MAXIMUS INC, 424B4, 1997-06-17

MAXIMUS INC
424B4, 1997-06-17
MANAGEMENT CONSULTING SERVICES

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<PAGE> 1

Filed Pursuant to Rule 424(b)(4)
Registration No. 333-21611

PROSPECTUS
JUNE 12, 1997
5,250,000 SHARES

[MAXIMUS LOGO]

COMMON STOCK

Of the 5,250,000 shares of Common Stock offered hereby, 3,550,000 are being
sold by MAXIMUS, Inc. ("MAXIMUS" or the "Company") and 1,700,000 are being sold
by the Selling Shareholders. See "Principal and Selling Shareholders." The
Company will not receive any of the proceeds from the sale of shares by the
Selling Shareholders.

Prior to this offering, there has been no public market for the Common
Stock of the Company. See "Underwriting" for information relating to the factors
considered in determining the initial public offering price.

The Common Stock has been approved for listing on the New York Stock
Exchange under the symbol "MMS," subject to official notice of issuance.

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

SEE "RISK FACTORS" BEGINNING ON PAGE 6 FOR INFORMATION THAT SHOULD BE
CONSIDERED BY PROSPECTIVE INVESTORS.

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

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

<TABLE>
<CAPTION>
PRICE UNDERWRITING PROCEEDS PROCEEDS TO
TO THE DISCOUNTS AND TO THE THE SELLING
PUBLIC COMMISSIONS(1) COMPANY(2) SHAREHOLDERS
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share............. $16.00 $1.12 $14.88 $14.88
Total(3).............. $84,000,000 $5,880,000 $52,824,000 $25,296,000
- --------------------------------------------------------------------------------------------------
</TABLE>

(1) See "Underwriting" for indemnification arrangements with the Underwriters.
(2) Before deducting expenses estimated at $870,000, which will be paid by the
Company.
(3) The Company and certain Selling Shareholders have granted to the
Underwriters a 30-day option to purchase up to 787,500 additional shares of
Common Stock at the Price to the Public, less Underwriting Discounts and
Commissions, solely to cover over-allotments, if any. If such option is
exercised in full, the total Price to the Public, Underwriting Discounts and
Commissions, Proceeds to the Company and Proceeds to the Selling
Shareholders will be $96,600,000, $6,762,000, $54,721,200 and $35,116,800,
respectively. The Company will not receive any of the proceeds from the sale
of shares of Common Stock by the Selling Shareholders pursuant to the
Underwriters' over-allotment option, if exercised. See "Underwriting" and
"Principal and Selling Shareholders."

The shares of Common Stock are being offered by the several Underwriters
when, as and if delivered to and accepted by the Underwriters and subject to
various prior conditions, including their right to reject orders in whole or in
part. It is expected that delivery of the share certificates will be made in New
York, New York, on or about June 18, 1997.

DONALDSON, LUFKIN & JENRETTE LEHMAN BROTHERS
SECURITIES CORPORATION
<PAGE> 2

[Diagram: Organizational Chart depicting the Company's operating divisions.]

This Prospectus contains certain forward-looking statements that involve
substantial risks and uncertainties. When used in this Prospectus, the words
"anticipate," "believe," "estimate," "expect" and similar expressions as they
relate to the Company or its management are intended to identify such
forward-looking statements. The Company's actual results, performance or
achievements could differ materially from the results expressed in, or implied
by, these forward-looking statements. Factors that could cause or contribute to
such differences include those discussed in "Risk Factors."

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

CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING SYNDICATE SHORT COVERING TRANSACTIONS OR THE IMPOSITION OF PENALTY
BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
<PAGE> 3
- --------------------------------------------------------------------------------

PROSPECTUS SUMMARY

The following summary is qualified in its entirety by reference to, and
should be read in conjunction with, the more detailed information and the
Financial Statements and related Notes thereto appearing elsewhere in this
Prospectus. Unless otherwise indicated, all information contained in this
Prospectus: (i) assumes that the Underwriters' over-allotment option is not
exercised; (ii) has been adjusted to give effect to a 10-for-1 split of the
shares of the Company's common stock, no par value per share (the "Common
Stock"), in December 1995; and (iii) has been adjusted to give effect to an
11-for-1 split of the shares of the Common Stock in February 1997.

THE COMPANY

MAXIMUS, Inc. ("MAXIMUS" or the "Company") provides program management and
consulting services to government health and human services agencies in the
United States. The Company believes that it has been at the forefront of
innovation in "Helping Government Serve the People(TM)" since its inception in
1975. The Company's services are designed to make government operations more
efficient and cost effective while improving the quality of the services
provided to program beneficiaries. The Company applies an entrepreneurial,
private sector approach incorporating advanced technology in large scale
projects in almost every state in the nation. The Company believes that its
leading position in the emerging private sector health and human services
industry is reflected by its continued success in being awarded competitively
bid contracts by government health and human services agencies and a
corresponding growth in its annual revenues from approximately $19 million in
fiscal 1990 to over $100 million in fiscal 1996.

Federal, state and local government agencies in the United States spend
over $200 billion annually on the health and human services programs for which
the Company markets its services, including welfare, child care, child support
enforcement, food stamps, Social Security Disability Insurance, Supplemental
Security Income and Medicaid. These entitlement programs cost an estimated $21.0
billion in annual administrative costs. Public pressure to reduce costs and
increase the efficiency and effectiveness of government-provided services has
led to intense scrutiny of government spending, including the costs of
administering certain functions of health and human services programs. There has
been a recent surge in initiatives and legislation to reform federal, state and
local health and human services programs, the most significant of which is the
Personal Responsibility and Work Opportunity Reconciliation Act of 1996 (the
"Welfare Reform Act"), a comprehensive bipartisan welfare reform plan that
legislated dramatic changes in the nation's welfare system. As a result of these
initiatives, states have significantly more incentive to seek efficient and
cost-effective ways to administer their welfare programs and reduce welfare
caseloads. The Company believes that fundamental changes in the nation's
entitlement programs will generate significant business opportunities for
companies similar to MAXIMUS that are positioned to assist health and human
services agencies in operating their programs more cost-effectively in the
future.

MAXIMUS conducts its operations through two groups, the Government
Operations Group and the Consulting Group. The Government Operations Group
administers and manages government health and human services programs, including
welfare-to-work and job readiness, child support enforcement, managed care
enrollment and disability services. The Consulting Group provides health and
human services planning, information technology consulting, strategic program
evaluation, program improvement, communications planning and revenue
maximization services.

The Company believes that it possesses several business strengths that
provide a competitive advantage, including: (i) Single Market Focus resulting in
a thorough understanding of the regulations and operations of government health
and human services programs; (ii) Proven Track Record established by more than
21 years of providing successful government program management and consulting
services; (iii) Wide Range of Services that meets the increasing demands of
government clients for integrated vendor offerings; (iv) Proprietary Case
Management Software Program, known as MAXSTAR, that reduces project
implementation time and cost; and (v) Experienced Team of Professionals who
thoroughly understand the marketing, assessment and delivery of services to
government health and human services agencies.

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The Company's goal is to become the nation's leading provider of program
management and consulting services to government health and human services
agencies. To achieve this goal, the Company intends to: (i) capitalize on trends
toward outsourcing functions of government health and human services programs;
(ii) aggressively pursue new business opportunities; (iii) recruit experienced
professionals possessing the skills, innovation and relationships necessary to
provide high quality program management and consulting services; and (iv) pursue
strategic acquisitions to provide fast, cost-effective increases in service
capacity to maintain the Company's position as a market leader. There can be no
assurance that the Company will be successful in implementing any or all of its
strategies or in achieving its goal.

MAXIMUS was incorporated in Virginia in September 1975. The Company's
principal executive offices are located at 1356 Beverly Road, McLean, Virginia
22101. The Company's World Wide Web address is http://www.maxinc.com. The
Company's Web site is not part of this Prospectus. The Company's telephone
number is (703) 734-4200.

RISK FACTORS

Investment in the shares of Common Stock offered hereby involves certain
risks that should be considered by prospective purchasers of the Common Stock.
The principal risk factors associated with an investment in the shares of the
Company's Common Stock include: (i) the Company's reliance on government
clients; (ii) risks associated with government contracts; (iii) potential
financial impacts of project costs and expenses and contract management
challenges; and (iv) potential legislative change and political developments.
These and other risk factors to be considered by prospective investors are
described in greater detail elsewhere in this Prospectus. See "Risk Factors"
beginning on page 6.

THE OFFERING

<TABLE>
<S> <C>
Common Stock offered by the Company.............. 3,550,000 shares
Common Stock offered by the Selling
Shareholders................................... 1,700,000 shares
Common Stock to be outstanding after the
offering....................................... 14,659,945 shares(1)
Use of proceeds.................................. Payment of undistributed S corporation
earnings, general corporate purposes and
working capital, including: (i) expanding
existing operations such as opening new
offices, acquiring related businesses and
expanding the Company's international
operations; and (ii) investing in systems
infrastructure and new technologies. See
"Use of Proceeds."
New York Stock Exchange Symbol................... MMS
</TABLE>

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(1) Excludes: (i) 1,000,000 shares of Common Stock reserved for issuance upon
exercise of options granted under the Company's 1997 Equity Incentive Plan,
pursuant to which options to purchase 403,975 shares were outstanding as of
the date of this Prospectus; (ii) 100,000 shares of Common Stock reserved
for issuance upon exercise of options granted under the Company's 1997
Director Stock Option Plan, none of which had been granted as of the date of
this Prospectus; and (iii) 500,000 shares of Common Stock issuable under the
Company's 1997 Employee Stock Purchase Plan, none of which had been issued
as of the date of this Prospectus. See "Management -- 1997 Director Stock
Option Plan" and " -- Stock Plans."

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<PAGE> 5

SUMMARY FINANCIAL DATA

<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED SEPTEMBER 30, MARCH 31,
------------------------------------------------ -------------------
1992 1993 1994 1995 1996 1996 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Revenues:
Government Operations Group(1)..... $23,749 $18,071 $11,779 $16,951 $ 20,681 $ 9,049 $23,580
Consulting Group................... 9,400 12,522 15,138 20,698 25,902 12,485 13,589
SSA Contract(2).................... -- -- 2,943 14,314 56,530 18,052 31,593
------- ------- ------- ------- -------- ------- -------
Total revenues................... 33,149 30,593 29,860 51,963 103,113 39,586 68,762
Gross profit......................... 14,554 15,205 8,144 15,892 24,684 10,597 15,905
Income from operations............... 4,897 5,027 1,165 6,814 11,580 4,711 7,744
Net income(3)........................ 5,121 4,993 1,250 6,859 11,619 4,716 7,742
Pro forma net income(4)..................................................... 7,106 4,735
Pro forma net income per share(4)........................................... $ 0.58 $ 0.39
Shares used in computing pro forma net income per share(5).................. 12,182 12,103
</TABLE>

<TABLE>
<CAPTION>
AS OF MARCH 31, 1997
---------------------------------------
ACTUAL PRO FORMA(6) AS ADJUSTED(7)
(IN THOUSANDS)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents and short-term investments............ $ 6,893 $ 6,893 $ 46,954
Working capital................................................. 29,804 8,335 60,289
Total assets.................................................... 47,119 47,119 78,573
Redeemable common stock......................................... 21,076 -- --
Total shareholders' equity...................................... 11,915 6,938 58,892
</TABLE>

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(1) In fiscal years 1992 and 1993, the Company's Government Operations Group had
revenues of $11.4 million and $10.4 million, respectively, related to a
significant contract that expired in July 1993. No further revenues were
received under this contract after its expiration.

(2) Represents revenues under a significant contract with the federal Social
Security Administration, which terminated pursuant to legislative action and
under which no revenues will be earned after March 31, 1997. See "Risk
Factors -- Legislative Change and Political Developments," "-- Variability
of Quarterly Operating Results" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations."

(3) For all periods shown, the Company elected to be treated as an S corporation
and, as a result, the income of the Company has been taxed for federal and
most state purposes directly to the Company's shareholders rather than to
the Company.

(4) Pro forma net income and pro forma net income per share reflect federal and
state income taxes (assuming a 40% combined effective tax rate) as if the
Company had been taxed as a C corporation for the periods presented. Pro
forma net income does not reflect two significant charges that the Company
will record in the quarter in which the offering is consummated: (i) a
charge for income tax expense representing the cumulative deferred tax
liability (estimated to be $5.6 million as of March 31, 1997) resulting from
the termination of the Company's S corporation status; and (ii) a
compensation charge, estimated at $5.7 million, related to the grant to
employees on January 31, 1997 of options for an aggregate of 403,975 shares
of Common Stock. The estimated compensation expense represents the
difference between the initial public offering price of $16.00 per share and
the option exercise price of $1.46 per share ($150,000 of which was
recognized in the quarter ended March 31, 1997). The option exercise price
is based on the book value of the Common Stock at September 30, 1996, and
was established pursuant to pre-existing compensation arrangements with
certain of the Company's key employees. See "Management -- Executive
Compensation," "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and Note 3 of Notes to Financial Statements.

(5) Assumes 12,182,000 and 12,103,000 shares were issued and outstanding during
the year ended September 30, 1996 and the six months ended March 31, 1997,
respectively. Such amounts consist of 11,418,000 and 11,339,000 weighted
average shares outstanding for the respective periods, the shares issuable
upon the exercise of options granted in January 1997, and the shares
necessary to replace equity to be distributed as a result of the S
Corporation Dividend. See "S Corporation Dividend," "Management -- Executive
Compensation" and Note 3 of Notes to Financial Statements.

(6) Reflects the S Corporation Dividend to be paid to the shareholders, a
reclassification of redeemable common stock to reflect elimination of the
Company's obligation to purchase its Common Stock from shareholders and the
net deferred tax liability that would have been recorded by the Company if
its S corporation status was terminated at that date. See "S Corporation
Dividend," "Capitalization" and Note 3 of Notes to Financial Statements.

(7) Adjusted to give effect to the sale by the Company of 3,550,000 shares of
Common Stock offered by the Company and the application of the net proceeds
therefrom to fund the estimated $5.0 million portion of the S Corporation
Dividend that will not be funded by available cash. See "Use of Proceeds"
and "Capitalization."

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RISK FACTORS

In addition to the other information contained in this Prospectus,
investors should consider carefully the following factors in connection with an
investment in the shares of Common Stock offered hereby.

RELIANCE ON GOVERNMENT CLIENTS

Substantially all of the Company's clients are federal, state or local
government authorities. Effective marketing of the Company's services to
government clients requires the ability to respond to government requests for
proposals ("RFPs"). To succeed in the RFP process, the Company must estimate its
cost structure for servicing the proposed contract, the time required to
establish operations and the likely terms of the proposals submitted by
competitors. The Company must assemble and submit a large volume of information
on a rigid timetable set forth in the RFP. The Company's ability to successfully
respond to the RFP process in the future will have an important impact on the
Company's business, financial condition and results of operations. No assurance
can be given that the Company will be awarded contracts through the RFP process.

RISKS ASSOCIATED WITH GOVERNMENT CONTRACTING

Contracts awarded to the Company typically contain provisions that permit
the government client to terminate the contract on short notice, with or without
cause. The expiration of large contracts presents additional management
challenges. Many contracts contain base periods of one or more years as well as
one or more option periods that may cover more than half of the potential
contract duration. Government agencies generally have the right not to exercise
option periods and the failure to exercise such option periods could impact the
profitability of certain of the Company's contracts. While the Company has
experienced a limited number of early terminations since inception, the
unexpected termination of one or more of the Company's more significant
contracts could result in severe revenue shortfalls which, without corresponding
reductions in expenses, could adversely affect the business, financial condition
and results of operations of the Company. There can be no assurance that such
government authorities will not terminate any or all of the Company's contracts
to administer and manage health and human services programs.

In order to establish and maintain relationships with members of government
agencies, the Company occasionally engages marketing consultants, including
lobbyists. In the event of a significant political change, such consultants may
lose their ability to effectively assist the Company. In addition, the
implementation of term limits on certain elected officials will require the
Company to confront political change on a regular basis. If the Company fails to
manage its relationships effectively with political consultants, its business,
financial condition and results of operations could materially and adversely be
affected. No assurance can be given that the Company will be successful in
managing such relationships.

To avoid experiencing higher than anticipated demands for federal funds,
federal government officials on occasion advise state and local authorities not
to engage private consultants to advise on maximizing federal revenues. There
can be no assurance that state and local officials will not be influenced by
federal government officials and, therefore, not engage the Company for such
services. To the extent that state and local officials determine not to seek the
Company's services, the business, financial condition and results of operations
of the Company could be adversely affected.

Government contracts generally are subject to audits and investigations by
government agencies, including audits by the Defense Contract Audit Agency
("DCAA"). These audits and investigations involve a review of the government
contractor's performance of its contracts as well as its pricing practices, cost
structure and compliance with applicable laws, regulations and standards. A
substantial portion of payments to the Company from U.S. Government agencies is
subject to adjustment upon audit by the DCAA. Audits through 1993 have been
completed with no material adjustments and the Company believes that adjustments
resulting from audits of subsequent years will not have a material adverse
effect on the Company's business, financial condition and results of operations.
If any costs are improperly allocated to a contract, such costs are not
reimbursable and, if already reimbursed, will be required to be refunded to the
government. Furthermore, if improper or illegal activities are discovered in the
course of any audits or investigations, the contractor may

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be subject to various civil and criminal penalties and administrative sanctions,
including termination of contracts, forfeitures of profits, suspension of
payments, fines and suspension or disqualification from doing business with the
government. If the Company becomes subject to penalties or sanctions, such
penalties or sanctions could have a material adverse effect on the Company's
business, financial condition and results of operations.

RISKS INVOLVED IN MANAGING GOVERNMENT PROJECTS

Upon the receipt of a contract for the management of a health and human
services program, the Company's Government Operations Group may incur
significant start-up expenses prior to the receipt of any payments under such
contract. Such expenses include the costs of leasing office space, purchasing
necessary office equipment and hiring sufficient personnel. As a result, for
large contracts, the Company may be required to make significant investments
prior to the receipt of related contract payments.

Approximately 23% (51% after excluding a significant contract with the
Social Security Administration) of the Company's total revenues for the year
ended September 30, 1996 resulted from fixed price contracts pursuant to which
the Company received its fee for meeting specified objectives or upon the
achievement of specified units of work, such as the placement of welfare
recipients into jobs, the collection of child support payments or the completion
of managed care enrollment transfers. The Company's ability to earn a profit on
these contracts is dependent upon accurate estimates of the costs involved as
well as the probability of meeting the specified objectives or realizing the
expected units of work within a certain period of time. In addition, the Company
recognizes revenues on fixed price contracts based on costs incurred. The
Company periodically reviews such contracts and adjusts revenues to reflect
current expectations. Such adjustments will affect the timing and amount of
revenue recognized and could have a material adverse effect on the Company's
business, financial condition and results of operations. The Company's failure
to accurately estimate the factors on which contract pricing is based could
result in the Company reporting a decrease in revenues or incurring losses on
such contracts and could have a material adverse effect on the Company's
business, financial condition and results of operations.

The Company's inability or failure to satisfy its contractual obligations
in a manner consistent with the terms of any contract could have a material
adverse effect on the Company's financial condition because the Company is often
required to indemnify clients for its failure to meet performance standards.
Certain of the Company's contracts have liquidated damages provisions and
financial penalties related to performance failures. In addition, in order for
the Company's Government Operations Group to bid for certain contracts, the
Company has been and will continue to be required to secure its indemnification
obligations by obtaining a performance bond from an insurer, posting a cash
performance bond or obtaining a letter of credit from a suitable financial
institution. In the event that a government entity makes a claim against such
performance bond or letter of credit, the premiums demanded by the insurers for
such bonds could increase, thereby limiting the Company's ability to bid for
contracts in the future. In addition, the Company's failure to meet a client's
expectations in the performance of its contractual obligations could have a
material adverse effect on the Company's reputation, thereby adversely affecting
its business, financial condition and results of operations.

When contracts between the Company's Government Operations Group and a
state or local government expire or otherwise terminate, unless the Company can
successfully enter into a new contract using the services of employees formerly
engaged in servicing the terminated contract or otherwise re-assign such
employees, the Company will need to terminate the employment of such employees.
The termination of large Government Operations Group contracts and the
subsequent re-assignment or termination of employees places significant demands
on the Company's management and its administrative resources. If the Company is
unable to manage these challenges, the Company's business could materially and
adversely be affected.

LEGISLATIVE CHANGE AND POLITICAL DEVELOPMENTS

The market for the Company's services is largely dependent on federal and
state legislative programs, any of which may be modified or terminated by acts
of the legislative or executive branches of federal and state government. There
can be no assurance that such legislative change will not occur or that the
Company will be able to anticipate and respond in a timely manner to any such
legislative change. The Company's failure to

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manage effectively its business in light of anticipated or unanticipated
legislative change could have a material adverse effect on the Company's
business, operating results and financial condition.

The Welfare Reform Act is expected to be a catalyst for sweeping changes in
the administration and management of the welfare system in the United States. As
part of its growth strategy, the Company plans to aggressively pursue the
opportunities created by this legislation by seeking new contracts to administer
and manage welfare programs of state and local government agencies. However,
opponents of welfare reform continue to criticize the advances made by the
current administration and continued progress in the welfare reform area is
uncertain. The repeal of the Welfare Reform Act, in whole or in part, could have
a material adverse effect on the future business, financial condition and
results of operations of the Company. There can be no assurance that additional
reforms will be proposed or enacted, or that previously enacted reforms will not
be challenged, repealed or otherwise invalidated.

The adverse impact that legislative changes can have on the Company was
recently evidenced by the termination of a significant contract with the federal
Social Security Administration. This contract related to the referral and
treatment monitoring of social security or supplemental income beneficiaries
with drug or alcohol-related disabilities (the "SSA Contract"). In its fiscal
year ended September 30, 1996, the Company earned revenues of $56.5 million from
the SSA Contract, representing approximately 55% of the Company's total revenues
for such fiscal year. In October 1996, the President signed into law an
amendment to the Social Security Act of 1935, effective January 1, 1997, that
eliminated social security and supplemental income benefits based solely on drug
and alcohol disabilities. As a result of this amendment, the SSA Contract was
terminated and no revenues will be earned thereunder after March 31, 1997.

In addition, under current law the privatization of certain functions of
government programs, such as determining eligibility for Food Stamps and
Medicaid, requires the consent and/or waiver of the executive branch acting
through the applicable administering government agency. In May 1997, in response
to a request by the State of Texas for a waiver to allow private corporations to
decide the eligibility of applicants for Food Stamps and Medicaid benefits, the
Department of Health and Human Services determined not to grant a waiver to the
existing requirement in these programs that only public employees may make such
decisions. The Company did not bid for any contracts for these Texas projects,
and the determination will not affect any of the Company's existing contracts.
However, there can be no assurance that the Department of Health and Human
Services or other health and human services agencies will not in the future
narrow or eliminate certain future markets for health and human services
contracts in which the Company intends to compete.

OPPOSITION FROM GOVERNMENT UNIONS

The Company's success depends in part on its ability to obtain contracts to
profitably administer and manage health and human services programs that
traditionally have been administered and managed by government employees. Many
of these government employees are members of labor unions which have
considerable financial resources and established lobbying networks that are
effective in applying political pressure to legislators and other government
officials who seek to contract with private companies to administer and manage
government programs. Successful efforts to oppose private management of
government programs by these unions may slow welfare reform and ultimately
result in fewer opportunities for the Company to provide services to government
agencies, thereby adversely affecting the business, financial condition and
results of operations of the Company. A recent example of the influence of
government unions is the role played by union lobbyists in promoting a May 1997
determination by the Department of Health and Human Services, in response to a
waiver request by the State of Texas, that only public employees may make
decisions on eligibility of applicants for Food Stamps and Medicaid benefits.
See "--Legislative Change and Political Developments." There can be no assurance
that these unions will not succeed in whole or in part in their efforts to
oppose the outsourcing of government programs.

VARIABILITY OF QUARTERLY OPERATING RESULTS

Variations in the Company's revenues and operating results occur from
quarter to quarter as a result of a number of factors, including the progress of
contracts, levels of revenues earned on contracts (including any

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adjustments in expectations on revenue recognition on fixed price contracts),
the commencement, completion or termination of contracts during any particular
quarter, the schedules of government agencies for awarding contracts, the term
of each contract that the Company has been awarded and general economic
conditions. Because a significant portion of the Company's expenses are
relatively fixed, successful contract performance and variation in the volume of
activity as well as in the number of contracts commenced or completed during any
quarter may cause significant variations in operating results from quarter to
quarter. Furthermore, the Company has on occasion experienced a pattern in its
results of operations in which it incurs greater operating expenses during the
start-up and early stages of significant contracts. In addition, the Company's
SSA Contract contributed $31.6 million, $56.5 million, $14.3 million and $2.9
million to the Company's revenues in the six months ended March 31, 1997 and
fiscal years 1996, 1995 and 1994, respectively. The termination of the SSA
Contract will significantly reduce the Company's revenue base as compared to
previous quarters. No assurance can be given that the Company will be able to
generate additional revenues in future periods in amounts sufficient to replace
the revenues received under the SSA Contract and as a result, the Company may
experience materially lower revenues as compared to prior periods. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Quarterly Results."

During the quarter in which this offering is completed, the Company will
recognize two significant charges against income. The completion of this
offering will result in the termination of the Company's S corporation status.
As a result, the Company will record a one-time income statement charge to
operations estimated at $5.6 million based on the deferred tax liabilities as of
March 31, 1997. In connection with this offering, on January 31, 1997, certain
key employees of the Company surrendered rights to purchase shares of Common
Stock of the Company in exchange for options to purchase shares of Common Stock
at an exercise price of $1.46 per share. The Company will recognize a non-cash
compensation charge against income equal to the difference between the initial
public offering price and the option exercise price for all outstanding options.
Compensation expense totalling $150,000 has been recognized through March 31,
1997 and, upon completion of this offering at the initial public offering price
of $16.00 per share, the Company will incur an additional charge against income
of $5.7 million. The option exercise price is based on the book value of the
Common Stock at September 30, 1996 and was established pursuant to pre-existing
compensation arrangements with these employees. As a result of these charges,
the Company will report a significant net loss in the period in which this
offering is completed, which is anticipated to be the quarter ended June 30,
1997. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Management -- Executive Compensation."

RELIANCE ON KEY EXECUTIVES

The success of the Company is highly dependent upon the efforts, abilities,
business generation and project execution capabilities of certain of its
executive officers and senior managers. While the Company has executive
employment agreements with each of David V. Mastran, President and Chief
Executive Officer of the Company, Raymond B. Ruddy, Chairman of the Board of
Directors and President of the Consulting Group, Russell A. Beliveau, President
of the Government Operations Group, Ilene R. Baylinson, President of the
Disability Services Division, Susan D. Pepin, President of the Systems Planning
and Integration Division and Lynn P. Davenport, President of the Human Services
Division, such agreements are terminable under certain conditions. Other than
these six agreements with executive officers, the Company does not have
employment agreements with any other senior employees. The loss of the services
of any of these key executives could have a material adverse effect upon the
Company's business, financial condition and results of operations, including its
ability to secure and complete engagements. The Company maintains key-man life
insurance policies on David V. Mastran and Raymond B. Ruddy in the amounts of
$10,700,000 and $7,250,000, respectively, with proceeds payable to the Company.
Because the levels of insurance were established to fund stock redemption
obligations of the Company that will terminate upon the closing of this
offering, the Company anticipates that it will substantially reduce these
policies subsequent to this offering. See "Management."

ATTRACTION AND RETENTION OF EMPLOYEES

The Company's business involves the delivery of professional services and
is labor-intensive. When the Company's Government Operations Group is awarded a
contract by a government agency, the Company is

9
<PAGE> 10

often under a tight timetable to hire project leaders and case management
personnel to meet the needs of the new project. In addition, the resulting large
increases in the number of the Company's employees create demand for increased
administrative personnel at the Company's headquarters. The Company's success in
both the Government Operations Group and the Consulting Group depends in large
part upon its ability to attract, develop, motivate and retain experienced and
innovative executive officers, senior managers who have successfully managed or
designed health and human services programs in the public sector and information
technology professionals who have designed or implemented complex information
technology projects. Such innovative, experienced and technically proficient
individuals are in great demand and are likely to remain a limited resource for
the foreseeable future. There can be no assurance that the Company will be able
to continue to attract and retain desirable executive officers and senior
managers in the future. The inability to hire sufficient personnel on a timely
basis or the loss of a significant number of executive officers and senior
managers could have a material adverse effect on the Company's business,
financial condition and results of operations, including its ability to obtain
and successfully complete service contracts. See "Business -- Human Resources."

CHALLENGES RESULTING FROM GROWTH

The Company's continued growth has placed significant demands on the
Company's management as well as its administrative, operational and financial
resources. The Company's ability to manage its growth will require the Company
to continue to implement new and to improve existing operational, financial and
management information systems and to continue to expand, motivate and manage
its workforce. In addition, the Company's growth will depend in large part on
its ability to manage large-scale health and human services programs while
continuing to ensure quality service and reasonable profits. If the Company is
unable to manage effectively any of these factors, the quality of the Company's
services, its financial condition and results of operations could be materially
and adversely affected. No assurance can be given that the Company will continue
to experience growth or that the Company will be successful in managing its
growth, if any.

COMPETITORS; EFFECTS OF COMPETITION

The market for certain program management and consulting services to state
and local health and human services agencies is becoming more competitive and is
subject to rapid change while the market for certain other services is not yet
competitive. The Company's Government Operations Group competes for program
management contracts with local non-profit organizations such as the United Way
and Goodwill Industries, government services divisions of large organizations
such as Andersen Consulting, Lockheed Martin Corp. and Electronic Data Systems,
Inc., managed care enrollment companies such as Foundation Health Corporation
and specialized service providers such as America Works, Inc., Policy Studies
Incorporated and GC Services, Inc. The Company's Consulting Group competes with
the consulting divisions of the "Big 6" accounting firms as well as Electronic
Data Systems, Inc. Many of these companies are national and international in
scope and have greater financial, technical, marketing and personnel resources
than the Company. The significant financial resources of certain competitors
could lead to severe price cutting in an effort to secure market share, which
could adversely affect the Company's business, financial condition and results
of operations. There can be no assurance that the Company will compete
successfully against its existing competitors or against new competitors, if
any. See "Business -- Competition."

In addition to competition from existing competitors, the Company may
experience future competition from its former employees. Although the Company
has entered into non-competition agreements with certain senior level employees,
there can be no assurance that such contracts will be enforceable or that
departing employees not subject to non-competition agreements will not seek to
exploit their personal relationships with government officials by competing
against the Company. Any such competition by former employees could have a
material adverse effect on the Company.

ADVERSE PUBLICITY

The Company has received and expects to continue to receive media attention
as a result of its contracts with state and local government authorities. In
particular, the management of health and human services programs by the
Company's Government Operations Group and the establishment of revenue
maximization programs by the Company's Consulting Group have been the subject of
highly controversial media coverage. Negative coverage of the types of program
management services provided by the Company could influence

10
<PAGE> 11

government officials and slow the pace of welfare reform, thereby reducing the
Company's growth prospects. In addition to media attention arising out of the
types of services provided by the Company, the Company is also vulnerable to
media attention as a result of the activities of political consultants engaged
by the Company, even when such activities are unrelated to the Company. Such an
event occurred in connection with a marketing representative hired by the
Company to assist in responding to an RFP promulgated by the State of West
Virginia. After learning that the marketing representative was also a state
employee, the Company voluntarily withdrew from the bidding. Certain media
coverage relating to this incident was inaccurate and incorrectly suggested
wrongdoing by the Company. The Company has become aware that certain of its
competitors have sought to exploit such suggestions in connection with other
competitive-bidding situations. There can be no assurance that the Company will
not receive adverse media attention as the result of activities of individuals
not under the Company's control. In addition, there can be no assurance that
media attention focused on the Company will be accurate or that the Company will
be able to anticipate and respond in a timely manner to all media contacts.
Inaccurate or misleading media coverage or the Company's failures to manage such
coverage could have a material adverse effect on the Company's reputation,
thereby adversely affecting its business, financial condition and results of
operations.

RISKS RELATED TO POSSIBLE ACQUISITIONS

A part of the Company's growth strategy is to expand its operations through
the acquisition of additional businesses. The Company has no prior history of
making acquisitions and there can be no assurance that the Company will be able
to identify, acquire or profitably manage additional businesses or successfully
integrate any acquired businesses into the Company without incurring substantial
expenses, delays or other operational or financial problems. Furthermore,
acquisitions may involve a number of special risks, including diversion of
management's attention, failure to retain key personnel, unanticipated events or
circumstances, legal liabilities and amortization of acquired intangible assets,
some or all of which could have a material adverse effect on the Company's
business, financial condition and results of operations. Client dissatisfaction
or performance problems at a single acquired firm could have a material adverse
effect on the reputation of the Company as a whole. In addition, there can be no
assurance that acquired businesses, if any, will achieve anticipated revenues
and earnings. The failure of the Company to manage its acquisition strategy
successfully could have a material adverse effect on the Company's business,
financial condition and results of operations. See "Business -- Growth
Strategy."

UNCERTAINTIES RELATED TO INTERNATIONAL OPERATIONS

While the Company's current international operations are paid in U.S.
dollars by the World Bank and the U.S. Agency for International Development, as
the Company expands its operations into developing countries it may become
subject to a number of risks. International revenues are subject to a number of
risks including currency exchange rate fluctuations, collection of receivables
and enforcement of contract terms through a foreign country's legal system.
Foreign countries could impose additional withholding taxes or otherwise tax the
Company's foreign income or impose tariffs. There can be no assurance that any
of these factors will not have a material adverse effect on the business,
financial condition and results of operations of the Company. See
"Business -- Services -- Consulting Group."

LITIGATION

On March 12, 1997, Network Six, Inc. ("Network Six") served MAXIMUS with a
First Amended Third-Party Complaint filed in the State of Hawaii Circuit Court
of the First Circuit. In this complaint, Network Six named the Company and other
parties as third party defendants in an action by the State of Hawaii against
Network Six. In 1991, the Company's Consulting Group was engaged by the State of
Hawaii to provide assistance in planning for and monitoring the development and
implementation by Hawaii of a statewide automated child support system. In 1993,
Hawaii contracted with Network Six to provide systems development and
implementation services for this project. In 1996, the state terminated the
Network Six contract for cause and filed an action against Network Six. Network
Six counterclaimed against Hawaii that the state breached its obligations under
the contract with Network Six. In the Third Party Complaint, Network Six alleges
that the Company is liable to Network Six on grounds that: (i) Network Six was
an intended third party beneficiary under the contract between the Company and
Hawaii; (ii) the Company

11
<PAGE> 12

engaged in bad faith conduct and tortiously interfered with the contract and
relationship between Network Six and Hawaii; (iii) the Company negligently
breached duties to Network Six; and (iv) the Company aided and abetted Hawaii in
Hawaii's breach of contract. Network Six's complaint seeks damages, including
punitive damages, from the third party defendants in an amount to be proven at
trial. The Company believes that Network Six was not an intended third party
beneficiary under its contract with Hawaii and that Network Six's claims are
without factual or legal merit. The Company does not believe this action will
have a material adverse effect on its business and intends to vigorously defend
this action. However, given the early stage of this litigation, no assurance may
be given that the Company will be successful in its defense. A decision by the
court in Network Six's favor or any other conclusion of this litigation in a
manner adverse to the Company could have a material adverse effect on the
Company's business, financial condition and results of operations.

SIGNIFICANT UNALLOCATED NET PROCEEDS

A substantial portion of the anticipated net proceeds of this offering has
not been designated for specific uses. Therefore, the Board of Directors of the
Company will have broad discretion with respect to the use of the net proceeds
of this offering. See "Use of Proceeds."

CONTROL BY PRINCIPAL SHAREHOLDERS

After completion of this offering, the Company's executive officers will
own beneficially 64.5% of the Company's outstanding shares of Common Stock.
Certain executive officers who will hold approximately 63.1% of the outstanding
shares of Common Stock after giving effect to this offering have agreed with the
Company not to dispose of such shares for a period of four years following the
closing of this offering subject to certain exceptions. In addition, each of Dr.
Mastran and Mr. Ruddy, who will hold together approximately 58.8% of the
outstanding shares of Common Stock of the Company after giving effect to this
offering, has agreed to vote his shares in favor of the election of the other to
the Board of Directors, as long as each of such shareholders owns or controls
20% of the outstanding Common Stock. Mr. Ruddy has also agreed to vote his
shares of Common Stock in a manner consistent with instructions received from
Dr. Mastran during the four year period commencing on the closing of this
offering. As a result, these officers will continue to be able to control the
outcome of matters requiring a shareholder vote, including the election of the
members of the Board of Directors, thereby controlling the affairs and
management of the Company. Such control could adversely affect the market price
of the Common Stock or delay or prevent a change in control of the Company. See
"Principal and Selling Shareholders" and "Management -- Agreements with
Executives."

BENEFITS OF OFFERING TO SELLING SHAREHOLDERS

The Selling Shareholders will receive substantial proceeds and certain
other benefits from their participation in this offering. This offering will
establish a public market for the Common Stock and provide significantly
increased liquidity to the Selling Shareholders for the shares of Common Stock
they will own after this offering. After deducting underwriting discounts and
commissions, the aggregate proceeds (before deduction of estimated income taxes)
as a result of the offering by the Selling Shareholders will be approximately
$25.3 million (excluding the S Corporation Dividend). Upon completion of this
offering, the Selling Shareholders will own an aggregate of 64.7% of the
outstanding Common Stock. See "Use of Proceeds," "Dilution" and "Principal and
Selling Shareholders."

NO PRIOR PUBLIC MARKET; POSSIBLE VOLATILITY OF STOCK PRICE

Prior to this offering, there has been no public market for the Common
Stock. Consequently, the initial public offering price per share of the Common
Stock was determined by negotiations among management of the Company and the
representatives of the Underwriters (the "Representatives"). See "Underwriting"
for factors considered in determining the initial public offering price per
share. Although the Common Stock has been approved for listing on the New York
Stock Exchange, there can be no assurance that an active trading market will
develop or be sustained after this offering. The market price of the Common
Stock may fluctuate substantially due to a variety of factors, including
quarterly fluctuations in results of operations, the failure to be awarded a
significant contract on which it has bid, the termination by a government client
of a material contract, announcements of new services by competitors, political
and legislative developments adverse to the privatization of government
services, changes in earnings estimates by securities analysts, changes in
accounting principles, sales of Common Stock by existing holders, negative
publicity, loss of key personnel and

12
<PAGE> 13

other factors. In addition, the stock market is subject to extreme price and
volume fluctuations. This volatility has often had a significant effect on the
market prices of securities issued by many companies for reasons unrelated to
the operating performance of these companies. In the past, following periods of
volatility in the market price of a company's securities, securities class
action litigation often has been instituted against such a company. Any such
litigation initiated against the Company could result in substantial costs and a
diversion of management's attention and resources, which could have a material
adverse effect on the Company's business, financial condition and results of
operations.

IMMEDIATE AND SUBSTANTIAL DILUTION

The initial public offering price per share of Common Stock is
substantially higher than the net tangible book value per share of the Common
Stock. Purchasers of shares of Common Stock in this offering will experience
immediate and substantial dilution of $11.98 in the pro forma net tangible book
value per share of Common Stock. To the extent outstanding options to purchase
the Company's Common Stock are exercised, there will be further dilution. See
"Dilution."

DIVIDEND POLICY; ABSENCE OF DIVIDENDS

Other than the S Corporation Dividend (see "S Corporation Dividend") and
past dividends to cover S corporation taxes payable by shareholders, the Company
has rarely paid cash dividends on its capital stock and does not anticipate
paying cash dividends in the foreseeable future. The Company currently intends
to retain all earnings for the development of its business. See "Dividend
Policy."

CERTAIN ANTI-TAKEOVER EFFECTS

The Company's Amended and Restated Articles of Incorporation (the "Restated
Articles") and Amended and Restated By-Laws (the "Restated By-Laws"), both to be
effected immediately upon the close of this offering, and Virginia law include
provisions that may be deemed to have antitakeover effects and may delay, defer
or prevent a takeover attempt that shareholders might consider to be in their
best interests. Directors of the Company are divided into three classes and are
elected to serve staggered three-year terms, the existence of which could render
more difficult or discourage an attempt to obtain control of the Company by
means of a proxy contest or otherwise. See "Management -- Board of Directors."
The ability of the shareholders of the Company to take any action, or to consent
to the taking of any action, in each case in writing without a meeting, is
specifically denied. See "Description of Capital Stock -- Anti-Takeover
Provisions of the Articles of Incorporation and By-Laws." In addition, Virginia
law contains provisions that impose certain limitations and special voting
requirements on affiliated transactions and deny voting rights, unless granted
by shareholder vote, with respect to shares acquired in control share
acquisitions. See "Description of Capital Stock -- Anti-Takeover Provisions of
Virginia Law."

SHARES ELIGIBLE FOR FUTURE SALE

Immediately after completion of this offering, the Company will have
14,659,945 shares of Common Stock outstanding, of which the 5,250,000 shares
sold pursuant to this offering will be freely tradable without restriction or
further registration under the Securities Act of 1933, as amended (the
"Securities Act"), except those shares acquired by affiliates of the Company.
Holders of the remaining shares will be eligible to sell such shares pursuant to
Rule 144 under the Securities Act ("Rule 144") at prescribed times and subject
to the manner of sale, volume, notice and information restrictions of Rule 144.
In addition, 403,975 shares of Common Stock are issuable upon the exercise of
outstanding stock options (none of which are currently exercisable and all of
which will become exercisable on the closing of this offering), which shares may
be registered by the Company under the Securities Act and become freely tradable
without restriction. The Company and its current shareholders (holding in the
aggregate 9,813,920 shares of Common Stock upon the closing of this offering,
including the 403,975 shares of Common Stock issuable upon exercise of
outstanding stock options that become exercisable upon the closing of this
offering), have agreed not to offer, sell, contract to sell or otherwise dispose
of, directly or indirectly, any shares of Common Stock, or any securities
convertible into or exchangeable or exercisable for shares of Common Stock,
until 180 days after the date of this Prospectus, without the prior consent of
Donaldson, Lufkin & Jenrette Securities Corporation. Certain executive officers
of the Company, holding an aggregate of 9,414,545 shares of Common Stock
(including 266,750 shares of Common Stock issuable upon the exercise of
outstanding stock options that become

13
<PAGE> 14

exercisable upon the closing of this offering), will have entered into Executive
Employment, Non-Compete, Confidentiality and Stock Restriction Agreements
pursuant to which each such executive will have agreed with the Company subject
to certain exceptions not to sell or otherwise dispose of, directly or
indirectly, any shares of Common Stock for a period of four years from the
closing of this offering. See "Management -- Agreements with Executives."
Because these agreements will be between the Company and each executive officer
and may be waived by the Company at any time, investors should not rely on these
agreements. Sales of substantial amounts of such shares in the public market or
the availability of such shares for future sale could adversely affect the
market price of the shares of Common Stock and the Company's ability to raise
additional capital at a price favorable to the Company. See "Shares Eligible for
Future Sale" and "Underwriting."

14
<PAGE> 15

USE OF PROCEEDS

The net proceeds to the Company from the sale of the 3,550,000 shares of
Common Stock offered by the Company, after deducting underwriting discounts and
commissions and estimated offering expenses, are estimated to be $51,954,000.
The Company expects to use a portion of the net proceeds from this offering for
the partial payment of undistributed S corporation earnings not funded by
available cash, estimated at $5.0 million and the balance of the net proceeds
for general corporate purposes, including working capital. While the Company has
no specific plans for the balance of the net proceeds, it anticipates that these
funds will be used for: (i) expanding existing operations, which may include
opening new offices, acquiring related businesses and expanding the Company's
international operations; and (ii) investing in systems infrastructure and new
technologies. The Company has no present commitments, agreements or
understandings and is not presently conducting negotiations with respect to any
acquisitions. The Company's management will have broad discretion to allocate
proceeds from this offering to uses that it believes are appropriate. Pending
such uses, the net proceeds of this offering will be invested in short-term,
investment grade, interest-bearing securities. The principal purposes of this
offering are to obtain additional working capital, create a public market for
the Common Stock, provide liquidity to the Company's shareholders and facilitate
future access by the Company to public equity markets. See "Risk Factors --
Significant Unallocated Net Proceeds," "S Corporation Dividend" and
"Business -- Growth Strategy."

The Company will not receive any proceeds from the sale of Common Stock by
the Selling Shareholders. See "Principal and Selling Shareholders."

S CORPORATION DIVIDEND

Since 1987, the Company has been a corporation subject to taxation under
subchapter S of the Internal Revenue Code of 1986, as amended. As a result,
substantially all of the Company's net income has been attributed, for income
tax purposes, directly to the Company's shareholders rather than to the Company.
The Company's S corporation status will terminate in connection with this
offering and the Company will make a final distribution to its existing
shareholders of undistributed S Corporation earnings, as explained below.

The Company has declared an S corporation dividend to its existing
shareholders in an aggregate amount representing all undistributed earnings of
the Company taxed or taxable to its shareholders through the closing of this
offering payable upon such closing (the "S Corporation Dividend"). The S
Corporation Dividend is estimated to be approximately $20.5 million, of which it
is estimated that $15.5 million will be funded from available cash and $5.0
million will be funded with a portion of the proceeds from this offering.
Purchasers of Common Stock in this offering will not receive any portion of the
S Corporation Dividend.

Following termination of its S corporation status, the Company will be
subject to income taxation as a C corporation. The termination of the Company's
S corporation status will result in the Company recording a liability for
deferred income taxes on its balance sheet and a one-time income statement
charge of the same amount. Based on differences between income for tax and
financial reporting through March 31, 1997, the one-time income statement charge
is estimated to be $5.6 million. The deferred tax liability will be recorded in
accordance with Statement of Financial Accounting Standards No. 109. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and Note 3 of Notes to Financial Statements.

DIVIDEND POLICY

Following the declaration and payment of the S Corporation Dividend, the
Company anticipates that it will retain all of its earnings for development of
the Company's business and does not anticipate paying any cash dividends in the
foreseeable future. Future cash dividends, if any, will be paid at the
discretion of the Company's Board of Directors and will depend, among other
things, upon the Company's future operations and earnings, capital requirements
and surplus, general financial condition, contractual restrictions and such
other factors as the Board of Directors may deem relevant.

15
<PAGE> 16

CAPITALIZATION

The following table sets forth, as of March 31, 1997: (i) the actual total
capitalization of the Company; (ii) the pro forma total capitalization of the
Company after giving effect to the S Corporation Dividend (see "S Corporation
Dividend"), the recognition of a net deferred tax liability upon termination of
the Company's S corporation status estimated to be $5.6 million, and
reclassification of redeemable Common Stock to shareholders' equity as a result
of elimination of the Company's obligation to purchase its Common Stock from
shareholders; and (iii) the pro forma total capitalization as adjusted for the
sale of shares of Common Stock by the Company and the application of the
estimated net proceeds therefrom to fund the estimated $5.0 million portion of
the S Corporation Dividend that will not be funded by available cash. See "Use
of Proceeds." The following table should be read in conjunction with the
Financial Statements and related Notes thereto included elsewhere in this
Prospectus.

<TABLE>
<CAPTION>
AS OF MARCH 31, 1997
----------------------------------------
ACTUAL PRO FORMA AS ADJUSTED
(IN THOUSANDS)
<S> <C> <C> <C>
Cash and cash equivalents and short term investments..... $ 6,893 $ 6,893 $ 46,954
======= ======= ========

Redeemable common stock.................................. $21,076 $ -- $ --

Shareholders' equity:

Common stock, no par value; 30,000,000 shares
authorized; 11,109,945 shares issued and
outstanding, actual and pro forma; 14,659,945 shares
issued and outstanding as adjusted.................. -- 12,638 64,592

Retained earnings (deficit)............................ 11,915 (5,700) (5,700)
------- ------- --------
Total shareholders' equity.......................... 11,915 6,938 58,892
------- ------- --------
Total capitalization.............................. $32,991 $ 6,938 $ 58,892
======= ======= ========
</TABLE>

16
<PAGE> 17

DILUTION

The pro forma net tangible book value of the Company as of March 31, 1997
was $6,938,000 or $0.62 per share. Pro forma net tangible book value per share
represents the total tangible assets of the Company, less total liabilities,
divided by the aggregate number of shares of Common Stock outstanding, after
giving effect to: (i) the S Corporation Dividend (see "S Corporation Dividend");
(ii) the recording of deferred income taxes upon termination of the Company's S
corporation status; and (iii) the reclassification of redeemable common stock to
shareholders' equity, as a result of elimination of the Company's obligation to
purchase its Common Stock from shareholders. After giving effect to the sale by
the Company of 3,550,000 shares of Common Stock offered hereby and the
application of the net proceeds therefrom, the pro forma net tangible book value
of the Company as of March 31, 1997 would have been $58,892,000 or $4.02 per
share. This represents an immediate increase in the pro forma net tangible book
value of $3.40 per share to existing shareholders and an immediate dilution of
$11.98 per share to purchasers of Common Stock in this offering. The following
table illustrates this per share dilution:

<TABLE>
<S> <C> <C>
Initial public offering price........................................ $16.00

Pro forma net tangible book value per share as of March 31, 1997... $ 0.62

Increase per share attributable to new investors................... 3.40
-------
Pro forma net tangible book value per share after this offering...... 4.02
------
Dilution in pro forma net tangible book value per share to new
investors.......................................................... $11.98
======
</TABLE>

The following table sets forth, as of March 31, 1997, the differences
between existing shareholders and new investors in this offering with respect to
the number of shares of Common Stock purchased from the Company, the total
consideration paid and the average price paid per share:

<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
-------------------- --------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE

<S> <C> <C> <C> <C> <C>
Existing shareholders(1)................ 11,109,945 75.8% $ 1,425,420 2.4% $ 0.13

New investors(1)........................ 3,550,000 24.2 56,800,000 97.6 16.00
---------- ----- ----------- -----

Total......................... 14,659,945 100.0% $58,225,420 100.0%
========== ===== =========== =====
</TABLE>

- ------------------------------
(1) Sales by the Selling Shareholders in this offering will reduce the number of
shares held by existing shareholders of the Company to 9,409,945 or 64.2% of
the total number of shares outstanding after this offering (8,749,945 shares
or 59.2% if the Underwriters' over-allotment option is exercised in full)
and will increase the number of shares held by new investors to 5,250,000
shares or 35.8% of the total number of shares of Common Stock outstanding
after this offering (6,037,500 shares or 40.8% if the Underwriters'
over-allotment option is exercised in full). See "Principal and Selling
Shareholders."

17
<PAGE> 18

SELECTED FINANCIAL DATA

The selected financial data presented below as of September 30, 1995 and
1996, and for each of the three years in the period ended September 30, 1996 are
derived from the Company's Financial Statements and related Notes thereto which
have been audited by Ernst & Young LLP, independent auditors. The selected
financial data presented below as of September 30, 1992, 1993 and 1994, and for
each of the years ended September 30, 1992 and 1993 are derived from the
Company's financial statements, not included in this Prospectus, which have been
audited by the Company's predecessor accountants. The selected financial data as
of March 31, 1997 and for the six-month periods ended March 31, 1996 and 1997
are unaudited but, in the opinion of management, include all adjustments,
consisting only of normal recurring items, necessary for a fair presentation of
the results of the interim periods. The results of operations for the period
ended March 31, 1997 are not necessarily indicative of the results to be
expected for any other interim period or for the full year. The selected
financial data should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the Financial
Statements and related Notes thereto appearing elsewhere in this Prospectus.

<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED SEPTEMBER 30, MARCH 31,
-------------------------------------------------------- -------------------
1992 1993 1994 1995 1996 1996 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Revenues:
Government Operations Group(1)...... $23,749 $18,071 $11,779 $16,951 $ 20,681 $ 9,049 $23,580
Consulting Group.................... 9,400 12,522 15,138 20,698 25,902 12,485 13,589
SSA Contract(2)..................... -- -- 2,943 14,314 56,530 18,052 31,593
------- ------- ------- ------- -------- ------- -------
Total revenues................. 33,149 30,593 29,860 51,963 103,113 39,586 68,762
Cost of revenues...................... 18,595 15,388 21,716 36,071 78,429 28,989 52,857
------- ------- ------- ------- -------- ------- -------
Gross profit.......................... 14,554 15,205 8,144 15,892 24,684 10,597 15,905
Selling, general and administrative
expenses............................ 9,657 10,178 6,979 9,078 13,104 5,886 8,161
------- ------- ------- ------- -------- ------- -------
Income from operations................ 4,897 5,027 1,165 6,814 11,580 4,711 7,744
Interest and other income............. 376 80 80 169 264 99 148
------- ------- ------- ------- -------- ------- -------
Income before income taxes............ 5,273 5,107 1,245 6,983 11,844 4,810 7,892
Provision (benefit) for income
taxes............................... 152 114 (5) 124 225 94 150
------- ------- ------- ------- -------- ------- -------
Net income(3)......................... $ 5,121 $ 4,993 $ 1,250 $ 6,859 $ 11,619 $ 4,716 $ 7,742
======= ======= ======= ======= ======== ======= =======
PRO FORMA STATEMENT OF INCOME DATA:(4)
Historical income before income taxes.............................................. $ 11,844 $ 7,892
Pro forma income tax expense....................................................... 4,738 3,157
-------- -------
Pro forma net income............................................................... $ 7,106 $ 4,735
======== =======
Pro forma net income per share..................................................... $ 0.58 $ 0.39
======== =======
Shares used in computing pro forma net
income per share(5).............................................................. 12,182 12,103
</TABLE>

<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, AS OF MARCH 31,
--------------------------------------------------- -----------------------
1992 1993 1994 1995 1996 1997 1997
ACTUAL PRO FORMA(6)
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents and short-term
investments............................ $ 1,849 $ 1,093 $ 326 $ 2,502 $ 3,333 $ 6,893 $ 6,893
Working capital.......................... 6,158 6,818 6,855 13,184 22,700 29,804 8,335
Total assets............................. 17,091 12,745 15,049 22,670 35,493 47,119 47,119
Redeemable common stock.................. 6,759 6,971 6,889 10,578 16,757 21,076 --
Total shareholders' equity............... 1,907 2,484 2,921 5,706 9,197 11,915 6,938
</TABLE>

18
<PAGE> 19

19
<PAGE> 20

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

OVERVIEW

MAXIMUS provides program management and consulting services to government
health and human services agencies in the United States. Founded in 1975, the
Company has been profitable every year since inception. The Company conducts its
operations through two groups, the Government Operations Group and the
Consulting Group. The Government Operations Group administers and manages
government health and human services programs, including welfare-to-work and job
readiness, child support enforcement, managed care enrollment and disability
services. The Consulting Group provides health and human services planning,
information technology consulting, strategic program evaluation, program
improvement, communications planning and revenue maximization services.

The Company's revenues are generated from contracts with various payment
arrangements, including: (i) costs incurred plus a fixed fee ("cost-plus"); (ii)
fixed price; (iii) performance-based criteria; and (iv) time and materials
reimbursement (utilized primarily by the Consulting Group). For the fiscal year
ended September 30, 1996, revenues from these contract types were approximately
62%, 23%, 11% and 4%, respectively, of total revenues. Traditionally, federal
government contracts have been cost-plus and a majority of the contracts with
state and local government agencies have been fixed price and performance-based.
Fixed price and performance-based contracts generally offer higher margins but
typically involve more risk than cost-plus or time and materials reimbursement
contracts because the Company is subject to potential cost overruns or
inaccurate revenue estimates. As discussed further below, the SSA Contract was
terminated in December 1996 as a result of legislative action. Excluding the SSA
Contract, fiscal 1996 revenues from the above contract types were approximately
15%, 51%, 25% and 9%, respectively, of total revenues.

In October 1996, President Clinton signed into law an amendment to the
Social Security Act of 1935, effective January 1, 1997, that eliminated Social
Security Income and Supplemental Security Disability Insurance benefits based
solely on drug and alcohol disabilities. As a result of this legislative act,
the Social Security Administration terminated the SSA Contract effective at the
end of February 1997. All services to be provided to the Social Security
Administration were completed in the quarter ended March 31, 1997. The SSA
Contract contributed $31.6 million, $56.5 million, $14.3 million and $2.9
million to the Company's revenues in the six months ended March 31, 1997 and
fiscal years 1996, 1995 and 1994, respectively. The termination of the SSA
Contract will significantly reduce the Company's revenue base as compared to
prior periods. No assurance can be given that the Company will be able to
generate additional revenues in future periods in amounts sufficient to replace
the revenues received under the SSA Contract and, as a result, the Company may
experience materially lower revenues as compared to prior periods. The Company
has experienced a limited number of other early terminations since inception.
See "Risk Factors -- Variability of Quarterly Operating Results."

The Government Operations Group's contracts generally contain base periods
of one or more years as well as one or more option periods that may cover more
than half of the potential contract duration. As of September 30, 1996, the
Company's average Government Operations contract duration was 3 1/2 years. The
Company's Consulting Group is typically engaged for periods in excess of 24
months. Indicative of the long-term nature of the Company's engagements,
approximately 84% of the Company's fiscal 1996 revenues were in backlog as of
September 30, 1995.

The Company's most significant expense is cost of revenues, which consists
primarily of project related employee salaries and benefits, subcontractors,
computer equipment and travel expenses. The Company's ability to accurately
predict personnel requirements, salaries and other costs as well as to
effectively manage a project or achieve certain levels of performance can have a
significant impact on the service costs related to the Company's fixed price and
performance-based contracts. Service cost variability has little impact on cost-
plus arrangements because allowable costs are reimbursed by the client. The
profitability of the Consulting Group's contracts is largely dependent upon the
utilization rates of its consultants.

20
<PAGE> 21

Selling, general and administrative expenses consist of management,
marketing and administration costs including salaries, benefits, travel,
recruiting, continuing education and training, facilities costs, printing,
reproduction, communications and equipment depreciation. Selling, general and
administrative expenses as a percentage of revenues have decreased in recent
years as these costs have been absorbed by a larger revenue base.

From October 1, 1987 to the date of this offering, the Company elected to
be treated as an S corporation for federal income tax purposes. For all periods
prior to October 1, 1996, the Company's income was taxed directly to its
shareholders on the cash basis and for the period from October 1, 1996 through
the date of this offering, the Company plans to have its income taxed directly
to its shareholders on the accrual basis. Upon completion of this offering, the
Company's S corporation status will terminate and the Company will be subject to
income tax on the accrual basis as a C corporation.

During the quarter in which this offering is completed, the Company will
recognize two significant charges against income. The completion of this
offering will result in the termination of the Company's S corporation status.
As a result the Company will record a one-time income statement charge to
operations estimated at $5.6 million based on the deferred tax liabilities as of
March 31, 1997. In connection with this offering, on January 31, 1997, certain
key employees of the Company surrendered rights to purchase shares of Common
Stock of the Company in exchange for options to purchase shares of Common Stock
at an exercise price of $1.46 per share. The Company will recognize a non-cash
compensation charge against income equal to the difference between the initial
public offering price and the option exercise price for all outstanding options.
Compensation expense totalling $150,000 has been recognized through March 31,
1997, and upon completion of this offering at the initial public offering price
of $16.00 per share, the Company will incur an additional charge against income
of $5.7 million. The option exercise price is based on the book value of the
Common Stock at September 30, 1996, and was established pursuant to pre-existing
compensation arrangements with these employees. As a result of these charges,
the Company will report a significant net loss in the period in which this
offering is completed, which is anticipated to be the quarter ended June 30,
1997. See "Management -- Executive Compensation."

21
<PAGE> 22

RESULTS OF OPERATIONS

The following table sets forth, for the periods indicated, selected
statements of income data as a percentage of revenues:

<TABLE>
<CAPTION>
SIX MONTHS
YEARS ENDED SEPTEMBER 30, ENDED MARCH 31,
------------------------- -----------------
1994 1995 1996 1996 1997
<S> <C> <C> <C> <C> <C>
Revenues:
Government Operations Group........... 39.4% 32.6% 20.1% 22.9% 34.3%
Consulting Group...................... 50.7 39.8 25.1 31.5 19.8
SSA Contract.......................... 9.9 27.6 54.8 45.6 45.9
----- ----- ----- ----- -----
Total revenues..................... 100.0 100.0 100.0 100.0 100.0
Gross profit:
Government Operations Group........... 5.2 22.7 20.3 23.3 21.9
Consulting Group...................... 46.9 48.0 46.9 45.9 46.8
SSA Contract.......................... 14.8 14.8 14.7 15.3 13.9
Gross profit as percentage of total
revenues......................... 27.3 30.6 23.9 26.8 23.1
Selling, general and administrative
expenses.............................. 23.4 17.5 12.7 14.9 11.8
----- ----- ----- ----- -----
Income from operations.................. 3.9 13.1 11.2 11.9 11.3
Interest and other income............... 0.3 0.3 0.3 0.2 0.2
----- ----- ----- ----- -----
Income before income taxes.............. 4.2 13.4 11.5 12.1 11.5
Provision for income taxes.............. 0.0 0.2 0.2 0.2 0.2
----- ----- ----- ----- -----
Net income.............................. 4.2% 13.2% 11.3% 11.9% 11.3%
===== ===== ===== ===== =====
</TABLE>

SIX MONTHS ENDED MARCH 31, 1997 COMPARED TO SIX MONTHS ENDED MARCH 31, 1996

Revenues. Total contract revenues increased 73.7% to $68.8 million for the
six months ended March 31, 1997 as compared to $39.6 million for the same period
in 1996. Government Operations Group revenues increased 103.6% to $55.2 million
for the six months ended March 31, 1997 from $27.1 million for the same period
in 1996 due to an increase in the number of projects and an increase in revenues
from the SSA Contract. For the six months ended March 31, 1997, revenues from
the SSA Contract were $31.6 million as compared to $18.1 million for the same
period in 1996. Excluding the SSA Contract, Government Operations Group revenues
increased 160.6% to $23.6 million in the six months ended March 31, 1997 from
$9.0 million for the same period in 1996. Consulting Group revenues increased
8.8% to $13.6 million for the six months ended March 31, 1997 from $12.5 million
for the same period in 1996 due to an increase in the number of contracts.

Gross Profit. Total gross profit increased 50.1% to $15.9 million for the
six months ended March 31, 1997 as compared to $10.6 million for the same period
in 1996. Government Operations Group gross profit increased 96.4% to $9.6
million for the six months ended March 31, 1997 from $4.9 million for the six
months ended March 31, 1996. As a percentage of revenues, Government Operations
Group gross profit decreased to 17.3% in the six months ended March 31, 1997
from 17.9% in the same period in 1996, primarily due to the increased revenue
contribution of the SSA Contract, which had a lower gross profit margin, and the
pass-through of approximately $2.1 million of project start-up costs which
generated no gross margin. Consulting Group gross profit increased 10.8% to $6.4
million for the six months ended March 31, 1997 from $5.7 million for the same
period in 1996 due to higher revenues. As a percentage of revenues, Consulting
Group gross profit increased to 46.7% for the six months ended March 31, 1997
from 45.9% for the same period in 1996 primarily due to a reduction in revenue
from a cost-type contract which has a lower gross profit margin.

Selling, General and Administrative Expenses. Total selling, general and
administrative expenses increased 38.7% to $8.2 million for the six months ended
March 31, 1997 as compared to $5.9 million for the same period in 1996. The
increase was due to increased professional and administrative staff, training
costs,

22
<PAGE> 23

and professional fees in the six months ended March 31, 1997. As a percentage of
revenues, selling, general and administrative expenses decreased to 11.9% for
the six months ended March 31, 1997 from 14.9% for the same period in 1996 as
the Company was able to support its revenue growth without a proportionate
increase in associated costs.

YEAR ENDED SEPTEMBER 30, 1996 COMPARED TO YEAR ENDED SEPTEMBER 30, 1995

Revenues. Total revenues increased 98.4% to $103.1 million in fiscal 1996
from $52.0 million in fiscal 1995. Government Operations Group revenues
increased 147.0% to $77.2 million in fiscal 1996 from $31.3 million in fiscal
1995. This growth was due to an increase in the number of projects and an
increase in revenues from the SSA Contract, which contributed $56.5 million to
fiscal 1996 revenues as compared to $14.3 million to fiscal 1995 revenues.
Excluding the SSA Contract, Government Operations Group revenues increased 22.0%
to $20.7 million in fiscal 1996 from $17.0 million in fiscal 1995. Consulting
Group revenues increased 25.1% to $25.9 million in fiscal 1996 from $20.7
million in fiscal 1995 primarily due to an increase in revenues from revenue
maximization contracts. The Consulting Group's nine revenue maximization
contracts in fiscal 1996 contributed $5.1 million to fiscal 1996 revenues as
compared to two revenue maximization contracts which contributed $2.2 million to
fiscal 1995 revenues.

Gross Profit. Total gross profit increased 55.3% to $24.7 million in
fiscal 1996 from $15.9 million in fiscal 1995. Government Operations Group gross
profit increased 110.6% to $12.5 million in fiscal 1996 from $6.0 million in
fiscal 1995. As a percentage of revenues, Government Operations Group gross
profit decreased to 16.2% in fiscal 1996 as compared to 19.0% in fiscal 1995,
primarily due to the increased revenue contribution of the SSA Contract, which
had a lower gross margin. Excluding the SSA Contract, as a percentage of
revenues, Government Operations Group gross profit decreased to 20.3% for fiscal
1996 from 22.7% for fiscal 1995. Consulting Group gross profit increased 22.2%
to $12.1 million in fiscal 1996 from $9.9 million in fiscal 1995 as a result of
higher revenues. As a percentage of revenues, Consulting Group gross profit
decreased to 46.9% in fiscal 1996 from 48.0% in fiscal 1995, which represents
normal variability of gross profit from year to year.

Selling, General and Administrative Expenses. Total selling, general and
administrative expenses increased 44.3% to $13.1 million in fiscal 1996 from
$9.1 million in fiscal 1995. This increase in costs was due to increases in both
professional and administrative personnel necessary to support the Company's
growth. The total number of employees increased to 754 at September 30, 1996
from 439 at September 30, 1995. Additionally, marketing and proposal preparation
expenditures increased as the Company pursued further revenue growth. As a
percentage of revenues, selling, general and administrative expenses decreased
to 12.7% in fiscal 1996 from 17.5% in fiscal 1995 due to the Company's ability
to support its growth without a proportionate increase in associated costs.

YEAR ENDED SEPTEMBER 30, 1995 COMPARED TO YEAR ENDED SEPTEMBER 30, 1994

Revenues. Total revenues increased 74.0% to $52.0 million in fiscal 1995
from $29.9 million in fiscal 1994. Government Operations Group revenues
increased 112.4% to $31.3 million in fiscal 1995 from $14.7 million in fiscal
1994 due to an increase in the number of projects and an increase in revenue
from the SSA Contract, which commenced in February 1994. The SSA Contract
contributed $14.3 million to fiscal 1995 revenues as compared to $2.9 million to
fiscal 1994 revenues. Excluding the SSA Contract, Government Operations Group
revenues increased 43.9% to $17.0 million in fiscal 1995 from $11.8 million in
fiscal 1994. Consulting Group revenues increased 36.7% to $20.7 million in
fiscal 1995 from $15.1 million in fiscal 1994 due to an increase in the number
of contracts and revenues resulting from revenue maximization contracts, which
the Company commenced performing in fiscal 1994. Revenues attributable to
revenue maximization contracts grew to $2.2 million in fiscal 1995 from $0.3
million in fiscal 1994.

Gross Profit. Total gross profit increased 95.1% to $15.9 million in
fiscal 1995 from $8.1 million in fiscal 1994. Government Operations Group gross
profit increased 468.5% to $6.0 million in fiscal 1995 from $1.0 million in
fiscal 1994. As a percentage of revenues, Government Operations Group gross
profit increased to 19.0% in fiscal 1995 from 7.1% in fiscal 1994. This increase
in gross margin resulted primarily from

23
<PAGE> 24

nonrecurring losses on two of its contracts in fiscal 1994, whereas the Company
realized above normal profit on one of its contracts in fiscal 1995. Consulting
Group gross profit increased 40.0% to $9.9 million in fiscal 1995 from $7.1
million in fiscal 1994 due to higher revenues. As a percentage of revenues,
Consulting Group gross profit increased to 48.0% in fiscal 1995 from 46.9% in
fiscal 1994 which represents normal variability of gross profit from period to
period.

Selling, General and Administrative Expenses. Total selling, general and
administrative expenses increased 30.1% to $9.1 million in fiscal 1995 from $7.0
million in fiscal 1994. This increase in costs was due to increased professional
and administrative personnel necessary to support the growth of the Company. The
number of Consulting Group professionals increased 46% during the year ended
September 30, 1995 and administrative personnel increased 30% over the same
period. As a percent of revenues, selling, general and administrative expenses
decreased to 17.5% for fiscal 1995 from 23.4% for fiscal 1994 due to the ability
of the Company to support its growth without a proportionate increase in
associated costs.

QUARTERLY RESULTS

Set forth below are selected income statement data for the ten quarters
ended March 31, 1997. This information is derived from unaudited quarterly
financial statements which include, in the opinion of management, all
adjustments necessary for a fair presentation of the information for such
periods. This information should be read in conjunction with the Financial
Statements and related Notes thereto contained elsewhere in this Prospectus.
Results of operations for any fiscal quarter are not necessarily indicative of
results for any future period.

<TABLE>
<CAPTION>
QUARTERS ENDED
-------------------------------------------------------------------------------------------------------------
DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31,
1994 1995 1995 1995 1995 1996 1996 1996 1996 1997
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Government
Operations
Group.......... $ 4,303 $ 4,715 $ 3,964 $ 3,969 $ 4,102 $ 4,947 $ 4,896 $ 6,736 $ 8,029 $15,551
Consulting
Group.......... 4,742 5,030 5,446 5,480 5,152 7,333 5,832 7,585 6,704 6,885
SSA Contract..... 2,290 2,724 3,787 5,513 7,446 10,606 17,170 21,308 22,511 9,082
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Total
revenues..... 11,335 12,469 13,197 14,962 16,700 22,886 27,898 35,629 37,244 31,518
Cost of revenues... 8,124 8,385 9,064 10,498 12,027 16,962 21,577 27,863 29,534 23,323
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Gross profit....... 3,211 4,084 4,133 4,464 4,673 5,924 6,321 7,766 7,710 8,195
Selling, general
and
administrative
expenses......... 1,809 2,215 2,447 2,607 2,742 3,144 3,343 3,875 4,039 4,122
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Income from
operations....... 1,402 1,869 1,686 1,857 1,931 2,780 2,978 3,891 3,671 4,073
Interest and other
income........... 47 40 31 51 53 46 63 102 84 64
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Income before
income taxes..... 1,449 1,909 1,717 1,908 1,984 2,826 3,041 3,993 3,755 4,137
Provision for
income taxes..... 26 34 30 34 39 55 60 71 57 93
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Net income......... $ 1,423 $ 1,875 $ 1,687 $ 1,874 $ 1,945 $ 2,771 $ 2,981 $ 3,922 $ 3,698 $ 4,044
======= ======= ======= ======= ======= ======= ======= ======= ======= =======
</TABLE>

The Company's revenues and operating results are subject to significant
variation from quarter to quarter depending on a number of factors, including
the progress of contracts, revenues earned on contracts, the commencement and
completion of contracts during any particular quarter, the schedule of the
government agencies for awarding contracts, the term of each contract that the
Company has been awarded and general economic conditions. Because a significant
portion of the Company's expenses are relatively fixed, successful contract
performance and variation in the volume of activity as well as in the number of
contracts commenced or completed during any quarter may cause significant
variations in operating results from quarter to quarter. Furthermore, the
Company has on occasion experienced a pattern in its results of operations
pursuant to which it incurs greater operating expenses during the start-up and
early stages of significant contracts. In addition, the termination of the SSA
Contract and the absence of revenues thereunder after March 31, 1997, will
significantly reduce the Company's revenue base as compared to previous
quarters. No assurances can be

24
<PAGE> 25

given that quarterly results will not fluctuate, causing a material adverse
effect on the Company's operating results and financial condition. See "Risk
Factors -- Variability of Quarterly Operating Results."

LIQUIDITY AND CAPITAL RESOURCES

The Company's primary source of liquidity has been cash flows from
operations. The Company's cash flows from operations were $4.2 million, $3.1
million, $2.9 million and $0.3 million for the six months ended March 31, 1997
and for the years ended September 30, 1996, 1995, and 1994, respectively.
Because the Company elected to be treated as an S corporation for tax purposes,
the Company's net cash provided by operations reflects only certain state taxes.
The timing of receipt of contract payments can vary and, combined with the
requirement to provide start-up funding for new projects, cash flows fluctuate
from period to period.

Of the $1.3 million of cash flow used for investing activities for the year
ended September 30, 1996, $1.0 million was used to purchase short-term municipal
bonds, which can be readily converted to cash if needed. The Company has no
material commitments for capital expenditures and, as a services company, does
not anticipate making any significant capital expenditures over the next two
years.

Cash flows from financing activities consisted solely of stock sales to
employees, purchases from departing employees and S corporation distributions,
which were made to fund the payment of income taxes by the shareholders. The
Company does not anticipate the future payment of dividends, other than the S
Corporation Dividend.

The Company has a $10.0 million revolving credit facility (the "Credit
Facility") with a bank, which may be used for borrowing and the issuance of
letters of credit. Outstanding letters of credit totalled $0.7 million at March
31, 1997. The Credit Facility bears interest at a rate equal to LIBOR
(approximately 5.7% at June 11, 1997) plus 2.0%. The Credit Facility contains
certain restrictive covenants and financial ratio requirements, including a
minimum net worth requirement of $10.5 million. The Company has not used the
Credit Facility to finance its working capital needs and, at March 31, 1997, the
Company had $9.3 million available under the Credit Facility.

The Company believes the net proceeds from the sale of Common Stock offered
hereby, together with funds generated by operations, will provide adequate cash
to fund its anticipated cash needs over the next 12 months, which may include
start-up costs associated with new contract awards, obtaining additional office
space, establishing new offices, expansion of international operations,
investment in upgraded systems infrastructure or acquisitions of other
businesses, technologies, product rights or distribution rights. In addition,
the Company's stronger financial condition should facilitate its ability to
compete for certain larger contracts from which it is currently restricted.

RECENTLY ISSUED FINANCIAL ACCOUNTING STANDARDS

Statement of Financial Accounting Standards No. 123, Accounting for
Stock-Based Compensation, was issued in October 1995. The Company will be
required to adopt the new standard for its fiscal year ending September 30,
1997. This standard establishes the fair-value-based method (the "FAS 123
Method") rather than the intrinsic value based method as the preferred
accounting methodology for stock-based compensation arrangements. Entities are
allowed to: (i) continue to use the intrinsic value based methodology in their
basic financial statements and provide in the footnotes pro forma net income and
earnings per share information as if the FAS 123 Method had been adopted; or
(ii) adopt the FAS 123 Method. The Company anticipates providing the required
disclosures in the Notes to Financial Statements.

In February 1997, the Financial Accounting Standards Board issued Statement
No. 128, Earnings per Share, which is required to be adopted on December 31,
1997. At that time, the Company will be required to change the method currently
used to compute earnings per share and to restate all prior periods. Under the
new requirements for calculating primary earnings per share, the dilutive effect
of stock options will be excluded. The impact is expected to result in an
increase in primary pro forma earnings per share for the year ended September
30, 1996 and the six months ended March 31, 1997 of $.02 and $.01 per share,
respectively.

25
<PAGE> 26

BUSINESS

OVERVIEW

MAXIMUS provides program management and consulting services to government
health and human services agencies in the United States. The Company believes
that it has been at the forefront of innovation in "Helping Government Serve the
People(TM)" since its inception in 1975. The Company's services are designed to
make government operations more efficient and cost effective while improving the
quality of the services provided to program beneficiaries. The Company applies
an entrepreneurial, private sector approach incorporating advanced technology in
large scale projects in almost every state in the nation. The Company believes
that its leading position in the emerging private sector health and human
services industry is reflected by its continued success in being awarded
competitively bid contracts by government health and human services agencies and
a corresponding growth in annual revenues from approximately $19 million in
fiscal 1990 to over $100 million in fiscal 1996.

MARKET OPPORTUNITY

The Company believes that providing program management and consulting
services to government agencies in the health and human services sector
represents a significant market opportunity for the Company. Federal, state and
local government agencies in the United States spend over $200 billion annually
on the health and human services programs for which the Company markets its
services, including welfare, child care, child support enforcement, food stamps,
Social Security Disability Insurance, Supplemental Security Income and Medicaid.
These programs cost an estimated $21.0 billion in annual administrative costs.
The following chart sets forth currently available data from U.S. government
publications for programs served by the Company:

<TABLE>
<CAPTION>
ESTIMATED NUMBER ESTIMATED ANNUAL
PROGRAM OF BENEFICIARIES SERVED ADMINISTRATIVE EXPENDITURES
<S> <C> <C>
Social Security Disability Insurance... 5.9 million $ 1.1 billion
Supplemental Security Income........... 6.5 million 2.0 billion
Food Stamps............................ 28.0 million 3.7 billion
Medicaid............................... 35.1 million 7.7 billion
Temporary Assistance to Needy
Families............................. 13.6 million 3.5 billion
Child Support Enforcement.............. 9.9 million 3.0 billion
</TABLE>

There has been a recent surge in legislation and initiatives to reform
federal, state and local welfare and health and human services systems. The most
significant of these legislative reforms is the Welfare Reform Act, which
restructures the benefits available to welfare recipients, eliminates
unconditional welfare entitlement and, most importantly, restructures the
funding mechanisms that exist between federal and state governments. Under the
Welfare Reform Act, states will receive block grant funding from the federal
government and will no longer be able to seek reimbursement in the form of
matching federal government funds for expenditures in excess of block grants.
Accordingly, states will bear the financial risk for the operation of their
welfare programs. A number of state governments are taking action to respond to
the changes created by welfare reform. For example, the State of Wisconsin
recently awarded a performance-based contract to the Company to manage the
welfare-to-work program in a section of Milwaukee.

The Company believes that political pressures, combined with the financial
constraints imposed by the Welfare Reform Act, will accelerate the rate at which
state and local health and human services agencies seek

26
<PAGE> 27

new solutions to reduce costs and improve the effectiveness of entitlement
programs. The Company believes that government agencies are increasingly turning
to companies similar to MAXIMUS to administer programs more effectively.
Government outsourcing ranges from the engagement of sophisticated private
consulting firms working with government to improve the delivery of human
services to the complete outsourcing of certain functions of government health
and human services programs. The Company believes that many government agencies
have concluded that private companies, similar to MAXIMUS, offer cost savings
and increased efficiency due to their ability to: (i) accept contracts where
compensation is based on performance; (ii) attract and compensate experienced,
high level management personnel; (iii) rapidly procure and utilize advanced
technology; (iv) vary the number of personnel on a project to match fluctuating
work loads; (v) increase productivity by providing employees with financial
incentives and performance awards and more readily terminating non-productive
employees; (vi) provide employees with ongoing training and career development
assistance; and (vii) maintain a professional work environment that is more
conducive to employee productivity.

STRENGTHS AND DIFFERENTIATIONS

MAXIMUS believes that it has been a pioneer in offering state and local
government agencies a private sector alternative to the internal administration
of government health and human services programs and has been innovative in
developing new businesses and market opportunities for the Company's services.
The Company believes that the following business strengths and differentiating
characteristics position it to capitalize on the significant market
opportunities presented by the environment of changing health and human services
program regulation and evolving technologies.

Single Market Focus. The Company believes that it is the largest company
dedicated exclusively to providing program management and consulting services to
government health and human services agencies. The Company has accumulated a
detailed knowledge base and understanding of the regulation and operation of
health and human services programs that allows it to apply proven methodologies,
skills and solutions to new projects in a cost-effective and timely fashion. The
Company believes that its exclusive focus, size and broad range of health and
human services program expertise differentiate it from both small firms and non-
profit organizations with limited resources and skill sets as well as from large
consulting firms that serve multiple industries but lack the focus necessary to
understand the complex nature of serving government agencies.

Proven Track Record. Since 1975, MAXIMUS has successfully applied its
entrepreneurial private sector approach to assisting government health and human
services agencies. Over the last five years, MAXIMUS has successfully completed
approximately 100 program management and consulting services projects for state
and local health and human services agencies serving millions of beneficiaries
in nearly every state. The Company believes that the successful execution of
these projects has earned MAXIMUS a reputation for providing efficient and
cost-effective services to government agencies while improving the quality of
services provided to program beneficiaries. This reputation has contributed
significantly to its ability to compete successfully for new contracts.

Wide Range of Services. Many of the Company's clients require their
vendors to provide a broad array of service offerings, something many of the
Company's competitors cannot provide. Engagements often require creative
solutions that must be drawn from diverse areas of expertise. The Company's
expertise in a wide range of services enable it to better pursue such
opportunities and to offer itself as a single-source provider of program
management, consulting and information technology services to government
agencies.

Proprietary Case Management Software Program. MAXIMUS has developed a
proprietary automated case management software program called the MAXSTAR Human
Services Application Builder. MAXSTAR is a software platform that allows the
Company to reduce project implementation time and cost. Because government
agencies are required to manage vast amounts of data and large numbers of cases
without access to advanced technology and experienced professionals, the Company
believes that MAXSTAR, together with the Company's information technology
professionals, is a key element of its success.

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Experienced Team of Professionals. MAXIMUS has assembled an experienced
management team of former government executives, state agency officials,
information technology specialists and other professionals with backgrounds in
the public health and human services industry. The Company's employees
understand the problems and challenges faced in the marketing, assessment and
delivery of government agency services. Furthermore, since state and local
government administrators are subject to changing legislative and political
mandates, MAXIMUS has developed strong relationships with experienced political
consultants who inform and advise the Company with respect to strategic
marketing and legislative initiatives.

GROWTH STRATEGY

The Company's goal is to be the leading provider of program management and
consulting services to government health and human services programs. The
Company's strategy to achieve this goal includes the following:

Capitalize on Trends Toward Outsourcing Government Functions. The Company
believes that it is well-positioned to benefit from the expected increase in
demand for new program management and consulting services that will arise in an
environment characterized by changing regulation and evolving technology. The
Company believes that fiscal pressures will compel state governments to
rationalize program operations and upgrade existing technology to operate more
cost-efficient and productive programs. To achieve these efficiencies, MAXIMUS
believes that many government agencies will turn to outside experts for help.

Aggressively Pursue New Business Opportunities. The Company believes that
throughout its 21-year history, it has been a leader in developing innovative
solutions to meet the evolving needs of state and local health and human
services agencies. The Company plans to expand its revenue base by: (i)
marketing new and innovative program management solutions to the Company's
extensive client base; (ii) expanding the Company's client base by marketing the
Company's experience and established methodologies and systems; (iii) investing
in early identification of government bid opportunities; and (iv) submitting
competitive bids that leverage the Company's proven solutions for past projects.

Recruit Highly Skilled Professionals. The Company continually strives to
recruit top government management and information technology professionals with
the experience, skills and innovation necessary to design and implement
solutions to complex problems presented by resource-constrained government
agencies. The Company also seeks to attract middle-level consultants with a
proven track record in the health and human services field and a network of
political contacts to leverage the Company's existing management infrastructure,
client relationships and areas of expertise.

Pursue Strategic Acquisitions. Given the highly fragmented structure of
the government services and consulting marketplace, MAXIMUS believes that
numerous acquisition opportunities exist. Acquisitions can provide the Company
with a rapid, cost-effective method to grow its number of consultants, broaden
its client base, establish or expand its presence in a geographic region or
obtain additional skill sets.

There can be no assurance that the Company will be successful in
implementing any or all of its growth strategies or in achieving its goal, all
of which are subject to various risks, including legislative change,
requirements for significant up-front financial investment, continued ability to
attract and retain qualified employees and risks related to acquisitions. See
"Risk Factors."

SERVICES

The Company's services are designed to make government operations more
efficient and cost effective while improving the quality of the services
government agencies provide to program beneficiaries. The Company organizes its
operations into two groups: (i) the Government Operations Group, specializing in
the management of government health and human services operations; and (ii) the
Consulting Group, providing health and human services planning, information
technology consulting, strategic program evaluation, program improvement and
revenue maximization services.

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GOVERNMENT OPERATIONS GROUP

The Company's Government Operations Group is comprised of four divisions
specializing in the administration and management of government health and human
services programs.

Welfare Reform Division. The Company manages welfare-to-work programs by
providing a wide range of services, including eligibility determination,
emergency assistance, job referral and placement, transition services such as
child care and transportation, community work training services, job readiness
preparation, case management services and selected educational and training
services. The Company's typical welfare-to-work contract involves the engagement
of the Company for a period of three to five years. The Company has served
approximately 212,000 welfare recipients at 28 locations in six states. In 1996,
for example, Fairfax County, Virginia awarded the Company a one year, $2 million
contract to place welfare recipients into unsubsidized employment. To date, the
Company has achieved a placement rate in excess of 90% on this contract. In
addition, in 1997, the State of Connecticut awarded MAXIMUS a two-year, $11.6
million contract to manage its statewide childcare program.

Child Support Enforcement Division. The Company provides a full range of
child support enforcement ("CSE") services, including: (i) outreach to and
interview of parents of children entitled to child support; (ii) establishing
paternity and obtaining, enforcing, reviewing and modifying child support
orders; and (iii) payment processing. The Company operates statewide client
service units, updates case arrearage and demographic data for new CSE automated
systems and provides training to CSE workers. The Company believes that it has
one of the largest CSE staffs in the private sector with over 350 professionals.
The Company has been performing these services since 1976, which the Company
believes is longer than any other private sector firm in the United States. The
Company is currently engaged in the management of CSE programs in 13 locations
in seven states providing full child support services for approximately 150,000
cases and specialized services for an additional 95,000 cases. For example, the
Company currently is providing services under a five-year, $12 million,
full-service CSE program management contract in Nashville, Tennessee.

Disability Services Division. The Company provides a host of
disability-related services geared toward case management, client assessment,
treatment and vocational rehabilitation referral, client monitoring and
innovative return-to-work strategies. MAXIMUS became the first company to
operate a national case management and monitoring program for disability
beneficiaries in 1995 when it won a contract with the Social Security
Administration to provide referral and monitoring services to beneficiaries with
drug or alcohol disabilities. The SSA Contract was the largest ever awarded by
the SSA with potential revenues of $350 million. Under the SSA Contract, the
Company has successfully referred approximately 100,000 disabled beneficiaries
into treatment as a first step to re-entering the work force. The Company
believes the skills and tools it employed in the SSA Contract will be invaluable
in pursuing other large scale program management contracts. One example is the
1996 five-year, $4.6 million contract awarded to the Company by the State of New
Jersey to develop and implement a program to identify and locate family members
responsible for paying the institutional care costs of their disabled relatives.

Managed Care Enrollment Services Division. MAXIMUS has obtained
significant experience in managing certain aspects of Medicaid programs through
projects in 20 states. In these projects, MAXIMUS provides recipient outreach,
education and enrollment services; an automated information system customized
for the state; data collection and reporting; outreach to community-based
organizations and advocacy groups; design and development of program materials;
collection of enrollment premiums for uninsured participants; encounter data
reporting to health plans; and care coordination for Early and Periodic
Screening, Diagnosis and Treatment services. MAXIMUS currently operates the
California Options Project, a three-year managed care enrollment contract
awarded to the Company in 1996. This project is one of the largest Medicaid
managed care enrollment programs in the country with over two million program
beneficiaries.

CONSULTING GROUP

The Company's Consulting Group is organized into four operational
divisions: the Human Services Division, the Information Technology Division, the
Systems Planning and Integration Division and the International Division.

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Human Services Division. The Company provides consulting and technical
support to the federal government as well as to state and local government
agencies in the financing, delivery and management of a range of human services
programs in the areas of revenue maximization, program evaluations and program
improvement. Revenue maximization involves seeking to increase federal financial
participation in state health and human services programs. The Company collects
a contingency fee based on the amount of additional federal revenues recovered.
Since it began offering revenue maximization services, the Company has succeeded
in obtaining approximately $150 million in additional federal revenues and is
currently engaged in projects that the Company estimates will yield more than
$150 million in additional federal revenues. The Company is also frequently
engaged to conduct evaluations and provide improvement recommendations for
government programs. Program evaluation consulting contracts are frequently
long-term, multi-year research projects involving the collection of extensive
data using automated data merges as well as surveys and case record reviews.
Since 1994, the Company has completed 50 revenue maximization, program
evaluation and program improvement projects in over 25 states and localities and
has recorded approximately $16 million in revenues from these types of projects.
Since 1993, the State of Wisconsin has awarded to the Company a series of
program evaluation engagements for the Department of Health and Social Services
valued at $6 million.

Information Technology Division. The Company provides computer system
management services to state and local government agencies administering health
and human services and criminal justice programs. MAXIMUS provides assistance in
designing and/or implementing emerging technologies involving Internet/Intranet,
imaging, telephony, automated kiosks and touch screen technology. The Company
provides assistance in assessing and evaluating the extent of Year 2000 problems
and in strategic planning to resolve compliance issues. The Company believes
that welfare reform legislation will increase the need for new and re-engineered
systems applications, thus increasing the demand for the Company's services.
This division also supports the technical electronic data processing needs of
the Company's other divisions. Since 1991, the Company has provided information
technology systems and design services for 41 projects in 17 states. For
example, the Company is currently engaged in a six month, $900,000 contract to
provide Year 2000 planning to the Office of Policy and Management of the State
of Connecticut.

Systems Planning and Integration Division. The Company provides a range of
systems consulting support services to state and local government health and
human services agencies and criminal justice systems. This division focuses on
integrating different systems and provides objective, third party strategic
planning, procurement and project management support. Since 1990, the State of
Michigan has awarded to the Company various contracts valued at more than $7
million in the aggregate to monitor and assess Family Assistance Management
Information Systems, CSE systems and Medicaid Management Information Systems.

International Division. The Company provides healthcare consulting and
systems services to assist foreign government agencies and healthcare
organizations responsible for the delivery of treatment services to large
populations. The Company automates and restructures clinical information systems
for large outpatient providers, hospital information systems, managed care
information systems, beneficiary management systems and treatment network
management systems for managing large networks of health treatment facilities.
In addition, MAXIMUS consults with foreign government agencies in developing
healthcare policy reforms, treatment quality improvements and productivity
enhancements. The Company's healthcare systems software, developed in
ORACLE7(R), is a platform-independent and multi-language software package. The
Company has developed an Arabic language version of this software for use in the
Middle East. Currently, the division is engaged in a major automation project
for the United States Agency for International Development in Egypt. The
objective of the five-year, $22 million contract is to install a national
healthcare system database in 18 hospitals and 200 clinics throughout Egypt,
allowing the Egyptian Health Insurance Organization to better manage its
facilities. In Argentina, the Company recently signed a three-year, $5 million
contract pursuant to which it will provide organizational and management
services to the health plan of an employee union with almost 500,000 members.

BACKLOG

The Company's backlog represents an estimate of the remaining future
revenues from existing signed contracts and revenues from contracts which have
been awarded but not yet signed. Using the best available information, the
Company estimates backlog on a quarterly basis with respect to all executed
contracts. The backlog estimate includes revenues expected under the current
terms of executed contracts, revenues from

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<PAGE> 31

contracts in which the scope and duration of the services required are not
definite but estimable and does not assume any contract renewals or extensions.

Changes in the backlog calculation from quarter to quarter result from: (i)
additional revenues from the execution of new contracts or extension or renewal
of existing contracts; (ii) reduction in revenues from fulfilling contracts
during the most recent quarter; (iii) reduction in revenues from the early
termination of contracts; and (iv) adjustments to estimates of previously
included contracts.

At March 31, 1997 and March 31, 1996, the Company's backlog for services
pursuant to its contracts with federal, state and local health and human
services agencies was approximately $194.5 million and $114.2 million,
respectively. At March 31, 1997 and March 31, 1996, the Company's backlog,
excluding the SSA Contract, was approximately $194.5 million and $44.8 million,
respectively. The backlog for services at March 31, 1997 included $96.0 million
pursuant to four contracts which have been awarded to the Company but have not
yet been signed. The Company anticipates that these contracts will be signed
during the quarter ending June 30, 1997.

MARKETING AND SALES

The Company's Government Operations Group obtains program management
contracts from state and local authorities by responding to RFPs issued by such
authorities. Whenever possible, prior to the issuance of an RFP, senior
executives in the Government Operations Group work with senior government
representatives, such as the governor, members of the governor's staff and the
heads of health and human services agencies to encourage them to outsource
certain health and human services functions. To identify opportunities to work
with government officials at early stages and to optimize the government's
receptivity to the Company's proposal to provide program management services,
the Company establishes and maintains relationships with elected officials,
political appointees and government employees. The Company occasionally engages
marketing consultants, including lobbyists to establish and maintain
relationships with these client representatives. The Company's consultants and
lobbyists provide introductions to government personnel and provide information
to the Company regarding the status of legislative and executive
decision-making.

Following the issuance of an RFP the Government Operations Group
participates in formal discussions, if any, between the contracting government
agency and the group of potential service providers seeking to modify the RFP
and prepare the proposal. Upon the award of a government operations contract,
the Company's representatives then negotiate the contract with representatives
of the contracting government authority until all terms are agreed.

The Consulting Group generates leads for consulting contracts by employing
lobbyists, maintaining relationships with government personnel in charge of
health and human services operations and communicating directly with current and
prospective clients. The Consulting Group participates in professional
associations of government administrators and industry seminars featuring
presentations by MAXIMUS personnel. Senior executives from the Consulting Group
develop leads through on-site presentations to the decision-makers. In most
cases, consulting contracts, like program management contracts, are obtained
after responding to a formal RFP. The Consulting Group's efforts in generating a
lead prior to the RFP can facilitate the Company's insight in responding to a
particular RFP. A portion of the Consulting Group's new business arises from
prior client engagements, in which case the Company may be the sole source of
services. In addition, clients frequently expand the scope of engagements during
delivery to include follow-on activities.

COMPETITION

The market for providing program management and consulting services to
state and local health and human services agencies is competitive and subject to
rapid change. The Company's Government Operations Group competes for program
management contracts with local non-profit organizations such as the United Way
and Goodwill Industries, government services divisions of large companies such
as Lockheed Martin Corp. and Electronic Data Systems, Inc., managed care
enrollment companies such as Foundation Health Corporation and specialized
service providers such as Andersen Consulting, America Works, Inc., Policy
Studies Incorporated and GC Services, Inc. The Company's Consulting Group
competes with the consulting divisions of the "Big 6" accounting firms as well
as Electronic Data Systems, Inc. Many of these companies are national and
international in scope and have greater financial, technical, marketing and
personnel resources than the Company. The Company anticipates that it will face
increased competition in the future as

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<PAGE> 32

new companies enter the market. The Company believes that its experience,
reputation, industry focus and broad range of services will enable it to compete
effectively in its marketplace. See "Risk Factors -- Competitors; Effects of
Competition."

GOVERNMENT REGULATION

The market for the Company's services exists under a United States federal
regulatory framework of social programs which are largely implemented at the
state or local level. The following summarizes this framework:

WELFARE PROGRAMS. Under Title IV-A of the federal Social Security Act, the
federal government provides financial assistance to underprivileged families
under several programs known as "Welfare," which have included the Aid to
Families with Dependent Children Program ("AFDC") and the Job Opportunities and
Basic Skills Training Program ("JOBS"). Under the AFDC program, cash welfare
payments are provided to needy children who have been deprived of parental
support or care and certain others in the household of the child. State
governments are required to define "need," set their own benefit levels,
establish (within federal limitations) income and resource limits and administer
the program or supervise its administration. Beginning in October 1990, the
federal government required each state to implement a JOBS program, which is
designed to help needy families with children to avoid long-term Welfare
dependency by providing education, training, job placement and other supportive
services, including child care.

Under the recently enacted Welfare Reform Act, AFDC and JOBS have been
combined into a single program, known as "Temporary Assistance to Needy
Families" or "TANF." Under TANF the federal government will make "block grants"
of funds to the states, to be administered at the state level in programs that
include certain mandatory work, education and job-related activities, including
job training and job search for the purposes of: (i) providing needy families
with time-limited assistance in order to end their dependency on government
benefits and achieve self-sufficiency; (ii) preventing and reducing
out-of-wedlock pregnancies, especially teenage pregnancies; and (iii)
encouraging the formation and maintenance of two-parent families. While the
federal act provides general requirements, states must determine how these
requirements will be met.

CHILD SUPPORT ENFORCEMENT. The federal Child Support Enforcement ("CSE")
program, authorized under Title IV-D of the Social Security Act, was established
in 1975 in response to the increasing failure of many parents to provide
financial support to their children. The purpose of the CSE program is to help
strengthen families and reduce Welfare dependency by placing the responsibility
for supporting children on the parents rather than on the government. State
governments are generally required to locate absent parents, establish paternity
if necessary, obtain judicial support orders and collect the support payments
required by those orders. Child Support Enforcement has been the subject of
close scrutiny in recent years and is an area of health and human services where
government has sought significant private sector involvement including full
service program management efforts.

The Child Support Enforcement Amendments of 1984 mandated that state CSE
information systems, in order to receive matching federal funding, must meet
certain federal functional requirements covering case initiation, case
management, database linkage, financial management, enforcement, security,
privacy and reporting. The Family Support Act of 1988, effective October 1992,
mandated enhanced functional requirements for state CSE systems, including the
implementation of automated systems able to interface electronically with other
state systems such as Welfare, driver and vehicle registration and Medicaid
systems.

SOCIAL SECURITY DISABILITY INSURANCE AND SUPPLEMENTAL SOCIAL SECURITY
INCOME. Titles II and XVI of the federal Social Security Act provide for the
administration and distribution of financial assistance to disabled individuals
whose impairments make them unemployable. These benefits fall into two
categories: (i) Social Security Disability Insurance (Title II) provides
financial benefits to individuals who have contributed to Social Security during
a prior period of employment; and (ii) Supplemental Security Income or SSI
(Title XVI) provides financial benefits to individuals who meet all the
disability criteria used to determine eligibility under Title II, but who have
not made a sufficient contribution to Social Security. Recently, there has been
political pressure on the Social Security Administration (the "SSA") to review
the caseload of Title II and Title XVI beneficiaries to ensure that each
individual's disability still exists and that the extent of such disability
remains sufficient to preclude employment. In addition, the SSA has been under

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pressure to increase and improve vocational rehabilitation efforts focused on
returning disabled beneficiaries to work and self-sufficiency.

MEDICAID AND MEDICARE. Medicaid and Medicare were implemented under Title
XIX and XVIII of the Social Security Act. Medicaid is a federal-state matching
entitlement program, that provides reimbursement for the cost of medical care to
low-income individuals who are aged, blind, disabled or AFDC beneficiaries, and
to certain pregnant woman and children. Within broad federal guidelines, each
state designs and administers its own program. Eligibility and claims processing
systems are automated by each state to handle this program, which is typically
the largest line item in a state budget. Federal assistance is also available on
a waiver basis for managed care enrollment for Medicaid recipients and similar
populations. Medicare is a federal entitlement program providing reimbursement
of a portion of the cost of medical care provided to the elderly.

HUMAN RESOURCES

As of May 6, 1997, the Company had 1,102 employees, consisting of 909
employees in the Government Operations Group, 107 employees in the Consulting
Group and 86 administrative employees. The Company's success depends in large
part on attracting, retaining and motivating talented, innovative and
experienced professionals at all levels. In connection with its hiring efforts,
the Company employs a full-time human resources coordinator, retains several
executive search firms and relies on personal and business contacts to recruit
senior level employees for senior management positions in the Government
Operations Group and the Consulting Group and for senior administrative
positions. When the Company's Government Operations Group is awarded a contract
by state or local government, the Company is often under a tight timetable to
hire project leaders and case management personnel to meet the needs of the new
project. To meet such needs, the Company engages intensive short-term hiring
efforts at the project's location. See "Risk Factors -- Reliance on Key
Executives" and "-- Attraction and Retention of Employees."

The Company's hiring focus is to identify candidates who are well suited by
background and temperament to serve the Company's government clients. The
Company's Government Operations employees are largely drawn from government
employment positions, while the Consulting Group employees are largely selected
from other consulting organizations and government agencies.

MAXIMUS offers employees an internal training program designed to enhance
professional skills and knowledge. Offered twice a year, the three-day program
includes human resources topics such as cultural sensitivity, sexual harassment
and wrongful termination; marketing, proposal writing and public relations;
project administration topics, such as contract negotiations, project
management, deliverable preparation and client management; and technology
updates. In addition, MAXIMUS offers partial tuition reimbursement for employees
pursuing relevant degree programs and fully reimburses employees for relevant
training seminars and short courses.

The Company promotes loyalty and continuity of its employees by offering
packages of base and incentive compensation and benefits that it believes are
significantly more attractive than those offered by the government or other
government consulting firms in general. In addition, to attract and retain
employees, the Company has established several employee benefit plans. See
"Management -- Stock Plans" and "-- 401(k) Plan."

LEGAL PROCEEDINGS

On March 12, 1997, Network Six, Inc. ("Network Six") served MAXIMUS with a
First Amended Third-Party Complaint filed in the State of Hawaii Circuit Court
of the First Circuit. In this complaint, Network Six named the Company and other
parties as third party defendants in an action by the State of Hawaii against
Network Six. In 1991, the Company's Consulting Group was engaged by the State of
Hawaii to provide assistance in planning for and monitoring the development and
implementation by Hawaii of a statewide automated child support system. In 1993,
Hawaii contracted with Network Six to provide systems development and
implementation services for this project. In 1996 the state terminated the
Network Six contract for cause and filed an action against Network Six. Network
Six counterclaimed against Hawaii that

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<PAGE> 34

the state breached its obligations under the contract with Network Six. In the
Third Party Complaint, Network Six alleges that the Company is liable to Network
Six on grounds that: (i) Network Six was an intended third party beneficiary
under the contract between the Company and Hawaii; (ii) the Company engaged in
bad faith conduct and tortiously interfered with the contract and relationship
between Network Six and Hawaii; (iii) the Company negligently breached duties to
Network Six; and (iv) the Company aided and abetted Hawaii in Hawaii's breach of
contract. Network Six's complaint seeks damages, including punitive damages,
from the third party defendants in an amount to be proven at trial. The Company
believes that Network Six was not an intended third party beneficiary under its
contract with Hawaii and that Network Six's claims are without factual or legal
merit. The Company does not believe this action will have a material adverse
effect on the Company's business, and it intends to rigorously defend this
action. However, given the early stage of this litigation, no assurance may be
given that the Company will be successful in its defense. A decision by the
court in Network Six's favor or any other conclusion of this litigation in a
manner adverse to the Company could have a material adverse effect on the
Company's business, financial condition and results of operations.

The Company is not a party to any material legal proceedings, except as set
forth above.

FACILITIES

The Company is headquartered in McLean, Virginia, in a 21,000 square foot
office building which is owned by the Company. The Company leases office space
for other management and administrative functions in connection with the
performance of its contracts in various states and foreign countries. On March
31, 1997, the Company conducted operations from twenty-nine leased office
facilities totalling 200,000 square feet. See Note 6 of Notes to Financial
Statements. The lease terms vary from month-to-month to three-year leases and
are at market rates. The Company believes that additional space will be required
as the business expands and believes that it will be able to obtain such space
as needed.

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MANAGEMENT

EXECUTIVE OFFICERS, DIRECTORS AND KEY EMPLOYEES

The Company's executive officers, directors and key employees and their
respective ages and positions as of March 31, 1997, are as follows:

<TABLE>
<CAPTION>
NAME AGE POSITION
<S> <C> <C>
David V. Mastran(1)................ 54 President, Chief Executive Officer and Director

Raymond B. Ruddy(1)................ 53 Chairman of the Board of Directors, Vice President of
the Company and President of Consulting Group

Russell A. Beliveau(2)............. 49 President of Government Operations Group and Director

F. Arthur Nerret................... 49 Treasurer and Chief Financial Officer

Donna J. Muldoon................... 54 Vice President of Administrative Services, Secretary
and Director

Susan D. Pepin(2).................. 42 President of Systems Planning and Integration Division
and Director

Lynn P. Davenport.................. 50 President of Human Services Division and Director

Robert J. Muzzio................... 62 Executive Vice President and Director

Ilene R. Baylinson................. 40 President of Disability Services Division

Edward F. Hilz..................... 52 Chief Information Officer

David A. Hogan..................... 48 President of Child Support Division

John P. Lau, Sr.................... 53 President of International Division

Holly A. Payne..................... 44 President of Welfare Reform Division
</TABLE>

- ------------------------------
(1) Member of the Compensation Committee.

(2) Member of the Audit Committee.

David V. Mastran has served as President and Chief Executive Officer since
he founded the Company in 1975. Dr. Mastran received his Sc. D. in Operations
Research from George Washington University in 1973, his M.S. in Industrial
Engineering from Stanford University in 1966 and his B.S. from the United States
Military Academy at West Point in 1965.

Raymond B. Ruddy has served as the Chairman of the Board of Directors since
1985 and President of the Company's Consulting Group since 1986. From 1969 until
he joined the Company, Mr. Ruddy served in various capacities with Touche Ross &
Co., including, Associate National Director of Consulting from 1982 until 1984
and Director of Management Consulting (Boston, Massachusetts office) from 1978
until 1983. Mr. Ruddy received his M.B.A. from the Wharton School of Business of
the University of Pennsylvania and his B.S. in Economics from Holy Cross
College.

Russell A. Beliveau has served as the President of the Company's Government
Operations Group since 1995. Mr. Beliveau has more than 20 years experience in
the Health and Human Services Industry during which he has worked in both
government and private sector positions at the senior executive level. Mr.
Beliveau's past positions include Vice President of Operations at Foundation
Health Corporation of Sacramento, California from 1988 through 1994 and Deputy
Associate Commissioner (Medicaid) for the Massachusetts Department of Public
Welfare from 1983 until 1988. Mr. Beliveau received his M.B.A. in Business
Administration and Management Information Systems from Boston College in 1980
and his B.A. in Psychology from Bridgewater State College in 1974.

F. Arthur Nerret has served as Treasurer and Chief Financial Officer of the
Company since 1994 and serves as Trustee of the Company's 401(k) Plan. He has
over 24 years of accounting experience as a CPA. From 1981 until he joined the
Company, Mr. Nerret held a variety of positions at Frank E. Basil, Inc. in
Washington, D.C. including Vice President, Finance from 1991 to 1994 and
Director of Finance from 1989 until 1991. Mr. Nerret received his B.S. in
Accounting from the University of Maryland in 1970.

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<PAGE> 36

Donna J. Muldoon has served as the Vice President of the Company's
Administrative Services Division since 1989 and has served in various
administrative capacities since 1978. Before joining the Company, Ms. Muldoon
was an Administrative/Top Secret Control Officer with the Department of the Air
Force, Logistic Plans and Programs, from 1973 until joining the Company.

Susan D. Pepin has served as the President of the Company's Systems
Planning and Integration Division since 1994 and has been with the Company since
1988. She has over 14 years experience in technical management and consulting
with a focus on health and human services management information systems. Before
joining the Company, Ms. Pepin served as Director of eligibility systems for the
Massachusetts Department of Public Welfare from 1984 until 1987 and a Project
Leader for Wang Laboratories, Inc. from 1979 until 1984. Ms. Pepin received her
B.S. in Home Economics with a concentration in Consumer Studies and a minor in
Business from the University of New Hampshire in 1976.

Lynn P. Davenport has served as the President of the Company's Human
Services Division since he joined the Company in 1991 after 17 years of health
and human services experience in the areas of administration, productivity
improvement, management consulting, revenue maximization and management
information systems. Prior to joining the Company, Mr. Davenport was employed by
Deloitte & Touche, and its predecessor, Touche Ross & Co., in Boston,
Massachusetts, where he became a partner in 1987. Mr. Davenport received his
M.P.A. in Public Administration from New York University in 1971 and his B.A. in
Political Science and Economics from Hartwick College in 1969.

Robert J. Muzzio has served in various positions with the Company since
1979, including Executive Vice President since 1987, and has more than 30 years
of experience as a health care administrator, health systems researcher, and
personnel and manpower analyst. Prior to joining the Company, Mr. Muzzio held
many public and private sector positions in the health care industry, including
Life Support Coordinator for the Morrison Knudsen Saudi Arabia Consortium in
1978 and 1979 and Director of the Personnel Policies Division of the Office of
the Surgeon General, Department of the Army, from 1976 until 1978. Mr. Muzzio
received his M.A. in Health Care Administration from Baylor University in 1967
and his B.A. in Public Health from San Jose State College in 1956.

Ilene R. Baylinson has served as the President of the Company's Disability
Services Division since 1995 and as Chief Operating Officer from 1991 to 1995.
She has more than 17 years of experience in health and human services program
administration. After obtaining her B.A. from John Hopkins University in 1978,
Ms. Baylinson worked in a variety of positions for Koba Associates, Inc. of
Washington, D.C., including Senior Vice President for Corporate Management,
Marketing and Operations from 1989 until her departure and Corporate Vice
President/Director, Law and Justice Division from 1985 through 1991.

Edward F. Hilz has served as the Company's Chief Information Officer since
1992 and has over 18 years of experience in the areas of research and
development, telecommunications, health, marketing, finance and data center
management. From 1987 until joining the Company, Mr. Hilz served as Chief
Operating Officer of Nationwide Remittance Centers of McLean, Virginia.
Previously, Mr. Hilz had worked in a variety of capacities for Martin Marietta
Data Systems, Inc. since 1980. Mr. Hilz received a B.S. in Business
Administration and Computer Sciences from the University of Baltimore in 1969.

David A. Hogan has served as the President of the Company's Child Support
Division since 1994 and served as a Vice President of the division from 1993
until 1994. Prior to joining the Company, Mr. Hogan spent 23 years working in
numerous positions for the Washington State Department of Social and Health
Services including five years as the State's Child Support Director. Mr. Hogan
also served one year as the President of the National Child Support Directors
Association. Mr. Hogan received his J.D. from the University of Puget Sound in
1976 and his B.A. from Western Washington University in 1970.

John P. Lau, Sr. has served as the President of the Company's International
Division since 1993 and served as President of the Company's Advanced Systems
Division from 1989 until 1993. From 1961 until 1988, Mr. Lau worked in a variety
of government and private health care systems organizations in technical,
managerial and executive positions. Most recently, Mr. Lau was a Vice President
of Modern Psychiatric Systems in Rockville, Maryland in 1988 and 1989 and served
from 1968 through 1988 as Consultant to the

36
<PAGE> 37

President of Creative SocioMedics Corporation. Mr. Lau received his M.S. in
Physics from Fairleigh Dickinson University in 1968 and his B.S. in Physics from
St. Peter's College, Jersey City, New Jersey in 1965.

Holly A. Payne has served in various executive capacities at the Company
since 1987 and as President of the Company's Welfare Reform Division since 1995.
Ms. Payne has over 21 years of human services programs experience. From 1983
until she joined the Company, Ms. Payne was a Program Manager at Electronic Data
Systems Corporation in Bethesda, Maryland and from 1978 until 1983 she worked in
several capacities for the Departments of Social Services in Prince William and
Fairfax Counties in Virginia. Ms. Payne received her M.S.W. from West Virginia
University in 1978 and her B.S. in Family Services from Northern Illinois
University in 1975.

BOARD OF DIRECTORS

The Company's Amended and Restated Articles of Incorporation, to be filed
concurrently with the closing of this offering, provide for a classified board
of directors consisting of three classes, with each class being as nearly equal
in number of directors as possible. The Board of Directors currently consists of
seven members. The Company expects to increase the size of the Board of
Directors within 90 days after the closing of this offering and to fill the
newly created seats on the Board of Directors with at least two independent
directors.

The term of one class of Directors expires, and their successors are
elected for a term of three years, at each annual meeting of the Company's
shareholders. The Company has designated two Class I directors (Donna J. Muldoon
and Robert Muzzio), two Class II directors (Russell A. Beliveau and Susan D.
Pepin) and three Class III directors (David V. Mastran, Raymond B. Ruddy and
Lynn P. Davenport). These Class I, Class II and Class III directors will serve
until the annual meetings of shareholders to be held in 1998, 1999 and 2000,
respectively, and until their respective successors are duly elected and
qualified, or until their earlier resignation or removal. The Amended and
Restated Articles of Incorporation provide that directors may be removed only
for cause by a majority of shareholders. There are no family relationships among
any of the directors or executive officers.

Each of Raymond B. Ruddy and David V. Mastran, who will together hold 58.8%
of the outstanding Common Stock of the Company after giving effect to this
offering, has agreed to vote his shares in favor of the election of the other to
the Board of Directors, as long as each of such shareholders owns or controls at
least 20% of the Company's outstanding Common Stock. See "Agreements with
Executives."

BOARD COMMITTEES

The Company's Board of Directors has standing Audit and Compensation
Committees but does not have a Nominating Committee. The selection of nominees
for the Board of Directors may be made either by the entire Board of Directors
or, subject to certain notice provisions contained in the Company's Bylaws, by
any shareholder entitled to vote for the election of directors.

The Audit Committee, consisting of Mr. Beliveau and Ms. Pepin was formed in
January 1997 and has not held any meetings. The primary function of the Audit
Committee is to assist the Board of Directors in the discharge of its duties and
responsibilities by providing the Board with an independent review of the
financial health of the Company and of the reliability of the Company's
financial controls and financial reporting systems. The Audit Committee reviews
the general scope of the Company's annual audit, the fees charged by the
Company's independent accountants and other matters relating to internal control
systems. The Company intends to appoint two independent directors to the Audit
Committee.

The Compensation Committee determines the compensation to be paid to all
executive officers of the Company, including the Chief Executive Officer. The
Compensation Committee also administers the Company's 1997 Equity Incentive
Plan, including the grant of stock options and other awards under the Equity
Plan. The Compensation Committee, consisting of Dr. Mastran and Mr. Ruddy, was
also formed in January 1997 and has not held any meetings. The Company intends
to appoint two independent directors to the Compensation Committee or to a
separate committee that will administer executive officer compensation.

37
<PAGE> 38

1997 DIRECTOR STOCK OPTION PLAN

All of the directors who are not employees of the Company or of any
subsidiary of the Company (the "Eligible Directors") are currently eligible to
participate in the Company's 1997 Director Stock Option Plan (the "Director
Plan"). Upon the closing of the Company's initial public offering and upon any
subsequent election or re-election of an Eligible Director, such director is
automatically granted an option to purchase 2,000 shares of Common Stock for
each year of the term of office for which such director has been elected (the
"Options"). The Options become exercisable with respect to 2,000 shares on the
date of grant, and if such Option is for more than 2,000 shares, such Option
shall become exercisable as to 2,000 shares on the next, or each of the next two
annual meetings of shareholders of the Company, as the case may be. The Options
have a term of ten years and an exercise price payable in cash or shares of
Common Stock. The exercise price for Options granted under the Director Plan is
equal to the closing price for the Common Stock on the business day immediately
preceding the date of grant, as reported on the New York Stock Exchange.

EXECUTIVE COMPENSATION

Summary Compensation. The following table sets forth certain information
concerning compensation paid in the fiscal year ended September 30, 1996 to the
Company's Chief Executive Officer and four most highly compensated executive
officers of the Company, whose total salary for such fiscal year exceeded
$100,000 (collectively, the "Named Executive Officers").

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION AWARDS(4)
COMPENSATION(1) ----------------------
------------------- SECURITIES ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS(2) UNDERLYING OPTIONS COMPENSATION(3)
<S> <C> <C> <C> <C>
David V. Mastran....................... $311,538 $190,039 -- --
President and Chief Executive Officer
Raymond B. Ruddy....................... 300,000 177,165 -- $ 12,000
Chairman of the Board, Vice President
of the Company, President of
Consulting Services
Ilene R. Baylinson..................... 181,731 200,175 13,750 6,375
President of Disability Services
Division
Lynn P. Davenport...................... 212,884 246,067 13,200 6,063
President of Human Services Division
Susan D. Pepin......................... 184,358 212,883 13,200 7,374
President of Systems Planning and
Integration Division
</TABLE>

- ------------------------------
(1) In accordance with the rules of the Securities and Exchange Commission,
other compensation in the form of perquisites and other personal benefits
has been omitted in those instances where the aggregate amount of such
perquisites and other personal benefits constituted less than the lesser of
$50,000 or 10% of the total amount of annual salary and bonus for the
executive officer for the year ended September 30, 1996.

(2) Bonuses earned for the year ended September 30, 1996 were paid on September
30, 1996 for Mr. Ruddy and Ms. Baylinson, on October 21, 1996 for Dr.
Mastran, and on December 19, 1996 for Mr. Davenport and Ms. Pepin.

(3) The figures in this column represent the amount contributed by the Company
to the employee under the Company's 401(k) Plan.

(4) The figures in this column represent rights to purchase shares of Common
Stock at a price of $0.94 per share granted to certain Named Executive
Officers in the year ended September 30, 1996 for performance during the
year ended September 30, 1995. All such purchase rights were exercised in
March 1996.

38
<PAGE> 39

Option Grants. The following table sets forth certain information
concerning options granted to the Named Executive Officers in the fiscal year
ended September 30, 1996.

OPTION GRANTS IN LAST FISCAL YEAR

<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF
% OF TOTAL STOCK
OPTIONS PRICE APPRECIATION
SHARES GRANTED TO FOR
UNDERLYING EMPLOYEES EXERCISE OPTION TERM (2)
OPTIONS IN FISCAL OR BASE EXPIRATION -------------------
NAME GRANTED(1) YEAR 1996 PRICE DATE 5% 10%
<S> <C> <C> <C> <C> <C> <C>
David V. Mastran.................... -- -- -- -- -- --
Raymond B. Ruddy.................... -- -- -- -- -- --
Ilene R. Baylinson.................. 13,750 10.9% $ 0.94 3/31/96 $319.18 $630.85
Lynn P. Davenport................... 13,200 10.5 0.94 3/31/96 306.42 605.62
Susan D. Pepin...................... 13,200 10.5 0.94 3/31/96 306.42 605.62
</TABLE>

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

(1) Options were granted in October 1995 and became exercisable in full upon
calculation of the exercise price, which was equal to the book value per
share on September 30, 1995.

(2) Amounts represent hypothetical gains for the respective options if exercised
at the end of the option term. The gains are based on assumed rates of stock
price appreciation of 5% and 10% compounded annually from the date of grant
until the option expiration date. There was no public trading market for the
Common Stock at the option expiration date. Accordingly, these values have
been calculated based on $0.94 per share, the book value per share at
September 30, 1995 which is also the option exercise price. These
assumptions are not intended to forecast future appreciation of the
Company's stock price. The potential realizable value computation does not
take into account federal or state income tax consequences or option
exercises of appreciated stock. All options were exercised prior to their
expiration. The actual values realized upon exercise of these options is
disclosed in the table below captioned "Aggregate Option Exercises in Last
Fiscal Year and Fiscal Year-End Option Values."

In November 1996, the Company granted options to certain Named Executive
Officers to purchase shares of Common Stock at an exercise price of $1.46 per
share, as follows: Ms. Baylinson, 34,650 shares; Mr. Davenport, 110,000 shares;
and Ms. Pepin, 110,000 shares. These options were exchanged in January 1997 for
options granted under the Company's 1997 Equity Incentive Plan exercisable for
the same number of shares at the same price per share and which terminate (i) on
June 30, 1997, in the event that the initial public offering has not closed on
or prior to that date; or (ii) upon the earlier of (x) the termination of the
Named Executive Officer's employment with the Company or (y) January 31, 2007.

Option Exercises and Year-End Values. The following table sets forth
certain information concerning each exercise of stock options during the fiscal
year ended September 30, 1996 by each of the Named Executive Officers. None of
the Named Executive Officers held unexercised options at September 30, 1996.

AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES

<TABLE>
<CAPTION>
NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED
SHARES ACQUIRED VALUE UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
NAME ON EXERCISE(1) REALIZED(2) AT FISCAL YEAR-END AT FISCAL YEAR-END
<S> <C> <C> <C> <C>
David V. Mastran.................. -- -- 0 0
Raymond B. Ruddy.................. -- -- 0 0
Ilene R. Baylinson................ 13,750 $3,075.00 0 0
Lynn P. Davenport................. 13,200 2,952.00 0 0
Susan D. Pepin.................... 13,200 2,952.00 0 0
</TABLE>

39
<PAGE> 40

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

(1) The shares acquired by each Named Executive Officer upon the exercise of
options in the fiscal year ended September 30, 1996 are subject to
repurchase by the Company at current book value upon termination of the
Named Executive Officer's employment with the Company, with or without
cause, pursuant to the terms of a Stockholder Agreement that will terminate
upon the consummation of this offering.

(2) The options set forth in this table were exercised in March 1996. There was
no public trading market for the Common Stock at the option exercise date
and the shares of Common Stock acquired upon exercise were subject to
repurchase by the Company as described in Note (1) above. Accordingly, value
realized represents the difference between the book value per share of the
Company's Common Stock at March 31, 1996, the last day of the fiscal quarter
during which all of such options were exercised ($1.17), and the exercise
price of the option ($0.94), multiplied by the number of shares acquired on
exercise.

STOCK PLANS

1997 Equity Incentive Plan. The Company's 1997 Equity Incentive Plan (the
"Equity Plan") authorizes the grant of incentive stock options within the
meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the
"Code"), and non-qualified stock options for the purchase of an aggregate of
1,000,000 shares (subject to adjustment for stock splits and similar capital
changes) of Common Stock to employees of the Company and, in the case of
non-qualified stock options, to consultants of the Company or any Affiliate (as
defined in the Equity Plan) capable of contributing to the Company's
performance. Grants of options under the Equity Plan and all questions of
interpretations with respect to the Equity Plan are determined by the Board of
Directors of the Company. The Board of Directors has appointed the Compensation
Committee to administer the Equity Plan. As of the date of this Prospectus,
options to purchase 403,975 shares had been granted under the Equity Plan.

1997 Employee Stock Purchase Plan. The Company has also adopted an
employee stock purchase plan (the "Purchase Plan") under which employees may
purchase shares of Common Stock at a discount from fair market value. There are
500,000 shares of Common Stock reserved for issuance under the Purchase Plan. To
date, no shares of Common Stock have been issued under the Purchase Plan. The
Purchase Plan is intended to qualify as an employee stock purchase plan within
the meaning of Section 423 of the Code. Rights to purchase Common Stock under
the Purchase Plan are granted at the discretion of the Compensation Committee,
which determines the frequency and duration of individual offerings under the
Plan and the dates on which stock may be purchased. Eligible employees
participate voluntarily and may withdraw from any offering at any time before
stock is purchased. Participation terminates automatically upon termination of
employment. The purchase price per share of Common Stock in an offering is 85%
of the lesser of its fair market value at the beginning of the offering period
or on the applicable exercise date and may be paid through payroll deductions,
periodic lump sum payments or a combination of both. The Purchase Plan
terminates on January 31, 2007. No shares have been or will be issued under the
Purchase Plan until after the closing of this offering.

401(K) PLAN

The Company has a 401(k) savings and retirement plan (the "401(k) Plan")
which covers substantially all employees of the Company. The 401(k) Plan allows
participants to agree to certain salary deferrals which the Company allocates to
the participants' plan account. These amounts may not exceed statutorily
mandated annual limits set forth in the Internal Revenue Code of 1986, as
amended. During the Company's most recent fiscal year, the Company matched
employee contributions to the 401(k) Plan dollar-for-dollar for the first four
percent of the employee's gross salary contributed to the plan per calendar
year.

AGREEMENTS WITH EXECUTIVES

Before the closing of this offering, the Company will have entered into
Executive Employment, Non-Compete, Confidentiality and Stock Restriction
Agreements with Dr. Mastran, Mr. Ruddy, Mr. Beliveau, Ms. Baylinson, Ms. Pepin
and Mr. Davenport (each, an "Executive Agreement") pursuant to which each

40
<PAGE> 41

individual will agree to serve as an officer of the Company. Pursuant to the
terms of the Executive Agreements, the officer will be entitled to a base salary
and a year end bonus consistent with the Company's past practices. The initial
base salary for each of Dr. Mastran, Mr. Ruddy, Mr. Beliveau, Ms. Baylinson, Ms.
Pepin and Mr. Davenport will be $350,000, $350,000, $237,500, $182,000, $220,000
and $250,000, respectively. The term of the employment obligation under each
Executive Agreement will be four years subject to the right of the Company to
terminate each officer if the officer breaches any material duty or obligation
to the Company or engages in certain other proscribed conduct. Each Executive
Agreement also will provide that the officer will not compete with the Company
for four years and will maintain the Company's trade secrets in strict
confidence. In addition, the Executive Agreements will restrict the ability of
each officer to sell or transfer shares of Common Stock of the Company held by
such officer during a four year period following this offering and will grant to
the officer certain piggyback registration rights with respect to such shares.
See "Shares Eligible for Future Sale."

In the Executive Agreements with each of Raymond B. Ruddy and David V.
Mastran, such executives will agree to vote their shares in favor of the
election of the other to the Board of Directors, as long as each of such
executives owns or controls at least 20% of the outstanding Common Stock. In
addition, Mr. Ruddy will agree in his Executive Agreement to vote his shares of
Common Stock in a manner consistent with instructions received from Dr. Mastran
during the four year period commencing on the closing of this offering.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

The Compensation Committee was not in existence prior to January 1997.
Accordingly, Dr. Mastran and Messrs. Ruddy and Beliveau consulted one another
regarding executive officer compensation matters, with Dr. Mastran retaining
sole responsibility for any and all final decisions.

CERTAIN TRANSACTIONS

In January 1995, the Company loaned to Russell A. Beliveau, President of
Government Operations Group and a Director of the Company, the aggregate
principal amount of $64,860, evidenced by an interest bearing promissory note.
The note was repaid in full in September 1996.

In May 1995, the Company entered into a Stock Purchase Agreement with
Raymond B. Ruddy, under which the parties agreed that the Company will purchase
up to 2,878,040 of Mr. Ruddy's shares of Common Stock over a four year period at
a price per share equal to the book value of the stock on the date of sale,
subject to various conditions including an election by Mr. Ruddy after each
fiscal year end to demand such sale. This agreement will terminate upon
completion of this offering.

In March 1996, the Company loaned to Lynn P. Davenport, President of Human
Services Division, the aggregate principal amount of $85,000, evidenced by an
interest bearing promissory note. The note was repaid in full in January 1997.

41
<PAGE> 42

PRINCIPAL AND SELLING SHAREHOLDERS

The following table sets forth certain information regarding the beneficial
ownership of Common Stock immediately prior to this offering, and as adjusted to
reflect the sale of the shares offered hereby, by: (i) each person known by the
Company to own beneficially five percent or more of the outstanding shares of
Common Stock; (ii) each of the Company's directors; (iii) each of the Named
Executive Officers; (iv) each Selling Shareholder; and (v) all directors and
executive officers of the Company as a group. The Company believes that each
person named below has sole voting and investment power with respect to all
shares of Common Stock shown as beneficially owned by such holder, subject to
community property laws where applicable. Unless otherwise indicated, each of
the Company's shareholders has an address in care of the Company's principal
executive offices.

<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP
PRIOR TO BENEFICIAL OWNERSHIP
OFFERING(1)(2) NUMBER AFTER OFFERING(1)
---------------------- OF SHARES ---------------------
NUMBER OF BEING NUMBER OF
NAME SHARES PERCENT OFFERED(2) SHARES PERCENT
<S> <C> <C> <C> <C> <C>
David V. Mastran...................... 6,050,000 54.5% 911,276 5,138,724 35.1%
Raymond B. Ruddy...................... 4,088,370 36.8 609,377 3,478,993 23.7
Russell A. Beliveau................... 253,000 2.3 36,879 216,121 1.5
F. Arthur Nerret...................... 4,125 * 0 4,125 *
Ilene R. Baylinson.................... 48,400 * 7,056 41,344 *
Lynn P. Davenport..................... 343,200 3.1 50,027 293,173 2.0
Donna J. Muldoon...................... 116,325 1.0 16,957 99,368 *
Susan D. Pepin........................ 288,200 2.6 42,010 246,190 1.7
Robert J. Muzzio...................... 143,550 1.3 20,925 122,625 *
All Directors and Executive Officers
as a group (9 persons).............. 11,335,170 99.6 1,694,507 9,640,663 64.5

William F. Dinneen.................... 6,050 * 882 5,168 *
David A. Hogan........................ 11,000 * 1,604 9,396 *
Philip A. Richardson.................. 15,675 * 2,285 13,390 *
Robert L. Sarno....................... 4,950 * 722 4,228 *
</TABLE>

- ------------------------------
* Less than 1%

(1) Applicable percentage of ownership prior to this offering is based upon
11,109,945 shares of Common Stock outstanding. For ownership after
completion of this offering, applicable percentage ownership is based on
14,659,945 shares of Common Stock outstanding and assumes no exercise of the
Underwriters' over-allotment option. Beneficial ownership is determined in
accordance with the rules of the Securities and Exchange Commission, and
includes voting and investment power with respect to the shares shown as
beneficially owned. Number of shares of Common Stock deemed beneficially
owned by any person includes outstanding shares of Common Stock held by such
person and any shares of Common Stock issuable upon exercise of stock
options held by such person exercisable within 60 days. Upon the closing of
this offering, each of the following Selling Shareholders will beneficially
own fully exercisable options to purchase that number of shares of Common
Stock set forth after his or her respective name: Ms. Baylinson, 34,650; Mr.
Beliveau, 12,100; Mr. Davenport, 110,000; Mr. Dinneen, 2,750; Mr. Hogan,
6,050; Ms. Muldoon, 3,575; Mr. Muzzio, 3,575; Ms. Pepin, 110,000; Mr.
Richardson, 8,800; and Mr. Sarno, 2,200. All directors and executive
officers as a group are deemed to beneficially own an aggregate of 275,825
shares of Common Stock issuable upon the exercise of options which will be
fully exercisable within 60 days.

(2) If the over-allotment option is exercised in full, each of the following
Selling Shareholders will sell that number of additional shares of Common
Stock set forth after his or her respective name equal to an aggregate of
660,000 shares of Common Stock: Ms. Baylinson, 2,773; Mr. Beliveau, 14,494;
Mr. Davenport, 19,661; Mr. Dinneen, 347; Mr. Hogan, 631; Dr. Mastran,
353,293; Ms. Muldoon, 6,664; Mr. Muzzio, 8,224; Ms. Pepin, 16,510; Mr.
Richardson, 898; Mr. Ruddy, 236,221; and Mr. Sarno, 284.

42
<PAGE> 43

DESCRIPTION OF CAPITAL STOCK

The following summary describes the material terms of the Company's Common
Stock. Such summary is subject to, and qualified in its entirety by, applicable
law and the provisions of the Company's Amended and Restated Articles of
Incorporation (the "Restated Articles") and the Company's Amended and Restated
By-Laws (the "Restated By-Laws"), each to be effective immediately prior to the
closing of this offering and both of which are included as exhibits to the
Registration Statement of which this Prospectus is a part. See "Additional
Information." The authorized capital stock of the Company consists of 30,000,000
shares of Common Stock, no par value per share, of which 11,109,945 shares were
outstanding immediately prior to this offering.

COMMON STOCK

Holders of Common Stock are entitled to one vote for each share held on all
matters submitted to a vote of shareholders and do not have cumulative voting
rights. Accordingly, holders of a majority of the outstanding shares of Common
Stock entitled to vote in any election of directors may elect all of the
directors standing for election. Holders of Common Stock are entitled to receive
ratably such dividends, if any, as may be declared by the Board of Directors out
of funds legally available therefor. Upon the liquidation, dissolution or
winding-up of the Company, holders of Common Stock are entitled to receive
ratably the net assets of the Company available for distribution after the
payment of all debts and other liabilities of the Company. Holders of Common
Stock have no preemptive, subscription, redemption or conversion rights. The
outstanding shares of Common Stock are, and the shares offered hereby will be,
when issued and paid for, fully paid and nonassessable. The rights, preferences
and privileges of holders of Common Stock are subject to, and may adversely be
affected by, the rights of holders of shares of any series of Preferred Stock
that the Company may authorize, designate and issue in the future.

Prior to this offering the outstanding Common Stock was held of record by
21 shareholders. After giving effect to the issuance of the shares of Common
Stock offered by the Company (assuming no exercise of the Underwriters'
overallotment option), there will be 14,659,945 shares of Common Stock
outstanding, plus an additional 403,975 shares of Common Stock issuable upon
exercise of options exercisable upon the closing of this offering.

LIMITATION OF LIABILITY

The Restated Articles limit the liability of the Company's directors and
officers to the maximum extent permitted by Virginia law. Thus, the directors
and officers of the Company shall not be personally liable to the Company or its
shareholders for any breach of any duty based upon any act or omission, except
for an act or omission; (i) resulting from such person's willful misconduct; or
(ii) in knowing violation of criminal law or any federal or state securities
law.

ANTI-TAKEOVER PROVISIONS OF THE ARTICLES OF INCORPORATION AND BY-LAWS

The Restated Articles prohibit the Company's shareholders from taking any
action, or consenting to any action, by unanimous written consent without a
meeting. The Company's Restated Articles also provide that the directors of the
Company shall be classified into three classes, with staggered three-year terms.
See "Management -- Board of Directors." Any director may be removed only for
cause upon the affirmative vote of at least a majority of the shares entitled to
vote for the election of directors.

The Company's Restated By-Laws provide that for nominations for the Board
of Directors or for other business to be properly brought by a shareholder
before a meeting of shareholders, the shareholder must first have given timely
notice thereof in writing to the Chairman of the Board, if any, the President or
the Secretary of the Company. To be timely, a notice must be delivered to or
mailed and received not less than 45 days before the meeting of the
shareholders; provided, however, that if less than 60 days notice or prior
public disclosure of the date of the meeting is given to shareholders, notice by
the shareholder, to be timely, must be received no later than the close of
business on the 15th day following the day on which such notice or public
disclosure of the meeting date was made. The notice must contain, among other
things, certain information

43
<PAGE> 44

about the shareholder delivering the notice and, as applicable, background
information about each nominee or a description of the proposed business to be
brought before the meeting. The Company's Restated By-Laws also provide that
special meetings of shareholders may be called only by the President or a
majority of the Board of Directors of the Company. These provisions could have
the effect of delaying, until the next annual shareholders meeting, holder
actions that are favored by the holders of a majority of the outstanding voting
securities of the Company.

The foregoing provisions could have the effect of making it more difficult
for a third party to acquire, or of discouraging a third party from acquiring,
control of the Company.

ANTI-TAKEOVER PROVISIONS OF VIRGINIA LAW

Restrictions on Affiliated Transactions. The Virginia Stock Corporation
Act (the "VSCA") requires the approval of certain material transactions (an
"Affiliated Transaction") between a Virginia corporation and any beneficial
holder of more than 10% of any class of its outstanding voting shares (an
"Interested Shareholder") by the other holders of voting shares. Affiliated
Transactions include any merger, share exchange or material disposition of
corporate assets not in the ordinary course of business involving an Interested
Shareholder, any dissolution of the corporation proposed by or on behalf of an
Interested Shareholder, or any reclassification, including reverse stock splits,
recapitalizations or mergers of the corporation with its subsidiaries which
increases the percentage of voting shares owned beneficially by an Interested
Shareholder by more than 5%.

These provisions were designed to deter certain takeovers of Virginia
corporations. In addition, the statute provides that, by affirmative vote of a
majority of the voting shares other than shares owned by any Interested
Shareholder, a corporation can adopt an amendment to its articles of
incorporation or bylaws providing that the Affiliated Transactions provisions
shall not apply to the corporation. On February 2, 1997, the Company, by action
of its shareholders, adopted such an amendment to its Articles of Incorporation.
The amendment will become effective eighteen months after the date of its
adoption. Any subsequent amendment eliminating the election not to be governed
by this statute would not restrict an Affiliated Transaction between the Company
and an Interested Shareholder existing at the time of such subsequent amendment.

Voting Restrictions Arising from Control Share Acquisitions. The VSCA also
contains provisions governing "Control Share Acquisitions." These provide that
shares of a Virginia public issuer acquired in a transaction that would cause
the voting strength of the acquiring person and its associates to meet or exceed
any of three thresholds (20%, 33 1/3% or 50%) have no voting rights unless
granted by a majority vote of shares not owned by the acquiring person or any
officer or employee-director of the Virginia public issuer. An acquiring person
may require the Virginia public issuer to hold a special meeting of shareholders
to consider the matter within 50 days of the request. The Company has "opted
out" of the Control Share Acquisitions provisions.

Fiduciary Duty of Directors. The provisions of the VSCA governing
Affiliated Transactions and those governing Control Share Acquisitions
explicitly provide a statutory standard of care for directors, which applies to
all aspects of a Board's actions in responding to a tender offer. Specifically,
the VSCA states that a director shall discharge his duties as a director in
accordance with his good faith business judgment of the best interests of the
corporation, and, in determining the best interests of the corporation, a
director may consider the possibility that those interests may best be served by
the continued independence of the corporation.

TRANSFER AGENT

The transfer agent and registrar for the Common Stock is American Stock
Transfer & Trust Company.

44
<PAGE> 45

SHARES ELIGIBLE FOR FUTURE SALE

Upon completion of this offering, the Company will have 14,659,945 shares
of Common Stock outstanding, assuming no exercise of the Underwriters'
over-allotment option or of any other outstanding options, warrants or other
rights to purchase Common Stock. Of these shares, the 5,250,000 shares sold in
this offering will be freely tradable, without restriction or further
registration under the Securities Act, except for shares purchased by
"affiliates" of the Company as that term is defined in Rule 144 under the
Securities Act. In general, affiliates include directors, executive officers and
holders of 10% or more of the outstanding Common Stock.

The remaining 9,409,945 outstanding shares of Common Stock are owned by
existing shareholders. In addition, a total of 403,975 shares of Common Stock
are issuable upon exercise of outstanding stock options exercisable upon the
closing of this offering. All such shares, and any shares issued upon exercise
of such options are deemed "Restricted Shares" under Rule 144. These may not be
resold, except pursuant to an effective registration statement or an applicable
exemption from registration. Upon expiration of the 180 day lock-up agreements
described below, all such shares will be eligible for sale under Rules 144 and
701.

In general, under Rule 144, as amended on April 29, 1997, a person (or
persons whose shares are aggregated), including an affiliate, who has
beneficially owned Restricted Shares for at least one year from the later of the
date such Restricted Shares were acquired from the Company and (if applicable)
the date they were acquired from an affiliate, is entitled to sell, within any
three-month period, a number of shares that does not exceed the greater of 1% of
the then outstanding shares of Common Stock or the average weekly trading volume
in the public market during the four calendar weeks preceding such sale. Since
the Restricted Shares were acquired in connection with the shareholder's
employment pursuant to an exemption from registration under Rule 701 of the
Securities Act, but for the lock-up agreements discussed below, such Restricted
Shares would be eligible for sale under Rule 144 commencing 90 days after the
effective date of this offering regardless of when such Restricted Shares were
acquired. Except in the case of Restricted Shares held by persons other than
affiliates for more than two years, sales under Rule 144 are also subject to
certain requirements as to the manner of sale. In addition, sales of Restricted
Shares and any other shares of Common Stock held by affiliates under Rule 144
are subject to notice of sale, the availability of public information concerning
the Company and volume limitations.

The Company's directors and executive officers and its existing
shareholders have agreed that they will not, without the prior consent of
Donaldson, Lufkin & Jenrette Securities Corporation offer to sell, sell,
contract to sell, grant any options to sell or otherwise dispose of or require
the Company to file with the Commission a registration statement under the Act
to register any shares of Common Stock during the 180-day period following the
effective date of the Registration Statement. In addition, pursuant to the
Executive Agreements, Dr. Mastran, Mr. Ruddy, Mr. Beliveau, Ms. Baylinson, Ms.
Pepin and Mr. Davenport have agreed for the four year period commencing at the
closing of this offering not to offer, sell, assign, grant a participation in,
pledge or otherwise transfer any of their respective shares of Common Stock of
the Company without the prior written consent of the Company other than: (i) to
certain permitted transferees; (ii) as may be required by applicable federal or
state law or regulation; or (iii) pursuant to a registration of such shares.
Because these agreements will be between the Company and each executive officer
and may be waived by the Company at any time, investors should not rely on the
stock restrictions contained therein.

At the completion of this offering, Dr. Mastran, Mr. Ruddy, Mr. Beliveau,
Ms. Baylinson, Ms. Pepin and Mr. Davenport (the "Rightsholders"), will be
entitled to certain piggyback rights with respect to registration under the
Securities Act, for resale to the public, of an aggregate of 9,414,545 shares of
Common Stock (including 266,750 shares of Common Stock issuable upon exercise of
outstanding stock options exercisable upon the closing of this offering)
(collectively, the "Registrable Shares") under the terms of each Rightsholder's
Executive Agreement with the Company. If the Company proposes to register shares
of Common Stock in an underwritten offering under the Securities Act, the
Rightsholders will be entitled to include Registrable Shares in such
registration, subject to certain conditions and limitations, which include the
right of the managing underwriter of any such offering to exclude Registrable
Shares from such registration;

45
<PAGE> 46

provided, however, that the Registrable Shares shall not be reduced to less than
an amount equal to 25% of the total number of shares to be registered.

The Company plans to file registration statements under the Securities Act
to register 1,000,000, 100,000 and 500,000 shares of Common Stock issuable under
the Equity Plan, the Director Plan and the Stock Purchase Plan, respectively.
Upon registration, such shares are eligible for immediate resale upon exercise,
subject, in the case of affiliates, to the volume and notice requirements of
Rule 144.

No prediction can be made as to the effect, if any, that sales of
additional shares or the availability of such additional shares for sale will
have on the market price of the Common Stock. No assurance can be given,
however, that sales of substantial amounts of Common Stock in the public market
will not have an adverse impact on the market price for the Common Stock. See
"Risk Factors -- Shares Eligible for Future Sale."

46
<PAGE> 47

UNDERWRITING

Subject to certain terms and conditions of the Underwriting Agreement, the
underwriters named below (the "Underwriters"), for whom Donaldson, Lufkin &
Jenrette Securities Corporation and Lehman Brothers Inc. are acting as
Representatives (the "Representatives"), have severally agreed to purchase from
the Company and the Selling Shareholders, and the Company and the Selling
Shareholders have agreed severally to sell to each of the Underwriters, the
number of shares of Common Stock (the "Shares") set forth opposite their
respective names at the initial public offering price per share less the
underwriting discounts and commissions set forth on the cover of this
Prospectus.

<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
<S> <C>
Donaldson, Lufkin & Jenrette Securities Corporation....................... 1,768,500
Lehman Brothers Inc....................................................... 1,768,500
Alex. Brown & Sons Incorporated........................................... 75,000
Cowen & Company........................................................... 75,000
A.G. Edwards & Sons, Inc.................................................. 75,000
Furman Selz LLC........................................................... 75,000
Goldman, Sachs & Co....................................................... 75,000
Hambrecht & Quist LLC..................................................... 75,000
Merrill Lynch, Pierce, Fenner & Smith Incorporated........................ 75,000
Montgomery Securities..................................................... 75,000
J.P. Morgan Securities Inc................................................ 75,000
Oppenheimer & Co., Inc.................................................... 75,000
Robertson, Stephens & Company LLC......................................... 75,000
Black & Company, Inc. .................................................... 37,000
J.C. Bradford & Co........................................................ 37,000
Equitable Securities Corporation.......................................... 37,000
EVEREN Securities, Inc.................................................... 37,000
Ferris, Baker Watts, Incorporated......................................... 37,000
First of Michigan Corporation............................................. 37,000
Janney Montgomery Scott Inc............................................... 37,000
Johnston, Lemon & Co. Incorporated........................................ 37,000
Legg Mason Wood Walker, Incorporated...................................... 37,000
McDonald & Company Securities, Inc........................................ 37,000
Needham & Company, Inc.................................................... 37,000
Nutmeg Securities, Ltd.................................................... 37,000
The Ohio Company.......................................................... 37,000
Pennsylvania Merchant Group Ltd........................................... 37,000
Raymond James & Associates, Inc........................................... 37,000
Roney & Co................................................................ 37,000
Ryan, Lee & Co., Inc...................................................... 37,000
Sands Brothers & Co., Ltd................................................. 37,000
Scott & Stringfellow, Inc................................................. 37,000
Stephens Inc.............................................................. 37,000
Sutro & Co. Incorporated.................................................. 37,000
Tucker Anthony Incorporated............................................... 37,000
Unterberg Harris.......................................................... 37,000
Wheat First Butcher Singer................................................ 37,000
---------
Total........................................................... 5,250,000
=========
</TABLE>

47
<PAGE> 48

The Underwriting Agreement provides that the obligations of the several
Underwriters to purchase the Shares are subject to approval of certain legal
matters by their counsel and to certain other conditions. If any of the Shares
are purchased by the Underwriters pursuant to the Underwriting Agreement, the
Underwriters are obligated to purchase all Shares (other than those covered by
the over-allotment option described below).

The Company and the Selling Shareholders have been advised by the
Underwriters that they propose to offer the Shares to the public initially at
the price to the public set forth on the cover page of this Prospectus and to
certain dealers at such price, less a concession not in excess of $0.67 per
Share. The Underwriters may allow, and such dealers may re-allow, a concession
not in excess of $0.10 per Share to certain other dealers. After this offering,
the offering price and other selling terms may be changed by the Underwriters.

Pursuant to the Underwriting Agreement, the Company and certain Selling
Shareholders have granted to the Underwriters an option, exercisable not later
than 30 calendar days from the date of the Underwriting Agreement, to purchase
up to an aggregate of 127,500 and 660,000, respectively, of additional Shares at
the initial offering price set forth on the cover page of this Prospectus, less
the underwriting discounts and commissions, solely to cover over-allotments.

To the extent that the Underwriters exercise such option, each of the
Underwriters will have a firm commitment to purchase approximately the same
percentage of the option shares as the number of Shares to be purchased by it
shown in the above table bears to the total number of Shares shown in the above
table, and the Selling Shareholders will be obligated, pursuant to the option,
to sell such shares to the Underwriters. The Underwriters may exercise such
option only to cover over-allotments made in connection with the sale of the
Shares. If purchased, the Underwriters will sell such additional 787,500 shares
on the same terms as those on which the Shares are being offered.

The Underwriting Agreement contains covenants of indemnity among the
Underwriters, the Company and the Selling Shareholders against certain civil
liabilities, including liabilities under the Securities Act.

The Company and each of its directors, executive officers, shareholders and
optionholders who will own in the aggregate 9,813,920 shares of Common Stock
after this offering, including 403,975 shares of Common Stock issuable upon
exercise of outstanding stock options exercisable upon the closing of this
offering (assuming no exercise of the Underwriters' over-allotment option), each
have agreed that during the 180-day period after the date of this Prospectus
they will not, without the prior written consent of Donaldson, Lufkin & Jenrette
Securities Corporation, sell, offer to sell, contract to sell, grant any options
to purchase or otherwise dispose of any shares of Common Stock or any securities
convertible into or exercisable or exchangeable for Common Stock, other than the
Shares, except that the Company may issue shares upon the exercise of stock
options granted prior to the execution of the Underwriting Agreement, and may
grant additional options under the Equity Plan, provided that, without the prior
written consent of Donaldson, Lufkin & Jenrette Securities Corporation, such
options shall not be exercisable during such period.

In connection with this offering, the Underwriters have advised the Company
that, pursuant to Regulation M under the Exchange Act, certain persons
participating in this offering may engage in transactions that stabilize,
maintain or otherwise affect the price of the Common Stock. Specifically, the
Underwriters may overallot this offering, creating a syndicate short position.
In addition, the Underwriters may bid for and purchase shares of Common Stock in
the open market to cover syndicate short positions or to stabilize the price of
the Common Stock. Finally, the underwriting syndicate may reclaim selling
concessions from syndicate members in this offering, if the syndicate
repurchases previously distributed Common Stock in syndicate covering
transactions, in stabilization transactions or otherwise. Any of these
activities may stabilize or maintain the market price of the Common Stock above
independent market levels. The Underwriters have advised the Company that such
transactions may be effected on the New York Stock Exchange or otherwise and, if
commenced, may be discontinued at any time.

The Representatives have informed the Company and the Selling Shareholders
that the Underwriters do not intend to confirm sales to any discretionary
accounts without prior specific written approval of the client.

Prior to this offering, there has been no public market for the shares of
Common Stock. The initial public offering price was negotiated among the
Company, the Selling Shareholders and the Representatives. Among

48
<PAGE> 49

the factors considered in determining the initial public offering price of the
Common Stock, in addition to prevailing market conditions, were the Company's
historical performance, estimates of the business potential and earnings
prospects of the Company, an assessment of the Company's management and the
consideration of the above factors in relation to market valuations of companies
in related businesses.

LEGAL MATTERS

The validity of the shares of Common Stock offered hereby will be passed
upon for the Company by Palmer & Dodge LLP, Boston, Massachusetts. Certain legal
matters in connection with this offering will be passed upon for the
Underwriters by Winston & Strawn, Chicago, Illinois.

EXPERTS

The financial statements of the Company as of September 30, 1995 and 1996
and for each of the three years in the period ended September 30, 1996 included
in this Prospectus and Registration Statement have been audited by Ernst & Young
LLP, independent auditors, as set forth in their report thereon appearing
elsewhere herein, and are included in reliance on such report given upon the
authority of such firm as experts in accounting and auditing.

ADDITIONAL INFORMATION

The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-1 (the "Registration
Statement") under the Securities Act, with respect to the shares of Common Stock
offered hereby. This Prospectus, which constitutes part of the Registration
Statement, does not contain all of the information set forth in the Registration
Statement, certain parts of which are omitted in accordance with the rules and
regulations of the Commission. For further information with respect to the
Company and the Common Stock, reference is made to the Registration Statement
and the exhibits and schedules filed therewith. This Prospectus contains
accurate summaries of the material terms of certain contracts or other documents
filed as exhibits to the Registration Statement. Such summaries are qualified in
all respects by reference to the copies of such contracts or other documents
filed as exhibits to the Registration Statement. A copy of the Registration
Statement may be inspected without charge at the principal office of the
Commission, 450 Fifth Street, N.W., Washington, D.C. 20549, and copies of all or
any part thereof may be obtained from the Commission upon the payment of certain
fees prescribed by the Commission. Such reports and other information can also
be reviewed through the Commission's Web site on the Internet
(http://www.sec.gov).

"Helping Government Serve the People" and MAXSTAR are trademarks of the
Company. All other trademarks and registered trademarks used in this Prospectus
are the property of their respective owners.

49
<PAGE> 50

MAXIMUS, INC.

INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
<S> <C>
Report of Independent Auditors........................................................ F-2
Financial Statements
Balance Sheets as of September 30, 1995 and 1996 and March 31, 1997 (unaudited)..... F-3
Statements of Income for the years ended September 30, 1994, 1995 and 1996 and the
six months ended March 31, 1996 and 1997 (unaudited)............................. F-4
Statements of Changes in Redeemable Common Stock and Retained Earnings for the years
ended September 30, 1994, 1995 and 1996 and the six months ended March 31, 1997
(unaudited)...................................................................... F-5
Statements of Cash Flows for the years ended September 30, 1994, 1995 and 1996 and
the six months ended March 31, 1996 and 1997 (unaudited)......................... F-6
Notes to Financial Statements....................................................... F-7
</TABLE>

F-1
<PAGE> 51

REPORT OF INDEPENDENT AUDITORS

To the Board of Directors
MAXIMUS, Inc.

We have audited the accompanying balance sheets of MAXIMUS, Inc. as of
September 30, 1995 and 1996, and the related statements of income, changes in
redeemable common stock and retained earnings, and cash flows for each of the
three years in the period ended September 30, 1996. 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 MAXIMUS, Inc. at September
30, 1995 and 1996, and the results of its operations and its cash flows for each
of the three years in the period ended September 30, 1996, in conformity with
generally accepted accounting principles.

ERNST & YOUNG LLP

Washington, D.C.
February 7, 1997

F-2
<PAGE> 52

MAXIMUS, INC.

BALANCE SHEETS
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
SEPTEMBER 30, PRO FORMA
----------------- MARCH 31, MARCH 31,
1995 1996 1997 1997
(UNAUDITED) (UNAUDITED --
NOTE 3)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.............................. $ 2,502 $ 2,326 $ 5,886 $ 5,886
Short-term investments................................. -- 1,007 1,007 1,007
Accounts receivable, net............................... 15,941 25,352 30,638 30,638
Costs and estimated earnings in excess of billings..... 776 2,949 5,531 5,531
Prepaid expenses and other current assets.............. 354 605 870 870
------- ------- ------- --------
Total current assets..................................... 19,573 32,239 43,932 43,932

Property and equipment at cost:
Land................................................... 662 662 662 662
Building and improvements.............................. 1,627 1,676 1,679 1,679
Office furniture and equipment......................... 913 1,206 1,336 1,336
Leasehold improvements................................. 188 188 188 188
------- ------- ------- --------
3,390 3,732 3,865 3,865
Less: Accumulated depreciation and amortization........ (810) (1,096) (1,237) (1,237)
------- ------- ------- --------
Total property and equipment, net........................ 2,580 2,636 2,628 2,628
Other assets............................................. 517 618 559 559
------- ------- ------- --------
Total assets............................................. $22,670 $35,493 $47,119 $ 47,119
======= ======= ======= ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable....................................... $ 2,200 $ 2,043 $ 2,899 $ 2,899
Accrued compensation and benefits...................... 793 1,912 3,551 3,551
Billings in excess of costs and estimated earnings..... 3,118 5,208 6,760 6,760
Note payable........................................... -- -- 375 375
Income taxes payable................................... 41 19 156 156
Deferred income taxes.................................. 237 357 387 1,356
Dividend payable....................................... -- -- -- 20,500
------- ------- ------- --------
Total current liabilities................................ 6,389 9,539 14,128 35,597
Deferred income taxes.................................... -- -- -- 4,584
Commitments and contingencies (Notes 6, 9 and 10)

Redeemable common stock:
No par value; 30,000,000 shares authorized; 11,210,870,
11,453,145, 11,109,945 shares issued and
outstanding, at redemption amount................... 10,575 16,757 21,076 --

Shareholders' equity:
Common stock, no par value; 30,000,000 shares
authorized; 11,109,945 pro forma shares issued and
outstanding, at stated amount....................... -- -- -- 12,638
Retained earnings (deficit)............................ 5,706 9,197 11,915 (5,700)
------- ------- ------- --------
Total shareholders' equity............................... 5,706 9,197 11,915 6,938
------- ------- ------- --------
Total liabilities and shareholders' equity............... $22,670 $35,493 $47,119 $ 47,119
======= ======= ======= ========
</TABLE>

See notes to financial statements.

F-3
<PAGE> 53

MAXIMUS, INC.

STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED SEPTEMBER 30, MARCH 31,
---------------------------- -------------------------
1994 1995 1996 1996 1997
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>

Revenues.................................... $29,860 $51,963 $103,113 $39,586 $68,762
Cost of revenues............................ 21,716 36,071 78,429 28,989 52,857
------- ------- -------- ------- -------

Gross profit................................ 8,144 15,892 24,684 10,597 15,905
Selling, general and administrative
expenses.................................. 6,979 9,078 13,104 5,886 8,161
------- ------- -------- ------- -------

Income from operations...................... 1,165 6,814 11,580 4,711 7,744
Interest and other income................... 80 169 264 99 148
------- ------- -------- ------- -------

Income before income taxes.................. 1,245 6,983 11,844 4,810 7,892
Provision (benefit) for income taxes........ (5) 124 225 94 150
------- ------- -------- ------- -------

Net income.................................. $ 1,250 $ 6,859 $ 11,619 $ 4,716 $ 7,742
======= ======= ======== ======= =======
Pro forma data (Unaudited -- Note 3)
Historical income before income taxes..... $ 11,844 $ 7,892
Pro forma income tax expense.............. 4,738 3,157
-------- -------
Pro forma net income...................... $ 7,106 $ 4,735
======== =======
Pro forma net income per share............ $ 0.58 $ 0.39
======== =======
Shares used in computing pro forma net
income per share....................... 12,182 12,103
</TABLE>

See notes to financial statements.

F-4
<PAGE> 54

MAXIMUS, INC.

STATEMENTS OF CHANGES IN REDEEMABLE COMMON STOCK
AND RETAINED EARNINGS

(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
REDEEMABLE
COMMON RETAINED
STOCK EARNINGS
<S> <C> <C>
Balance at September 30, 1993.......................................... $ 6,971 $ 2,484
Purchase of redeemable common stock from employees................... (293) --
Issuance of redeemable common stock to employees..................... 148 --
Net income........................................................... -- 1,250
Adjustment to redemption value of redeemable common stock............ 63 (63)
S Corporation distributions.......................................... -- (750)
------- -------
Balance at September 30, 1994.......................................... 6,889 2,921
Purchase of redeemable common stock from employees................... (548) --
Issuance of redeemable common stock to employees..................... 277 --
Net income........................................................... -- 6,859
Adjustment to redemption value of redeemable common stock............ 3,957 (3,957)
S Corporation distributions.......................................... -- (117)
------- -------
Balance at September 30, 1995.......................................... 10,575 5,706
Issuance of redeemable common stock to employees..................... 229 --
Net income........................................................... -- 11,619
Adjustment to redemption value of redeemable common stock............ 5,953 (5,953)
S Corporation distributions.......................................... -- (2,175)
------- -------
Balance at September 30, 1996.......................................... 16,757 9,197
Purchase of redeemable common stock from employee.................... (501) --
Compensation charge for stock options................................ 150 --
Net income (unaudited)............................................... -- 7,742
Adjustment to redemption value of redeemable common stock............ 4,670 (4,670)
S Corporation distributions.......................................... -- (354)
------- -------
Balance at March 31, 1997 (unaudited).................................. $ 21,076 $ 11,915
======= =======
</TABLE>

See notes to financial statements.

F-5
<PAGE> 55

MAXIMUS, INC.

STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED SEPTEMBER 30, MARCH 31,
--------------------------- -------------------------
1994 1995 1996 1996 1997
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................. $ 1,250 $ 6,859 $11,619 $ 4,716 $ 7,742
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation............................ 172 168 307 122 141
Other................................... 11 -- (22) -- 150
Changes in assets and liabilities:
Accounts receivable, net................ (3,162) (6,646) (9,411) (7,666) (5,286)
Costs and estimated earnings in excess
of billings........................... 195 1,587 (2,173) (1,543) (2,582)
Prepaid expenses and other current
assets................................ (166) 245 (251) (143) (265)
Other assets............................ (189) (124) (101) (158) 59
Accounts payable........................ (271) 1,680 (157) 2,183 856
Accrued compensation and benefits....... 109 161 1,119 2,034 1,639
Billings in excess of costs and
estimated earnings.................... 2,405 (1,154) 2,090 1,538 1,552
Income taxes payable.................... (23) 41 (22) 58 137
Deferred income taxes................... (20) 62 120 -- 30
------- ------- ------- ------- -------
Net cash provided by operating activities.... 311 2,879 3,118 1,141 4,173
------- ------- ------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment......... (317) (180) (348) (110) (133)
Purchase of short-term investments......... -- -- (1,000) -- --
------- ------- ------- ------- -------
Net cash used in investing activities........ (317) (180) (1,348) (110) (133)
------- ------- ------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
S Corporation distributions................ (750) (117) (2,175) (58) (354)
Redeemable common stock purchased.......... (24) (548) -- -- --
Redeemable common stock issued............. 148 277 229 223 --
Payment of note for purchase of redeemable
common stock............................ (135) (134) -- -- (126)
------- ------- ------- ------- -------
Net cash provided by (used in) financing
activities................................. (761) (522) (1,946) 165 (480)
------- ------- ------- ------- -------
Net increase (decrease) in cash and cash
equivalents................................ (767) 2,177 (176) 1,196 3,560
Cash and cash equivalents, beginning of
year....................................... 1,092 325 2,502 2,502 2,326
------- ------- ------- ------- -------
Cash and cash equivalents, end of year....... $ 325 $ 2,502 $ 2,326 $ 3,698 $ 5,886
======= ======= ======= ======= =======
</TABLE>

See notes to financial statements.

F-6
<PAGE> 56

MAXIMUS, INC.

NOTES TO FINANCIAL STATEMENTS

(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)

1. DESCRIPTION OF BUSINESS

MAXIMUS, Inc. (the "Company") provides a wide range of program management
and consulting services to federal, state and local government health and human
services agencies. The Company conducts its operations through two groups. The
Government Operations Group administers and manages government health and human
services programs, including welfare-to-work and job readiness, child support
enforcement, managed care enrollment and disability services. The Consulting
Group provides health and human services planning, information technology
consulting, strategic program evaluation, program improvement, communications
planning and assistance in identifying and collecting previously unclaimed
federal welfare revenues.

The Company operates predominantly in the United States. Revenues from
foreign-based projects were less than 10% for the year ended September 30, 1996.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The following is a description of the Company's more significant accounting
policies.

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 amounts reported in the financial statements and
accompanying notes, in particular, estimates used in the earnings recognition
process. Actual results could differ from those estimates.

Revenue Recognition

The Company generates revenues under various arrangements, generally
long-term contracts under which revenues are based on costs incurred plus a
negotiated fee, a fixed price or various performance-based criteria. Revenues
for cost-plus contracts are recorded as costs are incurred and include a pro
rata amount of the negotiated fee. Revenues on long-term fixed price and
performance-based contracts are recognized as costs are incurred. The timing of
billing to clients varies based on individual contracts and often differs from
the period of revenue recognition. These differences are included in costs and
estimated earnings in excess of billings and billings in excess of costs and
estimated earnings.

Management reviews the financial status of its contracts periodically and
adjusts revenues to reflect the current expectations on realization of costs and
estimated earnings in excess of billings. Provisions for estimated losses on
incomplete contracts are provided in full in the period in which such losses
become known. The Company has various fixed price and performance-based
contracts that may generate profit in excess of the Company's expectations. The
Company recognizes additional revenue and profit in these situations after
management concludes that substantially all of the contractual risks have been
eliminated, which generally is at task or contract completion.

Cash Equivalents

The Company considers all highly liquid investments with an original
maturity of three months or less when purchased to be cash equivalents.

F-7
<PAGE> 57

MAXIMUS, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

Short-Term Investments

Short-term investments consist of interest bearing investments with
maturities of less than one year but greater than three months when purchased.
These investments are readily convertible to cash and are stated at fair value.

Property and Equipment

Property and equipment is stated at cost and depreciated using the
straight-line method based on estimated useful lives of 32 years for the
Company's building and between three and ten years for office furniture and
equipment. Amortization of leasehold improvements is provided using the
straight-line method over the lesser of the life of the improvement or the
remaining term of the lease.

Income Taxes

Effective October 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 109, Accounting for Income Taxes (SFAS 109). The
cumulative effect of the change in accounting principle was not material and is
included in the provision for income taxes for the year ended September 30,
1994. Under SFAS 109, deferred tax liabilities and assets are determined based
on the difference between the financial statement and tax basis of assets and
liabilities using enacted rates expected to be in effect during the year in
which the differences reverse.

The Company and its shareholders have elected to be treated as an S
corporation under the Internal Revenue Code. Under the provisions of the tax
code, the Company's shareholders include their pro rata share of the Company's
income in their personal income tax returns. Accordingly, the Company was not
subject to federal and most state income taxes during the periods presented. The
Company currently anticipates completing an initial public offering of its
common stock in 1997 (the "IPO"), which will result in the termination of the
Company's S corporation status.

Fair Value of Financial Instruments

The Company considers the recorded value of its financial assets and
liabilities, which consist primarily of cash and cash equivalents, short-term
investments, accounts receivable and accounts payable, to approximate the fair
value of the respective assets and liabilities at September 30, 1995 and 1996.

Interim Financial Information

The financial statements as of March 31, 1997 and for the six months ended
March 31, 1996 and 1997 are unaudited and have been prepared on the same basis
as the audited financial statements included herein. In the opinion of
management, the unaudited financial statements include all adjustments,
consisting only of normal recurring items, necessary to present fairly the
periods indicated. Results of operations for the interim period ended March 31,
1997 are not necessarily indicative of the results for the full fiscal year.

Recently Issued Financial Accounting Standards

F-8
<PAGE> 58

MAXIMUS, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

3. PRO FORMA INFORMATION (UNAUDITED)

Pro Forma Balance Sheet

The pro forma balance sheet of the Company as of March 31, 1997 reflects
the declaration of a dividend payable to the shareholders, a reclassification of
redeemable common stock to reflect elimination of the Company's obligation to
purchase its common shares from the shareholders, and the net deferred tax
liability which would have been recorded by the Company if its S corporation
status was terminated at that date.

The Company will pay a dividend to its shareholders in connection with the
IPO. The dividend (estimated at $20,500) will be paid in part from available
cash and in part from proceeds of the offering.

Upon completion of the IPO, the Company's obligation to purchase common
shares from its shareholders will terminate. Accordingly, amounts classified as
redeemable common stock will be reclassified into shareholders' equity.

The pro forma net deferred tax liability represents the tax effect of the
cumulative differences between the financial reporting and income tax basis of
certain assets and liabilities as of March 31, 1997. The actual net deferred tax
liability recorded will be adjusted to reflect the effect of the Company's
operations for the period through the date immediately preceding the termination
of its S corporation status.

The Company's income currently taxable to its shareholders as an S
corporation has been determined under a cash basis of accounting through
September 30, 1996. In the year the Company completes the IPO, it will be
required to begin reporting its taxable income on an accrual basis. The
cumulative deferred tax obligation for the difference between cash and accrual
income will be settled over four years. The Company plans to elect the accrual
basis of accounting beginning October 1, 1996, and accordingly, one-fourth of
the taxable income related to the cash versus accrual accounting difference will
be allocated to the Company's shareholders. The significant items comprising the
Company's pro forma net deferred tax liability as of March 31, 1997 are as
follows:

<TABLE>
<S> <C>
PRO FORMA DEFERRED TAX ASSETS-CURRENT:
Liabilities for costs deductible in future periods........................ $ 443
Billings in excess of costs and estimated earnings........................ 2,705
------
Total pro forma deferred tax assets......................................... 3,148
PRO FORMA DEFERRED TAX LIABILITIES-CURRENT:
Cash versus accrual accounting............................................ 2,292
Costs and estimated earnings in excess of billings........................ 2,212
------
Total pro forma deferred tax liabilities.................................... 4,504
------
Pro forma net deferred tax liability-current................................ 1,356
PRO FORMA DEFERRED TAX LIABILITY-NON-CURRENT:
Cash versus accrual accounting............................................ 4,584
------
Total pro forma net deferred tax liability.................................. $5,940
======
</TABLE>

F-9
<PAGE> 59

MAXIMUS, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

The pro forma retained earnings (deficit) of $5,700 results from the charge
to compensation expense related to stock options granted to employees. See
further discussion below under "Pro Forma Statements of Income."

Pro Forma Statements of Income

Upon the closing of the IPO, the Company will terminate its status as an S
corporation and will be subject to federal and state income taxes thereafter.
Accordingly, the unaudited pro forma data shown on the statements of income
includes an adjustment to reflect income tax expense as if the Company had been
a C corporation at an estimated combined effective income tax rate of 40%.

In the period the IPO is completed the Company will recognize two
significant charges against income. As described above, completion of the IPO
will result in the termination of the Company's S corporation status, and the
Company will recognize the cumulative deferred tax liability at that time by a
charge against income. Based on the pro forma deferred tax liability as of March
31, 1997, the one-time income statement charge would be approximately $5,553.

As discussed in Note 9, in January 1997 the Company issued options to
employees to acquire the Company's common stock at a formula price based on book
value. Upon completion of the IPO, the Company will recognize a charge against
income for the difference between the IPO price and the formula price for all
options outstanding. At the IPO price of $16.00 per share, the charge to
compensation expense would be approximately $5,700, net of the related income
tax benefit, if any.

Pro Forma Net Income Per Share

The pro forma net income per share presented in the accompanying statements
of income have been computed giving effect to the assumed issuance, as of the
beginning of the pro forma periods presented, of the number of shares of Common
Stock necessary to: (i) replace equity to be distributed as a result of the S
corporation dividend to the extent such amount exceeds earnings since April 1,
1996; and (ii) give effect to options issued in January 1997 to purchase Common
Stock of the Company.

4. COSTS AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS

Uncompleted contracts consist of the following components:

<TABLE>
<CAPTION>
BALANCE SHEET CAPTION
--------------------------------------
COSTS AND BILLINGS IN
ESTIMATED EXCESS OF COSTS
EARNINGS IN AND ESTIMATED
EXCESS OF BILLINGS EARNINGS
<S> <C> <C>
September 30, 1995:
Costs and estimated earnings........................ $ 29,702 $48,661
Billings............................................ 28,926 51,779
-------- -------
$ 776 $ 3,118
======== =======
September 30, 1996:
Costs and estimated earnings........................ $ 89,893 $60,489
Billings............................................ 86,944 65,697
-------- -------
$ 2,949 $ 5,208
======== =======
</TABLE>

Costs and estimated earnings in excess of billings relate primarily to
performance-based contracts which provide for billings based on attainment of
results specified in the contract and differences between actual and provisional
billing rates on cost-based contracts.

F-10
<PAGE> 60

MAXIMUS, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

5. CREDIT FACILITIES

The Company has a $10 million revolving line of credit with a bank for
borrowings and letters of credit. Borrowings under this line bear interest at
LIBOR plus 2% and are secured by the Company's accounts receivable. Borrowings
are limited to 90 percent of eligible accounts receivable. At September 30, 1995
and 1996, the Company had letters of credit outstanding amounting to $2,139 and
$1,210, respectively. There were no outstanding borrowings under the line of
credit facility. The Company is required to meet certain conditions on net worth
and to maintain certain financial ratios.

6. LEASES

The Company leases office space under various operating leases, the
majority of which contain clauses permitting cancellation upon certain
conditions. Terms of these leases provide for certain minimum payments as well
as increases in lease payments based upon the operating cost of the facility and
the consumer price index. Rent expense for the years ended September 30, 1994,
1995 and 1996 was $602, $1,150 and $2,282, respectively.

Minimum future payments under these leases are as follows:

<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
<S> <C>
1997................................................................ $3,021
1998................................................................ 2,826
1999................................................................ 1,558
2000................................................................ 801
2001................................................................ 565
Thereafter.......................................................... 138
------
$8,909
======
</TABLE>

7. EMPLOYEE 401(K) PLAN

The Company has a 401(k) plan for the benefit of all employees who meet
certain eligibility requirements. In the year ended September 30, 1996, the
Company implemented a program to match employee contributions. The plan also
allows management to make discretionary contributions. The Company made no
contributions to the plan during the years ended September 30, 1994 and 1995.
During the year ended September 30, 1996, the Company contributed $574 to the
plan.

8. INCOME TAXES

The tax provision (benefit) consists of the following state taxes for those
states in which the Company, rather than the shareholders, is liable for income
taxes:

<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER
30,
----------------------
1994 1995 1996
<S> <C> <C> <C>
Current tax expense........................................... $ 15 $ 62 $105
Deferred tax expense (benefit)................................ (20) 62 120
---- ---- ----
$ (5) $124 $225
==== ==== ====
</TABLE>

No federal income taxes have been recorded due to the Company's S
corporation status. Upon the closing of the IPO, the Company will terminate its
status as an S corporation and will be subject to federal and state income taxes
thereafter. In the period the IPO is completed, the Company will recognize the
cumulative deferred tax liability by a charge against income. Based on the pro
forma deferred tax liability as of March 31, 1997, the one-time income statement
charge would be approximately $5,553. See Note 3. Deferred tax

F-11
<PAGE> 61

MAXIMUS, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

liabilities resulting from temporary differences at September 30, 1995 and 1996
are primarily related to use of the cash basis of accounting for income taxes
reported in certain states and differences related to revenue recognition. Cash
paid for income taxes during the years ended September 30, 1994, 1995 and 1996
was $67, $9 and $110, respectively.

9. SHAREHOLDERS' EQUITY

Redeemable Common Stock

The Shareholders' Agreement, dated January 1996, obligates the Company to
purchase all shares offered for sale by the Company's shareholders at a formula
price based on the book value of the Company. In addition, shareholders are
obligated to sell and the Company is obligated to purchase at the formula price
all of the shares owned by the shareholders upon the shareholder's death,
disability or termination of employment. Accordingly, the redemption obligation
is reflected as redeemable common stock in the accompanying balance sheets. The
Company has insurance polices totaling approximately $18,000 on the lives of its
two major shareholders that may be used to fund this obligation.

During 1994, the Company purchased shares of redeemable common stock at the
formula price in exchange for a note payable of $269. The note was paid in full
during 1994 and 1995. In January 1997, the Company purchased shares of
redeemable common stock at the formula price as of September 30, 1996 in
exchange for a note payable of $501, of which $126 was paid through March 31,
1997. In May 1997, the Company made an additional payment of $124 relating to
its purchase of these shares for the increase in the formula price through the
redemption date.

Agreement with Major Shareholder

In May 1995, the Company entered into a Stock Purchase Agreement with one
of its shareholders. Under this agreement, the parties agreed that the Company
will purchase up to 2,878,040 of its shares owned by the shareholder over a four
year period, subject to various conditions including an election by the
shareholder after each fiscal year end to demand such sale. Under this
agreement, sales will be transacted at the formula price referred to above. This
agreement will terminate upon completion of the IPO.

Employee Stock Purchases and Options

The Company entered into agreements at various times with certain employees
that provided for the employee to purchase common stock of the Company at the
formula price. During the years ended September 30, 1994, 1995 and 1996 the
Company sold 126,500, 231,000 and 242,275 shares, respectively, under these
arrangements.

In January 1997, the Company issued options to various employees to
purchase 403,975 shares of the Company's common stock at the formula price.
These options are exercisable at completion of the IPO. The options terminate on
June 30, 1997 in the event the IPO has not been completed by that date. If the
IPO is completed, the options will have a term of 10 years. These options were
granted in exchange for stock purchase rights awarded pursuant to certain
pre-existing compensation arrangements with certain of the Company's key
employees. The Company recorded compensation cost related to these options in
the amount of $150 in the six months ended March 31, 1997. In the period the IPO
is completed, the Company will recognize a charge against income for the
difference between the IPO price and the formula price for all options
outstanding. At the IPO price of $16.00 per share, the charge to compensation
expense would be approximately $5,700, net of the related income tax benefit, if
any.

Stock Split

In December 1995, the Company effected a 10 for 1 stock split. On February
3, 1997, the Company's shareholders approved an amendment to the Company's
articles of incorporation to increase the number of

F-12
<PAGE> 62

MAXIMUS, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

authorized shares to 30,000,000, to eliminate the par value of common stock and
to effect an 11 for 1 split of the common stock. Amounts for all periods have
been adjusted to reflect the effects of these changes.

10. COMMITMENTS AND CONTINGENCIES

Litigation

On February 3, 1997, the Company was named as a third party defendant by
Network Six, Inc. ("Network Six") in a legal action brought by the State of
Hawaii against Network Six. Network Six alleges that the Company is liable to
Network Six on various grounds. The Company believes Network Six's claims are
without merit and intends to vigorously defend this action. The Company believes
this action will not have a material adverse effect on its financial condition
or results of operations and has not accrued for any loss related to this claim.

The Company also is involved in various other legal proceedings in the
ordinary course of its business. In the opinion of management, these proceedings
involve amounts that would not have a material effect on the financial position
or results of operations of the Company if such proceedings were disposed of
unfavorably.

DCAA Audits

A substantial portion of payments to the Company from U.S. Government
agencies is subject to adjustments upon audit by the Defense Contract Audit
Agency (DCAA). Audits through 1993 have been completed with no material
adjustments. In the opinion of management, the audits of subsequent years are
not expected to have a material adverse effect on the Company's financial
position or results of operations.

11. CONCENTRATIONS OF CREDIT RISK AND MAJOR CUSTOMERS

Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist primarily of accounts receivable and costs
and estimated earnings in excess of billings on uncompleted contracts. To date,
these financial instruments have been derived from contract revenues earned
primarily from federal, state and local agencies located in the United States.
At September 30, 1995 and 1996, $8,260 and $14,815, respectively, of the
Company's accounts receivable were due from the U.S. Government. Revenues under
contracts with various agencies of the United States Government were $7,480,
$17,851 and $61,317 for the years ended September 30, 1994, 1995 and 1996,
respectively. Of these amounts, $2,943, $14,314 and $56,530 for the years ended
September 30, 1994, 1995 and 1996, respectively, were revenues of the government
operations segment. As a result of legislation that eliminated certain Social
Security Administration program benefits, a contract with the U.S. Government
that contributed $56.5 million of contract revenues for the year ended September
30, 1996 was terminated by the United States Government. No revenues are
expected to be earned on this contract after March 31, 1997.

F-13
<PAGE> 63

MAXIMUS, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

12. BUSINESS SEGMENTS

The following table provides certain financial information for each
business segment:

<TABLE>
<CAPTION>
1994 1995 1996
<S> <C> <C> <C>
Revenues:
Government Operations.............................. $14,723 $31,265 $ 77,211
Consulting......................................... 15,137 20,698 25,902
------- ------- --------
$29,860 $51,963 $103,113
======= ======= ========
Income(loss) from operations:
Government Operations.............................. $(1,878) $ 1,636 $ 4,936
Consulting......................................... 3,043 5,178 6,644
------- ------- --------
$ 1,165 $ 6,814 $ 11,580
======= ======= ========
Identifiable assets:
Government Operations.............................. $ 5,642 $ 8,962 $ 19,369
Consulting......................................... 6,488 8,416 9,910
Corporate.......................................... 3,417 5,292 6,214
------- ------- --------
$15,547 $22,670 $ 35,493
======= ======= ========
Capital expenditures:
Government Operations.............................. $ 203 $ 2 $ 4
Consulting......................................... 14 19 73
Corporate.......................................... 100 159 271
------- ------- --------
$ 317 $ 180 $ 348
======= ======= ========
Depreciation and amortization:
Government Operations.............................. $ 15 $ 5 $ 99
Consulting......................................... 17 17 27
Corporate.......................................... 140 146 181
------- ------- --------
$ 172 $ 168 $ 307
======= ======= ========
</TABLE>

F-14
<PAGE> 64

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

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

------------------------
<TABLE>
TABLE OF CONTENTS

<CAPTION>
PAGE
<S> <C>
Prospectus Summary.................... 3
Risk Factors.......................... 6
Use of Proceeds....................... 15
S Corporation Dividend................ 15
Dividend Policy....................... 15
Capitalization........................ 16
Dilution.............................. 17
Selected Financial Data............... 18
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 20
Business.............................. 26
Management............................ 35
Certain Transactions.................. 41
Principal and Selling Shareholders.... 42
Description of Capital Stock.......... 43
Shares Eligible for Future Sale....... 45
Underwriting.......................... 47
Legal Matters......................... 49
Experts............................... 49
Additional Information................ 49
Index to Financial Statements......... F-1
</TABLE>

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

UNTIL JULY 7, 1997 (25 DAYS AFTER THE COMMENCEMENT OF THIS OFFERING), ALL
DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING
IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN
ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.

================================================================================
5,250,000 SHARES

[MAXIMUS LOGO]

COMMON STOCK

-------------------------
PROSPECTUS
-------------------------

DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION

LEHMAN BROTHERS
JUNE 12, 1997

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