MAXIMUS INC, 424B4, 1998-12-11

MAXIMUS INC
424B4, 1998-12-11
MANAGEMENT CONSULTING SERVICES

Previous: ROCKY FORD FINANCIAL INC, SC 13G/A, 1998-12-11

Next: PEN TAB INDUSTRIES INC, 8-K/A, 1998-12-11

<PAGE> 1

Filed pursuant to Rule 424(b)(4)
Registration No. 333-67713

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

PROSPECTUS
DECEMBER 11, 1998

[MAXIMUS LOGO]
4,200,000 SHARES OF COMMON STOCK

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

THE COMPANY:

- - We are a leading provider of program management and consulting services to
state and local government agencies throughout the United States.

- - MAXIMUS, Inc.
1356 Beverly Road
McLean, Virginia 22101
(703) 734-4200

NYSE SYMBOL: MMS

THE OFFERING:

- - The Company is offering 2,000,000 of the shares and existing shareholders are
offering 2,200,000 of the shares.

- - The underwriters have an option to purchase an additional 630,000 shares from
the selling shareholders to cover over-allotments.

- - There is an existing trading market for these shares. The reported last sales
price on December 10, 1998 was $32.75 per share.

- - We plan to use the proceeds from the offering for general corporate purposes.
We will not receive any proceeds from the shares sold by the selling
shareholders.

- - Closing: December 16, 1998

<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
Per Share Total
- -------------------------------------------------------------------------------
<S> <C> <C>
Public offering price: $32.50 $136,500,000
Underwriting fees: $ 1.71 $ 7,182,000
Proceeds to Company: $30.79 $ 61,580,000
Proceeds to selling shareholders: $30.79 $ 67,738,000
- -------------------------------------------------------------------------------
</TABLE>

THIS INVESTMENT INVOLVES RISK. SEE "RISK FACTORS" BEGINNING ON PAGE 7.

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

Neither the SEC nor any state securities commission has determined whether this
prospectus is truthful or complete. Nor have they made, nor will they make, any
determination as to whether anyone should buy these securities. Any
representation to the contrary is a criminal offense.
- --------------------------------------------------------------------------------

DONALDSON, LUFKIN & JENRETTE
LEHMAN BROTHERS
LEGG MASON WOOD WALKER
INCORPORATED
<PAGE> 2

[GRAPHIC]

Organizational chart showing the divisions that comprise the Company's
Consulting Group and its Government Operations Group.

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
<S> <C>
Prospectus Summary................ 3
Risk Factors...................... 7
Use of Proceeds................... 16
Market Price of Common Stock and
Dividend Policy................. 16
Capitalization.................... 18
Selected Consolidated Financial
Data............................ 19
Management's Discussion and
Analysis of Financial Condition
and Results of Operations....... 21
</TABLE>

<TABLE>
<CAPTION>
PAGE
<S> <C>
Business.......................... 30
Management........................ 44
Selling Shareholders.............. 48
Underwriting...................... 50
Legal Matters..................... 52
Experts........................... 52
Available Information............. 52
Incorporation of Certain Documents
by Reference.................... 53
Index to Financial Statements..... F-1
</TABLE>
<PAGE> 3

[MAP]

A map of the United States showing the locations of the Company's offices.

[INSERT: Fold-out map showing the Company's geographical coverage. The
fold-out is a two-page fold-out of the inside front cover page.]
<PAGE> 4

PROSPECTUS SUMMARY

The following is only a summary. You should carefully read the more
detailed information contained elsewhere in this prospectus, including the
financial statements and the notes to such statements. Unless otherwise
indicated, the information in this prospectus: (1) has been restated to give
effect to the pooling of interests combination with David M. Griffith &
Associates, Ltd. on May 12, 1998; and (2) assumes that the over-allotment option
is not exercised. Investing in the common stock being offered by the Company
involves risk. Therefore, carefully consider the information provided on pages
7-15 under the heading "Risk Factors." We urge you to read this prospectus in
its entirety.

THE COMPANY

MAXIMUS, Inc. is a leading provider of program management and consulting
services to state and local governments throughout the United States. Our
services are designed to make government operations more efficient and cost
effective while improving the quality of the services provided to program
beneficiaries. We apply an entrepreneurial, private sector approach utilizing
advanced technology in projects in almost every state in the nation and in
markets in several foreign countries.

Program Management Services. State and local governments in the United
States spend approximately $21 billion annually to administer their health and
human services programs. The costs of these programs represents the largest line
items in many state and local government budgets. These health and human
services programs include the following:

<TABLE>
<S> <C>
- - Medicaid - Child Health Insurance
- - Food Stamps - Child Support Enforcement
- - Temporary Assistance To Needy - Child Care
Families - Child Welfare
- - Supplementary Security Income
- - General Assistance/General
Relief
</TABLE>

In the last two fiscal years, we have been awarded $350 million in
contracts to help state and local health and human services agencies manage
their programs. We currently have program management contracts in New York,
California, Texas, Michigan, New Jersey, Florida, Illinois, and many other
states. In addition to the substantial revenues these contracts generate, they
also provide high-profile marketing platforms for us to demonstrate the cost
effectiveness and value of outsourcing program management services to the public
sector.

Consulting Services. We offer consulting services to every state, county
and local government agency, including health and human services, law
enforcement, parks and recreation, taxation, housing, motor vehicles, labor,
education as well as legislatures. We provide highly technical expertise to our
clients in various disciplines, including:

<TABLE>
<S> <C>
- - Systems planning - Program analysis and evaluation
- - Federal revenue maximization - Electronic benefits and
- - Cost allocation for program funds transfer
reimbursement claiming - Fleet management
- - Human resources management - Systems implementation
</TABLE>

Our acquisitions of four consulting companies in 1998 added approximately
2,000 consulting contracts and 500 consultants. Many of these consulting
contracts are with
3
<PAGE> 5

smaller cities and counties, which expands our geographic presence and enables
us to sell our full range of products and services to these local governments.
With these acquisitions, MAXIMUS believes it is the largest general management
consulting firm in the country focussed on serving state and local governments.

We believe that government agencies will continue to turn to companies such
as MAXIMUS to reduce costs and improve the effectiveness of their programs. We
believe that we more effectively administer government programs due to our
ability to:

- Accept contracts where compensation is based on performance;

- Attract and compensate experienced, high-level management personnel;

- Rapidly procure and utilize advanced technology;

- Vary the number of personnel on a project to match fluctuating
workloads;

- Increase productivity by providing employees with financial incentives
and performance awards and more readily terminating non-productive
employees;

- Provide employees with ongoing training and career development
assistance; and

- Maintain a professional work environment that is more conducive to
employee productivity.

We are recognized as a principal partner of state and local government
agencies for both program management and consulting. With more than 100 offices
located throughout the nation, MAXIMUS has the local presence and decentralized
organization to promote relationships with the executive and legislative
branches of state and local governments. With more than 2,800 employees
nationwide, the Company has more personnel experienced with government programs
than most state, city or county government agencies. As a result, we offer a
pool of program knowledge and expertise that can be utilized by state and local
government agencies to supplement their own capabilities and improve their
operations.

We believe that state and local governments will continue to seek our
services despite the effect of economic cycles on government budgets. In recent
years, as governments at all levels have experienced budget surpluses, new
programs have been initiated to assist even more sectors of American society. In
more austere times, the size of the population enrolled in existing government
programs expands, requiring governments to spend more to administer these
programs, but facing increased pressure to do so cost-effectively.

We strive to provide an alternative to the traditional way of doing
business for government agencies. MAXIMUS is working to fulfill its mission of
"Helping Government Serve the People(TM)" by becoming a national resource for
improving the management and service delivery capabilities of governments. Our
national scope and size provide a platform to deliver more cost effective
services by allowing us to capitalize on greater economies of scale, introduce
more specialization, and market our knowledge base of best practices throughout
the country. We possess several business strengths that we believe provide us an
advantage over our competitors, including:

- Single market focus resulting from our thorough understanding of the
regulations and operations of government agencies, with an emphasis on
state and local governments and health and human services programs;

- Proven track record established by more than 23 years of providing
successful government program management and consulting services;
4
<PAGE> 6

- Wide range of services that meets the increasing demands of government
and other public sector clients for integrated vendor offerings;

- Proprietary case management software program, known as MAXSTAR(TM),
that reduces project implementation time and cost; and

- Experienced team of professionals who thoroughly understand the
marketing, assessment and delivery of services to government agencies.

THE OFFERING

<TABLE>
<S> <C>
Common stock offered:
By the Company............................. 2,000,000 shares
By the selling shareholders................ 2,200,000 shares
------------------
Total.............................. 4,200,000 shares
Common stock to be outstanding after the
offering................................... 20,225,468 shares(a)
Use of proceeds.............................. We intend to use the estimated net
proceeds of $61.1 million that we will
receive from the offering for general
corporate purposes, including: working
capital; expansion of existing operations,
including the acquiring of a new
headquarters; strategic acquisitions of
related businesses; and investment in
systems infrastructures and new
technologies. See "Use of Proceeds." We
will not receive any proceeds from the
shares sold by the selling shareholders.
</TABLE>

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

(a) Based on shares outstanding as of November 13, 1998. Excludes 1,368,583
shares issuable upon exercise of options outstanding as of November 13, 1998
and an additional 2,191,514 shares reserved for issuance under the Company's
various equity plans.

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

We were incorporated in Virginia in September 1975 and our principal
executive offices are located at 1356 Beverly Road, McLean, Virginia 22101. Our
world wide web address is http://www.maxinc.com. Our web site is not part of the
prospectus. Our telephone number is (703) 734-4200.
5
<PAGE> 7

SUMMARY CONSOLIDATED FINANCIAL DATA(a)
(IN THOUSANDS, EXCEPT FOR PER SHARE DATA)

<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
------------------------------------------------------
1994 1995 1996 1997 1998
<S> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Revenues:
Government Operations
Group.................. $11,779 $16,951 $ 20,681 $ 65,757 $139,263
Consulting Group....... 42,720 51,275 58,462 69,955 94,210
SSA Contract(b)........ 2,943 14,314 56,530 31,612 --
------- ------- -------- -------- --------
Total revenues...... 57,442 82,540 135,673 167,324 233,473
Gross profit............. 15,742 25,342 34,134 45,356 60,573
Income from operations... 3,323 8,161 12,340 12,661 23,119
Net income(c)............ $ 2,103 $ 7,353 $ 11,793 $ 9,334 $ 14,454
Earnings per share:
Basic.................. $ 0.16 $ 0.59 $ 0.94 $ 0.69 $ 0.84
Diluted................ $ 0.16 $ 0.59 $ 0.94 $ 0.67 $ 0.82
Shares used in computing
earnings per share:
Basic.................. 12,938 12,507 12,573 13,508 17,237
======= ======= ======== ======== ========
Diluted................ 12,938 12,507 12,573 13,893 17,596
======= ======= ======== ======== ========
</TABLE>

<TABLE>
<CAPTION>
SEPTEMBER 30, 1998
--------------------------
AS
ACTUAL ADJUSTED(D)
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents and short-term
investments........................................ $ 32,977 $ 94,057
Working capital...................................... 77,022 138,102
Total assets......................................... 120,543 181,623
Long-term debt....................................... 454 454
Total shareholders' equity........................... 84,699 145,779
</TABLE>

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

(a) All prior period amounts have been restated to reflect our combination with
David M. Griffith & Associates, Ltd. ("DMG") in May 1998, which was
accounted for using the pooling of interests method of accounting. See Note
3 of Notes to Consolidated Financial Statements.

(b) Represents revenue under a significant contract with the federal Social
Security Administration (the "SSA CONTRACT"), which terminated pursuant to
legislative action that eliminated the program. No further revenues were
earned on the SSA Contract 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."

(c) For the three years ended September 30, 1996, and during fiscal year 1997 up
to and including June 12, 1997, we elected to be treated as an S corporation
and our income was taxed for federal and most state purposes directly to our
shareholders. As a result, the earnings per share figures are not directly
comparable. In connection with our initial public offering, our S
corporation status terminated and we recorded a deferred tax charge against
income of $2.6 million for the cumulative differences between the financial
reporting and income tax basis of certain assets and liabilities at June 12,
1997. Subsequent to June 12, 1997, we have recorded state and federal income
taxes based on earnings for those periods.

(d) As adjusted to give effect to the sale by the Company of 2,000,000 shares of
common stock and the receipt of the estimated net proceeds from such sale.
See "Use of Proceeds."
6
<PAGE> 8

RISK FACTORS

Investing in shares of the common stock involves a high degree of financial
risk. In deciding whether to invest, you should carefully consider the following
risk factors as well as the other information in this document. The risks set
out below may not be exhaustive.

Keep these risk factors in mind when you read "forward-looking" statements
elsewhere in this prospectus. These are statements that relate to future events
and time periods or the Company's expectations. Generally, the words
"anticipate," "expect," "intend" and similar expressions identify
forward-looking statements. Forward-looking statements involve risks and
uncertainties, and future events and circumstances could differ significantly
from those anticipated in the forward-looking statements.

RELIANCE ON GOVERNMENT CLIENTS

Substantially all of our clients are state or local government authorities.
To market our services to government clients, we are largely required to respond
to government requests for proposals ("RFPS"). To do so effectively, we must
estimate accurately our cost structure for servicing a proposed contract, the
time required to establish operations and likely terms of the proposals
submitted by competitors. We must also assemble and submit a large volume of
information within a RFP's rigid timetable. Our ability to respond successfully
to RFPs will greatly impact our business, and we cannot guarantee that we will
be awarded contracts through the RFP process or that our proposals will result
in profitable contracts.

RISKS ASSOCIATED WITH GOVERNMENT CONTRACTING

Early Termination of Contracts. Many of our government contracts contain
base periods of one or more years, as well as option periods covering more than
half of the contract's potential duration. Government agencies generally have
the right not to exercise these option periods. A decision not to exercise
option periods could impact the profitability of some of our contracts. Our
contracts typically also contain provisions permitting a government client to
terminate the contract on short notice, with or without cause. The unexpected
termination of one or more significant contracts could result in significant
revenue shortfalls. The natural expiration of especially large contracts can
also present management challenges. If revenue shortfalls occur and are not
offset by corresponding reductions in expenses, our business could be adversely
affected. We cannot be certain if, when or to what extent a client might
terminate any or all of its contracts with us.

Contracts Subject to Audit. The Defense Contract Audit Agency ("DCAA"),
and certain other government agencies, have the authority to audit and
investigate any government contracts. These agencies review a contractor's
performance on its contract, its pricing practices, its cost structure and its
compliance with applicable laws, regulations and standards. Any costs found to
be improperly allocated to a specific contract will not be reimbursed, while
costs already reimbursed must be refunded. Therefore, a DCAA audit could result
in a substantial adjustment to our revenue. No material adjustments resulted
from audits completed through 1993, and we believe that adjustments resulting
from subsequent audits will not adversely affect our business. If a government
audit uncovers improper or illegal activities, a contractor may be subject to
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.

7
<PAGE> 9

Discouragement of Revenue Consulting by Federal Officials. To avoid higher
than anticipated demands for federal funds, federal government officials
occasionally discourage state and local authorities from engaging private
consultants to advise them on maximizing federal revenues. We cannot be certain
that state and local officials will not be dissuaded from engaging us for
revenue maximization services.

Relationships with Political Consultants. We occasionally engage marketing
consultants, including lobbyists, to establish and maintain relationships with
elected officials and appointed members of government agencies. The
effectiveness of these consultants may be reduced or eliminated if a significant
political change occurs. Implementation of term limits for certain elected
officials, for instance, would require us to confront political change on a more
regular basis. Because we cannot be certain that we will successfully manage our
relationships with political consultants, our business may be adversely
affected.

RISKS INVOLVED IN MANAGING GOVERNMENT PROJECTS

Risk of Fixed-Price and Performance-Based Contracts. We derived
approximately 46% of our fiscal 1998 revenues from fixed-price contracts and
approximately 18% of our fiscal 1998 revenues from performance-based contracts.
For fixed-price contracts, we receive our fee if we meet specified objectives or
achieve certain units of work. Those objectives might include placing a certain
number of welfare recipients into jobs, collecting target amounts of child
support payments, or completing a particular number of managed care enrollments.
For performance-based contracts, we receive our fee on a per-transaction basis.
Such contracts include, for example, child support enforcement contracts, in
which we often receive a fee based on the amount of child support collected. To
earn a profit on these contracts, we rely upon accurately estimating costs
involved and assessing the probability of meeting the specified objectives,
realizing the expected units of work, or completing individual transactions,
within the contracted time period. We recognize revenues on these contracts on a
"costs incurred" method. Therefore, we review these contracts quarterly and
adjust revenues to reflect our current expectations. These adjustments affect
the timing and amount of revenue recognized and could adversely affect our
financial results. If we fail to estimate accurately the factors upon which we
base our contract pricing, then we may have to report a decrease in revenues or
incur losses on these contracts.

Failure to Meet Contract Performance Standards. Our inability to satisfy
adequately our contractual obligations could adversely affect our financial
condition. Our contracts often require us to indemnify clients for our failures
to meet certain performance standards. Some contracts contain liquidated damages
provisions and financial penalties related to performance failures. In addition,
in order for our Government Operations Group to bid on certain contracts, we are
required to secure our indemnification obligations by posting a cash performance
bond or obtaining a letter of credit. If a claim is made against a performance
bond or letter of credit, the issuer of the bond could demand higher premiums.
Increased bond premiums would adversely affect our earnings and could limit our
ability to bid for future contracts. In addition, a failure to meet our client's
expectations when performing on a contract could materially and adversely affect
our reputation, which, in turn, would impact our ability to compete for new
contracts.

Termination of Large Contracts. Upon termination or expiration of a
contract between our Government Operations Group and a state or local
government, we have to evaluate whether, and in what capacity, we can continue
employing persons that formerly serviced the contract. Unless we enter into a
new contract using those same employees or

8
<PAGE> 10

otherwise re-assign them, their employment must be terminated. The reassignment
or termination of a large number of employees makes significant demands on our
management and administrative resources.

Relationships with Government Entities. To facilitate our ability to
prepare bids in response to RFPs, we rely in part on establishing and
maintaining relationships with officials of various government entities and
agencies. These relationships enable us to provide informal input and advice to
the government entities and agencies prior to the development of an RFP. Because
we cannot be certain that we will successfully manage our relationships with
government entities and agencies, our business may be adversely affected.

Significant Start Up Costs. When we are awarded a contract to manage a
government program, our Government Operations Group can incur significant
start-up expenses before we receive any contract payments. These expenses
include leasing office space, purchasing office equipment and hiring personnel.
As a result, in certain large contracts where the government does not fund
program start-up costs, we are required to invest significant sums of money
prior to receiving related contract payments.

LEGISLATIVE CHANGE AND POLITICAL DEVELOPMENTS

Dependence on Legislative Programs. The market for our services is
dependent largely on federal and state legislative programs. These programs can
be modified or amended at any time by acts of federal and state governments. For
example, in 1996 Congress amended the Social Security Act to eliminate social
security and supplemental income benefit payments based solely on drug and
alcohol disabilities. That amendment resulted in the termination of our
substantial contract with the federal Social Security Administration (the "SSA
CONTRACT"), which related to the referral and monitoring of the treatment of
recipients of these benefits. Future legislative changes that we do not
anticipate or respond to effectively could occur and adversely affect our
business.

Dependence on Welfare Reform Act. We expect that the Welfare Reform Act
and other federal and state initiatives will continue to encourage long-term
changes in the nation's welfare system. Part of our growth strategy includes
aggressively pursuing these opportunities by seeking new contracts to administer
and new health and welfare programs to manage. However, there are many opponents
of welfare reform. As a result, future progress in the area of welfare reform is
uncertain. The repeal of the Welfare Reform Act, in whole or in part, could
adversely affect our business. Also, we cannot be certain that additional
reforms will be proposed or enacted, or that previously enacted reforms will not
be challenged, repealed or invalidated.

Restrictions on Privatization. Under current law, in order to privatize
certain functions of government programs, the federal government must grant a
consent and/or waiver to the petitioning state or local agency. For example, in
May 1997 the Department of Health and Human Services refused to grant a waiver
to the State of Texas permitting private corporations, rather than public
employees, to decide eligibility of applicants for Food Stamps and Medicaid
benefits. Although MAXIMUS did not bid on the Texas projects, we may face
similar obstacles in pursuing future health and human services contracts.

9
<PAGE> 11

RISKS OF ACQUISITION STRATEGY; RISKS OF COMPLETED ACQUISITIONS

Our business strategy includes expanding our operations, breadth of service
offerings and geographic scope by acquiring or combining with related
businesses. To date, we have combined with four consulting firms and are still
in the process of integrating their operations. We cannot be certain that we
will be able to continue to identify, acquire and manage additional businesses
profitably or integrate them successfully without incurring substantial
expenses, delays or other problems. Furthermore, business combinations may
involve special risks, including:

- Diversion of management's attention

- Loss of key personnel

- Assumption of unanticipated legal liabilities

- Amortization of acquired intangible assets

- Dilution to our earnings per share

Also, client dissatisfaction or performance problems at an acquired firm could
materially and adversely affect our reputation as a whole. Furthermore, we
cannot be certain that acquired businesses will achieve anticipated revenues and
earnings.

CHALLENGES RESULTING FROM GROWTH

Sustaining growth has placed significant demands on management as well as
on our administrative, operational and financial resources. To manage our
growth, we must continue to improve our operational, financial and management
information systems and expand, motivate and manage our workforce. However, our
growth and management of large-scale health and human services programs must not
come at the expense of providing quality service and generating reasonable
profits. We cannot be certain that we will continue to experience growth or
successfully manage it.

OPPOSITION FROM GOVERNMENT UNIONS

Our success derives in part from our ability to win profitable contracts to
administer and manage health and human services programs traditionally
administered by government employees. Government employees, however, typically
belong to labor unions with considerable financial resources and lobbying
networks. Unions are likely to continue to apply political pressure on
legislators and other officials seeking to outsource government programs. For
example, union lobbying was instrumental in influencing the Department of Health
and Human Services to deny a petition to allow private corporations to make Food
Stamp and Medicaid eligibility determinations in Texas. Union opposition may
slow welfare reform and result in fewer opportunities for MAXIMUS to service
government agencies.

RELIANCE ON KEY EXECUTIVES

The abilities of our executive officers, including David V. Mastran and
Raymond B. Ruddy, and our senior managers to generate business and execute
projects successfully is important to our success. While we have employment
agreements with certain of our executive officers, these agreements are
terminable under certain conditions. The loss of a key executive could impair
our ability to secure and manage engagements. To limit some of this risk, we
have obtained key-man life insurance policies on Dr. Mastran and Mr. Ruddy in
the amounts of $6,100,000 and $3,950,000, respectively.

10
<PAGE> 12

ATTRACTION AND RETENTION OF EMPLOYEES

Delivery of the services provided by MAXIMUS is labor-intensive. When we
are awarded a government contract, we must quickly hire project leaders and case
management personnel. The additional staff also creates a concurrent demand for
increased administrative personnel. The success of our Government Operations
Group and Consulting Group requires that we 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

- Information technology professionals who have designed or implemented
complex information technology projects

Innovative, experienced and technically proficient individuals are in great
demand and are likely to remain a limited resource. We cannot be certain that we
can continue to attract and retain desirable executive officers and senior
managers. A failure to hire sufficient personnel on a timely basis could
adversely affect our business. The loss of significant numbers of executive
officers and senior managers could produce similar adverse consequences.

COMPETITORS; EFFECTS OF COMPETITION

Intensification of Competition. Competition to provide certain program
management and consulting services to state and local government agencies has
intensified. Our Government Operations Group competes for program management
contracts with the following:

- Local non-profit organizations such as the United Way and Goodwill
Industries

- Government services divisions of large organizations such as Andersen
Consulting, Lockheed Martin Corporation and Electronic Data Systems,
Inc.

- Specialized service providers such as America Works, Inc., Policy
Studies Incorporated, and Benova, Inc.

MAXIMUS's Consulting Group competes with:

- The consulting divisions of the "Big 5" accounting firms

- Electronic Data Systems, Inc.

Many of these companies are national and international in scope and have
greater resources than MAXIMUS. Substantial resources could enable certain
competitors to initiate severe price cuts or take other measures in an effort to
gain market share. In addition, we are unable to compete for a limited number of
large contracts because, we are sometimes unable to meet a RFP's requirement to
obtain and post large cash performance bonds. Also, in certain geographic areas,
we face competition from smaller consulting firms with established reputations
and political relationships. We cannot be certain that we will compete
successfully against our existing or any new competitors. See "Business --
Competition."

11
<PAGE> 13

Competition from Former Employees. In addition to competition from
existing competitors, we may experience competition from former employees.
Although MAXIMUS has entered into non-competition agreements with some of its
senior level employees, we cannot be certain that a court would enforce these
contracts. Competition by former employees could adversely affect our business.

ADVERSE PUBLICITY

The nature of our contracts with state and local government authorities
frequently generates media attention. In particular, our management of health
and human services programs and revenue maximization services have occasionally
received negative media coverage. This negative coverage could influence
government officials and slow the pace of welfare reform. The media also focuses
its attention on the activities of political consultants engaged by us, even
when their activities are unrelated to our business. MAXIMUS may be subject to
adverse media attention relating to the activities of individuals who are not
under its control. In addition, we cannot assure that the media will accurately
cover our activities or that MAXIMUS will be able to anticipate and respond in a
timely manner to all media contacts. Inaccurate or misleading media coverage or
our failure to manage adverse coverage could adversely affect our reputation.

LITIGATION

DMG Litigation. On May 12, 1998, we acquired DMG. DMG is currently
defending against a lawsuit arising out of consultation services provided to
underwriters of revenue bonds issued by Superstition Mountains Community
Facilities District No. 1 (the "DISTRICT") in 1994. The bonds were issued to
finance construction of a water waste treatment plant in Arizona. However, the
District was unable to service the bonds and eventually declared bankruptcy. The
District voluntarily came out of bankruptcy and is currently operating under a
forbearance agreement with the sole purchaser of the bonds, Allstate Insurance
Company ("ALLSTATE"). A consolidated action arising out of these events is
pending in the U.S. District Court for the District of Arizona against DMG and
thirteen other named defendants. The parties making claims against DMG in the
lawsuit, Allstate and the District, allege that DMG made false and misleading
representations in the reports DMG prepared included among the exhibits to the
bond offering memoranda. DMG's reports concerned the accuracy of certain
financial projections made by the District regarding its ability to service the
bonds. Allstate seeks as damages $32.1 million, the principal amount of bonds it
purchased together with accrued and unpaid interest; the District seeks actual
and special damages, prejudgment interest and costs. MAXIMUS intends to defend
against these claims vigorously. However, given the preliminary stage of this
litigation, we cannot assure that we will be successful in defending this
lawsuit.

Suit by Former Officer. We are currently defending a lawsuit brought by a
former officer, director and shareholder of MAXIMUS alleging that, at the time
he resigned from the Company in 1996 and became obligated to sell his MAXIMUS
shares back to the Company, we failed to disclose to him material information
regarding the potential value of his MAXIMUS shares. The former officer seeks
damages in excess of $10 million. We do not believe that this claim has merit
and intend to oppose it vigorously. However, given the early stage of this
litigation, we cannot assure that we will be successful in our defense.

Suit by Network Six. We are currently defending a lawsuit that was
commenced against MAXIMUS and other parties by Network Six, Inc. ("NETWORK
SIX"). MAXIMUS had been engaged by the State of Hawaii to monitor the
implementation of a

12
<PAGE> 14

statewide automated child support system being performed by Network Six. Network
Six alleges that we tortiously interfered with and abetted Hawaii in the alleged
breach of its contract with Hawaii. We believe that Network Six's claims are
without merit and intend to defend this action vigorously. We do not believe
that this action will have a material adverse effect on our financial condition
or results of operations. Because this action is in the early stages of
discovery, we cannot assure that we will be successful in defending this
lawsuit.

VARIABILITY OF QUARTERLY OPERATING RESULTS

A number of factors cause our revenues and operating results to vary from
quarter to quarter. These factors include:

- The progress of contracts

- The levels of revenues earned on contracts (including any 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 awarded contracts

- The reactions of the market to announcements of potential acquisitions

- General economic conditions

Changes in the volume of activity and the number of contracts commenced or
completed during any quarter may cause significant variations in our operating
results because a relatively large amount of our expenses are fixed.
Furthermore, on occasion we incur greater operating expenses during the start-up
and early stages of significant contracts.

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 will
have broad discretion with respect to the use of the net proceeds of this
offering. See "Use of Proceeds."

INFLUENCE OF PRINCIPAL SHAREHOLDERS

Following this offering, our executive officers will own beneficially 43.5%
of MAXIMUS's common stock. Certain executive officers, who will hold
approximately 35.6% of the outstanding shares after this offering, have agreed
to hold their shares until June 2001, subject to certain exceptions. In
addition, each of Dr. Mastran and Mr. Ruddy, who will hold together
approximately 33.3% of the common stock, has agreed to vote to elect the other
to the board of directors, as long as the other person owns or controls at least
20% of the outstanding common stock. Mr. Ruddy currently owns less than 20% of
the outstanding shares of common stock and, accordingly, Dr. Mastran is no
longer obligated to vote to elect Mr. Ruddy to the board of directors. Mr. Ruddy
has also agreed to vote his shares of common stock in a manner instructed by Dr.
Mastran until September 30, 2001. As a result, these officers can significantly
influence the outcome of matters requiring a shareholder vote, including the
election of the board of directors. This

13
<PAGE> 15

could adversely affect the market price of our common stock or delay or prevent
a change in control of MAXIMUS.

POSSIBLE VOLATILITY OF STOCK PRICE

MAXIMUS issued common stock on June 13, 1997 at $16.00 per share upon the
closing of its initial public offering (the "IPO"). Between June 13, 1997 and
December 10, 1998, the closing sale price has ranged from a high of $34.00 per
share to a low of $17.00 per share. The market price of our common stock could
continue to 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 we have bid

- The termination by a government client of a material contract

- The announcement of new services by competitors

- Acquisitions and mergers

- 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 shareholders

- Negative publicity

- Loss of key personnel

Our ability to meet securities analysts' quarterly expectations may also
influence the market price of our common stock. In addition, overall volatility
has often significantly affected the market prices of securities for reasons
unrelated to a company's operating performance. In the past, securities class
action litigation has often been commenced against companies that have
experienced periods of volatility in the price of their stock. Securities
litigation initiated against MAXIMUS could cause us to incur substantial costs
and could lead to the diversion of management's attention and resources. See
"Market Price of Common Stock and Dividend Policy."

CERTAIN ANTI-TAKEOVER EFFECTS

Virginia law and our Articles of Incorporation and By-Laws include
provisions that may be deemed to have anti-takeover effects. These provisions
may delay, deter or prevent a takeover attempt that shareholders might consider
desirable. Directors of MAXIMUS are divided into three classes and are elected
to serve staggered three-year terms. This structure could impede or discourage
an attempt to obtain control of the Company. As a shareholder of MAXIMUS, you do
not possess the power to take any action in writing without a meeting. In
addition, Virginia law imposes certain limitations and special voting
requirements on affiliated transactions. Furthermore, Virginia law denies voting
rights to shares acquired in control share acquisitions, unless granted by a
shareholder vote.

14
<PAGE> 16

RISKS ASSOCIATED WITH YEAR 2000 COMPLIANCE

Internal Year 2000 Compliance. MAXIMUS is auditing its internal software
and hardware and the systems of its acquired companies for Year 2000 compliance
and is implementing corrective actions, where necessary, to address computer
problems associated with the Year 2000. The MAXSTAR case management software
used in all our major projects has been upgraded to be Year 2000 compliant. All
MAXSTAR-based applications must also be reviewed and upgraded, where necessary,
which is now scheduled to be completed by March 31, 1999. Our telephone systems
must also be Year 2000 compliant, which is also scheduled for completion by
March 31, 1999. We will continue to implement whatever remedial actions are
necessary to make us Year 2000 compliant. We do not believe that remedial
measures taken to correct any Year 2000 problems will materially impact our
operations or financial results. However, if our remediation plans do not
succeed, then we may experience adverse effects on our business. Furthermore, we
cannot assure that the costs of remediation will not exceed our current
estimates, or that our corrective actions will be completed before any Year 2000
problems occur.

Services Provided by MAXIMUS Affecting Clients' Year 2000 Compliance.
MAXIMUS assists in assessing, evaluating, testing and certifying government
client systems affected by Year 2000 problems. In addition, we provide quality
assurance of Year 2000 compliance conversions performed by third parties for our
clients. Although MAXIMUS has attempted to minimize its liability for potential
clients' system failures, we cannot assure that we will not become subject to
legal action if a client sustains Year 2000 problems. If such legal action is
brought and resolved against us, we could suffer adverse effects on our
business.

Reliance on Vendors' and Clients' Year 2000 Compliance. In order to
perform our government contracts, we rely to varying extents on information
processing performed by vendors, governmental agencies and entities with which
we contract. We have inquired about these parties' potential Year 2000 problems
where necessary. Based on responses to these inquiries, our management believes
that we would be able to continue to perform our contracts without experiencing
material negative financial impact. However, we cannot assure that Year 2000
related failures in the information systems of vendors or clients will not
occur. Any system failures could interfere with our ability to properly manage
contracted projects and could adversely affect our business.

UNCERTAINTIES RELATED TO INTERNATIONAL OPERATIONS

Most of our international operations are currently paid for by the World
Bank and the U.S. Agency for International Development in U.S. dollars. However,
as we expand our operations into developing countries we may encounter a number
of additional risks. The risks to our potential expected international revenues
include:

- Adverse currency exchange rate fluctuations

- Inability to collect receivables

- Difficulty in enforcing contract terms through a foreign country's
legal system

Foreign countries could also impose tariffs, impose additional withholding
taxes or otherwise tax our foreign income. See
"Business -- Services -- Consulting Group."

FORWARD LOOKING STATEMENTS

15
<PAGE> 17

that involve risks and uncertainties. These uncertainties include reliance on
government clients; risks associated with government contracting; risks involved
in managing governmental projects; legislative change and political
developments; opposition from government unions; challenges resulting from
growth; adverse publicity; and legal, economic and other risks detailed in this
Prospectus.

USE OF PROCEEDS

The net proceeds from the sale by the Company of the common stock offered
hereby will be approximately $61.1 million. The Company anticipates that these
funds will be used for general corporate purposes, including: working capital;
expansion of existing operations, including establishment of a new headquarters;
and strategic acquisition of related businesses. 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 purpose of this offering is to obtain additional working capital.

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

MARKET PRICE OF COMMON STOCK
AND DIVIDEND POLICY

The Company's Common Stock commenced trading on June 13, 1997 on the New
York Stock Exchange under the symbol "MMS." The following table sets forth, for
the fiscal periods indicated, the range of high and low closing prices for the
Company's common stock on the New York Stock Exchange.

<TABLE>
<CAPTION>
HIGH LOW
<S> <C> <C>
YEAR ENDED SEPTEMBER 30, 1997:
Third Quarter (from June 13, 1997)........................ $18 3/8 $17
Fourth Quarter............................................ 32 14/16 17 14/16
YEAR ENDED SEPTEMBER 30, 1998:
First Quarter............................................. $31 9/16 $22 9/16
Second Quarter............................................ 30 14/16 23
Third Quarter............................................. 32 9/16 25 1/8
Fourth Quarter............................................ 31 20 7/16
YEAR ENDED SEPTEMBER 30, 1999:
First Quarter (through December 10, 1998)................. $34 $26 1/2
</TABLE>

The closing price of the common stock on December 10, 1998, as reported on
the New York Stock Exchange was $32.75 per share. As of December 10, 1998, there
were 167 holders of record of the Company's common stock.

16
<PAGE> 18

As an S corporation prior to the IPO, the Company made a series of cash
distributions to shareholders representing earnings of the Company taxed or
taxable to such shareholders. The Company made the final such distribution at
the end of fiscal year 1997. Since that time, the Company has retained, and
currently anticipates that it will continue to retain, all of its earnings for
development of the Company's business and does not anticipate paying any cash
dividends in the foreseeable future. Distributions reported during fiscal year
1998 were related solely to S corporation distributions by companies MAXIMUS
combined with during the year. The distributions were to these companies' former
shareholders and related to earnings prior to combining with MAXIMUS. 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.

17
<PAGE> 19

CAPITALIZATION

The following table sets forth, as of September 30, 1998, the actual
capitalization of the Company and as adjusted for the sale of the 2,000,000
shares of Common Stock offered hereby by the Company after deducting
underwriting discounts and commissions and estimated offering expenses. The
following table should be read in conjunction with the Consolidated Financial
Statements and related Notes thereto included elsewhere in this prospectus.

<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1998
-------------------------
ACTUAL AS ADJUSTED
(IN THOUSANDS)
<S> <C> <C>
Cash and cash equivalents and short term
investments......................................... $ 32,977 $ 94,057
======== ========
Long-term debt........................................ $ 454 $ 454
Shareholders' equity:
Common stock, no par value; 30,000,000 shares
authorized; 18,225,390 shares issued and
outstanding; 20,225,390 shares issued and
outstanding as adjusted(a)....................... 66,535 127,615
Retained earnings................................... 18,164 18,164
-------- --------
Total shareholders' equity....................... 84,699 145,779
-------- --------
Total capitalization........................ $ 85,153 $146,233
======== ========
</TABLE>

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

(a) Excludes: (i) an aggregate of 1,093,752 shares issuable upon exercise of
stock options outstanding at September 30, 1998, plus an additional
1,966,423 shares reserved for issuance in connection with future stock
options and other awards under the Company's 1997 Director Stock Option Plan
and 1997 Equity Incentive Plan; and (ii) 500,000 shares reserved for
issuance under the Company's 1997 Employee Stock Purchase Plan. See Note 10
to the Consolidated Financial Statements.

18
<PAGE> 20

SELECTED CONSOLIDATED FINANCIAL DATA

The selected financial data presented below as of September 30, 1997 and
1998 and for each of the three years in the period ended September 30, 1998 are
derived from the Company's Consolidated Financial Statements and related Notes
thereto which have been audited by Ernst & Young LLP, independent auditors,
except for the financial statements of DMG, a consolidated subsidiary, which
through December 31, 1997 were audited by other independent auditors. The
selected financial data presented below as of September 30, 1994, 1995 and 1996
and for each of the two years ended September 30, 1995 are derived from the
Company's financial statements, not included in this Prospectus, which have been
audited by Ernst & Young LLP or the Company's predecessor accountants, and DMG's
independent auditors. The selected financial data give retroactive effect to the
combination with DMG, which was accounted for using the pooling of interests
method. The selected financial data should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Consolidated Financial Statements and related Notes thereto
and other financial information appearing elsewhere in this prospectus.

<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
--------------------------------------------------
1994 1995 1996 1997 1998
(IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Revenues:........................ $57,442 $82,540 $135,673 $167,324 $233,473
Cost of revenues................. 41,700 57,198 101,539 121,968 172,900
------- ------- -------- -------- --------
Gross profit..................... 15,742 25,342 34,134 45,356 60,573
Selling, general and
administrative expenses........ 11,983 15,781 20,238 25,323 33,783
Stock option compensation,
merger, deferred compensation
and ESOP expense(a)............ 436 1,400 1,556 7,372 3,671
------- ------- -------- -------- --------
Income from operations........... 3,323 8,161 12,340 12,661 23,119
Interest and other income
(expense)...................... (131) (72) (17) 777 1,775
------- ------- -------- -------- --------
Income before income taxes....... 3,192 8,089 12,323 13,438 24,894
Provision for income taxes(b).... 1,089 736 530 4,104 10,440
------- ------- -------- -------- --------
Net income....................... $ 2,103 $ 7,353 $ 11,793 $ 9,334 $ 14,454
======= ======= ======== ======== ========
Earnings per share:
Basic.......................... $ 0.16 $ 0.59 $ 0.94 $ 0.69 $ 0.84
======= ======= ======== ======== ========
Diluted........................ $ 0.16 $ 0.59 $ 0.94 $ 0.67 $ 0.82
======= ======= ======== ======== ========
Shares used in computing earnings
per share:
Basic.......................... 12,938 12,507 12,573 13,508 17,237
======= ======= ======== ======== ========
Diluted........................ 12,938 12,507 12,573 13,893 17,596
======= ======= ======== ======== ========
</TABLE>

(footnotes on following page)

19
<PAGE> 21

<TABLE>
<CAPTION>
AS OF SEPTEMBER 30,
----------------------------------------------------
1994 1995 1996 1997 1998
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents and short-
term investments.................. $ 990 $ 2,640 $ 3,394 $ 51,869 $ 32,977
Working capital..................... 9,012 15,677 25,101 65,389 77,022
Total assets........................ 28,404 36,392 48,720 111,497 120,543
Long-term debt...................... 4,835 4,224 -- -- 454
Redeemable common stock............. 15,390 21,362 31,683 -- --
Total shareholders' equity
(deficit)......................... (5,309) (4,201) (4,679) 67,913 84,699
</TABLE>

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

(a) In January 1997, the Company issued options to various employees to purchase
403,975 shares of common stock at a formula price based on book value.
During 1997, the Company recorded a non-recurring charge against income of
$5,874,000 for the difference between the IPO price and the formula price
for all options outstanding. The Company recorded a deferred tax benefit
relating to the charge in the amount of $2,055,000. The option exercise
price is a formula price based on the book value of the common stock at
September 30, 1996, and was established pursuant to a pre-existing
shareholder agreement.

(b) For the three years ended September 30, 1996, and during fiscal year 1997 up
to and including June 12, 1997, the Company elected to be treated as an S
corporation and the income of the Company was taxed for federal and most
state purposes directly to the Company's shareholders. In connection with
its IPO, the Company's S corporation status terminated and the Company
recorded a deferred tax charge against income of $2,566,000 for the
cumulative differences between the financial reporting and income tax basis
of certain assets and liabilities at June 12, 1997. Subsequent to June 12,
1997, the Company has recorded state and federal income taxes based on
earnings for those periods. Income taxes provided for periods prior to the
IPO related primarily to operations of DMG.

20
<PAGE> 22

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

As an important part of the Company's growth strategy, it has recently
completed combinations with four consulting firms, Spectrum Consulting Group,
Inc. and Spectrum Consulting Services, Inc. (collectively, "SPECTRUM") in March
1998, David M. Griffith & Associates, Ltd. ("DMG") in May 1998, and Carrera
Consulting Group ("CARRERA") and Phoenix Planning & Evaluation, Ltd. ("PHOENIX")
in August 1998, all of which were accounted for as poolings of interests
combinations. See "-- Business Combinations." Prior year amounts have been
restated to reflect the combination with DMG. The Spectrum, Carrera and Phoenix
combinations were accounted for as immaterial poolings of interests, and,
accordingly, the Company's previously issued financial statements were not
restated to reflect these combinations.

OVERVIEW

The Company provides program management and consulting services primarily
to government 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 disability services, managed care enrollment,
welfare-to-work and job readiness and child support enforcement. The Consulting
Group provides consulting services to every state, county and local government
agency, including health and human services, law enforcement, parks and
recreation, taxation, housing, motor vehicles, labor, education and
legislatures.

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, 1998, revenues from these contract types were approximately
24%, 46%, 18% and 12%, 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 the risk of potential cost overruns
or inaccurate revenue estimates.

Effective January 1, 1997, the Social Security Act of 1935 was amended to
eliminate Social Security Income and Supplemental Security Disability Insurance
benefits based solely on drug and alcohol disabilities. As a result, the Social
Security Administration terminated the SSA Contract effective at the end of
February 1997. All services provided to the Social Security Administration were
completed in the quarter ended March 31, 1997. The SSA Contract contributed
$56.5 million, $31.6 million and $0 to the Company's revenues in fiscal years
1996, 1997 and 1998, respectively.

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, 1998, 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 two
years. Indicative of the long-term nature of

21
<PAGE> 23

the Company's engagements, approximately 61% of the Company's fiscal 1998
revenues were in backlog as of September 30, 1997.

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 and the success of its performance-based
contracts.

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.

During 1997, the Company recognized two significant charges against income.
The completion of its initial public offering ("IPO") resulted in the
termination of the Company's S corporation status. As a result, the Company
recorded a non-recurring deferred tax charge of $2.6 million for the cumulative
differences between the financial reporting and income tax basis of certain
assets and liabilities at June 12, 1997, the day prior to the IPO. In connection
with the IPO, 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 recognized a non-cash compensation charge against income of
$5.9 million, the difference between the initial public offering price and the
option exercise price for all outstanding options. The option exercise price was
based on the adjusted book value of the Common Stock at September 30, 1996, and
was established pursuant to pre-existing compensation arrangements with these
employees.

BUSINESS COMBINATIONS

As part of its growth strategy, the Company expects to continue to pursue
complementary business combinations to expand its geographic reach, expand the
breadth and depth of its service offerings and enhance the Company's consultant
base. In furtherance of this growth strategy, the Company combined with four
consulting firms during 1998 in transactions accounted for as poolings of
interests.

As of March 16, 1998, the Company acquired all of the outstanding shares of
capital stock of Spectrum in exchange for 840,000 shares of Common Stock.
Spectrum, based in Austin, Texas, provides management consulting services that
focus on assisting public sector organizations in solving complex business
problems related to automation. Spectrum's operations complement and expand the
Company's existing information technology and systems planning and integration
consulting service offerings. At the time of the combination, Spectrum had
approximately 37 consultants and three other employees.

As of May 12, 1998, the Company acquired all of the outstanding capital
stock of DMG in exchange for 1,166,179 shares of Common Stock. DMG, based in
Northbrook, Illinois, provides consulting services to state and local government
and other public sector clients throughout the United States. DMG's operations
complement the Company's

22
<PAGE> 24

existing management consulting and information technology services and expand
the Company's service offerings to include a broad range of financial planning,
cost management and various other consulting services aimed at the public
sector. At the time of the combination, DMG had approximately 375 consultants
and 40 other employees.

As of August 31, 1998, the Company acquired all of the outstanding shares
of capital stock of Carrera in exchange for 1,137,420 shares of Common Stock.
Carrera, based in Sacramento, California, provides consulting services that
focus on assisting public sector entities implement large-scale, software-based
human resource and financial systems. At the time of the combination, Carrera
had 78 consultants and eight other employees.

As of August 31, 1998, the Company acquired all of the outstanding shares
of capital stock of Phoenix in exchange for 254,545 shares of Common Stock.
Phoenix, based in Rockville, Maryland, provides consulting services to public
sector entities in planning, implementing and evaluating the utilization of
various electronic commerce technologies, such as electronic benefits transfer,
electronic funds transfer and electronic card technologies. At the time of the
combination, Phoenix had 11 consultants and three other employees.

RESULTS OF OPERATIONS

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

<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
--------------------------
REVENUES: 1996 1997 1998
<S> <C> <C> <C>
Government Operations Group........................ 15.2% 39.3% 59.6%
Consulting Group................................... 43.1 41.8 40.4
SSA Contract....................................... 41.7 18.9 --
----- ----- -----
Total revenues.................................. 100.0 100.0 100.0
Gross profit:
Government Operations Group........................ 20.3 22.3 18.0
Consulting Group................................... 36.9 37.6 37.7
SSA Contract....................................... 14.7 13.9 --
Total gross profit as percentage of total
revenues...................................... 25.2 27.1 25.9
Selling, general and administrative expenses......... 14.9 15.1 14.5
Stock option compensation, merger, deferred
compensation and ESOP expense...................... 1.2 4.4 1.5
----- ----- -----
Income from operations............................... 9.1 7.6 9.9
Interest and other income (expense).................. -- 0.4 0.8
----- ----- -----
Income before income taxes........................... 9.1 8.0 10.7
Provision for income taxes........................... 0.4 2.4 4.5
----- ----- -----
Net income........................................... 8.7% 5.6% 6.2%
===== ===== =====
</TABLE>

23
<PAGE> 25

YEAR ENDED SEPTEMBER 30, 1998 COMPARED TO YEAR ENDED SEPTEMBER 30, 1997

Revenues. Total revenues increased 39.5% to $233.5 million in fiscal 1998
from $167.3 million in fiscal 1997. Government Operations Group revenues
increased 43.0% to $139.3 million in fiscal 1998 from $97.4 million in fiscal
1997 due to an increase in the number of contracts in the Child Support
Enforcement, Managed Care Enrollment and Welfare Reform divisions of the group
and revenues from three Managed Care contracts totalling $18.1 million purchased
from another company in February 1998. Excluding the SSA Contract, which had
$31.6 million of revenues in fiscal 1997, Government Operations Group revenues
increased 111.8% as compared to fiscal 1997. Consulting Group revenues increased
34.7% to $94.2 million in fiscal 1998 from $70.0 million in fiscal 1997 due to
an increase in the number of contracts and revenues from companies which merged
with the Company in fiscal 1998 in transactions accounted for as pooling of
interests. Revenues from the merged companies accounted for as immaterial
poolings totalled $16.9 million in fiscal 1998.

Gross Profit. Total gross profit increased 33.5% to $60.6 million in
fiscal 1998 from $45.4 million in fiscal 1997. Government Operations Group gross
profit increased 31.4% to $25.1 million in fiscal 1998 from $19.1 million in
fiscal 1997. As a percentage of revenues, Government Operations Group gross
profit decreased to 18.0% in fiscal 1998 from 19.6% in fiscal 1997 primarily due
to anticipated lower gross margins on the three purchased Managed Care
Enrollment contracts. Consulting Group gross profit increased 34.7% to $35.4
million in fiscal 1998 from $26.3 million in fiscal 1997 due principally to the
increased revenues. As a percentage of revenues, Consulting Group gross profit
was 37.7% in fiscal 1998 and 37.6% in fiscal 1997.

Selling, General and Administrative Expenses. Total selling, general and
administrative expenses increased 33.6% to $33.8 million in fiscal 1998 from
$25.3 million in fiscal 1997. This increase in costs was due to increases in
both professional and administrative personnel and professional fees necessary
to support the Company's growth, marketing and proposal preparation expenditures
incurred to pursue further growth and the impact of business combinations
accounted for as immaterial poolings of interests. From September 30, 1997 to
September 30, 1998 administrative and systems personnel increased 39% from 125
to 174 and the Company grew from 1,800 total employees at September 30, 1997 to
more than 2,800 total employees at September 30, 1998. As a percent of revenues,
selling, general and administrative expenses decreased slightly to 14.5% for
fiscal 1998 from 15.1% for fiscal 1997.

Stock Option Compensation, Merger, Deferred Compensation and ESOP Expenses.
During fiscal year 1998, the Company incurred $3.7 million of non-recurring
expenses in connection with the mergers with Spectrum, DMG, Carrera and Phoenix.
These expenses consisted of legal, audit, broker, trustee, deferred compensation
and other expenses and the acceleration of expenses related to stock
appreciation rights for DMG employees totalling $0.9 million. During fiscal year
1997, in connection with its IPO, the Company recognized a non-recurring
compensation expense of $5.9 million for stock options granted to employees.
Also in fiscal 1997, the Company incurred $1.5 million of deferred compensation
expenses for DMG employees related to plans which were terminated subsequent to
the merger with the Company.

24
<PAGE> 26

subject to federal and most state income taxes until June 12, 1997, the day
prior to the completion of the initial public offering. Upon completion of the
IPO, the Company's S corporation status was terminated and the Company became
subject to federal and state income taxes.

Income tax expense increased 154.4% to $10.4 million in fiscal 1998 from
$4.1 million in fiscal 1997. As a percentage of income before income taxes, the
income tax expense for fiscal 1998 is 41.9% compared to 30.5% for fiscal 1997.
The fiscal 1998 tax expense was adversely impacted by $0.5 million due to the
nondeductibility of certain merger related expenses. Additional information
regarding income tax expense is in Note 9 to the consolidated financial
statements contained in this document.

YEAR ENDED SEPTEMBER 30, 1997 COMPARED TO YEAR ENDED SEPTEMBER 30, 1996

Revenues. Total revenues increased 23.3% to $167.3 million in fiscal 1997
from $135.7 million in fiscal 1996. Government Operations Group revenues
increased 26.1% to $97.4 million in fiscal 1997 from $77.2 million in fiscal
1996 due to an increase in the number of projects offset by a decrease in
revenue from the SSA Contract, which was terminated in February 1997. The SSA
Contract contributed $31.6 million to fiscal 1997 revenues as compared to $56.5
million to fiscal 1996 revenues. Excluding the SSA Contract, Government
Operations Group revenues increased 218.0% to $65.8 million in fiscal 1997 from
$20.7 million in fiscal 1996 due to increases in the numbers of contracts in the
Welfare Reform, Managed Care Enrollment Services, and Child Support Enforcement
divisions of the group. Consulting Group revenues increased 19.7% to $70.0
million in fiscal 1997 from $58.5 million in fiscal 1996 due to an increase in
the number of contracts and increased revenues from management studies, fleet
consulting, franchise fee consulting, revenue maximization contracts and
international business.

Gross Profit. Total gross profit increased 32.9% to $45.4 million in
fiscal 1997 from $34.1 million in fiscal 1996. Government Operations Group gross
profit increased 52.1% to $19.1 million in fiscal 1997 from $12.5 million in
fiscal 1996. As a percentage of revenues, Government Operations Group gross
profit increased to 19.6% in fiscal 1997 from 16.2% in fiscal 1996 primarily due
to the decreased revenue volume of the SSA Contract in fiscal 1997, which had a
lower gross profit margin than other contracts in the group, and to favorable
profit recognition adjustments on two large projects. Excluding the SSA
Contract, Government Operations Group gross profit as a percentage of revenues
increased to 22.3% in fiscal 1997 from 20.3% in fiscal 1996. Consulting Group
gross profit increased 21.7% to $26.3 million in fiscal 1997 from $21.6 million
in fiscal 1996 due to principally to the increased revenues. As a percentage of
revenues, Consulting Group gross profit increased to 37.6% in fiscal 1997 from
36.9% in fiscal 1996 which represents normal variability of gross profit from
period to period.

Selling, General and Administrative Expenses. Total selling, general and
administrative expenses increased 25.1% to $25.3 million in fiscal 1997 from
$20.2 million in fiscal 1996. This increase in costs was due to increases in
both professional and administrative personnel and professional fees necessary
to support the Company's growth and marketing and proposal preparation
expenditures incurred to pursue further growth. As a percent of revenues,
selling, general and administrative expenses increased to 15.1% for fiscal 1997
from 14.9% for fiscal 1996.

Stock Option Compensation, Merger, Deferred Compensation and ESOP Expenses.
During fiscal year 1997, in connection with its IPO, the Company recognized a
non-recurring compensation expense of $5.9 million for stock options granted to
employees.

25
<PAGE> 27

The Company incurred $1.5 million in fiscal 1997 and $1.6 million in fiscal 1996
of deferred compensation expenses for DMG employees related to plans which were
terminated subsequent to the merger with the Company.

Provision for Income Taxes. Prior to the IPO, the Company and its
shareholders elected to be treated as an S corporation under the Internal
Revenue Code. Under the provisions of the tax code, the Company's shareholders
included their pro rata share of the Company's income in their personal tax
returns. Accordingly, the Company was not subject to federal and most state
income taxes until June 12, 1997, the day prior to the completion of the initial
public offering. Upon completion of the IPO, the Company's S corporation status
was terminated and the Company became subject to federal and state income taxes.

As a percentage of income before income taxes, the income tax expense for
fiscal 1997 is 30.5% compared to 4.3% for fiscal 1996. Additional information
regarding income tax expense is in Note 9 to the consolidated financial
statements contained in this document.

26
<PAGE> 28

QUARTERLY RESULTS

Set forth below are selected income statement data for the eight quarters
ended September 30, 1998. 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 Consolidated
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,
1996 1997 1997 1997 1997 1998 1998 1998
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Government
Operations
Group............. $ 8,029 $15,551 $19,158 $23,019 $27,772 $32,189 $36,844 $42,458
Consulting Group.... 15,811 17,096 16,906 20,142 19,875 21,042 24,394 28,899
SSA Contract........ 22,511 9,082 19 -- -- -- -- --
-------- ------- ------- ------- ------- ------- ------- -------
Total revenues........ 46,351 41,729 36,083 43,161 47,647 53,231 61,238 71,357
Cost of revenues...... 35,826 29,882 25,272 30,988 35,452 38,937 46,217 52,294
-------- ------- ------- ------- ------- ------- ------- -------
Gross profit.......... 10,525 11,847 10,811 12,173 12,195 14,294 15,021 19,063
Selling, general and
administrative
expenses............ 5,715 6,065 6,171 7,372 8,172 8,377 7,105 10,129
Stock option
compensation,
merger, deferred
compensation and
ESOP expense........ 392 509 6,077 394 467 907 1,972 325
-------- ------- ------- ------- ------- ------- ------- -------
Income (loss) from
operations.......... 4,418 5,273 (1,437) 4,407 3,556 5,010 5,944 8,609
Interest and other
income.............. 64 23 143 547 527 526 384 338
-------- ------- ------- ------- ------- ------- ------- -------
Income (loss) before
income taxes........ 4,482 5,296 (1,294) 4,954 4,083 5,536 6,328 8,947
Provision for income
taxes............... 416 666 907 2,115 1,592 2,237 2,549 4,062
-------- ------- ------- ------- ------- ------- ------- -------
Net income (loss)..... $ 4,066 $ 4,630 $(2,201) $ 2,839 $ 2,491 $ 3,299 $ 3,779 $ 4,885
======== ======= ======= ======= ======= ======= ======= =======
Earnings per share:
Basic............... $ 0.32 $ 0.37 $ (0.17) $ 0.18 $ 0.16 $ 0.20 $ 0.23 $ 0.27
Diluted............. $ 0.32 $ 0.36 $ (0.17) $ 0.17 $ 0.15 $ 0.19 $ 0.22 $ 0.26
</TABLE>

The results of operations for the quarter ended June 30, 1997 include two
significant nonrecurring charges, a $5.7 million charge ($3.7 million after tax)
for the difference between the IPO price and the formula price for stock options
outstanding and a $2.6 million charge to record deferred income taxes upon
termination of the Company's S corporation status.

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

27
<PAGE> 29

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 significantly reduced the Company's
revenue base as compared to previous quarters. No assurances can be 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 is cash flow from operations. The
Company's cash flow from operations was ($7.5) million, $18.5 million and $4.0
million for the years ended September 30, 1998, 1997 and 1996, respectively. The
decrease in cash flow from operations in fiscal 1998 as compared to fiscal 1997
is due primarily to increased accounts receivable related to revenue growth.

Certain marketable securities were sold during the year ended September 30,
1998 generating $27.8 million in proceeds. These investments were sold to
provide general working capital, including necessary income tax payments, and to
pay the final S corporation distribution discussed below. The Company has no
material commitments for capital expenditures and, as a services company, does
not anticipate making any significant capital expenditures during fiscal year
1999.

During the three months ended December 31, 1997, the Company made final S
corporation distributions totaling $5.7 million. The distributions to
shareholders were based upon the fiscal 1997 income taxable to the S corporation
shareholders. The amount of the fiscal 1997 taxable income was determined during
the finalization of the Company's income for the full fiscal year ended
September 30, 1997, and the liability for the $5.7 million distribution was
recognized on the September 30, 1997 balance sheet. The Company also made S
corporation distributions totaling $1.7 million to former shareholders of
Spectrum and Phoenix during fiscal 1998. Cash flow from financing activities was
$31.2 million in fiscal 1997. In June 1997, the Company received net proceeds of
$53.8 million from the sale of stock in its IPO. The Company made S corporation
distributions of $21.7 million, representing a portion of the estimated income
taxed or taxable to the S corporation shareholders through the date of its IPO.

The Company has a $10.0 million revolving credit facility (the "CREDIT
FACILITY") with Crestar Bank in Virginia, which may be used for borrowing and
the issuance of letters of credit. Outstanding letters of credit totaled $0.4
million at September 30, 1998. The Credit Facility bears interest at a rate
equal to LIBOR plus an amount which ranges from 0.65% to 1.25% depending on the
Company's debt to equity ratio. The Credit Facility contains certain restrictive
covenants and financial ratio requirements, including a minimum net worth
requirement of $60 million. The Company has not used the Credit Facility to
finance its working capital needs and, at September 30, 1998, the Company had
$9.6 million available under the Credit Facility.

28
<PAGE> 30

Management believes that the Company will have sufficient resources to meet
its cash needs over the next 12 months. Such cash needs may include start-up
costs associated with new contract awards, obtaining additional office space,
establishing new offices, investment in upgraded systems infrastructure and
acquisitions of other businesses and technologies. Cash requirements beyond the
next 12 months depend on the Company's profitability, its ability to manage
working capital requirements, its rate of growth, the amounts ultimately spent
on business acquisitions, if any, and the leasing of new office space, if any.

YEAR 2000

The Company is aware of the issues that many computer systems will face as
the millennium ("YEAR 2000") approaches. The Company is auditing its internal
software and hardware and is implementing corrective actions where necessary to
address Year 2000 problems. The Company is also currently reviewing the software
and hardware, and implementing corrective actions where necessary, of DMG,
Carrera, Spectrum and Phoenix, all of which the Company combined with during
1998. The Company will continue to assess the need for Year 2000 contingency
plans as its remediation efforts progress. The Company estimates that its
remediation efforts will be completed by March 31, 1999. The Company does not
believe that the cost of its remediation efforts will be material or that these
efforts will have a material impact on its operations or financial results.
However, there can be no assurance that those costs will not be greater than
anticipated, or that corrective actions undertaken will be completed before any
Year 2000 problems could occur.

The Company also provides assistance in assessing, evaluating, testing and
certifying government client systems affected by Year 2000 problems, as well as
quality assurance monitoring of Year 2000 compliance conversions performed for
clients by third parties. Although the Company has attempted to contract to
provide such services in a manner that will minimize its liability for system
failures, there can be no assurance that the Company would not become subject to
legal proceedings which, if resolved in a manner adverse to the Company, could
have a material adverse effect on its financial condition.

The Company relies to varying extents on information processing performed
by the governmental agencies and entities with which it contracts. The Company
has inquired where necessary of such agencies and entities of potential Year
2000 problems, and, based on responses to such inquiries, management believes
that the Company would be able to continue to perform on such contracts without
material negative financial impact. However, the Company cannot be certain that
Year 2000 related systems failures in the information systems of clients will
not occur and, if such failures occur, that they will not interfere with the
Company's ability to properly manage a contracted project and result in a
material adverse effect on the Company's business, financial condition and
results of operations.

FORWARD LOOKING STATEMENTS

Statements that are not historical facts, including statements about the
Company's confidence and strategies and expectations about future contracts,
market opportunities, market demand and acceptance of the Company's products are
forward looking statements that involve risks and uncertainties. These
uncertainties include reliance on government clients; risks associated with
government contracting; risks involved in managing governmental projects;
legislative change and political developments; opposition from government
unions; challenges resulting from growth; adverse publicity; and legal, economic
and other risks detailed in this Prospectus.

29
<PAGE> 31

BUSINESS

OVERVIEW

The Company is a leading provider of program management and consulting
services to government agencies throughout the United States. Since its
inception in 1975, the Company believes it has been at the forefront of
innovation in meeting its mission of "Helping Government Serve the People(TM)."
MAXIMUS'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
utilizing advanced technology in projects in almost every state in the nation
and in markets in several foreign countries.

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 planning and
management, information technology consulting, strategic program evaluation,
program improvement, financial management, revenue maximization, fleet
management and other public sector-related consulting services to all government
agencies. In fiscal 1998, the Company significantly expanded its Consulting
Group by combining with four consulting firms, and it now estimates that it is
the largest provider of general consulting services to state and local
government agencies in the United States.

MARKET OPPORTUNITIES

The Company believes that providing program management and consulting
services to government agencies represents a significant market opportunity.
Federal, state and local government agencies in the United States spend more
than $250 billion annually on the health and human services programs to which
the Company markets its services, including Medicaid, Food Stamps, Temporary
Assistance to Needy Families, Child Support Enforcement, Supplemental Security
Income, General Assistance, Child Care and Child Welfare. The state operated
programs alone cost an estimated $21.0 billion annually to administer. This
figure does not include administrative costs for Medicare and Title II
Disability Insurance, which are administered without state assistance. The
following chart sets forth currently available data from U.S. government
publications for programs served by the Company:

<TABLE>
<CAPTION>
ESTIMATED ESTIMATED
NUMBER OF ANNUAL
BENEFICIARIES ADMINISTRATIVE
STATE OPERATED PROGRAM SERVED EXPENDITURES
<S> <C> <C>
Medicaid......................................... 36.1 million $ 6.7 billion
Food Stamps...................................... 26.9 million 3.8 billion
Temporary Assistance to Needy Families........... 12.6 million 3.3 billion
Child Support Enforcement........................ 11.5 million 3.1 billion
Supplemental Security Income..................... 6.6 million 2.0 billion
General Assistance/Social Services/Other......... 10.0 million 2.1 billion
------------- -------------
103.7 million $21.0 billion
</TABLE>

30
<PAGE> 32

In the last several years, there has been a surge in legislation and
initiatives to reform federal, state and local welfare and health and human
services programs. One of the most significant of these legislative reforms was
the Welfare Reform Act, which restructured the benefits available to welfare
recipients, eliminated unconditional welfare entitlement and, most importantly,
restructured the funding mechanisms that exist between federal and state
governments. Under the Welfare Reform Act, states receive block grant funding
from the federal government and are no longer able to seek reimbursement in the
form of matching federal government funds for expenditures in excess of block
grants. Accordingly, states bear the financial risk for the operation of their
welfare programs.

A number of state governments are taking action to respond to changes being
initiated as a result of welfare reform. Some of these actions include enlisting
the advice of specialized management consultants on ways to more efficiently and
effectively administer their health and human service programs and by
outsourcing management of such programs completely. As a result, MAXIMUS, for
example, has been awarded performance-based contracts to manage health care
enrollment services contracts for government agencies in Michigan, Texas, New
York, New Jersey, and California. MAXIMUS has also been retained by numerous
states and municipalities to provide consulting services.

A more recent initiative at the federal level is the Balanced Budget Act of
1997 (the "BALANCED BUDGET ACT"), which established, among other programs, the
State Children's Health Insurance Program (the "CHILDREN'S HEALTH INSURANCE
PROGRAM"). This program provides federal matching funds to enable states to
expand health care to targeted uninsured, low-income children. Over the next
five years, $20.3 billion will be made available to states with
federally-approved plans to expand state Medicaid programs, initiate new
insurance programs or combine approaches. In June 1998, the Clinton
administration also mandated sweeping protections to Medicare beneficiaries,
including increased access to health plans by persons with pre-existing
illnesses, added protections for women and non-English speaking beneficiaries
and increased availability of specialists. Given the breadth and depth of the
Company's expertise, it believes it is well positioned to capitalize upon these
new opportunities to assist states in planning, implementing and maintaining the
increased enrollment and outreach that will be required by these new federal
initiatives.

The Company believes that these legislative changes, when combined with
political pressures and the financial constraints that inevitably result, will
accelerate the rate at which state and local government agencies seek new
solutions to reduce costs and improve the effectiveness of health and human
services programs. The Company believes that government agencies will continue
to turn to companies such as MAXIMUS to reduce costs and improve the
effectiveness of health and human services programs. The Company believes that
it more effectively administers government programs due to its 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.

The Company believes that state and local governments will continue to seek
its services despite the effect of economic cycles on government budgets.
Historically, in times

31
<PAGE> 33

of both budget surpluses and deficits, state and local governments have relied
on the private sector to deliver services to its citizens. In recent years, as
governments at all levels have experienced budget surpluses, new programs have
been initiated to assist even more sectors of society (such as the Children's
Health Insurance Program), increasing the population of beneficiaries of the
Company's services. In more austere times, the population enrolled in existing
government health and welfare programs expands, requiring governments to spend
more to administer these programs, but facing increased pressure to do so
cost-effectively. As a result, even in depressed economic cycles, the Company's
business has continued to expand.

The Company is recognized as a principal partner of state and local
governments for program management and consulting. With more than 100 offices
located throughout the nation, the Company has the local presence and
decentralized organization to promote relationships with the executive and
legislative branches of state and local governments. With more than 2,800
employees nationwide, the Company has more specialized resources than most
state, city or county government agencies.

STRENGTHS AND DIFFERENTIATIONS

The Company believes that it has been a pioneer in offering state and local
government agencies a private sector alternative to internal administration of
government health and human services programs. The Company has also successfully
increased the breadth of its service offerings to meet such demand from
government agencies. The following business strengths and differentiating
characteristics position MAXIMUS to capitalize on the significant market
opportunities presented by the changing environment of health and human services
program regulation:

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, as well as the largest provider
of general management consulting services to state and local government
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
the size, depth and broad range of its health and human services program
expertise, and related areas of government program management, 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.

Expanded Consulting Group. During fiscal 1998, the Company significantly
expanded its Consulting group by acquiring four consulting companies: Spectrum,
DMG, Carrera and Phoenix. These combinations increased the number of the
Company's professional consultants from approximately 125 to over 600 and the
Company believes it has the largest management consulting practice dedicated to
serving state and local government in the U.S. The Company believes that the
expansion of its consulting practice provides it with significant competitive
advantages including: (i) a more predictable source of revenues with operating
margins similar to the Consulting Group; (ii) a significant source of
experienced consultants with an established knowledge base, re-useable
methodologies and valuable relationships with members of the executive and
legislative branches of state and local governments; (iii) a broader suite of
consulting services that are increasingly demanded by state and local government
seeking a single-source provider

32
<PAGE> 34

of program management and consulting services including cost accounting; human
resources consulting; executive recruiting; fleet management; Year 2000 planing
and management; software and systems integration; strategic planning, evaluation
and implementation for government; electronic commerce and "smart card"
technologies; and (iv) a broader client base that facilitates cross-selling
opportunities between the Consulting Group and Government Operations Group.

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, the Company has successfully
completed approximately 500 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 the Company a reputation for providing
efficient and cost-effective services to government agencies while improving the
quality of services provided to program beneficiaries. The Company's reputation
has contributed significantly to its ability to compete successfully for new
contracts. Additionally, the Company's combinations with Spectrum, DMG, Carrera
and Phoenix provide it with extended service capabilities and an additional base
of established clients that the Company believes will further enhance its
reputation as a leading provider of high-quality management and consulting
services to state and local government agencies.

Wide Range of Services. Many of the Company's clients require their
vendors to provide a broad array of service offerings, which 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 enables it to better pursue new business
opportunities and to offer itself as a single-source provider of program
management, consulting and information technology services to state and local
government agencies.

Proprietary Case Management Software Program. The Company has developed a
proprietary automated case management software program called the MAXSTAR Human
Services Application Builder ("MAXSTAR"). MAXSTAR is a software platform that
allows the Company to reduce project implementation time and cost. Because
government agencies are often 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
experienced information technology professionals, is a key element of its
success.

Experienced Team of Professionals. The Company 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, the Company has developed strong relationships with
experienced political consultants who inform and advise the Company with respect
to strategic marketing opportunities and legislative initiatives.

33
<PAGE> 35

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 continued increase in
demand for new program management and consulting services that have arisen in an
environment characterized by changing regulation and evolving technology. The
Company believes that fiscal pressures will compel state governments to continue
to rationalize program operations and upgrade existing technology to operate
more cost-efficient and productive programs. To achieve these efficiencies, the
Company believes that many government agencies will turn to outside experts,
such as the Company, for help.

Aggressively Pursue New Business Opportunities. The Company believes that,
throughout its 23-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.

Continue to Add a Range of Complementary Consulting Services. The Company
intends to continue to broaden its range of consulting services in order to
respond to the evolving needs of its clients and provide cross-selling
opportunities. The Company intends to continue to acquire or internally develop
innovative technologies and methodologies that are required by government
entities in order to effectively deliver public services.

Pursue Strategic Acquisitions. Given the highly fragmented structure of
the government services and consulting marketplace, the Company believes that it
will continue to successfully identify and pursue attractive acquisition
opportunities. Acquisitions can provide the Company with a rapid, cost-effective
method to broaden its services, increase the number of professional consultants,
broaden its client base, cross sell additional services, establish or expand its
presence geographically, or obtain additional skill sets. The recent
combinations with Spectrum, DMG, Carrera and Phoenix have increased the
Company's client base by over 2,000 and added 500 new consultants.

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
program 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.

SERVICES

The Company's services are designed to make the operations of government
health and human services programs more efficient and cost effective while
improving the quality of the services that such government agencies provide to
program beneficiaries. The Company organizes its operations into two groups: (i)
the Government Operations Group,

34
<PAGE> 36

specializing in the management of government health and human services
operations; and (ii) the Consulting Group, which offers consulting services to
every state, county and local government agency, including health and human
services, law enforcement, parks and recreation, taxation, housing, motor
vehicles, labor, education and legislatures.

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.

Child Support 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 500 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 several states providing full child
support services and specialized services for over 600,000 cases. For example,
in June 1998, the Company was awarded a five-year, $29 million, full-service CSE
program management follow-on contract in Nashville, Tennessee.

Managed Care Enrollment Division. The Company provides a variety of
project management services for Medicaid programs with a particular emphasis on
large-scale managed care enrollment projects. In these projects, the Company
provides recipient outreach, education and enrollment services; an automated
information system customized for the state; data collection and reporting;
collaborative efforts with community-based organizations and advocacy groups in
conducting outreach and education activities; design and development of program
materials; health plan encounter data analysis and reporting; and care
coordination for Early and Periodic Screening, Diagnosis and Treatment services.
The Company currently provides managed care enrollment contract services to more
Medicaid recipients than any other public or private sector entity in the
country, operating projects for the states of California, New York, Texas,
Michigan, Colorado, Vermont, Massachusetts, New Jersey and Georgia. In recent
months, the Company has begun to administer programs for uninsured and
underinsured children as part of the Children's Health Insurance Program in
various states, including Michigan, Massachusetts, Vermont, New Jersey, and
Kansas.

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 over
250,000 welfare recipients in numerous states, and has achieved an average
employment placement rate in excess of 80%. For example, the Company currently
manages a welfare reform program in Milwaukee County, Wisconsin under a
three-year, $24 million contract. In 1998, the Company was awarded a contract to
provide employment services in San Diego, California serving 13,000

35
<PAGE> 37

participants and valued at more than $6 million annually. Additionally, the
Company has recently been awarded performance-based, welfare-to-work contracts
in Texas, Illinois, Delaware, Virginia, Maryland and Pennsylvania totaling over
$10 million. The Company provides statewide child care services in Connecticut
and was also recently awarded a contract to provide child care services
statewide in Hawaii. As an outgrowth of the Company's welfare reform services,
the Company has developed MAXSTAFF, an independent employment agency that
leverages the Company's referral and placement infrastructures by helping
employers find qualified employees or temporary staff from the large pool of
human resources the Company manages.

Federal Services Division. The Company provides a host of large-scale,
nationwide management services geared toward case management, innovative
return-to-work strategies, program management and staffing support services.
Areas of specialization include disability services, vocational rehabilitation,
substance abuse/mental health services and justice administration. In 1995, the
Company became the first company to operate a national case management and
monitoring program for disability beneficiaries when it contracted with the
Social Security Administration to provide referral and monitoring services to
beneficiaries with drug or alcohol disabilities. Under the program, the Company
successfully referred approximately 140,000 disabled beneficiaries into
treatment as a first step to re-entering the work force. The Company intends to
leverage this experience by pursuing other large scale program management
contracts with other agencies of the federal government, including the
Department of Justice and the Department of Veterans Affairs.

CONSULTING GROUP

The Company's Consulting Group is comprised of the following eight
divisions: the Information Technology Solutions Division, the Systems Planning
and Integration Division, the International Division, the Human Services
Division, Phoenix Consulting Group, the Spectrum Consulting Division, the
Carrera Consulting Group and DMG-MAXIMUS.

Information Technology Division. The Company provides computer systems
management and business process re-engineering services to state, county and
other local governments. The Company provides services associated with project
management, including assessing current and future business needs, defining user
requirements, designing automated systems, developing requests for proposals,
and providing evaluation assistance, contract negotiations and quality assurance
monitoring services. Since 1991, the Company has provided information technology
systems and design services for projects in more than 40 states in the nation.
The Company also specializes in providing management services to agencies
administering criminal justice programs. In November 1997, Company was selected
by the State of Connecticut to provide project management and system integration
services for the criminal justice information system Offender Based Tracking
System for the Connecticut Office of Policy and Management. This $5.5 million
contract will run through September 2001. The Company also provides
re-engineering services to government authorities such as the County of Los
Angeles. The Company is assisting the County (Board of Supervisors,
Auditor-Controller, Office of the Assessor, Registrar-Recorder/ County Clerk,
and the Treasurer and Tax Collector) in the development of the County's Property
Tax System Business Process Re-engineering Project. In addition, the Company
provides assistance in assessing, evaluating, testing and certifying government
systems for Year 2000 compliance. The Company is currently providing Year 2000
project management and quality services to the Department of Information
Technology for the State of Connecticut.

36
<PAGE> 38

Systems Planning Division. The Company believes that its Systems Planning
Division is a leading provider of strategic information management, procurement
and contracting, systems quality assurance and systems implementation services
to the rapidly expanding state health, human services and child support
enforcement agency market. Using an experienced team of skilled project managers
and information technology professionals, the Company has, in multiple projects
across numerous states, assisted clients in the planning, design, procurement
and implementation of information systems totaling nearly $1 billion. These
complex, high-profile systems -- which have ranged from $5 million to over $100
million and from 200 to 2,000 users -- serve as the mission critical
infrastructure for over $30 billion in annual health and human services
expenditures. The division also supports the card technologies practice of the
Company's Phoenix Consulting Division focusing on its application to electronic
benefits transfer and driver's license applications. The potential market for
the division's services has continued to expand in recent years. Welfare reform
is forcing dramatic changes in eligibility systems for welfare programs. The
number of work force development programs sponsored by the Department of Labor
are also increasing. Significant changes to the systems supporting Medicaid,
often the single largest budget item of state government budgets, will be
required by the shifts from fee-for-service programs coupled with federally
mandated competition for Medicaid Management Information Systems operations
support. Given the Company's successful track record, core competencies and
national market presence, the Company believes that it is well positioned to
take advantage of the increased nationwide emphasis in state government on
eligibility systems, managed care, child services, family court services and
child support enforcement. Additionally, the Company believes that synergies
between the Company's Consulting and Government Operations Groups and other
strategic hires will uniquely position the Company to take advantage of the new
market opportunities created by the recently enacted changes to managed care and
the Child Health Insurance Program.

International Division. The Company provides health care consulting and
systems services to assist foreign government agencies and health care
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, the Company consults with foreign government agencies in developing
health care policy reforms, treatment quality improvements and productivity
enhancements. The Company's health care systems software, developed in
ORACLE(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 two major automation projects
in Egypt, installing a health care information system in three hospitals in
Cairo and a national health care system database in hospitals and clinics
throughout the country to allow the Egyptian Health Insurance Organization to
better manage its facilities. Additionally, in Argentina, the Company is
providing organizational and management services to the health plan of an
employee union with almost 500,000 members, and conducted a demonstration
project in support of Health District autonomy for the Ugandan Ministry of
Health to improve the effectiveness of its contracting process in selected pilot
Health Districts.

Human Services Division. The Company's Human Services Division provides
program planning and implementation, revenue maximization and evaluation
consulting assistance to human services, health and education agencies in state,
local and federal

37
<PAGE> 39

government. The Company has completed comprehensive welfare reform planning and
implementation projects for the District of Columbia and the State of Nevada,
and has been engaged by the District of Columbia to provide planning and
implementation assistance for a new Child Health Insurance Program. Revenue
maximization projects, which involve increasing federal financial participation
in state health and human services programs and are generally carried out on a
contingency fee basis, have been completed or are on-going in more than twenty
states. The states have received more than $350 million in additional federal
revenue as a result of the Company's efforts and expect current projects to
yield another $300 million in new federal revenue. The Company also is
frequently engaged to conduct evaluations of government programs and
demonstrations. Program evaluation contracts are often 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 scores of welfare reform, revenue maximization and program evaluation
projects for numerous states and localities.

Electronic Commerce and Card Technologies Consulting Services (Phoenix
Consulting Division). The Company's Phoenix Consulting Division provides
health, transportation, education, banking and human service clients with expert
assistance in planning, implementing and evaluating Electronic Funds Transfer
("EFT"), Electronic Benefits Transfer ("EBT"), Electronic Payment Systems
("EPS"), smart card, biometric recognition system and related technologies.
Responding to pressures to provide more time-and cost-efficient services,
public-sector entities are increasingly following the general trend of moving
from paper-based to electronics-based systems. In addition to its cost
efficiencies, electronic commerce ("EC") technologies can provide more accurate
record keeping, minimize paper transactions and offer greater security against
fraud and theft. For instance, recognizing the advantages of EBT systems, which
permit a recipient to transfer his or her public-assistance benefits directly
from a government account to the product or service vendor, the federal
government has mandated that all states must convert to EBT issuance under the
Food Stamp Program by October 2002. In over thirty states, Phoenix has assisted
clients in making the conversion to electronic commerce. Currently, it is
helping the state of New Jersey implement a program to facilitate 24-hour
electronic access to a suite of government services using smart card technology.
In other states, including Texas and California, Phoenix is providing expert
assistance to implement EBT for WIC benefits. Phoenix has become a recognized
expert in its field, having delivered lectures at influential card-technology
conferences such as CardTech/SecurTech NACHA, conducted training seminars for
entities such as the U.S. Office of Management and Budget, the U.S. Joint
Financial Management Improvement Program, American Banking Association and Food
Marketing Institute, and having been a primary consultant to Vice President
Gore's Federal EBT Task Force.

Automation Consulting Services (Spectrum Consulting Division). The
Company's Spectrum Consulting Division provides management consulting services
that focus on assisting large public sector organizations in solving complex
business problems related to automation. Spectrum has engagements in all areas
of government, including the legislative, executive and judicial branches, and
has extensive knowledge of the fiscal structure of states through its experience
with state auditors, comptrollers and treasurers as well as a significant
understanding of the programmatic areas of state government through close
contact with many types of state agencies. The Company provides a variety of
information technology services including Year 2000 quality assurance and
project planning and management; quality assurance monitoring and assessment for
child welfare, and healthcare and financial management systems; strategic
planning; and advanced technolo-

38
<PAGE> 40

gies. The Company also plans to provide clients with a comprehensive set of
quality assurance and Year 2000 consulting services that are jointly developed
by the Spectrum and Systems Planning and Integration divisions.

Carrera Consulting Group (a Division of MAXIMUS). The Carrera Consulting
Group's mission is to deliver technology-based business solutions to government.
Services include information technology strategic planning, year 2000 impact
assessment and remediation, custom system development for health and human
services systems and enterprise resource planning ("ERP") systems
implementation. As a PeopleSoft Global Alliance Partner, the Carrera Consulting
Group is one of the leading implementators of human resource and financial
systems for state and local government. Prior to its combination with the
Company, Carrera had implemented over thirty such systems for various government
clients including the cities of Escondido, Los Angeles, Santa Monica, Des
Moines, Akron, Eugene, Seattle and Denver; the counties of Solano, Tuolumne and
King County Washington; and various organizations within the States of
California, Georgia and New York. The Carrera Consulting Group has also provided
implementation management, conversion, development projects. The Carrera
Consulting Group offers clients a highly skilled consulting staff with focused
expertise in helping public sector entities implement large-scale information
systems.

DMG-MAXIMUS. The Company's DMG-MAXIMUS division provides a broad array of
consulting services such as cost accounting, wage and compensation evaluation,
executive recruitment and fleet management. A particular expertise of this
division is assisting government entities with controlling their overhead and
program specific costs. DMG-MAXIMUS conducts comprehensive reviews and audits of
client operations at the department- or division-level to identify unusually
costly units of service or departments not meeting community needs. The division
also helps clients prepare rationalized cost accounting of their services,
through preparing either (i) cost allocation plans, which allocates overhead
costs of centrally-provided services among the departments by the level of use
of such services; (ii) indirect cost rate proposals, which allocate
inter-departmental administrative costs among the specific department programs
and activities; (iii) or other such cost plans. DMG-MAXIMUS further assists
local and state governments in determining the appropriate fee charges for
government services by calculating the total costs of such fee-based services.
DMG-MAXIMUS does not typically engage in the large scale projects undertaken by
other of the Consulting Group's divisions. Its focus has been on discrete,
specialized consulting engagements, which it currently has with over 2,000
clients throughout the United States. The Company views this expansive network
of contacts as an opportunity to cross-sell its broad array of services by
leveraging customer satisfaction in smaller engagements into potentially larger
scale consulting projects.

BACKLOG

The Company's backlog represents an estimate of the remaining future
revenues from existing signed contracts and revenues from contracts that 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 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)
addition for future revenues from the execution of new contracts or extension or
renewal of existing

39
<PAGE> 41

contracts; (ii) reduction from fulfilling contracts during the most recent
quarter; (iii) reduction from the early termination of contracts; and (iv)
adjustments to estimates of previously included contracts.

At September 30, 1998 and 1997, the Company's backlog for services was
approximately $276 million and $217 million, respectively.

MARKETING AND SALES

The Company's Government Operations Group obtains program management
contracts from state and local authorities by responding to RFPs. Whenever
possible, prior to the issuance of an RFP, senior executives in the Government
Operations Group work with senior government representatives, such as a state's
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 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 government authority until an agreement is reached.

The Consulting Group generates leads for consulting contracts by tracking
bid notices, employing lobbyists, maintaining relationships with government
personnel, communicating directly with current and prospective clients, and
increasingly, through referrals and cross-selling initiatives from other
divisions of the Consulting Group. The Consulting Group participates in
professional associations of government administrators and industry seminars
featuring presentations by the Company personnel. Senior executives from the
Consulting Group develop leads through on-site presentations to decision-makers.
In many 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. The Company also expects to leverage the client
relationships of firms it acquires by cross-selling its existing services.
Furthermore, clients frequently expand the scope of engagements during delivery
to include follow-on complementary activities.

COMPETITION

The market for providing program management and consulting services to
state and local health and human services agencies, as well as to public sector
clients generally, 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

40
<PAGE> 42

the United Way and Goodwill Industries, government services divisions of large
companies such as Lockheed Martin Corporation and Electronic Data Systems, Inc.,
managed care enrollment companies such as Benova, and specialized service
providers such as Andersen Consulting, America Works, Inc., and Policy Studies
Incorporated. The Company's Consulting Group competes with the consulting
divisions of the "Big 5" accounting firms as well as Electronic Data Systems,
Inc and many smaller consulting firms. The Company anticipates that it will face
increased competition in the future as new companies enter the market, but that
its experience, reputation, industry focus and broad range of services provide
significant competitive advantages which the Company expects will enable it to
compete effectively in its markets.

GOVERNMENT REGULATION

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

Welfare Program. Under Title IV-A of the federal Social Security Act, the
federal government provides financial assistance to underprivileged families
under several programs commonly 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 were provided to needy children deprived of parental support and to
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 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 makes "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.

General Assistance/General Relief Programs. There are also General
Assistance or General Relief programs that are administered by the states. These
welfare programs are not federally reimbursed and generally serve persons not
eligible for other federal programs. By their nature, they are very restrictive
in terms of eligibility requirements since states must pay 100% of both the
benefit and administrative costs. The eligibility requirements for these
programs vary by state and sometimes by county within the state. Forty two
states currently have General Assistance programs in operations. Thirty three of
the states operate the program in only a portion of the state.

Food Stamp Program. The Food Stamp Program is a federally funded program
that is administered by the states. The purpose of the program is to increase
the food purchasing power of eligible low-income households to a point that they
can buy a nutritionally adequate, low-cost diet. The program subsidizes food
purchases through the

41
<PAGE> 43

issuance of food stamps or through issuance of electronic cards. Food stamp
program benefits are entirely paid for by the federal government and food stamp
program administrative costs are shared 50/50 with the states, except that
states with low error rates may have up to 60% of their administrative costs
reimbursed. Eligibility for TANF or SSI also ensures eligibility for food
stamps.

Supplemental Social Security Income. Titles XVI of the federal Social
Security Act provide for the administration and distribution of financial
assistance to disabled individuals whose impairments make them unemployable.
There has been political pressure on the Social Security Administration (the
"SSA") and the states to review the caseload of 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 pressure to increase and improve vocational rehabilitation
efforts focused on returning disabled beneficiaries to work and
self-sufficiency.

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.

Medicaid, Medicare and the Children's Health Insurance Program. 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 TANF beneficiaries, and to certain pregnant women 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. The Child Health Insurance Program is a
recently enacted $20 billion program to provide health care for children whose
family income is near the poverty level.

42
<PAGE> 44

HUMAN RESOURCES

As of November 19, 1998, the Company had more than 2,800 employees,
consisting of 2,067 employees in the Government Operations Group, 685 employees
in the Consulting Group and 126 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 Consulting Group and for senior
administrative positions. When the Company's Government Operations Group is
awarded a contract by a 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.

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.

The Company 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, the Company 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 governments or other
government consulting firms in general. In addition, to attract and retain
employees, the Company has established several employee benefit plans, including
401(k) savings and retirement plans, its 1997 Equity Incentive Plan and its 1997
Employee Stock Purchase Plan.

DESCRIPTION OF PROPERTY

The Company is headquartered in McLean, Virginia, in a 21,000 square foot
office building which it owns. 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 October 1, 1998, the
Company conducted operations from 114 leased office facilities totaling
approximately 576,000 square feet. The lease terms vary from month-to-month to
five-year leases and are generally at market rates. The Company is currently
seeking additional space to house its new headquarters and to support its
expanding operations and believes that it will be able to secure such space, as
needed, in the future.

43
<PAGE> 45

MANAGEMENT

EXECUTIVE OFFICERS AND DIRECTORS

The Company's executive officers and directors and their respective ages
and positions are as follows:

<TABLE>
<CAPTION>
NAME AGE POSITION
<S> <C> <C>
David V. Mastran(a).................. 55 President, Chief Executive Officer and
Director
Raymond B. Ruddy(a).................. 55 Chairman of the Board of Directors, Vice
President of the Company, President of
Consulting Group, Treasurer and Director
Russell A. Beliveau.................. 51 President of Business Development and
Director
Margaret Carrera..................... 44 President of Carrera Consulting Group,
Vice-Chairwoman of the Board and Director
Ilene R. Baylinson................... 42 President of Federal Services Division
John F. Boyer........................ 51 President of Managed Care Enrollment
Division
David M. Casey....................... 40 President of Information Technology
Division
George C. Casey...................... 54 President of Spectrum Consulting Division
Louis E. Chappuie.................... 60 President of DMG-MAXIMUS and Director
Lynn P. Davenport.................... 51 President of Human Services Division and
Director
Gary L. Glickman..................... 45 President of Phoenix Consulting Division
David A. Hogan....................... 50 President of Child Support Division
John P. Lau, Sr...................... 55 President of International Division
Holly A. Payne....................... 45 President of Welfare Reform Division
Susan D. Pepin....................... 44 President of Systems Planning Division and
Director
Robert J. Muzzio..................... 64 Executive Vice President and Director
F. Arthur Nerret..................... 51 Vice President, Finance and Chief
Financial Officer
Robert E. Taggart, Jr................ 52 Vice President and Chief Operating Officer
of DMG-MAXIMUS
Jesse Brown(b)....................... 54 Director
Peter B. Pond(b)..................... 54 Director
</TABLE>

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

(a) Member of the Compensation Committee.

(b) 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

44
<PAGE> 46

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 Business
Development Division since September 1998. Prior to that, he served as President
of the 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.

Margaret Carrera has served as President of the Company's Carrera
Consulting Group Division, Vice-Chairwoman of the board and a director since the
acquisition of Carrera by the Company in August 1998. Prior to that time she had
served as President of Carrera since its founding in 1991. Ms. Carrera has
twenty years of experience in management information systems. Prior to the
founding of Carrera, she served as West Region Director of Information Systems
consulting for the Public Sector with Ernst & Young LLP and Vice President of
Bank Card Processing for Bank of America. She has also held positions at
Cambridge Systems Group and Pacific Telephone. Ms. Carrera received her M.B.A.
in Finance from San Francisco State University in 1980 and her B.A. in
Mathematics and Chemistry from United States International University in 1975.

Ilene R. Baylinson has served as the President of the Company's Federal
Services Division (formerly, the 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 Johns 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.

John F. Boyer has served as President of the Company's Managed Care
Enrollment Division since October 1998, after serving in various capacities for
that division since Fall of 1997. Prior to that, he served as Vice President for
Strategic Planning and Contract Administration of the Company since 1995. Dr.
Boyer has more than 20 years' experience in health care delivery in both
clinical and administrative settings. Prior to joining the Company, Dr. Boyer
served as Director of Health Services Financing Policy in The Office of The
Assistant Secretary of Defense (Health Affairs) at the Pentagon from 1989 until
1995. Dr. Boyer received his Ph.D. in Public Administration and Public Policy
Analysis from The American University in 1989, his M.S. in Management from The
Naval Postgraduate School in 1981, his M.S. in Nursing from New York Medical
College in 1973 and his B.S. from Illinois State University in 1969.

David M. Casey has served as the President of the Information Technology
Division of the Company since 1997 and has been with the Company since 1994. Mr.
Casey has 17 years of professional experience in management information systems.
Prior to joining

45
<PAGE> 47

the Company, Mr. Casey served as a Government and Education Account Executive
for Wang Laboratories, Inc. from 1987 until 1994 and served as a Sales
Consultant at Wang Laboratories, Inc. from 1986 to 1987. Mr. Casey has also held
positions at Motorola, Inc. and Polaroid Corporation. Mr. Casey holds a B.S. in
General Engineering and Computer Science from Northeastern University.

George C. Casey has served as President of the Spectrum Consulting Division
since the Company's acquisition of the Spectrum in March 1998. Prior to that, he
had served as President of the Spectrum since October 1986. Before joining
Spectrum in 1986, Mr. Casey worked as a Partner for KMG Main Hurdman, an
international public accounting firm that subsequently merged with KPMG Peat
Marwick. Mr. Casey has extensive experience in project planning and management,
procurement and contract negotiations, and quality assurance reviews and
realignment. Mr. Casey earned a B.S./B.A. degree from Northwestern University in
1966.

Louis E. Chappuie has served as President of DMG-MAXIMUS and a director of
the Company since the acquisition of DMG by the Company in May 1998. Prior to
that time he served as President and Chairman of the Board of DMG from 1992 and
1997, respectively. Prior to assuming the presidency of DMG, he was Executive
Vice President of DMG's Western Practice Area in Sacramento, California for 12
years. His additional experience includes Arthur Young & Company and Foreign
Service Officer, U.S. State Department. Mr. Chappuie received his B.A. and M.A.
from the University of Minnesota in 1960 and 1961, respectively, and has
completed course work for a Ph.D. in Economics.

Lynn P. Davenport has served as the President of the Company's Human
Services Division since he joined the Company in 1991. He has over thirteen
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.

Gary L. Glickman has served as President of the Phoenix Consulting Division
since the acquisition of Phoenix by the Company in August 1998. Prior to that
time he had served as President of Phoenix since its founding in 1990. Mr.
Glickman entered consulting in 1980 and has served in a variety of positions
advising public and private clients on electronic banking and related
technologies. During this time, he was employed with several firms, including
Deloitte & Touche and Laventhal & Howarth. Prior to entering consulting, Mr.
Glickman held positions in the Office of the Secretary in the U.S. Department of
the Treasury and Controller's Office of New York City. Mr. Glickman received his
M.B.A. in Economics from New York University in 1978 and his B.A. in American
Studies from Brandeis University in 1975.

David A. Hogan has served as the President of the 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.

46
<PAGE> 48

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 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 Welfare Reform Division of the Company 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.

Susan D. Pepin has served as the President of the Company's Systems
Planning Division since 1994 and has been with the Company since 1988. She has
over 17 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.

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.

F. Arthur Nerret has served as 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 C.P.A. 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.

Robert E. Taggart, Jr. has served as Vice-President and Chief Operating
Officer of DMG-MAXIMUS since the acquisition of DMG by the Company in May 1998.
Prior to that time, he served as the National Director of Fleet Management
Consulting for six years and Vice President of DMG for four years. Additionally,
he was the director of Fleet Consulting for Ernst & Young LLP. Mr. Taggart has
more than 18 years of consulting and fleet management experience. Mr. Taggart
received his M.C.R.P. in Urban and Regional

47
<PAGE> 49

Planning from the University of California at Berkeley in 1974 and his B.A. in
Economics from Lawrence University in 1968.

Jesse Brown has served as a director of the Company since his election by
the board in September 1997. Mr. Brown, who is currently President of Brown &
Associates, Inc., an international consulting company, served as Secretary of
Veteran Affairs under the Clinton Administration from 1993 until 1997, and as
Executive Director of the Washington office of Disabled American Veterans from
1989 to 1993. Mr. Brown is an honors graduate of Chicago City College and also
attended Roosevelt University of Chicago and Catholic University in Washington,
D.C.

Peter B. Pond has served as a director of the Company since his election by
the Board in December 1997. Mr. Pond is a Principal and Managing Director in the
Investment Banking Department at Donaldson, Lufkin & Jenrette Securities
Corporation in Chicago and is head of that company's Midwest Investment Banking
Group. Mr. Pond holds a B.S. in Economics from Williams College and an M.B.A.
from the University of Chicago. He is a director of The Metzler Group, Inc.

SELLING SHAREHOLDERS

The following table sets forth certain information regarding the beneficial
ownership of Common Stock as of December 10, 1998, and as adjusted to reflect
the sale of the shares offered hereby, by each Selling Shareholder. 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, except as noted in
the footnotes relating to such person. Unless otherwise indicated, the address
of each of the Selling Shareholders is care of the Company at the Company's
principal executive office.

<TABLE>
<CAPTION>
SHARES OWNED PRIOR SHARES OWNED AFTER
TO THE OFFERING(a) THE OFFERING(a)
--------------------- SHARES ---------------------
SELLING SHAREHOLDERS: NUMBER PERCENT OFFERED(b) NUMBER PERCENT
<S> <C> <C> <C> <C> <C>
David V. Mastran.......... 8,121,305(c) 44.55% 768,828 6,804,492(c) 33.64%
Donna M. Mastran.......... 4,878,533(d) 26.76 27,000 4,082,705(d) 20.18
Raymond B. Ruddy.......... 3,242,772(e) 17.79 370,985 2,721,787(e) 13.46
Margaret Carrera.......... 1,137,420 6.24 225,000 912,420 4.51
John Parker............... 420,000 2.30 125,000 295,000 1.46
George C. Casey........... 420,000 2.30 100,000 320,000 1.58
Cole Taylor Bank, as
trustee for the David
M. Griffith &
Associates, Ltd.
Employee Stock
Ownership Plan(f)...... 339,769 1.86 160,000 179,769 *
Lynn P. Davenport......... 276,354(g) 1.51 70,878 205,476(g) 1.01
Susan D. Pepin............ 231,033 1.26 59,920 171,113 *
Russell A. Beliveau....... 202,821(h) 1.11 52,381 150,440(h) *
Raymond B. Ruddy
Charitable Remainder
Unitrust............... 150,000(i) * 150,000 -- *
Eugene I. Costa........... 117,039 * 36,759 80,280 *
Gary L. Glickman.......... 117,039 * 36,759 80,280 *
Ilene R. Baylinson........ 41,367 * 5,921 35,446 *
Holly A. Payne............ 29,696(j) * 2,343 25,978(j) *
</TABLE>

48
<PAGE> 50

<TABLE>
<CAPTION>
SHARES OWNED PRIOR SHARES OWNED AFTER
TO THE OFFERING(a) THE OFFERING(a)
--------------------- SHARES ---------------------
SELLING SHAREHOLDERS: NUMBER PERCENT OFFERED(b) NUMBER PERCENT
<S> <C> <C> <C> <C> <C>
Michael Truby............. 29,696(k) * 1,375 25,978(k) *
Kevin Dorney.............. 23,710 * 2,468 21,242 *
Margaret W. Melhem........ 14,610 * 3,652 10,958 *
Penny H. Tisdale.......... 2,927 * 731 2,196 *
</TABLE>

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

* Less than 1%.

(a) Applicable percentage of ownership prior to this offering is based upon
18,225,468 shares of Common Stock outstanding. For ownership after
completion of this offering, applicable percentage ownership is based on
20,225,468 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. Each of the following Selling Shareholders beneficially own fully
exercisable options to purchase that number of shares set forth after his
or her respective name: Mr. Beliveau, 13,294; Mr. Davenport, 111,592; Mr.
Dorney, 13,835; Mrs. Mastran, 3,973; Ms. Baylinson, 35,446; Ms. Payne,
8,530; Ms. Pepin, 111,353; and Mr. Truby, 6,291. All directors and
executive officers as a group are deemed to beneficially own an aggregate
of 307,792 shares of Common Stock issuable upon the exercise of options
which will be fully exercisable within the 60-day period following
December 10, 1998.

(b) 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
630,000 shares of Common Stock: Dr. Mastran, 237,432; Mrs. Mastran,
10,167; Mr. Ruddy, 160,892; Ms. Carrera, 69,485; Mr. Parker, 38,603; Mr.
Casey, 30,882; Mr. Davenport, 21,889; Ms. Pepin, 18,505; Mr. Beliveau,
16,176; Mr. Costa, 11,352; Mr. Glickman, 11,352; Ms. Payne, 724; Mr.
Truby, 425; Mr. Dorney, 762; Ms. Melhem, 1,128; and Ms. Tisdale, 226.

(c) Includes the holdings of (i) Dr. Mastran's spouse, Mrs. Mastran,
consisting of 89,129 shares prior to the offering and 62,129 shares after
the offering and 3,973 shares issuable upon exercise of stock options
exercisable within the 60-day period following December 10, 1998 and (ii)
Mr. Ruddy, consisting of 3,242,772 shares prior to the offering and
2,721,787 shares after the offering, and who is obligated by written
agreement to vote such shares in a manner consistent with instructions
received from Dr. Mastran until September 30, 2001. Dr. Mastran does not,
however, have dispositive power over Mr. Ruddy's shares.

(d) Includes the holdings of Mrs. Mastran's spouse, Dr. Mastran, consisting of
4,785,431 shares prior to the offering and 4,016,603 shares after the
offering.

(e) Includes 1,170,000 shares held by trusts for the benefit of Mr. Ruddy's
family members. See footnote (i).

(f) The address of the trustee is Cole Taylor Bank, 850 W. Jackson Boulevard,
8th Floor, Chicago, Illinois 60607.

(g) Includes 1,250 shares held by Mr. Davenport's son.

(h) Includes the holdings of a trust of which Mr. Beliveau and his spouse are
the primary beneficiaries, consisting of 189,527 shares prior to the
offering and 137,146 shares after the offering.

(i) Consists entirely of shares held by a trust of which Mr. Ruddy is trustee
and beneficiary. See footnote (e).

(j) Includes the holdings of Ms. Payne's spouse, Mr. Truby, consisting of
5,550 shares prior to the offering and 4,175 shares after the offering and
6,291 shares issuable upon exercise of stock options exercisable within
the 60-day period following December 10, 1998.

(k) Includes the holdings of Mr. Truby's spouse, Ms. Payne, consisting of
9,375 shares prior to the offering and 7,032 shares after the offering and
8,530 shares issuable upon exercise of stock options exercisable within
the 60-day period following December 10, 1998.

49
<PAGE> 51

UNDERWRITING

Subject to the terms and conditions contained in an underwriting agreement,
dated December 10, 1998, the underwriters named below, who are represented by
Donaldson, Lufkin & Jenrette Securities Corporation, Lehman Brothers Inc. and
Legg Mason Wood Walker, Incorporated, have severally agreed to purchase from the
Company and the selling shareholders the number of shares set forth opposite
their names below.

<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS: SHARES
<S> <C>
Donaldson, Lufkin & Jenrette Securities Corporation....... 2,520,000
Lehman Brothers Inc....................................... 1,260,000
Legg Mason Wood Walker, Incorporated...................... 420,000
---------
Total..................................................... 4,200,000
=========
</TABLE>

The underwriting agreement provides that the obligations of the several
underwriters to purchase and accept delivery of the shares included in this
offering are subject to approval of certain legal matters by their counsel and
to certain other conditions. The underwriters are obligated to purchase and
accept delivery of all the shares (other than those covered by the
over-allotment option described below) if they purchase any of the shares.

The underwriters propose to initially offer some of the shares directly to
the public at the public offering price set forth on the cover page of this
prospectus and some of the shares to certain dealers at the public offering
price less a concession not in excess of $1.02 per share. The underwriters may
allow, and such dealers may re-allow, a concession not in excess of $0.10 per
share on sales to certain other dealers. After the initial offering of the
shares to the public, the representatives may change the public offering price
and such concessions.

The following table shows the underwriting fees to be paid to the
underwriters by the Company and the selling shareholders in connection with this
offering. These amounts are shown assuming both no exercise and full exercise of
the underwriters' option to purchase additional shares of common stock.

<TABLE>
<CAPTION>
PAID BY
SELLING SHAREHOLDERS
PAID BY THE COMPANY ---------------------------
------------------- NO EXERCISE FULL EXERCISE
<S> <C> <C> <C>
Per share................... $ 1.71 $ 1.71 $ 1.71
Total....................... $3,420,000 $3,762,000 $4,839,300
</TABLE>

The Company will pay the offering expenses, estimated to be $500,000.

50
<PAGE> 52

Certain selling shareholders have granted to the underwriters an option,
exercisable for 30 days from the date of the underwriting agreement, to purchase
up to 630,000 additional shares at the public offering price less the
underwriting fees. The underwriters may exercise such option solely to cover
over-allotments, if any, made in connection with this offering. To the extent
that the underwriters exercise such option, each underwriter will become
obligated, subject to certain conditions, to purchase a number of additional
shares approximately proportionate to such underwriter's initial purchase
commitment.

The Company and the selling shareholders have agreed to indemnify the
underwriters against certain civil liabilities, including liabilities under the
Securities Act of 1933, or to contribute to payments that the underwriters may
be required to make in respect of any of those liabilities.

The Company, each of the selling shareholders and the executive officers
and directors of the Company have agreed that, for a period of 90 days from the
date of this prospectus, they will not, without the prior written consent of
Donaldson, Lufkin & Jenrette: (1) offer, pledge, sell, contract to sell, sell
any option or contract to purchase, purchase any option or contract to sell,
grant any option, right or warrant to purchase or otherwise transfer or dispose
of, directly or indirectly, any shares of common stock or any securities
convertible into or exercisable or exchangeable for common stock; or (2) enter
into any swap or other arrangement that transfers all or a portion of the
economic consequences associated with the ownership of any common stock
(regardless of whether any of the transactions described in clause (1) or (2) is
to be settled by the delivery of common stock, or such other securities, in cash
or otherwise). In addition, during such period, the Company has agreed not to
file any registration statement with respect to, and each of its executive
officers, directors and certain shareholders of the Company (including the
selling shareholders) has agreed not to make any demand for, or exercise any
right with respect to, the registration of any shares of common stock or any
securities convertible into or exercisable or exchangeable for common stock
without the prior written consent of Donaldson, Lufkin & Jenrette.

The representatives may, from time to time, engage in transactions with and
perform services for the Company in the ordinary course of their business.

Other than in the United States, no action has been taken by the Company,
the selling shareholders or the underwriters that would permit a public offering
of the shares of common stock included in this offering in any jurisdiction
where action for that purpose is required. The shares included in this offering
may not be offered or sold, directly or indirectly, nor may this prospectus or
any other offering material or advertisement in connection with the offer and
sale of any such shares be distributed or published in any jurisdiction, except
under circumstances that will result in compliance with the applicable rules and
regulations of such jurisdiction. Persons who receive this prospectus are
advised to inform themselves about and to observe any restrictions relating to
the offering of the common stock and the distribution of this prospectus. This
prospectus is not an offer to sell or a solicitation of an offer to buy any
shares of common stock included in this offering in any jurisdiction where that
would not be permitted or legal.

In connection with this offering, certain underwriters 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

51
<PAGE> 53

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. These activities may stabilize or maintain the market price of the common
stock above independent market levels. The underwriters are not required to
engage in these activities and may end any of these activities at any time.

Peter B. Pond, a director of the Company, is a principal of Donaldson,
Lufkin & Jenrette. Donaldson, Lufkin & Jenrette in the past has provided
investment banking services to the Company and is serving as the lead managing
underwriter in this offering. Pursuant to the Company's Director Stock Option
Plan, the Company granted Mr. Pond options to purchase 5,000 and 15,000 shares
of common stock, respectively, at an exercise price per share equal to the fair
market value of the common stock on the trading day immediately preceding each
such grant date, which grant dates were the date of his initial election to the
board of directors of the Company in 1997 and his re-election at the Company's
annual meeting of shareholders in February 1998. Each of these option grants
vests and becomes exercisable for the purchase of 5,000 shares on the grant date
and each anniversary thereafter. In addition, on August 18, 1998, the Company
granted to Mr. Pond options to purchase 150 shares of common stock at an
exercise price per share of $23.88 in consideration for consultant services
provided to the Company. These options were granted pursuant to the Company's
Equity Incentive Plan and were fully exercisable on the date of grant.

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. Lynnette C. Fallon, a
partner of Palmer & Dodge LLP, is an Assistant Secretary of the Company.

EXPERTS

The consolidated financial statements of the Company at September 30, 1997
and 1998 and for each of the three years in the period ended September 30, 1998
appearing in this prospectus and the Registration Statement on Form S-3 have
been audited by Ernst & Young LLP, independent auditors, as set forth in their
report thereon appearing elsewhere herein which, as to the years 1997 and 1996,
is based in part on the report of Grant Thornton LLP, independent auditors. The
financial statements referred to above are included in reliance on such reports
given upon the authority of such firms as experts in accounting and auditing.

AVAILABLE INFORMATION

The Company is subject to the informational requirements of the Exchange
Act, and, in accordance therewith, files periodic reports, proxy statements and
other information with the Commission. Reports, proxy and information statements
filed pursuant to Sections 14(a) and 14(c) of the Exchange Act and other
information filed with the Commission can be inspected and copied at the
Commission's Public Reference Room at Fifth Street, N.W., Judiciary Plaza,
Washington, D.C. 20549. Information regarding the operation of the Public
Reference Room may be obtained by calling the Commission at 1-800-SEC-0330. In
addition, the Company is required to file electronic versions of such

52
<PAGE> 54

material with the Commission through the Commission's Electronic Data Gathering,
Analysis and Retrieval (EDGAR) system. The Commission maintains a world wide web
site at http://www.sec.gov that contains reports, proxy and information
statements and other information regarding registrants that file electronically
with the Commission. Copies of certain information filed by the Company with the
Commission are also available on the Company's web site at
http://www.maxinc.com. The Company's web site is not part of this prospectus.
MAXIMUS common stock is listed on the New York Stock Exchange. Reports and other
information concerning the Company can be inspected at the offices of the New
York Stock Exchange, 20 Broad Street, New York, New York 10005.

INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE

The following documents filed with the Commission (File No. 1-12997),
pursuant to the Exchange Act, are incorporated herein by reference:

(a) The Company's Annual Report on Form 10-K for the fiscal year ended
September 30, 1998, filed with the Commission on November 23,
1998.

(b) The description of the common stock of the Company contained in
the Company's Registration Statement on Form 8-A, filed on May 15,
1997, including any amendment or reports filed for the purpose of
updating such description.

All documents filed by the Company pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date of this prospectus and prior to
the termination of this offering of the securities offered hereby shall be
deemed incorporated by reference into this prospectus and to be a part hereof
from the date of filing such documents. Any statement contained in any document
incorporated or deemed to be incorporated by reference herein shall be deemed to
be modified or superseded, for purposes of this prospectus, to the extent that a
statement contained herein (or in any other subsequently filed document which
also is or is deemed to be incorporated by reference herein) modifies or
supersedes such statement. Any such statement so modified or superseded shall
not be deemed, except as so modified or superseded, to constitute a part of this
prospectus.

The Company will provide, without charge, to each person to whom a copy of
this prospectus is delivered, upon written or oral request of any such person, a
copy of any or all of the documents which are incorporated herein by reference,
except for certain exhibits to such documents. Requests should be directed to
the Company, 1356 Beverly Road, McLean, Virginia 22101, attention: F. Arthur
Nerret; telephone: (703) 734-4200.

53
<PAGE> 55

MAXIMUS, INC.

INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
<S> <C>
Independent Auditors' Reports............................... F-2
Consolidated Balance Sheets as of September 30, 1997 and
1998...................................................... F-4
Consolidated Statements of Income for the years ended
September 30, 1996, 1997 and 1998......................... F-5
Consolidated Statements of Changes in Redeemable Common
Stock and Shareholders' Equity for the years ended
September 30, 1996, 1997 and 1998......................... F-6
Consolidated Statements of Cash Flows for the years ended
September 30, 1996, 1997 and 1998......................... F-7
Notes to Consolidated Financial Statements.................. F-8
</TABLE>

F-1
<PAGE> 56

REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS

To the Board of Directors
MAXIMUS, Inc.

We have audited the accompanying consolidated balance sheets of MAXIMUS,
Inc. as of September 30, 1997 and 1998, and the related consolidated statements
of income, changes in redeemable common stock and shareholders' equity, and cash
flows for each of the three years in the period ended September 30, 1998. 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 did not audit the financial statements of David M. Griffith &
Associates, Ltd., a wholly-owned subsidiary, which statements reflect total
assets of $15.5 million as of December 31, 1997 and total revenues of $32.6
million and $39.4 million for the years ended December 31, 1996 and 1997. Those
statements were audited by other auditors whose report has been furnished to us,
and our opinion, insofar as it relates to data included for David M. Griffith &
Associates, Ltd. is based solely on the report of the other auditors.

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, based on our audits and the report of other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the consolidated financial position of MAXIMUS, Inc. at
September 30, 1997 and 1998, and the consolidated results of its operations and
its cash flows for each of the three years in the period ended September 30,
1998, in conformity with generally accepted accounting principles.

/s/ ERNST & YOUNG LLP

Washington, DC
November 13, 1998

F-2
<PAGE> 57

REPORT OF GRANT THORNTON LLP, INDEPENDENT AUDITORS

Board of Directors
David M. Griffith & Associates, Ltd.

We have audited the balance sheet of David M. Griffith & Associates, Ltd.
(an Illinois corporation) as of December 31, 1997, and the related statements of
earnings, stockholders' equity, and cash flows for the years ended December 31,
1996 and 1997 (not presented herein). 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.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of David M. Griffith &
Associates, Ltd. as of December 31, 1997, and the results of its operations and
its cash flows for the years ended December 31, 1996 and 1997, in conformity
with generally accepted accounting principles.

/s/ GRANT THORNTON LLP

Chicago, Illinois
March 18, 1998, except for Note L
which is as of March 23, 1998.

F-3
<PAGE> 58

MAXIMUS, INC.
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
AS OF SEPTEMBER 30,
---------------------
1997 1998
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents............................. $ 11,000 $ 19,400
Marketable securities................................. 40,869 13,577
Accounts receivable, net.............................. 46,531 72,345
Costs and estimated earnings in excess of billings
(Note 5)........................................... 5,605 5,924
Prepaid expenses and other current assets............. 1,435 1,166
-------- --------
Total current assets............................... 105,440 112,412
Property and equipment at cost:
Land.................................................. 662 662
Building and improvements............................. 1,721 1,721
Office furniture and equipment........................ 4,902 6,421
Leasehold improvements................................ 188 214
-------- --------
7,473 9,018
Less: Accumulated depreciation and amortization....... (3,578) (4,504)
-------- --------
Total property and equipment, net.................. 3,895 4,514
Deferred income taxes (Note 9)........................ 1,241 1,434
Other assets.......................................... 921 2,183
-------- --------
Total assets....................................... $111,497 $120,543
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable...................................... $ 3,914 $ 9,724
Accrued compensation and benefits..................... 10,132 14,446
Billings in excess of costs and estimated earnings
(Note 5)........................................... 12,277 10,316
Notes payable......................................... 1,596 --
Income taxes payable.................................. 3,932 3
Deferred income taxes................................. 2,452 901
S corporation distribution payable (Note 10).......... 5,748 --
-------- --------
Total current liabilities.......................... 40,051 35,390
Long-term debt.......................................... -- 454
Deferred compensation, less current portion............. 3,533 --
-------- --------
Total liabilities.................................. 43,584 35,844
Commitments and contingencies (Notes 7 and 11)
Shareholders' equity (Note 10):
Common stock, no par value; 30,000,000 shares
authorized; 15,991,680 and 18,225,390 shares issued
and outstanding at September 30, 1997 and 1998, at
stated amount...................................... 66,708 66,535
Retained earnings..................................... 1,205 18,164
-------- --------
Total shareholders' equity......................... 67,913 84,699
-------- --------
Total liabilities and shareholders' equity......... $111,497 $120,543
======== ========
</TABLE>

See notes to financial statements.
F-4
<PAGE> 59

MAXIMUS, INC.
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
-------------------------------
1996 1997 1998
<S> <C> <C> <C>
Revenues......................................... $135,673 $167,324 $233,473
Cost of revenues................................. 101,539 121,968 172,900
-------- -------- --------
Gross profit..................................... 34,134 45,356 60,573
Selling, general and administrative expenses..... 20,238 25,323 33,783
Stock option compensation, merger, deferred
compensation and ESOP expense.................. 1,556 7,372 3,671
-------- -------- --------
Income from operations........................... 12,340 12,661 23,119
Interest and other income (expense).............. (17) 777 1,775
-------- -------- --------
Income before income taxes....................... 12,323 13,438 24,894
Provision for income taxes....................... 530 4,104 10,440
-------- -------- --------
Net income....................................... $ 11,793 $ 9,334 $ 14,454
======== ======== ========
Earnings per share:
Basic.......................................... $ 0.94 $ 0.69 $ 0.84
======== ======== ========
Diluted........................................ $ 0.94 $ 0.67 $ 0.82
======== ======== ========
Weighted average shares outstanding:
Basic.......................................... 12,573 13,508 17,237
======== ======== ========
Diluted........................................ 12,573 13,893 17,596
======== ======== ========
</TABLE>

See notes to financial statements.
F-5
<PAGE> 60

MAXIMUS, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN REDEEMABLE COMMON STOCK
AND SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED SEPTEMBER 30, 1996, 1997 AND 1998
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
SHAREHOLDERS' EQUITY
REDEEMABLE --------------------
COMMON COMMON RETAINED
STOCK STOCK EARNINGS
<S> <C> <C> <C>
Balance at September 30, 1995..................... $ 21,359 $ -- $(4,201)
Issuance of redeemable common stock to
employees.................................... 229 -- --
Net income...................................... -- -- 11,793
Adjustment to redemption value of redeemable
common stock................................. 10,095 -- (10,095)
S Corporation distributions..................... -- -- (2,175)
-------- ------- -------
Balance at September 30, 1996..................... 31,683 -- (4,678)
Purchase of redeemable common stock from
employee..................................... (1,422) -- --
Issuance of common stock to employees........... -- 778 --
Compensation charge for stock options........... -- 5,874 --
Net income...................................... -- -- 9,334
Adjustment to redemption value of redeemable
common stock................................. 25 (25)
Adjustment to retained earnings upon initial
public offering.............................. (9,083) 9,083
Reclass of redeemable common stock upon initial
public offering.............................. (30,286) 15,335 14,951
Net proceeds from sale of common stock in
initial public offering...................... -- 53,804 --
S Corporation distributions..................... -- -- (27,460)
-------- ------- -------
Balance at September 30, 1997..................... -- 66,708 1,205
Purchase of common stock from employee.......... -- (454) --
Net income...................................... -- -- 14,454
Tax benefit due to option exercise.............. -- -- 173
Adjustment for Griffith results previously
reported..................................... -- -- 156
Increase resulting from immaterial poolings..... -- 137 3,843
Issuance of common stock to employees........... -- 144 --
S Corporation distributions..................... -- -- (1,667)
-------- ------- -------
Balance at September 30, 1998..................... $ -- $66,535 $18,164
======== ======= =======
</TABLE>

See notes to financial statements.
F-6
<PAGE> 61

MAXIMUS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
-----------------------------
1996 1997 1998
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income........................................... $11,793 $ 9,334 $14,454
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation...................................... 801 1,027 995
Amortization...................................... -- -- 1,401
Stock option compensation expense................. -- 5,874 --
Other............................................. 4 (157) 173
Changes in assets and liabilities:
Accounts receivable, net.......................... (9,470) (10,592) (19,931)
Costs and estimated earnings in excess of
billings........................................ (2,173) (2,656) (319)
Prepaid expenses and other current assets......... (203) (794) 380
Other assets...................................... (101) (231) (44)
Accounts payable.................................. 282 2,791 4,593
Accrued compensation and benefits................. 884 3,497 (1,093)
Billings in excess of costs and estimated
earnings........................................ 1,995 6,770 (1,811)
Income taxes payable.............................. (81) 3,914 (3,877)
Deferred income taxes............................. 280 (319) (2,475)
------- -------- -------
Net cash provided by (used in) operating activities.... 4,011 18,458 (7,554)
------- -------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of contracts................................ -- -- (2,436)
Increase in cash resulting from immaterial
poolings.......................................... -- -- 1,002
Purchase of property and equipment................... (783) (1,207) (1,006)
(Purchase) sale of marketable securities............. (1,000) (39,862) 27,819
------- -------- -------
Net cash (used in) provided by investing activities.... (1,783) (41,069) 25,379
------- -------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from initial public offering, net of
expenses.......................................... -- 53,804 --
S Corporation distributions.......................... (2,175) (21,712) (7,415)
Redeemable common stock purchased.................... (899) (1,234) --
Common stock issued.................................. 229 4 144
Net proceeds from (payments on) borrowings........... 364 362 (2,621)
------- -------- -------
Net cash (used in) provided by financing activities.... (2,481) 31,224 (9,892)
------- -------- -------
Cash flow adjustment for change in accounting period of
Griffith............................................. -- -- 467
------- -------- -------
Net (decrease) increase in cash and cash equivalents... (253) 8,613 8,400
Cash and cash equivalents, beginning of year........... 2,640 2,387 11,000
------- -------- -------
Cash and cash equivalents, end of year................. $ 2,387 $ 11,000 $19,400
======= ======== =======
</TABLE>

See notes to financial statements.
F-7
<PAGE> 62

MAXIMUS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED SEPTEMBER 30, 1996, 1997 AND 1998
(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
Services Group provides health and human services planning, information
technology consulting, strategic program evaluation, program improvement,
communications planning, and assistance to state and local governments 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% of total revenues for the years ended
September 30, 1996, 1997 and 1998.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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

PRINCIPLES OF CONSOLIDATION

The consolidated financial statements include the accounts of wholly-owned
subsidiaries. All material intercompany items have been eliminated.

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.

RESTATEMENT OF PRIOR YEARS' FINANCIAL STATEMENTS

The Company's 1996 and 1997 financial statements have been restated to
reflect the combination with David M. Griffith, Ltd. ("Griffith") in May 1998 in
a transaction accounted for using the pooling of interests method of accounting.
See Note 3.

CASH EQUIVALENTS

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

REVENUE RECOGNITION

The Company generates revenue 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

F-8
<PAGE> 63
MAXIMUS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED SEPTEMBER 30, 1996, 1997 AND 1998
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)

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 quarterly and
adjusts revenues to reflect 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.

MARKETABLE SECURITIES

Marketable securities are classified as available-for-sale and are recorded
at fair market value with unrealized gains and losses, net of taxes, reported as
a separate component of shareholders' equity, if material. Realized gains and
losses and declines in market value judged to be other than temporary are
included in investment income. Interest and dividends are included in investment
income. There are no material unrealized gains or losses on marketable
securities at September 30, 1997 and 1998. Marketable securities consist
primarily of short-term municipal and commercial bonds.

PROPERTY AND EQUIPMENT

Property and equipment is stated at cost and depreciated using both the
straight-line and accelerated methods based on estimated useful lives of 32
years for the Company's building and between three and ten years for office
furniture and equipment. Leasehold improvements are amortized over the lesser of
their useful life or the remaining term of the lease.

INCOME TAXES

Deferred tax assets and liabilities 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.

Prior to its initial public offering, the Company and its shareholders
elected to be treated as an S Corporation under the Internal Revenue Code. Under
the provisions of the tax code, the Company's shareholders included 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 prior to the initial public offering. The completion of the
Company's initial public offering during June 1997 resulted in the termination
of the Company's S Corporation status for income tax purposes. In connection
therewith, the Company recorded a deferred tax charge against income of $2,566
for the

F-9
<PAGE> 64
MAXIMUS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED SEPTEMBER 30, 1996, 1997 AND 1998
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)

cumulative differences between the financial reporting and income tax basis of
certain assets and liabilities at June 12, 1997.

The Company merged with two companies during 1998 that had elected to be
treated as S Corporations. The merger resulted in the termination of the S
Corporation status for those companies and a deferred tax charge against income
of $325 for cumulative differences between the financial statement and tax basis
of assets and liabilities.

ACCOUNTING STANDARDS NOT ADOPTED

In June 1997, the FASB issued Statement No. 130, "Reporting Comprehensive
Income" which established standards for reporting and display of comprehensive
income and its components (revenues, expenses, gains and losses) in a full set
of general-purpose financial statements. This statement requires that an
enterprise classify items of other comprehensive income by their nature in a
financial statement and display the accumulated balance of other comprehensive
income separately from retained earnings and additional paid-in capital in the
equity section of the balance sheet. This statement is effective for fiscal
years beginning after December 15, 1997.

In June 1997, the FASB issued Statement No. 131, "Disclosure about Segments
of an Enterprise and Related Information" which established standards for public
business enterprises to report information about operating segments in annual
financial statements and requires those enterprises to report selected
information about operating segments. The financial information is required to
be reported on the basis that it is used internally for evaluating segment
performance and deciding how to allocate resources to segments. Operating
segments are components of an enterprise about which separate financial
information is available that is evaluated regularly by the chief operating
decision maker in deciding how to allocate resources and in assessing
performance. This statement is effective for financial statements for periods
beginning after December 15, 1997.

The Company does not expect the impact of adopting these new accounting
standards to be significant.

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, marketable
securities, accounts receivable and accounts payable, to approximate the fair
value of the respective assets and liabilities at September 30, 1997 and 1998.

3. BUSINESS COMBINATIONS

On March 16, 1998, the Company issued 840,000 shares of its common stock in
exchange for all of the common stock of Spectrum Consulting Group, Inc. and an
affiliated company ("Spectrum"). This merger was accounted for as an immaterial
pooling of interests and accordingly, the Company's financial statements,
including earnings per share, were not restated for periods prior to January 1,
1998.

F-10
<PAGE> 65
MAXIMUS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED SEPTEMBER 30, 1996, 1997 AND 1998
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)

On May 12, 1998, the Company issued 1,166,179 shares of its common stock in
exchange for all of the outstanding common stock of David M. Griffith and
Associates, Ltd. ("Griffith"). This merger was accounted for as a pooling of
interests and accordingly, the Company's financial statements, including
earnings per share, have been restated for
all periods presented to include the financial position and results of
operations of Griffith. Griffith's operations for the years ended December 31,
1996 and 1997 were combined with the Company's operations for the fiscal years
ended September 30, 1996 and 1997. This resulted in inclusion of Griffith
operating results for the three months ended December 31, 1997 in the Company's
operating results for both fiscal 1997 and 1998. Griffith's revenues and net
income for the three months ended December 31, 1997 were $11,450 and $(156),
respectively.

On August 31, 1998, the Company issued 1,137,420 shares of its common stock
in exchange for all of the outstanding common stock of Carrera Consulting Group
("Carrera"). This merger was accounted for as an immaterial pooling of interests
and accordingly, the Company's financial statements, including earnings per
share, were not restated for periods prior to July 1, 1998.

On August 31, 1998, the Company issued 254,545 shares of its common stock
in exchange for all of the outstanding common stock of Phoenix Planning &
Evaluation, Ltd. ("Phoenix"). This merger was accounted for as an immaterial
pooling of interests and accordingly, the Company's financial statements,
including earnings per share, were not restated for periods prior to July 1,
1998.

All of the companies involved in the mergers described above are involved
primarily in consulting services for state and local governments. The merged
companies accounted for as immaterial poolings contributed $16,854 to the
Company's revenues for the year ended September 30, 1998.

A reconciliation of the Company's revenues and net income, as previously
reported, to the restated results that give effect to the Griffith combination
for the fiscal years ended September 30, 1996 and 1997 follow:

<TABLE>
<CAPTION>
YEARS ENDED
SEPTEMBER 30,
----------------------
1996 1997
<S> <C> <C>
Revenues as previously reported................. $103,113 $127,947
Griffith revenues............................... 32,560 39,377
-------- --------
Combined revenues............................... $135,673 $167,324
======== ========
Net income as previously reported............... $ 11,619 $ 8,589
Griffith net income............................. 174 745
-------- --------
Combined net income............................. $ 11,793 $ 9,334
======== ========
</TABLE>

F-11
<PAGE> 66
MAXIMUS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED SEPTEMBER 30, 1996, 1997 AND 1998
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)

4. EARNINGS PER SHARE

The following table sets forth the computation of basic and diluted
earnings per share:

<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
----------------------------
1996 1997 1998
<S> <C> <C> <C>
Numerator:
Net income............................ $11,793 $9,334 $14,454
Denominator:
Weighted average shares outstanding... 12,573 13,508 17,237
Effect of dilutive securities:
Employee stock options................ -- 385 359
------- ------ -------
Denominator for dilutive earnings per
share.................................... 12,573 13,893 17,596
======= ====== =======
</TABLE>

5. COSTS AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS

Uncompleted contracts consist of the following components:

<TABLE>
<CAPTION>
BALANCE SHEET CAPTION
----------------------------------------------
COSTS AND ESTIMATED BILLINGS IN EXCESS OF
EARNINGS IN EXCESS OF COSTS AND ESTIMATED
BILLINGS EARNINGS
<S> <C> <C>
September 30, 1997:
Costs and estimated earnings..... $136,008 $119,765
Billings......................... 130,403 132,042
-------- --------
$ 5,605 $ 12,277
======== ========
September 30, 1998:
Costs and estimated earnings..... $193,022 $192,219
Billings......................... 187,098 202,535
-------- --------
$ 5,924 $ 10,316
======== ========
</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.

6. CREDIT FACILITIES

The Company has a $10 million revolving line of credit with a bank.
Borrowings under this line bear interest at LIBOR plus an amount which ranges
from 0.65% to 1.25% depending on the Company's debt to equity ratio. The Company
had no borrowings under the Credit Facility at September 30, 1998. Under the
terms of the line, the Company is required to maintain at all times: (i) an
excess of current assets to current liabilities of not

F-12
<PAGE> 67
MAXIMUS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED SEPTEMBER 30, 1996, 1997 AND 1998
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)

less than 1.5 to 1, (ii) net worth of $60 million, and (iii) a ratio of total
liabilities to net worth of not more than 1.5 to 1. There were no outstanding
borrowings under the line of credit facility at September 30, 1997 and 1998. The
line of credit expires on March 31, 1999. At September 30, 1997 and 1998, the
Company had letters of credit outstanding amounting to $508 and $401,
respectively.

Certain companies that merged into the Company during 1998 had various
arrangements for short and long-term borrowings. These credit arrangements
generally were repaid following the related merger and do not significantly
affect the Company's financial statements.

7. LEASES

The Company leases office space under various operating leases, the
majority of which contain clauses permitting cancellation upon certain
conditions. The 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, 1996, 1997 and 1998 was $3,321, $5,296 and $6,947, respectively.

Minimum future payments under these leases are as follows:

<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
<S> <C>
1999........................................... $ 8,863
2000........................................... 5,517
2001........................................... 3,969
2002........................................... 2,872
2003........................................... 1,938
Thereafter..................................... 997
-------
$24,156
=======
</TABLE>

8. EMPLOYEE BENEFIT PLANS AND DEFERRED COMPENSATION

The Company has 401(k) plans and other defined contribution plans for the
benefit of all employees who meet certain eligibility requirements. The plans
provide for Company match, specified Company contributions, and/or discretionary
Company contributions. During the years ended September 30, 1996, 1997 and 1998,
the Company contributed $650, $774 and $1,342 to the plans, respectively.

Prior to its merger with the Company, Griffith had an employee stock
ownership plan covering substantially all of its employees. During 1996, 1997
and 1998, amounts charged to operations for the plan were $643, $897, and $394,
respectively.

Prior to its merger with the Company, Griffith had deferred compensation
arrangements with certain officers and employees and had granted stock
appreciation rights to certain current and retired officers and employees. The
stock appreciation rights provided for full vesting and current settlement at
the time of the merger. During 1996,

F-13
<PAGE> 68
MAXIMUS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED SEPTEMBER 30, 1996, 1997 AND 1998
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)

1997 and 1998, amounts charged to operations under these arrangements were $461,
$216 and $972, including a non-recurring charge of $942 in 1998 as a result of
the merger.

9. INCOME TAXES

The Company's provision for income taxes is as follows:

<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
----------------------------
1996 1997 1998
<S> <C> <C> <C>
Current provision:
Federal............................... $ -- $ 3,722 $10,676
State................................. 250 701 1,894
Deferred tax expense (benefit)............. 280 (319) (2,130)
------ ------- -------
$ 530 $ 4,104 $10,440
====== ======= =======
</TABLE>

The provision for income taxes resulted in effective tax rates that varied from
the federal statutory income tax rate as follows:

<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
----------------------------
1996 1997 1998
<S> <C> <C> <C>
Expected federal income tax provision...... $4,195 $ 4,569 $ 8,713
Effect of income taxed directly to S
Corporation shareholders................. (4,027) (3,893) (297)
State income taxes......................... 250 607 1,245
Effect of termination of S Corporation
status................................... -- 2,566 325
Effect of nondeductible merger costs....... -- -- 531
Other...................................... 112 255 (77)
------ ------- -------
$ 530 $ 4,104 $10,440
====== ======= =======
</TABLE>

F-14
<PAGE> 69
MAXIMUS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED SEPTEMBER 30, 1996, 1997 AND 1998
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)

The significant items comprising the Company's deferred tax assets and
liabilities as of September 30, 1997 and 1998 are as follows:

<TABLE>
<CAPTION>
SEPTEMBER 30,
----------------
1997 1998
<S> <C> <C>
Deferred tax assets -- current:
Liabilities for costs deductible in future periods........ $ 425 $ 810
Billings in excess of costs and estimated earnings........ 4,699 4,126
------- ------
Total deferred tax assets -- current........................ 5,124 4,936
Deferred tax liabilities -- current:
Cash versus accrual accounting............................ 5,334 2,915
Costs and estimated earnings and excess of billings....... 2,242 2,512
Other..................................................... -- 410
------- ------
Total deferred tax liabilities -- current................... 7,576 5,837
------- ------
Net deferred tax (liability) -- current..................... $(2,452) $ (901)
======= ======
Deferred tax assets (liabilities) -- non-current:
Stock option compensation................................. 2,055 1,874
Deferred compensation..................................... 1,388 --
Cash versus accrual accounting............................ (2,202) (795)
Other..................................................... -- 355
------- ------
Net deferred tax asset -- non-current....................... $ 1,241 $1,434
======= ======
</TABLE>

Cash paid for income taxes during the years ended September 30, 1996, 1997 and
1998 was $313, $274 and $16,507, respectively.

10. SHAREHOLDERS' EQUITY

INITIAL PUBLIC OFFERING

The Company completed an initial public offering (the "IPO") of common
stock during June 1997. Of the 6,037,500 shares of common stock sold in the IPO,
2,360,000 shares were sold by selling shareholders and 3,677,500 were sold by
MAXIMUS, Inc. generating $53,804 in proceeds to the Company, net of offering
expenses.

S CORPORATION DISTRIBUTIONS

During fiscal year 1997, the Company made cash distributions to its S
Corporation Shareholders prior to the IPO totaling $1,212. In connection with
the IPO, the Company made an additional distribution of $20,500 to its S
Corporation Shareholders and accrued an additional distribution at September 30,
1997 in the amount of $5,748, such aggregate amount representing the
undistributed earnings of the Company taxed or taxable to shareholders through
the date of the IPO.

F-15
<PAGE> 70
MAXIMUS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED SEPTEMBER 30, 1996, 1997 AND 1998
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)

Consistent with their past practices, Spectrum and Phoenix paid S
Corporation dividends totaling $1,667 during 1998, based upon pre-merger taxable
income.

REDEEMABLE COMMON STOCK

Prior to the IPO, a shareholders' agreement obligated 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 were
obligated to sell and the Company was 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. Griffith had agreements with certain of
its shareholders to repurchase its shares under certain circumstances at fair
value. The Company's obligation to purchase common shares from shareholders
terminated upon completion of the IPO. Accordingly, amounts classified
previously as redeemable common stock, including amounts related to Griffith,
were reclassified into shareholders' equity.

EMPLOYEE STOCK PURCHASE PLAN

During fiscal 1998, the Company implemented a plan which permits employees
to purchase shares of the Company's common stock each quarter at 85% of the
market value on the last day of the quarter. The initial sale of shares under
the plan occurred subsequent to September 30, 1998.

STOCK OPTION PLANS

The Company's Board of Directors established stock option plans during 1997
pursuant to which the Company may grant incentive and non-qualified stock
options to officers, employees and directors of the Company. Such plans also
provide for stock awards and direct purchases of the Company's common stock.

The vesting period and share price for awards are determined by the
Company's Board of Director at the date of grant. Options granted during 1997
include those which were fully vested on issuance and others which vest over
periods from two to four years. The Company's Board of Directors has reserved
3.1 million shares of common stock for issuance under the Company's stock option
plans. At September 30, 1998, 2.0 million shares were available for grants under
the Company's option plans.

In January 1997, the Company issued options to various employees to
purchase 403,975 shares of the Company's common stock at a formula price based
on book value. During 1997, the Company recorded a non-recurring charge against
income of $5,874 for the difference between the IPO price and the formula price
for all options outstanding. The Company recorded a deferred tax benefit
relating to the charge in the amount of $2,055.

In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standard (SFAS) No. 123, "Accounting and Disclosure for
Stock-Based Compensation," which provides for a fair value based methodology of
accounting for all stock option plans. Under SFAS 123, companies may account for
stock options under Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees"

F-16
<PAGE> 71
MAXIMUS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED SEPTEMBER 30, 1996, 1997 AND 1998
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)

(APB 25) and related Interpretations and provide pro forma disclosure of net
income, as if the fair value based method of accounting defined in SFAS 123 had
been applied. The Company has elected to follow APB 25 and related
interpretations in accounting for its employee stock options and provide pro
forma fair value disclosure under SFAS 123.

Pro forma information regarding net income has been determined as if the
Company had accounted for its stock options under the fair value method of SFAS
123. The fair value for these options was estimated at the date of grant using a
minimal valuation method in 1997 and the Black-Scholes method in 1998 with the
following assumptions -- volatility 42% for 1998, risk free interest rate 6.5%
for 1997 and 5.5% for 1998, dividend yield 0% and an expected life of the option
of 4 years. The grant-date fair value of options granted was $3.58 for 1997 and
$9.61 for 1998.

For purposes of the pro forma disclosure, the estimated fair value of the
options is amortized to reflect such expense over the options' vesting period.
For the years ended September 30, 1997 and 1998, pro forma net income and pro
forma net income per share resulting from the adjustment for stock option
compensation was as follows:

<TABLE>
<CAPTION>
SEPTEMBER 30,
-----------------
1997 1998
<S> <C> <C>
Net income.................................. $9,334 $14,454
FAS 123 compensation expense................ (972) (780)
------ -------
Net income, as adjusted..................... $8,362 $13,674
====== =======
Net income per share, as adjusted:
Basic.................................. $ 0.62 $ 0.79
Diluted................................ $ 0.60 $ 0.78
</TABLE>

A summary of the Company's stock option activity for the years ended September
30, 1997 and 1998 is as follows:

<TABLE>
<CAPTION>
WEIGHTED-
AVERAGE
EXERCISE
ACTIVITY DURING 1997: OPTIONS PRICE
<S> <C> <C>
Granted.................................. 531,975 $ 5.05
Exercised................................ (3,025) 1.46
---------
Outstanding at September 30, 1997........ 528,950 5.07
Granted.................................. 626,989 24.06
Exercised................................ (36,300) 3.46
Canceled due to termination.............. (25,887) 25.05
---------
Outstanding at September 30, 1998........ 1,093,752 15.33
=========
</TABLE>

F-17
<PAGE> 72
MAXIMUS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED SEPTEMBER 30, 1996, 1997 AND 1998
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)

The ranges of exercise prices for outstanding options were as follows at
September 30, 1998:

The Company had 468,995 options exercisable at September 30, 1998 at a weighted
average exercise price of $5.54 per share. Outstanding options have a weighted
average remaining exercise period of 9.2 years at September 30, 1998.

11. 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.

On November 28, 1997, an individual who was a former officer, director and
shareholder of the Company, filed a complaint in the United States District
Court for the District of Massachusetts, alleging that at the time he resigned
from the Company in 1996, thereby triggering the repurchase of his shares, the
Company and certain of its officers and directors had failed to disclose
material information to him relating to the potential value of the shares. He
further alleges that the Company and its officers and directors violated
Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and breached
various fiduciary duties owed to him and claims damages in excess of $10
million. The Company does not believe that this action will have a material
adverse effect on the Company's financial condition or results of operations,
and it intends to vigorously defend this action.

In January 1997, a lawsuit was filed against a number of defendants,
including Griffith, by a purchaser of municipal bonds. Griffith had prepared two
reports rendering an opinion on the anticipated debt service coverage of the
revenue bonds for the first five years of operation of the sewer project by
Superstition Mountain Community Facilities District No. 1 (the "District"). The
District was unable to meet its debt service obligations and filed bankruptcy.
The purchaser of the Revenue Bonds, Allstate Insurance Company, has sued a
number of defendants, including Griffith, for damages of $32.1 million which is
the face value of the revenue bonds, plus interest. The District has also filed
a lawsuit against Griffith seeking damages. Griffith intends to vigorously
defend both of these actions. However, given the early stage of litigation,
legal counsel is unable to express an opinion concerning the ultimate resolution
of either case or Griffith's liability, if any, in connection therewith.

F-18
<PAGE> 73
MAXIMUS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED SEPTEMBER 30, 1996, 1997 AND 1998
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)

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 United States
Government agencies is subject to adjustments upon audit by the Defense Contract
Audit Agency. 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.

EMPLOYMENT AGREEMENTS

The Company has employment agreements with 14 of its executives that
provide for base salaries of approximately $3.5 million per year. The term of
the employment obligations are through 2000.

12. 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 government agencies located in the
United States.

At September 30, 1997 and 1998, $1,436 and $1,004, respectively, of the
Company's accounts receivable were due from the United States Government.
Revenues under contracts with various agencies of the United States Government
were $61,317, $35,802 and $3,738 for the years ended September 30, 1996, 1997
and 1998, respectively. Of these amounts, $56,530, $31,611 and $0 for the years
ended September 30, 1996, 1997 and 1998, 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
United States Government that contributed substantially all of the revenues of
the government operations group for 1996 and 1997 was terminated by the United
States Government. This contract concluded during the second quarter of 1997.

At September 30, 1997 and 1998, $10,482 and $9,706 of the Company's
accounts receivable were due from one state government. Revenues from contracts
with this state, principally by the government operations segment, were $26,189
and $30,934 for the years ended September 30, 1997 and 1998.

F-19
<PAGE> 74
MAXIMUS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED SEPTEMBER 30, 1996, 1997 AND 1998
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)

13. BUSINESS SEGMENTS

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

<TABLE>
<CAPTION>
1996 1997 1998
<S> <C> <C> <C>
Revenues:
Government Operations....... $ 77,211 $ 97,369 $139,263
Consulting.................. 58,462 69,955 94,210
-------- -------- --------
$135,673 $167,324 $233,473
======== ======== ========
Income from operations:
Government Operations....... $ 4,936 $ 6,164 $ 10,642
Consulting.................. 7,404 6,497 12,544
-------- -------- --------
$ 12,340 $ 12,661 $ 23,186
======== ======== ========
Identifiable assets:
Government Operations....... $ 19,369 $ 26,610 $ 42,429
Consulting.................. 23,137 28,886 40,701
Corporate................... 6,214 56,001 37,413
-------- -------- --------
$ 48,720 $111,497 $120,543
======== ======== ========
Capital expenditures:
Government Operations....... $ 4 $ 2 $ --
Consulting.................. 508 790 545
Corporate................... 271 415 461
-------- -------- --------
$ 783 $ 1,207 $ 1,006
======== ======== ========
Depreciation and amortization:
Government Operations....... $ 99 $ 204 $ 1,518
Consulting.................. 521 643 792
Corporate................... 181 180 86
-------- -------- --------
$ 801 $ 1,027 $ 2,396
======== ======== ========
</TABLE>

F-20
<PAGE> 75

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

DECEMBER 11, 1998

[MAXIMUS LOGO]
4,200,000 SHARES OF COMMON STOCK
-------------------------

P R O S P E C T U S

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

DONALDSON, LUFKIN & JENRETTE

LEHMAN BROTHERS

LEGG MASON WOOD WALKER
INCORPORATED

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

We have not authorized any dealer, salesperson or other person to give you
written information other than this prospectus or to make representations as to
matters not stated in this prospectus. You must not rely on unauthorized
information. This prospectus is not an offer to sell those securities or our
solicitation of your offer to buy the securities in any jurisdiction where that
would not be permitted or legal. Neither the delivery of this prospectus nor any
sales made hereunder after the date of this prospectus shall create an
implication that the information contained herein or the affairs of the company
have not changed such the date hereof.

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