ATLANTIC INTEGRATED HEALTH INC, POS AM, 1997-09-22

ATLANTIC INTEGRATED HEALTH INC
POS AM, 1997-09-22
OFFICES & CLINICS OF DOCTORS OF MEDICINE

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As filed with the Securities and Exchange Commission on September 22, 1997.
Registration No. 333-5826
================================================================================

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

----------------------
POST-EFFECTIVE
AMENDMENT NO. 2
TO
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933

---------------------
ATLANTIC INTEGRATED HEALTH INCORPORATED
(Name of small business issuer as specified in its charter)

NORTH CAROLINA 8011 56-1966823
(State or jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or Classification Code Number) Identification No.)
organization)

825 KENNEDY AVENUE
NEW BERN, NORTH CAROLINA 28560
(919) 514-0057
(Address and telephone number of principal executive offices)

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

J. PHILIP MAHANEY JR., M.D.
PRESIDENT AND CHIEF EXECUTIVE OFFICER
810 KENNEDY AVENUE
NEW BERN, NORTH CAROLINA 28560
(919) 514-0057
(Name, address and telephone number of agent for service)

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

COPIES TO:

MICHEL A. LAFOND, ESQ. DONALD R. REYNOLDS, ESQ.
OPPENHEIMER WOLFF & DONNELLY WYRICK, ROBBINS, YATES & PONTON L.L.P.
3400 PLAZA VII, 45 SOUTH SEVENTH STREET THE SUMMIT
MINNEAPOLIS, MN 55402 4101 LAKE BOONE TRAIL, SUITE 300
(612) 607-7438 RALEIGH, NC 37607

---------------
APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT.

-----------------
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, please check the following box. [X]

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 statement number of the earlier effective 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>

Subject to Completion Dated September 22, 1997

700,000 PRIMARY CLASS COMMON SHARES
1,400,000 REFERRAL CLASS COMMON SHARES
150,000 NONPROFIT CLASS NONVOTING COMMON SHARES

---------------------------------
ATLANTIC INTEGRATED HEALTH
INCORPORATED

Prior to this offering (the "Offering"), there has been no public market for the
Primary Class Common Shares, the Referral Class Common Shares, or the Nonprofit
Class Nonvoting Common Shares (the Primary Class Common Shares, the Referral
Class Common Shares and the Nonprofit Class Nonvoting Common Shares are
collectively referred to as the "Shares"). The offering of the Shares will be
restricted to qualified investors only. See "Description of Securities" and
"Plan of Distribution." In addition, all purchasers of the Shares offered hereby
will be required to enter into Subscription and Shareholder Buy/Sell Agreements,
which restrict the sale of the Shares to Eligible Persons (as defined in the
respective Shareholder Buy/Sell Agreements) and provide to the Company a right
to repurchase the Shares upon the occurrence of certain purchase events at fair
market value, as determined in the sole discretion of the Board of Directors,
thereby precluding the development of a trading market for the Shares. See "Plan
of Distribution - Subscription and Shareholder Buy/Sell Agreements."
Accordingly, upon completion of the Offering, there will continue to be no
public market for the Shares and no assurance can be given that a public market
for the Shares will ever develop after the Offering. The initial public offering
price per Share will be $1.00.

-------------------
THE SHARES OFFERED BY THIS PROSPECTUS ARE SPECULATIVE AND INVOLVE A HIGH
DEGREE OF RISK.
PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER THE FACTORS SET FORTH
UNDER "RISK FACTORS."

-------------------
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.

============================================== ================================================== ==================
Underwriting
Price to Discounts and Proceeds to
Public (1)(2) Commissions (3) Company (4)(5)
- ---------------------------------------------- -------------------------- ----------------------- ------------------
<S> <C> <C> <C>
Per Primary Class Common Share............ $1.00 None $1.00
Per Referral Class Common Share........... $1.00 None $1.00
Per Nonprofit Class Nonvoting
Common Share.............................. $1.00 None $1.00
- ---------------------------------------------- -------------------------- ----------------------- ==================
Total Minimum (250,000 Shares) (5)(6)..... $250,000 None $250,000
============================================== ================================================== ==================
Total Maximum (2,250,000 Shares)(6)....... $2,250,000 None $2,250,000
============================================== ================================================== ==================

</TABLE>

(1) The minimum and maximum investment is 2,000 Shares, or $2,000 per investor.
See "Plan of Distribution."

(2) The Shares will be offered only to qualified investors. See "Plan of
Distribution."

(3) The Shares will be offered on a "best efforts" basis by the officers and
directors of the Company. No selling commissions will be paid to any
officer or director of the Company in connection with the offering and sale
of the Shares, although any out-of-pocket expenses will be reimbursed by
the Company.

(4) Before deducting estimated Offering expenses payable of $105,000.

(5) The minimum of 250,000 Shares was sold during the Company's initial
offering period which ended July 28, 1997. Proceeds from such Shares were
released to the Company from an escrow account at Centura Bank on May 29,
1997.

(6) The total minimum and maximum number of Shares does not discriminate
between the three different classes of Shares.

The date of this Prospectus is , 1997

<PAGE>

ADDITIONAL INFORMATION

The Company has filed a Registration Statement on Form SB-2 (of which
this Prospectus is a part) under the Securities Act of 1933, as amended, with
the Securities and Exchange Commission in Atlanta, Georgia (the "Commission")
with respect to the Shares offered hereby. This Prospectus does not contain all
of the information set forth in the Registration Statement and the exhibits and
schedules thereto. For further information with respect to the Company and the
securities offered hereby, reference is made to the Registration Statement,
including the exhibits and schedules thereto, copies of which can be inspected
and copied at the Public Reference Section of the Commission at 450 Fifth
Street, N.W., Room 1024, Washington, D.C. 20549, at the Commission's regional
offices at Citicorp Center, 500 West Madison Street, Chicago, Illinois 60621 and
Seven World Trade Center, New York, New York 10048. Copies of such documents may
be obtained from the Public Reference Section of the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549, at prescribed rates. In addition, the
Commission maintains a Web site that contains reports, proxy and information
statements and other information regarding issuers that file electronically with
the Commission (http: //www.sec.gov). After the filing of the Registration
Statement, the Company will be an electronic filer.

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 registration statement becomes effective.
This prospectus shall not constitute an offer to sell or the solicitation of an
offer to buy nor shall there by 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.

<PAGE>

PROSPECTUS SUMMARY

THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION AND FINANCIAL STATEMENTS AND NOTES THERETO CONTAINED ELSEWHERE IN
THIS PROSPECTUS. INVESTORS SHOULD CAREFULLY CONSIDER THE INFORMATION SET FORTH
UNDER THE HEADING "RISK FACTORS."

THE COMPANY

Atlantic Integrated Health Incorporated (the "Company" or "Atlantic")
is an independent, physician owned and governed medical practice group network,
organized to provide administrative services to participating physicians and
medical practice groups. The Company is in the process of integrating,
economically and clinically, physicians practicing primarily in single specialty
practice groups into a larger multi-specialty network of physicians and medical
practice groups. Physicians practicing in Atlantic's network provide primary and
referral specialty health care services to prepaid managed care health plan
enrollees and fee-for-service patients. Atlantic seeks to improve the economic
and clinical performance of individual physician and medical practice group
operations by centralizing specific administrative and purchasing functions and
introducing management tools, such as clinical pathways, utilization review and
outcomes measurement.

As of June 30, 1997, Atlantic had entered into Non-Exclusive Medical
Services Provider Agreements with medical practice groups of over 250 physicians
located in 16 counties of Eastern North Carolina. Participating physicians and
medical practice groups must enter into Non-Exclusive Medical Services Provider
Agreements ("Medical Services Provider Agreements") with the Company. The
Medical Services Provider Agreements require participating physicians and
medical practice groups to comply with key operating policies and procedures
approved by the Company's Board of Directors. All members of the Board of
Directors are participating physicians.

Atlantic derives its revenues from fees paid by employers, managed care
health plans, such as health maintenance organizations ("HMOs"), and other
third-party payors, for access to its integrated provider network and for
administrative services provided by Atlantic. Negotiations between the Company
and certain managed care health plans and other buyers of health care services
are active and on-going. The Company also gains revenues from administrative,
group purchasing, and other services provided to participating physicians.

Atlantic's strategy is to develop locally prominent, integrated health
care delivery networks on a community by community basis. These local community
networks are linked together to form an integrated health care delivery system
or regional network that will seek to provide high quality, cost-effective
health care in the geographic region of Eastern North Carolina, generally the
communities and counties east of Interstate 95. The Company intends to implement
this strategy through (i) growth in its existing community markets; (ii)
expansion into new community markets through affiliation with physician medical
practice groups or existing provider networks; (iii) creation of contract
relationships with hospitals, HMOs, and other third-party payors in Atlantic's
community market areas; (iv) use of management information systems and
electronic data interchange; and (v) increasing the operational efficiency of,
and reducing the costs associated with operating Atlantic's regional network.

In January 1997, Atlantic entered into a joint venture with the Kanawha
Insurance Co. ("Kanawha") pursuant to which they formed The Beacon Company
("Beacon") as equal owners. Atlantic anticipates that Beacon will offer a
variety of health plans to purchasers of health care services in Eastern North
Carolina. As of the date of this Prospectus, no such health plans had been
developed or offered.

The Company was incorporated in North Carolina in December 1994 under
the name "Atlantic Primary Care, Inc." The Company's principal executive offices
are located at 825 Kennedy Avenue, New Bern, North Carolina 28560, and its
telephone number at that location is (919) 514-0057.

<PAGE>

RISK FACTORS

An investment in the Shares offered hereby is speculative and involves
a high degree of risk. See "Risk Factors."

THE OFFERING

Securities offered by the Company...... Minimum of 250,000 Shares (1)(2)

Maximum of 700,000 Primary Class Common
Shares

Maximum of 1,400,000 Referral Class
Common Shares

Maximum of 150,000 Nonprofit Class
Nonvoting Common Shares

Securities to be outstanding
after the Offering................... 856,500 Primary Class Common Shares if
maximum number is sold.

1,426,000 Referral Class Common Shares
if maximum number is sold.

152,500 Nonprofit Class Nonvoting Common
Shares if maximum number is sold.

435,000 total Shares if minimum number
of Shares is sold and 2,435,000 total
Shares if maximum number of Shares is
sold (2).

(1) The minimum number of Shares offered hereby does not discriminate between
the three different classes of Shares.

(2) 332,000 Shares were sold during the Company's initial offering period which
ended July 28, 1997. The minimum escrow requirements with Centura Bank were
met on May 29, 1997.

<PAGE>

Investor Qualifications................ Primary Class Common Shares will be
issued to only "Primary Care Physicians"
who have entered into, directly or
indirectly, Medical Services Provider
Agreements with Atlantic.

Referral Class Common Shares will be
issued to only physicians practicing
primarily in referral medical and
surgical specialties who have entered
into, directly or indirectly, Medical
Services Provider Agreements with
Atlantic.

Non-Profit Class Nonvoting Common Shares
will be issued to only nonprofit
entities or public corporations engaged
in the delivery of health care services,
which have contracted with the Company
to provide medical or other health care
services.

See "Description of Securities" and
"Plan of Distribution."

Restrictions on Resale of Shares....... All purchasers of the Shares will be
required to enter into Subscription and
Shareholder Buy/Sell Agreements, which
restrict the sale of the Shares to
"Eligible Persons" only and give the
Company the right to repurchase the
Shares upon certain purchase events at
fair market value as determined in the
sole discretion of the Board of
Directors.

Voting Rights.......................... The Primary Class Common Shares and the
Referral Class Common Shares vote
together as a single class on most
matters, with each share entitling its
holder to one vote, except as otherwise
provided by law and the Company's
Amended and Restated Articles of
Incorporation. The Nonprofit Class
Nonvoting Common Shares are not entitled
to vote on any matters, except as
otherwise provided by law. See
"Description of Capital Stock."

Use of Proceeds........................ The net proceeds from the Offering will
be used for general working capital
purposes and for a study of the
feasibility of organizing a health plan.
See "Use of Proceeds" and "Business
-- Organization."

<PAGE>

SUMMARY FINANCIAL DATA

Years Ended Six Months Ended
December 31 June 30
----------------------- ----------------------
STATEMENT OF OPERATIONS DATA: 1995 1996 1996 1997
---- ---- ---- ----
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Revenues.................................. $ 0 $58,927 $ 0 $201,625
Total operating expenses.................. 30,296 202,631 88,428 234,140
Net loss.................................. (30,296) (143,704) (88,428) (32,515)
Net loss per share........................ (1.30) (1.31) (1.24) (.11)
Weighted average number of
common shares outstanding................. 23,269 109,875 71,417 305,042

OPERATING DATA:

Number of Affiliated Practices............ 28 45 38 98
Number of Affiliated Physicians........... 53 108 87 252

June 30, 1997
--------------------------------------------------
Actual As Adjusted (1)(2)
----------------- ----------------------
BALANCE SHEET DATA:

Working capital............................................. $107,140 $1,920,140
Total assets................................................ 210,572 2,023,572
Total shareholders' equity.................................. 136,505 1,949,505

</TABLE>

(1) The balance sheet data is as adjusted to reflect the sale of the maximum
number of Shares minus the 332,000 Shares already issued during the Company's
initial offering period which ended July 28, 1997.

(2) Disclosure of the balance sheet data as adjusted to reflect the sale of the
minimum number of Shares has been omitted since as of June 30, 1997 the Company
had sold the minimum number of shares.

<PAGE>

RISK FACTORS

AN INVESTMENT IN THE SHARES OFFERED HEREBY INVOLVES A HIGH DEGREE OF
RISK AND MAY NOT BE APPROPRIATE FOR INVESTORS WHO CANNOT AFFORD TO LOSE THEIR
ENTIRE INVESTMENT. PROSPECTIVE PURCHASERS OF THE SHARES OFFERED HEREBY SHOULD BE
FULLY AWARE OF THE FOLLOWING RISK FACTORS, AMONG OTHERS, AND SHOULD CAREFULLY
REVIEW THE INFORMATION AND FINANCIAL STATEMENTS CONTAINED ELSEWHERE IN THIS
PROSPECTUS.

THIS PROSPECTUS CONTAINS CERTAIN FORWARD-LOOKING STATEMENTS. FOR THIS
PURPOSE, ANY STATEMENTS CONTAINED IN THIS PROSPECTUS THAT ARE NOT STATEMENTS OF
HISTORICAL FACT MAY BE DEEMED TO BE FORWARD-LOOKING STATEMENTS. WITHOUT LIMITING
THE FOREGOING, WORDS SUCH AS "MAY," "WILL," "EXPECT," "BELIEVE," "ANTICIPATE,"
"ESTIMATE" OR "CONTINUE" OR THE NEGATIVE OR OTHER VARIATIONS THEREOF OR
COMPARABLE TERMINOLOGY ARE INTENDED TO IDENTIFY FORWARD-LOOKING STATEMENTS.
THESE STATEMENTS BY THEIR NATURE INVOLVE SUBSTANTIAL RISKS AND UNCERTAINTIES,
AND ACTUAL RESULTS MAY DIFFER MATERIALLY DEPENDING ON A VARIETY OF FACTORS,
INCLUDING THOSE DESCRIBED BELOW.

LIMITED OPERATING HISTORY; ACCUMULATED DEFICIT.

Atlantic was incorporated in December 1994 and has a limited operating
history. The business of Atlantic is subject to the risks inherent in the
establishment of a new business enterprise. Because Atlantic was recently formed
and has limited operations, it cannot provide prospective investors with the
type of information that would be available from an institution with a longer
history of operations. Atlantic's profitability will depend primarily upon the
efforts of the individual physicians and medical practice groups that are
participating providers of medical services pursuant to Medical Services
Provider Agreements with Atlantic. There is no assurance that Atlantic will ever
operate profitably. As a result of the substantial start-up expenditures that
have been and will continue to be incurred, Atlantic can be expected to continue
to incur operating losses during at least the next two years of operations.
Furthermore, any delays in commencing substantial business operations will
further increase start-up expenses and delay realization of potential revenues
and income. As of June 30, 1997, Atlantic had accumulated a deficit since its
inception in an amount equal to $206,515. As a result of Atlantic's accumulated
deficit, along with other matters, the report of Atlantic's independent public
accountants on Atlantic's financial statements contains an explanatory paragraph
concerning Atlantic's ability to continue as a going concern. See "Plan of
Operation."

NEED FOR ADDITIONAL FINANCING

Additional shares sold will be used for general working capital
purposes until Atlantic begins generating additional operating revenues. The
Company anticipates that a portion of the proceeds of the Offering will be used
to explore the desirability and feasibility of organizing, licensing and
operating an affiliate health maintenance organization or other health plan. No
assurance can be provided, however, that the Board of Directors will determine
to undertake any such study or to proceed with any such organization or
affiliate company organization and operation. See "Use of Proceeds" and
"Business -- Organization." Management believes that if the anticipated fees are
collected under the Administrative Fee Assessment Program and if Atlantic
achieves its expected revenues and is able to manage its expenses at budgeted
levels, it will not require any significant additional capital. See "Business --
Administrative Fee Assessment Program." If Atlantic's revenues are not
sufficient to complete its initial business development activities, Atlantic may
adjust its medical services fee arrangements, collect fees under the
Administrative Fee Assessment Program and seek to raise additional capital.
There can be no assurance that Atlantic will be successful in executing its
business plan or that it will be able to increase the fees charged to buyers of
health care services or reduce the fees paid to participating providers if it is
unable to achieve profitable operations. Atlantic plans to conduct additional
offerings of shares of its capital stock as it adds additional physicians to the
Atlantic network. Such additional offerings may

<PAGE>

result in dilution of the equity interests of Atlantic's shareholders, including
purchasers of the Shares offered hereby. In any event, there can be no assurance
that Atlantic will be able to obtain any necessary additional financing on
satisfactory terms, or at all.

COMPETITION AND DEPENDENCE ON MANAGED CARE ORGANIZATIONS; ONE EXISTING CONTRACT

The health care industry is very competitive. Atlantic and its
affiliated physicians and medical practice groups compete with individual
physicians and medical practice groups, HMOs, preferred provider organizations
("PPOs"), physician-hospital organizations, integrated delivery systems and
physician practice management companies. Many of Atlantic's competitors are
significantly larger and have substantially greater capital resources than
Atlantic. There is no assurance that Atlantic will be able to compete
effectively against such competitors. See "Business -- Competition." Even though
Atlantic's competitors will include certain existing managed health care plans,
such as HMOs, Atlantic intends to market the services of its integrated,
multi-specialty group network to certain other managed health care plans with
which Atlantic will not compete. Atlantic's success and profitability will be
dependent, in part, on its ability to establish contract relationships with
existing health plan organizations, which will provide Atlantic access to
employer buyer coalitions and other insured and self insured employer groups.
Currently, Atlantic has one existing preferred provider contract with an
insurance company. Atlantic does not have any existing contracts or long-term
relationships with any managed care health plans or other buyers of health care
services. Continuing consolidation of the participants in the health care
industry could limit Atlantic's opportunities to establish additional contracts
and relationships.

DEPENDENCE ON HEALTH CARE PROVIDERS AND MEDICAL GROUPS

Atlantic's profitability and long-range business plans will be
dependent upon its attracting and retaining the services of qualified individual
physicians, medical practice groups and other health care providers, especially
primary care medical practice groups. Atlantic will continue to enter into
Medical Services Provider Agreements with selected credentialed providers.
Although Atlantic believes that it will be able to enter into and maintain such
agreements with a sufficient number of providers, there can be no assurance that
Atlantic will be able to do so on a timely basis or under favorable terms. See
"Business -- Medical Services Provider Agreements, Structure and Ownership and
Management" and "Business -- Physician Reimbursement, Physician Payment, Risk
Management."

AFFILIATED SERVICE GROUP

Section 414(m) of the Internal Revenue Code of 1986, as amended,
requires that all employees who are employed by members of an "affiliated
service group" be treated as employed by a single employer for purposes of
discrimination testing and certain other requirements imposed on qualified
employee benefit plans. Although Atlantic is organized as a business
corporation, with its business limited to the provision of administrative
services, Atlantic and participating medical providers within the Atlantic
network may be deemed to be an "affiliated service group." In the event Atlantic
and the participating medical providers are found to be an "affiliated service
group," Atlantic's organizational structure and contractual arrangements may
have to be modified. Notwithstanding any such possible modifications, if
Atlantic's or the medical providers' qualified employee benefit plans become
disqualified as a result of the "affiliated service group" issue, participating
physicians may suffer adverse income tax consequences, including immediate
taxation of the employer's contributions to the pension and profit sharing plans
which they and their respective medical providers sponsor. See "Business --
Medical Services Provider Agreements, Structure and Ownership and Management."

<PAGE>

ANTITRUST LAW

Federal and state antitrust laws prohibit practices that unreasonably
restrain competition. Atlantic believes that its proposed organizational
structure, contemplated contractual arrangements and business operations will be
lawful and will not violate current antitrust laws, even though Atlantic may not
meet the requirements of identified federal antitrust policy statement safety
zones or exemptions. Atlantic is a development stage company, however, and
certain structures, programs and business operations required for the economic
and clinical integration of participating physicians and medical practice groups
have not been implemented. Many of such structures, programs and business
operations must be implemented and continued to satisfy certain antitrust
requirements, and no assurance can be provided that the requisite structures,
programs and business operations will be implemented in a timely manner and
continued. Moreover, evolving interpretations of antitrust laws and
corresponding statements of enforcement policy could make it necessary for
Atlantic to modify its organizational structure and/or restructure its
contractual arrangements or business operations. If Atlantic is found to be in
violation of federal or state antitrust laws, Atlantic may be subject to fines
of up to $10,000,000 or other sanctions. Even the mere assertion of a violation
of the antitrust laws could have a material adverse effect on Atlantic.

INSURANCE, HMO, PPO AND URO REGULATION

All entities classified as an "insurance company" under North Carolina
law are subject to various state laws regulating the business of insurance which
are enforced by the North Carolina Department of Insurance ("DOI"). If
Atlantic's method for compensating physicians within the Atlantic network
includes the allocation to the medical practice groups of deficits that result
from Atlantic's payment arrangements with health plans and other purchasers,
Atlantic might be deemed an "insurance company" and, as a result, be subject to
North Carolina laws regulating insurance. Current North Carolina insurance law
requirements for insurance companies include, but are not limited to, the
payment of licensing fees, the filing of annual statements, and the maintaining
of certain capitalization and financial reserves. Failure to comply with these
or other requirements could result in the imposition of fines, penalties, and
the disqualification from doing business in North Carolina.

In addition to regulating traditional insurance companies, the DOI is
responsible for the regulation of HMOs, PPOs and utilization review
organizations ("UROs"). While there are no specific regulations governing
physician organizations, the DOI has taken the position that a physician network
organization could become subject to the HMO statute if the physician
organization enters into arrangements which involve the shifting or other
transfer of an "insurance risk." Although Atlantic currently does not have any
risk sharing contracts, nor does it plan to structure itself in such a fashion
as to be regulated by the DOI, Atlantic may enter into such contracts in the
future and at such time may become subject to these regulations. A physician
organization may also become subject to regulation as a PPO and a URO. Although
management of Atlantic believes that its current operations would not require it
to register as a PPO or a URO, no assurance can be given that the DOI would not
take a contrary position. Any challenge by the DOI and requirement that Atlantic
restructure its operations could have a material effect on Atlantic's
operations. See "Business -- Government Regulation."

GOVERNMENT REGULATION

<PAGE>

health services to entities with which the physician has a financial
relationship. These laws and applicable regulations also regulate the submission
of claims for the reimbursement of physician services, or for services incident
to those services, provided under federal health care programs that are false or
fraudulent. Violations of these laws may result in substantial civil and
criminal penalties, including civil monetary penalties, exclusion from the
participation in the Medicare and Medicaid programs, loss of licensure to
practice medicine and other penalties. Such exclusion and penalties, if applied
to Atlantic's affiliated medical practice groups, could have a material adverse
effect on Atlantic. See "Business - Government Regulation."

Recently adopted health insurance reform legislation includes important
changes in federal laws regulating fraud and abuse. Statutory provisions
establishing criminal penalties, both fines and imprisonment, for intentionally
fraudulent activity in the provision of health services are included. Claims for
reimbursement that are improperly processed and submitted to federal programs
that result in inappropriately obtained reimbursement can result in civil
penalties. Moreover, persons who have an ownership interest or serve as officers
or managing employees of entities that are convicted or excluded from
participation in such federal programs for filing false or fraudulent claims
would also be subject to exclusion and civil penalties for each day the
individual maintains that interest. Finally, remuneration between organizations
and entities, which provide services to Medicare or Medicaid beneficiaries and
have a written risk sharing agreement, are exempted under Medicare and Medicaid
statutes that prohibit the payment or remuneration to induce or obtain
referrals. These statutes, if applied to Atlantic and its affiliated medical
practice groups, could have a material adverse effect on Atlantic.

Moreover, the laws of many states prohibit physicians from splitting
fees with non-physicians and prohibit non-physician entities from practicing
medicine. Although Atlantic believes its operations as currently contemplated to
be conducted will be in material compliance with existing applicable federal and
state laws, there can be no assurance that Atlantic's existing Medical Services
Provider Agreements will not be successfully challenged as constituting the
unlicensed practice of medicine or that the enforceability of the provisions of
such agreements will not be limited.

There can be no assurance that review of Atlantic's business or the
affiliated physicians' businesses by state or federal courts or regulatory
authorities will not result in a determination that could adversely affect the
operations of Atlantic, the affiliated physicians and medical practice groups or
that the health care regulatory environment will not change so as to restrict
Atlantic's or the affiliated physicians' existing medical practice groups'
operations or their expansion.

In addition to extensive existing governmental health care regulation,
there are numerous initiatives at the federal and state levels for comprehensive
reforms affecting the payment for and availability of health care services.
Aspects of certain of these health care proposals, such as further reductions in
Medicare and Medicaid payments and additional prohibitions on physician
ownership, directly or indirectly, of facilities to which they refer patients,
if adopted, could adversely affect Atlantic. See "Business - Government
Regulation."

POTENTIAL LEGAL LIABILITIES

Atlantic's health care services involve determinations regarding health
insurance coverage, utilization management and maintenance of patient records.
Although Atlantic does not intend to deliver medical services, it may be forced
to defend medical malpractice or other tort claims made by persons who receive
medical services from participating physicians or medical practice groups. The
legal theories upon which persons might attempt to assert liability against
Atlantic or other comparable companies in the managed health industry continue
to evolve. There is no assurance that Atlantic will not be subject to liability
from litigation which might adversely affect Atlantic's business. Atlantic

<PAGE>

currently does not maintain any insurance for such potential liabilities.
Atlantic intends to obtain such insurance at the time it enters into its first
contract with a managed care health plan; however, no assurance can be given
that Atlantic will ever obtain and maintain such insurance.

RELIANCE ON TELECOMMUNICATIONS AND DATA PROCESSING

Atlantic's business is dependent upon its ongoing ability to
communicate and transmit data by telephone with physicians, benefit plan
participants, hospitals and insurance carriers. Although Atlantic plans to
manage its long distance telephone lines directly and will have procedures for
emergency backup operations, there can be no assurance that these procedures
will be adequate. Atlantic's business will also depend on its ability to store,
retrieve, process, and manage large amounts of data. Interruption of these data
processing capabilities for any extended length of time, loss of stored data,
programming errors, or other computer problems could have a material adverse
effect on the business of Atlantic. Although Atlantic is planning to store
redundant data files at an off-site facility and will establish contingency
plans in the event a failure of Atlantic's computer network prevents access to
its databases, there can be no assurance that these procedures will be adequate.

DETERMINATION OF OFFERING PRICE

The initial public offering price set forth on the cover page of this
Prospectus was determined solely by Atlantic and is primarily based on the
projected capital requirements of Atlantic. The offering price bears no
relationship to Atlantic's assets, book value, earnings, net worth, or other
generally recognized criteria of value.

LACK OF PUBLIC TRADING MARKET; LIMITATIONS ON TRANSFER

As of June 30, 1997, Atlantic had issued and outstanding 258,500
Primary Class Common Shares, 200,000 Referral Class Common Shares and 2,500
Nonprofit Class Nonvoting Common Shares. All purchasers of such shares were
required to enter into a Subscription and Shareholder Buy/Sell Agreement and all
purchasers of the Shares offered hereby will be required to enter into a
Subscription and Shareholder Buy/Sell Agreement which restricts the sale of the
Shares and precludes the development of a trading market for the Shares (the
"Buy/Sell Agreement"). Accordingly, there is currently no public or private
trading market for the Shares offered hereby and so long as the Buy/Sell
Agreements are in effect, there will continue to be no public or private trading
market for the Shares. Pursuant to the Buy/Sell Agreements, Atlantic will have
the option to repurchase the Shares offered hereby in certain cases, including,
but not limited to, cases in which the purchaser is no longer a member of
Atlantic's network, or no longer practices medicine through a medical practice
group that is a participating provider in Atlantic's network, or the purchaser
desires to sell, assign, pledge, transfer or otherwise dispose of the Shares
offered hereby. Shares can be repurchased by Atlantic under the Buy/Sell
Agreements at a price equal to the fair market value thereof, as determined as
of the date that Atlantic exercises such option to repurchase the Shares. The
Board of Directors will determine the fair market value of the Shares annually
on or before March 1 of each year. See "Plan of Distribution." In October 1996,
the Board of Directors of Atlantic determined that, because Atlantic had not
completed the development of its corporate and operating structures and did not
have any operating revenues, the fair market value of one share of capital stock
of Atlantic as of October 9, 1996 was equal to $0.01. Such determination remains
unchanged and the Board has not made a new determination of the fair market
value of the Shares as of the date hereof.

<PAGE>

DEPENDENCE ON KEY MANAGEMENT

Atlantic believes its success will depend, in large part, upon the
continued service of J. Philip Mahaney, Jr., M.D., President and Chief Executive
Officer, Kerry A. Willis, M.D., Chairman of the Board and Robert H. Blake, III,
Chief Operating Officer. The loss of any of these individuals could have a
material adverse effect on Atlantic. Atlantic does not maintain "keyperson" life
insurance on Dr. Mahaney, Dr. Willis, Mr. Blake or any of its management.

EFFECT OF CERTAIN ARTICLES OF INCORPORATION AND BYLAWS PROVISIONS

Atlantic's Amended and Restated Articles of Incorporation and Bylaws,
as amended, contain certain provisions that could have the effect of making it
more difficult for a third party to acquire, or of discouraging a third party
from attempting to acquire, control of Atlantic. Such provisions could limit the
price that certain investors might pay in the future for shares of Atlantic's
capital stock.

<PAGE>

USE OF PROCEEDS

The net proceeds to be received by Atlantic from the sale of the Shares
offered hereby after deducting the estimated Offering expenses of $105,000, are
estimated to be approximately $2,145,000 if the maximum number of Shares is
sold. Atlantic anticipates that approximately $1,645,000 of the net proceeds
from the Offering will be used for general working capital purposes and that
approximately $500,000 of the net proceeds from the Offering will be used to
explore the desirability and feasibility of organizing, licensing and operating
an affiliate health maintenance organization or other health plan. No assurance
can be provided, however, that the Board of Directors will determine to
undertake any such study or to proceed with any such organization or affiliate
company organization and operation. The foregoing amounts represent Atlantic's
best estimate of its allocation of the net proceeds of the Offering, based upon
the current state of its business operations, its current plans and current
economic and industry conditions. These estimates are subject to change based
upon factors such as competition, government regulation, and the availability of
alternative financing methods. Pending such uses, the net proceeds will be
invested in short-term, interest-bearing, investment-grade securities.

DIVIDEND POLICY

Atlantic has not declared or paid any cash dividends on its shares of
capital stock since its inception, and the Board of Directors presently intends
to retain all earnings for use in the business in the foreseeable future.

<PAGE>

DILUTION

The net tangible book value of Atlantic as of June 30, 1997 was
approximately $136,505 or $0.30 per share. Net tangible book value represents
the amount of the total tangible assets of Atlantic reduced by the amount of its
total liabilities. Without taking into account any other changes in net tangible
book value after June 30, 1997, other than to give effect to the sale by
Atlantic of the maximum number of Shares offered hereby (after deducting the
estimated Offering expenses of $105,000 payable by Atlantic) at $1.00 per share,
the pro forma net tangible book value of Atlantic at June 30, 1997, would have
been approximately $1,949,505, or $0.82 per share. This represents an immediate
increase in net tangible book value of $0.52 per share, and an immediate
dilution of $0.18 per share to new investors. The following table illustrates
this per share dilution:

MAXIMUM (1)(2)

Public offering price $1.00
Net tangible book value per share before Offering $0.30
Increase attributable to new investors $0.52
Pro forma net tangible book value after Offering $0.82
Dilution to new investors $0.18

(1) The table reflects the per share dilution as adjusted to reflect the sale of
the maximum number of Shares minus the 332,000 Shares already issued during the
Company's initial offering period which ended July 28, 1997.

(2) Disclosure of the per share dilution to investors in the event that the
minimum number of Shares is sold has been omitted since as of June 30, 1997 the
Company had sold the minimum number of Shares.

<PAGE>

CAPITALIZATION

The following table sets forth the capitalization of Atlantic as of
June 30, 1997, and as adjusted for the sale of the 2,250,000 Shares and net of
estimated offering expenses of $105,000, the maximum number of Shares offered
hereby, at $1.00 per share.

JUNE 30, 1997
--------------------------------
ACTUAL AS ADJUSTED (1)
------ ---------------

Shareholder's equity:

Primary Class Common Shares;
1,000,000 shares authorized;
258,500 shares issued and outstanding;
856,500 shares as adjusted $258,500 $856,500

Referral Class Common Shares;
1,800,000 shares authorized;
200,000 shares issued and outstanding;
1,426,000 shares as adjusted 200,000 1,426,000

Nonprofit Class Nonvoting Shares;
200,000 shares authorized;
2,500 shares issued and outstanding;
152,500 shares as adjusted 2,500 152,500

Additional paid-in capital 74,000 74,000

Syndication costs (95,000) (105,000)

Shareholder notes receivable (96,980) (96,980)

Accumulated deficit (206,515) (206,515)
--------- ---------

Total shareholders' equity $136,505 $2,100,505
======== ==========

(1) The minimum number of Shares offered hereby does not discriminate
between the three different classes of Shares; therefore, the
capitalization of Atlantic as of June 30, 1997, as adjusted for the
sale of the minimum number of Shares offered hereby, is not reflected.

<PAGE>

SELECTED FINANCIAL DATA

The following table sets forth selected financial data for Atlantic
derived from the financial statements of Atlantic. Such financial data should be
read in conjunction with the financial statements and notes thereto included
elsewhere in this Prospectus. See "Plan of Operation."

SELECTED FINANCIAL DATA

<TABLE>
<CAPTION>
Years Ended Six months Ended
December 31 June 30,
----------------------------- --------------------------------
1995 1996 1996 1997
------- ------- ------- --------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:

Revenues $-0- $58,927 $-0- $201,625

Expenses
Consulting fees 3,627 72,664 47,994 73,383
Salaries and wages 24,000 85,799 19,500 129,604
Relocation expenses -0- 8,013 8,013 -0-
Recruiting and education 2,222 13,472 5,885 6,133
Office expense and other 447 17,210 5,436 19,253
Rent -0- 4,000 1,600 2,460
Depreciation and amortization -0- 1,473 -0- 3,307
Net loss (30,296) (143,704) (88,428) (32,515)
Net loss per share (1.30) (1.31) (1.24) (0.11)
Weighted average number of
common shares outstanding 23,269 109,875 71,417 305,042

BALANCE SHEET DATA:

Working capital $2,439 $(27,075) $15,231 $107,140
Total assets 21,551 75,878 72,471 210,572
Total shareholders' equity $20,204 $(2,375) $41,376 $136,505

</TABLE>

<PAGE>

PLAN OF OPERATION

The following discussion of the results of the operations and financial
condition of Atlantic should be read in conjunction with Atlantic's Financial
Statements and the related notes thereto.

Atlantic is an independent, physician owned and governed, integrated
medical practice group network, organized to provide administrative services to
participating physicians and medical practice groups. Atlantic was incorporated
on December 5, 1994 and since its inception, has focused its efforts and
expended contributed funds on securing additional capital, expanding its network
of physicians and medical practice groups, exploring integration models, hiring
a Chief Operating Officer and retaining legal counsel and other consultants. The
goal of these efforts is to develop a community-based, integrated, health care
delivery system whose mission is to provide quality, cost-effective health care.

Atlantic is in the development stage and is in the process of
integrating, economically and clinically, physicians now practicing primarily in
single specialty practice groups into a larger multi-specialty network of
physicians and medical practice groups. Atlantic has initiated efforts to
develop with certain hospitals and other health care providers a mutually
acceptable business plan for the joint provision of administrative services and
greater coordination of the delivery of health care services. No such mutually
acceptable business plan has yet been developed, and to date Atlantic has not
entered into any arrangements for such joint provision of administrative
services or greater coordination of the delivery of health care services.

During the next year, the Company intends to take steps toward
achieving this goal by (i) expanding its existing network of physicians and
medical practice groups; (ii) creating alliances with other strategic providers
and payors; (iii) furnishing medical management and other managed care services
to payors; and (iv) providing integrated administrative services to
participating physicians and medical practice groups. In order to accomplish
these objectives, the Company will use the proceeds from this Offering and
anticipated administrative fees to be received from participating physicians and
medical practice groups to continue its development activities and to begin its
operations of managed care contracting and providing administrative services to
participating providers. While Atlantic does not anticipate any purchase or sale
of plant or any significant equipment, Atlantic does anticipate the addition of
personnel as the business of the Company develops. The number of new employees
added to the Company will vary with the speed and scope of success in
negotiating provider contracts with buyers of health care services and in
recruiting participating providers. The Company believes that if the minimum
number of Shares offered hereby is sold and anticipated fees are collected under
the Administrative Fee Assessment Program, the Company will have sufficient
capital for continued development activities and operations for the next twelve
(12) months.

Atlantic expects to continue to develop its operations during the
remainder of 1997 and for at least the first six months of 1998. Although
management of Atlantic is confident that employers, insurance carriers, HMOs and
other buyers of health care services are interested in accessing Atlantic's
network and health plan management services, management finds it difficult to
forecast when exactly Atlantic's operations will become profitable. Management
believes that Atlantic's profitability is largely dependent upon several
factors, including (i) the success of this Offering; (ii) the number of
contracts and long-term relationships with insurance carriers, managed care
health plans and other buyers of health care services the Company is able to
negotiate and enter into; and (iii) changing market conditions.

Throughout 1997, Atlantic has engaged in negotiations with several
insurance carriers and HMOs seeking to access Atlantic's network and health plan
management services. In addition, Atlantic has met directly with the management
of major regional employers and their employee benefits consultants to discuss
Atlantic's network and health plan management services. Although no assurance

<PAGE>

can be given, Atlantic believes that it will generate some income from access
and management fees paid to Atlantic from insurance carriers, HMOs and other
buyers of health care services in 1997. However, Atlantic believes that since a
large percentage of health plan insurance renewals in Eastern North Carolina
occur on January 1 of each year, it will not generate any significant revenues
from access and management services fees until January 1, 1998.

<PAGE>

BUSINESS

ORGANIZATION

Atlantic was incorporated as a business corporation on December 5, 1994
under the name "Atlantic Primary Care, Inc." Atlantic is a development stage
company that is in the process of integrating, economically and clinically,
physicians practicing primarily in single-specialty medical practice groups into
a larger multi-specialty network of medical practice groups. Atlantic is
organized as an independent, physician-owned and governed integrated medical
group network. Physicians participating in Atlantic provide primary and referral
specialty health care services to managed care health plan enrollees and other
patients. Atlantic seeks to improve the clinical performance and efficiencies of
individual physician and medical practice group operations by centralizing
specific administrative and purchasing functions and introducing management
tools, such as clinical pathways, utilization review, and outcomes measurement.

As of June 30, 1997, Atlantic commenced negotiation of or had entered
into Medical Services Provider Agreements with medical practice groups of over
250 physicians located in 16 counties of Eastern North Carolina. The Medical
Services Provider Agreements require participating physicians to comply with key
operating policies and procedures established by Atlantic's physician Board of
Directors.

Atlantic derives its revenues from fees paid by employers, managed care
health plans such as HMOs, and other third-party payors to access its integrated
provider network and administrative services. Negotiations between Atlantic and
managed care health plans and other buyers of health care services are active
and on-going. Atlantic expects to realize revenues from administrative, group
purchasing and other services provided to participating physicians.

Atlantic's strategy is to continue to develop and implement a
multi-specialty Integrated Medical Group Network in the region of Eastern North
Carolina, generally east of Interstate 95. In each community in the region
Atlantic will endeavor to affiliate with local, prominent physicians who provide
a variety of medical specialty services. To implement its strategy, Atlantic
intends to pursue: (i) growth in its existing community markets; (ii) expansion
into new community markets through affiliation with physician medical practice
groups or existing provider networks; (iii) creation of contract relationships
with hospitals, HMOs, and other third-party payors in the community market
areas; (iv) use of management information systems and electronic data
interchange; and (v) management activities to increase the efficiency of and
reduce costs associated with the operation of Atlantic's regional network.

In May 1996, pursuant to a Memorandum of Understanding entered into
with several hospitals in Eastern North Carolina, Atlantic contributed $15,000
in cash and certain organizational materials previously developed by Atlantic
and prepared a feasibility study for an Integrated Delivery System Project. The
purpose of the Integrated Delivery System Project was to determine whether
Atlantic and its affiliated medical practice groups, participating hospitals and
other regional health care providers can develop a mutually acceptable joint
venture for the joint provision of administrative services and coordination of
the delivery of health care services. A mutually acceptable joint venture
business plan with hospitals and other health care providers has not yet been
developed, and to date, Atlantic has not entered into any agreements for such
joint provision of administrative services or greater coordination of the
delivery of health care services. Atlantic will continue to pursue strategic
alliances with hospitals and other health care providers in Eastern North
Carolina. No assurance can be provided, however, that Atlantic will succeed in
developing any such mutually acceptable joint venture business plan.

<PAGE>

In the event that more than the minimum number of Shares are sold, up
to $500,000 of the net proceeds of the Offering may be used, as determined in
the sole discretion of the Board of Directors, to explore the desirability and
feasibility of organizing, licensing and operating an affiliate health
maintenance organization or other health plan. No assurance can be provided,
however, that the Board of Directors will determine to undertake any such study
or to proceed with any such organization or affiliate company organization and
operation.

MISSION

The shareholders of Atlantic share the common vision that Atlantic is
to be a physician-owned and governed network of medical practice groups.
Atlantic's mission is to integrate, economically and clinically, physicians now
practicing primarily in single-specialty medical practice groups into a larger
multi-specialty group Integrated Medical Group Network to:

* integrate and coordinate multi-specialty patient care
beginning at the local community level;

* improve the access, quality and cost effectiveness of health
care services delivered through the development of new
health care service delivery products that are competitive
and responsive to the changing requirements and
opportunities of the marketplace;

* develop and implement network administrative, operating and
information systems required to improve the delivery of
health care services and patient outcomes;

* negotiate managed care (capitation, percentage of premium,
and other permitted risk sharing) health plan contracts and
contracts with other buyers of health care services; and

* develop the capability to provide additional ancillary
services and generate additional efficiencies in the
delivery of outpatient services.

To accomplish its mission, Atlantic is seeking well-defined, long-term
relationships with health plans and other buyers of health care services which
share its vision and commitment to influencing changes in the health care
delivery system that are positive for patients and helpful to physician
providers. Atlantic contemplates developing in the future working relationships
with hospitals and other health care providers in its geographic service region
of Eastern North Carolina, providing physicians the maximum flexibility to
provide patients with the best possible care.

INDUSTRY

The Health Care Financing Administration ("HCFA") estimates that
national health care in 1996 was approximately $1 trillion, with physicians
controlling more than 80% of the overall expenditures. The American Medical
Association reports that approximately 565,000 physicians are actively involved

<PAGE>

in patient care in the United States, with a growing number participating in
larger multi-specialty or single specialty groups.

Concerns over the accelerating cost of health care have resulted in the
increasing prominence of managed care. As markets evolve from traditional
fee-for-service medicine to managed care, HMOs and health care providers
confront market pressures to provide high quality health care in a
cost-effective manner. Employer groups have begun to bargain collectively in an
effort to reduce premiums and to bring about greater accountability of HMOs and
providers with respect to accessibility, choice of provider, quality of care and
other indicators of consumer satisfaction. The focus on cost-containment has
placed small to mid-sized physician groups and solo practices at a disadvantage
because they typically have higher operating costs and little purchasing power
with suppliers; they often lack and do not have the capital to purchase new
technologies that can improve quality and reduce costs; and they do not have the
cost accounting and quality management systems necessary for entry into
sophisticated risk-sharing contracts with payors.

Industry experts expect the health care delivery system to evolve into
a system in which the primary care physician, often part of a multi-specialty
group or network, is a key leader in managing and directing health care
expenditures. As a result of these developments, primary care physicians have
increasingly become the conduit for the delivery of medical care by acting as
"case managers" and directing referrals to certain specialists, hospitals,
alternate-site facilities and diagnostic facilities. By contracting directly
with payors, organizations that have both primary care and referral physician
leadership are able to reduce the administrative overhead expenses incurred by
HMOs and insurers and thereby reduce the cost of delivering health care
services.

As a result of the trends toward increased HMO enrollment and physician
membership in medical practice groups, health care providers have sought to
reorganize themselves into integrated health care delivery systems that are
better suited to the managed care environment. Some physician groups and
networks are joining with hospitals and other institutional providers in various
ways to create vertically integrated delivery systems which provide medical and
hospital services ranging from community-based primary medical care to
specialized inpatient services. These health care delivery systems contract with
HMOs to provide hospital and medical services to enrollees under full risk
contracts, through which providers assume the obligation of providing both the
professional and institutional components of covered health care services to the
HMO enrollees.

In order to compete effectively in such an emerging environment,
physicians are concluding that they must have control over the delivery and
financial impact of a broader range of health care services through the
acceptance of a global capitation. Moreover, physicians are increasingly
abandoning traditional private practice in favor of affiliations with larger
organizations, such as physician practice management companies and networks like
Atlantic, which offer experienced, innovative management, management information
systems and capital resources.

Many payors and their intermediaries, including governmental entities
and HMOs, are increasingly looking to network providers of physician services to
develop and maintain quality outcomes, management programs and patient care
data. In addition, such payors and intermediaries seek to share the risk of
providing health care services through capitation arrangements which provide for
fixed payments for patient care over a specified period of time. While the
acceptance of greater responsibility and risk provides the opportunity to retain
and enhance market share and operate at a higher level of profitability, medical
practice groups and independent physicians have determined that the acceptance
of capitation carries with it significant requirements for infrastructure,
information systems, capital, network resources and financial and medical
management. Physicians increasingly are

<PAGE>

turning to organizations such as Atlantic to provide the resources necessary to
function effectively in a managed care environment.

BUSINESS STRATEGY

Atlantic's strategy focuses on business activities in four (4)
principal areas:

1. FORMING A REGIONAL PHYSICIAN NETWORK.

Management of Atlantic believes that the majority of health care
services will continue to be delivered at the local community level in the
future, particularly primary medical care in rural regions, such as Eastern
North Carolina. Based on its experience and discussions with buyers of health
care services, management of Atlantic believes that the purchase of health care
services by HMOs and other buyers of health care services will increasingly be
accomplished through contracts with regional networks of physicians and other
providers; and thus demand by HMOs and other buyers of health care services will
grow rapidly for a regional, high quality physician network in Eastern North
Carolina that is capable of sharing risk. Atlantic seeks to meet this market
demand by selectively contracting with physicians in communities throughout
Eastern North Carolina. Each participating physician will be credentialed
through an established process that meets and/or exceeds National Commission for
Quality Assurance ("NCQA") guidelines. The Medical Services Provider Agreement,
entered into by all medical practice groups participating in Atlantic, requires
participating physicians to follow specific administrative and clinical policies
and procedures adopted by Atlantic's Board of Directors.

2. DEVELOPING STRATEGIC ALLIANCES.

Atlantic believes that developing relationships with hospitals, other
health care providers and insurance carriers, such as HMOs, improves the
delivery of health care services and patient care. Atlantic is in the process of
actively pursuing the development of such relationships.

Atlantic intends to pursue with hospital and other providers services
arrangements that will enhance the quality and efficiency of care to patients
and provide an integrated and coordinated continuum of care. Consistent with
this goal, Atlantic contemplates seeking the cooperation of hospitals and other
providers to permit access to physician profile information, which will be
useful in physician credentialing and quality management programs and to other
clinical data pertinent to care rendered to patients under managed care
contracts.

Wherever possible, service contracts with hospitals and other providers
will feature reimbursement formulas that align financial and clinical incentives
between physicians, hospitals, and other providers to best meet patient care
needs. As Atlantic physicians share permitted financial risk, hospitals and
other providers will be placed at risk for those aspects of health care delivery
which they most directly influence or control.

Atlantic is in the process of negotiating agreements with managed care
health plans and insurance companies desiring to compete in the Eastern North
Carolina marketplace for enrollees. Atlantic will also develop agreements with
managed care organizations or third party administrators, to facilitate the
offering of services by Atlantic medical practice groups to large partially and
fully self-insured employers and buyer coalitions.

Affiliated physicians are required to honor the terms and conditions of
contracts entered into by Atlantic and approved by respective medical practice
groups of such physicians. However, Atlantic does not prejudice individual
participating physicians or medical practice groups from entering into direct

<PAGE>

agreements with managed care health plans, insurance companies or other buyers
of health care services. The Medical Services Provider Agreement does provide,
however, that Atlantic shall have the exclusive right, for a period of 180 days
to negotiate a new Network/Buyer Agreement with certain buyers of health care
services designated by Atlantic. In the event that Atlantic does not enter into
a Network/Buyer Agreement with a designated buyer of health care services within
180 days, the affiliated physicians have the right to contract with any buyer of
health care services, regardless of whether or not Atlantic has contracted with
a particular plan.

The expectation is that through relationships with managed care health
plans and other buyers of health care services, Atlantic physicians will devote
greater resources to ensuring the wellness of patients, provide better quality
and cost-effective patient care and become more competitive in the health care
marketplace. As a result, it is anticipated that the overall cost of providing
care will be contained, rendering both Atlantic and the participating providers
more appealing to managed care health plans, other buyers of health care
services, and medical consumers.

3. SEEKING IMPROVEMENTS IN HEALTH CARE SERVICE DELIVERY AND
OUTCOMES.

Atlantic has been organized as a multi-specialty Integrated Medical
Group Network. The integration of the medical group practices and physicians
creates significant potential to enhance the quality and cost-effectiveness of
care provided to patients served by the network. The integration will be
accomplished through the systematic sharing of information, coordination of care
and such activities as the development and application of clinical pathways and
outcome measurements. Atlantic believes that information technology is critical
to the growth of its integrated health care delivery system and that the
availability of detailed clinical data is fundamental to quality control and
cost containment.

Atlantic is currently conducting a detailed evaluation process with
regard to practice management information systems. Although Atlantic anticipates
making recommendations to participating physicians and medical practice groups
for specific practice management information systems upon completion of its
evaluation, and will attempt to negotiate preferred pricing for such systems
through a group purchase basis, Atlantic contemplates that the choice of
practice management information systems to remain ultimately with individual
physicians and medical practice groups. Atlantic anticipates that the cost of
any practice management information systems installed by physicians and medical
practice groups will be borne entirely by such participating individual
physicians and medical practice groups.

Atlantic is also conducting research into information and
telecommunications systems which will be able to link the central office of
Atlantic with the offices of certain participating physicians and medical
practice groups via electronic data interchange to facilitate the collection and
analysis of clinical and administrative data and the development of a
comprehensive health care database. The database is to combine information about
the cost and utilization of health care services rendered to patients of the
network. The information and telecommunications system being studied is designed
to permit immediate verification of the eligibility of patients for service
under various managed care health plans. The cost of linking Atlantic with the
offices of certain participating physicians and medical practice groups through
information and telecommunications systems will not result in any significant
charges to Atlantic and will likely cost participating physicians and medical
practice groups monthly fees; the exact amount of such fees will be dependent
upon the type of services desired by each physician and medical practice group.

Through analysis of data and appropriate sharing of pertinent
information with physicians, hospitals, patients, managed care plans and buyers
of health care services, Atlantic physicians should be able to reduce the risk
of providing unnecessary and inappropriate care. Equally important, these

<PAGE>

systems and enhanced communications among providers, patients and purchasers,
will improve efforts to deliver quality service in a cost-effective manner and
document continuous improvements in health care service delivery and outcomes.
The information to be contained in the Atlantic database should allow
participating physicians systematically to develop and utilize clinical pathways
and outcome measurements and to address other quality-of-care issues.

4. ENHANCING THE MANAGEMENT AND PERFORMANCE OF PARTICIPATING
PRACTICES.

Atlantic intends to make available a number of shared management
services to participating physicians. While participating physicians are to
continue to employ and directly supervise the various clinical, reception,
medical records and other support personnel required at each office site, many
other administrative-management services may be provided more efficiently and on
a cost-effective basis through centralized resources in the network office.

Atlantic's Board of Directors may establish a Practice Management
Committee to assist in proposing policies and procedures relating to provider
affiliation with Atlantic. The Practice Management Committee, if organized,
would explore the development of shared services in such areas as: personnel
management systems, including sample employee policies, procedures, forms and
records; competitively priced group purchasing of forms, supplies, furnishings,
business services, insurance, information systems and equipment; assistance with
physician recruitment and the establishment of cross-coverage arrangements; and
compliance with Occupational Safety and Health Administration ("OSHA") and other
laws and regulations affecting employers in general or medical practices.

As appropriate, Atlantic expects to issue requests-for-proposals
seeking competitive bids from the suppliers of clinical support services, such
as reference laboratories, to provide necessary and frequently utilized services
and/or expensive technology to affiliated practices. Through volume discounts,
such services can be purchased at preferential prices and, perhaps, with
improvements in service which are beneficial to both Atlantic physicians and
their patients.

In conjunction with its strategic planning efforts, Atlantic may
determine that it would be advantageous from a marketing and/or service
standpoint to sponsor the establishment of strategically located care centers or
physician offices in locations which would help attract new customers and
patients, or provide enhanced access to services for existing patients. As
appropriate, Atlantic will undertake to facilitate efforts by the affiliated
medical practices to recruit and hire physicians directly to staff such sites.

Affiliated medical practices also may elect to have Atlantic organize
and make available certain optional practice management programs (e.g., accounts
receivable management or the management of medical office and clinical
facilities owned or leased by physicians). Any such programs would be offered to
shareholder and participating physicians on a competitively priced fee basis.

MEDICAL SERVICES PROVIDER AGREEMENTS, STRUCTURE AND OWNERSHIP AND MANAGEMENT

MEDICAL SERVICES PROVIDER AGREEMENTS: Affiliated medical practice
groups and physicians are linked to Atlantic and each other through Medical
Services Provider Agreements. Atlantic contracts with the physicians and the
affiliated medical practice groups for the provision of medical services and the
allocation of revenues and expenses and, in turn, contracts with managed care
health plans and insurance companies for marketing and enrollment services.
These agreements obligate Atlantic to allocate revenues among participating
physicians and medical practice groups in accordance with agreed upon formulae
and obligate the physicians and medical practice groups to provide medical
services and share certain risks of covering the costs of health care services
provided. In addition, the Medical

<PAGE>

Services Provider Agreements require participating physicians and medical
practice groups to participate in an administrative fee assessment program. See
"Business -- Administrative Fee Assessment Program."

STRUCTURE AND OWNERSHIP: Atlantic is a North Carolina business
corporation organized to provide administrative services only and not to provide
medical services. Atlantic is owned exclusively by medical practice groups and
physicians who, directly or indirectly, enter into Medical Services Provider
Agreements with and become shareholders of Atlantic. A diagram of the structure
and ownership of Atlantic and its relationships with buyers of health care
services and participating physicians and medical practice groups is set forth
below:

[CHART]

MEDICAL PRACTICE GROUP/ HEALTH PLANS
PHYSICIAN SHAREHOLDERS OTHER BUYERS OF HEALTH CARE SERVICES

-Permitted Risk Sharing and
Non-Risk Sharing Provider
Agreements

ATLANTIC INTEGRATED HEALTH INCORPORATED

- Physician Board of Directors
- Physician Officers
- Lay Chief Operating Officer
- Committees
- Administrative Staff
- Management Information System
- Data Ownership and Control

Non-Exclusive Medical Services
Provider Agreement

MEDICAL GROUP/PHYSICIAN MEDICAL GROUP/PHYSICIAN

- Own property and equipment
- Employ Support Staff

- Employment Agreement

Physician

Atlantic is owned exclusively by participating medical practice groups
and physicians, as depicted in the upper left corner of the diagram, and such
shareholders have elected the members of the Board of Directors, all of whom are
physicians. As depicted in the center box of the diagram, the officers of the
corporation are physicians, although the Chief Operating Officer of Atlantic is
a lay

<PAGE>

person experienced in the operation of medical practice groups and managed care
systems. See "Management Directors and Executive Officers."

The Board of Directors is to establish a number of committees that are
to be advisory committees of the Board of Directors and will oversee and
recommend policies and procedures concerning matters of general management,
finance, marketing, contracting, continuous quality improvement, utilization
management and management information systems. The members of such committees
primarily are physicians who are participants in the Atlantic network, although
other physicians and lay persons may also be designated members of the
committees. See "Management-Committees of the Board of Directors."

Atlantic will negotiate and enter into agreements on behalf of
participating physicians and medical practice groups with health plans and other
buyers of health care services, as depicted in the upper right corner of the
diagram. Such health care services will be provided by participating physicians
and medical practice groups and their respective physicians and other licensed
professionals. The terms and provisions for the rendering of the health care
services, payment for such services, and the sharing, by the participating
physicians and medical practice groups, of the risk of covering the costs of
providing such health care services are included in the Medical Services
Provider Agreements, as depicted in the lower left corner of the diagram.
Physicians' employment relationships with their respective medical practice
groups will be maintained. The numbers of participating physicians, their
medical specialties and geographic locations, are determined by the Board of
Directors of Atlantic.

The structure and ownership of Atlantic have been designed to avoid
Atlantic and the participating medical practice groups being deemed an
"affiliated service group," as defined under the Internal Revenue Code. The
Board of Directors has structured Atlantic to avoid such "affiliated service
group" designation and to enable participating medical practice groups to
continue their existing qualified pension and profit sharing plans without any
adverse tax consequences. See "Risk Factors -- Affiliated Service Group." The
Board of Directors believes that Atlantic and the participating medical practice
groups will not be an "affiliated service" group because (a) Atlantic is
organized as a business corporation; (b) Atlantic's business is limited to
providing administrative services (and will not constitute practicing medicine);
and (c) no individual physician is permitted to own 5% or more, and no group of
physicians practicing in the same medical practice group is permitted to own 10%
or more, of the outstanding capital stock of Atlantic. See "Plan of Distribution
- -- Physician Investors." No assurance can be provided, however, that the
Internal Revenue Service or another regulatory agency will not take the position
that Atlantic, as it is structured, owned and operated from time to time, will
be an "affiliated service group."

MANAGEMENT: Because of the complex array of business activities that
Atlantic pursues, Atlantic has undertaken to retain qualified management
personnel and professional advisors to carry out the day-to-day work of managing
the network. The central network office is supervised by the Chief Operating
Officer who was selected by and is accountable to the Board of Directors. In May
1997, the Board of Directors elected a new Chief Financial Officer who currently
serves as an independent contractor on a part-time basis. See "Management."
Atlantic staff supports the Board of Directors and its committees; facilitates
strategic planning regarding the growth and development of network services;
manages shared practice management services provided or available to affiliated
physicians; assists the network in its efforts to obtain and manage risk
contracts with managed care health plans and other buyers of health care
services; and is responsible for developing management systems, including pro
forma financial schedules to facilitate the monitoring of revenues and
expenditures incurred by the network.

In addition to the Chief Operating Officer and Chief Financial Officer,
Atlantic, as its grows in size and function, will develop its own staff with
experience in such areas as finance, marketing, health

<PAGE>

services/provider relations and management information systems. The number and
type of staff employed or retained will evolve based on the size of the network,
number of enrollees and patients served and complexity of planning or management
challenges.

Atlantic is in the development phase of its business operations. As a
result, Atlantic contracts with consultants to assure that the array of
experience and expertise necessary to build the network successfully is readily
available. Atlantic requires the on-going advice of attorneys, certified public
accountants and consulting actuaries.

PHYSICIAN SELECTION AND CREDENTIALING

To become a participating Atlantic physician, each physician must
complete the credentialing process which meets or exceeds guidelines promulgated
by the NCQA. Credentialing criteria have been developed to assure the inclusion
of desired numbers of physicians, as identified by specialty and geographic
location, within the network; the compilation of information concerning the cost
and quality of services rendered by respective physicians; and the confirmation
by applicants of their willingness to adhere to policies and procedures adopted
by Atlantic's Board of Directors. Each participating physician will be required
to complete successfully the credentialing process of Atlantic.

Atlantic has contracted with National Physicians Credentialing Service,
a Virginia corporation, to accomplish primary source verification and
electronically catalogue the information contained on each physician's
credentialing application. Atlantic commenced its credentialing program in July
1996.

PHYSICIAN REIMBURSEMENT, PHYSICIAN PAYMENTS, RISK MANAGEMENT

The Medical Services Provider Agreement entered into by each physician
and medical practice group participating in the Atlantic network is structured
to provide that: (i) participating physicians and medical practice groups render
required and appropriate medical services to designated patients; (ii) payment
for such medical services is to be made to participating physicians and medical
practice groups through programs determined by the Board of Directors; and (iii)
Atlantic coordinates and manages such provision of medical services, payment for
the medical services and the sharing of certain risk by the participating
physicians and medical practice groups related to the cost of providing the
required and appropriate medical services. Designation of primary care
physicians as "case managers" to coordinate patient care will vary depending on
the terms of the contracts entered into with buyers of health care services.

Atlantic has worked with and will continue to engage a professional
actuarial firm to work with the Board of Directors to develop common fee
schedules for the Atlantic network and to determine appropriate allocation of
capitation. In the event participating physicians and medical practice groups
are paid on a fee-for-service basis, Atlantic will endeavor to utilize a common
fee schedule and, as permitted and appropriate, will develop provisions for
holding back a portion of the fees paid to participating physicians and medical
practice groups in a contingency reserve fund. As determined by Atlantic's Board
of Directors and the terms and conditions of specific managed care health plan
contracts, a scheduled, periodic accounting of managed care health plan expenses
will be completed. The monetary amounts withheld will be returned to the
participating physicians and medical practice groups to the extent the operating
results permit. If a surplus still remains after all amounts held back during
the year from payments otherwise due physicians have been returned, such surplus
will be allocated among participating physicians in relationship to the level of
patient activity and such other criteria as may be determined by the Board of
Directors.

<PAGE>

The allocation of administrative assessments, revenues, sharing of
risk, operating reserve deficits or other reimbursement/compensation limitations
described herein may vary among medical practice groups and individual providers
within a medical practice group. See "Business -- Administrative Fee Assessment
Program."

THE ATLANTIC MEDICAL MANAGEMENT INFORMATION SYSTEM

Atlantic continues to evaluate information systems to provide
interactive health services and management information as described below.
Atlantic's management objective is to provide participating physicians with
access to appropriate data as patient care is rendered and evaluated. It is
contemplated that Atlantic and participating medical practice groups will be
linked electronically and that information will be delivered and shared through
electronic data interchange ("EDI"). No target date has been established for
implementation of an EDI system within the Atlantic network.

The functions of core information systems selected are to include
e-mail, accounting applications, on-line verification of eligibility, database
collection and reporting, management of contracts, claims processing and
payment, referral authorization and statistical reporting. Atlantic and/or
medical practice groups will retain ownership of all data, information and
reports generated by and through the use of the information systems.

ADMINISTRATIVE FEE ASSESSMENT PROGRAM

The Medical Services Provider Agreement entered into by each
participating physician or medical practice group provides that Atlantic, in its
sole discretion and by determination of the Board of Directors, may require the
participating physicians and medical practice groups to provide financial
support to help defray Atlantic's operating expenses. Consistent with this
provision, Atlantic has the authority to bill the participating physicians and
medical practice groups or retain from revenues paid to Atlantic administrative
and management fees that are equal to 3% of the "net revenues" of Atlantic, as
defined in the Medical Services Providers Agreement. In addition, upon execution
of the Medical Services Provider Agreement, participating physicians and medical
practice groups who are referral specialists are required to pay to Atlantic an
initial administrative and management fee equal to $3,000 per referral
physician. See "Certain Transactions."

COMPETITION

The health care market is extremely competitive and undergoing rapid
change. Atlantic and its affiliated physicians and medical practice groups
compete with individual physicians and medical practice groups, HMOs, PPOs,
physician-hospital organizations, integrated delivery systems and physician
practice management companies. Many of Atlantic's competitors are significantly
larger and have substantially greater capital resources than Atlantic. Atlantic
believes that the principal competitive factors that will affect its ability to
contract with health plans and other buyers of health care services include
achievement of cost efficiencies through integrated operations, satisfaction of
the needs of target purchasers and achievement of superior customer/patient
satisfaction.

GOVERNMENT REGULATION

Various state and federal laws regulate the relationships among
providers for the provision of physician and other health care services, and as
a business in the health care industry, Atlantic is subject to these laws and
regulations. Management of Atlantic believes its operations are in material
compliance with applicable laws; however, Atlantic has not received any legal
opinion from counsel or any advisory opinions from regulators that its
operations are in material compliance with applicable laws. Many

<PAGE>

aspects of Atlantic's business operations have not been the subject of
state or federal regulatory interpretation. Moreover, as a result of Atlantic's
providing both physician practice management services and medical support
services, Atlantic may be the subject of more stringent review by the regulatory
authorities. There can be no assurance that a review of Atlantic's or the
affiliated physicians' businesses by courts or regulatory authorities will not
result in a determination that could adversely affect the operations of Atlantic
or the affiliated physicians and medical practice groups. Moreover, no assurance
can be provided that new and more restrictive state or federal laws and
regulations will not be enacted or adopted.

The laws of many states prohibit business corporations such as Atlantic
from practicing medicine or employing physicians to practice medicine. Although
the State of North Carolina does not expressly prohibit the corporate practice
of medicine, it does require all persons practicing medicine to be licensed.
Atlantic performs only non-medical administrative services, does not represent
to the public or its clients that it offers medical services and does not
exercise influence or control over the practice of medicine by the physicians
with whom it contracts. Accordingly, Atlantic believes that it is not in
violation of applicable state laws relating to the corporate practice of
medicine. However, the laws in most states, including the State of North
Carolina, regarding the corporate practice of medicine have been subjected to
limited judicial and regulatory interpretation; therefore, no assurances can be
given that Atlantic's activities will be found to be in compliance, if
challenged.

Federal and state laws regulate the relationships among providers of
health care services, physicians and other clinicians. These laws include the
fraud and abuse provisions of the Medicare and Medicaid statutes, which prohibit
the soliciting or receiving, or the offering or payment of remuneration, either
directly or indirectly, in return for or to induce a referral of items or
services for Medicare and Medicaid patients. Federal and state statutes impose
restrictions on physician referrals of designated health services to entities
with which the physician has a financial relationship. These laws and applicable
regulations also regulate the submission of claims for the reimbursement of
physician services, or for services incident to those services, provided under
federal health care programs that are false or fraudulent. Violations of these
laws may result in substantial civil and criminal penalties, including civil
monetary penalties, exclusion from the participation in the Medicare and
Medicaid programs, loss of licensure to practice medicine and other penalties.
Such exclusion and penalties, if applied to Atlantic's affiliated medical
practice groups, could have an adverse effect on Atlantic. See "Business -
Government Regulation."

Recently adopted health insurance reform legislation included important
changes in federal laws regulating fraud and abuse. Statutory provisions
establishing criminal penalties, both fines and imprisonment, for intentionally
fraudulent activity in the provision of health services was included. Claims for
reimbursement that are improperly processed and submitted to federal programs
that result in inappropriately obtained reimbursement can result in civil
penalties. Moreover, persons who have an ownership interest or serve as officers
or managing employees of entities that are convicted or excluded from
participation for filing false or fraudulent claims, would also be subject to
exclusion and civil penalties for each day the individual maintains that
interest. Finally, remuneration between organizations and entities, which
provide services to Medicare or Medicaid beneficiaries and have a written risk
sharing agreement are exempted under Medicare and Medicaid statutes that
prohibit the payment or remuneration to induce or obtain referrals. These
statutes, if applied to Atlantic and its affiliated medical practice groups,
could have a material adverse effect on Atlantic.

Certain provisions of state and federal statutes, commonly referred to
as the "Anti-kickback Laws," prohibit the offer, payment, solicitation or
receipt of any form of remuneration either in return for the referral of
patients, or in return for the recommendation, arrangement, purchase, lease or
order of items or services that are covered by Medicare or state health
programs. The Anti-kickback Laws are

<PAGE>

broad in scope and have been broadly interpreted by courts in many
jurisdictions. Read literally, the statutes place at risk many otherwise
legitimate business arrangements, potentially subjecting such arrangements to
lengthy, expensive investigations and prosecutions initiated by federal and
state governmental officials.

The federal government has published several final and proposed
regulations for the creation of certain "safe harbors" from prosecution under
the federal Anti-kickback Law, but some of Atlantic's operations do not satisfy
the requirements for any of the "safe harbor" exemptions. Management of Atlantic
believes, however, that in the conduct of its contemplated business operations
Atlantic will not be in a position to make or influence the referral of patients
for goods or services and that such business operations will not constitute or
generate any violation of state or federal Anti-kickback Laws. To the extent
Atlantic is deemed by state or federal authorities to be a separate provider of
health care services, making referrals to or receiving referrals from physicians
or medical practice groups through its Non-Exclusive Medical Provider
Agreements, the financial arrangement under such agreements could be subject to
scrutiny and prosecution under the anti-kickback laws. Violation of the
Anti-kickback Laws 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, including excluding violators from
participation in Medicare or state health programs, and other criminal and civil
penalties may be imposed pursuant to applicable state laws.

Significant prohibitions against physician referrals were enacted,
subject to certain exemptions, by Congress in the Omnibus Budget Reconciliation
Act of 1993. These prohibitions, commonly known as "Stark II," amended prior
physician self-referral legislation known as "Stark I" by dramatically enlarging
the field of physician-owned or physician-interested entities to which the
referral prohibitions apply. Effective January 1, 1995 and subject to certain
exemptions, Stark II prohibits a physician or a member of the physician's
immediate family from referring Medicare or Medicaid patients to an 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. The designated health services include the provision
of clinical laboratory services, radiology, radiation therapy services and
supplies, physical and occupational therapy services, durable medical equipment
and supplies, parenteral and enteral nutrients, equipment and supplies,
prosthetics, orthotics and prosthetic devices and supplies, outpatient
prescription drugs, home health services and inpatient and outpatient hospital
services. The penalties for violation of 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." Since Atlantic is to provide administrative services only and is not to
provide any "designated health services" or other health services, management of
Atlantic believes that its business operations will not generate any violations
of the Stark legislation. While Atlantic believes it will be in compliance with
the Stark legislation, future regulations could require Atlantic to modify the
form of its relationships with the affiliated physician groups. Moreover, the
violation of the Stark legislation by any of Atlantic's affiliated medical
practice groups could result in significant fines and loss of reimbursement
which would adversely affect Atlantic.

Many states have adopted similar prohibitions against payments intended
to induce referrals of Medicaid and other patients. The State of North Carolina
has enacted statutes which prohibit the payment of fees to induce referrals and
prohibit referrals of patients by health care providers for certain designated
health care services to entities in which the health care provider or group
practice or any member of the group practice has an investment interest.
Sanctions which may be imposed for violations of such statutes include
discipline by the applicable professional licensing board, suspension or
revocation of the offending provider's license and substantial civil money
penalties. While Atlantic believes it will be in compliance with such state
laws, the existing or future laws or regulations could require Atlantic to
modify the form of its relationships with the affiliated physician groups.

<PAGE>

Laws in all states regulate the business of insurance and the operation
of HMOs. The laws and regulations of the State of North Carolina, as interpreted
by the state's Department of Insurance ("DOI"), permit physician organizations,
such as Atlantic, to enter into risk sharing contracts only with licensed
entities such as HMOs. Although Atlantic currently does not have any risk
sharing contracts, Atlantic may enter into such contracts in the future and at
such time may be subject to the HMO statute. A physician organization may also
become subject to regulation as a PPO or a URO. Although management of Atlantic
believes that its current operations fall outside of the oversight of the DOI,
no assurance can be provided, that the structure and operation of Atlantic and
its affiliated medical practice groups will not be challenged by the DOI or
other regulatory agencies. Any such challenge and any requirements that Atlantic
restructure its operations or qualify for an insurance license could have a
material effect on Atlantic's operations.

EMPLOYEES

As of June 30, 1997, Atlantic had three full-time employees, its Chief
Operating Officer and two administrative assistants. Atlantic also uses an
independent contractor as its Chief Financial Officer and another part-time
employee to assist with network development. Atlantic is not subject to any
collective bargaining agreements and believes that its employee relations are
good.

FACILITIES

Atlantic's facilities are located at 825 Kennedy Avenue, New Bern,
North Carolina 28560, and consist of approximately 700 square feet of office
space. Atlantic leases this space from New Bern Family Practice Center, P.A. of
which Dr. Mahaney, Atlantic's President and Chief Executive Officer, is a
shareholder and Treasurer. The lease, which became effective January 1, 1997,
expires December 31, 1997. Monthly rent is currently approximately $520.00.
Prior to this arrangement, Atlantic occupied the space rent free pursuant to an
oral lease entered into in March 1996. Atlantic intends to remain in its
existing facilities for the near future.

LEGAL PROCEEDINGS

Atlantic is not involved in any legal proceedings considered by
management to be material.

<PAGE>

MANAGEMENT

DIRECTORS AND EXECUTIVE OFFICERS

The directors and officers of Atlantic are as follows:

Name Age Position
---- --- --------

J. Philip Mahaney, Jr., M.D. 52 President and Chief Executive Officer
and Director

Kerry A. Willis, M.D. 38 Chairman of the Board and Director

Robert H. Blake, III 39 Chief Operating Officer

Stephen W. Nuckolls 30 Chief Financial Officer

Michael L. Bramley, M.D. 50 Vice President and Director

W. James Stackhouse, M.D. 47 Treasurer and Director

Joseph E. Agsten, M.D. 54 Director

Charles J. Baio, M.D. 47 Director

Graham A. Barden, III, M.D. 41 Director

A. Clark Gaither, M.D. 43 Director

Frank L. Gay, M.D. 37 Director

Robert A. Krause, M.D. 48 Director

Robert S. Meyer, M.D. 49 Director and Secretary

Leo E. Waivers, M.D. 45 Director

James M. Williams, M.D. 43 Director

J. PHILIP MAHANEY, JR., M.D. has served as President and Chief
Executive Officer of Atlantic since March 1996 and has served as a director of
Atlantic since December 1994. He is a family practice physician with New Bern
Family Practice Center, P.A., a medical practice group located in New Bern,
North Carolina. Dr. Mahaney also serves as Treasurer of New Bern Family Practice
Center, P.A.

KERRY A. WILLIS, M.D. has served as Chairman of the Board of Directors
of Atlantic since March 1996. Prior to becoming Chairman, he served as Vice
President of Atlantic. He has served as a director of Atlantic since December
1994. He is a physician practicing family medicine with East Carteret Family
Medicine, P.A., a medical practice group located in Beaufort, North Carolina. In
addition, Dr. Willis serves as President of East Carteret Family Medicine, P.A.

<PAGE>

ROBERT H. BLAKE, III has been the Chief Operating Officer of Atlantic
since June 1996. From February 1994 to June 1996, he served as Assistant Vice
President, Managed Care Services of Acordia National, Inc., a health insurance
services company in Charleston, West Virginia. In addition from July 1992 to
June 1996, he served as President of The Greenbrier Study Group, a health care
consulting firm in Charleston, West Virginia. From July 1993 to February 1994,
Mr. Blake served as a Managed Care Network and Provider Sponsored Health Plan
Developer for Newbridge, Inc./Health Economics Corporation.

STEPHEN W. NUCKOLLS has been the Chief Financial Officer of Atlantic
since April 1997. From September 1995 to July 1996, he served as Chief Financial
Officer of Blue Ridge Primary Care, Inc., an integrated medical group of over
120 physicians based in Roanoke, Virginia which subsequently merged with the
Carilion Health System. In August 1996, he founded Integration Strategies, a
health care consulting firm based in Galax, Virginia. From May 1990 to September
1995, Mr. Nuckolls was employed by McGladrey & Pullen, LLC, an international
accounting and consulting firm.

MICHAEL L. BRAMLEY, M.D. has served as Vice President of Atlantic since
November 1996 and as a director of Atlantic since October 1996. He is a
practicing pediatrician with Greenville Pediatrics, P.A., a medical practice
group located in Greenville, North Carolina. He also serves as Secretary of
Greenville Pediatrics, P.A. Dr. Bramley has been with Greenville Pediatric
Services, Inc. since 1976 and serves as Secretary.

W. JAMES STACKHOUSE, M.D. has served as Treasurer of Atlantic since
November 1996 and as a director of Atlantic since October 1996. He is a
physician practicing internal medicine with Goldsboro Medical Specialists, P.A.,
a medical practice group located in Goldsboro, North Carolina. Dr. Stackhouse
has been a physician with Goldsboro Medical Specialists, P.A. since 1981.

JOSEPH E. AGSTEN, M.D. has served as a director of Atlantic since
December 1994. He is a practicing family physician with Joseph E. Agsten, M.D.
and Laddie M. Crisp Jr., M.D. d/b/a Drs. Agsten and Crisp. Dr. Agsten has
practiced medicine for over twenty (20) years.

CHARLES J. BAIO, M.D. has served as a director of Atlantic since April
1997. He practices internal medicine with Wilson Medical Associate, P.A., in
Wilson, North Carolina. Dr. Baio has practiced medicine for over fourteen (14)
years.

GRAHAM A. BARDEN, III, M.D. FAAP has served as a director of Atlantic
since April 1997. He is a practicing pediatrician with Coastal Childrens'
Clinic, Inc., a pediatric practice group located in New Bern, North Carolina.
Dr. Barden has been a pediatrician with Coastal Childrens' Clinic, Inc. for over
twelve (12) years.

A. CLARK GAITHER, M.D. has served as a director of Atlantic since June
1995. He is a practicing physician with Goldsboro Family Physicians, P.A., a
medical practice group located in Goldsboro, North Carolina. He also serves as
President of Goldsboro Family Physicians, P.A. Dr. Gaither has practiced
medicine with Goldsboro Family Physicians, P.A. for over five (5) years.

FRANK L. GAY, M.D. has served as a director of Atlantic since June
1997. He has practiced obstetrics/gynecology with Greenville Obstetrics and
Gynecology, a division of Physicians East, P.A., a medical practice group
located in Greenville, North Carolina for over three years. Prior to joining
this group, Dr. Gay served as a staff Obstetrician/Gynecologist for the United
States Air Force for four (4) years.

<PAGE>

ROBERT A. KRAUSE, M.D. has served as a director of Atlantic since
December 1994. He is a self-employed family practitioner. He has served in such
a capacity for the last eight (8) years.

ROBERT S. MEYER, M.D. has served as Secretary of Atlantic since March
1996. He has served as a director of Atlantic since March 1996. Dr. Meyer is a
self-employed family practice physician. Dr. Meyer has practiced family medicine
for over nineteen (19) years. Dr. Meyer is the Chairman of the Board and Medical
Director for Home Health and Hospice CARE, Inc., a non-profit home health agency
headquartered in Goldsboro, North Carolina.

LEO E. WAIVERS, M.D. has served as a director of Atlantic since October
1996. He practices general internal medicine with Greenville Internal Medicine,
P.A., a medical practice group located Greenville, North Carolina. He serves as
President of Greenville Internal Medicine, P.A. Dr. Waivers has practiced
internal medicine with Greenville Internal Medicine, P.A. since 1991.

JAMES M. WILLIAMS, M.D. has served as a director of Atlantic since June
1997. He is a practicing family physician with Scotland Neck Family Medical
Center, Inc. He also serves as Medical Director of this practice. Dr. Williams
has practiced medicine in Scotland Neck, North Carolina for over fifteen (15)
years.

CLASSIFIED BOARD OF DIRECTORS

Atlantic's Board of Directors currently consists of two classes,
elected annually at Atlantic's annual meeting of shareholders for a term of one
year. However, pursuant to Atlantic's Bylaws, as amended, effective on or prior
to the date of the annual meeting of shareholders in 1997, which is currently
scheduled for November 1997, the Board will be divided into three classes as
nearly equal in number as possible with the directors in each class having terms
of three years. The staggered three-year terms would be phased in as follows:
one class will be elected for a one-year term; the second class will be elected
for a two-year term; and the third class will be elected for a three-year term.
The directors to be assigned to each class, and the division into classes will
be as determined by the majority vote of the board of directors which is in
office at the time such staggered terms will be established. Thereafter, at each
annual meeting, all directors filling seats of directors with expired terms
(whether re-elected or replacing another director) will be elected for
three-year terms.

COMPOSITION OF THE BOARD OF DIRECTORS

Atlantic's Board of Directors currently consists of thirteen members,
twelve of whom are Primary Care Directors (as defined below) and one of whom is
a Referral Director (as defined below). However, pursuant to Atlantic's Bylaws,
as amended, effective on or prior to the date of the annual meeting of
shareholders in 1997, at least 62.5%, but no more than 70% of the members of
Atlantic's Board of Directors must be Primary Care Physicians (the "Primary Care
Directors"). Atlantic's Bylaws define Primary Care Physicians as physicians who
practice substantially (75% or more as determined by gross practice revenues) in
one or more of the primary care specialties of family practice, general internal
medicine, general pediatrics or general practice ("Primary Care Specialties");
are generally not board certified in any specialty other than a Primary Care
Specialty; and, if board certified in any other specialty other than a Primary
Care Specialty, generally do not hold themselves out as practicing in any
specialty other than the Primary Care Specialties. In addition, Atlantic's
Bylaws, as amended, provide that at least one (1) of every ten (10) members of
the Board of Directors shall be a physician practicing solely in the medical
specialty of obstetrics and gynecology (the "OB/GYN Director(s)"). The remainder
of the board of directors must be physicians who practice primarily in referral
medical and surgical specialties other than the Primary Care Specialties (the
"Referral Directors").

<PAGE>

COMMITTEES OF THE BOARD OF DIRECTORS

The Board of Directors has established six committees: an Executive
Committee, a Nominating Committee, a Network Committee, a Medical Management
Committee, a Finance Committee and a Compensation Committee. The current members
of the Executive Committee are Drs. Michael L. Bramley, J. Philip Mahaney, Jr.,
Robert S. Meyer, M.D., W. James Stackhouse and Kerry A. Willis. The members of
the Executive Committee will also serve as members of the Nominating Committee.
The Network Committee is composed of Dr. A. Clark Gaither and Leo E. Waivers.
The Medical Management Committee is composed of Drs. Robert S. Meyer and Michael
L. Bramley, and the Finance Committee is composed of Drs. W. James Stackhouse,
Ronald A. Moore and Joseph W. Ponzi. The Compensation Committee is composed of
Drs. Joseph E. Agsten, W. James Stackhouse and Leo E. Waivers. The Board of
Directors is in the process of formally appointing new members to these
committees in order to obtain appropriate composition of Referral and Primary
Care physicians.

The Executive Committee reviews and discusses proposals and makes
recommendations to the Board of Directors and has the authority to take certain
actions on behalf of the Board of Directors between meetings of the Board of
Directors. The Network Committee has certain responsibilities and authority
concerning medical provider network development, and the Medical Management
Committee has certain responsibilities and authority concerning utilization
management and quality assurance matters. The Finance Committee has certain
responsibilities and authority concerning managed care contracts, reimbursement
schedules, financial risk sharing models and other financial matters. The
Compensation Committee makes recommendations to the Board concerning
compensation to be paid to the Company's officers and directors.

DIRECTOR COMPENSATION

The members of the Board of Directors of Atlantic do not currently
receive compensation for their service on the Board. They may be reimbursed by
Atlantic for any out-of-pocket expenses incurred in connection with their
service on the Board. In May 1997, the Board of Directors appointed a
Compensation Committee to review all compensation of Atlantic's directors.

<PAGE>

EXECUTIVE COMPENSATION

The following table sets forth the cash and non-cash compensation for
the fiscal years ending December 31, 1994, 1995 and 1996 awarded to or earned by
the President and Chief Executive Officer of Atlantic. No executive officers of
Atlantic earned over $100,000 in the fiscal year ended December 31, 1994, 1995
or 1996.

SUMMARY COMPENSATION TABLE

NAME AND ANNUAL COMPENSATION
PRINCIPAL POSITION YEAR SALARY ($)
- ------------------ ---- ----------

J. Philip Mahaney, Jr., M.D.(1) 1996 None (2)(3)
PRESIDENT AND CHIEF
EXECUTIVE OFFICER

Thomas L. Speros, M.D.(1) 1995 None (2)
CHAIRMAN, PRESIDENT AND CHIEF 1994 None (2)
EXECUTIVE OFFICER

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

(1) Dr. Speros served as Chairman, President and Chief Executive Officer of
Atlantic until March 1996. Upon Dr. Speros' resignation, J. Philip Mahaney, Jr.,
M.D. was elected President and Chief Executive Officer in March 1996.

(2) Neither Dr. Speros nor Dr. Mahaney received compensation for the fiscal
years ending December 31, 1994, 1995 and 1996. However, both officers were
reimbursed by Atlantic for out-of-pocket expenses incurred in connection with
his position.

(3) Dr. J. Philip Mahaney, Jr., President and Chief Executive Officer, and Dr.
Kerry A. Willis, Chairman of the Board, received $2,000 per month for the first
six months of 1997. In May 1997, the Board of Directors appointed a Compensation
Committee to review all future compensation of the Company's officers and
directors.

EMPLOYMENT AGREEMENT

On June 1, 1996, Atlantic entered into an employment agreement with
Robert H. Blake III under which Mr. Blake agreed to serve as the Chief Operating
Officer of Atlantic for a base salary of $96,000 per year (the "Employment
Agreement"). The initial term of the Employment Agreement expired on December
31, 1996. The Company and Mr. Blake have orally extended the term of the
Agreement beyond December 31, 1996 for an indefinite period. Any bonus to be
paid to Mr. Blake as set forth in the written agreement has been deferred for an
indefinite period. The Employment Agreement contains provisions providing for
the maintenance of confidentiality of proprietary information of Atlantic.

<PAGE>

CERTAIN TRANSACTIONS

All shareholders of the Primary Class Common Shares and the Referral
Class Common Shares of Atlantic are required to enter into, or practice medicine
through a medical practice group that has entered into, a Medical Services
Provider Agreement with Atlantic. See "Business -- Medical Services Provider
Agreements, Structure and Ownership and Management." Correspondingly, each
member of the Board of Directors has entered into or has agreed to enter into or
practices medicine through a medical practice group, of which he or she is a
shareholder, which has entered into or has agreed to enter into, a Medical
Services Provider Agreement. In addition, upon execution of the Medical Services
Provider Agreement, participating physicians and medical practice groups who are
referral specialists are required to pay to Atlantic an initial administrative
and management fee equal to $3,000 per Referral Physician. As of the date
hereof, it is not possible to determine the amount which will be paid to the
respective physicians or medical practice groups pursuant to the terms of the
Medical Services Provider Agreement.

In January 1997, Atlantic entered into a written lease with New Bern
Family Practice Center, P.A., of which Dr. Mahaney, Atlantic's President and
Chief Executive Officer, is a shareholder and Treasurer. The lease, which became
effective January 1, 1997, expires December 31, 1997. Monthly rent is currently
approximately $520.00. Prior to this arrangement, Atlantic occupied the space
rent free pursuant to an oral lease entered into in March 1996. Atlantic intends
to remain in its existing facilities for the near future.

<PAGE>

PRINCIPAL SHAREHOLDERS

The following table sets forth certain information known to the Company
with respect to the beneficial ownership of the capital stock of the Company as
of June 30, 1997, and as adjusted to reflect the sale of the Shares offered
hereby for (i) each person known by Atlantic to beneficially own more than 5% of
the shares of the capital stock of the Company, (ii) each executive officer
named in the summary compensation table, (iii) each director of Atlantic, and
(iv) all directors and executive officers of Atlantic as a group. Shares not
outstanding but deemed beneficially owned by virtue of the right of an
individual or group to acquire them within 60 days are treated as outstanding
only when determining the amount and percentage owned by such individual or
group. Unless otherwise noted, each person or group identified has sole voting
and investment power with respect to the Shares shown.

PRIMARY CLASS COMMON SHARES

<TABLE>
<CAPTION>
NUMBER OF PRIMARY
CLASS COMMON SHARES PERCENTAGE OF OUTSTANDING PRIMARY CLASS
BENEFICIALLY OWNED COMMON SHARES
------------------ -----------------------------------------

NAME AND ADDRESS AMOUNT JULY 31, 1997 AFTER OFFERING(1)
- ---------------- ------ ------------- --------------
<S> <C> <C> <C>
J. Philip Mahaney, Jr., M.D. 8,000 (2) 3.0% *
1612 Brices Creek Road
New Bern, NC 28562

Kerry A. Willis, M.D. 4,000 (3) 1.5% *
303 Eastchester Drive
Morehead City, NC 28557

Joseph E. Agsten, M.D. 4,000 (4) 1.5% *
2202 Emerson Road
Kinston, NC 28504

Michael L. Bramley, M.D. 10,000 (5) 3.8% 1.1%
300 Bethesda Drive
Greenville, NC 27834

Charles J. Baio, M.D. 8,000 (6) 3.0% *
200 Glendale Avenue
Wilson, NC 27895

A. Clark Gaither, M.D. 4,000 (7) 1.5% *
212 Maplewood Drive
Goldsboro, NC 27534

Robert A. Krause, M.D. 2,000 * *
906 Eaton Drive
Jacksonville, NC 28546

Robert S. Meyer, M.D. 2,000 * *
307 Cashwell Drive
Goldsboro, NC 27534

Graham A. Barden, III M.D. 10,000 (8) 3.8% 1.1%
703 Newman Road
New Born, NC 28562

<PAGE>

W. James Stackhouse, M.D. 6,000 (9) 2.3%
201 Cox Boulevard
Goldsboro, NC 27534

Leo E. Waivers, M.D. 6,000 (10) 2.3%
2303 Executive Park Circle
Greenville, NC 27834

James M. Williams, M.D. 2,000 (11) * *
919 Jr. High School Road
Scotland Neck, NC 27874

All Directors and Executive 66,000 (2) (3) 25.5% 7.7%
Officers as a Group (4) (5)
(15 persons) (6) (7)
(8) (9)
(10)

</TABLE>

* Less than 1% of the issued and outstanding Primary Class Common Shares.

(1) The Company met its minimum offering requirement on May 29, 1997 and,
therefore, disclosure relating to the percentage of outstanding Primary
Class Common Shares in the event that only the minimum number of Shares
sold has been omitted.

(2) Includes 8,000 Primary Class Common Shares beneficially owned by New
Bern Family Practice Center, P.A., of which Dr. Mahaney is a
shareholder and is Treasurer. Dr. Mahaney may be deemed to be the
beneficial owner of such shares.

(3) Includes 4,000 Primary Class Common Shares beneficially owned by East
Carteret Family Medicine, P.A., of which Dr. Willis is a shareholder
and is President. Dr. Willis may be deemed to be the beneficial owner
of such shares.

(4) Includes 4,000 Primary Class Common Shares beneficially owned by Dr.
Agsten and Laddie M. Crisp, Jr., M.D. Dr. Agsten may be deemed to be
the beneficial owner of such shares.

(5) Includes 10,000 Primary Class Common Shares beneficially owned by
Greenville Pediatric Services, Inc., of which Dr. Bramley is a
shareholder and is Secretary. Once such shares are issued, Dr. Bramley
may be deemed to be the beneficial owner of such shares.

(6) Includes 10,000 Primary Class Common Shares beneficially owned by
Coastal Childrens Clinic, Inc., of which Dr. Barden is a shareholder
and is President. Dr. Barden may be deemed to be the beneficial owner
of such shares.

(7) Includes 4,000 Primary Class Common Shares beneficially owned by
Goldsboro Family Physicians, P.A., of which Dr. Gaither is a
shareholder and is President. Dr. Gaither may be deemed to be the
beneficial owner of such shares.

(8) Includes 8,000 Primary Class Common Shares beneficially owned by Wilson
Medical Associates, P.A., of which Dr. Baio is a shareholder. Once such
shares are issued, Dr. Baio may be deemed to be the beneficial owner of
such shares.

<PAGE>

(9) Includes 6,000 Primary Class Common Shares beneficially owned by
Goldsboro Medical Specialists, P.A., of which Dr. Stackhouse is a
shareholder. Dr. Stackhouse may be deemed to be the beneficial owner of
such shares.

(10) Includes 6,000 Primary Class Common Shares beneficially owned by
Greenville Internal Medicine, P.A., of which Dr. Waivers is a
shareholder and is President. Once such shares are issued, Dr. Waivers
may be deemed to be the beneficial owner of such shares.

REFERRAL CLASS COMMON SHARES

<TABLE>
<CAPTION>
NUMBER OF REFERRAL
CLASS COMMON SHARES PERCENTAGE OF OUTSTANDING REFERRAL CLASS
BENEFICIALLY OWNED COMMON SHARES
------------------ ----------------------------------------

NAME AND ADDRESS AMOUNT JULY 31, 1997 AFTER OFFERING (1)
- ---------------- ------ ------------- --------------
<S> <C> <C> <C>
Frank L. Gay, M.D. 2,000 1.0% *
101 Bethesold Drive
Greenville, NC 27834

All Directors and Executive 2,000 1.0% *
Officers as a Group
(15 persons)

</TABLE>

* Less than 1% of the issued and outstanding Referral Class Common
Shares.

(1) The Company met its minimum offering requirement on May 29, 1997 and,
therefore, disclosure relating to the percentage of outstanding
Nonprofit Class Nonvoting Common Shares in the event that only the
minimum number of Shares is sold has been omitted.

<PAGE>

NONPROFIT CLASS NONVOTING COMMON SHARES

<TABLE>
<CAPTION>
NUMBER OF NONPROFIT
CLASS NONVOTING COMMON
SHARES PERCENTAGE OF OUTSTANDING NONPROFIT CLASS
BENEFICIALLY OWNED NONVOTING COMMON SHARES
------------------ -----------------------------------------

NAME AND ADDRESS AMOUNT JULY 31, 1997 MAXIMUM
- ---------------- ------ ------------- -------
<S> <C> <C> <C>
Rural Health Group, Inc. 2,000 80.0% 1.3%
P.O. Box 644
Jackson, NC 27845

Tri-County Health 500 20.0% *
Services, Inc.
P.O. Box 40
Aurora, NC 27806

All Directors and Executive 0 * *
Officers as a Group
(15 persons)

</TABLE>

* Less than 1% of the issued and outstanding Nonprofit Class Nonvoting
Common Shares.

(1) The Company met its minimum offering requirement on May 29, 1997 and,
therefore, disclosure relating to the percentage of Nonprofit Class
Nonvoting Common Shares in the event that only the minimum number of
Shares is sold.

<PAGE>

DESCRIPTION OF SECURITIES

The authorized capital stock of Atlantic consists of 1,000,000 Primary
Class Common Shares, par value $1.00 per share, 1,800,000 Referral Class Common
Shares, par value $1.00 per share and 200,000 Nonprofit Class Nonvoting Common
Shares, par value $1.00 per share. Prior to July 1996, the authorized capital
stock of Atlantic consisted of 100,000 shares of common stock, $1.00 par value
per share. In August 1996, after Atlantic amended and restated its Articles of
Incorporation to reflect its current capital structure, the shares of common
stock previously issued and outstanding were canceled and re-issued as either
Primary Class Common Shares, Referral Class Common Shares or Nonprofit Class
Nonvoting Common Shares, as the case may be, depending upon the qualifications
of the existing shareholders.

PRIMARY CLASS COMMON SHARES

As of June 30, 1997, there were 258,500 Primary Class Common Shares
issued and outstanding, held by 97 holders of record. All of the issued and
outstanding Primary Class Common Shares are fully paid and nonassessable.

Pursuant to Atlantic's Amended and Restated Articles of Incorporation,
Atlantic may issue Primary Class Common Shares only to Primary Care Physicians,
which are defined in Atlantic's Bylaws, as amended, as physicians who practice
substantially (75% or more as determined by gross practice revenues) in one or
more of the primary care specialties of family practice, general internal
medicine, general pediatrics or general practice ("Primary Care Specialties");
are generally not board certified in any specialty other than a Primary Care
Specialty; and, if board certified in any other specialty other than a Primary
Care Specialty, generally do not hold themselves out as practicing in any
specialty other than the Primary Care Specialties, and, until August 31, 1997,
to practice groups (partnerships, professional corporations or professional
limited liability companies) engaged primarily in the provision of services of
Primary Care Physicians, which physicians, either directly or through a practice
group, or practices, have contracted with Atlantic to provide medical and other
health care services through contracts negotiated by Atlantic.

The holders of the Primary Class Common Shares are entitled to one vote
for each share held of record on all matters submitted to a vote of the
shareholders. In addition, the holders of the Primary Class Common Shares are
entitled to vote as a group with special voting requirements on: (i) election of
all Primary Care Directors; (ii) amendments to Atlantic's Amended and Restated
Articles of Incorporation regarding classes of shares and the respective rights
of such classes; (iii) when a shareholder vote is required, approval of the sale
or transfer of all or substantially all of the assets of, or the dissolution of,
Atlantic; (iv) certain amendments to Atlantic's Bylaws, as amended; and (v) all
matters on which such vote is required by the North Carolina Business
Corporation Act.

The vote of 65% of all of the issued and outstanding Primary Class
Common Shares and 65% of all of the issued and outstanding Referral Class Common
Shares is required to adopt amendments to Atlantic's Amended and Restated
Articles of Incorporation regarding classes of shares and the respective rights
of such classes, and/or, if shareholder vote is required, to approve the sale or
transfer of all or substantially all of the assets of Atlantic.

The vote of 65% of all of the issued and outstanding Primary Class
Common Shares is required to elect Primary Care Directors, and the Primary Class
Common Shares are the only class of shares voting on the election of the Primary
Care Directors.

<PAGE>

Holders of the Primary Class Common Shares are entitled to receive
ratably such dividends as may be declared by the Board of Directors out of funds
legally available therefor. Holders of the Primary Class Common Shares have no
preemptive rights and no right to convert their Primary Class Common Shares into
any other securities. Upon any liquidation or dissolution of Atlantic, the
holders of the Primary Class Common Shares are entitled to share, pro rata, in
any distribution of Atlantic's assets to shareholders.

REFERRAL CLASS COMMON SHARES

As of June 30, 1996, there were 200,000 Referral Class Common Shares
issued and outstanding, held by 113 holders of record. All of the issued and
outstanding Referral Class Common Shares are fully paid and nonassessable.

Pursuant to Atlantic's Amended and Restated Articles of Incorporation,
Referral Class Common Shares will be issued only to physicians practicing
primarily in referral medical and surgical specialties other than Primary Care
Specialties and, until August 31, 1997, to practice groups (partnerships,
professional corporations or professional limited liability companies) engaged
primarily in the provision of services of physicians practicing primarily in
such referral medical and surgical specialties other than Primary Care
Specialties, which physicians, either directly or through a practice group, or
practices, have contracted with Atlantic to provide medical and other health
care services through contracts negotiated by Atlantic.

The holders of the Referral Class Common Shares are entitled to one
vote for each share held of record on all matters submitted to a vote of the
shareholders. In addition, the holders of the Referral Class Common Shares are
entitled to vote as a group with special voting requirements on: (i) election of
all Referral Directors and all OB/GYN Directors; (ii) adoption of amendments to
Atlantic's Amended and Restated Articles of Incorporation regarding classes of
shares and the respective rights of such classes; (iii) when a shareholder vote
is required, approval of the sale or transfer of all or substantially all of the
assets of, or the dissolution of, Atlantic; (iv) amendment to certain provisions
of Atlantic's Bylaws, as amended; and (v) all matters on which such vote is
required by the North Carolina Business Corporation Act.

The vote of 65% of all of the issued and outstanding Referral Class
Common Shares, and 65% of all of the issued and outstanding Primary Class Common
Shares is required to adopt amendments to Atlantic's Amended and Restated
Articles of Incorporation regarding classes of shares and the respective rights
of such classes, and/or, when shareholder vote is required, to approve the sale
or transfer of all or substantially all of the assets of, or the dissolution of,
Atlantic. The vote of 65% of all of the issued and outstanding Referral Class
Common Shares are required to elect Referral Directors and OB/GYN Directors and
the holders of Referral Class Common Shares are the only shareholders allowed to
vote on the election of Referral Directors and OB/GYN Directors.

Holders of the Referral Class Common Shares are entitled to receive
ratably such dividends as may be declared by the Board of Directors out of funds
legally available therefor. Holders of the Referral Class Common Shares have no
preemptive rights and no right to convert their Referral Class Common Shares
into any other securities. Upon any liquidation or dissolution of Atlantic, the
holders of the Referral Class Common Shares are entitled to share, pro rata, in
any distribution of Atlantic's assets to shareholders.

<PAGE>

NONPROFIT CLASS NONVOTING COMMON SHARES

As of June 30, 1997, there were 2,500 Nonprofit Class Nonvoting Common
Shares issued and outstanding, held by two holders of record. All of the issued
and outstanding Nonprofit Class Nonvoting Common Shares are fully paid and
nonassessable.

Pursuant to Atlantic's Amended and Restated Articles of Incorporation,
Nonprofit Class Nonvoting Common Shares will be issued only to nonprofit
entities or public (local, state or federal government) corporations engaged in
the delivery of health care services, which have contracted with Atlantic to
provide medical or other health care services through contracts negotiated by
Atlantic.

The holders of the Nonprofit Class Nonvoting Common Shares are not
entitled to vote on any matters submitted to Atlantic's shareholders. The
Nonprofit Class Nonvoting Common Shares otherwise have all rights of common
shares pursuant to the North Carolina Business Corporation Act. Holders of the
Nonprofit Class Nonvoting Common Shares are entitled to receive ratably such
dividends as may be declared by the Board of Directors out of funds legally
available therefor. Holders of the Nonprofit Class Nonvoting Common Shares have
no preemptive rights and no right to convert their Nonprofit Class Nonvoting
Common Shares into any other securities. Upon any liquidation or dissolution of
Atlantic, the holders of the Nonprofit Class Nonvoting Common Shares are
entitled to share, pro rata, in any distribution of Atlantic's assets to
shareholders.

LIMITATION OF LIABILITY OF DIRECTORS AND INDEMNIFICATION

Atlantic's Amended and Restated Articles of Incorporation provide
Atlantic's Board of Directors with the power and authority to limit the
liability of its directors to the fullest extent permitted by the North Carolina
Business Corporation Act. Directors of Atlantic will not be personally liable to
Atlantic or otherwise for monetary damages for breach of any duty as a director,
except for liability with respect to (i) acts or omissions that the director at
the time of such breach knew or believed were clearly in conflict with the best
interests of Atlantic; (ii) dividends or other distributions of corporate assets
that are in contravention of certain statutory or contractual restrictions; or
(iii) any transaction from which the director derived an improper personal
benefit.

The North Carolina Business Corporation Act requires that Atlantic
indemnify any director who was wholly successful, on the merits or otherwise, in
the defense of any proceeding to which the director was a party because he or
she was a director of Atlantic against reasonable expenses incurred by the
director in connection with the proceeding. "Proceeding" means a threatened,
pending, or contemplated action, suit, or proceeding, whether civil, criminal,
administrative, or investigative and whether formal or informal. Reference is
made to the detailed provisions of Sections 55-8-50 through 55-8-58 of the North
Carolina Business Corporation Act for a complete statement of such
indemnification rights. Atlantic's Bylaws, as amended, also require Atlantic to
provide indemnification to any person who at any time serves or has served as a
director or officer of Atlantic, or at the request of Atlantic is or was serving
as an officer, director, agent, partner, trustee, administrator, or employee for
any other foreign or domestic corporation, partnership, joint venture, trust,
employee benefit plan, or other enterprise, to the fullest extent permitted by
the North Carolina Business Corporation Act. Atlantic's Bylaws, as amended, also
permit Atlantic's Board of Directors, in its discretion, to provide such
indemnification to employees and agents of Atlantic.

Atlantic maintains a directors and officers and errors and omissions
insurance policy, the maximum coverage of which is $1,000,000 per claim.

<PAGE>

Insofar as indemnification for liabilities arising under the Securities
Act of 1933 (the "Securities Act") may be permitted to directors, officers and
controlling persons of Atlantic pursuant to the foregoing provisions, or
otherwise, Atlantic 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.

CERTAIN ANTI-TAKEOVER PROVISIONS

In 1987, the North Carolina Shareholder Protection Act, N.C. Gen. Stat.
ss. 55-9-01 et seq. (the "Shareholder Protection Act"), was enacted to provide
fair price protection for shareholders in two-tier takeovers. Generally
applicable to corporations that have a class of shares registered under Section
12 of the Securities Exchange Act of 1934 and are organized under the laws of
North Carolina, the Shareholder Protection Act provides that any business
combination of a corporation with an entity owning more than 20% of the voting
shares of the corporation must be approved by 95% of the voting shares. A
purchaser may avoid the 95% voting requirement by complying with, among other
things, (i) fair price formula provisions of N.C. Gen. Stat. ss. 55-9-03; (ii)
certain restrictions in N.C. Gen. Stat. ss. 55-9-03 (pertaining to board
representation and acquisition of shares) on such purchaser's conduct between
the time of acquisition of the 20% threshold voting interest in the corporation
and the consummation of the business combination, and (iii) the requirements set
forth in N.C. Gen. Stat. ss. 55-9-03 (relating to the solicitation of proxies).

In 1987, North Carolina adopted the North Carolina Control Share
Acquisition Act, N.C. Gen. Stat. ss. 55-9A-01 et seq. (the "Control Share Act"),
the provisions of which are generally applicable to corporations that have a
class of shares registered under Section 12 of the Securities Exchange Act of
1934 and are organized under the laws of North Carolina and which become
operative when an acquiring person purchases shares entitling such person to
voting power equal to or greater than one-fifth, one-third or one-half of all
voting power of the issuing corporation ("Control Shares"). A "Control Share
Acquisition" means, with certain exceptions, the acquisition by any person of
Control Shares. Control Shares acquired in a Control Share Acquisition shall not
have voting rights unless such rights are granted by resolution adopted by the
shareholders of the corporation. To be granted voting rights under an approved
resolution, the resolution must generally be adopted by the affirmative vote of
at least a majority of all the outstanding shares of the corporation (not
including Interested Shares) entitled to vote for the election of directors.
"Interested Shares" means shares of the corporation beneficially owned by (i)
any person who has acquired or proposes to acquire Control Shares in a Control
Share Acquisition; (ii) any officer of the corporation; or (iii) any employee of
the corporation who is also a director of the corporation. Before a vote on the
resolution occurs, the shareholders must be provided both with notice of and
information about the Control Share Acquisition, including a description of the
right of redemption available to shareholders. The right of redemption by
shareholders of the corporation under the Control Shares Act provides that if
the Control Shares acquired in a Control Share Acquisition are accorded voting
rights and if the holders of the Control Shares have a majority of all voting
power for the election of directors, all shareholders of the corporation (other
than holders of Control Shares) have rights to have their shares redeemed by the
corporation at the fair value of the shares. Fair value of the shares is
determined as of the day prior to the date on which the referenced shareholders
meeting was held relating to the grant of voting rights to the Control Shares,
but in no event is it a value less than the highest price paid per share by the
acquiring person in the Control Share Acquisition. This right of redemption is
granted subject to the satisfaction of certain requirements by the shareholder
after receiving notice of the grant of voting rights to the Control Shares.

Although Atlantic is governed by the North Carolina Business
Corporation Act, it is not subject to the anti-takeover provisions of the
Shareholder Protection Act and the Control Share Act. Atlantic has "opted-out"
of these provisions pursuant to an express provision in Atlantic's Amended and
Restated

<PAGE>

Articles of Incorporation. "Opting-out" of these anti-takeover provisions could
limit the price that certain investors might pay in the future for shares of
Atlantic's capital stock.

Sections 2(a) and 2(b) of Atlantic's Amended and Restated Articles of
Incorporation provide that the affirmative vote of 65% of all of the issued and
outstanding Primary Class Common Shares, voting as a separate group, and the
affirmative vote of 65% of all of the issued and outstanding Referral Class
Common Shares, voting as a separate group, are required for shareholder
approval, if necessary, of a transfer of all or substantially all of the assets
of Atlantic. Such a provision may impede a change of control. See "Risk
Factors--Effect of Certain Articles of Incorporation and Bylaw Provisions."

SHARES ELIGIBLE FOR FUTURE SALE

Upon completion of this Offering, Atlantic will have 856,500 Primary
Class Common Shares, 1,426,000 Referral Class Common Shares and 152,500
Nonprofit Class Nonvoting Common Shares issued and outstanding, if the maximum
number of Shares offered hereby is sold. All purchasers of shares of Atlantic's
capital stock already issued by Atlantic and all purchasers of the Shares
offered hereby have been and will be required to enter into Subscription and
Shareholder Buy/Sell Agreements, which restrict the sale of the shares of
capital stock of Atlantic and the Shares offered hereby and provide to Atlantic
the right to repurchase such shares upon certain purchase events at fair market
value, as determined in the sole discretion of the Board of Directors of
Atlantic. Accordingly, so long as the buy/sell provisions in the Subscription
and Shareholder Buy/Sell Agreement are in effect, development of a trading
market for any of the shares of Atlantic's capital stock, including the Shares
offered hereby is precluded. Consequently, there is currently no public or
private trading market for the Shares offered hereby and unless all of the
buy/sell provisions in the Subscription and Shareholder Buy/Sell Agreements are
terminated, there will continue to be no public or private trading market for
the Shares. See "Risk Factors -- Lack of Public Trading Market; Limitations on
Transfer."

In the event, the buy/sell provisions in the Subscription and
Shareholder Buy/Sell Agreements are terminated, then out of all of the issued
and outstanding shares of capital stock of Atlantic, all of the Shares sold in
this Offering will be freely tradable without restriction under the Securities
Act unless held by "affiliates" of the Company as that term is defined in Rule
144 under the Securities Act. The remaining 185,000 shares of capital stock of
Atlantic held by existing stockholders are "restricted securities" under the
Securities Act. The Shares, and any shares purchased by an affiliate of
Atlantic, may not be sold unless they are registered under the Securities Act or
unless an exemption from registration, such as an exemption provided by Rule 144
or 144(k) under the Securities Act is available.

In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated), including an affiliate of Atlantic, who has
beneficially owned "restricted securities" for at least one year is entitled to
sell in any three-month period a number of shares that does not exceed the
greater of (i) one percent of the number of shares of capital stock then
outstanding or (ii) the average weekly trading volume of the capital stock
during the four calendar weeks preceding the required filing of a Form 144 with
respect to such sale. Sales under Rule 144 are generally subject to certain
other requirements relating to manner of sale, notice of sale and availability
of current public information about Atlantic. Under Rule 144(k), a person who is
not deemed to have been an affiliate of Atlantic at any time during the 90 days
preceding a sale, and who has beneficially owned the shares proposed to be sold
for at least two years, is entitled to sell such shares without regard to the
limitations described above.

Upon completion of this Offering, no shares of capital stock will
become eligible for sale in the public market pursuant to Rule 144(k). If the
buy/sell provisions in the Subscription and Shareholder

<PAGE>

Buy/Sell Agreements are terminated, then beginning 90 days after the date of
this Prospectus, shares of capital stock will become available for sale in the
public market subject in certain cases, to volume and manner of sale
limitations. No shares of capital stock will become eligible for immediate
public resale pursuant to Rule 144. If the buy/sell provisions in the
Subscription and Shareholder Buy/Sell Agreements are terminated, then the
remaining shares of capital stock held by existing shareholders will become
eligible for public resale at various times over a period of less than one year
following the completion of this Offering, subject in some cases to volume
limitations.

PLAN OF DISTRIBUTION

The Shares offered hereby are offered by the officers and directors of
Atlantic on a "best efforts" basis. During the initial offering period from
December 30, 1996 through July 28, 1997, Atlantic sold 116,000 Primary Class
Common Shares, 216,000 Referral Class Common Shares and no Nonprofit Class
Nonvoting Common Shares. The minimum number of shares was sold by May 29, 1997
and, therefore, all proceeds from such shares were released from an escrow
account at Centura Bank and distributed to the Company. The Company will
continue to offer Shares under this Prospectus for a period of 210 days from the
date of this Prospectus. No selling commissions will be paid to any officer or
director of Atlantic in connection with the offer and sale of the Shares,
although any out-of-pocket expenses will be reimbursed by Atlantic.

PHYSICIAN INVESTORS

Atlantic is offering for sale only to selected physicians who have
completed Atlantic's credentialing process up to 700,000 Primary Class Common
Shares and up to 1,400,000 Referral Class Common Shares at the purchase price of
$1.00 per Share. Upon qualification, selected physicians will be permitted to
purchase 2,000 Primary Class Common Shares per primary care physician or 2,000
Referral Class Common Shares per referral physician. Ownership of the Primary
Class Common Shares and Referral Class Common Shares of Atlantic is restricted
and limited to assure that no physician shareholder owns 5% or more of the
outstanding shares of capital stock of Atlantic and that no collection of
physician shareholders who practice together in any participating medical
practice group own 10% or more of the outstanding shares of capital stock of
Atlantic. See "Risk Factors -- Affiliated Service Group," "Business -- Medical
Services Provider Agreements, Structure and Ownership and Management" and "Plan
of Distribution -- Subscription and Shareholder Buy/Sell Agreement".

PHYSICIAN QUALIFICATIONS

The offering of the Primary Class Common Shares and the Referral Class
Common Shares is being made only to physicians who (a) are licensed to practice
medicine in the State of North Carolina, (b) have been qualified by Atlantic to
become a member of Atlantic's network of health care providers and (c) have
agreed to enter into, or practice medicine through a medical practice group
which has agreed to enter into, a Medical Services Provider Agreement with
Atlantic.

In addition, the offering of the Primary Class Common Shares is being
made only to physicians practicing substantially (75% or more as determined by
gross practice revenues) in one or more of the Primary Care Specialties, is
generally not board certified in any other specialty other than a Primary Care
Specialty, and if board certified in any other specialty other than a Primary
Care Specialty, generally does not hold himself or herself out as practicing in
any specialty other than one or more of the Primary Care Specialties. The
offering of the Referral Class Common Shares is being made to only to physicians
practicing primarily in referral medical and surgical specialties other than the
Primary Care Specialties.

<PAGE>

NON-PROFIT/PUBLIC HEALTH CARE ENTITY INVESTORS

Atlantic is offering for sale only to selected non-profit or public
corporations engaged in the delivery of health care services through contracts
negotiated by Atlantic up to 150,000 Non-Profit Class Nonvoting Common Shares.
Upon qualification, selected non-profit or public corporations will be permitted
to purchase 2,000 Non-Profit Class Nonvoting Common Shares per non-profit or
public entity.

RESIDENCY REQUIREMENTS

Investment in the Primary Class Common Shares and Referral Class Common
Shares is limited to physicians who are bona fide residents of North Carolina or
such other state or jurisdiction in which the Offering is either registered or
exempt from registration. Investment in the Nonprofit Class Nonvoting Common
Shares is limited to entities whose principal place of business is in North
Carolina or such other state or jurisdiction in which the Offering is either
registered or exempt from registration.

SUBSCRIPTION AND SHAREHOLDER BUY/SELL AGREEMENTS

At the time of purchase, each investor will be required to execute and
deliver to Atlantic a Subscription and Shareholder Buy/Sell Agreement
("Subscription Agreement") and a check made payable to "Atlantic Integrated
Health Incorporated" for the aggregate purchase price of the Shares to be
purchased. Atlantic reserves the right to reject any Subscription Agreement for
any reason. The following summary of the Subscription Agreements are qualified
in their entirety to the forms of such agreements included in this Prospectus as
Appendices A, B and C. There are three different forms of Subscription
Agreements, one for each class of Shares. The Subscription Agreements contain
standard investment representations and specific representations as to physician
qualifications. In addition, the Subscription Agreements provide that Atlantic
has the option to repurchase the Shares offered hereby at a price equal to the
fair value thereof, as determined as of the date that Atlantic exercises such
option to repurchase the shares. Fair value of the Shares will be determined
annually on or before March 1 of each year by the Board of Directors of
Atlantic. Atlantic will have the right to exercise this option upon (a) the
appointment by a court of competent jurisdiction of a receiver, trustee or
assignee of the Shareholder; (b) the voluntary application by the Shareholder
under applicable laws for the relief of debtors; (c) the expiration of 30 days
after entry of a final judgment by a court of competent jurisdiction against the
Shareholder, provided such judgment remains unsatisfied; (d) the institution of
a levy, garnishment or attachment involving the Shares; (e) the death of the
Shareholder; (f) the termination for any reason of the Medical Services Provider
Agreement entered into by the Shareholder, either, directly or indirectly; (g)
any involuntary transfer of such Shares by or from the Shareholder; (h) the
expressed desire of the Shareholder to sell, assign, pledge, transfer or
otherwise dispose of or encumber such Shares; or (i) Atlantic's determination of
the need to redeem Shares to preclude individual Shareholders from owning 5% or
more of the outstanding shares of capital stock of Atlantic or collections of
physician shareholders who practice together in any participating medical group
practice from owning 10% or more of the outstanding Shares of Atlantic. In
October 9, 1996, the Board of Directors of Atlantic determined that, because
Atlantic had not completed the development of its corporate and operating
structures and did not have any operating revenues, the fair market value of one
Share as of October 1996 was equal to $0.01. Such determination remains
unchanged and the Board has not made a new determination of the fair market
value of the Shares as of the date hereof.

<PAGE>

VALIDITY OF SHARES

The validity of the issuance of the Shares offered hereby will be
passed upon for Atlantic by Wyrick, Robbins, Yates & Ponton L.L.P., Raleigh,
North Carolina.

EXPERTS

The financial statements included in this prospectus have been audited
by Arthur Andersen LLP, independent public accountants, as indicated in their
report with respect thereto, and are included herein in reliance upon the
authority of said firm as experts in accounting and auditing in giving said
reports.

<PAGE>

ATLANTIC INTEGRATED HEALTH INCORPORATED

FINANCIAL STATEMENTS AS OF DECEMBER 31, 1996 AND 1995
TOGETHER WITH REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

<PAGE>

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Board of Directors of
Atlantic Integrated Health Incorporated:

We have audited the accompanying balance sheets of Atlantic Integrated Health
Incorporated (a North Carolina corporation) as of December 31, 1996 and 1995,
and the related statements of operations, stockholders' equity (deficit) and
cash flows for the years 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 audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit 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 audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Atlantic Integrated Health
Incorporated as of December 31, 1996 and 1995, and the results of its operations
and its cash flows for the years then ended in conformity with generally
accepted accounting principles.

The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company has yet to generate revenue in excess of
expenses and has an accumulated deficit at December 31, 1996, of $174,000, which
raises substantial doubt about its ability to continue as a going concern. The
financial statements do not include any adjustments relating to the
recoverability and classification of asset carrying amounts or the amount and
classification of liabilities that might result should the Company be unable to
continue as a going concern.

/s/ Arthur Andersen LLP

Charlotte, North Carolina,
February 28, 1997.

<PAGE>

ATLANTIC INTEGRATED HEALTH INCORPORATED

BALANCE SHEETS

ASSETS DECEMBER 31,
------ ---------------------- JUNE 30,
1995 1996 1997
-------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C>
CASH $ 3,786 $ 51,208 $ 109,938
ACCOUNTS RECEIVABLE 0 0 60,200
PREPAID EXPENSES 0 0 11,069
-------- --------- ---------
Total current assets 3,786 51,208 181,207
INVESTMENT 0 0 1,000
OFFICE EQUIPMENT, net 0 3,001 8,977
DEFERRED COSTS 17,765 21,669 19,388
-------- --------- ---------
$ 21,551 $ 75,878 $ 210,572
======== ========= =========

LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------

CURRENT LIABILITIES - Accounts payable $ 1,347 $ 78,253 $ 74,067
-------- --------- ---------
COMMITMENTS AND CONTINGENCIES (Notes 1 and 5)
STOCKHOLDERS' EQUITY:
Common stock - $1 par value-
Primary class, authorized 1,000,000 shares; 258,500, 140,000
and 24,000 shares issued and outstanding in 1997, 1996
and 1995, respectively 88,500 162,500 258,500
Referral class, authorized 1,800,000 shares; 200,000 and
26,000 shares issued and outstanding in 1997 and 1996,
respectively 0 26,000 200,000
Nonprofit class, nonvoting, authorized 200,000 shares; 2,500
shares issued and outstanding in 1997, 1996 and 1995,
respectively 2,500 2,500 2,500
Additional paid-in capital 24,000 74,000 74,000
Syndication costs 0 (75,000) (95,000)
Stock subscription and shareholder notes receivable (64,500) (18,375) (96,980)
Accumulated deficit (30,296) (174,000) (206,515)
-------- --------- ---------
Total stockholders' equity (deficit) 20,204 (2,375) 136,505
-------- --------- ---------
$ 21,551 $ 75,878 $ 210,572
======== ========= =========

</TABLE>

<PAGE>

ATLANTIC INTEGRATED HEALTH INCORPORATED

STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED JUNE 30,
DECEMBER 31, (UNAUDITED)
1995 1996 1996 1997
--------- --------- -------- ---------
<S> <C> <C> <C> <C>
REVENUE $ 0 $ 58,927 $ 0 $ 201,625
EXPENSES:
Consulting fees 3,627 72,664 47,994 73,383
Salaries and wages 24,000 85,799 19,500 129,604
Relocation expenses 0 8,013 8,013 0
Recruiting and education 2,222 13,472 5,885 6,133
Office expense and other 447 17,210 5,436 19,253
Rent 0 4,000 1,600 2,460
Depreciation and amortization 0 1,473 0 3,307
--------- --------- -------- ---------
Total expenses 30,296 202,631 88,428 234,140
--------- --------- -------- ---------
$ (30,296) $(143,704) $(88,428) $ (32,515)
========= ========= ======== =========

</TABLE>

<PAGE>

ATLANTIC INTEGRATED HEALTH INCORPORATED

STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)

<TABLE>
<CAPTION>
STOCK
SUBSCRIPTION
AND
ADDITIONAL SHAREHOLDER
COMMON STOCK PAID-IN SYNDICATION NOTES ACCUMULATED
SHARES AMOUNT CAPITAL COSTS RECEIVABLE DEFICIT TOTAL
-------- -------- --------- ----------- ---------- ------------ --------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, December 31, 1994 $ 19,000 $ 19,000 $ 0 $ 0 $ 0 $ 0 $ 19,000
Issuance of common stock for $1 per share 72,000 72,000 0 0 (64,500) 0 7,500
Net loss for the year ended December 31, 1995 0 0 0 0 0 (30,296) (30,296)
Capital contributions 0 0 24,000 0 0 0 24,000
-------- -------- -------- -------- -------- --------- --------
BALANCE, December 31, 1995 91,000 91,000 24,000 0 (64,500) (30,296) 20,204
Issuance of common stock for $1 per share 100,000 100,000 0 0 0 0 100,000
Collections of stock subscription receivable 0 0 0 0 46,125 0 46,125
Syndication costs 0 0 0 (75,000) 0 0 (75,000)
Net loss for the year ended December 31, 1996 0 0 0 0 0 (143,704) (143,704)
Capital contributions 0 0 50,000 0 0 0 50,000
-------- -------- -------- -------- -------- --------- --------
BALANCE, December 31, 1996 191,000 191,000 74,000 (75,000) (18,375) (174,000) (2,375)
Issuance of common stock for $1 per share 276,000 276,000 0 0 (96,980) 0 179,020
(unaudited)
Collections of stock subscription receivable 0 0 0 0 12,375 0 12,375
(unaudited)
Write-off of stock subscription receivable (6,000) (6,000) 0 0 6,000 0 0
(unaudited)
Syndication costs (unaudited) 0 0 0 (20,000) 0 0 (20,000)
Net loss for the six months ended June 30, 1997 0 0 0 0 0 (32,515) (32,515)
(unaudited) -------- -------- -------- -------- -------- --------- --------

BALANCE, June 30, 1997 (unaudited) $461,000 $461,000 $ 74,000 $(95,000) $(96,980) $(206,515) $136,505
======== ======== ======== ======== ======== ========= ========

</TABLE>

<PAGE>

ATLANTIC INTEGRATED HEALTH INCORPORATED

STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED JUNE 30,
DECEMBER 31, (UNAUDITED)
--------------------- ----------------------
1995 1996 1996 1997
-------- --------- --------- ---------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(30,296) $(143,704) $ (88,428) $ (32,515)
Adjustments to reconcile net loss to net cash used in
operating activities-
Depreciation and amortization 0 1,473 0 3,307
Increase in accounts receivable 0 0 0 (60,200)
Increase in prepaid expenses 0 0 0 (11,069)
Noncash contributions of capital 24,000 50,000 15,600 0
(Decrease) increase in accounts payable (907) 1,906 29,748 (24,186)
-------- --------- --------- ---------
Net cash used in operating activities (7,203) (90,325) (43,080) (124,663)
-------- --------- --------- ---------

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of office equipment 0 (3,334) (3,335) (7,002)
Purchase of investment 0 0 0 (1,000)
Payment of organization costs (15,511) (5,044) (5,045) 0
-------- --------- --------- ---------
Net cash used in investing activities (15,511) (8,378) (8,380) (8,002)
-------- --------- --------- ---------

CASH FLOWS PROVIDED BY FINANCING ACTIVITIES:
Proceeds from issuance of common stock 7,500 146,125 94,000 179,020
Collection of stock subscription receivable 0 0 0 12,375
-------- --------- --------- ---------
Net cash provided by financing activities 7,500 146,125 94,000 191,395
-------- --------- --------- ---------
(15,214) 47,422 42,540 58,730
NET (DECREASE) INCREASE IN CASH
CASH, beginning of period 19,000 3,786 3,786 51,208
-------- --------- --------- ---------
CASH, end of period $ 3,786 $ 51,208 $ 46,326 $ 109,938
======== ========= ========= =========
SUPPLEMENTAL DISCLOSURE:
Syndication costs financed through accounts payable $ 0 $ 75,000 $ 0 $ 20,000
Write-off of subscriptions receivable 0 0 0 6,000
Common stock issued in exchange for notes 0 0 0 96,980
======== ========= ========= =========

</TABLE>

<PAGE>

ATLANTIC INTEGRATED HEALTH INCORPORATED

NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1996, AND JUNE 30, 1996 AND 1997 (UNAUDITED)

1. ORGANIZATION AND CONTINUITY OF OPERATIONS:

Atlantic Integrated Health Incorporated, a North Carolina corporation (the
Company), was organized on December 5, 1994. The Company is an independent,
physician-owned and governed medical practice group network, organized to
provide administrative services to participating physicians and medical practice
groups. Currently, the Company is in the process of integrating, economically
and clinically, physicians now practicing primarily in single specialty practice
groups into a larger multi-specialty network of medical practice groups.

The Company operated in the development stage until late in 1996 when it began
to generate operating revenue. Since inception, the Company has expended
significant funds on raising capital, developing a business plan, addressing
other organizational matters and resolving legal and administrative matters.
Operating losses have resulted in an accumulated deficit of $206,515 at June 30,
1997, (unaudited). If the Company does not realize additional revenue in the
near future, it will require additional capital which may not be available.

The success of the Company is dependent upon its ability to maintain and expand
its integrated network of physicians and to further its managed care contracting
efforts. As such, the Company's ability to continue as a going concern is
dependent upon many factors, the most significant of which include:

- Being able to compete against established competitors with
substantially greater capital resources.
-
- Being able to maintain and expand its network of qualified physicians
and other health care providers.
-
- Being able to operate in an evolving regulatory environment,
particularly with respect to antitrust laws, fraud and abuse and other
anti-referral laws, insurance regulation and health care reform.
-
Management's plans to address the above matters include:

- Seeking improvements in the delivery of health care services in order
to enhance the quality and cost-effectiveness of care provided to
patients served by the participating physician network.
-
- Integrating and coordinating the delivery of health care services by
participating medical practice groups.
-
- Developing a flexible organizational structure that will meet the
requirements of an evolving regulatory environment.
-
In October 1996, the Company filed a Registration Statement on Form SB-2 with
the Securities and Exchange Commission registering for sale shares of common
stock under federal securities laws. The minimum offering requirements were met
and the offering was extended through July 28, 1997. The Company is in the
process of filing a Post-Effective Amendment No. 2 to the Company's Registration
Statement on Form SB-2 to update the prospectus and to extend the offering
period.

<PAGE>

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

DEFERRED COSTS

Deferred costs consist of costs incurred in connection with establishing the
legal structure of the Company. These costs are being amortized over a period of
five years.

SYNDICATION COSTS

Certain fees and expenses relating to the sale of common stock were charged
against stockholders' equity.

USE OF 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 disclosures of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenue and expenses during the reporting period. Actual
results could differ from those estimates.

3. STOCK SUBSCRIPTION RECEIVABLE:

The stock subscription receivable consists of amounts due from stockholders at
December 31, 1996 and 1995, related to the issuance of 68,000 shares of the
Company's $1 par value common stock at a price of $1.00 per share.

4. INVESTMENT:

In January 1997, the Company, in conjunction with Kanawha Insurance Company
(Kanawha), formed The Beacon Company (Beacon). The Company and Kanawha each
contributed $1,000 of capital to Beacon; and as a result, each owns 50% of
Beacon. Beacon plans to market and sell health care services and related
employee benefit products, primarily in Eastern North Carolina. Management
expects Beacon to emerge from the development stage by the end of the fourth
quarter of 1997. The Company is accounting for its investment on the equity
method.

5. BUY/SELL AGREEMENTS:

Stockholders are required to enter into a buy/sell agreement pursuant to which
the Company will have the option to repurchase the holders' shares under certain
circumstances. Such circumstances will include those in which the holder ceases
to be unconditionally licensed to practice medicine in the State of North
Carolina, ceases to meet the credentialing standards of the Company, ceases to
be actively engaged in the practice of medicine or ceases to be affiliated with
the Company through a medical services provider agreement.

6. MEMORANDUM OF UNDERSTANDING:

On May 23, 1996, the Company entered into a Memorandum of Understanding (MOU)
with several other Eastern North Carolina based providers. The purpose of the
MOU was to provide a medium through which participating entities could work
jointly to develop a business plan for the development and operation of a
management services organization. Pursuant to the provisions of the MOU, the
Company contributed $15,000 in cash along with certain organizational materials
previously developed

<PAGE>

by the Company. Additionally, the Company performed certain services on behalf
of the project and incurred direct costs of approximately $78,000. The Company
was reimbursed for these expenses in accordance with the terms specified in the
MOU.

7. INCOME TAXES:

The Company accounts for income taxes in accordance with Statement of Financial
Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes." This
statement requires the use of the liability method of accounting for deferred
income taxes. Deferred income taxes reflect the net tax affects of temporary
differences between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax reporting purposes.

At December 31, 1996 and 1995, the Company had net operating loss carryforwards
of approximately $150,000 and $98,000, respectively, for income tax purposes. No
deferred tax asset has been recorded by the Company as the realization of such
an asset is uncertain at this time. The net operating loss carryforwards begin
expiring in 2010 for federal income tax purposes.

8. RELATED-PARTY TRANSACTIONS:

The Company's chief executive officer and chairman of the board have provided
management services and office space at no cost to the Company. The estimated
fair market value of these items has been accounted for as expenses (salaries
and wages and rent) and contributions of capital in the accompanying financial
statements. The estimated fair market value of services provided under this
arrangement was $46,000 and $24,000 for the years ended December 31, 1996 and
1995, respectively. No office space was provided during 1995. The estimated fair
market value of office space provided for the year ended December 31, 1996 was
$14,000. Effective January 1, 1997, the Company began reimbursing the officers
noted above for the estimated fair market value of services and office space
provided by them. The estimated fair market value of services and office space
provided under these arrangements was $24,000 and $2,460, respectively, for the
six months ended June 30, 1997.

The Company entered into an arrangement with Beacon to provide network
development services. Revenue under this arrangement was $70,000 for the six
months ended June 30, 1997. In addition, the Company recognized $128,000 in
revenue from its referral class common shareholders from administrative service
fees related to group purchasing, contracting and other services provided for
the six months ended June 30, 1997.

<PAGE>

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

No dealer, salesperson or any other person has been authorized to give
information to or make any representation not contained in this Prospectus in
connection with the offer made by this Prospectus, and, if given or made, such
information or representation must not be relied upon as having been authorized
by the Company. This Prospectus does not constitute an offer to sell or a
solicitation by anyone in any jurisdiction in which the person making such offer
or solicitation is not qualified to do so or to anyone to whom it is unlawful to
make such offer or solicitation. Neither the delivery of this Prospectus nor any
sale made hereunder shall under any circumstances create any implication that
the affairs of the Company since the date hereof or the information herein is
correct as of any time subsequent to the date of this Prospectus.

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

TABLE OF CONTENTS

Page
Additional Information............................2
Prospectus Summary................................3
Risk Factors......................................7
Use of Proceeds..................................13
Dividend Policy..................................13
Dilution.........................................14
Capitalization...................................15
Selected Financial Data..........................16
Plan of Operation................................17
Business.........................................19
Management.......................................32
Certain Transactions.............................37
Principal Shareholders...........................38
Description of Securities........................42
Shares Eligible for Future Sale..................46
Plan of Distribution.............................47
Validity of Shares...............................49
Experts..........................................49
Index to Financial Statements...................F-1
Appendix A - Subscription Agreement
(Primary Care Physician)
Appendix B - Subscription Agreement
(Referral Physician)
Appendix C - Subscription Agreement
(Non-Profit Entity)

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

700,000 PRIMARY CLASS
COMMON SHARES

1,400,000 REFERRAL
CLASS COMMON SHARES

150,000 NONPROFIT
CLASS NONVOTING COMMON SHARES

ATLANTIC INTEGRATED
HEALTH INCORPORATED

___________________

PROSPECTUS
___________________

____________, 1997

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

<PAGE>

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.

The North Carolina Business Corporation Act requires that Atlantic
indemnify any director, who was wholly successful, on the merits or otherwise,
in the defense of any proceeding to which the director was a party because he or
she was a director of Atlantic, against reasonable expenses incurred by the
director in connection with the proceeding. "Proceeding" means a threatened,
pending, or contemplated action, suit, or proceeding, whether civil, criminal,
administrative, or investigative and whether formal or informal. Reference is
made to the detailed provisions of Sections 55-8-50 through 55-8-58 of the North
Carolina Business Corporation Act for a complete statement of such
indemnification rights. Atlantic's Bylaws, as amended, also require Atlantic to
provide indemnification to any person who at any time serves or has served as a
director or officer of Atlantic, or at the request of Atlantic is or was serving
as an officer, director, agent, partner, trustee, administrator, or employee for
any other foreign or domestic corporation, partnership, joint venture, trust,
employee benefit plan, or other enterprise, to the fullest extent permitted by
the North Carolina Business Corporation Act. Atlantic's Bylaws, as amended, also
permit Atlantic's Board of Directors, in its discretion, to provide such
indemnification to employees and agents of Atlantic. Atlantic maintains a
directors and officers and errors and omissions insurance policy.

ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.

The following table sets forth estimated expenses incurred by Atlantic
in connection with the issuance and distribution of the Shares being registered.
All such expenses are estimated except for the SEC registration fee.

SEC registration fee...................................... $ 681.81
Printing expenses......................................... 12,000.00
Fees and expenses of counsel for Atlantic................. 80,000.00
Fees and expenses of accountants for Atlantic............. 7,000.00
Miscellaneous............................................. 5,000.00
--------

Total............................................ $104,681.81

ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.

Since December 1994, Atlantic issued the following securities without
registration under the Securities Act:

1. In December 1994, Atlantic issued an aggregate of 19,000 shares of common
stock to 20 individual physicians and medical practice groups at a price of
$1.00 per share.

2. In February 1995, Atlantic issued 500 shares of common stock to one physician
for $1.00 per share.

<PAGE>

3. From April 1995 through May 1995, Atlantic issued an aggregate of 4,000
shares of common stock to four physicians and medical practice groups for $1.00
per share.

4. From June 1995 through July 1995, Atlantic issued an aggregate of 2,500
shares of common stock to five physicians and medical practice groups for $1.00
per share.

5. In September 1995, Atlantic issued 500 shares of common stock to one medical
practice group for $1.00 per share.

6. From February 1996 through April 1996, Atlantic issued an aggregate of 33,000
shares of common stock to 14 physicians and medical practice groups for $1.00
per share.

7. In May 1996, Atlantic issued an aggregate of 39,500 shares of common stock to
six medical practice groups for $1.00 per share.

8. In July 1996, Atlantic issued an aggregate of 5,000 Primary Class Common
Shares to three physicians and medical practice groups for $1.00 per share (1).

9. In September 1996, Atlantic issued an aggregate of 14,000 Primary Class
Common Shares and 6,000 Referral Class Common Shares to two medical practice
groups for $1.00 per share.

10. From October 1996 through November 1996, Atlantic issued an aggregate of
26,500 Primary Class Common Shares and 12,000 Referral Class Common Shares to
four medical practice groups for $1.00 per share (2).

11. From January 1997 through April 1997, Atlantic issued an aggregate of 9,000
Primary Class Common Shares and 6,000 Referral Class Common Shares to three
medical practice groups for $6.00 per share (2).

12. From June 1997 through July 1997, Atlantic issued 7,500 Primary Class Common
Shares to two medical practice groups for $1.00 per share (2).

No underwriting commissions or discounts were paid with respect to the
sales of the unregistered securities described above. In addition, all of the
above sales were made in reliance on Section 4(2) of the Securities Act for
transaction not involving a public offering. With regard to the reliance by
Atlantic upon the exemption from registration provided under Section 4(2) of the
Securities Act for the sales of securities disclosed above, certain inquiries
were made by Atlantic to establish that such sales qualified for such exemption
from the registration requirements. In particular, Atlantic confirmed that with
respect to the exemption claimed under Section 4(2) of the Securities Act (i)
all offers of sales and sales were made by personal contact from officers and
directors of Atlantic or other persons closely associated with Atlantic, (ii)
each investor made representations that he or she was sophisticated in relation
to the investment (and Atlantic has no reason to believe such representations
were incorrect), (iii) each purchaser gave assurance of investment intent and
the certificates for the shares bear a legend accordingly, and (iv) offers and
sales within any offering were made to a limited number of persons.

<PAGE>

- ---------------------------
(1) Prior to July 1996, the authorized capital stock of Atlantic consisted
of 100,000 shares of common stock, $1.00 par value per share. In July
1996, after Atlantic amended and restated its Articles of Incorporation
to reflect its current capital structure, the shares of common stock
previously issued and outstanding were canceled and re-issued as either
Primary Class Common Shares, Referral Class Common Shares or Nonprofit
Class Nonvoting Common Shares, as the case may be, depending upon the
qualifications of the existing shareholders.

(2) Atlantic offered and sold these shares prior to their issuance pursuant
to subscription agreements dated from December 1995 through August
1996. Atlantic does not issue any shares of capital stock to
subscribers until payment in full is received by Atlantic from such
subscribers.

ITEM 27. EXHIBITS.

EXHIBIT NO. DESCRIPTION
----------- -----------

3.1* Amended and Restated Articles of Incorporation of Atlantic
3.2* Bylaws of Atlantic, as amended
4.1* Specimen form of Atlantic's Primary Class Common Share
Certificate
4.2* Specimen form of Atlantic's Referral Class Common Share
Certificate
4.3* Specimen form of Atlantic's Nonprofit Class Nonvoting Common
Share Certificate
5.1* Opinion and Consent of Wyrick, Robbins, Yates & Ponton L.L.P.
10.1* Form of Subscription and Shareholder Buy/Sell Agreement
(Primary Class Common Shareholder)
10.2* Form of Subscription and Shareholder Buy/Sell Agreement
(Referral Class Common Shareholder)
10.3* Form of Subscription and Shareholder Buy/Sell Agreement
(Nonprofit Class Nonvoting Common Shareholder)
10.4* Form of Non-Exclusive Medical Services Provider Agreement
(Primary Physicians)
10.5* Form of Non-Exclusive Medical Services Provider Agreement
(Referral Physicians)
10.6* Employment Agreement between Atlantic and Robert H. Blake, III
effective as of June 1, 1996
10.7* Form of Escrow Agreement between Atlantic and Centura Bank

10.8*** Lease Agreement dated August 15, 1997 between the Company and
New Bern Family Practice, P.A.

23.1* Consent of Wyrick, Robbins, Yates & Ponton L.L.P. (included in
Exhibit 5.1)

23.2** Consent of Arthur Andersen LLP
24.1** Power of Attorney (included on page II-5 of Registration
Statement on Form SB-2 and on page II-5 of the Post Effective
Amendment No. 2 to the Registration Statement on Form SB-2)

* Previously filed.

** Previously filed and filed herewith.

*** Filed herewith.

<PAGE>

ITEM 28. UNDERTAKINGS.

1. Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the "Securities Act") may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the North Carolina Business
Corporation Act, the Articles of Incorporation or the Bylaws of the Registrant,
or otherwise, the Registrant 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 Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the Registrant 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 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.

2. The undersigned Registrant hereby undertakes that it will:

(1) File, during any period in which it offers or sells securities, a
post-effective amendment to this registration statement to:

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

(ii) 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
together, represent a fundamental change in the information in the
registration statement.

(iii) Include any additional or changed material information
on the plan of distribution.

(2) For determining liability under the Securities Act, treat each
post-effective amendment as a new registration statement of the securities
offered, and the offering of the securities at that time to be the initial bona
fide offering.

(3) File a post-effective amendment to remove from registration any of
the securities that remain unsold at the end of the offering.

<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the Registrant has
duly caused this Post-Effective Amendment No. 2 to the Registration Statement on
Form SB-2 to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of New Bern and State of North Carolina, on September
17, 1997.

ATLANTIC INTEGRATED HEALTH
INCORPORATED

By /s/ J. Philip Mahaney, Jr., M.D.
----------------------------------------
J. Philip Mahaney, Jr., M.D.
President and Chief Executive Officer

Pursuant to the requirements of the Securities Act of 1933, this Post-Effective
Amendment No. 2 to the Registration Statement has been signed by the following
persons in the capacities and on the dates stated.

SIGNATURE AND TITLE
-------------------

J. Philip Mahaney, Jr., M.D.
President and Chief Executive Officer and
Director (principal executive officer)

Kerry A. Willis, M.D.
Chairman of the Board and Director

Michael L. Bramley, M.D.
Vice President and Director

W. James Stackhouse, M.D.
Treasurer and Director

Joseph E. Agsten, M.D.
Director

A. Clark Gaither, M.D. By /s/ J. Philip Mahaney, Jr., M.D.
Director --------------------------------
J. Philip Mahaney, Jr., M.D.
Robert A. Krause, M.D. PRO SE AND ATTORNEY-IN-FACT
Director Dated September 17, 1997

Robert S. Meyer, M.D.
Secretary and Director

Leo E. Waivers, M.D.
Director

<PAGE>

POWER OF ATTORNEY

KNOW ALL BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints J. Philip Mahaney, Jr., M.D. and Robert H. Blake
III, and each of them, as his true and lawful attorney-in-fact and agent, each
with full powers of substitution and resubstitution, for him and in his name,
place and stead, in any and all capacities, to sign any or all amendments
(including additional post-effective amendments) to this Post Effective
Amendment No. 2 to the Registration Statement, and any additional Registration
Statements filed pursuant to Rule 462(b) under the Securities Act of 1933, as
amended, and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorney-in-fact and agent, full power and authority to do and perform each
and every act and thing requisite or necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorney-in-fact and
agent, or his substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.

Pursuant to the requirements of the Securities Act of 1933, this Post Effective
Amendment No. 2 to the Registration Statement on Form SB-2 has been signed by
the following persons in the capacities and on the dates stated.

/s/ Stephen W. Nuckolls
--------------------------------------------
Stephen W. Nuckolls
Chief Financial Officer
(principal financial and accounting officer)
September 17, 1997

/s/ Charles J. Baio, M.D.
--------------------------------------------
Charles J. Baio, M.D.
Director
September 16, 1997

/s/ Graham A. Barden, III, M.D.
--------------------------------------------
Graham A. Barden, III, M.D.
Director
September 17, 1997

/s/ Frank L. Gay, M.D.
--------------------------------------------
Frank L. Gay, M.D.
Director
September 18, 1997

/s/ James M. Williams, M.D.
--------------------------------------------
James M. Williams, M.D.
Director
September 15, 1997

<PAGE>

EXHIBIT INDEX

EXHIBIT NO. DESCRIPTION
- ----------- -----------

3.1* Amended and Restated Articles of Incorporation of Atlantic
3.2* Bylaws of Atlantic, as amended
4.1* Specimen form of Atlantic's Primary Class Common Share
Certificate
4.2* Specimen form of Atlantic's Referral Class Common Share
Certificate
4.3* Specimen form of Atlantic's Nonprofit Class Nonvoting Common
Share Certificate
5.1* Opinion and Consent of Wyrick, Robbins, Yates & Ponton L.L.P.
10.1* Form of Subscription and Shareholder Buy/Sell Agreement (Primary
Class Common Shareholder)
10.2* Form of Subscription and Shareholder Buy/Sell Agreement (Referral
Class Common Shareholder)
10.3* Form of Subscription and Shareholder Buy/Sell Agreement
(Nonprofit Class Nonvoting Common Shareholder)
10.4* Form of Non-Exclusive Medical Services Provider Agreement
(Primary Physicians)
10.5* Form of Non-Exclusive Medical Services Provider Agreement
(Referral Physicians)
10.6* Employment Agreement between Atlantic and Robert H. Blake, III
effective as of June 1, 1996
10.7* Form of Escrow Agreement between Atlantic and Centura Bank

10.8*** Lease Agreement dated August 15, 1997 between the Company and
New Bern Family Practice, P.A.

23.1* Consent of Wyrick, Robbins, Yates & Ponton L.L.P. (included in
Exhibit 5.1)

23.2** Consent of Arthur Andersen LLP
24.1* Power of Attorney (included on page II-5 of Registration
Statement on Form SB-2 and on page II-5 of the Post Effective
Amendment No. 2 to the Registration Statement on Form SB-2)

* Previously filed.

** Previously filed and filed herewith.

*** Filed herewith.

Exhibit 10.8

Atlantic Integrated Health
810 Kennedy Avenue
New Bern, North Carolina 28560

Tel: (919) 514-0057
Fax: (919) 514-0750

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

LEASE AGREEMENT

AUGUST 15, 1997

New Bern Family Practice, P.A. agrees to lease to Atlantic Integrated Health
Incorporated ("AIH") space located at 825 Kennedy Avenue in New Bern, North
Carolina.

This lease is effective January 1, 1997 and is to extend for a term of twelve
(12) months.

The rental fee of $9.00 per square foot is "all inclusive" (i.e. maintenance,
electricity, heating oil, etc.)

The square footage will change as the space occupied AIH increases during the
term of the lease.

The total square footage of the building is approximately 800 square feet.

Rent is payable at the beginning of each month.

Rent has been in arrears for seven months and will be paid in accordance with
the attached schedule.

/s/ James Stackhouse, M.D.
- --------------------------------------
James Stackhouse, M.D.
Treasurer
Atlantic Integrated Health Incorporated

/s/ J. Philip Mahaney, Jr., M.D.
- --------------------------------------
J. Philip Mahaney, Jr., M.D.
Treasurer
New Bern Family Practice Center, P.A.

/s/ Martin C. DeGraw
- --------------------------------------
Martin C. DeGraw
Secretary
New Bern Family Practice Center, P.A.

Exhibit 23.2

As independent public accountants, we hereby consent to the use of our report
(and all references to our firm) included in or made a part of this registration
statement.

/s/ Arthur Andersen LLP

Charlotte, North Carolina
September 18, 1997