NATIONAL MEDICAL FINANCIAL SERVICES CORP, 10KSB, 1998-04-28

NATIONAL MEDICAL FINANCIAL SERVICES CORP
10KSB, 1998-04-28
CONSUMER CREDIT REPORTING, COLLECTION AGENCIES

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

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

FORM 10-KSB

(Mark One)

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT

OF 1934

For the fiscal year ended December 31, 1997
OR

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934

For the transition period from___________ to ___________

Commission file number 0-25344

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NATIONAL MEDICAL FINANCIAL SERVICES CORPORATION
(Name of small business issuer)

Nevada 25-1741216
(State or other jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or organization)

1315 Greg Street, Suite 103
Sparks, Nevada 89431
(Address of principal executive offices) (Zip Code)

702-356-2315

(Issuer's telephone number)

Securities registered pursuant to Section 12(b) of the Exchange Act:

None

Securities registered pursuant to Section 12(g) of the Exchange Act:

Common Stock

Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(b) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes No X
----- ----

Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [x]

State issuer's revenues for its most recent fiscal year. $8,257,500

State the aggregate market value of the voting stock held by non-affiliates
of the registrant computed by reference to the price at which the stock was
sold, or the average bid and asked prices of such equity, as of March 31, 1998.
$2,448,545

State the number of shares outstanding of each of the issuer's classes of
equity stock, as of March 31, 1998. 1,703,397

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the following documents are incorporated herein by
reference:

None.

Transitional Small Business Disclosure Format: Yes No X
----- ----
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PART I

ITEM 1. DESCRIPTION OF BUSINESS

General

National Medical Financial Services Corporation (the "Company") is a Nevada
corporation formed in 1994. The Company markets accounting, billing, collection
and accounts receivable management services to medical providers such as
hospital-based and office-based physicians, free-standing medical providers and
hospital-affiliated entities (collectively, "Medical Services Providers"). The
Company has also acquired from other entities contracts to provide such services
to Medical Service Providers. Since its inception, the Company subcontracted for
the performance of these services with an entity which is owned by, controlled
by or affiliated with the Company's Chairman, Chief Executive Officer and
principal stockholder (the "Chairman"), or through various entities that are
owned by, controlled by and affiliated with the Company's former President,
Chief Executive Officer and Director (the "Former President"). See Item 12,
"CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS".

The Company was formed initially as a vehicle for the outsourcing of
billing, collection and accounts receivable management services, as well as
accounting services, which were performed internally by over 40 Medical Service
Providers which are owned by, controlled by, or affiliated with the Chairman.
These contracts expired on September 30, 1997, and were not renewed.
Accordingly, no further revenues and related subcontract expenses (except some
incidental income) were recognized after that date.

Prior to December 31, 1997, the Company provided, through subcontractors,
services to over 135 Medical Service Providers specializing in providing
out-patient radiation oncology and medical oncology services, as well as nursing
homes, emergency room and out-patient surgery centers located throughout the
United States. Slightly less than one-half of the revenues generated by these
Medical Service Providers are owned by, controlled by, or affiliated with the
Chairman. These contracts expired on September 30, 1997, and were not renewed.
Accordingly, no further revenues and related subcontract expenses (except some
incidental income) were recognized after that date. Effective December 31, 1997,
the Company terminated its remaining contracts that were purchased in 1995
through 1997. The contracts were terminated because they were not providing
sufficient cash flows to support the Company's operations.

Prior to the restructuring, services were generally provided to the
Company's clients through a subcontracting arrangement with Russell Data
Services, Inc., a Nevada company ("Russell Data"), an entity which is owned by
EquiMed, Inc., a publicly traded company which is controlled by the Chairman, or
through various entities that are owned by, controlled by and affiliated with
the Company's Former President. Such arrangements have not been negotiated on an
arm's length basis and may not have been as favorable as that which could have
been obtained from a third party.

Since its inception, the Company has grown primarily through the
acquisition of client contracts and businesses as follows.

On June 30, 1995, the Company acquired the cash, accounts receivable and
client lists of Asterino & Associates, Inc. ("Asterino"), a billing and
collection company located in Schenectady, New York. Asterino was a party to
approximately 20 contracts to provide services to various

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Medical Service Providers in the state of New York ranging from single physician
practices to hospital-based physician groups. Asterino's clients are involved in
various medical specialties, including cardiology, radiology and surgery.
Approximately 100 physicians are covered under the Asterino contracts. The
services provided by Asterino under the contracts with its clients provide for
Asterino to develop, implement, manage, operate and supervise billing,
collection and accounts receivable management services for its clients. In some
instances, Asterino provides additional practice management, accounting services
and payroll services. The typical Asterino client contract provides that
Asterino, as an independent contractor, has the sole responsibility for the
management and supervision of the operation of the services provided. Under
these contracts, Asterino is generally indemnified against claims arising out of
the provisions of services.

On December 1, 1995, the Company acquired a billing contract between Rapier
Investments Ltd. ("Rapier") and University Emergency Medicine Foundation, Inc.
("UEMF"). UEMF's clients are involved in the emergency room specialty.
Approximately 56 physicians are covered under the this contract. Pursuant to the
contracts rights purchase agreement with Rapier, the Company has assumed the
right to receive payments and the obligation to provide services with respect to
the billing and collection of fees for medical services provided by UEMF at
Rhode Island Hospital.

On February 13, 1996, the Company acquired the accounts receivable and
approximately 25 client contracts of Doctors Medical Billing Service, A Limited
Liability Corporation ("Doctors Medical"), a billing and collection company
located in Las Vegas, Nevada. Doctors Medical's clients are involved in various
medical specialties, including cardiology, emergency room and primary care.
Approximately 90 physicians were covered under the Doctors Medical contracts.
Pursuant to the contracts rights purchase agreement with Doctors Medical, the
Company has assumed the right to receive payments and the obligation to provide
services with respect to the billing and collection of fees for medical services
provided by these Medical Service Providers.

On April 1, 1996, the Company acquired the accounts receivable and
approximately 19 client contracts of National Medical Services, Inc. ("National
Medical"), a billing and collection company located in Las Vegas, Nevada.
National Medical's clients are involved in various medical specialties,
including anesthesiology and primary care. Approximately 90 physicians were
covered under the National Medical contracts. Pursuant to the contracts rights
purchase agreement with National Medical, the Company has assumed the right to
receive payments and the obligation to provide services with respect to the
billing and collection of fees for medical services provided by these Medical
Service Providers.

On August 1, 1996, the Company acquired seven additional contracts to
provide billing, collection and accounts receivable management services between
Rapier and Medicine Service Providers in Massachusetts and New Hampshire. The
clients involved with these contracts are in the emergency room specialty.
Approximately 54 physicians were covered under these contracts. Pursuant to the
contracts rights purchase agreement with Rapier, the Company has assumed the
right to receive payments and the obligation to provide services with respect to
the billing and collection of fees for medical services provided these Medical
Service Providers.

On March 1, 1997, the Company acquired a contract to provide billing and
collection services between Rapier and an emergency medical group in Rhode
Island. Approximately 19 physicians were covered under this contract. Pursuant
to the contracts rights purchase agreement with Rapier, the Company has assumed
the right to receive payments and the obligation to provide services with
respect to the billing and collection of fees for medical services provided by
these Medical Service Providers.

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On March 1, 1997, the Company acquired a contract to provide billing and
collection services between Medical Business Systems, Inc. ("MBS") and an
emergency medical group in Cleveland, Ohio area. Approximately 22 physicians
were covered under this contract. Pursuant to the contracts rights purchase
agreement with MBS, the Company has assumed the right to receive payments and
the obligation to provide services with respect to the billing and collection of
fees for medical services provided by these Medical Service Providers.

On August 1, 1997, the Company acquired a twelve contracts to provide
billing and collection services between Medical Billing Services of Arizona,
Inc. ("MBS of Arizona") and certain Medical Service Providers in the Arizona.
Pursuant to the contracts rights purchase agreement with MBS of Arizona, the
Company has assumed the right to receive payments and the obligation to provide
services with respect to the billing and collection of fees for medical services
provided by these Medical Service Providers.

The acquired contracts described above were not providing sufficient cash
flows to support the Company's operations. Effective December 31, 1997, the
Company announced that it was restructuring the Company's operations for the
future, resulting in the write-off of all of the contracts that it had acquired
to provide billing and collection services. These contracts were acquired June
30, 1995 through August 1, 1997. In addition, the contracts for services
provided with various entities that are owned by, controlled by or affiliated
with the Former President were terminated.

Effective January 1, 1998, the Company restructured its operations. In the
future, the Company will strategically align and affiliate itself, though
acquisitions and partnerships, with established companies that offer billing and
collection and accounts receivables management services to Medical Service
Providers. The Company anticipates, that following the consummation of such
acquisitions and partnerships, it will be able to provide access to offshore
labor and high technology. The Company plans to continue to expand its client
base through its marketing program and through the acquisition of entities to
provide billing, collection and accounts receivable management services, as well
as accounting services, to Medical Service Providers. The Company intends to
continue to expand its client base to include unaffiliated entities. In pursuing
this goal, the Company expects to draw upon the healthcare and acquisition
experience of its management and outside consultants to identify and develop new
business opportunities, including the expansion of its client base by aligning
and affiliating itself, through acquisitions and partnerships, with
established companies that offer services similar to those marketed by the
Company by providing access to offshore labor and high technology.

Effective January 1, 1998, as part of the restructured operations, the
Company acquired the assets and business operations of Shoreline Medical Billing
Systems, Inc. ("Shoreline") and Maybruch & Co. ("Maybruch & Co."), two privately
owned companies which perform physician billing and collection and various
practice management and accounting services in Suffern, New York.

Relationship with Subcontractors

The Company has contracted with Russell Data to provide to the Company, on
a non-exclusive basis, certain specified billing and collection services for a
fee of 70 percent of net revenues to be received by the Company for services
billed by Russell Data. The contract is for a term of ten years and expires on
September 20, 2004. Under the terms of the contract, the Company is permitted to
contract with providers of services other than Russell Data and Russell

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Data is permitted to provide its services to companies other than the Company,
provided that Russell Data is obligated to service for the Company all client
contracts which are priced at not less than 80% of the industry standard for
similar contracts. The Russell Data contract contains an arbitration procedure
to be followed in the event that any dispute arises between the parties under
the contract.

The contract with Russell Data also provides that: (i) the Company must
provide to Russell Data, at the Company's sole expense, specified customer
information and materials and Russell Data will have no obligation to review or
verify such information; (ii) Russell Data makes no warranties with respect to
the services provided under the contract; (iii) the Company's sole and exclusive
remedy if it determines that a substantial number of services provided by
Russell Data are not being performed in a commercially reasonable manner such
that the Company or its customers will suffer material detriment is to terminate
the contract in accordance with its terms; (iv) the Company will indemnify
Russell Data under certain conditions; (v) neither Russell Data nor its
officers, directors, stockholders, partners, employees or agents will be liable
to the Company for any damages unless the Company's damages are solely due to
the gross negligence or willful conduct of such party and Russell Data's total
maximum liability is $2,500 therefor, and in no event will Russell Data or such
other parties be liable for (a) any damages caused by the Company's failure to
perform its obligations under the contract, (b) any third party claims except a
claim based on a breach of confidentiality, (c) any loss of profit, records,
files or data, (d) any delay in delivery of services or (e) any other special,
indirect, incidental or consequential damages; (vi) Russell Data will keep the
information and materials it receives from the Company confidential; (vii)
Russell Data may renegotiate the terms of the contract if there is a significant
change in any law, regulation or policy which materially and adversely affects
Russell Data's ability to perform the contract; and (viii) the Company agrees
not to solicit or employ any Russell Data employee during the term of the
contract and for one year thereafter without the prior written consent of
Russell Data.

Russell Data is owned by EquiMed, Inc., a publicly traded company
controlled by the Chairman. Russell Data may contract with other companies
owned by, controlled by, or affiliated with the Chairman for the
subcontracting of services that Russell Data may render under its contract
with the Company. The Company believes that the terms of the contracts
between the Company and companies owned by, controlled by, or affiliated with
the Chairman will in the future be determined through good faith negotiations
between the Company and such related entities, subject to the approval of
independent directors of the Company. Potential conflicts of interests will
be resolved by independent directors of the Company in the exercise of their
fiduciary duties to the Company's shareholders. In addition, Russell Data had
contracted with other companies owned by, controlled by or affiliated with
the Former President.

Starting on March 1, 1997, the Company began contracting directly with
companies that were owned by, controlled by or affiliated with the Former
President to provide services to the Company which were similar to those offered
by Russell Data. The contracted services were on a non-exclusive basis or, in
one instance, an exclusive basis, and were to provide certain specified billing
and collection services for a fee of 70 percent of net revenues to be received
by the Company for services billed by these companies. Since the contracts
acquired in 1995 through 1997 did not provide sufficient cash flows to support
the Company's operations, the contracts for services provided to the Company by
entities owned by, controlled by or affiliated with the Former President were
terminated.

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Industry Overview

The industry in which the Company operates encompasses a broad range of
business services to healthcare providers. These services include physician fee
structuring, procedure and diagnosis coding, third party and insurance benefit
verification, patient claims billing and collection and accounts receivable
management services. The Company believes that demand for these services has
grown due to an increasingly complex reimbursement process, downward pressure on
medical fees, rapid technological changes and processing system obsolescence and
growth in hospital outpatient claims and receivables owed by patients.

Historically, the industry has been comprised of small companies and a
limited number of national and regional companies that provide billing, accounts
receivable and other business services to hospital-affiliated physicians. The
industry presently includes numerous local companies and several national and
regional companies.

Many physicians, particularly those based in hospitals, have traditionally
used the services of outside vendors to secure reimbursement from third party
payors. Hospitals, on the other hand, have tended to rely upon their business
departments to provide most billing and accounts receivable management
functions. Producers of hospital information systems have made this possible by
designing turnkey systems that perform various accounts receivable processing
functions. Such systems have been available to hospitals for a number of years.
The Company believes that the business of providing such services to hospitals
is relatively new and that the demand for such services should increase as
hospitals continue to experience growing accounts receivable, increasing bad
debt and late payments, as well as mounting costs of maintaining business
departments capable of providing adequate accounts receivable management
services.

Services Marketed by the Company

The Company recently announced that it was restructuring the Company's
operations for the future. Under its previous method of operations, the Company
marketed a broad spectrum of services to Medical Service Providers. These
services included start-up services, data accumulation and storage, data coding,
insurance and patient billing, transmission of electronic claims and statements,
establishment of write-off procedures, application of adjustments, follow-up on
insurance claims, patient inquiry services, preparation of management reports,
third-party audit support services, establishment of collection procedures,
selection of collection agency and maintenance of operational procedures.
Accounting services include preparation and maintenance of financial books and
records, preparation of balance sheets, income statements and workpapers, and
coordination with accountants and tax preparers.

The Company entered into contracts with its clients for the provision of
services for a fee which generally is based upon percentage of net collections
and is billable monthly upon collection. The Company's fees varied depending
upon the average physician charge per procedure, number of procedures,
difficulty of collection, and payor mix (e.g., Medicare, commercial insurer or
self-pay). The fees charged by the Company generally is fixed at the outset of
the engagement based upon a complete review and analysis of the collectibility
of the client's receivables portfolio and the anticipated costs of such
collection.

Under the new restructuring, the Company will strategically align and
affiliate itself, though acquisitions and partnerships, with established
companies that offer billing and collection and accounts receivables management
services to Medical Service Providers. The Company

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anticipates, that following the consummation of such acquisitions and
partnerships, it will be able to provide access to offshore labor and high
technology. The Company plans to continue to expand its client base through its
marketing program and through the acquisition of entities to provide billing,
collection and accounts receivable management services, as well as accounting
services, to Medical Service Providers. The Company intends to continue to
expand its client base to include unaffiliated entities. In pursuing this goal,
the Company expects to draw upon the healthcare and acquisition experience of
its management and outside consultants to identify and develop new business
opportunities, including the expansion of its client base by aligning and
affiliating itself, through acquisitions and partnerships, with currently
established companies that offer services similar to those marketed by the
Company by providing access to offshore labor and high technology.

Acquisition Strategy and Structure

Prior to announcing its restructuring, the Company acquired contracts from
companies which provide similar services as those marketed by the Company. The
Company now plans to strategically align and affiliate itself, through
acquisitions and partnerships, with currently established companies that offer
billing and collection and practice management services to Medical Services
Providers. In the future, the Company anticipates, that, following the
consummation of such acquisitions and partnerships, it will be able to provide
access to offshore labor and high technology. The Company will also attempt to
acquire the service component of certain Medical Service Providers that perform
their own billing functions. While the terms of the acquisitions will vary in
certain respects, such acquisitions are generally expected to involve the
purchase of assets and operations of selling entity at an agreed upon price, as
well as non-competition and non-solicitation agreements between the Company and
the selling entity. The purchase price for the acquisitions will be determined,
among other things, based on projected cash flow to the Company of the entity
and will typically be paid by combinations of cash and capital stock and, in
some cases, promissory notes. There can be no assurance that the Company can
continue to identify and acquire or affiliate itself with desirable entities on
terms favorable to the Company or in a timely manner, or that such acquisitions,
if consummated, will prove to be beneficial to the Company.

The Reimbursement Process

Medical Service Providers receive payment for medical services from
patients, third-party payors, or a combination of both. Third-party payors
include insurance companies, federal and state governments and their
intermediaries, health maintenance organizations, preferred provider
organizations, third-party administrators for self-insured companies and other
"managed care" entities. Although patients generally retain primary payment
responsibility for all medical services they receive, Medical Service Providers
typically agree to process claims through third-party payors before requesting
payment from patients for deductibles, co-payments or any other amounts due on
account of uncovered services. Most Medical Service Providers bill patients in
full or for the estimated patient obligations at the same time they bill the
third-party payor.

Obtaining reimbursement from third-party payors is becoming increasingly
difficult because of changes in reimbursement methods. Managed care concepts
such as pre-admission certification, utilization review and other administrative
procedures implemented by third-party payors in an effort to control costs have
also complicated the reimbursement process. In addition, Medical Service
Providers are increasingly unable to collect charges or deposits of estimated
net

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balances directly from their patients at the time medical services are rendered.
Consequently, Medical Service Providers often assume responsibility for
obtaining reimbursement from third-party payors.

Many third-party payors administer reimbursement claims through
locally-established operating centers or through local independent contractors.
In many cases, these third-party processing centers establish independent
formulas and procedures for processing reimbursement claims.

The Medicare program is administered by the Health Care Financing
Administration ("HCFA"), a division of the United States Department of Health
and Human Services. HCFA has established guidelines pursuant to which claims for
physician are reimbursed in accordance with a resource-based relative value
guide, the values of which vary according to geographic location. The Medicaid
program is subject to federal regulation but is administered by state
governments. State governments provide for Medicaid claims reimbursement either
through the establishment of state-owned and operated processing centers or
through contractual arrangements with third-party administrators. The
requirements and procedures for reimbursement implemented by local Medicaid
program administrators also differ from state to state.

Similar to the claims administration process of Medicare and Medicaid, many
national health insurance companies administer reimbursement claims through
local or regional offices. Consequently, because guidelines for the
reimbursement of claims generally are established by third-party payors at the
local or regional level, reimbursement managers for Medical Service Providers
must be familiar with the local methods and procedures utilized by various
third-party payors.

Third-party payors reimburse a beneficiary, or the beneficiary's assignee,
only for services covered under the terms of the beneficiary's health insurance
policy. Typically, medical services to treat illnesses and injuries are covered,
whereas routine checkups, physicals, certain vaccinations and other types of
preventive medical care are not. Patients and Medical Service Providers who are
uncertain whether a third-party payor's coverage limitations are applicable to a
particular medical treatment or service must either contact the payor's customer
service representative or submit a claim and wait for a determination of whether
the claim will be paid or denied.

Third-party payors also make reimbursement contingent on the coordination
of coverage with other insurance policies covering the same beneficiary. A
substantial number of patients are covered by multiple forms of health
insurance. Whether an insurance policy's coverage is primary or secondary in
payment priority to another policy often is difficult to determine. Moreover,
regular health insurance coverage often has subrogation rights with respect to
workers' compensation and automobile insurance coverage for injuries suffered in
the workplace or in automobile accidents.

Claims submitted to third-party payors for reimbursement may be denied or
returned for many reasons. Employment changes by a beneficiary, the delivery of
noncovered services, secondary payor liability, the failure to pre-certify or
submit required information and the submission of incorrect billing information
are common examples. The significant number of variables that can affect the
administration of a claim, including numerous possible diagnoses, treatment
procedures and responsible third-party payors, often result in multiple errors
which make time-consuming corrections a costly component of the reimbursement
process.

Additionally, commercial payors and governmental reimbursement programs
engage in various types of utilization review. The purpose of utilization review
programs is to verify that

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medical services provided to patients are medically necessary and are eligible
for coverage. The utilization review process further complicates and delays the
reimbursement process.

The Company's services include interacting with all of the foregoing
reimbursement sources on behalf of its clients.

Government Regulation

Medicare laws relating to physician reimbursement directly affect the
Company's operations by, among other things, limiting the amount of
reimbursement received by the Company's clients which, in turn, reduces the net
revenues the Company can receive from its clients. On January 1, 1992, the
Federal government implemented a new fee structure known as the Resource Based
Relative Value Scale ("RBRVS") for physicians who treat Medicare patients. As a
result of the continued implementation of RBRVS, the Company estimates that its
physician clients will experience a decline in Medicare reimbursement as a
percentage of Medicare charges during 1997. Because the Company's net revenues
are based in part on receipt of a percentage of its clients' cash receipts, an
RBRVS that has the effect of reducing the amount of reimbursement made to the
Company's physician clients will reduce the Company's net revenues
correspondingly. If any additional legislative or regulatory changes are adopted
that reduce the amount of hospital-affiliated physicians' Medicare
reimbursement, the Company's net revenues are likely to experience a
corresponding reduction. In addition, the implementation of a national health
insurance program could have an adverse effect upon the Company's operations
because such a program could substantially reduce the complexity of the
healthcare reimbursement process and eliminate or substantially reduce the
demand for the Company's services.

Under Medicare, Medical Service Providers are permitted to assign Medicare
claims to billing and collection services only in certain limited circumstances.
The Company believes that its practices and procedures regarding billing and
collection services do not constitute assignment of Medicare claims by
physicians or hospitals. The Medicare statutes that restrict assignment of
Medicare claims are supplemented by Medicare regulations and provisions in the
Medicare Carrier's Manual (the "Manual"). The Medicare regulations and the
Manual provide that a billing service that prepares and sends bills for the
provider or physician and does not receive and negotiate the checks made payable
to Medical Service Providers does not violate the restrictions on assignment of
Medicare claims. The Company believes that its operations are consistent with
these provisions because the Company bills only in the name of the Medical
Service Providers, checks and payments for Medicare services are made payable to
the Medical Service Providers and the Company lacks any power, authority or
ability to negotiate checks made payable to the Medical Service Provider (i.e.,
monies collected are deposited in a lock box or otherwise directly in the
physician's bank account). Therefore, the Company believes that its practices do
not violate the restrictions on assignment of Medicare claims.

The Company maybe subject to criminal, civil and administrative penalties
under Federal and state law prohibitions against submitting false claims for
payments. Generally, criminal penalties subjecting participants to fines and
imprisonment require that the entity act knowingly, willfully or with fraudulent
intent. This standard might be met if an agent of the Company prepared and filed
false claims or was aware of false claims initiated by clients. In addition, the
Company could be viewed as conspiring to defraud Medicare or another third-party
payor, or as aiding and abetting the client in a criminal billing scheme if it
were aware that fraudulent claims were being submitted. Civil statutes provide
for penalties in excess of $10,000 per claim, including submitting claims with
"reckless disregard" of the truth or falsity of submitted information. The
Federal civil

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money penalties statute provides for civil penalties of up to $10,000 per claim
(plus an assessment of twice the amount claimed) against anyone who presents or
causes to be presented a false or improper claim under Medicare or Medicaid,
including billing agents. Liability is imposed on persons who "know or should
know" that a claim is "false," "fraudulent" or for services "not provided as
claimed." In addition, the Company is subject to various other laws that provide
for monetary sanctions for technical billing violations, many of which may give
rise to penalties of up to $10,000 per violation. The Company is also subject to
criminal laws regarding failure to disclose known overpayments under Medicare or
Medicaid.

The Social Security Act imposes criminal penalties upon persons who make or
receive kickbacks, bribes or rebates in connection with the Medicare and
Medicaid programs. These anti-kickback rules prohibit individuals and entities
from knowingly and willfully soliciting, offering, receiving or paying, directly
or indirectly, any renumeration in return for (a) referring someone for a good,
facility, service or item, (b) purchasing, leasing, ordering or arranging for a
good, facility, service or item or (c) recommending that an individual purchase,
lease or order a good, facility, or services or item reimbursable under Medicare
or Medicaid. In addition to other penalties, violation of any of the statues
described above could lead to the exclusion from Medicare and Medicaid which
would preclude its clients from receiving reimbursement for any monies paid to
the Company. Similarly, violations of any of the statutes described above or
other such activity by an officer or a stockholder with a 5% or greater interest
in the Company which results in the exclusion of such stockholder from Medicare
or Medicaid could lead to the exclusion from the programs.

Credit collection practices and activities are regulated by both Federal
and state law. The Federal Fair Debt Collection Practices Act (the "Federal Fair
Debt Act") sets forth various provisions designed to eliminate abusive,
deceptive and unfair debt collection practices by debt collectors. The Federal
Fair Debt Act also provides for, among other things, a civil right of action
against any debt collector who fails to comply with the provisions thereof.
Various states also have promulgated laws and regulations that govern credit
collection practices. In general, these laws and regulations prohibit fraudulent
and oppressive credit collection practices and may impose license or
registration requirements upon collection agencies. State credit collection laws
and regulations typically provide for civil penalties, injunctions, criminal
fines and imprisonment for collection agency personnel who fail to comply with
such laws and regulations. Although the Company does not provide past due or
delinquent credit collection services, the services it markets to its clients
may subject it to regulation as a "debt collector" under the Federal Fair Debt
Act or as a "collection agency" under state collection agency laws and
regulations. Management believes that the Company operates in accordance with
the Federal Fair Debt Act and complies in all material respects with the
applicable collection agency laws and regulations governing collection practices
in the states in which it conducts its business, or is exempt from such laws and
regulations.

Competition

The industry in which the Company operates is highly competitive. Principal
competitors include small physician billing and accounts receivable management
services companies, large physician groups that provide their own reimbursement
management functions, and regional and national companies that provide billing
accounts receivable management services to hospital-affiliated physicians. In
addition, the Company competes with hospitals that offer billing and accounts
receivable management services to their affiliated physicians. To a lesser
extent, the Company also competes with producers of turnkey physician
reimbursement systems, which

<PAGE>

generally are purchased by large physician practice groups that manage their own
reimbursement functions and have the resources necessary to purchase, maintain
and operate such systems.

Employees

As of March 31, 1998, the Company had forty-three employees, none of whom
are represented by a union. The Company anticipates the number of employees will
continue to grow if it can successfully identify companies with operations to be
acquired. The Company believes that its relationships with its employees are
good.

Important Factors Regarding Forward Looking Statements

Some of the information presented in this report constitutes forward
looking statements within the meaning of the Private Securities Litigation
Reform Act of 1995. Although the Company believes that its expectations are
based on reasonable assumptions within the bounds of its knowledge of its
business and operations, there can be no assurance that actual results of the
Company's marketing and acquisition activities and its results of operations
will not differ materially from its expectations. Factors which could cause
actual results to differ from expectations include, among others, uncertainty of
whether the Company's marketing activities will result in an expansion of its
client base or lead to additional acquisitions and affiliation with established
companies that offer billing and collection and practice management services to
Medical Service Providers, uncertainties related to the demand for the services
provided by the Company, uncertainties related to state and federal governmental
regulation of the Company's business, uncertainties to provide access to
offshore labor and high technology, and the uncertainty of whether the
combination of operating cash flows, the proceeds remaining from the Company's
initial public offering, repayment of the accounts and notes receivables and
income tax refunds will be sufficient to fund its growth and operations over the
next twelve months. Specific reference is made to the risks and uncertainties
described in the Company's Registration Statement on Form S- 3, Registration No.
333-11381.

ITEM 2. DESCRIPTION OF PROPERTY

The Company leases space for its headquarters and executive offices in
Sparks, Nevada on a month-to-month basis at a monthly rental of $300 from an
entity which is owned and controlled by the Chairman. In addition, the Company
rented an office located in Newton, Massachusetts until February 1997. Under the
terms of the lease, which was for a term of five years, the Company paid a
monthly rental of $5,439.50. This lease is expected to be assigned effective May
1, 1998. Effective February 1, 1998, the Company has leased an office located in
Suffern, New York. Under the terms of the lease, which is for a term of five
years, the Company will pay a monthly rental of $5,328.00.

<PAGE>

ITEM 3. LEGAL PROCEEDINGS

The Company is party to routine legal proceedings incidental to its normal
activities. The Company is not aware of any legal matters which would have a
material adverse effect on the Company's financial position.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

The Company solicited consents from its stockholders of record as of
December 31, 1997, for approval of a 1 for 10 reverse split of the Company's
Common Stock. Stockholders representing approximately 61.1% of the eligible
Common Stock outstanding consented to the reverse stock split and stockholders
representing 2.3% of the eligible Common Stock voted against the reverse split.

<PAGE>

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS

The Common Stock of the Company has been listed on the Nasdaq National
Market under the symbol NMFS since January 29, 1996. Prior thereto, the Common
Stock was listed on the Nasdaq SmallCap Market. Due to the Company's current
market capitalization, the Company is not in compliance with the requirements of
the Nasdaq National Market. Accordingly, the Company may have to apply for
inclusion on the Nasdaq SmallCap Market. There can be no assurance that the
Company will qualify for such inclusion or, if the Company does qualify, that it
will be able to maintain such qualification. The following table sets forth, for
the periods indicated, the high and low sales prices for the Common Stock on the
Nasdaq SmallCap Market and the Nasdaq National Market (1).

High Low

1996

1st Quarter................................ $66.25 $40.00

2nd Quarter................................ $67.50 $34.38

3rd Quarter................................ $53.75 $28.75

4th Quarter................................ $46.88 $30.63

1997

1st Quarter................................ $52.50 $25.00

2nd Quarter................................ $31.25 $10.63

3rd Quarter................................ $27.50 $10.00

4th Quarter................................ $12.50 $ 1.88

</TABLE>

- ----------

(1) The high and low prices reported in the table have been restated to reflect
the 2 for 1 stock split which was effective on February 24, 1997 and the 1 for
10 reverse stock split which was effective on February 10, 1998.

As of March 31, 1998, there were approximately 100 record holders and
approximately 1000 beneficial owners of the Common Stock.

The Company has never declared or paid cash dividends on its Common Stock.
The Company currently intends to retain its earnings to provide funds for the
operation and expansion of its business and, therefore, does not anticipate
declaring or paying cash dividends in the foreseeable future. Any payment of
future dividends will be at the discretion of the Board of Directors and will
depend upon, among other things, the Company's earnings, financial condition,

<PAGE>

capital requirements, level of indebtedness, contractual restrictions with
respect to the payment of dividends and other relevant factors.

During the year ended December 31, 1997, in connection with certain
acquisitions of accounts receivable and client contracts, the Company issued
shares of Common Stock to the former owners of such accounts receivable and
client contracts as follows:

Number
Acquisition Transaction Date of Shares Price per Share
- ----------- ---------------- --------- ---------------

<S> <C> <C> <C>
MBS March 1, 1997 4,445 $45.00
Rapier March 1, 1997 1,445 $45.00
MBS of Arizona August 1, 1997 38,400 $15.60

</TABLE>

All of the issuances of Common Stock by the Company during the year ended
December 31, 1997 were made pursuant to exemptions from registration under
Section 4(2) of the Securities Act of 1933, as amended.

Effective December 31, 1997, the Company terminated contracts that were
acquired in 1995 through 1997, because they were not providing sufficient cash
flows to support the Company's operations. The number of shares of Common Stock
issued by the Company and still maintained in escrow will be either released to
the respective seller or returned to the Company in 1998 as follows:

Number of Shares Number of Shares
to be Released to be Returned
Acquisition Acquisition Date to the Seller to the Company
- ----------- ---------------- ------------- --------------
<S> <C> <C> <C>
Asterino December 1, 1995 -0- 20,000
Rapier December 1, 1995 2,812 --
Doctors Medical February 13, 1996 (1) (1)
National Medical April 1, 1996 6,000 --
Rapier August 1, 1996 4,274 --
MBS March 1, 1997 4,445 --
Rapier March 1, 1997 1,445 --
MBS of Arizona August 1, 1997 -0- 38,400

</TABLE>

- ----------

(1) 38,824 shares of Common Stock held in escrow were released to sellers on
November 4, 1997.

ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

The following discussion and analysis should be read in conjunction with
the financial statements and notes thereto included elsewhere herein.

<PAGE>

Company's activities and its results of operations will not differ materially
from its expectations. See "ITEM 1 - BUSINESS - Important Factors Regarding
Forward Looking Statements."

Overview

The Company was formed initially as a vehicle for the outsourcing of
billing, collection and accounts receivable management services, as well as
certain accounting services, which were performed internally by over 40 Medical
Service Providers which are owned by, controlled by, or affiliated with the
Chairman. The Company commenced operations in August 1994 and entered into a
series of contracts commencing October 1, 1994 to provide billing and collection
services to these Medical Service Providers. Under the majority of these
contracts, the Company's clients paid an aggregate of 4% for billing, collection
and accounting services. These contracts expired on September 30, 1997 and were
not renewed. Accordingly, no further revenues and related subcontract expenses
(except some incidental income) were recognized after that date. Effective
December 31, 1997, the Company announced that it was restructuring the Company's
operations for the future, resulting in the write-off of all of the contracts to
provide billing and collection services it had acquired during the period from
June 30, 1995 through August 1, 1997.

Since the Company's inception, the Company acquired certain businesses and
contracts to provide billing, collection and other services. Upon such
acquisition, the Company assumed the obligations under the contracts then in
place on their existing terms and conditions. Some of these contracts required
the clients to pay higher rates for the services provided thereunder. In certain
instances, the Company's clients pay a flat monthly fee or annual fee for
services. Regardless of the amount of fees paid to the Company by a particular
client, the Company retains its operating margin of 30% because of its
contractual relationship with Russell Data. There can be no assurance that the
Company will be able to continue to acquire, negotiate or renew contracts on the
same terms and conditions as it has to date. In 1997, the Company entered into
contractual relationships with several entities, which are owned by, controlled
by or affiliated with the Former President, to provide services to the Company
which were on similar term to that of Russell Data.

Effective December 31, 1997, the Company announced that it was
restructuring the Company's operations for the future, resulting in the
write-off of all of the contracts it had acquired to provide billing and
collection services. These contracts were acquired June 30, 1995 through August
1, 1997. In addition, the Company terminated its contractual relationship for
services provided by the entities which are owned by, controlled by or
affiliated with the Former President.

Under the restructuring, the Company expects to expand its business of the
next year by marketing through direct sales to new clients, as well as
strategically aligning and affiliating itself, through acquisitions and
partnerships, with established companies that offer billing and collection and
practice management services to Medical Service Providers. The Company expects
that, following the consummation of such acquisitions and partnerships, it will
be able to provide access to offshore labor and high technology. In addition to
acquisitions and affiliations, the Company anticipates that its principal
marketing activities for the foreseeable future will include direct sales,
attendance at trade shows, telemarketing, production of written marketing
materials and seminars. These marketing activities are currently conducted by
the Company's President and certain outside consultants.

As part of the restructuring, the Company acquired the assets and business
operations of Shoreline & Maybruch & Co., two entities which perform physician
billing and collection and various practice management services. These services
are performed by approximately forty

<PAGE>

employees in Suffern, New York. The Company anticipates the number of employees
and locations could increase as it strategically aligns itself with other
established companies offering billing and collection and various practice
management services. Additionally, the Company expects to utilize offshore labor
and high technology to control and hopefully reduce its operating costs to
provide these services.

With the restructured operations, the Company expects that it will require
an increase in the number of employees and equipment over the next twelve months
as business grows.

In January 1995, the Company decided to expand its services to be marketed
to include accounting services to Medical Service Providers. The Company entered
into a series of contracts to provide this new service to the Medical Service
Providers which are owned by, controlled by, or affiliated with the Chairman.
These contracts expired on September 30, 1997 and were not renewed. Accordingly,
no further revenues or related subcontract expenses (except some incidental
income) were recognized after that date. The Company may in the future further
expand the services it markets to its customers or acquire contracts or
businesses in other medical or non-medical industries, but there is no assurance
that will do so.

There are a number of trends and uncertainties which may have a material
adverse effect on the Company in the future. The Company's clients are subject
to extensive federal, state and local legislation with respect to many aspects
of their operation. It can be expected that statutes and regulations to which
these clients are subject, which have been substantially modified during recent
years, will continue to be modified in the future. Various proposals affecting
federal and state regulations of the healthcare industry, including limitations
on Medicare reimbursements and limitations on referrals, have been introduced.
Management cannot predict what effect such legislation will have on the
operations of the Company.

Results of Operations

Year Ended December 31, 1997 Compared to Year Ended December 31, 1996

During 1997 and 1996, the Company consummated three separate transactions
in each year in which it acquired an aggregate of approximately 14 and 52
billing contracts, respectively.

Total revenues for the years ended December 31, 1997 and 1996 were
$8,257,500 and $9,215,100, respectively, a decrease of approximately 10.4%.
Approximately 42.0% of the 1997 revenues, as compared to 49.9% of the 1996
revenues, were derived from the Company's contracts with Medical Service
Providers owned by, controlled by or affiliated with the Chairman. These
contracts expired on September 30, 1997 and were not renewed. Accordingly, no
further revenues were recognized after that date. The increase in revenues from
acquisitions made by the Company during the first, second and third quarters of
1996 and the acquisitions made by the Company during the first and third
quarters of 1997 did not exceed the decrease in revenues from expired and lost
contracts. Revenues earned for the year ended December 31, 1997 consisted of
$7,628,500, or 92.4% of revenues, for billing and collections services,
$398,700, or 4.8% of revenues, for accounting services, and $230,300, or 2.8% of
revenues, for late charges. Revenues earned for the year ended December 31, 1996
consisted of $8,343,300, or 90.5% of revenues, for billing and collections
services, $558,400, or 6.1% of revenues, for accounting services, and $194,500,
or 2.1% of revenues, for late charges, and $118,900, or 1.3% of revenues, for
consulting services. The percentage of revenues attributable to billing and
collection

<PAGE>

services as compared to accounting services has increased as the Company has
acquired additional contracts which provide only for billing and collection
services.

During the years ended December 31, 1997 and 1996, the Company incurred
subcontract costs to Russell Data and entities owned by, controlled by or
affiliated with the Former President in the amount of $5,619,000 and $6,223,000,
respectively, for services rendered. Since the contracts with the Company's
Chairman expired on September 30, 1997, and were not renewed, no further
revenues was recognized after that date. Accordingly, no further subcontract
expenses related to these contracts were recognized after that date. Of the
amounts paid during the years ended December 31, 1997 and 1996, the costs
incurred with Russell Data were $5,033,100 and $6,223,000, respectively, and the
costs incurred to entities owned by, controlled by or affiliated with the Former
President were $585,900 and $0, respectively. The Company reported operating
income of $2,638,500, loss before taxes of $9,200,600, net loss of $7,844,700,
and basic loss per share of $5.17 for the year ended December 31, 1997. The
Company reported operating income of $2,992,100, income before taxes of
$2,092,600, net income of $1,405,500, and basic earnings per share of $0.95 for
the year ended December 31, 1996.

The Company incurred selling, general and administrative expenses of
$617,800 and $931,100 for the years ended December 31, 1997 and 1996,
respectively. The expenses for 1997 consisted primarily of salaries and related
employee benefits, insurance expense and professional fees, while the expenses
for 1996 consisted primarily of salaries and related employee benefits,
franchise taxes and professional fees.

The Company incurred depreciation and amortization expenses of $507,200 and
$325,600 for the years ended December 31, 1997 and 1996, respectively. The
expenses for both years was primarily comprised of amortization expenses of
intangible assets (i.e., the client contracts acquired). In 1997, it was
determined that the client contracts were not providing sufficient cash flows to
support the Company's operations. The contracts and their related elements were
written-off in 1997. The Company incurred expenses of $10,899,300 related to the
write-offs. In addition, a net write-off of $129,800 was incurred in 1997, from
entities owned by, controlled by or affiliated with the Company's Chairman.

During 1997, the Company experienced an operating loss of $9,200,600, which
resulted in a loss carry back of $2,597,600 to obtain refunds of income taxes
paid in 1994 through 1996 of $1,355,900. In addition, refunds of estimated tax
payments made in 1997 and tax overpayments in prior years amounted to $400,700,
which will also be refunded. The Company's effective tax rate was 32.8% for the
year ended December 31, 1996.

Year Ended December 31, 1996 Compared to Year Ended December 31, 1995

During 1995, the Company consummated one acquisition of a billing and
collection company and one acquisition of a billing contract. During 1996, the
Company consummated three separate transactions in which it acquired
approximately 52 billing contracts.

Total revenues for the years ended December 31, 1996 and 1995 were
$9,215,100 and $5,956,000, respectively, an increase of approximately 54.7%.
Approximately 49.9% of the 1996 revenues, as compared to 85.1% of the 1995
revenues, were derived from the Company's contracts with Medical Service
Providers owned by, controlled by, or affiliated with the Chairman. The
acquisitions made by the Company during the second and fourth quarters of 1995
and the acquisitions made in the first, second and third quarters of 1996 are
the primary reasons for the

<PAGE>

increased volumes. Revenues earned for the year ended December 31, 1996
consisted of $8,343,300, or 90.5% of revenues, for billing and collections
services, $558,500, or 6.1% of revenues, for accounting services, and $194,500,
or 2.1% of revenues, for late charges, and $118,900, or 1.3% of revenues, for
consulting services. Revenues earned for the year ended December 31, 1995
consisted of $5,068,200, or 85.1% of revenues, for billing and collections
services, $641,400, or 10.8% of revenues, for accounting services, and $246,400,
or 4.1% of revenues, for late charges. The percentage of revenues attributable
to billing and collection services as compared to accounting services has
increased as the Company has acquired additional contracts which provide only
for billing and collection services.

During the years ended December 31, 1996 and 1995, the Company incurred
costs to Russell Data in the amount of $6,223,000 and $3,996,700, respectively,
for services rendered. The Company reported operating income of $2,992,100,
income before taxes of $2,092,600, net income of $1,405,500, and primary
earnings per share of $0.09 for the year ended December 31, 1996. The Company
reported operating income of $1,959,400, income before taxes of $1,365,000, net
income of $891,700, and primary earnings per share of $0.08 for the year ended
December 31, 1995.

The Company incurred selling, general and administrative expenses of
$931,100 and $666,400 for the years ended December 31, 1996 and 1995,
respectively. The expenses for 1996 consisted primarily of salaries and related
employee benefits, franchise taxes and professional fees, while the expenses for
1995 consisted primarily of salaries and related employee benefits and
professional fees.

The Company incurred depreciation and amortization expenses of $325,600 and
$57,100 for the years ended December 31, 1996 and 1995, respectively. The
expenses for both years was primarily comprised of amortization expenses of
intangible assets, (i.e., the client contracts acquired).

The Company's effective tax rate was 32.8% and 34.7% for the years ended
December 31, 1996 and 1995, respectively.

Liquidity and Capital Resources

At inception, the Company's operations were funded by $1,000,000 in capital
contributions in the form of notes received from the Company's principal
stockholders, which notes have been repaid. The Company realized net income
(loss) from operations of ($7,844,700) and $1,405,500 for the years ended
December 31, 1997 and 1996, respectively.

In June 1995, the Company acquired the cash, accounts receivable and the
client contracts of Asterino, a billing and collection company located in
Schenectady, New York that provides services to approximately 20 Medical Service
Providers who were not affiliated with Asterino or the Chairman. The total
consideration paid for the acquisition was $1,050,000 in cash and $600,000 in
Common Stock valued at the Company's initial public offering price, or 30,000
shares. These shares are freely tradable, subject to a lock-up agreement which
expired on January 1, 1997. An additional 500 shares in lieu of interest were
issued on October 1, 1995 in connection with this transaction. The Company
placed an additional 20,000 shares of Common Stock into escrow pursuant to the
purchase agreement. Fewer shares would ultimately be released from escrow if
certain revenue levels were not maintained. At December 31, 1997, 20,000 shares
of Common Stock held in escrow will be returned to the Company.

<PAGE>

On August 9, 1995, the Company completed its initial public offering (the
"Offering") of 400,000 shares of Common Stock at $20.00 per share. In addition,
the underwriters exercised in full their over-allotment of 60,000 shares in full
on August 21, 1995. The net proceeds to the Company of its Offering and the
exercise of the over-allotment option was approximately $7,550,000.

On December 1, 1995, the Company acquired a billing contract between Rapier
and UEMF. The total consideration paid for the contract was $750,000, consisting
of $650,000 in cash and 2,712 shares of Common Stock valued at $36.90 per share,
the price of the Common Stock on December 1, 1995. In accordance to the purchase
agreement, the Company placed these shares into escrow. Fewer shares would be
released from escrow if certain revenue levels were not maintained. At December
31, 1997, 2,712 shares of Common Stock held in escrow will be released by the
Company in 1998.

On February 13, 1996, the Company acquired the accounts receivable and
client contracts from Doctors Medical. The total consideration paid for this
acquisition was $1,800,000, consisting of $150,000 in cash and 38,824 shares of
Common Stock valued at $42.50 per share. In accordance with the purchase
agreement, the Company placed these shares into escrow. Fewer shares would
ultimately be released from escrow if certain revenue levels were not
maintained. On November 4, 1997, the Company released these shares from escrow.

On April 1, 1996, the Company acquired the accounts receivable and client
contracts from National Medical. The total consideration paid for this
acquisition was $550,000, consisting of $250,000 in cash and 6,000 shares of
Common Stock valued at $50.00 per share. In accordance with the purchase
agreement, the Company placed these shares into escrow. Fewer shares would
ultimately be released from escrow if certain revenue levels were not
maintained. At December 31, 1997, 6,000 shares of Common Stock held in escrow
will be released by the Company in 1998.

On August 1, 1996, the Company acquired from Rapier seven additional
contracts to provide billing, collection and accounts receivable management
services to Medical Service Providers in Massachusetts and New Hampshire. The
total consideration paid was $945,000, consisting of $750,000 in cash and 4,274
shares of Common Stock valued at $45.60 per share. In accordance with the
purchase agreement, the Company placed these shares into escrow. Fewer shares
will ultimately be released from escrow if certain revenue levels are not
maintained. At December 31, 1997, 4,274 shares of Common Stock held in escrow
will be released by the Company in 1998.

On March 1, 1997, the Company acquired a contract from Rapier to provide
billing and collection services to Medical Service Providers in Rhode Island.
The total consideration paid was $164,998, consisting of $100,000 in cash and
1,445 shares of Common Stock valued at $45.00 per share. In accordance with the
purchase agreement, the Company placed these shares into escrow. Fewer shares
would ultimately be released from escrow if certain revenue levels were not
maintained. At December 31, 1997, 1,445 shares of Common Stock held in escrow
will be released by the Company in 1998.

On March 1, 1997, the Company acquired a contract from MBS to provide
billing and collection services to Medical Service Providers in the Cleveland,
Ohio area. The total consideration paid was $500,000, consisting of $300,000 in
cash and 4,445 shares of Common Stock valued at $45.00 per share. In accordance
with the purchase agreement, the Company placed these shares into escrow. Fewer
shares would ultimately be released from escrow if certain

<PAGE>

revenue levels were not maintained. At December 31, 1997, 4,445 shares of Common
Stock held in escrow will be released by the Company in 1998.

On August 1, 1997, the Company acquired twelve contracts from MBS of
Arizona to provide billing and collection services to certain Medical Service
Providers in Arizona. The total consideration paid was $1,800,000, consisting of
$600,000 in cash and 38,400 shares of Common Stock valued at $15.60 per share
and promissory notes in the aggregate of $600,000. In accordance with the
purchase agreement, the Company placed these shares into escrow. The Common
Stock and promissory notes would be subject to total or partial forfeiture if
certain revenue levels were not maintained. At December 31, 1997, 38,400 shares
of Common Stock held in escrow will be returned to the Company and the
promissory notes were written-off.

Effective December 31, 1997, the Company terminated the contracts that were
purchased in 1995 through 1997, because they were not providing sufficient cash
flows to support the Company's operations. At December 31, 1997, these purchased
contracts had a book value of $8,000,400, net of amortization. At December 31,
1997, 77,276 shares of the Company's Common Stock were being held in escrow
pending achievement of targeted revenue levels on these contracts. Since the
revenue levels on certain contracts were not sufficient to require full release
of shares maintained in escrow, 58,400 shares valued at $1,000,000 will not be
released and will be returned to the Company.

The elements of the costs of client contacts written-off consisted of the
following:

<S> <C>

Purchased contract costs, net of amortization $ 8,000,400
Costs of shares to be returned from escrow (1,000,000)
Uncollectible receivables from clients 1,967,700
Fixed assets, net of depreciation, and other assets 29,700
Cash advances, net of outstanding payables 1,595,800
Severance and other termination costs 305,700
------------

Total $10,899,300
-----------
-----------

</TABLE>

In addition, the Company had a net write-off of $129,800 from entities
owned by, controlled by or affiliated with the Company's Chairman.

The effects of the net operating loss experienced in 1997 of $9,200,600
created a net loss of $2,597,600 to be carried back to obtain refunds of income
taxes paid in 1994 through 1996 of $1,355,900. In addition, refunds of estimated
tax payment made in 1997 and tax overpayments in prior years amount to $400,700,
which will also be refunded. The Company has net operating loss carryforwards
totaling $4,750,000 that will be available to offset future taxable income.
These net operating loss carryforwards will be available through the year 2012.

On January 1, 1998, as part of its new operating strategy, the Company
acquired the assets and business operations of Shoreline Medical Billing
Systems, Inc. and Maybruch & Company, two privately-owned companies which
perform physician billing and collection and various practice management and
accounting services. The total consideration paid was $1,313,700, consisting of
$913,700 in cash and 163,405 shares of Common Stock valued at $2.40 per share.
In accordance with the purchase agreement, additional shares of Common Stock may
be issued if the price of the Common Stock falls below certain levels.

<PAGE>

On May 1, 1996, the Company entered into a transaction with First United
Equities Corporation ("First United"), a broker-dealer registered with the
Securities and Exchange Commission. First United is the principal market maker
in the Company's Common Stock. Pursuant to the transaction, the Company loaned
$5,200,000 in a series of advances evidenced by a promissory note bearing
interest at 10%. Such note was due on demand with seven days notice. The note
was collateralized by the guarantees of the principals of First United. On May
29, 1996, First United repaid $2,000,000 to the Company. Effective October 1,
1996, the remaining balance of the note and accrued interest was satisfied
through the establishment of an unsecured note due from Russell Data in the
amount of $3,344,200. The note bears interest at 10% and establishes a payment
schedule which will result in the balance and accrued interest being paid in
full by September 15, 1997. On February 10, 1997, the Company received
$1,104,786 of principal and accrued interest from Russell Data representing the
first in the series of scheduled payments. The balance of the scheduled payments
were due on September 30, 1997. The Company did not receive any additional
payments during this period of time. On January 6, 1998 and March 4,1998, the
Company received additional principal payments for $915,000 and $80,000,
respectively, leaving an outstanding principal balance of $1,349,200.

As of December 31, 1997 and 1996, certain of the Medical Service Providers,
which are owned by, controlled by, or affiliated with the Chairman, owed the
Company approximately $3,008,500 and $362,300, respectively, in fees for
services. Since the these contracts expired on September 30, 1997 and were not
renewed, there was no additional amounts billed to these entities since December
31, 1997. Since December 31, 1997, the Company has received $1,000,000 related
to the receivables and has paid Russell Data $750,000 for services related to
these amounts. As of December 31, 1997 and 1996, the Company owed Russell Data
$2,165,100 and $1,074,100, respectively, for services provided. Included in
these amounts are prepayments the Company made to Russell Data. As of March 31,
1998 and 1997, $0 and $1,326,000, respectively, has been prepaid to Russell
Data.

The Company's principal sources of liquidity are anticipated to be cash
flow from operations, proceeds remaining from the Offering, repayment of the
accounts and notes receivables and income tax refunds. The Company expects to
fund future acquisitions of businesses by a combination of funds available
through the cash from operations, proceeds remaining from the Offering,
repayment of the accounts and notes receivables and the issuance of Common Stock
and promissory notes. A similar funding strategy is anticipated to be used in
its future business growth. The Company anticipates the cash flow from
operations, the proceeds remaining from the Offering, repayment of the accounts
and notes receivables and income tax refunds will be adequate to fund its
operations for the next twelve months, although there can be no assurances to
that effect.

Impact of Inflation and Changing Prices

To date, the Company's business has not been significantly affected by
inflation. A substantial portion of the Company's revenues are derived from
commercial insurance and government reimbursement programs, both of which have
experienced cost containment measures designed to limit payments made to
healthcare providers such as the clients of the Company. Continued cost
containment efforts by commercial and government insurers may have a material
adverse effect on the Company. The implemented RBRVS payment system has reduced
Medicare reimbursement rates for certain procedures of the Company's clients.
Future implementation of such a system with respect to third party payors, which
has been advocated, would adversely affect the Company's revenues.

<PAGE>

The Year 2000

Many currently installed computer systems and software products are coded
to accept only two digit entries in the date code field. Beginning in the year
2000, these date code fields will need to accept four digit entries to
distinguish 21st century dates from 20th century dates. As a result, in
approximately two years, computer systems and/or software used by many companies
may need to be upgraded to comply with such "Year 2000" requirements.
Significant uncertainty exists concerning the potential effects associated with
such compliance. Maintenance or modification costs will be expensed as incurred,
while the costs of any new software will be capitalized and amortized over the
software's useful life. Management believes these "Year 2000" costs will be
immaterial.

Prospective Accounting Changes

In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 130 "Reporting Comprehensive
Income." This Statement established standards for reporting and display of
comprehensive income (revenues, expenses, gains and losses) in a full set of
general-purpose financial statements. This Statement requires that an enterprise
(a) classify items of other comprehensive income by their nature in a financial
statement and (b) display the accumulated balance of other comprehensive income
separately from retained earnings and additional paid-in capital in the equity
section of a statement of financial position. This Statement is effective for
fiscal years beginning after December 15, 1997. Reclassification of financial
statement for earlier periods provided for comprehensive purposes is required.
The application of this standard will not have a material impact on the Company.

In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 131 "Disclosures about Segments and
Related Information." This Statement established standards for the way public
business enterprises report information about operating segments in annual
financial statements and requires that those enterprises report selected
information about operating segments in interim financial reports to
stockholders. It also establishes standards for related disclosures about
products and services, geographic areas and major customers. This Statement is
effective for fiscal years beginning after December 15, 1997. In the initial
year of application, comparative information for earlier years is to be
restated. This Statement need not be applied to interim financial statement in
the initial year of application. The application of this standard will not have
a material impact on the Company.

ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The financial statements and supplementary data required by Item 7 are set
forth following Item 13 of this Form 10-KSB.

ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE

Effective July 28, 1997, Coopers & Lybrand, LP ("Coopers") notified the
Company that they resigned from their auditor-client relationship with the
Company and withdrew from being

<PAGE>

considered for re-election for the year ended December 31, 1997. Cooper's report
on the Company's financial statements during the two most recent fiscal years
and all subsequent interim periods preceeding the date hereof contained no
adverse opinion or a disclaimer of opinions, and was not qualified as to
uncertainty, audit scope or accounting principles. The decision to resign from
the relationship was accepted and approved by the Company's Audit Committee.

During the last two years and the subsequent interim periods to the date
hereof, there were no disagreements between the Company and Coopers on any
matters of accounting principles or practices, financial statement disclosure,
or auditing scope or procedure, which disagreements, if not resolved to the
satisfaction of Coopers, would have caused it to make a reference to the subject
matter of the disagreements in connection with its reports.

None of the "reportable events" described in Item 304(a)(1)(ii) occurred
with respect to the Company within the last two fiscal years and the subsequent
interim periods to the date hereof.

22
<PAGE>

PART III

ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY

EXECUTIVE OFFICERS AND DIRECTORS

The executive officers and directors of the Company together with their ages and
business backgrounds, are as follows:

NAME AGE POSITION
---- --- --------

Douglas R. Colkitt, M.D. 44 Chairman of the Board of
Directors and Chief Executive
Officer

Eric D. Robinson 39 President

Robert W. Horner, Jr. 44 Vice President, Chief Financial
Officer, Treasurer and
Secretary

Jude J. Spak (1) (2) 50 Director

Richard L. Flickinger (1) (2) 64 Director

Robert M. Colkitt (1) (2) 69 Director

</TABLE>

- --------------------
(1) Member Compensation Committee

(2) Member Audit Committee

The following sets forth certain information with respect to the members of the
Board of Directors and executive officers of the Company.

Douglas R. Colkitt, M.D. has been the Chairman of the Board of Directors
and Chief Executive Officer of the Company since March 14, 1997. Prior
thereto, Dr. Colkitt served as the Chairman of the Board of Directors of the
Company since its inception. Dr. Colkitt is also the Chairman, Chief
Executive Officer and principal stockholder of EquiMed, Inc., a publicly
traded company focusing primarily on physician practice management,
information technology and outsourcing services primarily to the health care
industry. See "CERTAIN TRANSACTIONS." Dr. Colkitt also owns a number of
entities through his venture capital operations which conduct business in the
medical field as well as such areas as document management, telemarketing,
and software development. Dr. Colkitt is a graduate of Washington and
Jefferson College in Washington, Pennsylvania, where he received his B.A. in
Chemistry and Economics in 1975. Dr. Colkitt received his M.D. from the
University of Pennsylvania and his M.B.A. from the Wharton School of the
University of Pennsylvania, both in 1979.

<PAGE>

Eric D. Robinson, has been the Company's President since November 1997.
Prior thereto, Mr. Robinson served as President and Chief Executive Officer of
Astute Systems, Inc. from July 1994 until November 1997. From 1989 until 1994,
Mr. Robinson held various positions with Quixote Corporation, including Vice
President/General Manager . Mr. Robinson received his B.S. in Forensic Science
from the California State University Sacramento in 1983.

Robert W. Horner, Jr., C.P.A., has been the Company's Chief Financial
Officer, Secretary and Treasurer since its inception and, in addition, became
Vice President of the Company in February 1997. Prior thereto, Mr. Horner served
as Director, Corporate Finance for Oncology Services Corporation from June 1993
until December 1994. From 1988 until 1993, Mr. Horner held various positions
with Unico Corporation, including Vice President, Finance and Controller. Mr.
Horner received his B.S. in Accounting from the Pennsylvania State University in
1975.

Jude J. Spak, C.P.A., has been director of the Company since its inception.
Mr. Spak is currently employed by Colkitt Associates. Mr. Spak served as Chief
Financial Officer of Oncology Services Corporation from August 1990 until
December 1995. Prior thereto, he was the Assistant Vice President of Federated
Research Corporation since 1987, where he conducted investment research and
fixed income mutual fund portfolio management. From 1980 to 1987, Mr. Spak was
Assistant Treasurer of Joy Manufacturing Company, a producer of capital goods,
and from 1977 to 1980, Mr. Spak was Director of Finance of Allegheny General
Hospital. From 1970 to 1977, Mr. Spak was an audit manager with Price
Waterhouse. He received his M.B.A. from the University of Pittsburgh and is a
Chartered Financial Analyst.

Richard L. Flickinger has been a director of the Company since its inception.
Since 1957, Mr. Flickinger has been the owner and operator of Flickinger's
Nursery, a tree nursery company located in Sycamore, Pennsylvania.

Robert M. Colkitt has been a director of the Company since December 1995.
Prior to his retirement in December 1995, Mr. Colkitt operated a multi-line
insurance agency for 38 years. Mr. Colkitt is a chartered life underwriter. He
is a principal in Home Gas and Oil Co., Inc., a wholesale producer of natural
gas and oil. Mr. Colkitt is the father of Douglas R. Colkitt, M.D., the
Company's Chairman and Chief Executive Officer.

Alan H.L. Carr-Locke resigned as the Company's President and Chief Executive
Officer, and as a Director of the Company, effective February 1, 1997.

Classes of Directors

The Board of Directors currently has four members and is divided into two
classes. Dr. Colkitt, Mr. Flickinger and Mr. Colkitt are Class I Directors and
will serve until the annual meeting of stockholders in 1999 and thereafter for
two years or until their successors has been elected and qualified. Mr. Spak is
a Class II Director and will serve until the annual meeting of stockholders in
1998 and thereafter for a term of two years or until his successor has been
elected and qualified.

Meetings and Committees of the Board of Directors

The Company has an Audit Committee and a Compensation Committee, but does
not have a Nominating Committee.

<PAGE>

The Audit Committee consists of Messrs. Spak, Flickinger and Colkitt. The
functions of the Audit Committee generally include reviewing with the Company's
independent auditors the scope and results of their engagement and reviewing the
adequacy of the Company's systems of internal accounting controls. The Audit
Committee held one meeting and acted by written consent one time in 1997.

The Compensation Committee consists of Messrs. Spak, Flickinger, and
Colkitt. The functions of the Compensation Committee are to review and evaluate
the compensation of the Company's executive officers, administer the Company's
Stock Option Plan and establish guidelines for compensation of other personnel.
The Compensation Committee held one meeting and acted by written consent on time
in 1997.

The Board of Directors held two meetings and acted by written consent four
times in 1997. Each director attended at least 75% of the aggregate number of
meetings of the Board of Directors and committees on which he served while a
member of the board.

Compensation of Directors

No cash compensation is currently paid by the Company to its outside
directors, but such directors are eligible to participate in the Company's Stock
Option Plan for Non-Employee Directors. The Directors are reimbursed for their
expenses of attending meetings of the Board of Directors and committees.

ITEM 10. EXECUTIVE COMPENSATION

The following table sets forth certain information with respect to compensation
paid by the Company for the fiscal year ended December 31, 1997 to the Company's
Former President and Chief Executive Officer and other executive officers.

Summary Compensation Table

Annual Long Term
Compensation Compensation

Securities
Name & Principal Underlying All Other
Position Year Salary ($) Bonus ($) Options (#) Compensation ($) (1)
-------- ---- ---------- --------- ----------- --------------------

<S> <C> <C> <C> <C> <C>
Douglas R. Colkitt, M.D., 1997 $ -- -- -- $ --
Chairman and Chief
Executive Officer (1)

Alan H.L. Carr-Locke, 1997 $ 18,750 -- -- $1,500
former President and
Chief Executive
Officer (2) 1996 $150,000 -- -- $9,000

</TABLE>

<PAGE>

(1) Dr. Colkitt has been the Company's Chairman since its inception. On
February 1, 1997, he assumed the additional responsibilities and titles
of President and Chief Executive Officer. On November 17, 1997, the
Company hired a new President and Dr. Colkitt resigned as President. He
continues to serve as the Company' Chairman and Chief Executive
Officer. Since its inception, Dr. Colkitt has not received a salary for
his services from the Company.

(2) Mr. Carr-Locke commenced employment with the Company on June 1, 1995 at
an annual salary of $150,000. Mr. Carr-Locke resigned as an executive
officer effective February 1, 1997.

For the fiscal years ended December 31, 1997 and 1996, only the Company's
Former President and Chief Executive Officer received cash compensation in
excess of $100,000. Only the Company's new President will receive cash
compensation in excess of $100,000 during 1998.

The following tables set forth information concerning the number of stock
options granted during 1997 and 1996 and the value of unexercised options to
purchase Common Stock held by the persons listed at December 31, 1997. None of
the named executive officers exercised any stock options during 1997.

Stock Options Granted in 1997

% of Total
# of Securities Options
Underlying Granted to
Options Employees ($/sh) Expiration
Name Granted During 1997 Exercise Price Date
---- ------- ----------- -------------- ----

<S> <C> <C> <C> <C>
Douglas R. Colkitt, M.D. 10,000 (1) 40.8% $27.188 12/19/2005

Eric D. Robinson 10,000 (2) 40.8% $ 6.406 11/17/2002

Robert W. Horner, Jr. 2,500 (3) 18.4% $27.188 06/30/2007
2,000 (1) $27.188 12/19/2005

</TABLE>

(1) These options were originally granted on December 20, 1995, but were
repriced on July 1, 1997 at the current fair market value on that date.

(2) These replacement options vested July 1, 1997.

(3) These options vested November 17, 1997.

In order to maintain a competitive compensation package to retain the
current officers and directors of the Company, the Company repriced the stock
options previously granted to those individual at an exercise price of $27.19
per share, the fair market value on that July 1, 1997.

<PAGE>

Aggregated Stock Option Exercises in 1997
and Stock Option Values at December 31, 1997

Number of Securities
Underlying Value of Unexercised
Shares Acquired on Unexercised Options In-the-Money
Name Value at FY-End Options at FY-End ($)
----

Exercise(#) Realized($) Exercisable Unexercisable Exercisable Unexercisable
----------- ----------- ----------- ------------- ----------- -------------

<S> <C> <C> <C> <C> <C> <C>
Douglas R. Colkitt, M.D. -- -- 10,000 -- -- --

Eric D. Robinson -- -- 10,000 -- -- --

Robert W. Horner, Jr. -- -- 2,500 -- -- --
-- -- 2,000 -- -- --

</TABLE>

Employment Agreements

On September 1, 1997 with an effective date of November 1, 1997, the
Company entered into an employment agreement with Eric D. Robinson, pursuant to
which Mr. Robinson is to serve as President of the Company for the initial term
through August 31, 2002 unless earlier terminated by Mr. Robinson or the Board
of Directors. The agreement provides for an annual salary of not less than
$150,000 per year plus bonuses, subject to the approval of the Board of
Directors, benefits and reimbursement of expenses. Mr. Robinson was also granted
non-qualified stock options under the Company's Stock Option Plan. He was
granted options to purchase 10,000 shares of the Company's Common Stock at a
fair market value of $6.41 per share.under the Company's Stock Option Plan. In
addition, Mr. Robinson is entitled to severance and other payments following the
termination of his employment in certain circumstances, including a breach by
the Company of the agreement or a change in control of the Company. Under such
circumstances, Mr. Robinson is entitled to receive a payment from the Company
equal to six months of his annual salary then in effect for any reason other
than a change in control. If the termination is due to a change in control, Mr.
Robinson is entitled to receive a cash severance equal to twelve months of his
annual salary then in effect. The agreement requires Mr. Robinson to devote his
best efforts to the interests and business of the Company.

Effective February 1, 1997, Mr. Carr-Locke resigned as the Company's
President and Chief Executive Officer and as a Director of the Company. The
employment agreement pursuant to which Mr. Carr-Locke was to serve as President
and Chief Executive Officer of the Company for an initial term through May 31,
1998 unless earlier terminated by Mr. Carr-Locke or the Board of Directors, was
terminated by mutual consent.

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

Security Ownership of Management and Principal Stockholders

The following table sets forth certain information regarding the beneficial
ownership of shares of Common Stock as of March 31, 1998 by (i) each person
known by the Company to be the beneficial owner of more than 5% of the
outstanding shares of Common Stock, (ii) each of the

<PAGE>

Company's directors, (iii) each executive officer named in the table under the
caption "Executive Compensation" and (iv) all directors and executive officers
as a group.

Name and Address Number of Shares
Beneficial Owner (1) Beneficially Owned (2) Percent
- -------------------- ---------------------- -------

<S> <C> <C>
Douglas R. Colkitt, M.D. 965,629 (3) 44.5%
Eric D. Robinson 10,000 (4) *
Robert W. Horner, Jr. 5,012 (5) *
Jude J. Spak 24,400 (6) 1.4
Richard L. Flickinger 31,800 (6) 1.9
Robert M. Colkitt 20,000 (6) 1.2
Alan H.L. Carr-Locke
7-57 Wells Avenue
Newton, Massachusetts 02159 363,989 (7) 18.5
All directors and executive officers
as a group (6 persons) 1,056,931 47.1%

</TABLE>

- --------------------
* Less than 1.0%

(1) Except as otherwise set forth, the address of all such beneficial
owners is in care of the Company at 1315 Greg Street, Suite 103,
Sparks, Nevada 89431.

(2) Pursuant to the rules of the Securities and Exchange Commission, shares
of Common Stock which an individual or group has a right to acquire
within 60 days pursuant to the exercise of options or warrants are
deemed to be outstanding for the purpose of computing the percentage
beneficial ownership of such individual or group, but are not deemed to
be outstanding for the purpose of computing the percentage ownership of
any other person shown in the table.

(3) Includes 40,000 shares currently held in escrow and are subject to
release in 1998. Includes currently exercisable options to purchase
15,000 shares at $1.63 per share. Includes currently exercisable
Chairman's Warrants to purchase 450,000 shares, including 150,000
shares at $75.00 per share expiring August 2, 1998, 150,000 shares of
Common Stock at $100.00 per share expiring on August 2, 2000 and
150,000 shares of Common Stock at $125.00 per share expiring on August
2, 2002.

(4) Includes currently exercisable options to purchase 10,000 shares at
$1.63 per share.

(5) Includes currently exercisable options to purchase 4,500 shares at
$1.63 per share.

(6) Includes currently exercisable options to purchase 20,000 shares at
$1.63 per share.

<PAGE>

(7) Based upon the latest information available to the Company. Includes
currently exercisable incentive stock options to purchase 4,638 shares
at $47.44 per share and non-qualified stock options to purchase 5,363
shares at $43.13 per share. Includes currently exercisable
options to purchase 104,167 shares of Common Stock at an exercise price
of $22.50 per share. Includes currently exercisable Chairman's
Warrants to purchase 150,000 shares, including 50,000 shares at $75.00
per share expiring August 2, 1998, 50,000 shares of
Common Stock at $100.00 per share expiring on August 2, 2000 and 50,000
shares of Common Stock at $125.00 per share expiring on August 2, 2002.

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Douglas R. Colkitt, M.D., the Chairman, Chief Executive Officer and
principal stockholder of the Company, owns, controls or is affiliated with a
significant portion of the entities that were clients of the Company. The
contracts with these entities expired on September 30, 1997 and were not
renewed. No further revenues and related subcontract expenses (except some
incidental income) related to these contracts were recognized after their
expiration.

The Company has contracted with Russell Data Services, Inc. ("Russell
Data"), an entity which is owned by EquiMed, Inc., a publicly traded company
which is controlled by Dr. Colkitt, to provide for services to be performed for
clients of the Company. The contract is for a term of ten years and expires on
September 20, 2004. The contract provides for the Company to pay Russell Data a
fee of 70 percent of all net revenues to be received by the Company for services
provided by Russell Data. Under the terms of the contract, the Company is
permitted to contract with providers of services other than Russell Data and
Russell Data is permitted to provide its services to companies other than the
Company. However, Russell Data is obligated to accept from the Company all
contracts which are priced at not less than 80% of the industry norm. The
contract contains an arbitration procedure to be followed in the event a dispute
arises between the parties under the contract. In addition, Russell Data may
contract with other companies owned by, controlled by or affiliated with Dr.
Colkitt for the subcontracting of services that Russell Data may render under
its contracting arrangement with the Company.

The Company may also contract for administrative services, such as payroll
and accounting services, with companies owned by, controlled by or affiliated
with Dr. Colkitt. Prices for any such services have not been established and the
need for such services may vary from time to time. Any such services shall be
performed on terms which may be less favorable than could be obtained from a
third party.

At December 31, 1997, the Company recognized a net write-off of $129,800
from entities owned by, controlled by or affiliated with Dr. Colkitt. The
remaining receivable balance at December 31, 1997 of $3,008,500 was outstanding
and in the opinion of management, this amount is fully collectible. From January
1, 1998 until March 31, 1998, the Company has received $1,000,000 that has been
applied against this balance, leaving an unpaid balance of $2,008,500.

The Company has entered into a month-to-month operating lease for office
space in Sparks, Nevada from an entity that is owned and controlled by Dr.
Colkitt. The monthly rental of $300 includes utilities. The Company believes
that the terms of this lease are fair and reasonable to the Company.

<PAGE>

In January 1995, the Company purchased an unlimited site software license,
which was installed in December 1996. The license with the software company,
Astute Systems, Inc. ("Astute"), which is owned and controlled by Dr. Colkitt,
was not negotiated on an arm's length basis. Effective December 1996, the terms
of the license were amended to include a ten year licensing period and would
include all updates and software changes during the term of the license. In
addition, Mr, Robinson had served as the President and Chief Executive Officer
of Astute from 1994 until November 1997, when he became President of the
Company.

On May 1, 1996, the Company entered into a transaction with First United
Equities Corporation ("First United"), a broker-dealer registered with the
Securities and Exchange Commission. First United is the principal market maker
in the Company's Common Stock. Pursuant to the transaction, the Company loaned
$5,200,000 through a series of advances evidenced by a promissory note bearing
interest at 10%. Such note was due on demand with seven days notice. The note
was collateralized by the guarantees of the principals of First United. On May
29, 1996, First United repaid $2,000,000 to the Company. Effective October 1,
1996, the remaining balance of the note and accrued interest was satisfied
through the establishment of an unsecured note from Russell Data, in the amount
of $3,344,174. The note bears interest at 10% and establishes a payment schedule
of $1,000,000 each at January 15, April 15 and July 15, 1997, plus accrued
interest thereon, with the remaining balance and interest thereon due on
September 15, 1997. On February 10, 1997, the Company received $1,104,786 in
principal and accrued interest from Russell Data in accordance with the payment
schedule. The balance of the scheduled payments were due on September 30, 1997.
The Company did not receive any additional payments during this period of time.
On January 6, 1998 and March 4, 1998, the Company received additional principal
payments for $915,000 and $80,000, respectively, leaving an outstanding
principal balance of $1,349,200. In the opinion of management, this amount is
fully collectible.

At the Company's inception on August 3, 1994, the Company sold a total of
933,334 shares of its Common Stock to certain individuals, including 906,834
shares to the Company's directors and officers. See "PRINCIPAL STOCKHOLDERS."
The consideration for such shares of Common Stock was approximately $1.10 per
share, substantially all of which consideration consisted demand notes executed
by the purchasers, which notes have all been repaid.

On December 8, 1994, the Company granted to Dr. Colkitt warrants to
purchase an aggregate of 600,000 shares exercisable one year from the date of
its initial public offering, including 200,000 shares of Common Stock at $75.00
per share expiring after three years, 200,000 shares of Common Stock at $100.00
per share expiring after five years, and 200,000 shares of Common Stock at
$125.00 per share expiring after seven years. In August 1996, Dr. Colkitt
transferred 150,000 of these warrants to Mr. Carr-Locke. The terms of the
Chairman's Warrants are substantially similar to those of the Representative's
Warrants issued in connection with the Company's initial public offering,
including certain registration rights.

Effective June 1, 1995, Mr. Carr-Locke was granted options to purchase
104,167 shares at an exercise price of $22.50 per share, which options became
exercisable on August 3, 1996.

The Company has retained MBS as a marketing and acquisition consultant for
the time period from February 1, 1997 until May 31, 1998. The agreement provides
for a $14,227 monthly payment. The Company's Former President and Chief
Executive Officer is an officer of MBS. In addition, the Company is in the
process of assigning its non-cancelable operating leases for the Massachusetts
office to Rapier Investments, Ltd. ("Rapier"). Rapier owns and controls MBS.

<PAGE>

Since December 1995, the Company has purchased one contract from MBS and
nine contracts from Rapier to provide billing, collection and accounts
receivable management services to Medical Services Providers. In addition, the
Company is in the process of negotiating contracts with both MBS and Rapier,
under which MBS and Rapier would subcontract with the Company to provide the
services to be performed for certain clients of the Company.

On March 1, 1997, the Company delegated its obligation to provide billing,
collection and accounts receivable management services to MBS and Rapier
pursuant to the contracts it had acquired from these companies on March 1, 1997.
In addition, the Company agreed on terms and conditions authorizing Rapier to
subdelegate such obligations and assign its rights to such fees to MBS. The
terms of these contracts provided for the Company to pay MBS and Rapier a fee of
70% of all net revenues to be received by the Company for services provided by
MBS and Rapier for these clients.

On August 1, 1997, the Company acquired twelve contracts from MBS of
Arizona to provide billing and collection services to certain Medical Service
Providers in Arizona. MBS of Arizona is an entity which is owned by, controlled
by or affiliated with Mr. Carr-Locke. In addition, the Company executed an
Exclusive Service Provider Contract with MBS of Arizona to provide exclusive
billing, collection and accounts receivable management services to the Company
for the clients covered under these contracts. The terms of the contract
provided for the Company to pay MBS of Arizona a fee of 70% of all net revenues
to be received by the Company for services provided by MBS of Arizona.

Effective December 31, 1997, the Company terminated all of the contracts
that were purchased in 1995 through 1997, because they were not providing
sufficient cash flows to support the Company's operations. All of the contracts
were either purchased from or were serviced directly or indirectly by entities
owned by, controlled by or affiliated with Mr. Carr-Locke. These contracts had a
book value of $8,000,400, net of amortization. At December 31, 1997, 77,276
shares of the Company's Common Stock were being held in escrow pending
achievement of targeted revenue levels on these contracts. Since the revenue
levels on certain of these contracts were not sufficient to require full release
of shares maintained in escrow, 58,400 shares valued at $1,000,000 will not be
released and will be returned to the Company. See Item 6, "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF THE FINANCIAL CONDITION AND RESULTS OF OPERATIONS"
section for the more information and the elements of the costs of client
contacts written-off.

ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits. Unless otherwise noted, the exhibit was filed as
an exhibit to the Company's Registration Statement on Form SB-2 (File No.
33-87266-LA).

Exhibit No.

3.1 Amended and Restated Articles of Incorporation of the Company.*

3.2 By-laws of the Company.

4.1 Form of certificate evidencing Common Stock of the Company.

<PAGE>

10.1 Stock Option Plan.

10.2 Agreement between Russell Data and the Company dated
October 1, 1994, as amended.

10.3 Lease Agreement for premises located at 1137 Financial
Boulevard, Reno, Nevada, dated August 3, 1994 between the
Company and Intellisott Systems, Inc.

10.4 Warrant Agreement between the Company and
Douglas R. Colkitt, M.D.

10.5 Software License Agreement between Astute Systems. Inc. and
the Company, as amended.

10.6 Office Lease for premises located at 7-57 Wells Avenue,
Newton, Massachusetts, dated March 12, 1996 between the
Company and Saraceno Holding Trust.

10.7 Promissory Note dated October 1, 1996 between the Company and
Russell Data Services, Inc.

10.8 Acquisition Consulting Contract dated December 1, 1996 between
the Company and the Bradford Group, Inc.

10.9 Form of Employment Agreement dated as of November 1, 1997 by
and between Eric D. Robinson and National Medical Financial
Services Corporation.*

10.10 Form of Accounting Business Asset Purchase Agreement dated as
of January 1, 1998 by and between Morris Maybruch D/B/A
Maybruch & Co., CPA'S and National Medical Financial Services
Corporation.**

10.11 Form of Medical Billing Business Asset Purchase Agreement
dated as of January 1, 1998 by and between Morris Maybruch
and Shoreline Billing Systems, Inc. and National Medical
Financial Services Corporation.**

10.12 Form of Employment Agreement dated as of January 1, 1998 by
and between Morris Maybruch and National Medical Financial
Services Corporation.**

10.13 Form of Buy-Back Agreement dated as of January 1, 1998 by and
between Morris Maybruch; Shoreline Medical Billing
Systems, Inc. and National Medical Financial Services
Corporation.**

10.14 Form of Noncompetition Agreement dated as of January 1, 1998
by and between Morris Maybruch and National Medical Financial
Services Corporation.**

11.1 Statement re: Computation of Per Share Earnings.*

23.1 Consent of Coopers & Lybrand L.L.P.*

23.2 Consent of Medwig, Labriola and Co..*

27.1 Statement re: Financial Data Schedule.*

<PAGE>

* Filed herewith.

** Incorporated by reference to Exhibit 10.1 through 10.5 to the
Registrant's Form 8-K filed February 24, 1998.

(b) Forms 8-K

1. Form 8-K dated December 5, 1997.

2. Form 8-K dated January 6, 1998.

<PAGE>

SIGNATURES

In accordance with Section 13 or 15(d) of the Securities Exchange Act
of 1934, the Registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.

NATIONAL MEDICAL FINANCIAL SERVICES
CORPORATION

By: /s/ Douglas R. Colkitt, M.D.
----------------------------------
Douglas R. Colkitt, M.D., Chairman
and Chief Executive Officer

SIGNATURES

In accordance with the Securities Exchange Act of 1934, this report has
been signed below by the following persons on behalf of the Registrant and in
the capacities and on the dates indicated.

Signatures Title Date
- ---------- ----- ----

<S> <C> <C>
/s/ Douglas R. Colkitt, M.D. Chairman and Chief April 27, 1998
- -------------------------------- Executive Officer
Douglas R. Colkitt, M.D. (Principal Executive Officer)

/s/ Eric D. Robinson President April 27, 1998
- --------------------------------
Eric D. Robinson

/s/ Robert W. Horner, Jr. Vice President, Chief Financial Officer, April 27, 1998
- -------------------------------- Secretary and Treasurer (Principal
Robert W. Horner, Jr. Financial and Accounting Officer)

/s/ Jude J. Spak Director April 27, 1998
- --------------------------------
Jude J. Spak

/s/ Richard L. Flickinger Director April 27, 1998
- --------------------------------
Richard L. Flickinger

/s/ Robert M. Colkitt Director April 27 , 1998
- --------------------------------
Robert M. Colkitt

</TABLE>

<PAGE>

NATIONAL MEDICAL FINANCIAL SERVICES CORPORATION

INDEX TO FINANCIAL STATEMENTS

Reports of Independent Accountants ........................................ F-2

Balance Sheets, December 31, 1997 and 1996 ................................ F-4

Income Statements for the years ended December 31, 1997 and 1996 .......... F-5

Statement of Changes in Stockholders' Equity for the years ended

December 31, 1997 and 1996 ................................................ F-6

Statements of Cash Flows for the years ended December 31, 1997 and 1996 ... F-7

Notes to Financial Statements ............................................. F-9

F-1

<PAGE>

Report of Independent Accountants

To the Board of Directors

National Medical Financial Services Corporation:

We have audited the accompanying balance sheets of National Medical
Financial Services Corporation as of December 31, 1997 and the related
statements of income, changes in stockholder's equity, and cash flows for the
year then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.

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

The Company has had certain transactions with related parties as more fully
described in the notes to the financial statements.

In our opinion, the financial statements referred to above presents fairly,
in all material respects, the financial position of National Medical Financial
Services Corporation as of December 31, 1997 and the results of its operations,
changes in stockholders' equity, and cash flows for the year then ended, in
conformity with generally accepted accounting principles.

MEDWIG, LABRIOLA & CO.

1000 Arrott Building
401 Wood Street
Pittsburgh, Pennsylvania 15222
March 31, 1998

F-2

<PAGE>

[Coopers & Lybrand L.L.P. Letterhead]
Report of Independent Accountants

To the Board of Directors

National Medical Financial Services Corporation:

We have audited the accompanying balance sheet of National Medical
Financial Services Corporation as of December 31, 1996 and the related
statements of income, changes in stockholders' equity, and cash flows for the
year then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.

The Company has had certain transactions with related parties as more fully
described in the notes to the financial statements.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of National Medical Financial
Services Corporation as of December 31, 1996, and the results of its operations,
changes in stockholders' equity, and cash flows for the year then ended, in
conformity with generally accepted accounting principles.

COOPERS & LYBRAND L.L.P.

2400 Eleven Penn Center
Philadelphia, Pennsylvania

February 26, 1997

F-3

<PAGE>

NATIONAL MEDICAL FINANCIAL SERVICES CORPORATION

BALANCE SHEETS

December 31, 1997 and 1996
(In Thousands)

1997 1996
----------- -----------
<S> <C> <C>

ASSETS
Current assets:
Cash and cash equivalents ........................ $ 317.5 $ 2,882.0
Accounts receivable .............................. 3,009.2 2,339.1
Notes and interest receivable - related party .... 2,848.0 3,428.2
Refundable income taxes .......................... 1,756.6 --
Other assets and prepaid expenses ................ 309.0 301.8
----------- -----------
Total current assets ........................... 8,240.3 8,951.1
----------- -----------
Property and equipment, net ........................ 19.8 19.1
Intangible assets, net ............................. 624.2 5,780.4
Deferred costs and other assets .................... 185.3 800.5
----------- -----------
Total assets ................................... $ 9,069.6 $ 15,551.1
----------- -----------
----------- -----------
LIABILITIES
Current liabilities:
Accrued subcontract fees ......................... $ 2,165.1 $ 1,074.1

Accounts payable and accrued expenses ............ 46.9 137.9

Accrued terminations costs ....................... 305.7 --
Short term debt .................................. 97.7 77.0
----------- -----------
Total current liabilities ...................... 2,615.4 1,289.0
----------- -----------
Long-term debt ..................................... 171.8 --
----------- -----------
Total liabilities .............................. 2,787.2 1,289.0
----------- -----------

Commitments and contingent liabilities ............. -- --

STOCKHOLDERS' EQUITY

Preferred stock, $.01 par value, 1,000,000 shares
authorized, none outstanding .................. -- --
Common stock, $.01 par value, 40,000,000 shares
authorized, 1,539,932 and 1,495,643 shares
issued and outstanding ......................... 15.4 15.0
Paid-in capital .................................... 12,511.3 11,646.7
Retained earnings (deficit) ........................ (5,244.3) 2,600.4
Common stock in escrow to be returned .............. (1,000.0) --
----------- -----------
Total stockholders' equity ..................... 6,282.4 14,262.1
----------- -----------
Total liabilities and stockholders' equity ..... $ 9,069.6 $ 15,551.1
----------- -----------
----------- -----------

</TABLE>

See accompanying notes to financial

statements.

F-4

<PAGE>

NATIONAL MEDICAL FINANCIAL SERVICES CORPORATION

INCOME STATEMENTS

For the Years Ended December 31, 1997 and 1996
(In Thousands)
<TABLE>
<CAPTION>

1997 1996
---------- -----------
<S> <C> <C>

Revenues ..................................... $ 8,257.5 $ 9,215.1
Subcontract expense .......................... 5,619.0 6,223.0
--------- ---------
Operating income ......................... 2,638.5 2,992.1

Selling, general and administrative expense 617.8 931.1
Depreciation and amortization expense ........ 507.2 325.6
Interest income, net ......................... (315.0) (357.2)
Write-offs of client contracts ............... 11,029.1 --
--------- ---------

Income (loss) before income taxes ............ (9,200.6) 2,092.6

Provision (benefit) for income taxes ......... (1,355.9) 687.1
--------- ---------
Net income (loss) ........................ ($ 7,844.7) $ 1,405.5
--------- ---------
--------- ---------
Basic net income (loss) per share ............ ($ 5.17) $ 0.95
--------- ---------
--------- ---------
Weighted average number of shares
outstanding used in basic calculation ...... 1,516,676 1,486,968
--------- ---------
--------- ---------
Diluted net income (loss) per share .......... ($ 5.17) $ 0.90
--------- ---------
--------- ---------
Weighted average number of shares
outstanding used in diluted calculation... 1,516,676 1,559,525
--------- ---------
--------- ---------

</TABLE>

See accompanying notes to financial statements.

F-5

<PAGE>

NATIONAL MEDICAL FINANCIAL SERVICES CORPORATION

STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
For the Years Ended December 31,1997 and 1996

(In Thousands)

Common Stock Total
Preferred Shares of Common Paid-in Retained in Escrow to Stockholders'
Stock Common Stock Stock Capital Earnings be Returned Equity
--------- --------- ----------- ----------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance,
January 1, 1996 ......... -- 1,423,833 $ 14.3 $ 9,009.8 $ 1,194.9 $ -- $ 10,219.0

Common stock issued
to acquire contracts .... 71,810 0.7 2,636.9 2,637.6

Net income .............. 1,405.5 1,405.5
--------- --------- ----------- ----------- ---------- ---------- -----------
Balance,
December 31, 1996 ....... -- 1,495,643 15.0 11,646.7 2,600.4 -- 14,262.1

Common stock issued
to acquire contracts .... 44,289 0.4 864.6 865.0

Common stock in escrow
to be returned .......... (1,000.0) (1,000.0)

Net loss ................ (7,844.7) (7,844.7)
--------- --------- ----------- ----------- ---------- ---------- -----------
Balance,
December 31, 1997 ....... -- 1,539,932 $ 15.4 $ 12,511.3 ($ 5,244.3) ($ 1,000.0) $ 6,282.4
--------- --------- ----------- ----------- ---------- ---------- -----------
--------- --------- ----------- ----------- ---------- ---------- -----------

</TABLE>

See accompanying notes to financial statements.

F-6

<PAGE>

NATIONAL MEDICAL FINANCIAL SERVICES CORPORATION

STATEMENTS OF CASH FLOWS

For the Years Ended December 31, 1997 and 1996
(In Thousands)

<TABLE>
<CAPTION>
1997 1996
----------- ----------
<S> <C> <C>
Cash flow from operating activities:

Net income (loss) ........................................ ($ 7,844.7) $ 1,405.5

Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Write-offs of client contracts ....................... 11,029.1 --
Depreciation and amortization expense ................ 507.2 325.6
Insurance in lieu of cash ............................ 224.3 53.8
Changes in assets and liabilities:
(Increase) decrease in receivables ............... (2,728.3) 304.9
(Increase) decrease in other assets .............. 137.3 (273.0)
Increase in refundable income taxes .............. (1,756.6) --
Increase (decrease) in accounts payable
and accrued expenses ........................... (554.2) 87.8
Decrease in income taxes payable ................. -- (135.6)
----------- ----------
Net cash provided by (used in) operations ............ (985.9) 1,769.0
----------- ----------
Cash flow from investing activities:
Receivables acquired in acquisitions ..................... (844.1) (361.9)
Issuance of notes receivable ............................. (524.2) (5,344.2)
Principal collections of notes receivable ................ 1,104.4 2,000.0
Deferred costs-contract acquisitions ..................... 604.3 (768.9)
Purchase of property and equipment ....................... (2.1) (8.9)
Client lists ............................................. (1,642.1) (880.8)
Other assets ............................................. 10.9 (10.9)
----------- ----------
Net cash used in investing activities ................ (1,292.9) (5,375.4)
----------- ----------
Cash flow from financing activities:

Initial public offering costs ............................ -- (7.4)
Payments of notes payable ................................ (285.7) (84.4)
----------- ----------
Net cash provided by (used in) financing activities... (285.7) (91.8)
----------- ----------
Net increase (decrease) in cash ...................... (2,564.5) (3,698.2)

Cash balance, Beginning balance .............................. 2,882.0 6,580.2
----------- ----------
Cash balance, Ending balance ................................. $ 317.5 $ 2,882.0
----------- ----------
----------- ----------

</TABLE>

See accompanying notes to financial statements.

F-7

<PAGE>

NATIONAL MEDICAL FINANCIAL SERVICES CORPORATION

STATEMENTS OF CASH FLOWS

For the Years Ended December 31, 1997 and 1996
(In Thousands)

1997 1996
---------- ---------
<S> <C> <C>
Supplemental data:

Cash paid for income taxes .............................. $ 230.0 $ 1,101.1
---------- ---------
---------- ---------
Cash paid for interest .................................. $ 17.3 $ 3.2
---------- ---------
---------- ---------
Non-cash items:

Stock issued for contract acquisitions .............. $ 865.0 $ 2,645.0
---------- ---------
---------- ---------
Note payable issued for contracts acquisitions ...... $ 250.0 --
---------- ---------
---------- ---------
Note payable issued in lieu of insurance ............ $ 411.5 $ 161.4
---------- ---------
---------- ---------
Note receivable issued in lieu of interest .......... $ 144.2 $ 144.2
---------- ---------
---------- ---------
Assets and liabilities written-off in write-offs ....
of client contracts $12,029.1 --
---------- ---------
---------- ---------
Common stock in escrow to be returned due to
write-offs of client contracts .................... ($ 1,000.0) --
---------- ---------
---------- ---------

</TABLE>

See accompanying notes to financial statements.

F-8

<PAGE>

NATIONAL MEDICAL FINANCIAL SERVICES CORPORATION

NOTES TO THE FINANCIAL STATEMENTS

1. Description of Business:

National Medical Financial Services Corporation (the "Company") was
incorporated in August 1994. The Company markets billing, accounts receivable
and collections services, as well as certain accounting services to medical
providers.

The Company markets its services to medical providers and acquires
existing contracts offering billing, accounts receivable and collection
services. The Company also enters into management contracts to provide these
services.

Effective December 31, 1997, the Company restructured its operations.
As described in Note 3, the Company terminated contracts that were acquired in
1995 through 1997. In the future, the Company will strategically align and
affiliate itself, through acquisitions and partnerships, with established
companies that offer billing and collection and practice management services to
medical service providers. The Company expects, that following the consummation
of such acquisitions and partnerships, it will be able to provide access to
offshore labor and high technology.

2. Summary of Significant Accounting Policies:

Revenue Recognition:

Fees for the Company's services are primarily based on a percentage of
net collections on patient accounts, and revenue is recognized as such services
are performed. Accounts receivable represents amounts invoiced to clients for
services and late payment fees. Accounts receivable- unbilled represents fees
which will be realized upon collection of billing services already rendered but
not yet invoiced.

Cash and Cash Equivalents:

Cash and cash equivalents include all highly liquid investments with an
initial maturity of not more than three months.

Property and Equipment:

Property and equipment is stated at cost. Depreciation is computed
using the straight-line method over the estimated useful lives of the assets,
generally seven years for furniture and fixtures and five years for data
processing equipment.

Income Taxes:

Deferred tax assets and liabilities are recognized for the expected
future tax consequences of events that have been included in the financial
statements or income tax returns. Deferred tax assets and liabilities are
determined based upon the difference between the financial statements and tax
bases of assets and liabilities using enacted rates expected to apply to taxable
income in the years in which those differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change in tax
rates is recognized in the period that includes the enactment date.

F-9

<PAGE>

NOTES TO THE FINANCIAL STATEMENTS, Continued

2. Summary of Significant Accounting Policies, continued:

Intangible Assets:

Intangible assets are composed of client lists and software license.
Intangible assets are amortized using the straight-line method over their
estimated useful lives of fifteen and ten years, respectively. The software
license estimated useful life is being amortized over the life of the license
and its cost includes any updates and software changes over this time period.
See Note 3 for discussion of the write-offs of client lists in 1997.

Long-Lived Assets:

Statement of Financial Accounting Standards 121, "Accounting for the
Impairment of Long-Lived Assets and Assets to be Disposed", ("SFAS #121")
requires that long-lived assets be reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of the asset in
question may not be recoverable. SFAS #121 was adopted in 1996 and did not have
a material effect on the Company's results of operations, cash flows or
financial position in 1996.

Net Income Per Common Share:

In December 31, 1997, retroactive to January 1, 1997, the Company
adopted Financial Accounting Standards Board Statement No. 128, "Earnings Per
Share" (SFAS 128). All previously reported earnings per share information
reported as of December 31, 1997 for comparative purposes has been restated to
reflect the impact of adopting SFAS 128. Under SFAS 128, basic earnings per
common share are computed by dividing the net earnings available to common
stockholders by the weighted average number of common shares outstanding for the
period. Diluted earnings per common share reflect for maximum dilution that
would have resulted from the exercise of stock options and warrants. (see Notes
11 and 12.) Diluted earnings per common share are computed by dividing the
weighted average number of common shares and all dilutive securities.

The Company's earnings per share calculations for the years ended
December 31, 1997 and 1996 are as follows (in thousands):

<TABLE>
<CAPTION>
1997 1996
---- ----
Net Income Net Net Income Net
(Loss) Per Income (Loss) Per Income
Share Shares (Loss) Shares Shares (Loss)
-------- --------- ---------- -------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Basic ..................................... ($ 5.17) 1,516,676 ($ 7,844.7) $ 0.95 1,486,968 $ 1,405.5
Effect of stock options and warrants ...... -- -- -- (0.05) 72,557 --
-------- --------- ---------- -------- --------- ----------
Diluted ................................... ($ 5.17) 1,516,676 ($ 7,844.7) $ 0.90 1,559,525 $ 1,405.5
-------- --------- ---------- -------- --------- ----------
-------- --------- ---------- -------- --------- ----------

</TABLE>

Use of Estimates in the Preparation of Financial Statements:

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amount of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

F-10

<PAGE>

NOTES TO THE FINANCIAL STATEMENTS, Continued

2. Summary of Significant Accounting Policies, continued:

Reclassifications:

Certain items in the 1996 financial statements have been reclassified
to conform with the 1997 presentation.

Reporting Comprehensive Income:

In June 1997, the Financial Accounting Standards Board ("FASB") issued
No. 130, "Reporting Comprehensive Income". This Statement establishes 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 (a) classify items of
other comprehensive income by their nature in a financial statement and (b)
display the accumulated balance of other comprehensive income separately from
retained earnings and additional paid-in capital in the equity section of a
statement of financial position.

This Statement is effective for fiscal years beginning after December
15, 1997. Reclassification of financial statements for earlier periods provided
for comprehensive purposes is required. The application of this standard will
not have a material impact on the Company.

Disclosures about Segments of an Enterprise and Related Information:

In June 1997, the Financial Accounting Standards Board ("FASB") issued
No. 131, "Disclosures about Segments and Related Information". This Statement
establishes standards for the way public business enterprises report information
about operating segments in annual financial statements and requires that those
enterprises report selected information about operating segments in interim
financial reports issued to stockholders. It also establishes standards for
related disclosures about products and services, geographic areas and major
customers.

This Statement is effective for fiscal years beginning after December
15, 1997. In the initial year of application, comparative information for
earlier years is to be restated. This Statement need not be applied to interim
financial statements in the initial year of its application. The application of
this standard will not have a material impact on the Company.

3. Write-offs of Client Contracts:

Effective December 31, 1997, the Company terminated contracts that were
purchased in 1995 through 1997, because they were not providing sufficient cash
flow to support the Company's operations. See Note 16 for a description of
contracts acquired in 1996 and 1997 and terminated effective December 31, 1997.

At December 31, 1997, these purchased contracts had a book value of
$8,000,400, net of amortization. At December 31, 1997, 77,276 shares of the
Company's Common Stock were being held in escrow pending achievement of targeted
revenue levels on these contracts. Since the revenue levels on certain of these
contracts were not sufficient to require full release of shares maintained in
escrow, 58,400 shares valued at $1,000,000 will not be released and will be
returned to the Company.

F-11

<PAGE>

NOTES TO THE FINANCIAL STATEMENTS, Continued

3. Write-offs of Client Contracts, continued:

The elements of the costs of client contracts written-off consisted of
the following (in thousands):

Purchased contract costs, net of amortization ........... $8,000.4
Cost of shares to be returned from escrow ............... (1,000.0)
Uncollectible receivables from clients .................. 1,967.7
Fixed assets, net of depreciation, and other assets ..... 29.7
Cash advances, net of outstanding payables .............. 1,595.8
Severance and other termination costs ................... 305.7
----------
Total ................................................... $10,899.3
----------
----------
</TABLE>

4. Expiration of Contract with Chairman and Principal Stockholder:

Effective September 30, 1997, the contracts with the entities owned by,
controlled by or affiliated with the Chairman, Chief Executive Officer, Director
and principal stockholder (the "Chairman and principal stockholder") expired and
were not renewed. No further revenues and related subcontract expenses (except
some incidental income) were recognized after that date.

At December 31, 1997, a net write-off of $129,800 from entities owned
by, controlled by or affiliated with the Chairman and principal stockholder was
also recognized. The remaining receivable balance at December 31, 1997 of
$3,008,500 was outstanding and in the opinion of management, this amount is
fully collectible. From January 1, 1998 until March 31, 1998, the Company has
received $1,000,000 that has been applied against this balance, leaving an
unpaid balance of $2,008,500.

5. Accounts Receivable:

Accounts receivables consisted of the following at December 31 (in
thousands):

1997 1996
-------- --------
<S> <C> <C>
Accounts receivable - billed .......... $3,008.5 $1,740.9
Accounts receivable - unbilled ........ -- 592.9
Miscellaneous receivable .............. .7 5.3
-------- --------
Total ................................. $3,009.2 $2,339.1
-------- --------
-------- --------
</TABLE>

6. Notes Receivable:

F-12

<PAGE>

NOTES TO THE FINANCIAL STATEMENTS, Continued

6. Notes Receivable, continued:

plus accrued interest thereon with the remaining balance and interest thereon
due on September 15, 1997. On February 10, 1997, the Company received $1,104,800
in principal and accrued interest from RDS in accordance with the payment
schedule. The balance of the scheduled payments were due on September 30, 1997.
The Company did not receive any additional payments during this period of time.
On January 6, 1998 and March 4, 1998, the Company received additional principal
payments for $915,000 and $80,000, respectively, leaving an outstanding
principal balance of $1,349,200. In the opinion of management, this amount is
fully collectible.

7. Property and Equipment:

Property and equipment consists of the following at December 31 (in
thousands):

1997 1996
----- -----
<S> <C> <C>
Furniture and fixtures .......... $ -- $ 4.1
Office equipment ................ 20.5 20.3
----- -----
20.5 24.4
Less accumulated depreciation ... (0.7) (5.3)
----- -----
Total ........................... $19.8 $19.1
----- -----
----- -----
</TABLE>

8. Intangible Assets:

Intangible assets consists of the following at December 31 (in
thousands):
<TABLE>
<CAPTION>

1997 1996
------ --------
<S> <C> <C>
Client lists ..................... $ -- $5,457.9
Software license ................. 700.0 700.0
------ --------
700.0 6,157.9
Less accumulated amortization .... (75.8) (377.5)
------ --------

Total ............................ $624.2 $5,780.4
------ --------
------ --------

</TABLE>

The Company purchased an unlimited site software license from a
software company that is owned and controlled by the Chairman and principal
stockholder of the Company. The program was installed in December 1996. The
software has a ten year licensing period which includes all up-dates and
software changes. The Company has adopted the straight-line method of
amortization over the ten year period.

9. Lease Commitments:

The Company leased office space under a noncancelable operating lease,
which expired in April 1996. Upon its expiration, the Company obtained
additional office space and entered into a new noncancellable operating lease
which expires in March 2001. Rental expense for the years ended December 31,
1997 and 1996 was $10,879 and $50,600, respectively. As part of the contract
termination, future lease payments will not be required.

The Company has entered into a month-to-month operating lease for
office space from an entity that is owned and controlled by the Chairman and
principal stockholder of the Company. The monthly rental of $300 includes
utilities. For the years ended December 31, 1997 and 1996, the Company incurred
rental expense of $3,600, respectively, pursuant to this lease.

F-13

<PAGE>

NOTES TO THE FINANCIAL STATEMENTS, Continued

10. Long-Term Debt:

Long-term debt consisted of the following at December 31 (in
thousands):
<TABLE>
<CAPTION>

1997 1996
---- ----
<S> <C> <C>
Term note payable; bearing interest at 7.86%;
payable in monthly installments of principal
and interest of $9,600; due in July 2000 ........... $269.5 $ --

Term note payable, bearing interest at 6.28%;
payable in monthly installments of principal
and interest of $15,600; due in May 1997 ........... -- 77.0
------ ------
269.5 77.0

Less current portion ................................ (97.7) (77.0)
------ ------

Long-term debt, less current portion ................ $171.8 $ --
------ ------
------ ------

</TABLE>

At December 31, 1997, debt consists of note payable agreement for the
annual premiums of the Company's Directors and Officers Liability insurance
policy for a three year period, which was entered into on August 1997. The
amount financed ($333,500) under the note agreement consists of thirty-six
monthly payments of $9,600 including interest at 7.86%. At December 31, 1996,
short-term debt consists of note payable agreements for the annual premiums of
the Company's Directors and Officers Liability insurance policy entered into on
August 1996. The amount financed ($137,200) under the note agreement consists of
nine monthly payments of $15,600 including interest at 6.28%. For the years
ended December 31, 1997 and 1996, the Company incurred interest expense of
$9,800 and $3,200, respectively, relating to these instruments.

11. Common Stock Options:

As of December 31, 1997 and 1996, the Company has three stock options
plans. Under the Stock Option Plan ("SOP"), the Company may grant incentive and
non-qualified stock options to its directors and key employees of and/or
consultants to the Company for up to an aggregate of 60,000 shares of the Common
Stock. Under the Stock Option Plan for Non-Employee Directors ("SOPNED"), the
Company may grant options to its non-employee directors for up to an aggregate
of 100,000 shares of Common Stock. Under both plans, the exercise price of each
option equals the fair market value of a share of the Company's Common Stock on
the date of grant. The options issued under the SOP will expire five or ten
years after the date of grant. The options issued under the SOPNED will become
exercisable six months after the date of grant and will expire ten years after
the date of grant.

In September 1996, the Company registered, on Form S-3, 933,334 shares
of Common Stock which were owned by certain stockholders of the Company,
including 734,167 shares which were owned by Chairman and principal stockholder
of the company.

On August 3, 1995, the Company granted the President and CEO of the
Company stock options to purchase 104,167 shares of Common Stock at an exercise
price of $22.50 which became exercisable on August 3, 1996. At the date of
grant, the exercise price of the stock of $22.50 exceeded the market price of
$20.00.

F-14

<PAGE>

NOTES TO THE FINANCIAL STATEMENTS, Continued

11. Common Stock Options, continued:

Activity under all of the Stock Option Plans during the years ended
December 31, 1997 and 1996 is as follows (in thousands):

1997 1996
---- ----
Weighted- Weighted-
Average Average
Exercise Exercise
Shares Price Shares Price

<S> <C> <C> <C> <C>
Outstanding at
beginning of year .............. 178,167 $32.47 128,167 $26.52
------- ------ ------- ------

Granted ........................ 89,550 24.92 50,000 47.73

Exercised ...................... -- -- -- --

Cancelled ...................... (64,000) (46.72) -- --
--------------- ------ ---------------- ------

Outstanding at end of
year ........................... 203,717 $24.67 178,167 $32.47
--------------- ------ ---------------- ------
--------------- ------ ---------------- ------

Options exercisable at
year-end ....................... 203,717 178,167
--------------- ----------------
--------------- ----------------

Options price range at
end of year .................... $6.41 to $47.44 $22.50 to $51.00
--------------- ----------------

Weighted average fair
value of options granted
during year .................... $19.98 $39.37
--------------- ----------------
--------------- ----------------
</TABLE>

In order to maintain a competitive compensation package to retain the
current officers and directors of the Company, the Company repriced the stock
options previously granted to those individuals at an exercise price of $27.19
per share, the fair market value on July 1, 1997.

The following table summarizes information about options outstanding at
December 31, 1997:

Options Outstanding Options Exercisable
------------------- -------------------
Weighted-
Average Weighted- Weighted-
Number Remaining Average Number Average
Range of Exercise Outstanding Contractual Exercise Exercisable Exercise
Prices at 12/31/97 Life Price at 12/31/97 Price
- ------ ----------- ----------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C>

$22.50 104,167 7.6 $22.50 104,167 $22.50

$6.41 to $47.44 34,550 6.7 26.36 34,550 26.36

$27.19 to $27.50 65,000 8.8 27.26 65,000 27.26
-------- --- ------- -------- -------
203,717 7.5 $24.67 203,717 $24.67
-------- --- ------- -------- -------
-------- --- ------- -------- -------

</TABLE>

F-15

<PAGE>

NOTES TO THE FINANCIAL STATEMENTS, Continued

11. Common Stock Options, continued:

The Company applies APB Opinion 25 and the related interpretations in
accounting for its plans. Accordingly, no compensation cost has been recognized
for these fixed option plans. Had compensation cost for the Company's two option
plans been determined consistent with FASB Statement 123, the Company's net
income and earnings per share would have been reduced to the pro forma amounts
indicated below, based upon the following assumptions:

The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option-pricing model with the following weighted-average
assumption used in grants for 1997 and 1996:

Year ended December 31, 1997 1996
----------------------- ---- ----
<S> <C> <C>
Risk-free rate:

SOP ....................... 5.80% through 6.49% 5.57%
SOPNED .................... 6.44% and 6.49% 6.42%

Expected dividend yield:

SOP ....................... 0.0% 0.0%
SOPNED .................... 0.0% 0.0%

Expected lives:

SOP ....................... 5 and 10 years 5 and 10 years
SOPNED .................... 10 years 10 years

Expected volatility:

SOP ....................... 77.34% 54.2%
SOPNED .................... 77.34% 54.2%

</TABLE>

The pro forma information regarding net income (loss) and net income
(loss) per share has been determined as if the Company had accounted for its
stock options under the fair market method as follows (in thousands):

Year ended December 31, 1997 1996
----------------------- ---- ----
<S> <C> <C>
Net income (loss):

As reported .......................... ($7,844.7) $1,405.5
Pro forma ............................ ($8,076.2) $ 106.2

Basic earnings (loss) per share:

As reported .......................... ($5.17) $0.95
Pro forma ............................ ($5.33) $0.07

Diluted earnings (loss) per share:

As reported .......................... ($5.17) $0.90
Proforma ............................. ($5.33) $0.07

</TABLE>

12. Common Stock Warrants:

In December 1994, the Company granted to the Chairman of the Company
warrants to purchase a total of 600,000 shares of Common Stock at exercise
prices ranging from $75.00 to $125.00. The warrants are in 200,000 share
increments and expire on August 3, 1998, 2000, and 2002. In August 1996, the
Chairman transferred a portion of his warrants to the

F-16

<PAGE>

NOTES TO THE FINANCIAL STATEMENTS, Continued

12. Common Stock Warrants, continued:

Company's President and Chief Executive Officer ("Former President"). The
transfer consisted of 150,000 shares in the increments of 50,000. As of December
31, 1997 and 1996, none of the warrants has been exercised.

In connection with its initial public offering, the Company issued
warrants to purchase 40,000 shares of Common Stock to its Underwriters. The
shares of Common Stock subject to the Underwriter's Warrants are identical to
the shares sold to the public except for the purchase price and certain
registration rights. The Underwriter's Warrants will be exercisable for a
four-year period commencing one year from the date of the initial public
offering at an exercise price of $30.00 per share. No shares were exercised
during 1997 and 1996.

13. Common Stock Split and Reverse Stock Split:

On December 24, 1997, the Board of Directors of the Company approved a
one for ten reverse stock split and no corresponding effect to the number of
authorized shares of the Company's Common Stock, which would remain at
40,000,000 shares pursuant to Section 78.207 of the Nevada General Corporation
Law (the "Reverse Split"). Following the reverse Split, rather than issue
fractional shares or pay cash to such persons otherwise entitled to receive
fractional shares, the Company would round up to the nearest whole share of
Common Stock held by each stockholder. Under Nevada law, the affirmative vote of
a majority of voting power is required to approve the amendment to the Company's
Certificate of Incorporation that would be filed in connection with the Reverse
Split. The close of business on December 31, 1997, was fixed by the Board of
Directors as the record date (the "Record Date") for determination of
stockholders entitled to execute written consents to authorize the Reverse
Split. An Information Statement was mailed on or before January 13, 1998, with
the Company planing on taking all necessary action to consummate the Reverse
Split on or after February 10, 1998. On February 10, 1998, approximately 61.0%
of the eligible stockholders, which constituted a majority vote, had voted in
favor of the Reverse Split. The Reverse Split was distributed on February 10,
1998 and all stock related data in the financial statements reflect the Reverse
Split for all periods presented.

On February 4, 1997, the Board of Directors of the Company authorized a
two for one stock split and a corresponding increase in the number of authorized
shares of the Company to 40,000,000 shares pursuant to section 78.207 of the
Nevada General Corporation Law (the "Stock Split"). The stockholders of record
as of February 17, 1997 (the "Record Date") received one additional share of the
Company's Common Stock for each share of Common Stock held of record as of the
Record Date. The Stock Split was distributed on February 24, 1997 and all stock
related data in the financial statements reflects the Stock Split for all
periods presented.

14. Income Taxes:

During 1997, the Company experienced a operating loss of $9,200,600.
Losses of $2,597,600 can be carried back to obtain refunds of income taxes paid
in 1994 through 1996 $1,355,900. In addition, refunds of estimated taxes payment
made in 1997 and tax overpayments in prior years amount to $400,700, which will
also be refunded.

At December 31, 1997, the Company has net operating loss carryforwards
totaling $4,750,000 that will be available to offset future taxable income.
These net operating loss carryforwards will be available through the year 2012.

No deferred income tax expense was required to be recorded in 1997.
Realization of future tax benefits related to the deferred tax asset is
dependent on the Company's ability to generate taxable income within the net
operating loss carryforward period. Management has determined

F-17

<PAGE>

NOTES TO THE FINANCIAL STATEMENTS, Continued

14. Income Taxes, continued:

that a valuation allowance for the full deferred tax asset is appropriate in the
circumstances. Accordingly, no deferred tax asset has been recorded at December
31, 1997.

A reconciliation of the enacted tax rate to the effective rate
reflected in the financial statements is as follows for the year ended December
31, 1996:

<S> <C>
Statutory rate .......................................... 34.0%
Tax-free interest income ................................ (3.4%)
Effective state rate (net of Federal benefit) ............ 1.5%
Other, net .............................................. 0.7%
-------

Effective rate in financial statements .................. 32.8%

</TABLE>

There were no material differences between financial and income tax reporting
which would give rise to deferred income taxes at December 31, 1996.

15. Preferred Stock:

The Company has authorized the issuance of 1,000,000 shares of
preferred stock with the rights, preferences, limitations and redemption of the
preferred stock determined upon any issuances.

16. Concentration of Credit Risk and Major Customers:

In 1996 and until the termination of the contracts effective September
1997, the Company derived a majority of its revenue from companies owned,
controlled by, or affiliated with the Chairman and principal stockholder of the
Company which subjects accounts receivable and revenue to concentrations of
credit risk. At times, cash balances may exceed FDIC limits. Also, the Company
invests in cash equivalents that are collateralized by letters of credit issued
by PNC Bank, N.A. At December 31, 1997 and 1996, cash equivalents of $100,000
and $895,000 were collateralized by such letters.

17. Related Party Transactions:

See Note 3 and Note 4 for discussion of write-offs of contract costs
effective December 31, 1997.

Effective February 1, 1997, the Former President resigned from his
offices and employment by mutual consent with the Company. The Employment
Contract with the Company was terminated. The options granted to the Former
President under the Stock Option Plan on December 20, 1995 and the President'
Options granted on August 3, 1995 will remain exercisable until their respective
expiration dates. The Company has retained Medical Business Systems, Inc.
("MBS") as a marketing and acquisition consultant for the time period from
February 1, 1997 until May 31, 1998. The agreement provided for a $14,227
monthly payment. The Former President is an officer of MBS. In addition, the
Company is in the process of assigning its non-cancelable operating leases for
the Massachusetts office to Rapier Investments, Ltd. ("Rapier"). Rapier owns and
controls MBS.

Effective March 14, 1997, the Board of Directors appointed the Chairman
and principal stockholder of the Company to serve as the President and Chief
Executive Office of the Company, as well as the previous positions he maintained
in the Company.

F-18

<PAGE>

NOTES TO THE FINANCIAL STATEMENTS, Continued

17. Related Party Transactions, continued:

Effective November 17, 1997, the Board of Directors appointed a new
President of the Company, who is employed pursuant to an employment agreement.
In connection with the appointment, the Chairman resigned as the Company's
President, but will continue to serve as the Company's Chairman and Chief
Executive Officer.

Effective October 1, 1994, the Company executed contracts to provide
billing, accounts receivable and collection services with numerous entities that
are owned, controlled by, or affiliated with the Chairman and principal
stockholder of the Company. The Company receives a percentage of patient net
revenues of the clients as compensation for its services. The contracts expired
on September 30, 1997 and were not renewed. No further revenues and related
subcontract expenses (except some incidental income) were recognized after that
date. See Note 4 for discussion of expiration of these contracts.

At December 31, 1997 and 1996 $3,008,500 and $362,200, respectively, in
accounts receivable-billed are from entities owned, controlled by, or affiliated
with the Chairman and principal stockholder of the Company.

18. Contract Acquisitions:

See Note 3 for discussion of write-offs of contract costs effective
December 31, 1997. Detailed information on the contracts acquired during the
years ended December 31, 1997 and 1996 are presented below:

On August 1, 1997, the Company acquired twelve contracts from Medical
Billing Services of Arizona, Inc. ("MBS-AZ") to provide billing and collection
services to certain medical service providers in Arizona. The total
consideration paid was $1,800,000, consisting of $600,000 in cash, 38,400 shares
of Common Stock based on a value of $15.63 per share and promissory notes in the
aggregate amount of $600,000. In accordance with the purchase agreement, the
Company placed these shares into escrow. The Common Stock and promissory notes
will be subject to total or partial forfeiture if certain revenue levels are not
maintained. On August 1, 1997, the Company executed an Exclusive Services
Provider Contract (the "Exclusive Contract") with MBS-AZ. Under the terms and
conditions of the Exclusive Contract, the Company will not authorize any other
entity or person to provide, and the Company will not provide, any of the
contracted services to any client covered by the August 1, 1997 acquisition. In
addition, under the terms and conditions of the Exclusive Contract, the Company
delegated the Company's obligations to provide billing, collection and accounts
receivable management services pursuant to the contracts acquired from MBS-AZ,
agreed to pay MBS-AZ a fee of 70% of net revenues received by the Company for
services provided by MBS-AZ. At December 31, 1997, the Exclusive Contract was
terminated and 38,400 shares of Common Stock held in escrow will be returned to
the Company.

On March 1, 1997, the Company acquired a contract from Rapier to
provide billing, collection and accounts receivable management services a
medical service provider in Rhode Island. The total consideration paid was
$165,000, consisting of $100,000 in cash and 1,445 shares of Common Stock based
on a value of $22.50 per share. In accordance with the purchase agreement, the
Company placed these shares into escrow. Fewer shares will ultimately be
released if certain revenue levels are not maintained. The Company delegated to
Rapier the Company's obligations to provide billing, collection and accounts
receivable management services pursuant to the contracts, agreed to pay Rapier a
fee of 70% of net revenues received by the Company for services provided by
Rapier. In addition, the Company agreed on terms and conditions authorizing
Rapier to subdelegate such obligations and assign its right to such fees to MBS.
The shares of Common Stock held in escrow will be released by the Company in
1998.

F-19

<PAGE>

NOTES TO THE FINANCIAL STATEMENTS, Continued

18. Contract Acquisitions, continued:

On March 1, 1997, the Company acquired a contract from MBS to provide
billing, collection and accounts receivable management services to medical
service providers in the Cleveland, Ohio area The total consideration paid was
$500,000, consisting of $300,000 in cash and 4,445 shares of Common Stock based
on a value of $45.00 per share. In accordance with the purchase agreement, the
Company placed these shares into escrow. Fewer shares will ultimately be
released if certain revenue levels are not maintained. The Company delegated to
MBS the Company's obligations to provide billing, collection and accounts
receivable management services pursuant to the contracts and agreed to pay MBS a
fee of 70% of net revenues received by the Company for services provided by MBS.
The shares of Common Stock held in escrow will be released by the Company in
1998.

On August 1, 1996, the Company acquired seven contracts from Rapier to
provide billing, collection and accounts receivable management services to
medical service providers in Massachusetts and New Hampshire. The total
consideration paid was $945,000, consisting of $750,000 in cash and 4,274 shares
of Common Stock based on a value of $45.63 per share. In accordance with the
purchase agreement, the Company placed these shares into escrow. Fewer shares
will ultimately be released if certain revenue levels are not maintained. The
shares of Common Stock held in escrow will be released by the Company in 1998.

On April 1, 1996, the Company acquired the accounts receivable and
client contracts from National Medical Services, Inc. The client contracts
related to this acquisition provide billing and collection services to
approximately 19 medical service providers in the Las Vegas, Nevada area. The
total consideration paid for this acquisition was $550,000, consisting of
$250,000 in cash and 6,000 shares of Common Stock valued at $50.00 per share. In
accordance with the purchase agreement, the Company placed these shares into
escrow. Fewer shares will ultimately be released if certain revenue levels are
not maintained. The shares of Common Stock held in escrow will be released by
the Company in 1998.

On February 13, 1996, the Company acquired the accounts receivable and
client contracts from Doctors Medical Billing Services, A Limited Liability
Corporation. The client contracts related to this acquisition provide billing
and collection services to approximately 25 medical service providers in Las
Vegas, Nevada area. The total consideration paid was $1,800,000, consisting of
$150,000 in cash and 38,824 shares of Common Stock based on a value of $42.50
per share. In accordance to the purchase agreement, the Company placed these
shares into escrow. On November 4, 1997, the Company released these shares from
escrow.

19. Legal Matters:

The Company is party to routine legal proceedings incidental to its
normal activities. The Company is not aware of any legal matters which would
have a material adverse effect on the Company's financial position.

20. Pending Contract Acquisitions:

The Company is negotiating to purchase assets and operations of a
billing and collection company in the Miami, Florida area. It is managements'
belief that the acquisition will be consummated during 1998.

F-20

<PAGE>

NOTES TO THE FINANCIAL STATEMENTS, Continued

21. Subsequent Events:

On January 6, 1998, the Company entered into an Accounting Business
Asset Purchase Agreement with Morris Maybruch D/B/A Maybruch & Co. and a Medical
Billing Business Asset Purchase Agreement with Morris Maybruch and Shoreline
Billing Systems, Inc. a New York corporation pursuant to which Mr. Maybruch sold
the assets and operations of his accounting and medical billing business. The
purchase price for the assets and business operations was $913,702 in cash and
163,405 shares of the Company's Common Stock based on a value of $24.48 per
share. Under the terms of the Agreements additional shares of the Company's
Common Stock may be issued if its closing price decreases over a defined period.
The transaction was accounted for by the purchase method of accounting.

On March 13, 1998, the Company repriced the stock options previously
granted to the current officers and directors in order to maintain a competitive
compensation package to retain the current officers and directors of the
Company. The stock options previously granted to those individuals were repriced
at an exercise price of $1.63 per share, the fair market value on that date.

F-21

<PAGE>
Exhibit 3.1

CERTIFICATE OF AMENDMENT OF ARTICLES OF INCORPORATION

NATIONAL MEDICAL FINANCIAL SERVICES CORPORATION

We the undersigned, Douglas R. Colkitt, Chairman and Chief Executive
Officer of National Medical Financial Services Corporation, and Robert W.
Horner, Jr., Vice President and Secretary of National Medical Financial Services
Corporation, do hereby certify:

That the Board of Directors of said corporation by unanimous
written consent on the 24th day of December, 1997, adopted a
resolution to amend Article Fourth of the corporation's
articles as follows:

"FOURTH: The total authorized capital stock of the corporation
is Forty Million (40,000,000) shares of Common Stock, par
value $0.01 per share, and One Million (1,000,000) shares of
Preferred Stock, par value $0.01 per share. The board of
directors of the corporation shall be authorized, subject to
limitations prescribed by the General Corporation Law of the
State of Nevada, to provide for the issuance of the shares of
preferred stock in one or more series, to established from
time to time the number of shares to be included in such
series, and to fix the designations, preferences, limitations,
restrictions, and relative rights of each series.

<PAGE>

Each share of Common Stock issued and outstanding as of the
close of business on December 31, 1997 shall automatically and
without any action on the part of the holder thereof be
reclassified as, and changed into, one-tenth (1/10) of a share
of Common Stock (rounded up to the nearest whole share). Such
reclassification and change shall not change the par value per
share of the Common Stock, which par value shall remain $.01
per share, nor the number of authorized shares of Common
Stock, which shall remain Forty Million (40,000,000) shares."

The number of shares of the corporation outstanding and entitled to vote on an
amendment to the Articles of Incorporation were 15,399,316; that the said change
and amendment has been consented to and approved by a majority vote of the
stockholders holding at least a majority of each class of stock outstanding and
entitled to vote thereon.

/s/Douglas R. Colkitt
--------------------------------
Chairman and Chief
Executive Officer

/s/Robert W. Horner, Jr.
--------------------------------
Vice President and Secretary

<PAGE>

State of Pennsylvania
ss.

County of Centre

On February 20, 1998, personally appeared before me, a Notary
Public, Douglas R. Colkitt and Robert W. Horner, Jr., who acknowledged that they
executed the above instrument.

/s/Raymond J. Caravan
--------------------------------
Signature of Notary

[Notary Stamp or Seal]

<PAGE>

Exhibit 10.9

Employment Agreement Between

National Medical Financial Services Corporation

And

Eric Robinson

THIS AGREEMENT is entered into effective the 1st day of September, 1997
(the "Effective Date") between National Medical Financial Services Corporation,
a Nevada Corporation ("National") and Eric Robinson ("Robinson") and shall
govern the terms and conditions of their relationship. National and Robinson are
sometimes hereinafter referred to collectively as the "Parties".

R E C I T A L S

Whereas, National wishes to employ Robinson as its President; and

Where as Robinson desires to accept the position of President under the terms
and conditions hereinafter set forth; and

Whereas, the Parties wish to memorialize the terms and conditions of Robinson's
employment with National,

NOW THEREFORE, in consideration of the mutual covenants, promises and conditions
hereinafter set forth, the Parties agree as follows:

1. Duties and Responsibilities

National agrees that it shall employ Robinson as the President of
National. In that role, Robinson shall be responsible for direction of the
day-to-day operations of National and for overseeing the preparation of product
development and marketing strategies and the establishment, with the approval of
the Chairman of the Board, of overall corporate goals to further the success of
National. Specific projects and duties may be assigned to Robinson by the
Chairman of the National Board of Directors, from time to time as appropriate.
Robinson shall report directly to the Chairman of the National Board of
Directors. It is agreed that any specific projects or responsibilities assigned
to Robinson shall be documented in writing within a reasonable period of time
after the assignment is given.

Robinson recognizes and agrees that the only other entity to this
contract is National and that Douglas Colkitt, M.D., individually, is not a
party, in any capacity, to this agreement. Any actions taken by Douglas R.
Colkitt, M.D. in relation to Robinson's employment with National shall be
limited to Colkitt's role as a Director of National.

It is further agreed that Robinson shall, subject to the approval of
the Board of Directors, have primary responsibility for the recruitment of
suitable personnel to fill the executive positions required by National.

2. Compensation

2.1 Base Salary

Robinson shall receive a base salary during the term of this Agreement in
the amount of one hundred fifty thousand dollars ($150,000) (the "Base Salary")
per annum. The Base Salary shall be payable for

<PAGE>

periods ending on the fifteenth (15th) and final day of each month and shall be
delivered on the seventh (7th) and twenty second (22nd) of each month.

2.2 Cash Performance Bonus

Robinson shall be eligible for the award of a cash performance bonus at
the completion of the first fiscal quarter of 1998 (the "Cash Bonus") (such
first fiscal quarter of 1998 to begin January 1, 1998 and end March 31, 1998).
At the commencement of the 1998 fiscal year (which shall include the period
January 1, 1998 through December 31, 1998, inclusive), Robinson, with the
approval of the Board of Directors, shall develop corporate revenue, profit,
unit sale and other appropriate goals for each quarter of the coming and
subsequent fiscal years (the "Goals"). All such Goals shall be documented in
writing and shall be approved by Chairman and the Board of Directors not later
than thirty (30) days after the commencement of the 1998 fiscal year and not
later than thirty (30) days before the commencement of every subsequent fiscal
year of the Term. The stated Goals shall be accompanied by an agreed projection
of resources necessary to achieve Goals (the "Agreed Resource Projection").

The amount of the Cash Bonus shall be in an amount equal to two percent
(2%) of the net before tax earnings of National during the 1998 fiscal year and
for every subsequent fiscal year of the Term, if Robinson has achieved one
hundred percent (100%) of the Goals. All cash bonuses shall be calculated
quarterly and paid within thirty (30) days following the end of each quarter. In
the event Robinson has achieved less than one hundred percent (100%) of the
Goals, but has achieved not less than seventy-five per cent (75%) of the Goals,
he shall be entitled to receive a prorated Cash Bonus equal to one percent (1%)
of net before tax earnings multiplied by the percentage of the Goals reached.

In the event that less than ninety percent (90%) of the resources set
forth in the Agreed Resources Projection are made available to Robinson during
any year of the Term hereof, it is agreed that the Goals shall, for purposes of
this section 2.2 be automatically adjusted downward by the same percentage as
the percentage of resources made available during the course of any year of the
Term is adjusted downward. Example: If the Goal is $100,000 of sales but only
ninety percent (90%) of the Agreed Resources Projection is made available, there
will be no reduction in the Goal. If only eighty (80%) percent of the resources
are made available, the Goal would be reduced to $80,000.

Robinson shall also have the option of converting the Cash Bonus to
fully vested options to purchase the shares of National at the closing price of
National common on the date the bonus is awarded. The Cash Bonus may be
converted on a formula which allows the purchase of three times the value of the
bonus when compared to the market price of the stock. Example: Cash Bonus amount
is $20,000. The Cash Bonus multiplied by 3 is thus $60,000. If the then current
stock price is $10 per share, Robinson would have the option of accepting
options for the purchase of six thousand (6,000)shares at a purchase price of
$10 per share. Any such options shall be issued pursuant to the National Stock
Option Plan and shall be subject to all the terms and conditions thereof. No
cash payment shall be due Robinson in the event options are chosen in lieu of
cash payment.

2.3 Stock Option Grants and Exercise Rights

2.3.1 Initial Option Grant

It is agreed that the Board of Directors of National shall authorize,
fully vested options to Robinson to purchase one hundred thousand (100,000)
shares of the common shares of National pursuant to the National Stock Option
Plan. The option shall be exercisable for a period of five (5) years commencing
on the date of

<PAGE>

grant (each such period in sections 2.3.1 and 2.3.2 hereof are sometimes
referred to collectively as the "Exercise Period") at a purchase price equal to
the closing price of National common stock on November 11, 1997.

2.3.2 Additional Option Grants

Robinson shall be entitled to a further grant of vested options, to be
granted in accordance with the National Stock Option Plan, to purchase common
equity of National upon achievement of goals as follows:

At conclusion of Fiscal Year

Percentage of Goal Achieved 1998 1999 2000
- --------------------------- ---- ---- ----
<S> <C> <C> <C>

Options on Options on Options on
75.0 % - 89.9% 100,000 shares 150,000 shares 200,000 shares

Options on Options on Options on
90.0 % - 99.9% 150,000 shares 225,000 shares 300,000 shares

Options on Options on Options on
100.0% 200,000 shares 300,000 shares 400,000 shares

</TABLE>

Such options granted in accordance with this section 2.3.2 shall be granted at
an exercise price equal to the closing price of National common shares on the
last business day of the respective fiscal year.

2.3.3 Change in Control

In the event Robinson ceases to be employed by National as a result of
change in control, Robinson shall receive the same value for all of the shares
then actually vested as all other sellers of common shares receive.

2.4 Entity Acquisition Bonuses

Robinson's duties shall include seeking out entities which are
candidates for acquisition by National during the Term hereof. In the event
Robinson identifies, coordinates, controls and completes the acquisition of any
entity during the Term hereof, National agrees that it shall pay to Robinson a
cash bonus (the "Acquisition Bonus"), payable on the date the acquisition
closes, equal to one percent (1%) of the annual revenues of the acquired entity
in the year prior to the acquisition. The Acquisition Bonus shall be payable on
any acquisition which closes on or after September 1, 1997.

Any commissions, finders fees, etc. paid to any other individual or
entity based upon the closing of any acquisition will be offset against the
Acquisition Bonus calculated in accordance with the above, with the net, if any,
payable to Robinson.

Robinson shall also have the option of converting any and all
Acquisition Bonus payments due him to fully vested options to purchase the
common shares of National at the closing price of National common on the date
the bonus is awarded. The Acquisition Bonus may be converted on a formula which
allows the purchase of three times the value of the bonus when compared to the
market price of the stock. Example: Acquisition Bonus amount is $20,000. The
Acquisition Bonus multiplied by 3 is thus $60,000. If the then current stock
price

<PAGE>

is $10 per share, Robinson would have the option of accepting options for the
purchase of six thousand (6,000) shares at a purchase price of $10 per share.
Any such options shall be issued pursuant to the National Stock Option Plan and
shall be subject to all the terms and conditions thereof.

2.5 Automobile Allowance

Robinson shall receive an allowance equal to eight hundred dollars
($800) per month which may be applied to the lease or purchase of an automobile,
which automobile may be used by Robinson for such purposes as he deems
appropriate. Such allowance is intended to compensate Robinson for the costs of
acquisition, fuel, insurance and maintenance of such vehicle as he shall select
and shall be included in Robinson's base salary payments.

2.6 Business Expenses

Robinson shall be compensated for all reasonable out-of-pocket expenses
incurred by him in the performance of his duties under this Agreement in
accordance with section 700, policy code No. 701, of the company employee
handbook, as shall be amended from time to time. A Company credit card shall be
issued to Robinson for his use in connection with Company business.

2.7 Equipment to be Provided

National agrees that it shall absorb all reasonable expenses relating
to the acquisition of approved equipment, maintenance and services for said
equipment, to be used by Robinson in the performance of his duties pursuant to
this Agreement. Approved equipment shall include a separate telephone line
installed in Robinson's home, a fax, a cellular phone of Robinson's choice, and
a Pentium II equipped color laptop computer equipped with sufficient RAM and
disk storage to permit operation with computer software programs of Robinson's
choosing, all software Robinson may reasonably require, a 28.8 or higher modem
suitable for data transmission, and a printer, keyboard and monitor for home use
of the laptop computer.

2.8 Vacation and Miscellaneous Employee Benefits

Robinson shall be entitled to four (4) weeks vacation each year, and
all other benefits as stated in the company employee handbook.

2.9 Legal Expenses

National agrees that it shall reimburse Robinson for up to one thousand
dollars ($1,000) in legal fees incurred in the preparation and negotiation of
this Agreement upon presentation of an appropriate invoice from counsel for
Robinson.

2.10 Participation on Boards of Directors

National agrees that Robinson shall be permitted to serve as a member
of the Board of Directors of not more than three (3) other companies at any one
time during the Term hereof and that any compensation payable to Robinson
arising from such participation shall be retained by Robinson. No time shall be
charged against vacation or other authorized leave for reasonable time consumed
by any such Board activities.

3. Severance Provisions

<PAGE>

3.1 Change in Control Separation

In the event Robinson is terminated by National as a result of a change
in control of National it is agreed that Robinson shall receive a cash severance
payment equal to twelve (12) months Base Salary at the rate effective on the
termination date and a pro-rata payment of Cash Bonus amounts accrued to the
date of termination. All such severance amounts shall be paid to Robinson as
normal payroll on the schedule set forth in Section 2 hereof.

3.2 Other Separation from Employment

In the event Robinson ceases to be employed during the term hereof for
any reason other than a change in control as set forth in Section 3.1, then it
is agreed that Robinson shall receive a cash severance payment equal to six (6)
months Base Salary at the rate effective on the termination date and a pro-rata
payment of Cash Bonus amounts earned to the date of termination. All such
severance payments shall be paid to Robinson as normal payroll on the schedule
set forth in Section 2 hereof.

4. Term and Termination

4.1 Term

The term of this Agreement shall commence of the Effective Date and
shall remain in effect for a period of three (3) years, unless terminated sooner
in accordance with the provisions herein.

4.2 Termination

4.2.1 This Agreement may be terminated at any time by the mutual
consent of the parties. The Agreement may also be terminated by the Chairman of
the Board of National upon thirty days (30) written notice to Robinson. In the
event of termination under this section 4.2.1., severance shall be paid in
accordance with Section 3.2 above.

4.2.2 This Agreement may be terminated by Robinson at any time upon
thirty (30) days written notice provided, however, that no severance payments
shall be made to Robinson pursuant to Section 3 hereof in the event of such a
voluntary termination and Robinson shall be entitled to exercise only those
options to purchase common shares as are fully vested on the day notice of
termination is delivered

5. Miscellaneous

5.1 Governing Law; Arbitration

This Agreement shall be governed by and construed under the laws of the
Commonwealth of Pennsylvania, without reference to principles of conflict of
laws. Except as set forth in below, any controversy or claim arising out of or
relating to this Agreement or the breach thereof shall be settled by binding
arbitration in State College, Pennsylvania by submission by either party, to a
mutually agreeable private judicial service or to a mutually agreed retired
judge of the Pennsylvania Superior Court. Judgement on an award rendered by the
arbitrator may be entered in any court having jurisdiction thereof.

In any arbitration proceeding, the parties shall be entitled to conduct
discovery in accordance with the Federal Rules of Civil Procedure, except that
the arbitrator shall have the authority to limit the nature and scope

<PAGE>

of discovery.

The parties agree that monetary damages would not in all cases be an
adequate remedy, and injunctive relief may be necessary to prevent irreparable
injury. Accordingly, either party may request injunctive relief, seizure orders,
writs of attachment, and other extraordinary remedies from a court of competent
jurisdiction. The parties stipulate and consent to jurisdiction of the person in
the courts sitting in the Commonwealth of Pennsylvania, for all actions. The
filing of a proceeding for injunctive relief shall not constitute a waiver by
the filing party of the right to compel arbitration pursuant to this Agreement
or of all demands for other relief.

5.2 Entire Agreement

This Agreement sets forth the entire agreement and understanding of the
Parties relating to the subject matter herein and merges and supersedes all
prior agreements, discussions and understandings between them. No modification
of or amendment to this Agreement, nor any waiver of any rights under this
Agreement, shall be effective unless in writing signed by the party to be
charged.

5.3 Waiver

No delay, omission, or failure to exercise any right or remedy provided
for in this Agreement shall be deemed to be a waiver thereof or an acquiescence
in the event giving rise to such remedy, but every such right or remedy may be
exercised, from time to time, as may be deemed expedient by the party exercising
such right or remedy.

5.4 Notices

Any notice required or permitted by the Agreement shall be in writing
and shall be sent by prepaid registered or certified mail, return receipt
requested, addressed to the other party at the addresses shown below or at such
other address for which such party gives notice hereunder. Such notice shall be
deemed to have been given three (3) days after deposit in the mail, or, if sent
by overnight service, on the next day following deposit except that notice of
change of address shall be effective only upon receipt.

If to Robinson:

Eric Robinson
450 Yellow Pine Road
Reno, NV 89511

If to National:

National Medical Financial Services Corporation
1315 Greg Street

Suite 103
Sparks, NV 89431

With copy to:

Marcy L Colkitt and Associates
P.O. Box 607

<PAGE>

Indiana, PA 15701

5.5 Force Majeure

Non performance of either party, except for the making of payments,
shall be excused to the extent that performance is rendered impossible by
strike, fire, flood, governmental acts or orders or restrictions, failure of
suppliers, or any other reason where failure to perform is beyond the control
and not caused by the negligence of the non-performing party.

5.6 Counterparts

This Agreement may be executed in one or more counterparts which, when
read together, shall constitute a single original Agreement.

IN WITNESS WHEREOF, the parties hereto have executed the Agreement
effective on the date hereinabove set forth.

"NATIONAL" "ROBINSON"

National Medical Financial Services Corporation

By:

---------------------------------------- ----------------------------
Eric Robinson

Title:

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

7
<PAGE>

M E M O R A N D U M

TO: Eric Robinson

FROM: Jude Spak

SUBJECT: Employment Agreement

DATE: November 25, 1997

Unfortunately, several "clean-up" issues have come up with respect to your
employment agreement that needs your agreement and acknowledgement. I don't see
anything negative to you in the following, and if you agree, please initial
below and fax back to be.

Issues #1

Effective Date

The contract shows an effective date of September 1, 1997 although
actually not signed till November.

I believe our understanding is that the September 1, 1997 date
essentially starts the 3 year period of the contract - i.e., expiration
August 31, 2000.

For salary purposes, the increase to the base salary per the contract
was covered by including a retroactive payment for the difference in
the contract from your salary under your previous employer (Astute
Systems) from September 1 to October 31. 1997.

Also since November 14, 1997 was the due date for the Company's 10Q SEC
filing, we are considering November 17, 1997 as the execution date for
reporting purposes. (This will mean the contract must be reported as a
4th quarter transaction).

This will cause a change in the pricing of the options per sections
2.3.1. Rather than pricing as of class of November 11, 1997 (23/32),
they will be priced as of the average of the high and low of November
17, 1997 (11/16 & 19/32), giving a pricing of 41/64.

Issue #2

Option Pricing

It has been pointed out that the option plan document calls for pricing
to be based on the average of the high and low on date of award rather
than closing price. As a result, section 2.3.2 options awards will be
based on the plan formula, not closing price.

Sorry for any inconveniences. As stated above, please acknowledge above as
correct by initialing below, assuring you are in agreement.

Acknowledged & Agreed
-------------------------------------------
Eric Robinson

<PAGE>

Exhibit 11.1

Computation of Per Share Earnings

For the Years Ended December 31, 1997 and 1996
(In Thousands)

1997 1996
---- ----
<S> <C> <C>
BASIC NET INCOME (LOSS) PER SHARE

Average shares outstanding 1,516,676 1,486,968
--------- ---------
--------- ---------

Net income (loss) $7,844.7 $1,405.5
--------- ---------
--------- ---------
Basic net income (loss) per share ($5.17) $0.95
--------- ---------
--------- ---------

DILUTED NET INCOME (LOSS) PER SHARE

Average shares outstanding 1,516,676 1,486,968

Net effect of dilutive stock options and
warrants based on the treasury stock
method using average market price -- 72,557
--------- ---------

Total 1,516,676 1,559,525
--------- ---------
--------- ---------
Net income (loss) ($7,844.7) $1,405.5
--------- ---------
--------- ---------
Diluted net income (loss) per share ($5.17) $0.90
--------- ---------
--------- ---------

</TABLE>

<PAGE>

Exhibit 23.1

CONSENT OF INDEPENDENT ACCOUNTANTS

We consent to the incorporation by reference in the registration statement
of National Medical Financial Services Corporation on Form S-3
(File No. 333-11381) of our report dated February 26, 1997, on our audit of
the financial statements of National Medical Financial Services Corporation
as of December 31, 1996 and for the year then ended, which report is included
in this Annual Report on Form 10-KSB.

/s/ Coopers & Lybrand L.L.P.
- -----------------------------
COOPERS & LYBRAND L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
February 26, 1997

<PAGE>

Exhibit 23.2

CONSENT OF INDEPENDENT ACCOUNTANTS

We consent to the incorporation by reference in the registration statement of
National Medical Financial Services Corporation on Form S-3 (File No.
333-11381) of our report dated March 31, 1998, on our audit of the financial
statements of National Medical Financial Services Corporation as of December
31, 1997 and for the year then ended, which report is included in this Annual
Report on Form 10-KSB.

MEDWIG LABRIOLA & CO.

1000 Arrott Building
401 Wood Street
Pittsburgh, Pennsylvania
April 27, 1998

<PAGE>
<ARTICLE> 5

<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> $317,500
<SECURITIES> 0
<RECEIVABLES> 5,857,200
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 8,240,400
<PP&E> 20,500
<DEPRECIATION> 700
<TOTAL-ASSETS> 9,069,600
<CURRENT-LIABILITIES> 2,615,400
<BONDS> 171,800
0
0
<COMMON> 15,400
<OTHER-SE> 6,267,000
<TOTAL-LIABILITY-AND-EQUITY> 9,069,600
<SALES> 8,257,500
<TOTAL-REVENUES> 8,257,500
<CGS> 0
<TOTAL-COSTS> 5,619,000
<OTHER-EXPENSES> 12,486,100
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (315,000)
<INCOME-PRETAX> (9,200,600)
<INCOME-TAX> (1,355,900)
<INCOME-CONTINUING> (7,844,700)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (7,844,700)
<EPS-PRIMARY> ($5.17)
<EPS-DILUTED> ($5.17)

</TABLE>