plans. The
Company will be subject to competition in any new geographic area it may enter,
with respect to any products it may offer, and with respect to any commercial
and governmental health care programs developed. There can be no assurance that
the Company will be able to compete successfully.

The Company believes that health plans are in demand in rural
communities where the transition from traditional fee-for-service to capitation
has lagged other areas of the country. The Company believes that the principal
competitive factors in the health plan market include price, participation by
practicing physicians, reputation in the community and other rural markets,
documented performance, profitability, and quality. Based upon these competitive
factors, the Company believes that it will be able to compete successfully in
the rural markets

29
<PAGE> 33
by adhering to its business strategy.

GOVERNMENT REGULATION

The Company is subject to various state and federal laws that regulate
the relationship between providers of health care services and payors as well as
laws and regulations relating to business corporations in general. Although many
aspects of the Company's Quality Management Program have not been the subject of
state or federal regulatory interpretation, the Company believes its current
operations are, and its proposed operations will be, in material compliance with
applicable laws. There can be no assurance, however, that a review of the
Company's current or proposed businesses by courts or regulatory authorities
will not result in a determination that could adversely affect the operations of
the Company or that the health care regulatory environment will not change so as
to restrict the Company's existing operations or their expansion.

In recent years, numerous legislative proposals have been introduced or
proposed in the United States Congress and in some state legislatures that would
effect major changes in the United States health care system at both the
national and state level. It is not clear at this time which proposals, if any,
will be adopted or, if adopted, what effect such proposals would have on the
Company's business. There can be no assurance that currently proposed or future
health care legislation or other changes in the administration or interpretation
of governmental health care programs will not have a material adverse effect on
the Company.

Licensure

All states impose licensing requirements on individual physicians and
on certain types of providers of health care services. While the performance of
consulting services to hospitals and management services on behalf of medical
practices does not currently require any regulatory approval on the part of the
Company, there can be no assurance that such activities will not be subject to
licensure in the future.

Corporate Practice of Medicine

Many states, including Mississippi, Tennessee, and Kentucky, maintain
prohibitions against physicians practicing medicine as a business corporation.
These laws vary from state to state and are enforced by the state courts and
regulatory authorities with broad discretion. The Company could incur liability
in the event it fails to enter into appropriate contractual arrangements with
physicians or other health care professionals in conjunction with its consulting
activities or health plans. The Company will not employ physicians to practice
medicine, will not represent to the public that it offers medical services, and
will not control or interfere with the practice of medicine by physicians.
Accordingly, the Company does not believe that its operations will violate
applicable state laws regulating the practice of medicine by a business
corporation. However, because the laws governing the corporate practice of
medicine vary from state to state, any expansion of the operations of the
Company to a state with strict corporate practice of medicine laws may require
the Company to modify its operations, resulting in increased financial risk to
the Company. In addition, there can be no assurance that the Company's
arrangements with health care providers will not be successfully challenged as
constituting the unauthorized practice of medicine. Also, there can be no
assurance that such laws will not be interpreted broadly or amended to be more
expansive.

<PAGE> 34
State Fee-Splitting and Referral Prohibitions

A number of states have enacted laws that prohibit the payment for
referrals and other types of kickback arrangements and prohibit physicians from
splitting professional fees. These statutes are sometimes quite broad and, as a
result, prohibit otherwise legitimate business arrangements. A number of states,
for example, prohibit compensation arrangements that provide for the payment of
rent for furnishing space, facilities, equipment, or personnel services used by
a licensed physician based on a percentage of income from such physician's
practice. Penalties for violating these statutes may include revocation,
suspension, or probation of the physician's license or other disciplinary
action, as well as monetary penalties. Alleged violations also have been used to
declare a contract to be void as against public policy.

As described below, many states have enacted laws that prohibit
physicians and, in some cases, all health care workers, from splitting fees or
referring patients to entities with which such physician or health care worker
has a financial relationship, regardless of the patient's source of payment.
Most states provide exceptions that permit health care workers to provide health
services personally and as part of a group practice.

Tennessee prohibits a physician from referring patients to an entity in
which the physician has an investment interest. The definition of an investment
interest does not include an investment in a publicly traded entity. Penalties
for violation of this prohibition include licensing sanctions and civil
penalties up to $5,000 for each prohibited referral.

Kentucky prohibits a health care provider from knowingly soliciting,
receiving, or offering any remuneration in return for purchasing, leasing,
ordering, or arranging for any goods, service, or items for which payment may be
received, regardless of the source of payment. In addition, no provider may
knowingly make, offer, or receive a payment for referring a patient to another
provider for the furnishing of benefits regardless of the source of payment. The
penalties for a violation of this provision may be a fine, prohibition on
billing or collecting from patients or third-party payors, or repayment of
reimbursement for the services related to the referral. In addition, Kentucky
prohibits a physician from giving or receiving, directly or indirectly, any
compensation for referring a person to communicate with a licensed physician in
such physician's professional capacity or for any professional services not
actually and personally rendered. The penalties for a violation of this
provision may be a five-year probation or suspension or revocation of such
physician's license.

Pursuant to the terms of the Quality Management Program agreements, the
Company will receive fees based upon increases in a hospital-client's
receivables. In addition, pursuant to the terms of the proposed management
services agreements for the Company's health plans, the Company will receive
fees based upon a percentage of premiums.

The Company believes that its fee structures comply in all material respects
with the fee splitting laws of the states in which it currently operates or
proposes to operate in the future. However, there can be no assurance that such
laws will not be interpreted broadly or amended to be more expansive. Further,
expansion of the operations of the Company to certain jurisdictions may require
it to comply with such jurisdictions' regulations, which could require
structural and organizational modifications of the Company's business. Such
changes, if any, could have a material adverse effect on the Company. However,
since the Company believes that it meets many of the states' exceptions and
intends to structure its health plans to comply with such statutes, the Company
believes that the risk of state action taken against the Company or any of the
Company's contracted health care providers pursuant to the above-referenced
provisions is minimal.

State Regulation of Insurance Business and HMOs

Laws in all states regulate the business of insurance and the operation
of HMOs. Many states also regulate the establishment and operation of networks
of health care providers. Many state insurance commissioners have interpreted
their insurance statutes to prohibit entities from entering into risk-based
managed care contracts unless there is an entity licensed to engage in the
business of insurance in the chain of contracts. An entity not licensed to
provide insurance that contracts directly with a self-insured employer in such a
state may be deemed to be engaged in the unlicensed business of insurance. The
Company intends to obtain all required or appropriate licenses for its health
plan business operations as an HMO or as a provider network. NBR has agreed to
arrange licensed insurers to provide indemnity coverage to enrollees in the
Company's health plans. The Company believes that it is and will be in
compliance with the laws that regulate the business of insurance in the states
in which it does business, but there can be no assurance that future
interpretations of insurance and health care network laws by regulatory
authorities in these states, or in the states into which the Company may expand,
will not require licensure or a restructuring of some or all of the Company's
operations.

Many states also require managed care organizations to contract with
any willing qualified provider that desires to contract with the organization.
The Company could incur liability in

31
<PAGE> 35
the event a managed care organization under the Company's control fails so to
contract.

Federal Medicare and Medicaid Related Regulation

Since the Company's Quality Management Business focuses on Medicare
reimbursement and the Company's health plans will provide services to Medicare
and Medicaid patients, the Company is and will be subject to a number of federal
laws prohibiting certain activities and arrangements relating to services or
items, that are reimbursable by Medicare or Medicaid or other state- funded
programs.

THE FALSE CLAIMS ACT

The False Claims Act imposes civil liability on persons or corporations
that make false or fraudulent claims to the government for payment. A violation
of the False Claims Act may result in liability for monetary penalties and
exclusion from the Medicare and Medicaid programs. The Company takes measures to
ensure that hospital-clients of its Quality Management Program do not submit
false or fraudulent claims to the government, and the Company intends to take
similar protective measures with respect to its health plan business. Because
the Company's current revenue relates to Medicare payments and the Company
anticipates that the health plan business could, in the future, receive
significant revenue from Medicare and Medicaid, an exclusion from the Medicaid
and Medicare programs as a result of a violation of the False Claims Act could
have a material adverse effect on the Company. The Company, as well as its
hospital-clients, could incur liabilities for violations of the False Claims
Act.

PROHIBITION ON ASSIGNMENT

The Medicare and Medicaid laws prohibit the assignment of Medicare and
Medicaid receivables. As a result, the Company could not obtain a pledge of
Medicare and Medicaid receivables as security for payment of remuneration owed
to the Company by a health care provider if it so desired. Similarly, the
Company could not pledge or assign its Medicare and Medicaid receivables as
security for bank lines of credit or other lending arrangements.

ANTI-KICKBACK STATUTE

Certain provisions of the Social Security Act prohibit the offer,
payment, solicitation, or receipt of any form of remuneration either (i) in
return for the referral of Medicare or state health program patients or patient
care opportunities, or (ii) in return for the recommendation, arrangement,
purchase, lease, or order of items or services that are covered by all federal
health care programs, except the federal employees health benefit plans (the
"Anti-kickback Statute"). The Anti-kickback Statute is broad in scope and has
been broadly interpreted by courts in many jurisdictions, potentially
subjecting such arrangements to lengthy expensive investigations and
prosecutions initiated by federal and state governmental officials. In
particular, HCFA has expressed concern that physician ownership in entities in
a position to receive referrals from such physicians may violate the
Anti-kickback Statute.

In part to address concerns regarding the Anti-kickback Statute, since
July 1991 the Department of Health and Human Services has promulgated
regulations that provide exceptions, or "safe harbors," for certain
transactions that are deemed not to violate the Anti-kickback Statute. The safe
harbors include protection for waivers or coinsurance and deductible amounts,
negotiated discounts by providers, risk-sharing arrangements with managed care
plans, management and personal services agreements, and investment interests.
Since the Company intends to offer physicians an ownership interest in its
health plans, the Company plans to structure such ownership so that payments
made to physician-investors in its health plans in the form of a return on an
investment interest, such as a dividend or interest income, meet the investment
interest safe harbor and therefore are not deemed to be prohibited
"remuneration" under the Anti-kickback Statute. Accordingly, the Company
intends to structure its health plan ownership so that (i) no more than 40% of
the investment interests will be held by investors who are in a position or
make or influence referrals to the health plan; (ii) no more than 40% of the
gross revenue of the health plan will come from referrals, items or services
furnished or business otherwise generated from investors; and (iii) the terms
of the investment interests offered to investors who are in a position to make
or influence referrals to the health plan will be the same as the terms offered
to investors who are not in such position. There can be no assurance, however,
that more than 40% of the gross revenue of any of the Company's health plans
will consistently come from referrals, items or services furnished or business
otherwise generated from persons or entities other than physician-investors.

Violation of the Anti-kickback Statute is a felony, punishable by fines
up to $25,000 per violation and imprisonment for up to five years. In addition,
the Department of Health and Human Services may impose civil penalties
excluding violators from participation in Medicare or state health programs.
Although the Company does not believe that its current operations violate or
that its proposed operations will violate the Anti-kickback Statute, there can
be no assurance that in the future regulatory authorities will not determine
that the Company's operations violate the Anti-kickback Statute. Because the
Company anticipates that its health plans will receive significant revenue as a
result of health care services provided to Medicaid and Medicare enrollees, an
exclusion from the Medicaid and Medicare programs as a result of a violation of
the Anti-kickback Statute could have a material adverse effect on the Company.

FEDERAL SELF-REFERRAL PROHIBITIONS

Significant prohibitions against physician self-referrals for services
covered by Medicare and Medicaid programs, commonly known as "Stark II," were
enacted by Congress in the Omnibus Budget Reconciliation Act of 1993. These
prohibitions amended prior physician self-referral legislation known as "Stark
I," which applied only to clinical laboratory referrals, by dramatically
enlarging the list of services and investment interests to which the referral
prohibitions apply. Subject to certain exemptions, Stark II prohibits a
physician or a member of such physician's immediate family from referring
Medicare or Medicaid patients to any entity providing "designated health
services" in which the physician has an ownership or investment interest or
with which the physician has entered into a compensation arrangement, including
the physician's own group practice, unless such practice satisfies the "group
practice" exception. The designated health services include the provision of
clinical laboratory services, radiology, and other diagnostic services,
including ultrasound services; radiation therapy services; physical and
occupational therapy services; durable medical equipment; parenteral and
enteral nutrients, equipment, and supplies; prosthetics; orthotics; outpatient
prescription drugs; home health services; and inpatient and outpatient
hospital services.

Although the definitions of ownership interests and compensation
arrangements are extremely broad, certain ownership interests and compensation
arrangements will not trigger the proscriptions of Stark II. In particular,
exceptions exist for prepaid health plans and personal services agreements. The
prepaid health plan exception covers a physician's ownership interest and
compensation arrangement in the case of services furnished by a prepaid health
plan. The personal services agreement exception covers compensation pursuant to
certain written agreements, such as management or independent contractor
agreements. Because the Company will use reasonable efforts to ensure that its
health plans meet the exceptions described above, the Company believes that the
risk that referrals of patients by physicians who have an interest in the
health plans or an agreement with the Company will be limited.

Interpretative regulations clarifying the provisions of Stark I were
issued on August 14, 1995, and Stark II regulations are scheduled to be
proposed in January 1997. Although the Company believes its proposed health
plan operations will be in compliance with the Stark legislation, future
regulations could require the Company to modify its health plan business. In
addition, the penalties for violating Stark II include a prohibition on
Medicaid and Medicare reimbursement and civil penalties of as much as $15,000
for each violative referral and $100,000 for participation in a "circumvention
scheme" and exclusion from the Medicare and Medicaid programs. Because the
Company anticipates that its health plans will receive significant revenue as a
result of health care services provided to Medicaid and Medicare enrollees, an
exclusion from the Medicaid and Medicare programs as a result of a violation of
the self-referral prohibitions could have a material adverse effect on the
Company.

THE HEALTH INSURANCE PORTABILITY AND ACCOUNTABILITY ACT OF 1996

The Health Insurance Portability and Accountability Act of 1996 (the
"Portability Act") expands the penalties for health care fraud. The Portability
Act prohibits a knowing and willful scheme, such as engaging in a pattern or
practice of upcoding or unnecessary care, in order to defraud any health care
benefit program, including Medicare and state health care programs. The
penalties include exclusion from the Medicare program and monetary penalties.
The Company takes measures to ensure that hospital-clients of its Quality
Management Program do not engage in schemes to defraud health care programs,
and the Company takes and intends to continue to take similar protective
measures with respect to its business. Because the Company's current revenue
relates to Medicare patients and the Company anticipates that the health plan
business could, in the future, receive significant revenue from Medicare, an
exclusion from the Medicare program as a result of a violation of the
Portability Act could have a material adverse effect on the Company.

POTENTIAL LIABILITY AND INSURANCE

The Company may be exposed to potential professional liability claims
by patients of hospital-clients and patients of providers that participate in
the Company's health plans as a result of the negligence or other acts of
physicians. The physicians employed by the Company as part of the Quality
Management Program do not treat patients, attend patient encounters, make any
treatment or diagnosis decisions, or provide any medical services in connection
with that program. However, any claims based on allegations that the Company"s
physicians are engaged in the practice of medicine that ultimately are
successful could result in substantial damage awards to claimants, which may
exceed the limits of any applicable insurance coverage. The Company's health
plans will involve the delivery of health care services to the public.
Consequently, the health plans will be exposed to the risk of professional
liability claims and may become subject to claims, suits, or complaints relating
to services and products provided by such plans, and there can be no assurance
that such claims will not be asserted against the Company. In connection with
its Quality Management Program business, the Company currently maintains special
errors and omissions insurance of $1,000,000 per occurrence with a deductible of
$10,000 and general liability insurance of $2,000,000 in the aggregate and
$1,000,000 per occurrence. In its health plan business, the Company will
maintain an occurrence malpractice liability insurance policy with limits of
$5,000,000 in the aggregate and $1,000,000 per occurrence and will require
physicians to maintain malpractice liability insurance in amounts which it deems
adequate for the types of medical services provided. There can be no assurance,
however, that such insurance will be sufficient to cover potential claims or
that adequate levels of coverage will be available in the future at a reasonable
cost. In the event of a successful claim against the Company that is partially
or completely uninsured, the Company's financial condition and reputation could
be materially and adversely affected.

32
<PAGE> 36
New forms of managed care organizations have increasingly been subject
to liability for reasons such as failure to credential providers properly or
contributing to physician malpractice. In response, many managed care
organizations and other health care entities are not only obtaining general
liability insurance but also managed care and professional liability insurance
coverage. Medical directors also have also faced professional liability claims
and state licensure challenges. The Health Care Quality Improvement Act of 1986,
however, provides immunity from damages for professional review actions taken by
professional review bodies, including health plans, in good faith, provided that
certain procedural standards are met. The Company intends to comply with such
procedures in its professional review actions. However, no assurances can be
given that the insurance coverages obtained by the Company, tort reform, or
immunity provisions will be adequate to insure against all claims that may be
asserted against the Company or that insurance coverage will continue to be
available at acceptable costs.

INTELLECTUAL PROPERTY, PROPRIETARY RIGHTS, AND LICENSES

The Company regards certain features of its services and documentation
as proprietary and relies on a combination of contract, copyright, and trade
secret laws and other measures to protect its proprietary information. As part
of its confidentiality procedures, the Company generally obtains nondisclosure
agreements from its employees and hospital-clients and limits access to and
distribution of its software, documentation, and other proprietary information.
The Company believes that trade secret and copyright protection are less
significant than factors such as the knowledge, ability, and experience of the
Company's employees and the timeliness and quality of the services it provides.
The Company has recently filed applications with the U.S. Patent and Trademark
Office to register the tradenames and marks Birman(TM), Care3(TM), and
WellFirst(TM) for use in the Company's businesses. Care3 will be the brand name
of the Company's health plans.

FACILITIES

The Company is headquartered in Cookeville, Tennessee, where it
occupies approximately 5,800 square feet of space on a month-to-month basis. In
addition, the Company rents offices in Phoenix, Arizona, Jackson, Mississippi,
and Gulfport, Mississippi. The Company recently entered into a lease for an
approximately 20,000 square foot building to be built to the Company's
specifications in Cookeville, Tennessee. The term of the lease will be ten years
commencing upon completion of the building, which is currently expected to occur
in the fourth quarter of calendar year 1997. The Company will have an option to
purchase the new building. All office space occupied by the Company is leased
from unaffiliated third parties. Cookeville is approximately 80 miles east of
Nashville, Tennessee.

<PAGE> 37
EMPLOYEES

At May 6, 1997, the Company employed 80 persons and has contractual
arrangements with 22 physicians and other health care professionals. A total of
24 employees are responsible for the administrative affairs of the Company; 51
persons are employed or contracted by the Quality Management Program business;
and 27 persons are employed by the health plans and the UR/QA business. The
Company is not subject to any collective bargaining agreements, and it considers
its relations with employees to be good.

With respect to its Quality Management Program, the Company has a staff
of eleven full-time employee-physicians and 18 part-time physician-consultants,
all of whom have at least six years of medical practice experience, specializing
in areas that include internal medicine, surgery, obstetrics, gynecology,
pediatrics, oncology, family practice, and emergency room medicine. The Company
also employs 13 full-time and four part-time allied health specialist employees.

LEGAL PROCEEDINGS

On November 2, 1995, Dallas Riley, Jr., a former employee of Birman &
Associates, Inc., filed a lawsuit against Birman & Associates, Inc., David N.
Birman, M.D., and Liberty Mutual Insurance Company in the Circuit Court of
Putnam County, Tennessee seeking permanent disability benefits under the
Tennessee Worker's Compensation statute or, alternatively, $500,000 in damages
for personal injury sustained through the alleged negligence of Birman &
Associates, Inc. Mr. Riley claims that he was permanently disabled as a result
of an injury that he suffered at a Company-sponsored event. The Company"s
workers" compensation insurance carrier has recently advised the Company that it
intends to deny coverage of the claim on the basis that the plaintiff is an
independent contractor and not an employee. The Company's general liability
insurance carrier has agreed to defend the Company in the action under
reservation of rights to contest the timeliness of the Company"s notice. The
Company believes Mr. Riley"s claims are without merit and intends to defend this
action vigorously. There are no other material legal proceedings pending against
the Company.

The Company's former general counsel and secretary, Robert D. Arkin, a
member of the Georgia State Bar, filed suit against the Company, its chairman,
president and chief executive officer, David N. Birman, M.D., and its executive
vice president and director, Sue D. Birman, in United States District Court for
the Northern District of Georgia, Atlanta Division, on May 8, 1997. The
complaint alleges breach by the Company of a written employment agreement
drafted by Arkin while he was an attorney for the Company, which was executed by
the Company. On March 5, 1997, he was terminated by the Company for reasons the
Company believes constituted good cause. By his complaint, Arkin seeks all of
his future unearned compensation under the agreement, which calls for payments
to him of $206,250 per year for five years (plus annual CPI adjustments), plus
one additional year's salary if the contract is not renewed -- a total of over
$1,230,000. In addition, Arkin asserts he is entitled to his bonus compensation
under the Company's executive bonus plan, which would be approximately $75,000
through the date of his termination, and immediate vesting of options granted
him under the Company's 1995 Stock Option Plan to acquire 194,504 shares of
common stock of the Company for an exercise price of $1.37 per share (which are
in addition to 97,252 shares which have otherwise vested). He also alleges
various causes of action related to the facts giving rise to his termination,
including an allegation that the Company, Dr. Birman and Sue D. Birman violated
the Securities Exchange Act of 1934 by not telling Arkin he was going to be
terminated before Arkin signed another agreement Arkin had drafted, a "lock-up"
agreement in which he agreed not to sell his shares of the Company's common
stock until December 20, 1998. Arkin's complaint also contains numerous other
disclosures and allegations which the Company believes are irrelevant to the
complaint and are protected by the Company's attorney/client privilege, which
disclosure is in violation of the Standards of Conduct of the Georgia State Bar.

The complaint also alleges that the Company, Dr. Birman and Sue D.
Birman are residents of the Northern District of Georgia. That allegation is
false as all are residents of Cookeville, Tennessee and such fact is well-known
to Arkin.

The Company, Dr. Birman and Sue Birman deny the material allegations
of the complaint. The Company has been advised that the complaint has no merit
and that it is likely to prevail on the complaint. Should Arkin prevail, it is
unclear whether Arkin would be entitled to some or all of the unearned and
unpaid compensation. It is further unclear whether such payment, if

34
<PAGE> 38
owed, would be for a lump-sum payment of his claimed salary or whether the
salary would be paid in annual or monthly installments.

The Company believes that the employment agreement is not enforceable
against the Company and it further believes it has the right to rescind the
grant of stock options to Arkin, including the options to acquire 97,252 shares
which have otherwise vested. In connection with the drafting, negotiation and
execution of the employment agreement, the executive bonus plan and the stock
option agreement, Arkin acted as sole counsel to the Company as well as to
himself. At no time did he disclose to the Company the conflicts of interest
inherent in the transactions. He further failed to advise the Company of its
right to obtain independent representation with respect to those transactions.
Such disclosure and advice are required by the Standards of Conduct of the
Georgia State Bar. The Company also believes he failed to provide the Company
with an accurate employment history prior to becoming employed by the Company.
Even if the agreements are deemed enforceable, the Company believes that Arkin
was terminated "for cause," which terminates any right he would otherwise have
to additional compensation or vesting of stock options.

Specifically, Arkin failed and refused to relocate to the Company's
headquarters in Cookeville, Tennessee from the Atlanta area as he had agreed to
do, he failed and refused to discharge the duties of a chief operating officer,
which duties he had promised in writing to perform, and he repeatedly refused
to comply with policies and directives of the Board of Directors and the
chairman and president, Dr. David N. Birman, of the Company after warning and
notice.

On May 14, 1997, the Company sued Mr. Arkin in the Chancery Court for
Putman County, Tennessee, seeking a declaration that the above-described
agreements are void and unenforceable, rescinding the grant of stock options to
Mr. Arkin, and prohibiting Mr. Arkin from disclosing matters regarding the
Company which are subject to the attorney/client privilege.

35
<PAGE> 39
MANAGEMENT

DIRECTORS AND EXECUTIVE OFFICERS

The following table sets forth certain information with respect to each
member of the Board of Directors and each executive officer of the Company.
Directors of the Company hold office until the next annual meeting of
shareholders or until their successors have been elected and qualified. Officers
are appointed by and serve at the discretion of the Board of Directors.

<TABLE>
<CAPTION>
Name Age Position With The Company
- ---- --- -------------------------
<S> <C> <C>
David N. Birman, M.D......... 45 Chairman of the Board, President,
and Chief Executive Officer

Sue D. Birman................ 39 Executive Vice President,
Secretary and Director

Douglas A. Lessard........... 36 Vice President, Treasurer,
and Chief Financial Officer

Vincent W. Wong.............. 38 President and Chief Executive
Officer - BMC Health Plans, Inc.

Mark C. Wade................. 40 Executive Vice President-Sales
and Marketing - BMC Health Plans, Inc.

D. Bradley Seitzinger, M.D... 41 Executive Vice President -
Physician Services - Birman &
Associates, Inc.

William F. Barenkamp, II..... 41 Vice President and Chief
Operating Officer - Birman &
Associates, Inc.
</TABLE>

36
<PAGE> 40
<TABLE>
<S> <C> <C>
John D. Higgins.............. 64 Director

James J. Rhodes.............. 40 Director

Diedrich Von Soosten......... 57 Director
</TABLE>

David N. Birman, M.D. has served as Chairman of the Board of Directors,
President, and Chief Executive Officer of the Company and its predecessor
corporations since May 1991. From February 1990 to mid-1991, Dr. Birman served
as Chairman of the Board of Birman, Mathes & Associates, Inc., a consulting
company providing quality management and Medicare reimbursement review services
to rural hospitals. From April 1989 until January 1990, Dr. Birman served as a
consultant, providing quality management and Medicare reimbursement review
services to five rural hospitals. Previously, Dr. Birman was employed by
Whitwell Medical Center, Whitwell, Tennessee where, as a physician assistant, he
performed certain clinical duties and developed patient care management
techniques and reporting strategies that formed the basis for development of the
Quality Management Program. Dr. Birman received his M.D. from the Universidad
Tecnologica de Santiago; his B.A., with honors in Biology from Occidental
College; and certification as a physician assistant in primary care and surgery
from the University of Southern California School of Medicine.

Sue D. Birman has served as Executive Vice President and a director of
the Company and its predecessor corporations since May 1991 and served as their
Chief Financial Officer from May 1991 until June 1996. She was elected corporate
Secretary in March of 1997. From February 1990 to mid-1991, Ms. Birman assisted
Dr. Birman in the financial aspects and business development of Birman, Mathes &
Associates, Inc. From April 1989 until January 1990, Ms. Birman assisted Dr.
Birman in the operation of his consulting firm. Ms. Birman is the spouse of
David N. Birman, M.D.

Douglas A. Lessard has served as Chief Financial Officer of the Company
since June 1996 and as Controller since January 1996. Mr. Lessard provided
accounting and consulting services to the Company from April 1995 through
December 1995. From March 1993 through March 1995, Mr. Lessard served as the
Chief Executive Officer and from September 1991 through March 1993, as Chief
Financial Officer of the American Institute of Professional Careers, Inc., a
private college in Phoenix, Arizona, which provides post-secondary education in
legal and other specialized career fields. From March 1989 through September
1991, Mr. Lessard was employed as the Controller for Arizona Building and
Development, Inc., a real estate development and management company. Mr. Lessard
is a Certified Public Accountant in the State of Arizona.

Vincent W. Wong has served as President, Chief Executive Officer, and
as a director of BMC Health Plans, Inc. since January 1996. For approximately
five years before joining BMC Health Plans, Inc., Mr. Wong was employed by
Foundation Health Corporation, a New York Stock Exchange listed managed care
organization. During such time, Mr. Wong served in positions of increasing
responsibility culminating in his service as Vice President of Operations. From
1984 to 1991,

37
<PAGE> 41
Mr. Wong was employed in marketing by Blue Cross Blue Shield of Ohio.

Mark C. Wade has served as Executive Vice President -- Sales and
Marketing of BMC Health Plans, Inc. since July 1995 and has been employed by BMC
Health Plans, Inc. since March 1995. From November 1993 to March 1995, Mr. Wade
served as the founding director and president of Forum Health Care, Inc., a
consulting firm specializing in the development and management of integrated
health care delivery networks for both the private and public sectors. From
February 1988 to November 1993, Mr. Wade served in several positions at Health
Management Associates, Inc., an Arizona company that, commencing in 1982,
developed and managed four prepaid Medicaid plans that operated in 11 of
Arizona's 15 counties, a prepaid Medicaid plan in Las Vegas, Nevada, and other
managed care programs. Mr. Wade's last position with Health Management
Associates, Inc. was as vice president for all private sector commercial sales
and marketing activity with particular emphasis on commercial provider networks,
including marketing to large insurance companies and self-funded payors,
integrated delivery systems, pharmacy networks, managed care benefit designs,
and utilization management and third-party administration services.

D. Bradley Seitzinger, M.D. currently serves as Executive Vice
President -- Physician Services of Birman & Associates, Inc. Since September
1991, Dr. Seitzinger has served in several other capacities at Birman &
Associates, Inc., including Regional Physician Manager, Vice President of
Quality Management, Vice President of Physician Operations, and Senior Vice
President of Physician Operations. From September 1989 to September 1991, Dr.
Seitzinger was assistant vice president of medical affairs for Peer Review
Systems, Inc., a private company that contracted with HCFA to perform Medicare
physician peer review for the State of Ohio. Prior to 1993, Dr. Seitzinger
worked in concurrent capacities, including, from 1986 to 1992, assistant
professor of internal medicine at The Ohio State University College of Medicine,
and from 1987 to 1992, private practice as an internal medicine specialist at
Medical Evaluation Services, Inc., Columbus, Ohio. He is certified by the
American Board of Internal Medicine. Dr. Seitzinger received his M.D. from The
Ohio State University. He is licensed to practice medicine in Arizona, Indiana,
Ohio, and Tennessee.

William F. Barenkamp, II has been employed by Birman & Associates, Inc.
since November 1993, currently as Vice President and Chief Operating Officer.
Mr. Barenkamp earned a B.A. degree from DePauw University and a Master of Public
Administration degree from the University of Colorado. From January 1991 to
November 1993, Mr. Barenkamp attended Dallas Theological Seminary, receiving an
M.A. in Theology in 1993. During such period, Mr. Barenkamp served as associate
pastor at East Grand Baptist Church, Dallas, Texas. From November 1986 to
December 1990, Mr. Barenkamp was the Director of Marketing and Sales for
CSS/Cooper Hotels, Inc. of Memphis, Tennessee.

John D. Higgins was elected a director of the Company in March 1997.
Since 1990, Mr. Higgins has been Senior Vice President - Corporate Finance of
Royce Investment Group, Inc., the Company's managing underwriter for its
recently-completed initial public offering of Common Stock. Mr. Higgins holds
BBA and MBA degrees from Hofstra University. He is also a director of Iatros
Health Network, Inc., a publicy-owned company which is a provider of health care
services. The Company conducts no business with Iatros Health Network, Inc.

38
<PAGE> 42
James J. Rhodes became a director of the Company in September 1996.
Since 1986, Mr. Rhodes has served as a Regional Manager in the pension division
of ManuLife Financial (The Manufacturer's Life Insurance Company (USA)), a
global financial services company offering annuities, insurance, and investment
products.

Diedrich Von Soosten became a director of the Company in September
1996. Since 1990, Mr. Von Soosten has been Managing Partner of Coloney Von
Soosten & Associates, Inc., a management consulting and financial advisory
services firm specializing in business turnarounds. Prior to 1990, Mr. Von
Soosten was an independent consultant providing restructuring and turnaround
assistance to underperforming businesses. Mr. Von Soosten is a former director
and officer of the Association of Certified Turnaround Professionals.

BOARD COMMITTEES

There are two committees of the Board of Directors: the Compensation
Committee and the Audit Committee. The Compensation Committee determines the
Company"s executive compensation policies and practices and changes in
compensation and benefits for senior management. The Compensation Committee also
administers the Company's 1995 Stock Option Plan. The Audit Committee reviews
the internal accounting procedures of the Company, consults with the Company"s
independent accountants, and reviews the services provided by such accountants.
Messrs, Rhodes and Von Soosten currently serve as the members of the
Compensation Committee and Audit Committee.

COMPENSATION OF DIRECTORS

All directors receive reimbursement for reasonable expenses incurred in
connection with their attendance at Board of Directors and committee meetings.
In addition, all non-employee directors receive $2,000 for each Board meeting
that they attend. All non-employee directors are also entitled to receive awards
and options to purchase shares of Common Stock under the 1996 Non-Employee
Directors' Non-Qualified Stock Option Plan. See "Management -- Stock Option
Plans -- 1996 Directors' Option Plan."

EXECUTIVE COMPENSATION

39
<PAGE> 43

The following table provides certain information concerning the
compensation earned by the Company's Chief Executive Officer and the four next
highly compensated executive officers who received compensation in excess of
$100,000 for services rendered in all capacities to the Company for fiscal 1996
(the "Named Executive Officers").

40
<PAGE> 44
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long Term
Other Compensation
Annual Awards/ All Other
Salary Bonus Compensation Options Compensation
Name and Principal Position Year ($) ($) ($) (#) ($)
<S> <C> <C> <C> <C> <C> <C>
David N. Birman, M.D.......................... 1996 350,000 60,000 69,025 --- ---
Chairman of the Board, 1995 275,000 --- 52,922 --- ---
President, and Chief Executive Officer (1) 1994 262,500 --- 48,223 --- ---

D. Bradley Seitzinger, M.D.................... 1996 203,301 15,000 14,272 145,879 ---
Executive Vice President - 1995 174,325 --- 13,731 --- ---
Physician Services (2) 1994 158,290 --- 13,344 --- ---

Sue D. Birman................................. 1996 150,000 40,000 11,834 --- ---
Executive Vice President, 1995 118,617 --- 11,968 --- ---
Chief Financial Officer (until May 1994 63,643 --- 11,279 --- ---
1996), and Director (3)

Richard M. Ross............................... 1996 202,500 --- 17,588 --- ---
Vice Chairman (until August 1996) (4) 1995 15,000 --- 49,713 --- ---
1994 --- --- 27,095 --- ---

Robert D. Arkin (5)........................... 1996 41,250 --- 247,885 97,252(5) ---
1995 --- --- --- --- ---
1994 --- --- --- --- ---
</TABLE>

41
<PAGE> 45
- -------------------

(1) Other Annual Compensation for David N. Birman, M.D. for fiscal 1996 was
$5,484 in medical insurance premiums, $40,903 in officer's life
insurance premiums, $19,638 in auto allowance, and $3,000 in 401(k)
matching contributions; for fiscal 1995, $4,900 in medical insurance
premiums, $29,550 in officer's life insurance premiums, $16,000 in auto
allowance, and $2,472 in 401(k) matching contributions; and for fiscal
1994, $6,156 in medical insurance premiums, $26,472 in officer's life
insurance premiums, and $15,595 in auto allowance.

(2) Other Annual Compensation for D. Bradley Seitzinger, M.D. for fiscal
1996 was $5,484 in medical insurance premiums, $6,708 in auto
allowance, and $2,080 in 401(k) matching contributions; for fiscal
1995, $4,900 in medical insurance premiums, $7,188 in auto allowance,
and $1,643 in 401(k) matching contributions; and for fiscal 1994,
$6,156 in medical insurance premiums and $7,188 in auto allowance.

42
<PAGE> 46
(3) Other Annual Compensation for Sue D. Birman for fiscal 1996 was $9,834
in auto allowance and $2,000 in 401(k) matching contributions; for
fiscal 1995, $11,000 in auto allowance and $968 in 401(k) matching
contributions; and for fiscal 1994, $11,279 in auto allowance.

(4) Mr. Ross served as Vice-Chairman and a director of the Company from
February 1994 to August 1996. Effective September 1, 1996, Mr. Ross
resigned as Vice-Chairman and a director of the Company. Mr. Ross
currently serves as a consultant to the Company. See "Certain
Transactions." Other Annual Compensation for Richard M. Ross for fiscal
1996 was $4,783 in medical insurance, and $12,805 in officer's life
insurance premiums; for fiscal 1995, $2,039 in medical insurance and
$47,674 in consulting fees paid to Mr. Ross prior to being employed by
the Company; and for fiscal 1994, $27,095 in consulting fees paid to
Mr. Ross prior to being employed by the Company.

(5) On March 5, 1997, Mr. Arkin was terminated as General Counsel,
corporate Secretary, and Chief Operating Officer, a position to which
he had been appointed but in the Company's view never fulfilled. Other
annual compensation received by him for fiscal 1996 was $985 in medical
insurance premiums paid and $246,900 in legal fees paid to Mr. Arkin
as its outside counsel prior to being employed directly by the Company.
Mr. Arkin and the Company have each initiated litigation against the
other. The Company seeks to rescind the options to Mr. Arkin shown on
this table. See, "Legal Proceedings."

EXECUTIVE BONUS PLAN

The Company has adopted an Executive Bonus Plan (the "Executive Bonus
Plan") pursuant to which officers of the Company are eligible to receive cash
bonuses after the close of each fiscal year of the Company. The Executive Bonus
Plan is administered by the Compensation Committee of the Board of Directors.
Bonuses are determined on the basis of (i) the operating profit of the Company,
(ii) net revenue growth of the Company achieved as a percentage of the goal
established by the Company at the beginning of the fiscal year, and (iii) the
officer's individual performance and contribution to the Company. An officer's
bonus for any fiscal year may not exceed such officer's annual base salary
multiplied by the Target Bonus Percentage as defined in the Executive Bonus Plan
in such fiscal year.

STOCK OPTION PLANS

1995 Stock Option Plan

43
<PAGE> 47
The Company has adopted the 1995 Stock Option Plan (the "1995 Option
Plan") pursuant to which key employees, including officers and directors who are
employees, and consultants of the Company are eligible to receive incentive
stock options as well as non-qualified stock options and stock appreciation
rights ("SARs"). The Plan, which expires in October 2005, is administered by the
Compensation Committee of the Board of Directors. Incentive stock options
granted under the Plan are exercisable for a period of up to 10 years from the
date of grant at an exercise price which is not less than the fair market value
of the Common Stock on the date of the grant, except that the term of an
incentive stock option granted under the Plan to a stockholder owning more than
10% of the outstanding Common Stock may not exceed five years and the exercise
price of an incentive stock option granted to such a stockholder may not be less
than 110% of the fair market value of the Common Stock on the date of the grant.
Non-qualified stock options may be granted on terms determined by the
Compensation Committee of the Board of Directors. SARs, which give the holder
the privilege of surrendering such rights for an amount of stock equal to the
appreciation in the Common Stock between the time of grant and the surrender,
may be granted on any terms determined by the Compensation Committee of the
Board of Directors. The Plan also permits the grant of new stock options to
participants who tender shares of the Company's Common Stock as payment of the
exercise price of stock options or the payment of withholding tax ("Reload
Options"). The Reload Options will be granted at the fair market value of a
share of Common Stock on the date of the grant and will be exercisable six
months following the date of the grant. The Plan also includes limited option
valuation rights upon a change of control of the Company. As of June 30, 1996,
options for the exercise of 812,061 shares have been granted and remain
outstanding under the 1995 Option Plan at the exercise price of $1.37 per share
and options for the exercise of 55,000 shares have been granted at an exercise
price of $5.00 per share. A total of 1,458,780 shares of Common Stock are
reserved for issuance under the 1995 Option Plan.

1996 Directors' Option Plan

On September 9, 1996, the Company adopted the 1996 Non-Employee
Directors' Non-Qualified Stock Option Plan (the "1996 Directors' Plan"). A total
of 100,000 shares of Common Stock are reserved for issuance under the 1996
Directors' Plan. Under this plan, upon initial election to the Board of
Directors, non-employee directors are awarded options to purchase 6,000 shares
of Common Stock. Upon each subsequent election to the Board of Directors,
non-employee directors receive option awards to purchase 3,000 shares of Common
Stock. These options, which have an exercise price equal to the fair market
value of the shares of Common Stock as of the date of grant, vest at the rate of
33.33% per year. All options awarded under the 1996 Directors' Plan expire on
the first to occur of (i) 10 years after the date of grant, or (ii) 90 days
after the date the director is no longer serving in such capacity for reasons
other than death or disability. On September 9, 1996, each of Messrs. Rhodes and
Von Soosten were granted options to purchase 6,000 shares of Common Stock under
this plan at an exercise price of $5.00 per share. On March 18, 1997, Mr.
Higgins was granted options to acquire 3,000 shares of Common Stock at an
exercise price of $7.25 per share.

FISCAL 1997 OPTION GRANTS

The following table sets forth certain information concerning
individual grants of incentive stock options to executive officers and directors
during the nine months ended March 31, 1997:

<PAGE> 48
<TABLE>
<CAPTION>
Number of Percentage of
Shares Total
Underlying Options Exercise
Options Granted Price Expiration
NAME OF DIRECTOR OR OFFICER(1) Granted Under Plan Per Share Date
- ------------------------------ ---------- ------------- --------- ---------
<S> <C> <C> <C> <C>
D. Bradley Seitzinger, M.D. .. 145,879 17.3% $1.37 02/01/06

William F. Barenkamp, II ..... 72,940 8.7% $1.37 02/01/06

Douglas A. Lessard ........... 72,940 8.7% $1.37 02/01/06

Vincent W. Wong .............. 218,819 26.0% $1.37 01/29/06

Mark C. Wade ................. 145,879 17.3% $1.37 11/01/05

James J. Rhodes .............. 6,000 .7% $5.00 09/30/06

Diedrich Von Soosten ......... 6,000 .7% $5.00 09/30/06

John Higgins.................. 3,000 .4% $7.25 04/30/07
</TABLE>
_________________

(1) Robert D. Arkin, former general counsel and secretary of the Company, had
been awarded options to acquire 291,757 shares of the Company's Common Stock
at an exercise price of $1.37 per share. His services were terminated March
5, 1997 on grounds the Company believes constitutes cause. On that date he
was otherwise vested as to 97,252 of those options. If terminated for cause,
he will have no rights to the 194,505 unvested options; if not terminated
for cause, those options would vest. The Company believes Arkin is entitled
to no options -- vested or unvested. See, "Legal Proceedings."

As of May 15, 1997, 302,213 of the options granted by the Company
were exercisable and the value attributed to the shares of Common Stock of the
Company was equal to the $1.37 exercise price of the options. None of the
persons named in the Summary Compensation Table exercised options during the
nine months ended March 31, 1997.

EMPLOYMENT AGREEMENTS

The Company has employment agreements with each of its current
executive officers. The employment agreements provide for annual salaries that
generally are subject to annual adjustments for increases in the Consumer Price
Index; participation in employee deferred compensation plans, stock options and
retirement and insurance plans; and include customary noncompetition,
nondisclosure, and severance provisions. Set forth below is a summary of other
principal provisions of those employment agreements: In March 1996, the Company
entered into an employment agreement with David N. Birman, M.D. for a term
expiring June 30, 2001, pursuant to which Dr. Birman serves as Chief Executive
Officer of the Company. The employment agreement

45
<PAGE> 49
provides for an initial base salary of $350,000 per annum, participation in the
Executive Bonus Plan, and other compensation not to exceed $60,000 per annum.
The employment agreement provides for severance benefits upon termination as a
result of death, for "cause," by mutual agreement, and as a result of
disability. If Dr. Birman's employment is terminated for reasons other than
death, "cause," mutual agreement, or disability, he shall be entitled to receive
his base salary (as most recently adjusted) for the remainder of the initial
term or the applicable renewal term and all unvested stock options granted to
him under 1995 Option Plan shall accelerate and become vested. If Dr. Birman's
employment is not renewed following expiration of the initial term or the
applicable renewal term, he shall be entitled to receive, as severance, his base
salary (as last adjusted) payable over the 12-month period following the
severance of his employment.

In March 1996, the Company entered into an employment agreement with
Sue D. Birman for a term expiring June 30, 2001, pursuant to which Ms. Birman
serves as Executive Vice President of the Company. She also serves as Secretary
to the Company and its subsidiaries. The employment agreement provides for an
initial base salary of $150,000 per annum, participation in the Executive Bonus
Plan, and other compensation not to exceed $10,000 per annum. The employment
agreement provides for severance benefits upon termination as a result of death,
for "cause," by mutual agreement, and as a result of disability. If Ms. Birman's
employment is terminated for reasons other than death, "cause," mutual
agreement, or disability, she shall be entitled to receive her base salary (as
most recently adjusted) for the remainder of the initial term or the applicable
renewal term and all unvested stock options granted to her under 1995 Option
Plan shall accelerate and become vested. If Ms. Birman's employment is not
renewed following expiration of the initial term or the applicable renewal term,
she shall be entitled to receive, as severance, her base salary (as last
adjusted) payable over the 12-month period following the severance of her
employment.

In March 1996, the Company entered into an employment agreement with
Douglas A. Lessard for a term expiring June 30, 2001, pursuant to which Mr.
Lessard serves as Chief Financial Officer of the Company. The employment
agreement provides for an initial base salary of $120,000 per annum,
participation in the Executive Bonus Plan, and other compensation not to exceed
$9,000 per annum. The employment agreement provides for severance benefits upon
termination as a result of death, for "cause," by mutual agreement, and as a
result of disability. If Mr. Lessard's employment is terminated for reasons
other than death, "cause," mutual agreement or disability, he shall be entitled
to receive his base salary (as most recently adjusted) for the remainder of the
initial term or the applicable renewal term and all unvested stock options
granted under the 1995 Option Plan shall accelerate and become vested. If Mr.
Lessard's employment is not renewed following expiration of the initial term or
the applicable renewal term, he shall be entitled to receive, as severance, his
base salary (as last adjusted) payable over the 12-month period following his
severance of employment.

In March 1996, the Company entered into an employment agreement with
Vincent W. Wong for a term expiring on January 31, 1999, pursuant to which Mr.
Wong serves as President and Chief Executive Officer of BMC Health Plans, Inc.
The employment agreement provides for an initial base salary to Mr. Wong of
$180,000 per annum. The employment agreement also provides Mr. Wong with the
opportunity to earn up to an additional $180,000 per annum based upon the number
of enrollees in health plans developed, managed, or operated by the Company and
health plan net earnings. The employment agreement provides for severance
benefits upon termination as a result of death, for "cause," by mutual
agreement, and as a result of disability. If Mr. Wong's employment is terminated
for reasons other than death, "cause," mutual agreement, or disability, he shall
be entitled to receive his base monthly salary (as most recently adjusted)
payable over the six month period following the severance of his employment, and
all unvested stock options granted to him under the 1995 Option Plan shall
accelerate and become vested.

<PAGE> 50
In July 1995, the Company entered into an employment agreement with
Mark C. Wade for a term expiring on September 1, 1998, pursuant to which Mr.
Wade serves as Executive Vice President -- Sales and Marketing of BMC Health
Plans, Inc. The employment agreement provides for a base salary of $165,000 per
annum with the opportunity for Mr. Wade to earn up to an additional $85,000 per
annum based upon the number of enrollees in health plans developed, managed, or
operated by the Company. Mr. Wade's employment agreement does not contain a
severance provision.

The Company has entered into an employment agreement with D. Bradley
Seitzinger, M.D. pursuant to which Dr. Seitzinger provides supervisory and other
services to the Company on a full-time basis. The employment agreement is
terminable by either party upon 14 days' prior written notice. The employment
agreement provides for the review of Dr. Seitzinger's salary from time to time
and authorizes the payment of additional compensation, by way of salary, bonus,
or otherwise, at the discretion of the Company. Dr. Seitzinger currently
receives a base salary of $208,000 per annum. Dr. Seitzinger's employment
agreement does not contain a severance provision.

In November 1993, the Company entered into an employment agreement with
William F. Barenkamp, II pursuant to which Mr. Barenkamp provides supervisory
and other services to the Company on a full-time basis. The employment agreement
is terminable by either party without prior notice upon a material breach of the
terms thereof. The employment agreement provides for the review of Mr.
Barenkamp's salary from time to time and authorizes the payment of additional
compensation, by way of salary, bonus, or otherwise, at the discretion of the
Company. Pursuant to the employment agreement, Mr. Barenkamp currently receives
a base salary of $100,000 per annum. Mr. Barenkamp's employment agreement does
not contain a severance provision.

INDEMNIFICATION OF DIRECTORS AND OFFICERS

The Company's Certificate of Incorporation limits, to the maximum
extent permitted by the Delaware GCL, the personal liability of directors for
monetary damages for breach of their fiduciary duties as directors other than
for liabilities arising from (i) any breach of the directors' duty of loyalty to
the Company and its stockholders; (ii) acts or omissions that involve
intentional misconduct, fraud, or knowing violations of law; (iii) the payment
of distributions in violation of the Delaware GLC; or (iv) transactions in which
the director received an improper personal benefit. The Company's Bylaws require
the Company to indemnify directors and officers for all costs reasonably
incurred in connection with any action, suit, or proceeding in which such
director or officer is made a party by virtue of his or her being a director or
officer of the Company except where such director or officer is finally adjudged
to have been derelict in the performance of his or her duties as such director
or officer.

The Company has entered into indemnification agreements with its
directors and executive officers, which contain provisions which are in some
respects broader than the specific indemnification provisions contained in the
Company's Certificate of Incorporation and Bylaws.

47
<PAGE> 51
The indemnification agreements require the Company, among other things, to
indemnify such directors and officers against certain liabilities that may arise
by reason of their status as directors or officers (other than liabilities
arising from willful misconduct of a culpable nature), to advance expenses
incurred as a result of any proceeding against them as to which they could be
indemnified, and to carry directors' and officers' insurance, if available on
reasonable terms. The Company believes these indemnification agreements are
necessary to attract and retain qualified persons as directors and officers. It
is the opinion of the staff of the Securities and Exchange Commission that
indemnification provisions such as those that are contained in these
indemnification agreements have no effect on a director's or officer's liability
under the federal securities laws.

Except for the legal actions described under "Business -- Legal
Proceedings," there is no pending litigation or proceeding involving any
director, officer, employee, or agent of the Company where indemnification will
be required or permitted. The Company intends to indemnify and defend Dr. Birman
and Sue Birman in connection with the litigation involving Robert D. Arkin. See
"Legal Proceedings." The Company is not aware of any other threatened litigation
or other proceeding that may result in a claim for such indemnification.

48
<PAGE> 52
CERTAIN TRANSACTIONS

Prior to June 30, 1995, the Company operated, as a division, a
livestock breeding farm on property owned by David N. Birman, M.D. and Sue D.
Birman, his spouse. At that time, Dr. Birman was the sole stockholder,
President, and a director of the Company, and Mrs. Birman was an Executive Vice
President, the Chief Financial Officer, and a director of the Company. Prior to
June 30, 1994, the Company lent to Dr. and Mrs. Birman approximately $482,000,
which was used primarily to improve their farm property and residence. During
fiscal 1995, Dr. and Mrs. Birman repaid $442,000 of such loan and also received
additional advances of approximately $270,000, resulting in an outstanding
principal balance of $310,000 at June 30, 1995. As of June 30, 1995, the Company
contributed all of its farm assets, subject to the related liabilities, to a new
corporation, Birman Farms, Inc., and distributed all of the outstanding shares
of capital stock of Birman Farms, Inc. to Dr. Birman. This dividend distribution
of property was valued by the Company at $230,000. Subsequent to the
distribution, the Company authorized additional advances to Dr. Birman through
September 1996 of approximately $465,000 to defray the operating and ownership
costs of the farm. Accordingly, as of September 9, 1996, Dr. Birman owed a total
of $775,000 to the Company. The Company made no further advances to Dr. Birman
to defray the operating and ownership costs of the farm. All amounts owed to the
Company by Dr. Birman, including interest at a rate of 7% per annum through
August 31, 1996 and at the prime rate of American National Bank and Trust
Company of Chicago from September 1, 1996 to February 12, 1997, were repaid by
Dr. Birman on February 12, 1997 by tendering 174,800 shares of Common Stock
owned by him and valued at $4.60 per share. No additional loans will be made by
the Company to any member of management without the approval of the non-employee
members of the Board of Directors of the Company.

Richard M. Ross served as Vice-Chairman and as a director of the
Company from February 1994 to August 1996. Effective September 1, 1996, Mr. Ross
retired as Vice-Chairman and a newly formed company controlled by Mr. Ross was
engaged as a consultant to the Company pursuant to a consulting agreement (the
"Consulting Agreement"). While serving as Vice-Chairman of the Company, Mr. Ross
was actively involved in policy-making matters relating to day-to-day operations
of the Company and corporate finance. As a consultant, Mr. Ross will undertake
special assignments designated by Dr. Birman and the Board of Directors
including, among other things, developing business plans for acquired companies
and evaluating acquisition candidates. The Consulting Agreement provides for Mr.
Ross to serve as the provider of consulting services thereunder, provides for a
fee to be paid to the consulting firm of $186,000 per annum payable in equal
monthly installments over the 12-month term of the agreement, and provides for
termination of the Consulting Agreement by mutual agreement, upon the occurrence
of an uncured material breach, upon the death of Mr. Ross, or 10 days after
receipt of notice of termination from the consultant. Except as otherwise
provided or as otherwise agreed to by the parties, the Consulting Agreement will
be renewed annually by the Company for up to an additional five consecutive
years. The Company also paid Mr. Ross a $26,000 severance fee and has
transferred to Mr. Ross personal computer equipment used by Mr. Ross in
rendering services to the Company and having a value of less than $1,000. In
addition, Dr. Birman has sold Mr. Ross 175,000 shares of Company Common Stock in
consideration for a $175,000 principal amount promissory note.

49
<PAGE> 53

PRINCIPAL STOCKHOLDERS

The following table sets forth information as of April 30, 1997 and
as adjusted to reflect the sale of the shares of Common Stock offered hereby,
based on information obtained from the persons named below, with respect to the
beneficial ownership of shares of Common Stock by (i) each person (or group of
affiliated persons) who is known by the Company to own beneficially more than 5%
of the Common Stock; (ii) each of the Named Executive Officers; (iii) each of
the directors; and (iv) all directors and executive officers of the Company as a
group.

COMMON SHARES

<TABLE>
<CAPTION>
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIALLY OWNED
- ------------------------------------ ---------------------------
NUMBER PERCENT
------ -------
<S> <C> <C>
David N. Birman, M.D.(1) ..................... 5,081,606 58.03%

Sue D. Birman(1) ............................ 5,081,606 58.03%

D. Bradley Seitzinger, M.D.(2) ............... 85,096(5) .97%

Douglas A. Lessard(2)......................... 24,313(5) .28%

Richard M. Ross .............................. 175,000 2.0%

John Higgins(3) .............................. 0 0%

James J. Rhodes(4) ........................... 0 0%

Diedrich Von Soosten(4) ...................... 0 0%

Directors and officers as a group (10 persons) 5,489,485(5) 62.69%
</TABLE>

- ---------------------

(1) Includes 1,000,000 Escrow Shares. See "Principal Stockholders -- Escrow
Shares." David N. Birman, M.D. disclaims beneficial ownership as to
547,046 shares beneficially owned by Sue D. Birman individually. Sue D.
Birman disclaims beneficial ownership as to 4,344,663 shares
beneficially owned by David N. Birman, M.D. individually. The address
of Dr. and Mrs. Birman is c/o the Company at 502 Gould Drive,
Cookeville, Tennessee 38506.

50
<PAGE> 54
(2) Does not include options to purchase shares of Common Stock scheduled
to first become exercisable more than 60 days after the date of this
Prospectus. See "Management -- Stock Option Plans" and "Management --
Fiscal 1996 Option Grants."

(3) Mr. Higgins was granted options under the Company's 1996 Directors'
Options Plan to acquire 3,000 shares of the Company's Common Stock at
an exercise price or $7.25 per share.

(4) Mr. Rhodes and Mr. Von Soosten were granted options under the
Company's 1996 Directors' Option Plan to acquire 6,000 shares of the
Company's Common Stock at an exercise price of $5.00 per share.

(5) Includes shares subject to options exercisable currently of 48,626
shares for Dr. Seitzinger, options to acquire 24,313 shares by Mr.
Lessard, and 229,274 for all officers and directors as a group. Of
these, options to acquire 97,252 are owned by Robert D. Arkin, former
general counsel and secretary of the Company. The Company has filed
suit to rescind the grant of these options to Mr. Arkin. See "Legal
Proceedings."

SELLING SHAREHOLDERS

The following are the Selling Shareholders in this offering.
Notwithstanding the registration of the Shares, the Selling Shareholders may not
sell any of the Shares registered hereby prior to October 20, 1998.

<TABLE>
<CAPTION>
Beneficial
Ownership of
Shares of Common Shares to be Shares Owned
Stock Prior Sold in the After the
to Sale Offering Offering
------- -------- -----------
<S> <C> <C> <C>
Danny F. Cooke ....................................... 125,879 125,879 0
National Benefit Resources Inc. ...................... 261,758 261,758 0
Sunyata International, Ltd. .......................... 31,470 31,470 0
SWRT Profit Sharing Plan ............................. 31,470 31,470 0
Gary Peter Klahr Defined Benefit Trust................ 15,735 15,735 0
</TABLE>

51
<PAGE> 55

ESCROW SHARES

In connection with the Company's initial public offering of Common
Stock by Prospectus dated February 12, 1997, David N. Birman, M.D. deposited
1,000,000 shares of Common Stock into escrow. The Escrow Shares are not
assignable or transferable. Of the Escrow Shares, (i) 333,333 will be released
from escrow if the Company's net after tax income per share (the "Minimum
After-Tax Income") for the fiscal year ending June 30, 1997 equals or exceeds
$0.17 per share of then issued and outstanding shares of Common Stock of the
Company; (ii) 333,333 Escrow Shares (or, if the condition set forth in (i) above
was not met, 666,666 Escrow Shares) will be released if the Minimum After-Tax
Income for the fiscal year ending June 30, 1998, equals or exceeds $0.26 per
share of then issued and outstanding shares of Common Stock of the Company;
(iii) 333,334 Escrow Shares (or, if the conditions set forth in either (i) or
(ii) were not met, the remaining Escrow Shares) will be released if the Minimum
After-Tax Income for the fiscal year ending June 30, 1999, equals or exceeds
$0.39 per share of then issued and outstanding shares of Common Stock of the
Company; and (iv) all of the Escrow Shares will be released if the Company is
acquired by or merged into another entity, or if all of the outstanding shares
of Common Stock (including the Escrow Shares) are acquired, in a transaction in
which the Company's stockholders receive per-share consideration equal to or in
excess of (A) if the average sales price of the Company's Common Stock is less
than $10.00 per share, the greater of (x) 200% of the average sales price, up to
a maximum of $10.00 per share, or (y) $6.00 per share, and (B) if the average
sales price is equal to or greater than $10.00 per share, the average sales
price. The average sales price will be determined as the mean average of the
closing sales price over the preceding five business day period.

The Minimum After-Tax Income amounts set forth above will be (a)
calculated based upon the actual shares outstanding and calculated on a weighed
average fully diluted basis in accordance with generally accepted accounting
principles, exclusive of any extraordinary earnings or charges (including any
charges incurred in connection with the release from escrow of the Escrow Shares
and any Escrow Property (as defined below) in respect thereof) and (b) audited
by the Company's independent public accountants. The Minimum After-Tax Income
amounts set forth above will be subject to adjustment in the event of any stock
splits, reverse stock splits, or other similar events.

52
<PAGE> 56
Any money, securities, rights, or property distributed in respect of
the Escrow Shares shall be received by the escrow agent, including any property
distributed as dividends or pursuant to any stock split, merger,
recapitalization, dissolution, or total or partial liquidation of the Company
(the "Escrow Property"). If the applicable Minimum After-Tax Income levels or
other criteria set forth above have not been met by July 1, 1999, the Escrow
Shares, as well as any dividends or other distributions made with respect
thereto, will be canceled and contributed to the capital of the Company. The
Company expects that the release of the Escrow Shares to Dr. Birman would be
deemed compensatory and, accordingly, would result in a substantial charge to
operations, which would equal the then fair market value of such shares. Such
charge could substantially increase the loss or reduce or eliminate the
Company's net income for financial reporting purposes for the period during
which such shares are, or become probable of being, released from escrow.
Although the amount of compensation expense recognized by the Company will not
affect the Company's total stockholders' equity, it may have a negative effect
on the market price of the Company's securities. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and Note 16 of
the Notes to the Company's Consolidated Financial Statements.

The Minimum After-Tax Income levels and other criteria set forth above
were determined by negotiation between the Company and the Representative and
should not be construed to imply or predict any future earnings by the Company
or any increase in the market price of its securities.

53
<PAGE> 57
DESCRIPTION OF SECURITIES

GENERAL

The Company is incorporated in the State of Delaware. The Company is
authorized to issue 25,000,000 shares of Common Stock, $.001 par value per
share, and 5,000,000 shares of Preferred Stock, $.001 par value per share.

PREFERRED STOCK

There are no shares of Preferred Stock issued and outstanding. The
Board of Directors is authorized, subject to any limitations prescribed by law,
without further action of the stockholders of the Company, to issue from time to
time such shares of Preferred Stock in one or more classes or series, to
establish the number of shares to be included in each such class or series, to
fix or alter the designations, preferences, limitations and relative,
participating, optional or other special rights and qualifications or
restrictions of the shares of each such class or series, including the dividend
rights, dividend rates, conversion rights, voting rights, terms of redemption
(including sinking fund provisions), redemption price or prices, liquidation
preferences, and the number of shares constituting any class or series or the
designations of such class or series. The issuance of Preferred Stock could
adversely affect, among other things, the rights of existing stockholders or
could delay or prevent a change in control of the Company without further action
by the stockholders. The issuance of Preferred Stock could decrease the amount
of earnings and assets available for distribution to holders of Common Stock. In
addition, any such issuance could have the effect of delaying, deferring, or
preventing a change in control of the Company and could make the removal of the
present management of the Company more difficult.

COMMON STOCK

As of April 1, 1997, there were 8,756,254 shares of Common Stock issued
and outstanding, held of record by 800 stockholders. All of the issued and
outstanding shares of Common Stock are fully paid and non-assessable and all of
the shares of Common Stock issued in this Offering will be fully paid and
non-assessable. Holders of Common Stock are entitled to one vote for each share
held of record on all matters submitted to a vote of stockholders and are
entitled to receive such dividends, if any, as may be declared from time to time
by the Board of Directors out of funds legally available therefor, subject to
the dividend preferences of the Preferred

54
<PAGE> 58
Stock, if any. Upon the liquidation, dissolution, or winding up of the affairs
of the Company, whether voluntary or involuntary, the holders of Common Stock
are entitled to share ratably in all assets of the Company available for
distribution after payment of all liabilities and liquidation preferences of the
Preferred Stock, if any. Holders of Common Stock have no preemptive rights, no
cumulative voting rights, and no rights to convert their Common Stock into any
other securities.

SECTION 203 OF THE DELAWARE GCL AND CERTAIN CHARTER PROVISIONS

Upon the completion of this offering, the Company will be subject to
Section 203 of the Delaware GCL. Section 203 of the Delaware GCL prohibits a
publicly held Delaware corporation from engaging in a "business combination"
with an "interested stockholder" for a period of three years after the date of
the transaction in which the person became an interested stockholder, unless (i)
prior to the date of the business combination, the transaction is approved by
the board of directors of the corporation; (ii) upon consummation of the
transaction that resulted in the stockholder becoming an interested stockholder,
the interested stockholder owns at least 85% of the outstanding voting stock, or
(iii) on or after such date, the business combination is approved by the board
of directors and by the affirmative vote of at least 66 2/3% of the outstanding
voting stock that is not owned by the interested stockholder. A "business
combination" includes mergers, asset sales, and other transactions resulting in
a financial benefit to the stockholder. An "interested stockholder" is a person
who, together with affiliates and associates, owns (or within three years, did
own) 15% or more of the corporation's voting stock.

The Company's Certificate of Incorporation and By-Laws contain a number
of provisions relating to corporate governance and to the rights of
stockholders. Certain of these provisions may be deemed to have a potential
"antitakeover" effect in that such provisions may delay, defer, or prevent a
change of control of the Company. These provisions include (a) the requirement
that not less than 60% of the voting power present and entitled to vote approve
any proposal for (1) the merger of the Company with any other corporation, (2)
the sale, lease, transfer, or other disposition of all or any substantial part
of the Company's assets, or (3) the issuance of any of the Company's voting
securities in exchange or payment for any securities or other property of any
corporation or other entity; (b) the requirement that certain business
combinations with a control person be approved by the affirmative vote of not
less than 66 2/3% of the votes entitled to be cast generally by the outstanding
Common Stock or be unanimously approved by the Company's Board of Directors; and
(c) the authority of the Board of Directors to issue series of Preferred Stock
with such voting rights and other powers as the Board of Directors may
determine.

55
<PAGE> 59
REGISTRATION RIGHTS

This offering is in fulfillment of obligations of the Company to
register shares of the Company's Common Stock held by the Selling Shareholders.
Hereafter, the Company has no obligation to register shares of Common Stock for
any person or entity excluding only the shares issuable upon exercise of the
options pursuant to the Company's Stock Option Plans and pursuant to the
Representative's Warrants. See, "Stock Option Plans" and "Stock Issuable
Pursuant to Representative's Warrants, Options and Other Warrants."

TRANSFER AGENT

The Company's Transfer Agent is American Stock Transfer and Trust
Company, 40 Wall Street, New York, New York 10005.

SHARES ELIGIBLE FOR FUTURE SALE

As of May 15, 1997, the Company had outstanding 8,756,254 shares of
Common Stock, assuming no exercise of the Representative's Warrants, of which
2,300,000 were freely tradeable having been registered in the Company's initial
public offering dated February 12, 1997. The Selling Stockholders will sell
446,312 Shares in this offering. No new shares will be issued in connection
with this offering.

The remaining 5,989,942 shares of Common Stock outstanding after this
offering are deemed "restricted securities," as that term is defined under Rule
144 under the Securities Act, in that such shares were issued and sold by the
Company in transactions not involving a public offering. Of the 5,989,942
restricted shares of Common Stock outstanding, approximately 292,000 shares
became eligible for sale pursuant to Rule 144 commencing on May 13, 1997.

In general, under Rule 144 as currently in effect, subject to
satisfaction of certain other conditions, a person (or persons whose shares are
required to be aggregated), including any affiliate of the Company, who
beneficially owns "restricted shares" for a period of at least two years, is
entitled to sell within any three-month period, a number of shares that does not
exceed the greater of 1% (approximately 87,540 shares after this offering) of
the then-outstanding shares of Common Stock, or if the Common Stock is quoted on
Nasdaq, the average weekly trading volume of the Common Stock during the four
calendar weeks preceding the filing of the required notice of sale with the
Securities and Exchange Commission. The seller also must comply with the notice
and manner of sale requirements of Rule 144, and there must be current public
information available about the Company. In addition, any person (or persons
whose shares are aggregated) who has beneficially owned restricted shares for at
least three years and is not an affiliate of the Company can sell such shares
under Rule 144 without regard to any of the limitations described above.

56
<PAGE> 60

The Company intends to file a registration statement under the
Securities Act to register 1,558,780 shares of Common Stock reserved for
issuance upon the exercise of options which have been or may be granted pursuant
to the 1995 Option Plan and the 1996 Directors' Plan. See "Management -- Stock
Option Plans." Such registration statement is expected to be filed not earlier
than February 12, 1998 and is expected to become effective upon its filing.
After the effective date of such registration statement, shares acquired upon
the exercise of such options may generally be sold without restriction in the
public market, subject to Rule 144 notice requirements and volume limitations
for stockholders who are affiliates of the Company.

Each holder of Common Stock who is an officer, director, or key
employee of the Company has entered into a "lock-up" agreement providing that
such persons will not offer, sell, contract to sell, grant any option for the
sale of, or otherwise dispose of, directly or indirectly, any shares of the
Company's Common Stock that they currently own or that they subsequently acquire
upon exercise of options or warrants until December 20, 1998 without the written
consent of the Representative. In addition, all of the Company's other
stockholders have agreed not to sell their shares of Common Stock that they
currently own or that they subsequently acquire upon exercise of options or
warrants until December 20, 1998.

Prior to the Company's initial public offering, there was no public
market for the Common Stock of the Company. Since even the Shares registered
hereby will not be salable until December 20, 1998, no predictions can be made
regarding the effect, if any, that future sales of the Shares, of restricted
shares or the availability of restricted shares for sale will have on the market
price prevailing from time to time. Nevertheless, sales of substantial amounts
of the restricted shares of Common Stock in the public market could adversely
affect the then prevailing market prices for the Common Stock and could impair
the Company's ability to raise capital through the sale of its equity
securities.

LEGAL OPINIONS

The validity of the Shares will be passed upon for the Company by
Stanwood Smith - Lawyers, 601 South Figueroa Street, Suite 2600, Los Angeles,
California 90017.

EXPERTS

The financial statements of the Company included in this Prospectus and
elsewhere in the registration statement have been audited by BDO Seidman, LLP,
independent certified public accountants, as indicated in their report with
respect thereto, and are included in reliance upon the authority of said firm as
experts in giving said report. Financial statements of the Company for the
fiscal year ended

57
<PAGE> 61
June 30, 1995 included in this Prospectus have been audited by Semple & Cooper,
P.L.C., independent certified public accountants, for the period indicated in
their report thereof. Such financial statements have been included herein in
reliance upon the reports of such firms given upon their authority as experts in
accounting and auditing.

CHANGE IN ACCOUNTANTS

On July 24, 1996 the Company, with the approval of the Board of
Directors, advised Semple & Cooper, P.L.C. that it was dismissing such
accounting firm and was retaining the accounting firm of BDO Seidman, LLP as
independent public accountants for the Company and its subsidiaries for the
fiscal year ended June 30, 1996. The decision to retain BDO Seidman, LLP was
made because of that firm's extensive experience in representing public
companies and was not motivated by any disagreements between the Company and
Semple & Cooper, P.L.C. concerning any accounting matter. Semple & Cooper,
P.L.C. had been retained since 1994 and during the entire period of their
engagement with the Company there were no disagreements on any matter relative
to accounting principles or practices, financial statement disclosure, or
auditing scope or procedures which, if not resolved to Semple & Cooper, P.L.C.'s
satisfaction, would have resulted in a reference to the subject matters of the
disagreement in connection with its report. The Semple & Cooper, P.L.C. reports
on the Company's financial statements have not contained an adverse opinion or a
disclaimer of opinion, nor were the opinions qualified or modified as to
uncertainty, audit scope, or accounting principles, nor were there any events of
the type requiring disclosure under Item 304(a)(1)(iv) of Regulation S-B
promulgated under the Securities Act. During the two-year period prior to July
24, 1996, the Company did not consult BDO Seidman, LLP concerning any matter or
the type of opinion that might be rendered.

ADDITIONAL INFORMATION

The Company has filed with the Commission a Registration Statement
under the Securities Act with respect to the Shares offered hereby. This
Prospectus constitutes a part of the Registration Statement and does not contain
all of the information set forth therein and in the exhibits thereto, certain
portions of which have been omitted as permitted by the rules and regulations of
the Commission. For further information with respect to the Company and the
Common Stock offered hereby, reference is hereby made to such Registration
Statement and exhibits. Statements contained in this Prospectus as to the
contents of any document are not necessarily complete and in each instance are
qualified in their entirety by reference to the copy of the appropriate document
filed with the Commission. The Registration Statement, including the exhibits
thereto, may be examined without charge at the Commission's public reference
facility at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington D.C.
20549. In addition, copies of all or any part of the Registration Statement,
including such exhibits thereto, may be obtained from the Commission at its
principal office in Washington, D.C., upon payment of the fees prescribed by the
Commission.

<PAGE> 62
The Registration Statement and the reports and other information to be
filed by the Company following this offering in accordance with the Securities
Exchange Act of 1934, as amended, can be inspected and copied at the principal
office of the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington D.C. 20549, and at the following regional offices of the Commission:
7 World Trade Center, New York, NY 10048, and Northwestern Atrium Center, 500
West Madison Street, Suite 1400, Chicago, IL 60601. Copies of such material may
be obtained from the Public Reference Section of the Commission at its principal
office at 450 Fifth Street, N.W., Washington D.C. 20549, upon payment of the
fees prescribed by the Commission. The Commission maintains a Web site
(http://www.sec.gov) that contains reports, proxy and information statements,
and other information regarding registrants, such as the Company, that file
electronically with the Commission.

The Company intends to provide its stockholders with annual reports
containing financial statements audited by independent auditors and quarterly
reports for the first three fiscal quarters of each year containing unaudited
summary consolidated financial information.

59
<PAGE> 63
INDEX TO FINANCIAL STATEMENTS

BIRMAN MANAGED CARE, INC. AND SUBSIDIARIES

<TABLE>
<S> <C>
Reports of Independent Certified Public Accountants .................................... 61-62

Consolidated Balance Sheet as of June 30, 1996 and March 31, 1997 (Unaudited) .......... 63

Consolidated Statements of Operations for the years ended June 30, 1995 and 1996 and the
nine months ended March 31, 1996 and 1997 (Unaudited) ............................... 64

Consolidated Statements of Changes in Stockholders' Equity for the years ended
June 30, 1995 and 1996 and the nine months ended March 31, 1997 (Unaudited) ......... 65

Consolidated Statements of Cash Flows for the years ended June 30, 1995 and
1996 and the nine months ended March 31, 1996 and 1997 (Unaudited) .................. 66

Notes to Consolidated Financial Statements ............................................. 67
</TABLE>

60
<PAGE> 64
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

Birman Managed Care, Inc. and Subsidiaries

Cookeville, Tennessee

We have audited the accompanying consolidated balance sheet of Birman
Managed Care, Inc. and Subsidiaries (the "Company") as of June 30, 1996, and the
related consolidated statements of operations, shareholders" equity and cash
flows for the year then ended. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audit.

We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Birman
Managed Care, Inc. and Subsidiaries at June 30, 1996, and the results of their
operations and their cash flows for the year then ended in conformity with
generally accepted accounting principles.

BDO Seidman, LLP

Los Angeles, California

August 2, 1996, except for
Notes 7 and 16, which are as
of September 9, 1996

61
<PAGE> 65
INDEPENDENT AUDITORS' REPORT

To The Stockholders and Board of Directors of

Birman Managed Care, Inc. and Subsidiaries

We have audited the accompanying consolidated statements of operations,
changes in stockholders' equity, and cash flows of Birman Managed Care, Inc. and
Subsidiaries for the year ended June 30, 1995. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audit.

We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the results of operations, changes in
stockholders' equity, and cash flows of Birman Managed Care, Inc. and
Subsidiaries for the year ended June 30, 1995, in conformity with generally
accepted accounting principles.

SEMPLE & COOPER, P.L.C.

Certified Public Accountants

Phoenix, Arizona

July 19, 1996

62
<PAGE> 66
BIRMAN MANAGED CARE, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEET

<TABLE>
<CAPTION>
JUNE 30, MARCH 31,
1996 1997
---------- ------------
UNAUDITED
<S> <C> <C>
ASSETS

Current assets:
Cash and cash equivalents (Notes 1 and 2) ............. 1,872,343 $ 8,144,821
Accounts receivable, net of allowance
for doubtful accounts of $44,159 and $36,936
(Notes 1 and 2) ..................................... 1,043,771 1,787,863
Prepaid expenses and other ............................ 9,903 49,582
Notes receivable ..................................... 22,323 34,980
Deferred tax asset (Notes 1 and 8) .................... 95,549 119,549
---------- ------------
Total current assets ............................... 3,043,889 10,136,795
---------- ------------

Property and equipment, net of accumulated depreciation
(Notes 1, 4, 5 and 6) ................................. 293,684 618,446

Note receivable - related party (Note 3) ................. 631,173 --
Deferred offering costs (Note 1) ......................... 25,000 --

Restricted Certificates of Deposit ....................... -- 500,000
Goodwill (Notes 1 and 16) ................................ 16,145 1,242,250
Other assets ............................................. -- 149,026
---------- ------------
Total assets ....................................... $4,009,891 $ 12,646,517
========== ============

LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities:
Current portion of note payable (Note 5) .............. $ 2,435 $ 210,219
Current portion of capital lease obligations (Note 6) . 1,540 1,201
Accounts payable ...................................... 117,025 363,637
Accrued expenses ...................................... 2,050 206,823
Income taxes payable (Notes 1 and 8) .................. 635,205 80,815
---------- ------------

Total current liabilities .......................... 758,255 862,695

Note payable, less current portion (Note 5) .............. 5,028 612,598
Capital lease obligations, less current portion (Note 6) . 2,009 --
Deferred income taxes payable (Notes 1 and 8) ............ 55,620 55,620
Minority Interest ........................................ -- 261,512
---------- ------------
Total liabilities .................................. 820,912 1,792,425
---------- ------------
Stockholders" equity: (Note 11)
Preferred stock, $.001 par value, 5,000,000 shares
authorized, none issued or outstanding .............. -- --
Common stock, $.001 par value, 25,000,000 shares
authorized, 8,756,254 and 6,931,082 issued and
outstanding, respectively ........................... 6,931 8,756
Additional paid-in capital ............................ 1,780,612 8,588,845
Retained earnings ..................................... 1,401,436 2,256,491
---------- ------------
Total stockholders' equity ......................... 3,188,979 10,854,092
---------- ------------

Total liabilities and stockholders' equity ......... $4,009,891 $ 12,646,517
========== ============
</TABLE>

63
<PAGE> 67
BIRMAN MANAGED CARE, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
Year Ended Nine Months Ended
----------------------------- ---------------------------
June 30, June 30, March 31, March 31,
1995 1996 1996 1997
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Revenue .................................................... $ 4,817,572 $ 8,416,946 $5,789,950 $8,804,132
Cost of revenue ............................................ 2,381,023 2,278,932 1,592,120 3,104,205
----------- ----------- ---------- ----------
Gross margin ............................................... 2,436,549 6,138,014 4,197,830 5,699,927
Selling, general and administrative expenses ............... 3,113,660 4,236,607 3,235,402 4,388,309
----------- ----------- ---------- ----------
Income (loss) from operations .............................. (677,111) 1,901,407 962,428 1,311,618
----------- ----------- ---------- ----------
Other income (expense):
Interest expense ......................................... (57,857) (44,835) (39,242) (3,501)
Interest income .......................................... 28,758 47,257 28,655 114,937
Loss on sale of assets ................................... (1,464) (5,065) -- --
Minority Interest in Subsidiary Earnings.................. -- -- -- 1,890
----------- ----------- ---------- ----------
(30,563) (2,643) (10,587) 113,326
----------- ----------- ---------- ----------

Income (loss) before provision for
income taxes .......................................... (707,674) 1,898,764 951,841 1,424,944
Provision for income tax (expense)
benefit (Note 8) ...................................... 224,331 (726,983) (323,881) (569,889)
----------- ----------- ---------- ----------
Income (loss) from continuing operations ................... (483,343) 1,171,781 627,960 855,055
Discontinued operations: (Note 10)
Loss from discontinued operations
(net of income tax benefit of
$143,700 in 1995) ................................... (215,550) -- -- --
----------- ----------- ---------- ----------

Net income (loss) .......................................... $ (698,893) $ 1,171,781 $ 627,960 $ 855,055
=========== =========== ========== ==========
Primary income (loss) per common
stock share: (Note 1)
Income (loss) from continuing operations .............. $ (.07) $ .17 $ .09 $ .12
Loss from discontinued operations ..................... (.03) -- -- --
----------- ----------- ---------- ----------
Net income (loss) per share ........................... $ (.10) $ .17 $ .09 $ .12
=========== =========== ========== ==========
Weighted average common shares
outstanding (Note 1) .................................. 6,703,517 6,703,517 6,703,517 6,894,169
=========== =========== ========== ==========
Fully diluted income (loss) per common stock share: (Note 1)
Income (loss) from continuing operations .............. $ (.07) $ .15 $ .08 $ .11
Loss from discontinued operations ..................... (.03) -- -- --
----------- ----------- ---------- ----------
Net income (loss) per share ........................... $ (.10) $ .15 $ .08 $ .11
=========== =========== ========== ==========
Weighted average common shares
outstanding (Note 1) .................................. 6,703,517 7,703,517 7,703,517 7,961,152
=========== =========== ========= =========
</TABLE>

The accompanying notes are an integral part of the consolidated financial
statements

64
<PAGE> 68
BIRMAN MANAGED CARE, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

FOR THE YEARS ENDED JUNE 30, 1995 AND 1996 AND THE NINE-MONTH PERIOD ENDED

MARCH 31, 1997 (UNAUDITED)

<TABLE>
<CAPTION>
Common Stock Additional Total
Preferred -------------------------- Paid-In Retained Stockholders'
Stock Shares Account Capital Earnings Equity
<S> <C> <C> <C> <C> <C> <C>
Balance at June 30, 1994 ............ $ -- 5,470,467 $ 5,471 $ 2,029 $ 1,158,548 $ 1,166,048

Dividend distr. (Note 10) ........... -- -- -- -- (230,000) (230,000)

Net loss ............................ -- -- -- -- (698,893) (698,893)
--------- --------- ---------- ---------- ----------- ------------
Balance at June 30, 1995 ............ -- 5,470,467 5,471 2,029 229,655 237,155
--------- --------- ---------- ---------- ----------- ------------
Stock sales (Note 11) ............... -- 1,332,970 1,333 1,603,710 -- 1,605,043

Issuance of stock for debt .......... -- 127,645 127 174,873 -- 175,000

Net income .......................... -- -- -- 1,171,781 1,171,781
--------- --------- ---------- ---------- ----------- ------------
Balance at June 30, 1996 ............ -- 6,931,082 6,931 1,780,612 1,401,436 3,188,979
--------- --------- ---------- ---------- ----------- ------------
Stock sales (Note 16)................. -- 2,000,000 2,000 7,612,736 -- 7,614,736

Stock retired for debt (Note 16)...... -- (174,800) (175) (804,503) -- (804,678)

Retirement of fractional shares ...... -- (28) -- -- -- --

Net income (unaudited) .............. -- -- -- -- 855,055 855,055
--------- --------- ---------- ---------- ----------- ------------
Balance at March 31, 1997 (unaudited) $ -- 8,756,254 $ 8,756 $8,588,845 $ 2,256,491 $ 10,854,092
========= ========= ========== ========== =========== ============
</TABLE>

The accompanying notes are an integral part of the consolidated financial
statements

65
<PAGE> 69
BIRMAN MANAGED CARE, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
Year Ended Nine Months Ended
------------------------------ ---------------------------
June 30, June 30, March 31, March 31,
1995 1996 1996 1997
----------- ----------- ---------- ----------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Increase (Decrease) in Cash and Cash
Equivalents
Cash flows from operating activities:
Net income (loss) from continuing operations ........... $ (483,343) $ 1,171,781 $627,960 $855,055
Adjustments to reconcile net income (loss)
to net cash provided by (used in)
operating activities:
Depreciation and amortization ..................... 83,981 73,814 66,907 88,405
Loss on sale of assets ............................ 1,464 5,065 -- --
Interest income debited to note receivable ........ (28,427) (28,011) (909) --
Receivable converted to note receivable ........... (5,500) -- -- --
Loss from discontinued operations ................. (215,550) -- -- --
Interest expense credited to note payable ......... 1,900 -- -- --
Changes in operating assets and
liabilities:
Accounts receivable ........................... 241,193 (547,706) (706,724) (744,092)
Prepaid expenses and other .................... -- (9,903) 5,000 (52,336)
Deferred tax asset ............................ (308,970) 27,372 92,301 (24,000)
Goodwill ...................................... -- (16,145) -- --
Other assets .................................. -- -- (3,722) (16,601)
Accounts payable -- trade ..................... 8,439 (264,953) 14,960 246,612
Bank Overdraft ................................ -- -- (114,550) --
Accrued expenses .............................. 8,771 (6,721) 41,221 204,773
Income taxes payable
-- current ................................... (35,260) 596,138 338,907 (554,390)
-- deferred .................................. (98,128) 213,421 (7,000) --
----------- ----------- -------- ----------

Net cash provided by (used in) operating activities .... (829,430) 1,214,152 354,351 3,426
----------- ----------- -------- ----------
Cash flows from investing activities:
Purchase of property and equipment ................ (65,527) (107,035) (72,053) (413,167)
Collection of notes receivable -- related parties 441,784 -- 107,187 804,078
Advances for notes receivable -- related party .... (269,930) (343,579) (419,859) (172,905)
Proceeds from sale of assets ...................... 144,299 2,325 -- --
Acquisition of Canton Management Group, Inc. ...... -- -- -- (1,572,617)
----------- ----------- -------- ----------
Net cash provided by (used in) investing activities 250,626 (448,289) (384,725) (1,354,611)
----------- ----------- -------- ----------
Cash flows from financing activities:
Proceeds from debt ................................ 1,091,000 81,548 161,100 819,000
Payments on capital leases ........................ -- -- -- (2,348)
Payments on debt .................................. (548,070) (565,444) (371,935) (3,647)
Proceeds from sale of stock ....................... -- 1,605,043 992,500 10,000,000
Offering costs .................................... -- (25,000) (175,947) (2,385,264)
Retirement of Common Stock ........................ -- -- -- (804,078)
----------- ----------- -------- ----------
Net cash provided (used in) by financing activities 542,930 1,096,147 605,718 7,623,663
----------- ----------- -------- ----------
Net increase (decrease) in cash and cash equivalents ... (35,874) 1,862,010 575,344 6,272,478
Cash and cash equivalents at beginning of year ......... 46,207 10,333 10,333 1,872,343
----------- ----------- -------- ----------
Cash and cash equivalents at end of year ............... $ 10,333 $ 1,872,343 $585,677 $8,144,821
=========== =========== ======== ==========
</TABLE>

The accompanying notes are an integral part of the consolidated financial
statements

66
<PAGE> 70
BIRMAN MANAGED CARE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(INFORMATION WITH RESPECT TO MARCH 31, 1996 AND 1997 IS UNAUDITED)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

BUSINESS SUMMARY:

The Company is a health care consulting and management company
dedicated to improving the quality, controlling the cost and enhancing the
efficiency of the management and delivery of health care services by focusing on
the physician as the most important factor in the health care system. In
pursuing these goals, the Company currently provides its proprietary "Quality
Management Program" to hospitals and their attending physicians. In addition,
the Company is developing and will operate various health plans in association
with physician networks, hospitals, and other health care providers.

The Company was organized in 1994 and reincorporated in Delaware in
1996 to serve as the holding company of Birman & Associates, Inc., and BMC
Health Plans, Inc. The Company acquired a third subsidiary on June 14, 1996,
through an asset purchase of Hughes & Associates, Inc. The operations of Hughes
& Associates, Inc. are immaterial. This represents a change in the legal entity,
but not in the operations of the Company. As such, the accompanying consolidated
financial statements are presented on a continuing basis. In addition, effective
June 30, 1995, the Company adopted a June 30 fiscal year end. On September 9,
1996, the Company was reincorporated in Delaware by means of a merger in which
shareholders of the Company received 72,939 shares of Common Stock for each 100
shares of Common Stock then outstanding.

Birman Farms -- Discontinued Operation:

The Company held and operated Birman Farms, a livestock breeding
operation, which utilizes farm land owned personally by David N. Birman, M.D.
and Sue Birman, the principal stockholders and officers and directors of the
Company. Effective June 30, 1995, the Company separately incorporated Birman
Farms and distributed the shares of stock as a dividend to David N. Birman, M.D.

Principles of Consolidation:

The accompanying consolidated financial statements include the accounts
of Birman Managed Care, Inc. and its wholly owned subsidiaries: Birman &
Associates, Inc., BMC Health Plans, Inc., Hughes & Associates, Inc. and Care 3,
Inc., 60% owned by the Company. All significant intercompany accounts and
transactions have been eliminated in consolidation.

Cash and Cash Equivalents

Cash and cash equivalents include all highly liquid investments
purchased with an initial maturity of three months or less.

Accounts Receivable

Accounts receivable represent amounts earned but not collected in
connection with consulting services performed by the Company.

The Company follows the allowance method of recognizing uncollectible
accounts receivable. The allowance method recognizes bad debt expense as a
percentage of accounts receivable, based on a review of the individual accounts
outstanding and the Company's prior history of uncollectible accounts
receivable.

Property and Equipment:

Property and equipment are stated at cost. Depreciation is provided for
on the straight-line method over the estimated useful lives of the assets.
Maintenance and repairs that neither materially add to the value of the property
nor appreciably prolong its life are charged to expense as incurred. Betterments
or renewals are capitalized when incurred.

67
<PAGE> 71
BIRMAN MANAGED CARE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(INFORMATION WITH RESPECT TO MARCH 31, 1996 AND 1997 IS UNAUDITED)

The estimated useful lives for asset classifications, are as
follows:

<TABLE>
<S> <C>
Computer equipment.......................... 5 years

Office equipment and motor vehicles........... 5 years

Furniture and fixtures........................ 5 years

Leasehold improvements........................ 10 years
</TABLE>

Deferred Offering Costs:

Deferred offering costs represent costs incurred in connection with the
Company's initial public offering of common stock. Deferred offering costs were
netted against the net proceeds from the offering on February 12, 1997.

Goodwill:

Goodwill of $14,934 represents the excess of the cost of acquiring the
assets of Hughes & Associates, Inc. over the fair value of their net assets at
the date of acquisition, June 14, 1996, and is being amortized on the
straight-line method over five years. Goodwill of $1,227,316 represents the
excess of the cost of acquiring the stock of Canton Management Group, Inc.
(renamed Care 3, Inc.) at the date of acquisition, January 15, 1997 and will be
amortized on the straight-line method over 35 years commencing when operations
begin. No amortization expense was recorded for the year ended June 30, 1996.
For the nine month period ended March 31, 1997 (unaudited), amortization expense
of $1,212 was recorded. The carrying value of goodwill will be periodically
reviewed by the Company and impairments, if any, will be recognized when
expected future operating cash flows derived from goodwill are less than their
carrying value.

Income Taxes:

For tax reporting purposes, the Company currently reports revenue and
expenses based on the accrual basis method of accounting for the fiscal year
ended June 30, 1996. Previously, the Company used the cash basis method for the
six-month period ended June 30, 1995.

The Company provides for income taxes in accordance with Statement of
Financial Accounting Standards No. 109 ("SFAS No. 109"), "Accounting for Income
Taxes". Under SFAS No. 109, deferred tax assets and liabilities are recognized
for the future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and liabilities and
their respective tax basis and the utilization of the net operating loss
carryforwards. Deferred tax assets and liabilities are measured using enacted
tax rates expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled.

Accounting Estimates:

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.

Earnings Per Share:

Earnings per share are based upon the weighted average number of shares
outstanding for each of the respective years. All weighted average shares
outstanding give retroactive effect to the 1,000 for 1 stock split in October
1995 and the 72.939 for 100 exchange of shares of Common Stock in connection
with the reincorporation of the Company in Delaware in September 1996. The
Company completed an initial public offering of its Common Stock. Pursuant to
Securities and Exchange Commission rules,

68
<PAGE> 72

BIRMAN MANAGED CARE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(INFORMATION WITH RESPECT TO MARCH 31, 1996 AND 1997 IS UNAUDITED)

shares of Common Stock issued for consideration below the anticipated offering
price per share during the 12-month period prior to filing of the registration
statement has been included in the calculation of common share equivalent
shares, using the treasury stock method, as if they had been outstanding for all
periods presented. In addition, shares of Common Stock that are subject to
options and warrants having exercise prices that are below the anticipated
offering price per share, whether or not exercisable, have been included in the
earnings per share calculation, using the treasury stock method. One million
shares of common stock to be placed in escrow upon completion of the proposed
public offering, which are common stock equivalents, have been included in the
calculation of fully diluted earnings per share, when they are not
anti-dilutive. See Note 16.

Interim Financial Information:

The interim financial statements for the three months ended March 31,
1996 and 1997 are unaudited. In the opinion of management, such statements
reflect all adjustments (consisting of normal recurring adjustments) necessary
for a fair presentation of the results of the interim period. The results of
operations for the nine months ended March 31, 1997 are not necessarily
indicative of the results for the entire year.

New Accounting Pronouncements:

Statement of Financial Accounting Standards No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed of"
(SFAS No. 121) issued by the Financial Accounting Standards Board is effective
for financial statements for fiscal years beginning after December 15, 1995. The
new standard establishes new guidelines regarding when impairment losses on
long-lived assets, which include plant and equipment and certain identifiable
intangible assets, should be recognized and how impairment losses should be
measured. The Company adopted this accounting standard on July 1, 1996, and its
effects on the financial position and results of the operations were immaterial.

<PAGE> 73
Statements of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" (SFAS No. 123) issued by the Financial Accounting
Standards Board is effective for specific transactions entered into after
December 15, 1995, while the disclosure requirements of SFAS No. 123 are
effective for financial statements for fiscal years beginning after December 31,
1995. The new standard establishes a fair value method of accounting for
stock-based compensation plans and for transactions in which an entity acquires
goods or services from nonemployees in exchange for equity instruments. The
Company adopted this accounting standard on July 1, 1996, and its effects on the
financial position and results of the operations were immaterial. The Company
will continue to account for employee purchase rights and stock options under
APB Opinion No. 25, "Accounting for Stock Issued to Employees."

Statements of Financial Accounting Standards No. 125, "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities"
(SFAS No. 125) issued by the Financial Accounting Standards Board (FASB) is
effective for transfers and servicing of financial assets and extinguishments of
liabilities occurring after December 31, 1996, and is to be applied
prospectively. Earlier or retroactive application is not permitted. The new
standard provides accounting and reporting standards for transfers and servicing
of financial assets and extinguishment of liabilities. The Company adopted this
accounting standard on January 1, 1997 and its effects on the financial position
and results of the operations were immaterial.

On March 3, 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, "Earnings per Share" (SFAS
128). This pronouncement provides a different method of calculating earnings per
share than is currently used in accordance with APB 15, "Earnings per Shares."
SFAS 128 provides for the calculation of Basic and Diluted earnings per share.
Basic earnings per share includes no dilution and is computed by dividing income
available to common shareholders by the weighted average number of common shares
outstanding for the period. Diluted earnings per share reflects the potential
dilution of securities that could share in the earnings of an entity, similar to
fully diluted earnings per share. This pronouncement is effective for fiscal
years and interim periods ending after December 15, 1997; early adoption is not
permitted. The Company has not determined the effect, if any, of adoption on its
earnings per share computations.

2. CONCENTRATION OF CREDIT RISK:

The Company maintains cash and cash equivalents at three financial
institutions. Deposits not to exceed $100,000 at each financial institution are
insured by the Federal Deposit Insurance Corporation. At June 30, 1996, and
March 31, 1997 (unaudited), the Company has uninsured cash and cash equivalents
in the amount of $1,790,463 and $4,506,951, respectively.

Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of accounts receivable. The
Company's accounts receivable primarily result from its consulting services with
rural hospitals in the southeastern, central and south central portion of the
United States. The receivables are primarily billed monthly and are unsecured.
Ongoing credit evaluation and account monitoring procedures are utilized to
minimize the risk of loss.

<PAGE> 74
BIRMAN MANAGED CARE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(INFORMATION WITH RESPECT TO MARCH 31, 1996 AND 1997 IS UNAUDITED)

3. RELATED PARTY TRANSACTIONS:

Notes Receivable:

Included in notes receivable at June 30, 1996 are the following related
party notes and interest receivable:

<TABLE>
<CAPTION>
June 30,
1996
--------
<S> <C>
7% notes receivable from David N. Birman, M.D., due on demand $556,586
Interest receivable -- David N. Birman, M.D. ................ 74,587
--------
$631,173
========
</TABLE>

For the year ended June 30, 1996, the Company advanced approximately
$343,000 to David N. Birman, M.D. On September 1, 1996, the Company consolidated
the 7% note receivable and all accrued interest into the new note receivable in
the principal amount of $775,000.

On February 12, 1997, Dr. Birman tendered 174,800 shares of his Common
Stock, valued at $4.60 per share, as payment in full of his note to the Company
in the amount of $775,000, plus accrued interest, at the time of the closing of
the IPO.

4. PROPERTY AND EQUIPMENT:

At June 30, 1996, and March 31, 1997 (unaudited) property and
equipment consist of the following:

<TABLE>
<CAPTION>
June 30, March 31,
1996 1997
-------- --------
(unaudited)
<S> <C> <C>
Computer and office equipment ................ $303,000 $513,095
Furniture and fixtures ....................... 125,286 335,116
Motor vehicles ............................... 44,306 44,306
Leasehold improvements ....................... 2,544 --
-------- --------
475,136 892,517
Less accumulated depreciation and amortization 181,452 274,071
-------- --------
$293,684 $618,446
======== ========
</TABLE>

For the years ended June 30, 1995 and 1996, depreciation expense was
$83,981 and $73,814, respectively. For the nine months ended March 31, 1996 and
1997 (unaudited), depreciation expense was $88,405 and $66,907, respectively.

<PAGE> 75
BIRMAN MANAGED CARE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(INFORMATION WITH RESPECT TO MARCH 31, 1996 AND 1997 IS UNAUDITED)

5. NOTES PAYABLE:

At June 30, 1995 and 1996, and March 31, 1997 (unaudited) notes payable
consist of the following:

<TABLE>
<CAPTION>
June 30, June 30, March 31,
1995 1996 1997
-------- -------- ---------
(unaudited)
<S> <C> <C> <C>
Line of credit with First American Bank. The line
of credit is due in September 1996, with an
interest rate of prime plus .75%; collateralized
by accounts receivable and was repaid in June 1996.... $396,000 $-- $--

Note payable to First American Bank. The note is
due in July 1995, with an interest rate of 9.5%;
collateralized by accounts receivable................. 80,000 -- --

Notes payable due to unrelated parties, non-interest
bearing, due on demand; unsecured. The notes were
repaid through the issuance of common stock in
July 1995............................................. 175,000 -- --

Note payable to Toyota Motor Credit Corp. The note
is due and payable in March 1999, with an
interest rate of 12.5%; collateralized by a
vehicle............................................... -- 7,463 5,717

Note payable to Trinity Computer Services, Inc.
The note is non-interest bearing and is payable
in quarterly installments of $1,900. The note is
due in April 1999 and is collateralized by
computer software..................................... -- -- 17,100

Note payable to Canton Holding L.L.C. The note
bears interest at 2% per annum and is payable
in annual installments of $200,000.................... -- -- 800,000
-------- ------- --------
651,000 7,463 822,817

Less current portion of long-term notes
payable............................................... (651,000) (2,435) (210,219)
-------- ------- --------
$ -- $ 5,028 $612,598
======== ======= ========
</TABLE>

72
<PAGE> 76
Line of Credit

In August 1996, the Company arranged a $1,000,000 maximum principal
amount working capital revolving line of credit facility ("facility") with
American National Bank and Trust Company of Chicago. The facility has an initial
maturity date of October 31, 1997. The facility provides for the accrual of
interest at a floating annual rate equal to the lender's prime rate on the
unpaid principal balance. The facility is secured by a pledge of the Company's
Quality Management Program and quality assurance/utilization review accounts
receivable. Under the terms of the facility, the Company can borrow up to the
lesser of: (i) $1,000,000, or (ii) the maximum facility minus any letter of
credit obligations, or (iii) the "Borrowing Base", (i.e., up to 75% of the face
amount of all then existing eligible receivables), minus any letter of credit
obligations. At March 31, 1997, there was a zero balance on the line of credit.

6. CAPITAL LEASE OBLIGATIONS:

The Company is the lessee of a telephone system, with an aggregate cost
of $4,410, under a capital lease agreement which expires in April 1998. As of
June 30, 1996 and March 31, 1997 (unaudited), minimum future lease payments due
under the capital lease agreement for the next two years, are as follows:

<TABLE>
<CAPTION>
June 30, March 31
1996 1997
-------- --------
(unaudited)
<S> <C> <C>
1997............................................. $ 2,684 $ 782
1998............................................. 2,440 680
------- -------
</TABLE>

<TABLE>
<S> <C> <C>
Total minimum lease payments .................... 5,124 1,462
Less amount representing interest................ (1,575) (261)
------- -------
Present value of net minimum lease payments ..... 3,549 1,201
Less current portion ............................ (1,540) (1,201)
------- -------
Long-term maturities of capital lease obligations $ 2,009 $ 0
======= =======
</TABLE>

The interest rate is imputed based on the lessor's implicit rate of
return at the inception of the lease.

<PAGE> 77

BIRMAN MANAGED CARE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(INFORMATION WITH RESPECT TO MARCH 31, 1996 AND 1997 IS UNAUDITED)

7. COMMITMENTS AND CONTINGENCIES:

Operating Leases:

The Company is currently leasing vehicles and office space under
various non-cancelable operating lease agreements, expiring in April 1998. The
terms of the lease agreements provide for monthly payments ranging from $138 to
$3,450. At June 30, 1996 and March 31, 1997 (unaudited), a schedule of future
minimum lease payments due under the non-cancelable operating lease agreements
is as follows:

The Company recently entered into a lease for approximately a 20,000
square foot building to be built to the Company's specification in Cookeville,
Tennessee. The term of the lease will be ten years commencing upon completion
of the building, which is expected to occur in the fourth quarter of calendar
1997.

<TABLE>
<CAPTION>
June 30, March 31,
1996 1997
-------- ---------
(unaudited)
<S> <C> <C>
1997.................................. $ 34,604 $ 11,667
1998 ................................. 12,745 76,284
1999 ................................. -- 27,659
2000 ................................. -- 1,558
-------- --------
$ 47,349 $117,168
======== ========
</TABLE>

Rent expense under the foregoing operating lease agreements for the
years ended June 30, 1995 and 1996 was $101,040 and $110,588, respectively. Rent
expense for the nine months ended March 31, 1996 and 1997 (unaudited) was
$26,387 and $118,966, respectively. The Company occupies office premises in
Cookeville, Tennessee, Jackson, Mississippi, Gulfport, Mississippi, and Phoenix,
Arizona. Rent under these facility leases for the years ended June 30, 1995 and
1996 and nine months ended March 31, 1996 and 1997 (unaudited) was
$49,117, $63,258, $45,855 and $81,240, respectively.

74
<PAGE> 78

Employment Contracts:

The Company has entered into employment contracts with eight key
employees, including David N. Birman, M.D. and Sue D. Birman, through June 2001,
which provide for minimum annual salary, adjusted for cost-of-living changes,
and incentives based on the Company's attainment of specified levels of sales
and earnings. At June 30, 1996 and March 31, 1997 (unaudited), the total
commitment, excluding incentives, was approximately $5.1 and $4.2 million over
the next five years, respectively.

Other Commitments:

Effective September 1, 1996, the Company entered into a consulting
agreement with Richard M. Ross, a former officer and director. Under the terms
of the agreement the Company will pay a fee of $186,000 per annum, payable in
equal monthly installments. The contract is renewable annually for up to six
consecutive years.

8. INCOME TAXES AND DEFERRED INCOME TAXES:

The provision (benefit) for income taxes consists of the following:

<TABLE>
<CAPTION>
Year Ended Nine Months Ended
------------------------- -----------------------
June 30, June 30, March 31, March 31,
1995 1996 1996 1997
--------- -------- -------- --------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Federal............ $(174,531) $565,183 $251,979 $443,373
State ............. (49,800) 161,800 71,902 126,516
--------- -------- -------- --------
$(224,331) $726,983 $323,881 $569,889
========= ======== ======== ========
</TABLE>

<PAGE> 79
BIRMAN MANAGED CARE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(INFORMATION WITH RESPECT TO MARCH 31, 1996 AND 1997 IS UNAUDITED)

The provision (benefit) for income taxes based on income from
continuing operations differs from the amount obtained by applying the statutory
federal income tax rate to income before taxes primarily due to state income
taxes.

The temporary differences that give rise to the deferred tax asset
(liability) at June 30, 1996 and March 31, 1997 (unaudited), are presented
below:

Deferred tax asset -- current:

<TABLE>
<CAPTION>
June 30, March 31,
1996 1997
--------- ---------
(unaudited)
<S> <C> <C>
Allowance for doubtful accounts .......................... $ 18,990 $ 18,990
Adjustment due to change from the cash method of
reporting income for income taxes to the accrual
method ............................................ 76,559 $ 76,559
Adjustment due to acquisition of deferred tax asset - net
operating loss carry forward from Canton Management
Group, Inc. ....................................... -- 24,000
--------- ---------
$ 95,549 $ 119,549
========= =========
Deferred tax liability -- long-term:
Excess of depreciation for income tax reporting
purposes over depreciation
for financial reporting purposes ..................... $ (55,620) $ (55,620)
========= =========
</TABLE>

<PAGE> 80

No valuation allowance has been recorded since it is more likely than
not that the net deferred tax asset will be realized.

9. STATEMENTS OF CASH FLOWS:

During the years ended June 30, 1995 and 1996 and for the nine months
ended March 31, 1997 (unaudited), the Company recognized investing and financing
activities that affected assets and liabilities but did not result in cash
receipts or payments.

For the year ended June 30, 1995, these non-cash activities are as
follows:

The Company reclassified $5,500 from accounts receivable to a note
receivable.

The Company accrued and added $28,427 of interest to notes receivable
from David N. Birman M.D.

The Company declared and distributed as a dividend all of the farm
assets in the net amount of $230,000.

The Company made payments for interest in the amount of $555,957.
Payments were made for income taxes in the amount of $74,327.

For the year ended June 30, 1996, these non-cash activities are as
follows:

The Company accrued and added $28,011 of interest to notes receivable
from David N. Birman, M.D.

The Company financed the purchase of an automobile in the amount of
$8,007.

The Company retired debt in the amount of $175,000 through the issuance
of Common Stock.

The Company made payments for interest in the amount of $46,735. A
refund was received for income taxes in the amount of $76,530.

For the nine months ended March 31, 1996 (unaudited), these non-cash
activities are as follows:

The Company accrued and added $909 of interest to notes receivable from
David N. Birman M.D.

The Company received a refund for income taxes in the amount of
$55,888.

The Company made payments for interest and taxes in the amount of
$39,242, and $17,570, respectively.

<PAGE> 81
BIRMAN MANAGED CARE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(INFORMATION WITH RESPECT TO MARCH 31, 1996 AND 1997 IS UNAUDITED)

For the nine months ended March 31, 1997 (unaudited), these non-cash
activities are as follows:

The Company made payments for interest and taxes in the amount of
$2,158 and $1,124,942, respectively.

10. DISCONTINUED OPERATIONS:

Birman & Associates, Inc. disposed of Birman Farms as of June 30, 1995.
The assets disposed of were primarily comprised of farm equipment and livestock.
The farm operation had previously been reported as an operating segment of
Birman & Associates, Inc. Birman Farms was placed under a separate corporation
and shares were distributed as a dividend in the amount of $230,000, which
approximates fair market value, to Dr. Birman.

Net revenues of Birman Farms for 1995 were $23,076. This amount is not
included in net sales in the accompanying consolidated statement of operations.

11. STOCKHOLDERS' EQUITY:

On October 31, 1995, the Company declared a 1,000-for-1 stock split of
the Company's Common Stock. On September 9, 1996, the Company was reincorporated
in Delaware by means of a merger in which shareholders received 72.939 shares of
Common Stock for each 100 shares of Common Stock

then outstanding. The accompanying consolidated financial statements give
retroactive effect to the aforementioned transactions.

During June 1996, the Company issued 1,332,970 shares of Common Stock
in a private placement. The shares of Common Stock were sold at $1.37 per share.
The net proceeds of $1,605,043 were net of offering expenses of $222,457.

The Company successfully completed its initial public offering of
2,000,000 shares of its common stock, par value $.001 per share, at a price of
$5.00 per share sold under its registration statement and prospectus dated
February 12, 1997. The offering closed on February 19, 1997, and net proceeds of
$7,639,000 were received by the Company.

12. STOCK OPTION PLAN:

On October 31, 1995, the Company approved the 1995 Stock Option Plan
(the "Plan"). The aggregate of Common Stock that may be issued pursuant to the
Plan will not exceed 1,458,780 shares. Pursuant to the Plan, the Company has
issued stock options to various key employees. The table below summarizes the
Company's stock option transactions:

<TABLE>
<CAPTION>
Number Exercise Aggregate
of Shares Price Value
--------- -------- ----------
<S> <C> <C> <C>
Balance at June 30, 1995 -- $ -- $ --
Options granted 1,006,566 1.37 1,380,000
--------- ----------
Balance at June 30, 1996 1,006,566 1,380,000
Options granted 55,000 5.00 275,000
Options forfeited (194,505) 1.37 (266,472)
--------- ----------
Balance at March 31, 1997 (unaudited) 867,061 $1,388,528
========= ==========
</TABLE>

The above options are granted at fair market value at the date of
grant, become exercisable over a three-year period, or as determined by the
Board of Directors, and expire over periods not exceeding five years.

As of June 30, 1996 and March 31, 1997 (unaudited), none of these
options have been exercised and there have been no options forfeited. As of
March 31, 1997, options to acquire

<PAGE> 82

867,061 shares were outstanding.

13. STOCK WARRANTS:

As of June 30, 1996 and March 31, 1997 (unaudited), the Company had
outstanding warrants to purchase 21,335 shares of Common Stock at $1.43 per
share, 36,470 shares of Common Stock at $1.37 per share and 200,000 shares of
Common Stock at $7.50 per share. The warrants become exercisable in January 1997
and expire at various dates through December 2001.

79
<PAGE> 83

BIRMAN MANAGED CARE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(INFORMATION WITH RESPECT TO MARCH 31, 1996 AND 1997 IS UNAUDITED)

14. EMPLOYEE BENEFIT PLAN:

Effective January 1, 1994, the Company implemented a profit sharing
plan covering all full-time employees. The plan is designed as a Code Section
401(k) plan. Employees are permitted to make voluntary contributions to the
plan, for which the Company is required to make a matching contribution up to
certain limitations. For the years ended June 30, 1995 and 1996, the Company
made contributions to the plan in the amounts of $11,766 and $9,482,
respectively. For the nine months ended March 31, 1996 and 1997 (unaudited),
the Company made contributions to plan in the amounts of $9,790 and $11,167,
respectively.

15. SIGNIFICANT CUSTOMER:

The Company has provided Quality Management Program services to various
hospitals owned and/or managed by Quorum Health care, Inc. ("Quorum") since
1991. Hospitals owned and/or managed by Quorum represented approximately 40% and
20% of the Company's Quality Management Program revenues for the fiscal years
ended June 30, 1995 and 1996, and approximately 45% and 24% of the Company's
Quality Management Program revenues for the nine months ended March 31, 1996 and
1997 (unaudited), respectively.

16. SUBSEQUENT EVENTS AND CONTINGENCIES:

Recent Acquisition

On January 15, 1997, the Company acquired substantially all of the
issued and outstanding shares of capital stock of Canton Management Group, Inc.,
a Mississippi corporation ("Canton"), for $1,500,000, of which $700,000 was paid
in cash and $800,000 was paid by the issuance of promissory notes payable in
four equal annual installments of $200,000 each plus interest at the rate of 2%
per annum on the unpaid principal balance. The acquisition was accounted for as
a stock purchase and resulted in goodwill in the amount of $1,227,316. Goodwill
represents the excess of the cost of acquiring companies over the fair value of
the net assets acquired at the date of acquisition. No amortization expense has
been recorded for the acquisition of Canton Management, Inc. for the nine months
ended March 31, 1997 (unaudited), as the Company had not yet commenced
operations. Canton is an inactive holder of a certificate of authority to
operate an HMO in Mississippi. Canton was renamed Care3, Inc. As a result of the
issuance of shares of Care3, Inc. to certain founders of Canton, Care3, Inc.
currently is a 69% subsidiary of the Company. The Company may reduce its
ownership percentage of Care3, Inc. to 60% by allowing selected physicians to
acquire shares of Care3, Inc. common stock. The Company anticipates that it will
own not less than 60% of Care3, Inc. The prior year operating results of Canton
Management Group were not presented on a proforma basis as the Company was a
development stage company and the results were immaterial.

Reincorporation

On September 9, 1996, the Company was reincorporated in Delaware by
means of a merger in which shareholders of the Company received 72.939 shares of
Common Stock for each 100 shares of Common Stock then outstanding.

Initial Public Offering

In connection with the IPO, Dr. Birman, the Company's principal
stockholder, has agreed to place 1,000,000 shares of Common Stock in escrow.
These shares will not be assignable or transferrable (but may be voted) until
such time as they are released from escrow. The release from escrow is based
upon the Company meeting certain annual earnings levels over the next three
years. All reserved shares remaining in escrow on June 30, 1999 will be
forfeited and contributed to the Company's

80
<PAGE> 84

BIRMAN MANAGED CARE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(INFORMATION WITH RESPECT TO MARCH 31, 1996 AND 1997 IS UNAUDITED)

capital. In the event the Company attains any of the earnings thresholds
providing for the release of the escrow shares to Dr. Birman, the Company will
recognize compensation expense at such time based on the fair market value of
the shares.

In addition, Dr. Birman tendered 174,800 shares of his Common Stock,
valued at $4.60 per share, as payment in full of his note to the Company in the
amount of $775,000 plus accrued interest, at the time of closing the IPO.

Directors' Option Plan

On September 9, 1996, the Company adopted the 1996 Non-Employee
Directors Non-Qualified Stock Option Plan (the "1996 Directors' Plan"). A total
of 100,000 shares of Common Stock are reserved for issuance under the 1996
Directors' Plan. Under this plan, upon initial election to the Board of
Directors, all non-employee directors are awarded options to purchase 6,000
shares of Common Stock. Upon each subsequent election to the Board of Directors,
non-employee Directors receive option awards to purchase 3,000 shares of Common
Stock. These options, which have an exercise price equal to the fair market
value of the shares of Common Stock as of the date of grant, vest at the rate of
33.33% per year. All options awarded under the 1996 Directors' Plan expire on
the first to occur of (i) 10 years after the date of grant or (ii) 90 days after
the date the director is no longer serving in such capacity for reasons other
than death or disability.

Executive Bonus Plan

Subsequent Events:

On March 5, 1997 the Company terminated the employment of Robert D.
Arkin as general counsel, secretary and chief operating officer, for reasons the
Company believes constituted good cause. On May 8, 1997 Mr. Arkin filed a
complaint in United States District Court in Atlanta, Georgia, against the
Company, its chief executive officer, David N. Birman, M.D., and its executive
vice president, Sue D. Birman, seeking to enforce a written employment agreement
between the Company and Mr. Arkin which was drafted by Mr. Arkin, and other
related causes of action.

In the complaint Mr. Arkin seeks his unearned future compensation under
the employment agreement of $206,250 per year for five years; one additional
year's salary for non-renewal; bonus compensation of approximately $75,000
accrued through the date of termination; and immediate vesting of options to
acquire 291,758 shares of the Company's common stock at $1.37 per share as well
as other relief.

Counsel to the Company has advised that the complaint is without merit
and that the Company is likely to prevail. This is based upon their belief that
the termination was with cause and that the employment agreement is
unenforceable due to omissions by Mr. Arkin, the Company's former outside
counsel, of certain disclosures of conflicts of interest and notification to the
Company of its right to seek independent counsel which he was obligated to make
prior to entering into a business relationship with his client, the Company.

On May 14, 1997, the Company filed suit in Tennessee state court against
Mr. Arkin seeking a judicial determination that Mr. Arkin is entitled to no
additional compensation from the Company, to rescind his 97,252 vested stock
options, and for other related relief.

The accompanying financial statements contain no accrual for the
additional compensation sought by Mr. Arkin. In addition, the earnings per share
calculations as of March 31, 1997 contemplate only 97,252 options as
outstanding, representing a potential one-third vested portion of the total
options previously granted to Mr. Arkin.

The Company intends vigorously to defend its position that Mr. Arkin was
terminated with cause and that no part of his employment contract is still
enforceable, including the previous grant of options, whether vested or not at
the time of termination.

81
<PAGE> 85
======================================================

NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER.
NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER
ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED
HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE HEREOF. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY
SECURITIES OFFERED HEREBY BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR
SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR
SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANY PERSON TO WHOM IT IS UNLAWFUL
TO MAKE SUCH OFFER OR SOLICITATION.

------------------------

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 1
Risk Factors.......................... 5
The Company........................... 12
Use of Proceeds....................... 13
Dividend Policy....................... 13
Price Range of Common Stock........... 13
Capitalization........................ 14
Selected Historical Consolidated
Financial Data...................... 15
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 16
Business.............................. 21
Management............................ 36
Certain Transactions.................. 49
Principal Stockholders................ 50
Description of Securities............. 54
Legal Opinions........................ 57
Experts............................... 57
Change in Accountants................. 58
Additional Information................ 58
Index to Consolidated Financial
Statements.......................... 60
</TABLE>

------------------------

======================================================

BIRMAN
MANAGED CARE, INC.

======================================================
<PAGE> 86

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS

Delaware law provides a statutory framework for indemnification of
directors and officers against liabilities and expenses arising out of legal
proceedings brought against them by reason of their status or service as
directors or officers. Section 145 of the General Corporation Law of Delaware
("Section 145") provides that a director or officer of a corporation (i) shall
be indemnified by the corporation for expenses in defense of any action or
proceeding if the director or officer is sued by reason of his service to the
corporation, to the extent that such person has been successful in defense of
such action or proceeding, or in defense of any claim, issue or matter raised
in such litigation, (ii) may, in actions other than actions by or in the right
of the corporation (such as derivative actions), be indemnified for expenses,
judgments, fines, amounts paid in settlement of such litigation, and other
amounts, even if he is not successful on the merits, if he acted in good faith
and in a manner he reasonably believed to be in or not opposed to the best
interests of the corporation (and in a criminal proceeding, if he did not have
reasonable cause to believe this conduct was unlawful), and (iii) may be
indemnified by the corporation for expenses (but not judgments or settlements)
of any action by the corporation or of a derivative action (such as a suit by a
stockholder alleging a breach by the director or officer of a duty owed to the
corporation), even if he is not successful, provided that he acted in good
faith and in a manner reasonably believed to be in or not opposed to the best
interests of the corporation, provided that no indemnification is permitted
without court approval if the director was adjudged liable to the corporation.

Under Section 145, the permissive indemnification described in clauses
(ii) and (iii) of the previous paragraph may be made only upon a determination,
by (a) a majority of a quorum of disinterested directors, (b) the stockholders,
or (c) under certain circumstances, by independent legal counsel in a written
opinion, that indemnification is proper in the circumstances because the
applicable standard of conduct has been met. Under Section 145, the Board may
authorize the advancement of litigation expenses to a director or officer upon
receipt of an undertaking by such director or officer to repay such expenses if
it is ultimately determined that such director or officer is not entitled to
indemnification.

The registrant's By-laws (filed as Exhibit 3.3 to the Company's previous
Registration Statement on Form SB-2, declared effective February 12, 1997, SEC
No. 333-111957) generally provide for indemnification of its officers and
directors to the extent permitted by Section 145 of the Delaware Corporation
Law.

ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

The expenses incurred in connection with the issuance and distribution of
the securities being registered hereby are as follows:

<TABLE>
<CAPTION>
AMOUNT*
-----------
<S> <C>
S.E.C. Registration Fee............................................ $845.28
NASD Filing Fee.................................................... --
Qualification Under State Securities Laws (including legal fees)**.
Printing**.........................................................
Legal Fees and Expenses**..........................................
Accounting Fees**..................................................
Transfer Agent and Registrar Fees and Expenses**...................
Miscellaneous**....................................................
-------
Total.................................................... $845.28
=======
</TABLE>

- ---------------
* All fees and expenses are estimates except the Securities and Exchange
Commission registration fee. All fees and expenses of this offering are to be
paid by the Company.
** To be completed by amendment.

ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES

The Common Stock share numbers and per share purchase prices presented
below have been adjusted to take into account the exchange of 1.370998138 shares
of Birman Managed Care, Inc., a Tennessee corporation, for one share of the
Company in connection with the merger of the Tennessee corporation into the
Company on September 9, 1996, and a 1000-for-one stock split effected by the
Tennessee corporation on October 31, 1995. No registration was required under
the Securities Act of 1933, as amended (the "Securities Act") with respect to
either the exchange or the stock splits as they did not involve the "sale" of
securities within the meaning of the Securities Act. For purposes hereof, the
Company and the predecessor Tennessee corporation are hereinafter referred to as
the Company.

On January 1, 1995, the Company issued an aggregate of 3,500,000 shares of
Common Stock to its President and Chief Executive Officer in exchange for all of
the issued and outstanding capital stock of BMC Health Plans, Inc. The Common
Stock in this transaction was issued in reliance on the exemption provided by
Section 4(2) of the Securities Act.

On June 30, 1995, the Company issued an aggregate of 4,000,000 shares of
Common Stock to its President and Chief Executive Officer in exchange for all of
the issued and outstanding capital stock of Birman & Associates, Inc. The Common
Stock in this transaction was issued in reliance on the exemption provided by
Section 4(2) of the Securities Act. Dr. Birman represented to the Company that
he was a sophisticated (and accredited) investor, knowledgeable about the
Company.

Between July 2, 1995 and November 30, 1995, the Company sold a total of
359,227 shares of Common Stock to 14 investors for an aggregate consideration of
$492,500 or $1.37 per share. The Common Stock in this transaction was issued in
reliance on the exemption provided by Section 4(2) of the Securities Act. All 14
investors were close personal friends or family members of the President and
Chief Executive Officer or highly compensated employees of, or consultants to,
the Company. The offers and sales were made directly by the President and Chief
Executive Officer in separate, isolated transactions, not as part of a
coordinated offering of securities. Each of the investors represented to the
Company that he was a sophisticated investor, or relied upon the advice of a
financial advisor before making his investment.

II-1
<PAGE> 87

Between January 10, 1996 and June 30, 1996, the Company sold 1,101,398
shares of Common Stock to 23 investors for an aggregate consideration of
$1,510,000 or $1.37 per share. Each investor represented to the Company that he
was an accredited investor as such term is defined in Regulation D promulgated
under the Securities Act ("Regulation D"). The Common Stock in these
transactions was issued in reliance on Rule 505 of Regulation D.

During the three years ended June 30, 1996, the Company granted to eight of
its officers and key employees, in reliance upon the exemption provided by Rule
701 and Section 4(2) of the Securities Act, incentive stock options pursuant to
the Company's 1995 Stock Option Plan to purchase a total of 1,006,566 shares of
Common Stock at an exercise price of $1.37 per share.

On January 1, 1996, the Company issued to one person who is a consultant to
the Company a warrant to purchase 36,470 shares of Common Stock, at an exercise
price of $1.37 per share expiring December 31, 2001. The Company relied upon the
exemption provided by Section 4(2) of the Securities Act in issuing this
warrant.

On July 1, 1996, the Company issued to one person who acted as a finder of
prospective investors in the Company's Regulation D offering a warrant to
purchase 21,335 shares of Common Stock, at an exercise price of $1.43 per share
expiring June 30, 2001. The Company relied upon the exemption provided by
Section 4(2) of the Securities Act in issuing this warrant.

On September 9, 1996, the Company issued to two non-employee directors
options to purchase a total of 12,000 shares of Common Stock at an exercise
price of $6.25 per share in reliance upon Rule 701. The options were granted
under the Company's 1996 Non-Employee Directors' Non-Qualified Stock Option
Plan.

ITEM 27. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

A. EXHIBITS

<TABLE>
<S> <C>
*3.1 Certificate of Incorporation of Birman Managed Care, Inc.
*3.2 By-laws of Birman Managed Care, Inc.
*3.3 Certificate of Merger dated September 9, 1996 by and between Birman
Managed Care, Inc. -- Delaware and Birman Managed Care, Inc.
*4.1 Reference is made to Exhibits 3.1 through 3.3.
5.1 Form of Opinion of Stanwood Smith-Lawyers to be supplied by amendment.
*10.1 Employment Agreement by and between Birman Managed Care, Inc. and David
N. Birman, M.D. entered into on March 1, 1996.
*10.2 Employment Agreement by and between Birman Managed Care, Inc. and Sue
D. Birman entered into on March 1, 1996.
*10.3 Employment Agreement by and between Birman Managed Care, Inc. and
Robert D. Arkin entered into on March 1, 1996; Amendment No. 1 by and
between Birman Managed Care, Inc. and Robert D. Arkin entered into on
March 1, 1996.
*10.4 Employment Agreement by and between Birman Managed Care, Inc., BMC
Health Plans, Inc. and Vincent W. Wong entered into on March 1, 1996.
*10.5 Employment Agreement by and between Birman Managed Care, Inc. and
Douglas A. Lessard entered into on March 1, 1996; Amendment No. 1 by
and between Birman Managed Care, Inc. and Douglas A. Lessard entered
into on March 1, 1996; Amendment No. 2 by and between Birman Managed
Care, Inc. and Douglas A. Lessard entered into on September 1, 1996.
</TABLE>

II-2
<PAGE> 88
<TABLE>
<S> <C>
*10.6 Employment Agreement by and between Birman Managed Care, Inc. and Mark
C. Wade entered into on July 1, 1995; Amendment No. 1 by and between
Birman Managed Care, Inc., BMC Health Plans, Inc. and Mark C. Wade
entered into on October 30, 1995; Amendment No. 2 by and between
Birman Managed Care, Inc. and Mark C. Wade entered into on September
1, 1996.
*10.7 Employment Agreement by and between Birman Managed Care, Inc. and Brad
Seitzinger, M.D. entered into on August 26, 1991.
*10.8 Employment Agreement by and between Birman Managed Care, Inc. and Bill
Barenkamp entered into on November 9, 1993.
*10.9 Consulting Agreement by and between Richard M. Ross, RRCG, L.L.C., and
Birman Managed Care, Inc. entered into as of September 1, 1996.
*10.10 1995 Stock Option Plan for Birman Managed Care, Inc. dated October 31,
1995.
*10.11 1996 Non-Employee Directors' Non-Qualified Stock Option Plan of Birman
Managed Care, Inc.
*10.12 Stock Purchase Agreement by and between Birman Managed Care, Inc.,
Canton Management Group, Inc. and Wesley Prater, M.D., Larry Cooper,
M.D., Kelvin Ramsey, M.D., L.C. Tennin, M.D., Louis Saddler, M.D.,
James Goodman, Ph.D, Vic Caracci, Michael T. Caracci, Robert T.
Teague, M.S.W., Vincent Caracci, Charlie Hills, Harold Wheeler, M.D.,
Stephanie Tucker, Winifred Fulgham and Joyce Johnson entered into on
September 6, 1996.
*10.13 Promissory Note by David N. Birman, M.D. and payable to the Company.
*10.14 Loan and Security Agreement dated August 21, 1996 by and between
American National Bank and Trust Company of Chicago and Birman &
Associates, Inc.
*10.15 Loan and Security Agreement dated August 21, 1996 by and between
Hughes & Associates, Inc.
*10.16 Promissory Note (Secured) dated August 21, 1995 in the stated
principal amount of $1,000,000 payable to American National Bank &
Trust Company of Chicago by Birman & Associates and Hughes &
Associates, Inc.
*10.17 Form of Indemnification Agreement for Birman Managed Care, Inc. to be
supplied by amendment.
*10.18 Executive Bonus Plan to be supplied by amendment.
*10.19 Agreement by and between National Benefit Resources, Inc. and Birman
Managed Care, Inc. entered into on April 16, 1996.
*10.20 Agreement dated September 17, 1996 by and between Birman Managed Care,
Inc. and Community Medical Center.
*10.21 Form of Escrow Agreement.
*10.22 Lease dated December 2, 1996 between Arc Builders, LLC and Birman
Managed Care, Inc.
*10.23 Form of Consulting Agreement between Birman Managed Care, Inc. and
Royce Investment Group, Inc.

*10.24 Form of Merger and Acquisition Agreement between Birman Managed Care,
Inc. and Royce Investment Group, Inc. to be supplied by amendment.
*11.1 Calculation of Income (Loss) Per Share to be supplied by amendment.
*16.1 Letter from Semple & Cooper, P.L.C. Re: Change of public accountants.
*21.1 List of Subsidiaries.
23.1 Consent of BDO Seidman, LLP. Re: Birman Managed Care, Inc. to be
supplied by amendment.
23.3 Consent of Semple & Cooper, P.L.C. Re: Birman Managed Care, Inc. to
be supplied by amendment.
23.5 Consent of Stanwood-Smith Lawyers to be supplied by amendment.
24.1 Powers of Attorney of Certain Officers and Directors to be supplied
by amendment.
***27 Financial Data Schedule.
**99.1 State of Mississippi Dept. of Insurance Certificate of Authority
dated February 10, 1997.
</TABLE>
- ---------------
* Incorporated by Reference from the Company's Registration Statement on Form
SB-2 (No. 333-111957).

** Incorporated by Reference from the Company's Quarterly Report on Form
10-QSB for the quarterly period ended December 31, 1996.

*** Incorporated by Reference from the Company's Quarterly Report on Form
10Q-SB for the quarterly period ended March 31, 1997.

II-3
<PAGE> 89
ITEM 17. UNDERTAKINGS

A. Insofar as indemnification by the registrant for liabilities
arising under the Securities Act of 1933, as amended (the "Securities Act"),
may be permitted to directors, officers and controlling persons of the small
business issuer pursuant to the foregoing provisions or otherwise, the small
business issuer has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Securities Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the small business issuer of expenses incurred or paid by a director, officer
or controlling person of the small business issuer in the successful defense of
any action, suit or proceeding) is asserted by such director, officer or
controlling person against the registrant in connection with the securities
being registered, the small business issuer will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question of whether such indemnification by it
is against public policy as expressed in the Securities Act and will be
governed by the final adjudication of such issue.

B. The undersigned small business issuer hereby undertakes that:

1. For purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon rule 430A and contained
in a form of prospectus filed by the registrant pursuant to Rule
424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to
be part of this registration statement as of the time it was declared
effective.

2. For the purposes of determining any liability under the
Securities Act, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating
to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering
thereof.

C. The small business issuer hereby undertakes:

(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration
statement:

(i) To include any prospectus required by section 10(a)(3)
of the Securities Act of 1933;

(ii) To reflect in the prospectus any facts or events
arising after the effective date of the registration
statement (or the most recent post-effective amendment
thereof) which, individually or in the aggregate,
represent a fundamental change in the information set
forth in the registration statement. Notwithstanding
the foregoing, any increase or decrease in volume of
securities offered (if the total dollar value of
securities offered would not exceed that which was
registered) and any deviation from the low or high end
of the estimated maximum offering range may be
reflected in the form of prospectus filed with the
Commission pursuant to Rule 424(b) if, in the
aggregate, the changes in volume and price represent no
more than 20% change in the maximum aggregate offering
price set forth in the "Calculation of Registration
Fee" table in the effective registration statement;

(iii) To include any material information with respect to
the plan of distribution not previously disclosed in
the registration statement or any material change to
such information in the registration statement;

provided, however, that paragraphs (1)(i) and (1)(ii) above do
not apply if the registration statement is on Form S-3 or Form
S-8 and the information required to be included in a
post-effective amendment by those paragraphs is contained in
periodic reports filed by the Registrant pursuant to Section
13 or Section 15(d) of the Securities Exchange Act of 1934
that are incorporated by reference in the registration
statement.

(2) That, for purposes of determining any liability under the
Securities Act of 1933, each such post-effective amendment
shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona
fide offering thereof.

(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain
unsold at the termination of the offering.

II-4
<PAGE> 90

SIGNATURES

In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form SB-2 and authorizes the registration
statement to be signed on its behalf by the undersigned, in the City of
Cookeville, State of Tennessee, on May 16, 1997.

BIRMAN MANAGED CARE, INC.

By: /s/ DAVID N. BIRMAN
------------------------------------
David N. Birman, M.D., President

In accordance with the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates stated.

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----

<S> <C> <C>
/s/ DAVID N. BIRMAN Chairman of the Board, President and May 16, 1997
- ---------------------------- Chief Executive Officer
David N. Birman

/s/ SUE D. BIRMAN Executive Vice President, Director May 16, 1997
- ----------------------------
Sue D. Birman

/s/ DOUGLAS A. LESSARD Vice President, Treasurer and Chief May 16, 1997
- ---------------------------- Financial Officer
Douglas A. Lessard

/s/ JOHN HIGGINS Director May 16, 1997
- ----------------------------
John Higgins

/s/ DIEDRICH VON SOOSTEN Director May 16, 1997
- ----------------------------
Diedrich Von Soosten

/s/ JAMES J. RHODES Director May 16, 1997
- ----------------------------
James J. Rhodes
</TABLE>

II-5