1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 13, 1996
REGISTRATION NO.
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
BIRMAN MANAGED CARE, INC.
(NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER)

DELAWARE 6749 62-1584092
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)

502 GOULD DRIVE
COOKEVILLE, TENNESSEE 38506
(615) 432-6532
(ADDRESS AND TELEPHONE NUMBER OF PRINCIPAL EXECUTIVE OFFICES
AND PRINCIPAL PLACE OF BUSINESS)

DAVID N. BIRMAN, M.D.
PRESIDENT AND CEO
502 GOULD DRIVE
COOKEVILLE, TENNESSEE 38506
(615) 432-6532; (615) 432-6536 (TELECOPIER)
(NAME, ADDRESS AND TELEPHONE NUMBER OF AGENT FOR SERVICE)
------------------------
COPIES TO:

JOHN H. HEUBERGER, ESQ. ROBERT S. KANT, ESQ.
PETER B. ROSS, ESQ. JERE M. FRIEDMAN, ESQ.
RUDNICK & WOLFE O'CONNOR, CAVANAGH, ANDERSON, KILLINGSWORTH & BESHEARS, P.A.
203 NORTH LASALLE STREET, SUITE 1800 ONE EAST CAMELBACK ROAD, SUITE 1100
CHICAGO, ILLINOIS 60601 PHOENIX, ARIZONA 85012
(312) 368-4014 (602) 263-2400
(312) 984-2299 (TELECOPIER) (602) 263-2900 (TELECOPIER)

------------------------
APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC: As soon as practicable
after the registration statement is declared effective.

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

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

If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
------------------------
CALCULATION OF REGISTRATION FEE

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

PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AGGREGATE AMOUNT OF REGISTRATION
SECURITIES TO BE REGISTERED OFFERING PRICE(1) FEE
- ----------------------------------------------------------------------------------------------------------------------------
Common Stock, par value $.001 per share(2)................................ $12,031,875 $4,148.92
- ----------------------------------------------------------------------------------------------------------------------------
Warrants(3)............................................................... 0 0
- ----------------------------------------------------------------------------------------------------------------------------
Common Stock, par value $.001 per share, reserved for issuance under
Warrants(4)............................................................. $15,650,350 $5,396.67
- ----------------------------------------------------------------------------------------------------------------------------
Representative's Warrants................................................. $1,550 $0.53
- ----------------------------------------------------------------------------------------------------------------------------
Common Stock issuable upon exercise of Representative's Warrants.......... $1,255,500 $432.93
- ----------------------------------------------------------------------------------------------------------------------------
Warrants issuable upon exercise of Representative's Warrants.............. 0 0
- ----------------------------------------------------------------------------------------------------------------------------
Common Stock issuable upon exercise of Warrants issuable upon exercise of
Representative's Warrants............................................... $1,360,900 $469.28
- ----------------------------------------------------------------------------------------------------------------------------
Total $30,300,175 $10,448.33
============================================================================================================================

(1) Estimated solely for purposes of computing the registration fee.
(2) Includes 232,500 shares which the Underwriters have the option to purchase
to cover over-allotments.
(3) Includes 232,500 warrants which the Underwriters have the option to purchase
to cover over-allotments.
(4) Includes 232,500 shares issuable upon exercise of warrants included in the
Underwriters' over-allotment option.

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
================================================================================
2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.

SUBJECT TO COMPLETION, DATED SEPTEMBER 13, 1996
PROSPECTUS
BIRMAN
MANAGED CARE, INC.

1,550,000 UNITS
EACH UNIT CONSISTING OF
ONE SHARE OF COMMON STOCK AND
ONE REDEEMABLE COMMON STOCK PURCHASE WARRANT

Birman Managed Care, Inc. (the "Company") is offering hereby 1,550,000
units ("Units"), each consisting of one share of the Company's Common Stock
("Common Stock") and one redeemable Common Stock Purchase Warrant ("Warrant") to
purchase one share of Common Stock at a price of $ (130% of the initial
public offering price of the Units), subject to adjustment in certain
circumstances, until 36 months from the date of this Prospectus. The Common
Stock and the Warrants included in the Units will be separately transferable
upon issuance. Commencing 90 days after the date of this Prospectus, the
Warrants will be redeemable by the Company at $.01 per Warrant upon 30 days'
notice mailed within 15 days after the closing bid price of the Common Stock on
the Nasdaq National Market ("Nasdaq") has equalled or exceeded $ per
share (110% of the exercise price of the Warrants) for a period of 20
consecutive trading days. See "Description of Securities."

Prior to this offering, there has been no public market for the Units,
Common Stock, or Warrants, and there can be no assurance that any such market
will develop. It is currently anticipated that the initial public offering price
will range between $5.75 and $6.75 per Unit. Application has been made to have
the Common Stock and Warrants approved for quotation on Nasdaq under the symbols
"BMAN" and "BMANW," respectively. The public offering price for the Units has
been determined arbitrarily by negotiations between the Company and W.B. McKee
Securities, Inc. (the "Representative") and does not necessarily bear any
relationship to the Company's results of operations, net worth, prospects, or
other commonly recognized criteria of value. See "Risk Factors" and
"Underwriting."
---------------------
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK AS WELL AS
IMMEDIATE AND SUBSTANTIAL DILUTION. SEE "RISK FACTORS" BEGINNING ON PAGE 6 AND
"DILUTION."
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

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

UNDERWRITING DISCOUNTS AND PROCEEDS TO
PRICE TO PUBLIC COMMISSIONS(1) COMPANY(2)
- ----------------------------------------------------------------------------------------------------
Per Unit................ $ $ $
- ----------------------------------------------------------------------------------------------------
Total(3)................ $ $ $
====================================================================================================

(1) Excludes a non-accountable expense allowance to the Representative of the
Underwriters equal to 3% of the total Price to Public and the value of
warrants to purchase 155,000 Units (the "Representative's Warrants") to be
issued to the Representative. The Company has agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933. See "Underwriting."

(2) Before deducting expenses of the offering payable by the Company estimated
at $ , including the non-accountable expense allowance.

(3) The Company has granted the Underwriters a 45-day option to purchase up to
232,500 additional Units at the public offering price solely to cover
over-allotments, if any. If such option is exercised in full, the total
Price to Public, Underwriting Discounts and Commissions, and Proceeds to
Company will be $ , $ , and $ , respectively. See
"Underwriting."
---------------------
The Units are being offered by the Underwriters subject to prior sale,
when, as and if delivered to and accepted by the Underwriters, and subject to
the right to reject any order, in whole or in part, and subject to certain other
conditions. It is expected that delivery of the Units will be made against
payment therefor at the offices of W.B. McKee Securities, Inc., Phoenix, Arizona
on or about , 1996.
---------------------
W.B. MCKEE SECURITIES, INC.
The date of this Prospectus is , 1996
3

IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE SECURITIES
OFFERED HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET OR
OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.

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

The following summary should be read in conjunction with, and is qualified
in its entirety by, the more detailed information and financial statements and
notes thereto appearing elsewhere in this Prospectus. Unless otherwise
indicated, all information in this Prospectus assumes that (i) neither the
over-allotment option granted to the Underwriters nor the Representative's
Warrants will be exercised, and (ii) no other currently outstanding warrants or
options will be exercised.

THE COMPANY

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

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

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

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5

THE OFFERING

Securities Offered.................. 1,550,000 Units, each consisting of one
share of Common Stock and one Warrant.
The Common Stock and Warrants included
in the Units will be separately
transferable upon issuance.

Terms of Warrants................... Each Warrant entitles the holder
thereof to purchase, at any time until
three years after the date of this
Prospectus, one share of Common Stock
at a price of $ per share (130% of
the initial public offering price of
the Units), subject to adjustment.
Commencing 90 days after date of this
Prospectus, the Warrants will be
subject to redemption by the Company,
in whole but not in part, at $.01 per
Warrant on 30 days' notice mailed
within 15 days after the closing bid
price of the Common Stock as reported
on Nasdaq equals or exceeds $ per
share (110% of the exercise price of
the Warrants) for a period of 20
consecutive trading days. See
"Description of Securities."
Common Stock outstanding prior to
this offering..................... 6,931,082 shares(1)

Securities to be outstanding after
this offering....................... 8,481,082 shares of Common Stock and
1,550,000 Warrants(1)

Use of Proceeds..................... The Company intends to apply the net
proceeds of this offering to develop,
establish, and expand its health plans
($2,500,000); establish reserves in
furtherance of its health plans
($3,000,000); complete an acquisition
($1,000,000); expand its Quality
Management Program ($500,000); and
provide working capital for general
corporate purposes ($1,128,125). See
"Use of Proceeds."(2)

Proposed Nasdaq Symbols............. Common Stock: BMAN
Warrants: BMANW

Risk Factors and Dilution........... A purchase of Units involves a high
degree of risk and immediate and
substantial dilution to the purchasers
in this offering. See "Risk Factors"
and "Dilution."
- ---------------
(1) Does not include (a) 1,018,566 shares of Common Stock reserved for issuance
upon the exercise of outstanding stock options, or (b) 57,805 shares of
Common Stock reserved for issuance upon the exercise of outstanding
warrants. The outstanding stock options vest over a three-year period. The
outstanding warrants first become exercisable in January 1997. See
"Management -- Stock Option Plans" and "Description of
Securities -- Warrants."

(2) At an assumed offering price of $6.25 per Unit, the net proceeds to the
Company from this offering are expected to be approximately $8.1 million
(approximately $9.4 million if the Underwriters' over- allotment is
exercised in full).

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6
SUMMARY FINANCIAL DATA

HISTORICAL
------------------------- PRO FORMA(2)
--------------
FISCAL YEAR ENDED JUNE 12 MONTHS
30, ENDED
------------------------- JUNE 30,
1995 1996 1996
---------- ---------- --------------
(IN THOUSANDS EXCEPT PER SHARE DATA)

CONSOLIDATED STATEMENT OF OPERATIONS:
Revenue.......................................... $ 4,818 $ 8,417 $ 8,417
Costs and expenses:
Cost of revenue............................... 2,381 2,279 2,279
Selling, general and administrative........... 3,114 4,237 4,309
---------- ---------- ----------
Income (loss) from operations................. (677) 1,901 1,829
---------- ---------- ----------
Income (loss) from continuing operations......... (483) 1,172 1,130
---------- ---------- ----------
Net income (loss)................................ $ (699) $ 1,172 $ 1,130
========== ========== ==========
Net income (loss) per share(1)................... $ (.09) $ .15 $ .12
========== ========== ==========
Weighted average common shares outstanding......... 7,725,434 7,725,434 9,275,434
========== ========== ==========

JUNE 30, 1996
-----------------------------
PRO FORMA,
ACTUAL AS ADJUSTED(3)
---------- --------------

CONSOLIDATED BALANCE SHEET DATA:
Working capital................................................. $2,916,807 $ 10,136,883
Total assets.................................................... $4,009,891 $ 13,185,613
Total liabilities............................................... $ 820,912 $ 1,868,509
Stockholders' equity............................................ $3,188,979 $ 11,317,104

- ---------------
(1) Net income per share is calculated on the basis of the weighted average
shares outstanding of Common Stock for each year presented. See Note 1 of
Notes to Consolidated Financial Statements.

(2) Gives effect on a pro forma basis to the pending acquisition of the capital
stock of Canton Management Group, Inc. ("Canton"), as to which the Company
had entered into a definitive acquisition agreement. The pro forma combined
statement of operations data for fiscal 1996 does not purport to represent
what the Company's results of operations would have been if such acquisition
had been consummated on July 1, 1995. Although the Company anticipates that
the acquisition will close prior to the completion of this offering, there
can be no assurance that such transaction will close by such time, or at
all. See "Unaudited Pro Forma Financial Information."

(3) Gives effect on a pro forma, as adjusted basis to (a) the acquisition of
Canton, and (b) the sale by the Company of the Units offered hereby at an
assumed initial public offering price of $6.25 per Unit and the application
of the estimated net proceeds therefrom. See "Use of Proceeds."
---------------------
Unless the context otherwise requires, the term "Company" refers to Birman
Managed Care, Inc., a Delaware corporation, and its subsidiaries, including
Birman & Associates, Inc., BMC Health Plans, Inc., and Hughes & Associates, Inc.
The address of the Company is 502 Gould Drive, Cookeville, Tennessee 38506, and
its telephone number is (615) 432-6532. Except as otherwise indicated, the
information in this Prospectus has been adjusted to give effect to the change of
the state of incorporation of the Company from Tennessee to Delaware on
September 9, 1996 by means of a merger in which the shareholders of the
predecessor Tennessee corporation received 72.939 shares of the Company's Common
Stock for each 100 shares of common stock of the Tennessee corporation then
outstanding.

5
7

RISK FACTORS

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

EXPANSION INTO NEW BUSINESS

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

GROWTH STRATEGY AND LIMITATIONS ON GROWTH

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

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

POTENTIAL FLUCTUATION IN OPERATIONS AND OPERATING RESULTS

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

RISK OF MEDICARE AUDITS ON QUALITY MANAGEMENT PROGRAM BUSINESS

Hospitals and physicians providing services under Medicare are subject to
regulatory responsibilities imposed by the Health Care Financing Administration
("HCFA"). Peer Review Organizations ("PROs") engaged by HCFA in each state
routinely review and audit reimbursement requests, including patient admissions,
quality of care, and appropriateness of diagnostic-related group ("DRG")
selections, among other things. The depth of review varies from hospital to
hospital. There is always a risk that PRO attention may focus with increased
scrutiny on reimbursement requests submitted by hospital-clients of the Company
that achieve increased reimbursements as a result of the Quality Management
Program. In addition, HCFA

6
8
investigates allegations of fraud and abuse of Medicare and Medicaid and has
instituted a multi-state program called "Operation Restore Trust" to punish
persons engaged in fraud and abuse of Medicare and Medicaid, recover funds,
identify areas of vulnerability, and prevent fraud. Among the areas of
investigatory interest to HCFA are billing code fraud, billing schemes, and
kickbacks involving providers. Historically, the Quality Management Program has
not been the cause of a focused review or audit by a PRO or a formal
investigation by HCFA. However, there can be no assurance that focused reviews,
audits, or investigations will not occur in the future. A denial of
reimbursement requests submitted by a hospital-client as a result of the
implementation of the Quality Management Program may result in the Company being
required to reimburse a portion of its fees to the hospital-client, could result
in one or more hospital-clients seeking to withdraw from their contracts, and
could result in a formal investigation by HCFA. Such events could have a
material adverse effect on the Company.

PRINCIPAL CLIENT

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

NEED TO PREDICT AND CONTROL HEALTH CARE COSTS

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

RISK OF LIMITED HEALTH PLANS

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

HEALTH CARE REFORM

As a result of the escalation of health care costs and the inability of
many individuals and employers to obtain affordable health insurance, numerous
health care reform proposals have been, and may continue to be, introduced in
the United States Congress and state legislatures. Among the proposals under
consideration are

7
9

price controls on hospitals, insurance market reforms to increase the
availability of group health insurance to small businesses, requirements that
all businesses offer health care coverage to their employees, the creation of a
government health insurance plan or plans that would cover all citizens,
mandated health plan benefits, mandated provider payment arrangements, and other
proposals involving various aspects of health plan operations. There can be no
assurance which, if any, of these proposals will be adopted or the effect on the
Company of any such proposals that are adopted. See "Business -- Government
Regulation."

GOVERNMENT REGULATION

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

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

DEPENDENCE UPON REIMBURSEMENT BY THIRD-PARTY PAYORS

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

SUBSTANTIAL COMPETITION

The Company's Quality Management Program competes for hospitals as clients
in the revenue optimization sector of the health care consulting business. The
Company's health plans will compete in the managed care and insurance sectors of
the health care industry. Both sectors are highly competitive. Within each
sector, there are a large number of competitors, many of which have
substantially greater financial, technical, marketing, and management resources
than the Company. Although the Company believes the acceptance of its Quality
Management Program and its familiarity with and reputation in rural areas will
enable it to compete successfully, there can be no assurance that the Company
will be able to compete

8
10

effectively against existing competitors or that additional competitors will not
enter the rural markets the Company plans to serve. See
"Business -- Competition."

RISKS ASSOCIATED WITH HEALTH PLAN CONTRACTS; CAPITATED FEE REVENUE

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

LIABILITY AND INSURANCE

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

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

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

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

9
11

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

DEPENDENCE ON KEY PERSONNEL

The Company depends to a significant extent on the efforts and skills of
its key personnel, particularly David Birman, M.D. and D. Bradley Seitzinger,
M.D., with respect to its Quality Management Program business and Vincent W.
Wong and Mark C. Wade with respect to its health plan business. The Company has
entered into employment agreements with all four of these key employees. The
loss, incapacity, or unavailability of any of these individuals could adversely
affect the Company's operations. In addition, it may be necessary for the
Company to attract and retain additional individuals to support the growth of
its business or to replace key personnel in the event of the termination of
their employment with the Company. See "Management -- Employment Agreements."

FUTURE CAPITAL NEEDS

Implementing the Company's growth strategy will require substantial
additional capital for the development of its health plans and for the marketing
and expansion of its Quality Management Program. To date, the Company has
financed its growth primarily through operating income, a bank term loan, and
the proceeds of private offerings of shares of Common Stock, the most recent
offering being completed in June 1996. The Company believes that its existing
cash resources, together with the net proceeds from this offering, cash flow
from operations, and available lines of credit will be sufficient to meet the
Company's working capital and expansion needs for the next 24 months.

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

VOTING CONTROL

Upon completion of this offering, David N. Birman, M.D., the Chairman of
the Board, President, and Chief Executive Officer of the Company, will have sole
beneficial ownership, together with his wife, Sue D. Birman, Executive Vice
President and a director of the Company, of approximately 61.83% of the
outstanding shares of the Common Stock of the Company. Consequently, absent a
further issuance of shares of Common Stock, Dr. Birman will continue to be able
to control the election of the Board of Directors of the Company and thereby
determine the Company's policies and the outcome of corporate actions requiring
stockholder approval.

ABSENCE OF DIVIDENDS

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

10
12

IMMEDIATE AND SUBSTANTIAL DILUTION

The purchasers of Units offered hereby will experience immediate and
substantial dilution of the pro forma net tangible book value of the shares of
Common Stock included in the Units in the amount of $5.06 per share, assuming an
initial public offering price of $6.25 per Unit. In the event that the Warrants
included in the Units, the Representative's Warrants, or other warrants or
options to purchase Common Stock are exercised, or in the event that the Company
issues additional shares of Common Stock in the future, including shares that
may be issued in connection with future acquisitions, purchasers of Units in
this offering may experience further dilution in the pro forma net tangible book
value per share of Common Stock. See "Dilution."

NO PRIOR MARKET FOR COMMON STOCK OR WARRANTS; POSSIBLE VOLATILITY OF MARKET
PRICE

Prior to this offering, there has been no public market for the Units or
the underlying Common Stock or Warrants, and there can be no assurance that an
active public market for such securities will develop or continue after this
offering. The initial public offering price of the Units was determined by
negotiations between the Company and the Representative and may not be
indicative of the market price for the Common Stock or Warrants after this
offering. See "Underwriting" for factors considered in determining the initial
public offering price. From time-to-time after this offering, there may be
significant volatility in the market price for the Common Stock and Warrants.
Quarterly operating results of the Company, the timing of the launch of health
plans, changes in general conditions in the economy or the health care industry,
legislative and regulatory actions, or other developments affecting the Company
or its competitors could cause the market price of the Common Stock and Warrants
to fluctuate substantially. On occasion, the equity markets have experienced
significant price and volume fluctuations that have affected the market prices
for many companies' securities, at times for reasons unrelated to the operating
performance of those companies. Concern about the potential effects of health
care reform measures has contributed to the volatility of stock prices of
companies in health care and related industries and may similarly affect the
price of the Common Stock and Warrants following this offering. Any such
fluctuations that occur following this offering may adversely affect the market
price of the Common Stock and Warrants.

Commencing 90 days after the date of this Prospectus, the Warrants will be
subject to redemption by the Company, in whole but not in part, at $0.01 per
Warrant on 30 days' notice mailed within 15 days after the closing bid price of
the Common Stock as reported on Nasdaq has equalled or exceeded $ per share
(110% of the exercise price of the Warrants) for any 20 consecutive trading
days. See "Description of Securities."

SHARES ELIGIBLE FOR FUTURE SALE

The sale of a substantial number of shares of Common Stock after this
offering, or the perception that such a sale could occur, could adversely affect
prevailing market prices for the Common Stock and Warrants. In addition, any
such sales or perception of such sales could make it more difficult for the
Company to sell equity securities or equity-related securities in the future at
a time and price that the Company deems appropriate. After giving effect to the
sale of Units offered hereby, the Company will have 8,481,082 shares of Common
Stock outstanding. Of these shares, 1,550,000 shares of Common Stock are
included in the Units. The remaining 6,931,082 shares are "restricted
securities" within the meaning of Rule 144 ("Rule 144") adopted under the
Securities Act of 1933, as amended (the "Securities Act"). The restricted shares
may be sold in the future in compliance with Rule 144. Rule 144 generally
provides that beneficial owners of Common Stock who have held such common stock
for two years may sell, within any three-month period, a number of shares not
exceeding the greater of 1% of the total outstanding shares or the average
weekly trading volume of the shares during the four calendar weeks preceding
such sale. The Company has agreed not to sell any shares of its Common Stock,
and its directors, officers, and certain stockholders, holding in the aggregate
substantially all of the Company's currently outstanding shares of Common Stock,
have agreed not to offer, sell, or otherwise dispose of any of their shares, in
each case for a period of 24 months after the date of this Prospectus except as
otherwise permitted by the Representative.

11
13

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

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

The Company has agreed to issue to the Representative the Representative's
Warrants to purchase 155,000 Units, which include the option to acquire
additional shares of Common Stock upon exercise of the Warrants included
therein. The holders of the Representative's Warrants will have the right to
require the Company to register under the Securities Act both the
Representative's Warrants and the underlying securities. The Representative's
Warrants will be exercisable at a price equal to 120% of the initial public
offering price of the Units, or $ , during the four-year period commencing
one year after the date of this Prospectus. The Company has also reserved
1,558,780 shares of Common Stock for issuance under the Company's stock option
plans (the "Stock Option Plans") and 57,805 shares of Common Stock for issuance
under warrants previously issued by the Company. The exercise price of the
previously granted options is $1.37 per share ($6.25 per share for options
granted to non-employee directors) and the weighted average exercise price of
the previously issued warrants is $1.39 per share. With the exception of one
option that is vested as to 20,058 shares, the previously granted options may be
exercised beginning February 1, 1997. The previously issued warrants are
exercisable at any time on or after January 1, 1997 and before December 31,
2001.

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

CERTAIN ANTI-TAKEOVER PROVISIONS

Certain provisions of the Company's Certificate of Incorporation and of the
Delaware General Corporation Law (the "Delaware GCL") could, together or
separately, discourage potential acquisition proposals, delay or prevent a
change in control of the Company, and limit the price that certain investors
might be willing to pay in the future for shares of the Common Stock. Certain of
these provisions (i) permit the issuance, without further stockholder approval,
of preferred stock with rights and privileges that could be senior to the Common
Stock, and (ii) require a super-majority vote requirement in connection with the
adoption of certain corporate transactions not unanimously recommended to the
stockholders by the Board of Directors. Following this offering, the Company
will also be subject to Section 203 of the Delaware GCL which, subject to
certain exceptions, prohibits a Delaware corporation from engaging in any of a
broad range of business combinations with any "interested stockholder" for a
period of three years following the date that such stockholder became an
interested stockholder. See "Description of Securities."

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

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

12
14

THE COMPANY

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

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

On September 6, 1996, the Company entered into a definitive agreement to
acquire substantially all of the issued and outstanding shares of capital stock
of Canton, an inactive holder of a certificate of authority to operate a HMO in
Mississippi. Upon closing of the acquisition, Canton will be renamed Care3, Inc.
and will become a partially owned subsidiary of the Company. Other persons,
particularly the founders of Canton and selected physicians, will be minority
shareholders of Care3, Inc.. The Company anticipates that it will own not less
than 60% of Care3, Inc.

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

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

13
15

USE OF PROCEEDS

The net proceeds to the Company from the sale of the 1,550,000 Units
offered hereby, at an assumed initial public offering price of $6.25 per Unit,
are estimated to be approximately $8,128,125 (approximately $9,372,344 if the
Underwriters' over-allotment option is exercised in full), after deducting
estimated offering expenses of approximately $590,625 ($634,219 if the
Underwriters' over-allotment option is exercised in full) and underwriting
discounts and commissions. The Company currently intends to use the net proceeds
of this offering for the following purposes:

ESTIMATED
PURPOSE AMOUNT
------------------------------------------------------------------------- ----------

HMO restricted cash reserves(1).......................................... $3,000,000
Development and implementation of health plans(2)........................ $2,500,000
Acquisition of Canton(3)................................................. $1,000,000
Expansion of Quality Management Program business(4)...................... $ 500,000
Working capital for general corporate purposes........................... $1,128,125

- ---------------
(1) This amount represents the estimated sums required to be deposited in
restricted accounts to evidence the Company's solvency under the HMO
licensing regulations of the states of Tennessee and Kentucky and other
states.

(2) This amount includes the estimated cost of developing and implementing a
health plan in Tennessee and the possible development and implementation of
similar plans in Kentucky and approximately two other states.

(3) This amount includes the estimated cost of completing the acquisition of
Canton, the holder of a certificate of authority to operate a HMO in
Mississippi, including the cash portion of the purchase price to be paid to
the shareholders of Canton and the start-up operation of the health plan in
Mississippi.

(4) This amount includes the estimated costs of developing computer software and
databases to enhance the Quality Management Program; the recruitment,
employment, and training of professional staff members, including
physicians; and Quality Management Program marketing and promotional costs
and expenses to be incurred through July 31, 1997.

Until applied as set forth above, the net proceeds will be invested in
short-term, investment-grade instruments or bank certificates of deposit.
Investment of the net proceeds in short-term securities rather than operations
could adversely affect the Company's overall return on its capital.

The foregoing represents the Company's current intentions with respect to
the allocation of the net proceeds of this offering based upon its present plans
and business conditions. There can be no assurance that unforeseen events or
changes in business conditions or federal or state or government regulations
will not result in the application of the proceeds of this offering in a manner
other than as described in this Prospectus. See "Risk Factors."

Any funds received by the Company upon exercise of the Warrants, the
Underwriters' over-allotment option, and the Representative's Warrant will be
added to working capital.

DIVIDEND POLICY

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

14
16
DILUTION

The difference between the public offering price per share of Common Stock
(assuming no value is attributed to the Warrants) and the as adjusted pro forma
net tangible book value per share of Common Stock after this offering and giving
effect to the acquisition of Canton constitutes the dilution to investors in
this offering. Pro forma net tangible book value per share is determined by
dividing the pro forma net tangible book value (total pro forma assets less
intangible assets and total liabilities) by the number of outstanding shares of
Common Stock.

At June 30, 1996, the pro forma net tangible book value of the Company was
$1,931,019, or $0.28 per share of Common Stock. At June 30, 1996, after giving
effect to the sale of the Units offered hereby at an assumed initial offering
price of $6.25 (less underwriting discounts and commissions and estimated
expenses of this offering), and assuming no exercise of the Underwriters'
over-allotment option, the as adjusted pro forma net tangible book value at that
date would be $10,059,144, or $1.19 per share. This represents an immediate
increase in the adjusted pro forma net tangible book value of $.91 per share to
existing stockholders and an immediate dilution of $5.06 per share to new
investors, or 80% of the assumed offering price of $6.25 per share.

The following table illustrates the per share dilution to new investors
without giving effect to the results of operations of the Company subsequent to
June 30, 1996:

Assumed public offering price............................... $6.25
Pro forma net tangible book value at June 30, 1996........ $.28
Increase attributable to new investors.................... $.91
Net tangible book value after offering...................... $1.19
-----
Dilution to new investors................................... $5.06
=====

In the event the Underwriters exercise the over-allotment option in full,
the as adjusted pro forma net tangible book value per share would be $1.30,
which would result in dilution to the public investors of $4.95.

The following table summarizes the number and percentage of shares of
Common Stock purchased from the Company (assuming no value is attributed to the
Warrants and not including any shares of Common Stock issuable upon exercise of
the Warrants), the amount and percentage of consideration paid, and the average
price per share paid by existing stockholders and by new investors in this
offering.

SHARES PURCHASED TOTAL CONSIDERATION
--------------------- ----------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- ------- ----------- ------- -------------

Existing stockholders............ 6,931,082 81.72% $ 2,010,000 17.18% $ .29
Public investors................. 1,550,000 18.28% $ 9,687,500 82.82% $6.25
--------- ------ ----------- ------
Total.................. 8,481,082 100.00% $11,697,500 100.00%
========= ====== =========== ======

The above table assumes no exercise of (i) the Underwriters' over-allotment
option, (ii) the Representative's Warrants, (iii) other outstanding warrants to
purchase 57,805 shares of Common Stock at a weighted average exercise price of
$1.39 per share, (iv) options to purchase 1,006,566 shares of Common Stock
granted to key employees at an exercise price of $1.37 per share, and (v)
options to purchase 12,000 shares of Common Stock granted to non-employee
directors at an exercise price of $6.25 per share. See "Risk
Factors -- Immediate and Substantial Dilution," "Management -- Compensation of
Directors," "Management -- Fiscal 1996 Option Grants," "Principal Stockholders,"
"Underwriting," and "Description of Securities."

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17

CAPITALIZATION

The following table sets forth (i) the capitalization of the Company as of
June 30, 1996, (ii) the pro forma capitalization as of June 30, 1996, giving
effect to the acquisition of Canton, as if such acquisition had occurred on such
date, and (iii) the pro forma capitalization as of June 30, 1996, as adjusted to
give effect to the sale of the Units offered hereby (at an assumed public
offering price of $6.25 per Unit, without giving effect to the Underwriters'
over-allotment option) and the application of the net proceeds therefrom as
described under "Use of Proceeds," as if all such events had occurred on June
30, 1996.

JUNE 30, 1996
----------------------------------------------
PRO FORMA
ACTUAL PRO FORMA(1) AS ADJUSTED
---------- ------------ --------------

Long-term debt(1)(2)................................ $ 7,037 $ 607,037 $ 607,037
Stockholders' equity:
Preferred Stock, $.001 par value, 5,000,000 shares
authorized; no shares issued and outstanding... 0 0 0
Common Stock, $.001 par value, 25,000,000 shares
authorized; 6,931,082 shares issued and
outstanding actual and 8,481,082 shares issued
and outstanding pro forma as adjusted(3)....... 6,931 6,931 8,481
---------- ---------- ----------
Additional paid-in capital.......................... 1,780,612 1,780,612 9,907,187
---------- ---------- ----------
Retained earnings................................... 1,401,436 1,401,436 1,401,436
---------- ---------- ----------
Total stockholders' equity................ $3,188,979 $3,188,979 $ 11,317,104
========== ========== ==========
Total capitalization...................... $3,196,016 $3,796,016 $ 11,924,141
========== ========== ==========

- ---------------
(1) The purchase price for Canton is $1,500,000, payable $700,000 in cash at the
closing and $800,000 payable in four equal annual installments of $200,000
of principal plus interest at 2% per annum on the unpaid principal balance
commencing on the first anniversary of the closing.

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

(3) Excludes (a) 1,006,566 shares of Common Stock subject to options pursuant to
the Company's 1995 Option Plan at an exercise price of $1.37 per share; (b)
12,000 shares of Common Stock subject to options pursuant to the Company's
1996 Directors' Plan at an exercise price of $6.25 per share, (c) 57,805
shares of Common Stock issuable upon exercise of outstanding Common Stock
purchase warrants at a weighted average exercise price of $1.39 per share,
(d) 1,550,000 shares of Common Stock issuable upon exercise of the Warrants
included in the Units, and (v) 310,000 shares of Common Stock subject to
the Representative's Warrants (including shares issuable upon exercise of
the Warrants underlying the Representative's Warrants.) See
"Management -- Stock Option Plans" and "Description of Securities."

16
18

SELECTED HISTORICAL AND PRO FORMA CONSOLIDATED FINANCIAL DATA

The following summary historical financial data have been derived from the
audited consolidated financial statements of the Company. The historical
consolidated statement of operations data set forth below with respect to the
fiscal years ended June 30, 1995 and June 30, 1996 and the consolidated balance
sheet data at June 30, 1996 are derived from, and are qualified by reference to,
the audited Consolidated Financial Statements included elsewhere in this
Prospectus and should be read in conjunction with those financial statements and
notes thereto.

HISTORICAL
------------------------- PRO FORMA(1)
--------------
FISCAL YEAR ENDED JUNE 12 MONTHS
30, ENDED
------------------------- JUNE 30,
1995 1996 1996
---------- ---------- --------------
(IN THOUSANDS EXCEPT PER SHARE DATA)

CONSOLIDATED STATEMENT OF OPERATIONS:
Revenue.......................................... $ 4,818 $ 8,417 $ 8,417
Costs and expenses:
Cost of revenue............................... 2,381 2,279 2,279
Selling, general and administrative........... 3,114 4,237 4,309
---------- ---------- ----------
Income (loss) from operations................. (677) 1,901 1,829
---------- ---------- ----------
Income (loss) from continuing operations......... (483) 1,172 1,130
---------- ---------- ----------
Net income (loss)................................ $ (699) $ 1,172 $ 1,130
========== ========== ==========
Net income (loss) per share(2)................... $ (.09) $ .15 $ .12
========== ========== ==========
Weighted average common shares outstanding......... 7,725,434 7,725,434 9,275,434
========== ========== ==========

JUNE 30, 1996
-----------------------------
PRO FORMA,
ACTUAL AS ADJUSTED(3)
---------- --------------

- ---------------
(1) Gives effect on a pro forma basis to the pending acquisition of the capital
stock of Canton, as to which the Company has entered into a definitive
acquisition agreement. The pro forma combined statement of operations data
for fiscal 1996 does not purport to represent what the Company's results of
operations would have been if such acquisition had been consummated on July
1, 1995. Although the Company anticipates that the acquisition will close
prior to the completion of this offering, there can be no assurance that
such transaction will close by such time, or at all. Proforma condensed
consolidated financial statements (unaudited) of the Company are included in
the "Financial Statements" section of this Prospectus.

(2) Net income per share is calculated on the basis of the weighted average
shares outstanding of Common Stock for each year presented. See Note 1 of
Notes to Consolidated Financial Statements.

17
19

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

BUSINESS AND ORGANIZATION

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

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

The Company intends to leverage the expertise and professional
relationships it has gained from providing its Quality Management Program and to
capitalize on the evolution from traditional fee-for-service to capitated
systems in rural communities. The Company currently is developing and will
operate a variety of community-based, physician-driven, comprehensive health
plans. To accelerate entry into the health plan business in Mississippi, the
Company has entered into a definitive agreement to acquire Canton Management
Group, Inc., an inactive holder of a certificate of authority to operate an HMO
in Mississippi, and has arranged for MedSouth Inc. to provide health care
services through its provider network consisting of approximately 350
physicians, four hospitals, and several ancillary health service providers in
the Gulfport, Mississippi area. The Company currently anticipates that the
Mississippi HMO will commence operations in the fourth quarter of calendar 1996.
In addition, the Company plans to apply to the State of Tennessee for an HMO
license to utilize a physician network the Company is developing in that state.

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

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

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RESULTS OF OPERATIONS

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

FISCAL YEAR
JUNE 30
---------------
1995 1996
----- -----

Revenue.............................................................. 100.0% 100.0%
Cost of revenue...................................................... 49.4% 27.1%
Gross margin......................................................... 50.6% 72.9%
Selling, general and administrative expenses......................... 64.7% 50.3%
Income (loss) from operations........................................ (14.1)% 22.6%
Other income (expense):
Interest expense................................................... (1.2)% (.5)%
Interest income.................................................... .6% .5%
Loss on sale of assets............................................. -- (.1)%
Income (loss) before provision for income taxes...................... (14.7)% 22.5%
Provision for income tax (expense) benefit........................... 4.7% (8.6)%
Income (loss) from continuing operations............................. (10.0)% 13.9%
Loss from discontinued operations.................................... (4.5)% --
Net income (loss).................................................... (14.5)% 13.9%

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

Revenue. For the fiscal year ended June 30, 1996, revenue from the Quality
Management Program increased by $3.6 million to $8.4 million, or 75%, over the
revenue for fiscal 1995. This increase was attributable to the initiation of
engagements by new hospital-clients and an overall improvement in the Company's
results from the Quality Management Program as measured by increases in the
hospital-clients' Medicare related revenue. Period to period changes in the
volume of the Quality Management Program business of the Company is measured in
aggregate annual Medicare discharges of the Company's hospital-clients.
Aggregate Medicare discharges is a factor of the size and number of
hospital-clients. The aggregate Medicare discharges of the hospital-clients
increased from 31,000 in fiscal 1995 to 50,000 in fiscal 1996.

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

Selling, General and Administrative Expenses. For fiscal 1996, selling,
general and administrative expenses increased to $4.2 million from $3.1 million
in fiscal 1995 as a result of a full year of costs of executive and
administrative personnel hired during fiscal 1994 to position the Company to
develop its health plan business, the expenditure of funds to develop the health
plan business, and the exploration of acquisition opportunities. In addition,
the Company increased its Quality Management Program marketing efforts. As a
percentage of revenue, selling, general and administrative expense decreased
from 64.7% to 50.3% in fiscal 1996, a 14% improvement, as a result of an
enhanced marketing plan that increased revenues significantly.

Interest Income and Expense. Interest income increased almost $20,000, or
64%, in fiscal 1996 over fiscal 1995 as a result of the accrual of interest on
loans made by the Company to Dr. Birman in connection with the farm operations
distributed to him in fiscal 1995. See "Discontinued Operations" below. Interest

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expense decreased approximately $13,000, an improvement of 23% in fiscal 1996
over fiscal 1995, as a result of the Company repaying the $483,896 outstanding
principal balance of its term loan.

Discontinued Operations. The losses from discontinued operations for
fiscal 1995 related to a farm operated by the Company during the period that Dr.
Birman was the sole shareholder of Birman & Associates, Inc. All assets and
liabilities related to the farm operation were distributed by the Company to Dr.
Birman as of the close of fiscal 1995. During fiscal 1996, no expenses were
incurred by the Company in connection with this discontinued operation. However,
the Company lent Dr. Birman approximately $28,000 per month throughout fiscal
1996 to fund negative cash flow experienced by the farm. See "Certain
Transactions."

SEASONALITY

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

LIQUIDITY AND CAPITAL RESOURCES

The Company requires capital to market its Quality Management Program and
to develop and launch its health plan business including, among other costs, the
organization of the requisite management infrastructure necessary to implement
the Company's health plan business plan. During fiscal 1995, the Company
financed its operating and business development activities primarily through
operating revenue, a $500,000 principal amount term loan made available to the
Company by First American National Bank of Tennessee, the private placement of
shares of Common Stock, net collections on notes receivable from Dr. Birman, and
short-term borrowings from a director and unrelated third parties.

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

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

The Company has recently arranged a $1,000,000 maximum principal amount
working capital line of credit facility with American National Bank and Trust
Company of Chicago. The credit facility is secured by a pledge of the Company's
Quality Management Program and quality assurance/utilization review accounts
receivable.

The Company believes that the net proceeds of this offering, together with
its existing cash resources and available credit facilities, will be sufficient
to meet the Company's anticipated acquisitions, expansion, and working capital
needs for the next 24 months. The Company, however, may raise capital through
the issuance of long-term or short-term debt or the issuance of securities in
private or public transactions to fund future expansion of its business either
before or after the end of the 24-month period. There can be no assurance that
acceptable financing for future transactions can be obtained.

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IMPACT OF NEW ACCOUNTING STANDARDS

Recent Pronouncements

During March 1995, the Financial Accounting Standards Board issued
Statement No. 121 (SFAS 121), "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed of," which requires the Company
to review for impairment of long-lived assets, certain identifiable intangibles,
and goodwill related to those assets whenever events or changes in circumstances
indicate that the carrying amount of an asset might not be recoverable. In
certain situations, an impairment loss would be recognized. SFAS 121 will become
effective for the Company's fiscal year ending June 30, 1997. The Company has
studied the implications of SFAS 121 and, based on its initial evaluation, does
not expect it to have a material impact on the Company's financial condition or
results of operations.

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

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BUSINESS

OVERVIEW

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

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

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

INDUSTRY BACKGROUND

General

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

Although traditional health insurance plans permit enrollees to select any
physician or hospital, enrollees are often responsible for significant
deductibles and provider charges in excess of reimbursement allowances.
Developed primarily as an alternative to traditional indemnity insurance, HMOs
arrange for the delivery of health care to enrollees through participating
health care providers for a fixed monthly premium with little or no deductibles
or copayments regardless of the frequency, value, or type of health care
services utilized.

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HMOs generally are able to arrange for health care delivery at lower costs than
those associated with traditional indemnity insurance plans by managing the
utilization of health care services, by imposing case management procedures, by
negotiating with providers for discounts from standard health care provider
rates, and through risk-sharing arrangements with the providers.

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

Medicare and Medicaid

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

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

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

Medicaid is a federal/state program that provides medical assistance for
low income individuals who are aged, blind, disabled, or eligible for Aid to
Families with Dependent Children assistance. In general, each state administers
its own Medicaid program. The amount of federal payments contributed to each
state's Medicaid program is based upon the state's per-capita income level. To
qualify for federal Medicaid funds, a state Medicaid program must meet minimum
requirements regarding coverage and services. States also may elect to extend
coverage to larger populations or offer a broader range of services. Under
Medicaid, hospitals are generally paid based on their reasonable costs or
variations on prospective payment systems and physicians are paid using a
charge-based system, fee schedules, or relative value scales.

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Managed Care

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

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

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

Company Position

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

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GROWTH STRATEGY

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

- Focus on Rural Markets. The Company plans to focus its Quality
Management Program and health plan operations predominantly in rural areas
in order to take advantage of the lack of market penetration, less
competitive market conditions, and the local reputation and relationships
it has developed through its Quality Management Program. Large,
urban-based medical consulting and managed care providers historically
have not concentrated their efforts on rural areas. As a result, rural
areas are served by fewer health care organizations than larger
metropolitan areas and competitive factors are less intense. In addition,
the Company's experience in serving rural areas through its Quality
Management Program has resulted in the Company gaining a reputation and
relationships in these areas and enhancing its understanding of the
special characteristics of health care in these areas.

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

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

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

QUALITY MANAGEMENT PROGRAM

Concept

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

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

The medical record is the primary tool used by physicians to direct the
medical treatment of a patient, communicate instructions to other health care
service providers, evaluate the progress of the patient, support reimbursements
from third-party payors, including Medicare, and evidence compliance with
Treatment Standards and professional responsibilities. The Company believes that
complete, systemized, and legible medical records enable physicians to design
and record appropriate treatment plans, similar to a business plan, to address
symptoms and conditions that affect the patient from admission to discharge, and
to prioritize, in writing, goals and objectives for appropriate management.
Through the formulation of treatment plans and improved documentation, the
physician focuses on proper diagnosis and thereby becomes more effective in
measuring the patient's severity of illness and progress. The Quality Management
Program also typically results in a more accurate reporting of the hospital's
DRG elections, which results in increased Medicare reimbursement to the
hospital.

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

Operations

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

The Quality Management Program emphasizes a problem-solving approach.
Working with the hospital-client's medical records, the Company's physicians
conduct concurrent and retrospective reviews to train attending physicians to
present their findings of symptoms and conditions more thoroughly; to specify
clinical care; to prioritize treatment goals and objectives; to document
properly the process of patient management; and to work to use hospital-client
resources effectively. The Company's allied health specialists educate the
hospital-client's allied health staff regarding the reimbursement process,
encourage coding decisions recognizing legitimate resource expenditures, and
assure proper preparation and maintenance of supporting documentation. As a
result, this program supports the implementation of quality health care
services, while creating a medical record that supports the selection of coding
options that provide optimal and appropriate reimbursement.

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

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Fee Structures

A key feature of the Quality Management Program is the Company's fee
arrangements. The Company offers fee arrangements that are (i) results oriented,
(ii) fixed for the term of the contract, or (iii) a combination of fixed fee and
results oriented arrangements. Results oriented fees are measured by increases
in the hospital-client's revenue attributable to the Quality Management Program.
While the Company's revenue from each client varies depending on client size,
the Company receives an average monthly fee of approximately $30,000 per client.
The Company generally enters into two-year agreements with each hospital-client,
which are often renewed.

Client Benefits

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

HEALTH PLANS

Concept

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

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

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

Because of the Company's presence in the rural south-central, southeast,
and central United States health care market, the initial market area for the
Company's health plans will be in Mississippi and Tennessee. Currently, the
Company is establishing provider networks for its health plan business and
initiating the licensure process to operate health plans in these states. The
Company currently anticipates that its first health plan will be operational in
Mississippi in the fourth quarter of calendar 1996.

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Plan Management

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

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

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

After formation of the MSOs, the Company intends to represent the physician
networks in arranging access by other health plans operating in the local
communities and to market the physician networks and MSO administrative services
to large, self-funded employer groups. Under self-funded plans, employers self-
insure their health care expenses and pay for health care claims as such claims
are incurred. The Company will offer utilization review, case management,
provider network discounts, and claims processing for these self-insured plans.
To provide utilization review and case management services to the health plans,
in June 1996 the Company acquired Hughes & Associates, Inc. ("Hughes"), a
Jackson, Mississippi-based company. Hughes acts as the health care authorization
service for a number of indemnity insurance companies and health plans and is
certified to provide utilization review services in Tennessee, Mississippi, and
Louisiana.

Anticipated Sources of Revenue

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

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

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

The Company intends to represent its provider networks in negotiating with
self-insured employers and other health care systems for access to the provider
network. Access fees will vary depending upon the number

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of providers in the network. The Company also may provide administrative,
utilization review, case management services, provider network discounts, and
claims processing to self-insured employers for a fee.

Provider Fees

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

Recent Developments

Mississippi. The Company plans to launch its first health plan in
Mississippi during the fourth quarter of calendar 1996. To accelerate entry into
the health plan business in Mississippi, the Company has entered into a
definitive agreement to acquire Canton, an inactive holder of a certificate of
authority to operate an HMO in Mississippi, and has arranged for MedSouth to
provide health care services through its provider network consisting of
approximately 350 physicians, four hospitals, and several ancillary health
service providers in the Gulfport, Mississippi area. The Company has also
established a MSO to provide administrative and management services to MedSouth.
Upon closing of the acquisition of Canton, the Company will be in a position to
provide HMO health care services to enrollees in six counties in southern
Mississippi. The Company then intends to enlist other service providers,
primarily in the northern and the Delta regions of Mississippi, and to apply for
qualification to provide services to Medicaid beneficiaries in Mississippi. The
sellers of Canton and MedSouth will be minority owners of the Mississippi health
plan, and MedSouth will have an ownership interest in the MSO that will provide
administrative services to MedSouth. The Company anticipates that it will be in
a position to offer PPO and point-of-service options to enrollees in Mississippi
approximately six months after the introduction of the HMO.

Tennessee. The Company, together with 35 local primary care
physician-shareholders, has organized a provider network for a health plan to
serve 16 counties in the Cumberland Valley region of Tennessee. The physician
network has contracted with over 285 primary care physicians and 650 specialty
physicians to provide services on a capitated fee and discounted fee for service
basis. The Company is in the process of contracting with hospitals and other
providers to complete this network. The Company plans to apply to the state of
Tennessee for an HMO license utilizing this network in the fourth quarter of
calendar 1996. The Company also has organized a MSO to provide administrative
services to the network and the health plan.

Kentucky. The Company has identified Kentucky as a natural extension of
its health plan business because of its proximity to Tennessee, a favorable
regulatory environment, and the Company's experience in Kentucky with its
Quality Management Program. The Company recently has begun discussions with
representatives of four independent practice associations that are possible
candidates for the basis of a physician network in central Kentucky.

SALES AND MARKETING

The Company markets its Quality Management Program through a direct sales
force consisting of three full-time sales professionals. The sales force employs
a team marketing approach utilizing Company physicians. The Company participates
in hospital trade shows and utilizes a proprietary database to identify
prospective hospital-clients on the basis of CMI and demographic information.
The Company has found that its most successful engagements have evolved from
acceptance of its Quality Management Program by each

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of the hospital-prospect's administrative, attending physician, and medical
records staff groups. Once the Company has identified a prospective
hospital-client, it provides introductory information designed to demonstrate
the effectiveness and potential benefits of the program to the prospect's senior
administrative and financial officers. Thereafter, the Company follows a
coordinated effort to include the hospital's attending physicians and medical
records specialists in the engagement decision making process.

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

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

CUSTOMERS

Since 1991, the Company has provided its Quality Management Program in
approximately 80 hospitals located in 13 states. Currently, the Company is
providing its Quality Management Program at approximately 31 hospitals in 10
states. The Company's clients are located principally in rural markets where
health care facilities frequently lack the resources to develop internal quality
training programs. The Company seeks two-year agreements with each Quality
Management Program client. The Company's engagement is often continued beyond
the initial two-year term on a fixed fee basis. Out of approximately 80
engagements, only three have been terminated prior to the end of the two-year
term.

Services provided to hospitals operated by Quorum resulted in approximately
42% of the Company's revenue in fiscal 1996. Quorum operates 249 acute care
facilities in 41 states. Over the past five years, the Company has provided its
Quality Management Program at 33 Quorum-operated facilities. Currently, the
Company is providing Quality Management Program services at 12 Quorum-operated
facilities. Historically, the on-site management of each Quorum hospital has
made its own decision regarding the engagement of the Company and the Company
has entered into a separate contract with each engaging Quorum facility. The
Company has no long-term contractual or other relationships with Quorum.

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

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COMPETITION

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

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

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

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

GOVERNMENT REGULATION

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

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that could adversely affect the operations of the Company or that the health
care regulatory environment will not change so as to restrict the Company's
existing operations or their expansion.

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

Licensure

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

Corporate Practice of Medicine

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

State Fee-Splitting and Referral Prohibitions

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

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

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

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

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

State Regulation of Insurance Business and HMOs

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

Many states also require managed care organizations to contract with any
willing qualified provider that desires to contract with the organization. The
Company could incur liability in the event a managed care organization under the
Company's control fails so to contract.

Federal Medicare and Medicaid Related Regulation

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

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

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and the Company anticipates that the health plan business could, in the future,
receive significant revenue from Medicare and Medicaid, an exclusion from the
Medicaid and Medicare programs as a result of a violation of the False Claims
Act could have a material adverse effect on the Company.

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

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

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

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

Federal Self-Referral Prohibitions. Significant prohibitions against
physician self-referrals for services covered by Medicare and Medicaid programs,
commonly known as "Stark II," were enacted by Congress in the Omnibus Budget
Reconciliation Act of 1993. These prohibitions amended prior physician
self-referral legislation known as "Stark I," which applied only to clinical
laboratory referrals, by dramatically enlarging the list of services and
investment interests to which the referral prohibitions apply. Subject to
certain exemptions, Stark II prohibits a physician or a member of such
physician's immediate family from referring Medicare or Medicaid patients to any
entity providing "designated health services" in which the physician has an
ownership or investment interest or with which the physician has entered into a
compensation arrangement,

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including the physician's own group practice, unless such practice satisfies the
"group practice" exception. The designated health services include the provision
of clinical laboratory services, radiology, and other diagnostic services,
including ultrasound services; radiation therapy services; physical and
occupational therapy services; durable medical equipment; parenteral and enteral
nutrients, equipment, and supplies; prosthetics; orthotics; outpatient
prescription drugs; home health services; and inpatient and outpatient hospital
services.

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

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

POTENTIAL LIABILITY AND INSURANCE

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

New forms of managed care organizations have increasingly been subject to
liability for reasons such as failure to credential providers properly or
contributing to physician malpractice. In response, many managed care
organizations and other health care entities are not only obtaining general
liability insurance but also managed care and professional liability insurance
coverage. Medical directors also have also faced professional liability claims
and state licensure challenges. The Health Care Quality Improvement Act of 1986,
however,

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provides immunity from damages for professional review actions taken by
professional review bodies, including health plans, in good faith, provided that
certain procedural standards are met. The Company intends to comply with such
procedures in its professional review actions. However, no assurances can be
given that the insurance coverages obtained by the Company, tort reform, or
immunity provisions will be adequate to insure against all claims that may be
asserted against the Company or that insurance coverage will continue to be
available at acceptable costs.

INTELLECTUAL PROPERTY, PROPRIETARY RIGHTS, AND LICENSES

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

FACILITIES

The Company is headquartered in Cookeville, Tennessee, where it occupies
approximately 4,000 square feet of space on a month-to-month basis. In addition,
the Company rents offices on a month-to-month basis in Scottsdale, Arizona and
Gulfport, Mississippi. All office space occupied by the Company is leased from
unaffiliated third parties. The Company is seeking substitute office space on a
build-to-suit basis in Cookeville, Tennessee and on a long-term lease basis in
Phoenix, Arizona. Cookeville is approximately 80 miles east of Nashville,
Tennessee.

EMPLOYEES

At August 31, 1996, the Company employed 59 persons and has contractual
arrangements with 21 physicians and other health care professionals. A total of
26 employees are responsible for the administrative affairs of the Company; 20
employees are directly involved in the Quality Management Program business; and
nine employees are directly involved in developing the health plans. The Company
is not subject to any collective bargaining agreements, and it considers its
relations with employees to be good.

With respect to its Quality Management Program, the Company has a staff of
seven full-time employee-physicians and 15 part-time physician-consultants, all
of whom have at least six years of medical practice experience, specializing in
areas that include internal medicine, surgery, obstetrics, gynecology,
pediatrics, oncology, family practice, and emergency room medicine. The Company
also employs 12 full-time and six part-time allied health specialist employees.

LEGAL PROCEEDINGS

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

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MANAGEMENT

DIRECTORS AND EXECUTIVE OFFICERS

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

NAME AGE POSITION WITH THE COMPANY
- ------------------------------------------ --- --------------------------------------------

David N. Birman, M.D. .................... 44 Chairman of the Board, President, and Chief
Executive Officer
Sue D. Birman............................. 38 Executive Vice President and Director
Robert D. Arkin........................... 42 Executive Vice President, Chief Operating
Officer, Secretary, General Counsel, and
Director
Douglas A. Lessard........................ 35 Vice President, Treasurer, and Chief
Financial Officer
Vincent W. Wong........................... 38 President and Chief Executive Officer - BMC
Health Plans, Inc.
Mark C. Wade.............................. 40 Executive Vice President-Sales and
Marketing - BMC Health Plans, Inc.
D. Bradley Seitzinger, M.D. .............. 41 Executive Vice President -- Physician
Services - Birman & Associates, Inc.
William F. Barenkamp, II.................. 41 Vice President and Chief Operating Officer -
Birman & Associates, Inc.
James J. Rhodes........................... 39 Director
Diedrich Von Soosten...................... 56 Director

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

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

Robert D. Arkin has served as Chief Operating Officer of the Company since
June 1996, as a director since April 1996, and as Secretary and a General
Counsel since March 1996. Prior to joining the Company, Mr. Arkin was engaged
for 16 years in the private practice of law, concentrating in the areas of
securities, health, and intellectual property law, including from 1980 to 1984
as an associate and from 1985 to 1986 as a partner with the Minneapolis,
Minnesota law firm of Leonard, Street and Deinard. Mr. Arkin is licensed to
practice law in the states of Minnesota and Georgia.

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

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

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

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

William F. Barenkamp, II has been employed by Birman & Associates, Inc.
since November 1993, currently as Vice President and Chief Operating Officer.
From January 1991 to November 1993, Mr. Barenkamp attended Dallas Theological
Seminary, receiving an M.A. in Theology in 1993. During such period, Mr.
Barenkamp served as associate pastor at East Grand Baptist Church, Dallas,
Texas.

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

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

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BOARD COMMITTEES

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

COMPENSATION OF DIRECTORS

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

EXECUTIVE COMPENSATION

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

SUMMARY COMPENSATION TABLE

LONG TERM COMPENSATION
OTHER -----------------------------
ANNUAL ALL OTHER
SALARY BONUS COMPENSATION AWARDS/OPTIONS COMPENSATION
NAME AND PRINCIPAL POSITION YEAR ($) ($) ($) (#) ($)
- --------------------------------- ---- ------- ------ ------------ -------------- ------------

David N. Birman, M.D. ........... 1996 350,000 60,000 69,025 -- --
Chairman of the Board, 1995 275,000 -- 52,922 -- --
President, and Chief Executive 1994 262,500 -- 48,223 -- --
Officer(1)
D. Bradley Seitzinger, M.D. ..... 1996 203,301 15,000 14,272 145,879 --
Executive Vice President -- 1995 174,325 -- 13,731 -- --
Physician Services(2) 1994 158,290 -- 13,344 -- --
Sue D. Birman.................... 1996 150,000 40,000 11,834 -- --
Executive Vice President, Chief 1995 118,617 -- 11,968 -- --
Financial Officer, and 1994 63,643 -- 11,279 -- --
Director(3)
Richard M. Ross.................. 1996 202,500 -- 17,588 -- --
Vice Chairman(4) 1995 15,000 -- 47,674 -- --
1994 -- -- 27,095 -- --
Robert D. Arkin.................. 1996 41,250 -- 247,885 291,758 --
Chief Operating Officer and 1995 -- -- -- -- --
Secretary(5) 1994 -- -- -- -- --

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

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

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

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

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

(5) Other Annual Compensation for Robert D. Arkin for fiscal 1996 was $985 in
medical insurance premiums and $246,900 in legal fees paid to Mr. Arkin
prior to being employed by the Company.

EXECUTIVE BONUS PLAN

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

STOCK OPTION PLANS

1995 Stock Option Plan

The Company has adopted the 1995 Stock Option Plan (the "1995 Option Plan")
pursuant to which officers, including officers who are directors, key employees,
and consultants of the Company are eligible to receive qualified as well as
non-qualified stock options and stock appreciation rights ("SARs"). The Plan,
which expires in October 2005, is administered by the Compensation Committee of
the Board of Directors. Incentive stock options granted under the Plan are
exercisable for a period of up to 10 years from the date of grant at an exercise
price which is not less than the fair market value of the Common Stock on the
date of the grant, except that the term of an incentive stock option granted
under the Plan to a stockholder owning more than 10% of the outstanding Common
Stock may not exceed five years and the exercise price of an incentive stock
option granted to such a stockholder may not be less than 110% of the fair
market value of the Common Stock on the date of the grant. Non-qualified stock
options may be granted on terms determined by the Compensation Committee of the
Board of Directors. SARs, which give the holder the privilege of surrendering
such rights for an amount of cash equal to the appreciation in the Common Stock
between the time of grant and the surrender, may be granted on any terms
determined by the Compensation Committee of the Board of Directors. As of June
30, 1996, options for the exercise of 1,006,566 shares have been granted under
the 1995 Option Plan at the exercise price of $1.37 per share. A total of
1,458,780 shares of Common Stock are reserved for issuance under the 1995 Option
Plan.

1996 Directors' Option Plan

On September 9, 1996, the Company adopted the 1996 Non-Employee Directors'
Non-Qualified Stock Option Plan (the "1996 Directors' Plan"). A total of 100,000
shares of Common Stock are reserved for issuance under the 1996 Directors' Plan.
Under this plan, upon initial election to the Board of Directors, non-employee
directors are awarded options to purchase 6,000 shares of Common Stock. Upon
each subsequent

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election to the Board of Directors, non-employee directors receive option awards
to purchase 3,000 shares of Common Stock. These options, which have an exercise
price equal to the fair market value of the shares of Common Stock as of the
date of grant, vest at the rate of 33.33% per year. All options awarded under
the 1996 Directors' Plan expire on the first to occur of (i) 10 years after the
date of grant, or (ii) 90 days after the date the director is no longer serving
in such capacity for reasons other than death or disability. On September 9,
1996, each of Messrs. Rhodes and Von Soosten were granted options to purchase
6,000 shares of Common Stock under this plan at an exercise price of $6.25 per
share.

FISCAL 1996 OPTION GRANTS

The following table sets forth certain information concerning individual
grants of stock options during the fiscal year ended June 30, 1996:

NUMBER OF PERCENTAGE OF
SHARES TOTAL
UNDERLYING TYPE OF OPTIONS EXERCISE
OPTIONS OPTION GRANTED PRICE PER
NAME OF DIRECTOR OR OFFICER GRANTED GRANTED UNDER PLAN SHARE
----------------------------------------- --------- ------- ------------- ---------

D. Bradley Seitzinger, M.D............... 145,879 ISO 14.5% $1.37
William F. Barenkamp, II................. 72,940 ISO 7.2% $1.37
Paul Dickson, M.D........................ 18,235 ISO 1.8% $1.37
Douglas A. Lessard....................... 72,940 ISO 7.2% $1.37
Vincent W. Wong.......................... 218,819 ISO 21.7% $1.37
Mark C. Wade............................. 145,879 ISO 14.5% $1.37
Jamie R. Hughes, R.N..................... 40,117 ISO 4.0% $1.37
Robert D. Arkin.......................... 291,757 ISO 29.0% $1.37

EMPLOYMENT AGREEMENTS

The Company has employment agreements with each of the current executive
officers identified in the Summary Compensation Table. The employment agreements
provide for annual salaries that generally are subject to annual adjustments for
increases in the Consumer Price Index; participation in employee deferred
compensation plans, stock options and retirement and insurance plans; and
include customary noncompetition, nondisclosure, and severance provisions. Set
forth below is a summary of other principal provisions of those employment
agreements:

In March 1996, the Company entered into an employment agreement with David
N. Birman, M.D. for a term expiring June 30, 2001, pursuant to which Dr. Birman
serves as Chief Executive Officer of the Company. The employment agreement
provides for an initial base salary of $350,000 per annum, participation in the
Executive Bonus Plan, and other compensation not to exceed $65,000 per annum.

In March 1996, the Company entered into an employment agreement with Sue D.
Birman for a term expiring June 30, 2001, pursuant to which Ms. Birman serves as
Executive Vice President of the Company. The employment agreement provides for
an initial base salary of $150,000 per annum, participation in the Executive
Bonus Plan, and other compensation not to exceed $15,000 per annum.

In March 1996, the Company entered into an employment agreement with Robert
D. Arkin for a term expiring June 30, 2001, pursuant to which Mr. Arkin serves
as Chief Operating Officer, Secretary, and General Counsel of the Company. The
employment agreement provides for an initial base salary of $206,250 per annum,
participation in the Executive Bonus Plan, and other compensation not to exceed
$12,000 per annum.

In March 1996, the Company entered into an employment agreement with
Douglas A. Lessard for a term expiring June 30, 2001, pursuant to which Mr.
Lessard serves as Chief Financial Officer of the Company. The employment
agreement provides for an initial base salary of $120,000 per annum,
participation in the Executive Bonus Plan, and other compensation not to exceed
$12,000 per annum.

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In March 1996, the Company entered into an employment agreement with
Vincent W. Wong for a term expiring on January 31, 1999, pursuant to which Mr.
Wong serves as President and Chief Executive Officer of BMC Health Plans, Inc.
The employment agreement provides for an initial base salary to Mr. Wong of
$180,000 per annum. The employment agreement also provides Mr. Wong with the
opportunity to earn up to an additional $180,000 per annum based upon the number
of enrollees in health plans developed, managed, or operated by the Company and
health plan net earnings.

In September 1996, the Company entered into an employment agreement with
Mark C. Wade for a term expiring on September 1, 1998, pursuant to which Mr.
Wade serves as Executive Vice President -- Sales and Marketing of BMC Health
Plans, Inc. The employment agreement provides for a base salary of $165,000 per
annum with the opportunity for Mr. Wade to earn up to an additional $85,000 per
annum based upon the number of enrollees in health plans developed, managed, or
operated by the Company.

The Company has entered into an employment agreement with D. Bradley
Seitzinger, M.D. pursuant to which Dr. Seitzinger provides supervisory and other
services to the Company on a full-time basis. The employment agreement is
terminable by either party upon 14 days' prior written notice. The employment
agreement provides for the review of Dr. Seitzinger's salary from time to time
and authorizes the payment of additional compensation, by way of salary, bonus,
or otherwise, at the discretion of the Company. Dr. Seitzinger currently
receives a base salary of $208,000 per annum.

In November 1993, the Company entered into an employment agreement with
William F. Barenkamp, II pursuant to which Mr. Barenkamp provides supervisory
and other services to the Company on a full-time basis. The employment agreement
is terminable by either party without prior notice upon a material breach of the
terms thereof. The employment agreement provides for the review of Mr.
Barenkamp's salary from time to time and authorizes the payment of additional
compensation, by way of salary, bonus, or otherwise, at the discretion of the
Company. Pursuant to the employment agreement, Mr. Barenkamp currently receives
a base salary of $100,000 per annum.

INDEMNIFICATION OF DIRECTORS AND OFFICERS

The Company's Certificate of Incorporation limits, to the maximum extent
permitted by the Delaware GCL, the personal liability of directors for monetary
damages for breach of their fiduciary duties as directors other than for
liabilities arising from acts or omissions that involve intentional misconduct,
fraud or knowing violations of law or the payment of distributions in violation
of the Delaware Business Corporation Act. The Company's Bylaws require the
Company to indemnify directors and officers for all costs reasonably incurred in
connection with any action, suit, or proceeding in which such director or
officer is made a party by virtue of his being a director or officer of the
Company except where such director or officer is finally adjudged to have been
derelict in the performance of his duties as such director or officer.

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

Except for the legal action described under "Business -- Legal
Proceedings," there is no pending litigation or proceeding involving any
director, officer, employee, or agent of the Company where indemnification will
be required or permitted. The Company is not aware of any threatened litigation
or other proceeding, which may result in a claim for such indemnification.

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CERTAIN TRANSACTIONS

Prior to June 30, 1995, the Company operated, as a division, a livestock
breeding farm on property owned by David N. Birman, M.D. and Sue D. Birman, his
spouse. At that time, Dr. Birman was the sole stockholder, President, and a
director of the Company, and Mrs. Birman was an Executive Vice President, the
Chief Financial Officer, and a director of the Company. Prior to June 30, 1994,
the Company lent to Dr. and Mrs. Birman, approximately $482,000, which was used
primarily to improve their farm property and residence. During fiscal 1995, Dr.
and Mrs. Birman repaid $442,000 of such loan and also received additional
advances of approximately $270,000, resulting in an outstanding principal
balance of $310,000 at June 30, 1995. As of June 30, 1995, the Company
contributed all of its farm assets, subject to the related liabilities, to a new
corporation, Birman Farms, Inc., and distributed all of the outstanding shares
of capital stock of Birman Farms, Inc. to Dr. Birman. This dividend distribution
of property was valued by the Company at $230,000. Subsequent to the
distribution, the Company authorized additional advances to Dr. Birman through
September 1996 of approximately $465,000 to defray the operating and ownership
costs of the farm. Accordingly, as of September 9, 1996, Dr. Birman owed a total
of $775,000 to the Company. All amounts owed to the Company by Dr. Birman
accrued interest at a rate of 7% per annum through August 31, 1996 and will
accrue interest at the prime rate of American National Bank and Trust Company of
Chicago from and after September 1, 1996. Interest is payable annually, in
arrears. The outstanding principal balance of the loan plus all unpaid accrued
interest is due and payable in full on August 31, 1999. Dr. Birman has the
option to tender shares of Common Stock owned by him in repayment of the loan at
any time prior to January 31, 1997 at a per share price equal to the initial
offering price of the Units or after January 31, 1997 at a price per share equal
to 92% of the average closing bid price of the Common Stock as reported over the
previous 20 consecutive trading days. No additional loans will be made by the
Company to any member of management without the approval of the non-employee
members of the Board of Directors of the Company. Dr. Birman may sell shares of
Common Stock in private transactions to provide the funds necessary to retire
his indebtedness and to satisfy income tax obligations associated with the
satisfaction of indebtedness transactions.

Richard M. Ross served as Vice-Chairman and as a director of the Company
from February 1994 to August 1996. Effective September 1, 1996, Mr. Ross retired
as Vice-Chairman and a newly formed company controlled by Mr. Ross was engaged
as a consultant to the Company pursuant to a Consulting Agreement. The
Consulting Agreement provides for Mr. Ross to serve as the provider of
consulting services thereunder, provides for a fee to be paid to the consultant
firm of $186,000 per annum payable in equal monthly installments over the
12-month term of the agreement, and provides for termination of the Consulting
Agreement upon the occurrence of an uncured material breach, the death of Mr.
Ross, or 10 days after receipt of notice of termination from the consultant.
Except as otherwise provided or as otherwise agreed to by the parties, the
Consulting Agreement will be renewed annually by the Company for up to six
consecutive years. The Company also paid Mr. Ross a $26,000 severance fee and
has transferred to Mr. Ross personal computer equipment used by Mr. Ross in
rendering services to the Company. In addition, Dr. Birman has agreed to sell
Mr. Ross 175,000 shares of Company Common Stock in consideration for a $175,000
principal amount promissory note.

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PRINCIPAL STOCKHOLDERS

The following table sets forth information as of August 31, 1996 and as
adjusted to reflect the sale of Units offered hereby, based on information
obtained from the persons named below, with respect to the beneficial ownership
of shares of Common Stock by (i) each person (or group of affiliated persons)
who is known by the Company to own beneficially more than 5% of the Common
Stock; (ii) each of the Named Executive Officers; (iii) each of the directors;
and (iv) all directors and executive officers of the Company as a group.

COMMON SHARES COMMON SHARES
BENEFICIALLY OWNED BENEFICIALLY OWNED
PRIOR TO THE OFFERING AFTER THE OFFERING
------------------------ ---------------------
NAME AND ADDRESS OF BENEFICIAL OWNER NUMBER PERCENT NUMBER PERCENT
- ----------------------------------------------- ------------ ------- ---------- -------

David N. Birman, M.D.(1)(4).................... 5,256,408(2) 75.62% 5,256,408 61.83%
Sue D. Birman(1)............................... 5,256,408(2) 75.62% 5,256,408 61.83%
D. Bradley Seitzinger, M.D.(3)................. 36,470 * 36,470 *
Robert D. Arkin(3)............................. 0 0 0 0
Richard M. Ross(4)............................. 0 0 0 0
James J. Rhodes(3)............................. 0 0 0 0
Diedrich Von Soosten(3)........................ 0 0 0 0
Directors and officers as a group(7 persons)... 5,292,878 76.2% 5,292,878 62.3%

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

* Less than 1%

(1) The address of Dr. and Mrs. Birman is c/o the Company at 502 Gould Drive,
Cookesville, Tennessee 38506.

(2) David N. Birman, M.D. disclaims beneficial ownership as to 547,047 shares
beneficially owned by Sue D. Birman individually. Sue D. Birman disclaims
beneficial ownership as to 4,344,663 shares beneficially owned by David N.
Birman, M.D. individually.

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

(4) Does not give effect to an anticipated sale of 175,000 shares of Common
Stock by Dr. Birman to Mr. Ross.

DESCRIPTION OF SECURITIES

GENERAL

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

UNITS

Each Unit being offered hereby consists of one share of Common Stock, $.001
par value per share, and one redeemable Warrant to purchase one share of Common
Stock. The Common Stock and Warrants comprising each Unit will be separately
transferable upon issuance.

PREFERRED STOCK

There are no shares of Preferred Stock issued and outstanding. The Board of
Directors is authorized, subject to any limitations prescribed by law, without
further action of the stockholders of the Company, to

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issue from time to time such shares of Preferred Stock in one or more classes or
series, to establish the number of shares to be included in each such class or
series, to fix or alter the designations, preferences, limitations and relative,
participating, optional or other special rights and qualifications or
restrictions of the shares of each such class or series, including the dividend
rights, dividend rates, conversion rights, voting rights, terms of redemption
(including sinking fund provisions), redemption price or prices, liquidation
preferences, and the number of shares constituting any class or series or the
designations of such class or series. The issuance of Preferred Stock could
adversely affect, among other things, the rights of existing stockholders or
could delay or prevent a change in control of the Company without further action
by the stockholders. The issuance of Preferred Stock could decrease the amount
of earnings and assets available for distribution to holders of Common Stock. In
addition, any such issuance could have the effect of delaying, deferring, or
preventing a change in control of the Company and could make the removal of the
present management of the Company more difficult.

COMMON STOCK

As of September 9, 1996, there were 6,931,082 shares of Common Stock issued
and outstanding, held of record by 38 stockholders. Holders of Common Stock are
entitled to one vote for each share held of record on all matters submitted to a
vote of stockholders and are entitled to receive such dividends, if any, as may
be declared from time to time by the Board of Directors out of funds legally
available therefor, subject to the dividend preferences of the Preferred Stock,
if any. Upon the liquidation, dissolution, or winding up of the affairs of the
Company, whether voluntary or involuntary, the holders of Common Stock are
entitled to share ratably in all assets of the Company available for
distribution after payment of all liabilities and liquidation preferences of the
Preferred Stock, if any. Holders of Common Stock have no preemptive rights, no
cumulative voting rights, and no rights to convert their Common Stock into any
other securities.

WARRANTS

General. The following is a brief summary of certain provisions of the
Warrants included in the Units offered hereby. The summary does not purport to
be complete and is qualified in all respects by reference to the actual text of
the Warrant Agreement between the Company and American Stock Transfer and Trust
Company (the "Transfer and Warrant Agent"). A copy of the Warrant Agreement is
filed as an exhibit to the Registration Statement of which this Prospectus is a
part. See "Additional Information."

Exercise Price and Terms. Each Warrant entitles the holder thereof to
purchase one share of Common Stock at a price of $ (130% of the initial
public offering price of the Units), subject to adjustment in accordance with
the anti-dilution and other provisions referred to below, at any time until 36
months from the date of this Prospectus. The holder of any Warrant may exercise
such Warrant by surrendering the certificate representing the Warrant to the
Transfer and Warrant Agent, with the subscription form on the reverse side of
such certificate properly completed and executed, together with payment of the
exercise price. The Warrants may be exercised at any time in whole or in part at
the applicable exercise price until expiration of the Warrants. No fractional
shares will be issued upon exercise of the Warrants.

The exercise price of the Warrants bear no relation to any objective
criteria of value and should in no event be regarded as an indication of any
future market price of the Common Stock.

Adjustments. The exercise price and number of shares of Common Stock
purchasable upon the exercise of the Warrants are subject to adjustment upon the
occurrence of certain events, including stock dividends, stock splits,
combinations and reclassification of the Common Stock, or sale by the Company of
shares of its Common Stock or other securities convertible into Common Stock at
a price below the then applicable exercise price of the Warrants. Additionally,
an adjustment would be made in the case of a reclassification or exchange of the
Common Stock, consolidation or merger of the Company with or into another
corporation (other than a consolidation or merger in which the Company is the
surviving corporation) or sale of all or substantially all of the assets of the
Company in order to enable warrantholders to acquire the kind and number of
shares of stock or other securities or property receivable in such event by the
holder of the number of shares of Common Stock that might otherwise have been
purchased upon the exercise of the Warrant. No adjustment will be made until the
cumulative adjustments in the exercise price per share amount to $.05 or

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more. No adjustment to the number of shares and exercise price of the shares
subject to the Warrants will be made for dividends (other than stock dividends),
if any, paid on the Common Stock or for securities issued pursuant to the 1995
Option Plan, the 1996 Directors' Plan, or other employee benefit plans of the
Company, or upon exercise of the Warrants, the Representative's Warrants, or any
other option or warrant outstanding as of the date of this Prospectus.

Redemption Provisions. Commencing 90 days from the date of this
Prospectus, the Warrants will be subject to redemption at $.01 per Warrant on 30
days' prior notice mailed to the warrantholders within 15 days after the closing
bid price of the Common Stock as reported by Nasdaq equals or exceeds $
(110% of the exercise price) for a period of 20 consecutive trading days. In the
event that the Company exercises the right to redeem the Warrants, such Warrants
will be exercisable until the close of business on the date for redemption fixed
in such notice. If any Warrant called for redemption is not exercised by such
time, it will cease to be exercisable and its holder will be entitled only to
the redemption price. Since it is the Company's present intention to exercise
such right, warrantholders should presume that the Company would call the
Warrants for redemption if such criteria are met.

Transfer, Exchange, and Exercise. The Warrants are in registered form and
may be presented to the Transfer and Warrant Agent for transfer, exchange, or
exercise at any time on or prior to their expiration date three years from the
date of this Prospectus, at which time the Warrants become wholly void and of no
value. If a market for the Warrants develops, the holder may sell the Warrants
instead of exercising them. There can be no assurance, however, that a market
for the Warrants will develop or continue.

Warrantholder not a Stockholder. The Warrants, as such, do not confer upon
holders any voting, dividend, or other rights as stockholders of the Company.

Modification of Warrant. The Company and the Transfer and Warrant Agent
may make such modifications to the Warrants as they deem necessary and desirable
that do not adversely affect the interests of the warrantholders. No other
modifications may be made to the Warrants without the consent of the majority of
the warrantholders. Modification of the number of securities purchasable upon
the exercise of any Warrant, the exercise price and the expiration date with
respect to any Warrant requires the consent of the holder of such Warrant.

Certain Federal Income Tax Considerations. No gain or loss will be
recognized by a holder upon the exercise of a Warrant. The sale of a Warrant by
a holder or the redemption of a Warrant from a holder will result in the
recognition of gain or loss in an amount equal to the difference between the
amount realized by the holder and the Warrant's adjusted basis in the hands of
the holder. Provided that the holder is not a dealer in the Warrants and that
the Common Stock would have been a capital asset in the hands of the holder had
the Warrant been exercised, gain or loss from the sale or redemption of the
Warrant will be a long-term or short-term capital gain or loss to the holder
depending on whether the Warrant had been held for more than a year. Upon the
expiration of a Warrant, loss equal to the Warrant's adjusted basis in the hands
of the holder will be a long-term or short-term capital loss, depending on
whether the Warrant has been held for more than a year.

Previously Issued Warrants. The Company has previously issued warrants to
purchase shares of Common Stock to two persons who have helped the Company with
their consulting services. The warrants are exercisable at any time after
January 1, 1997 and on or before December 31, 2001 at a weighted average
exercise price of $1.39 per share.

See "Underwriting" for a description of the Representative's Warrants to be
issued pursuant to the terms of the Underwriting Agreement.

SECTION 203 OF THE DELAWARE LAW

Section 203 of the Delaware Law prohibits a publicly held Delaware
corporation from engaging in a "business combination" with an "interested
stockholder" for a period of three years after the date of the transaction in
which the person became an interested stockholder, unless (i) prior to the date
of the business combination, the transaction is approved by the board of
directors of the corporation; (ii) upon consummation

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of the transaction that resulted in the stockholder becoming an interested
stockholder, the interested stockholder owns at least 85% of the outstanding
voting stock, or (iii) on or after such date, the business combination is
approved by the board of directors and by the affirmative vote of at least
66 2/3% of the outstanding voting stock that is not owned by the interested
stockholder. A "business combination" includes mergers, asset sales, and other
transactions resulting in a financial benefit to the stockholder. An "interested
stockholder" is a person who, together with affiliates and associates, owns (or
within three years, did own) 15% or more of the corporation's voting stock.

The Company's Certificate of Incorporation and By-Laws contain a number of
provisions relating to corporate governance and to the rights of stockholders.
Certain of these provisions may be deemed to have a potential "antitakeover"
effect in that such provisions may delay, defer, or prevent a change of control
of the Company. These provisions include (a) the requirement that certain
business combinations with a control person be approved by the affirmative vote
of not less than 66 2/3% of the votes entitled to be cast generally by the
outstanding Common Stock or be unanimously approved by the Company's Board of
Directors, and (b) the authority of the Board of Directors to issue series of
Preferred Stock with such voting rights and other powers as the Board of
Directors may determine.

REGISTRATION RIGHTS

If the Company proposes to register any of its securities under the
Securities Act, either for its own account or for the account of other holders
of Company securities, NBR, as the holder of 291,756 shares of Common Stock, and
its permitted transferees are entitled to notice of such registration and are
entitled to include their shares of Common Stock therein, provided, among other
conditions, that the underwriters of such offering will have the right to limit
the number of such shares of Common Stock included in the registration. The
foregoing piggy back registration rights do not apply to the registration of
securities for issuance in merger or acquisition transactions or pursuant to
employee compensation programs. The piggy back registration rights expire at the
time as NBR may resell its shares of Common Stock pursuant to Rule 144(k) under
the Securities Act.

TRANSFER AND WARRANT AGENT

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

SHARES ELIGIBLE FOR FUTURE SALE

Upon completion of this offering, the Company will have outstanding
8,381,082 shares of Common Stock assuming no exercise of (i) the Underwriters'
over-allotment option; (ii) the Warrants included in the Units; (iii) the
Representative's Warrants; or (iv) other outstanding options and warrants. All
shares acquired in this offering, other than shares that may be acquired by
"affiliates" of the Company as defined by Rule 144 under the Securities Act,
will be freely transferable without restriction or further registration under
the Securities Act.

All 6,931,082 shares of Common Stock issued by the Company prior to this
offering are deemed "restricted securities," as that term is defined under Rule
144 promulgated under the Securities Act, in that such shares were issued and
sold by the Company in private transactions not involving a public offering. Of
the total outstanding 6,931,082 shares of Common Stock, approximately 292,000
shares are eligible for sale pursuant to Rule 144 commencing 90 days from the
date of this Prospectus. NBR, as the holder of 291,756 shares of Common Stock,
and its permitted transferees are entitled to certain rights with respect to the
registration of such shares under the Securities Act. See "Description of
Capital Stock -- Registration Rights."

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In general, under Rule 144 as currently in effect, subject to satisfaction
of certain other conditions, a person (or persons whose shares are required to
be aggregated), including any affiliate of the Company, who beneficially owns
"restricted shares" for a period of at least two years, is entitled to sell
within any three-month period, a number of shares that does not exceed the
greater of 1% (approximately 84,811 shares after this offering) of the
then-outstanding shares of Common Stock, or if the Common Stock is quoted on
Nasdaq, the average weekly trading volume of the Common Stock during the four
calendar weeks preceding the filing of the required notice of sale with the
Securities and Exchange Commission. The seller also must comply with the notice
and manner of sale requirements of Rule 144, and there must be current public
information available about the Company. In addition, any person (or persons
whose shares are aggregated) who has beneficially owned restricted shares for at
least three years and is not an affiliate of the Company can sell such shares
under Rule 144 without regard to any of the limitations described above.

The Company intends to file a registration statement under the Securities
Act to register 1,558,780 shares of Common Stock reserved for issuance upon the
exercise of options which have been or may be granted pursuant to the 1995
Option Plan and the 1996 Directors' Plan. Such registration statement is
expected to be filed not earlier than 180 days after the date of this Prospectus
and is anticipated to become effective upon its filing. See "Management -- Stock
Option Plans." After the effective date of such registration statement, shares
acquired upon the exercise of such options may generally be sold without
restriction in the public market, subject to Rule 144 notice requirements and
volume limitations for stockholders who are affiliates of the Company.

Each holder of Common Stock who is an officer, director, or key employee of
the Company has entered into a "lock-up" agreement providing that such persons
will not offer, sell, contract to sell, grant any option for the sale of, or
otherwise dispose of, directly or indirectly, any shares of the Company's Common
Stock for a period of 24 months after the date of this Prospectus without the
prior written consent of the Representative.

Prior to this offering, there has been no public market for the Common
Stock of the Company, and no predictions can be made of the effect, if any, that
future sales of restricted shares or the availability of restricted shares for
sale will have on the market price prevailing from time to time. Nevertheless,
sales of substantial amounts of the restricted shares of Common Stock in the
public market could adversely affect the then prevailing market prices for the
Common Stock and could impair the Company's ability to raise capital through the
sale of its equity securities.

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UNDERWRITING

Subject to the terms and conditions of the Underwriting Agreement, the
Underwriters named below, through the Representative, W.B. McKee Securities,
Inc., have severally agreed to purchase from the Company the numbers of Units
set forth opposite their names at the initial public offering price less the
underwriting discount and commissions set forth on the cover page of this
Prospectus:

NUMBER OF
UNDERWRITER UNITS
-------------------------------------------------------------------------- ---------

W.B. McKee Securities, Inc................................................

Total...........................................................
========

The Underwriting Agreement provides that the obligations of the
Underwriters are subject to certain conditions precedent and that the
Underwriters will purchase all Units offered hereby, if any of the Units hereby
are purchased. The Company has been advised by the Representative that the
Underwriters propose to offer the Units purchased directly to the public at the
offering price set forth on the cover page of this Prospectus and to certain
dealers at a price that represents a concession not in excess of $ per
Unit, or % per Unit. After the initial public offering of the Units, the
offering price and the selling terms may be changed by the Representative.

The Company has granted the Underwriters the option to purchase up to
232,500 Units solely for the purpose of covering any over-allotments, at the
public offering price less the underwriting discounts and commissions set forth
on the cover page of this Prospectus. The over-allotment option is exercisable
for a period of 45 days from the date of this Prospectus. To the extent that the
Underwriters exercise such option, the Underwriters will have a firm commitment
to purchase the number of Units specified in the Underwriters' notice of
exercise, and the Company will be obligated, pursuant to the option, to sell
such Units to the Underwriters. If purchased, the Underwriters will offer for
sale such additional Units on the same terms as those on which the 1,550,000
Units are being offered.

The Company has agreed to pay the Representative a non-accountable expense
allowance in the amount of 3% of the gross proceeds received from the sale of
the Units. Any expenses in excess of such expense allowance will be borne by the
Underwriters. To date, the Company has advanced the Representative $25,000 with
respect to such non-accountable expenses.

At the closing of this offering, the Company will issue to the
Representative, for $1,550, the Representative's Warrants to purchase 155,000
Units (10% of the number of Units sold pursuant to the initial public offering).
The Representative's Warrants will be exercisable for a four-year period
commencing one year from the date of this Prospectus at an exercise price equal
to $ per Unit. The Warrants underlying the Representative's Warrant
will not be redeemable by the Company. The Representative's Warrants will
contain anti-dilution provisions providing for appropriate adjustments in the
event of any recapitalization, reclassification, stock dividend, stock split or
similar transaction by the Company. The Representative's Warrants do not entitle
the Representative to any rights as a stockholder of the Company until such
warrant is exercised. The Representative's Warrants may not be transferred for
one year from the date of this Prospectus except to officers of the
Representative.

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For the period during which the Representative's Warrants are exercisable,
the holders will have the opportunity to profit from a rise in the market value
of the Common Stock, with a resulting dilution in the interests of the other
stockholders of the Company. Any profit realized by the Representative upon the
sale of the Representative's Warrants or the securities issuable thereunder may
be deemed to be additional underwriting compensation. The holders of the
Representative's Warrants can be expected to exercise them at a time when the
Company in all likelihood would be able to obtain any needed capital from an
offering of its unissued Common Stock on terms more favorable to the Company
than those provided for in the Representative's Warrants. Such facts may
adversely affect the terms on which the Company can obtain additional financing.

The Company must file all necessary undertakings required by the Securities
and Exchange Commission in connection with the registration of the shares of
Common Stock and Warrants issuable upon exercise of the Representative's
Warrants. Upon the Representative's demand, the Company will file one
registration statement so as to permit the Representative to sell publicly the
Common Stock and Warrants issued on the exercise of the Representative's
Warrants. In addition, subject to certain limitations, in the event the Company
proposes to register any of its securities under the Securities Act during the
four-year period commencing one year from the date of this Prospectus, the
holders of the Representative's Warrants and the underlying Common Stock and
Warrants will be entitled to notice of such registration and may elect to
include the Common Stock and Warrants underlying the Representative's Warrants
held by them in such registration. Expenses associated with any registration
initiated upon the request of the holders of the Representative's Warrants or
the holders of Common Stock and Warrants issued or issuable upon exercise of the
Underwriters' Warrants will be paid by the Company. The registration of
securities pursuant to the registration rights applicable to the
Representative's Warrants may impede future financing.

The Underwriting Agreement contains covenants of indemnity among the
Underwriters and the Company against certain liabilities in connection with the
Registration Statement, including liabilities under the Securities Act.

The Underwriters have advised the Company that the Underwriters do not
intend to confirm sales to any account over which it exercises discretionary
authority.

For a period of five years following the closing of this offering, the
Underwriter will have the right to nominate one member of the Board of
Directors.

The foregoing is a brief summary of certain provisions of the Underwriting
Agreement and does not purport to be a complete statement of its terms and
conditions. A copy of the Underwriting Agreement is on file with the Securities
and Exchange Commission as an exhibit to the Registration Statement of which
this Prospectus is a part. See "Available Information."

Prior to this offering, there has been no public market for any securities
of the Company. Consequently, the initial public offering price for the Units
was determined by negotiation between the Company and the Representative. Among
the factors considered in such negotiations was prevailing market conditions,
the results of operations of the Company in recent periods, the price-earnings
ratios of publicly traded companies that the Company and the Representative
believe to be comparable to the Company, the revenue and earnings of the
Company, estimates of the business potential of the Company, the present state
of the Company's development, and other factors deemed relevant. The offering
price does not necessarily bear any direct relation to asset value or net book
value of the Company.

The Representative has indicated its intention to make a market in the
Company's Common Stock and Warrants after the offering made hereby. In
connection with that activity, the Representative may but shall not be required
to effect transactions which stabilize or maintain the market price of the
Common Stock and Warrants at a level above that which might otherwise prevail in
the open market. Such stabilizing, if commenced, may be discontinued at any
time.

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LEGAL OPINIONS

The validity of the shares of Common Stock and Warrants will be passed upon
for the Company by Rudnick & Wolfe, 203 North LaSalle Street, Chicago, Illinois.
Certain legal matters will be passed upon for the Underwriters by O'Connor,
Cavanagh, Anderson, Killingsworth & Beshears, a professional association, One
East Camelback Road, Phoenix, Arizona.

EXPERTS

The financial statements of the Company and of Canton for the fiscal year
ended June 30, 1996 included in this Prospectus have been audited by BDO Seidman
LLP, independent certified public accountants. The financial statements of the
Company and Canton for the fiscal year ended June 30, 1995 included in this
Prospectus have been audited by Semple & Cooper, P.L.C., independent certified
public accountants, for the period indicated in their report thereof. Such
financial statements have been included herein in reliance upon the reports of
such firms given upon their authority as experts in accounting and auditing.

ADDITIONAL INFORMATION

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

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

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

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INDEX TO FINANCIAL STATEMENTS

PAGE
-----------

BIRMAN MANAGED CARE, INC. AND SUBSIDIARIES
Reports of Independent Certified Public Accountants............................ F-2 & F-3
Consolidated Balance Sheet as of June 30, 1996................................. F-4
Consolidated Statements of Operations for the years ended June 30, 1995 and
1996......................................................................... F-5
Consolidated Statements of Changes in Stockholders' Equity for the years ended
June 30, 1995 and 1996....................................................... F-6
Consolidated Statements of Cash Flows for the years ended June 30, 1995 and
1996......................................................................... F-7
Notes to Consolidated Financial Statements..................................... F-8
BIRMAN MANAGED CARE, INC. AND SUBSIDIARIES PROFORMA FINANCIAL STATEMENTS
Introduction to Proforma Condensed Consolidated Financial Statements
(Unaudited).................................................................. F-17
Proforma Condensed Consolidated Balance Sheet as of June 30, 1996
(Unaudited).................................................................. F-18
Proforma Condensed Statement of Operations for the year ended June 30, 1996
(Unaudited).................................................................. F-19
Notes to Proforma Condensed Consolidated Financial Statements (Unaudited)...... F-20
CANTON MANAGEMENT GROUP, INC., DBA PROGRESSIVE HEALTH MANAGEMENT, INC. (A
DEVELOPMENT STAGE COMPANY)
Reports of Independent Certified Public Accountants............................ F-22 & F-23
Balance Sheet as of June 30, 1996.............................................. F-24
Statements of Operations and Accumulated Deficit for the years ended June 30,
1995 and 1996 and for the period from the date of inception, October 3, 1993
to June 30, 1996............................................................. F-25
Statements of Cash Flows for the years ended June 30, 1995 and 1996 and for the
period from the date of inception, October 3, 1993 to June 30, 1996.......... F-26
Notes to Financial Statements.................................................. F-27

F-1
54

REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

Birman Managed Care, Inc. and Subsidiaries
Cookeville, Tennessee

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

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

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

BDO Seidman, LLP

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

F-2
55

INDEPENDENT AUDITORS' REPORT

To The Stockholders and Board of Directors of
Birman Managed Care, Inc. and Subsidiaries

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

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

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

SEMPLE & COOPER, P.L.C.

Certified Public Accountants

Phoenix, Arizona
July 19, 1996

F-3
56

BIRMAN MANAGED CARE, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEET
JUNE 30, 1996

ASSETS
Current assets:
Cash and cash equivalents (Notes 1 and 2).............................. $1,872,343
Accounts receivable, net of allowance for doubtful accounts of $44,159
(Notes 1, 2, and 16)................................................ 1,043,771
Prepaid expenses and other............................................. 9,903
Notes receivable -- related party (Note 3)............................. 653,496
Deferred tax asset (Notes 1 and 8)..................................... 95,549
----------
Total current assets........................................... 3,675,062
----------
Property and equipment, net of accumulated depreciation (Notes 1, 4, 5
and 6)................................................................. 293,684
Deferred offering costs (Note 1)......................................... 25,000
Goodwill (Note 1)........................................................ 16,145
----------
Total assets................................................... $4,009,891
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of note payable (Note 5)............................... $ 2,435
Current portion of capital lease obligations (Note 6).................. 1,540
Accounts payable....................................................... 117,025
Accrued expenses....................................................... 2,050
Income taxes payable (Notes 1 and 8)................................... 635,205
----------
Total current liabilities...................................... 758,255
Note payable, less current portion (Note 5).............................. 5,028
Capital lease obligations, less current portion (Note 6)................. 2,009
Deferred income taxes payable (Notes 1 and 8)............................ 55,620
----------
Total liabilities.............................................. 820,912
----------
Commitments and contingencies (Notes 3 and 7)............................ --
Stockholders' equity: (Note 11)
Preferred stock, $.001 par value, 5,000,000 shares authorized, none
issued or outstanding............................................... --
Common stock, $.001 par value, 25,000,000 shares authorized, 6,931,082
issued and outstanding.............................................. 6,931
Additional paid-in capital............................................. 1,780,612
Retained earnings...................................................... 1,401,436
----------
Total stockholders' equity..................................... 3,188,979
----------
Total liabilities and stockholders' equity..................... $4,009,891
==========

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

F-4
57

BIRMAN MANAGED CARE, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED JUNE 30, 1995 AND 1996

1995 1996
---------- ----------

Revenue............................................................. $4,817,572 $8,416,946
Cost of revenue..................................................... 2,381,023 2,278,932
---------- ----------
Gross margin........................................................ 2,436,549 6,138,014
Selling, general and administrative expenses........................ 3,113,660 4,236,607
---------- ----------
Income (loss) from operations....................................... (677,111) 1,901,407
---------- ----------
Other income (expense):
Interest expense.................................................. (57,857) (44,835)
Interest income................................................... 28,758 47,257
Loss on sale of assets............................................ (1,464) (5,065)
---------- ----------
(30,563) (2,643)
---------- ----------
Income (loss) before provision for income taxes..................... (707,674) 1,898,764
Provision for income tax (expense) benefit (Note 8)................. 224,331 (726,983)
---------- ----------
Income (loss) from continuing operations............................ (483,343) 1,171,781
Discontinued operations: (Note 10)
Loss from discontinued operations (net of income tax benefit of
$143,700 in 1995).............................................. (215,550) --
---------- ----------
Net income (loss)................................................... $ (698,893) $1,171,781
========== ==========
Primary and fully diluted income (loss) per common stock share:
(Note 1)
Income (loss) from continuing operations.......................... $ (.06) $ .15
Loss from discontinued operations................................. (.03) --
---------- ----------
Net income (loss) per share....................................... $ (.09) $ .15
---------- ----------
Weighted average common shares outstanding (Note 1)................. 7,725,434 7,725,434
========== ==========

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

F-5
58

BIRMAN MANAGED CARE, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED JUNE 30, 1995 AND 1996

COMMON STOCK ADDITIONAL TOTAL
PREFERRED ------------------ PAID-IN RETAINED STOCKHOLDERS'
STOCK SHARES AMOUNT CAPITAL EARNINGS EQUITY
--------- --------- ------ ---------- ---------- -------------

Balance at June 30, 1994......... $ -- 5,470,467 $5,471 $ 2,029 $1,158,548 $ 1,166,048
Dividend distribution (Note
10)............................ -- -- -- -- (230,000) (230,000)
Net loss......................... -- -- -- -- (698,893) (698,893)
------- --------- ------ ---------- ---------- -----------
Balance at June 30, 1995......... -- 5,470,467 5,471 2,029 229,655 237,155
Stock sales (Note 11)............ -- 1,332,970 1,333 1,603,710 -- 1,605,043
Issuance of stock for debt....... -- 127,645 127 174,873 -- 175,000
Net income....................... -- -- -- -- 1,171,781 1,171,781
------- --------- ------ ---------- ---------- -----------
Balance at June 30, 1996......... $ -- 6,931,082 $6,931 $1,780,612 $1,401,436 $ 3,188,979
======= ========= ====== ========== ========== ===========

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

F-6
59

BIRMAN MANAGED CARE, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JUNE 30, 1995 AND 1996

1995 1996
---------- ----------

Increase (Decrease) in Cash and Cash Equivalents
Cash flows from operating activities:
Net income (loss) from continuing operations........................ $ (483,343) $1,171,781
---------- ----------
Adjustments to reconcile net income (loss) to net cash provided by
(used in) operating activities:
Depreciation...................................................... 83,981 73,814
Loss on sale of assets............................................ 1,464 5,065
Interest income debited to note receivable........................ (28,427) (28,011)
Receivable converted to note receivable........................... (5,500) --
Loss from discontinued operations................................. (215,550) --
Interest expense credited to note payable......................... 1,900 --
Changes in operating assets and liabilities:
Accounts receivable............................................ 241,193 (547,706)
Prepaid expenses and other..................................... -- (9,903)
Deferred tax asset............................................. (308,970) 27,372
Deferred offering costs........................................ -- (25,000)
Goodwill....................................................... -- (16,145)
Accounts payable -- trade...................................... 8,439 (264,953)
Accrued expenses............................................... 8,771 (6,721)
Income taxes payable
-- current................................................... (35,260) 596,138
-- deferred.................................................. (98,128) 213,421
---------- ----------
(346,087) 17,371
---------- ----------
Net cash provided by (used in) operating activities................. (829,430) 1,189,152
---------- ----------
Cash flows from investing activities:
Purchase of property and equipment................................ (65,527) (107,035)
Collection of notes receivable -- related parties................. 441,784 --
Advances for notes receivable -- related party.................... (269,930) (343,579)
Proceeds from sale of assets...................................... 144,299 2,325
---------- ----------
Net cash provided by (used in) investing activities............ 250,626 (448,289)
---------- ----------
Cash flows from financing activities:
Proceeds (payments) from debt..................................... 542,930 (483,896)
Proceeds from sale of stock....................................... -- 1,605,043
---------- ----------
Net cash provided by financing activities...................... 542,930 1,121,147
---------- ----------
Net increase (decrease) in cash and cash equivalents................ (35,874) 1,862,010
Cash and cash equivalents at beginning of year...................... 46,207 10,333
---------- ----------
Cash and cash equivalents at end of year............................ $ 10,333 $1,872,343
========== ==========

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

F-7
60

BIRMAN MANAGED CARE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

BUSINESS SUMMARY:

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

The Company was organized in 1994 and reincorporated in Delaware in 1996 to
serve as the holding company of Birman & Associates, Inc., and BMC Health Plans,
Inc. The Company acquired a third subsidiary on June 14, 1996, through an asset
purchase of Hughes & Associates, Inc. The operations of Hughes & Associates,
Inc. are immaterial. This represents a change in the legal entity, but not in
the operations of the Company. As such, the accompanying consolidated financial
statements are presented on a continuing basis. In addition, effective June 30,
1995, the Company adopted a June 30 fiscal year end.

Birman Farms -- Discontinued Operation:

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

Principles of Consolidation:

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

Cash and Cash Equivalents:

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

Accounts Receivable:

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

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

Property and Equipment:

Property and equipment are stated at cost. Depreciation is provided for on
the straight-line method over the estimated useful lives of the assets.
Maintenance and repairs that neither materially add to the value of the

F-8
61
BIRMAN MANAGED CARE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

property nor appreciably prolong its life are charged to expense as incurred.
Betterments or renewals are capitalized when incurred. The estimated useful
lives for asset classifications, are as follows:

Computer equipment.................................... 5 years
Office equipment and motor vehicles................... 5 years
Furniture and fixtures................................ 5 years
Leasehold improvements................................ 10 years

Deferred Offering Costs:

Deferred offering costs represent costs incurred in connection with the
Company's proposed initial public offering of common stock. Deferred offering
costs will be netted against the net proceeds from the proposed public offering,
or expensed should the offering not be completed.

Goodwill:

Goodwill represents the excess of the cost of acquiring the assets of
Hughes & Associates, Inc. over the fair value of their net assets at the date of
acquisition, June 14, 1996, and is being amortized on the straight-line method
over five years. No amortization expense was recorded for the year ended June
30, 1996. The carrying value of goodwill will be periodically reviewed by the
Company and impairments, if any, will be recognized when expected future
operating cash flows derived from goodwill are less than their carrying value.

Income Taxes:

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

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

Accounting Estimates:

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

Earnings Per Share:

Earnings per share are based upon the weighted average number of shares
outstanding for each of the respective years. All weighted average shares
outstanding give retroactive effect to the 1,000 for 1 stock split in October
1995 and the 72.939 for 100 exchange of shares of Common Stock in connection
with the reincorporation of the Company in Delaware in September 1996 (Note 11).
The Company is planning an initial public offering of its Common Stock. Pursuant
to Securities and Exchange Commission rules, Common Stock options and warrants
issued for consideration below the anticipated offering price per share during
the

F-9
62
BIRMAN MANAGED CARE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

12-month period prior to filing of the registration statement has been included
in the calculation of common share equivalent shares, using the treasury stock
method, as if they had been outstanding for all periods presented. In addition,
shares of Common Stock that are subject to options and warrants having exercise
prices that are below the anticipated offering price per share, whether or not
exercisable, have been included in the earnings per share calculation, using the
treasury stock method.

New Accounting Pronouncements:

Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed of"
(SFAS No. 121) issued by the Financial Accounting Standards Board is effective
for financial statements for fiscal years beginning after December 15, 1995. The
new standard establishes new guidelines regarding when impairment losses on
long-lived assets, which include plant and equipment and certain identifiable
intangible assets, should be recognized and how impairment losses should be
measured. The Company does not expect adoption to have a material effect on its
financial position or results of operations.

Statements of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" (SFAS No. 123) issued by the Financial Accounting
Standards Board is effective for specific transactions entered into after
December 15, 1995, while the disclosures requirements of SFAS No. 123 are
effective for financial statements for fiscal years beginning no later than
December 15, 1995. The new standard establishes a fair value method of
accounting for stock-based compensation plans and for transactions in which an
entity acquires goods or services from nonemployees in exchange for equity
instruments. At the present time, the Company has not determined if it will
change its accounting policy for stock-based compensation or only provide the
required financial statement disclosures. As such, the impact on the Company's
financial position and results of operations is currently unknown. The Company
does not expect adoption to have a material effect on its financial position or
results of operations.

2. CONCENTRATION OF CREDIT RISK:

The Company maintains cash and cash equivalents at three financial
institutions. Deposits not to exceed $100,000 at each financial institution are
insured by the Federal Deposit Insurance Corporation. At June 30, 1996, the
Company has uninsured cash and cash equivalents in the approximate amount of
$1,790,463.

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

3. RELATED PARTY TRANSACTIONS:

Notes Receivable:

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

7% notes receivable from David N. Birman, M.D., due on demand..... $556,586
Interest receivable -- David N. Birman, M.D....................... 74,587
--------
$631,173
========

For the year ended June 30, 1996, the Company advanced approximately
$343,000 to David N. Birman, M.D. In addition, the Company has committed to
advance an additional $143,827 to Dr. Birman through September 30, 1998.

F-10
63
BIRMAN MANAGED CARE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

4. PROPERTY AND EQUIPMENT:

At June 30, 1996, property and equipment consist of the following:

Computer and office equipment........................... $303,000
Furniture and fixtures.................................. 125,286
Motor vehicles.......................................... 44,306
Leasehold improvements.................................. 2,544
--------
475,136
Less accumulated depreciation and amortization.......... 181,452
--------
$293,684
========

For the years ended June 30, 1995 and 1996, depreciation expense was
$83,981 and $73,814, respectively.

5. NOTES PAYABLE:

At June 30, 1995 and 1996, notes payable consist of the following:

JUNE
JUNE 30, 30,
1995 1996
--------- -------

Line of credit with First American Bank. The line of credit is
due in September 1996, with an interest rate of prime plus
.75%; collateralized by accounts receivable and was repaid in
June 1996.................................................... $ 396,000 $ --
Note payable to First American Bank. The note is due in July
1995, with an interest rate of 9.5%; collateralized by
accounts receivable.......................................... 80,000 --
Notes payable due to unrelated parties, non-interest bearing,
due on demand; unsecured. The notes were repaid through the
issuance of common stock in July 1995........................ 175,000 --
Note payable to Toyota Motor Credit Corp. The note is due and
payable in March 1999, with an interest rate of 12.5%;
collateralized by a vehicle.................................. -- 7,463
--------- -------
651,000 7,463
Less current portion of long-term notes payable................ (651,000) (2,435)
--------- -------
$ -- $ 5,028
========= =======

6. CAPITAL LEASE OBLIGATIONS:

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

YEAR ENDING JUNE 30, AMOUNT
- ------------------------------------------------------------------- -------

1997............................................................... $ 2,684
1998............................................................... 2,440
-------
Total minimum lease payments....................................... 5,124
Less amount representing interest.................................. (1,575)
-------
Present value of net minimum lease payments........................ 3,549
Less current portion............................................... (1,540)
-------
Long-term maturities of capital lease obligations.................. $ 2,009
=======

F-11
64
BIRMAN MANAGED CARE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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

7. COMMITMENTS AND CONTINGENCIES:

Operating Leases:

The Company is currently leasing vehicles under various non-cancellable
operating lease agreements, expiring in April 1998. The terms of the lease
agreements provide for monthly payments ranging from $138 to $940. At June 30,
1996, a schedule of future minimum lease payments due under the non-cancellable
operating lease agreements is as follows:

JUNE 30,
- -------------------------------------------------------------------

1997.............................................................. $34,604
1998.............................................................. 12,745
-------
$47,349
=======

Rent expense under the foregoing operating lease agreements for the years
ended June 30, 1995 and 1996 was $56,040 and $62,053, respectively. The Company
occupies office premises in Cookeville, Tennessee and Phoenix, Arizona on a
month-to-month basis. Rent under these facility leases for the years ended June
30, 1995 and 1996 was $49,117 and $63,258, respectively.

Employment Contracts:

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

Other Commitments:

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

8. INCOME TAXES AND DEFERRED INCOME TAXES:

The provision (benefit) for income taxes consists of the following for the
years ended June 30:

1995 1996
--------- --------

Federal (net of benefit of net operating loss
carryforward of $136,000)...................... $(174,531) $565,183
State............................................. (49,800) 161,800
--------- --------
$(224,331) $726,983
========= ========

The provision (benefit) for income taxes based on income from continuing
operations differs from the amount obtained by applying the statutory federal
income tax rate to income before taxes due to differences between expenses
allowed for income tax purposes and financial purposes.

F-12
65

BIRMAN MANAGED CARE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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

Deferred tax asset -- current:

Allowance for doubtful accounts.................................. $ 18,990
Adjustment due to change from the cash method of
reporting income for income taxes to the accrual method........ 76,559
--------
$ 95,549
========
Deferred tax liability -- long-term:
Excess of depreciation for income tax reporting purposes
over depreciation for financial reporting purposes........ $(55,620)
========

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

9. STATEMENTS OF CASH FLOWS:

During the years ended June 30, 1995 and 1996, the Company recognized
investing and financing activities that affected assets and liabilities but did
not result in cash receipts or payments.

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

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

The Company accrued and added $28,427 of interest to notes receivable.

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

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

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

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

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

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

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

10. DISCONTINUED OPERATIONS:

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

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

11. STOCKHOLDERS' EQUITY:

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

F-13
66

BIRMAN MANAGED CARE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

shareholders received 72.939 shares of Common Stock for each 100 shares of
Common Stock then outstanding. The accompanying consolidated financial
statements give retroactive effect to the aforementioned transactions.

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

12. STOCK OPTION PLAN:

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

NUMBER EXERCISE AGGREGATE
OF SHARES PRICE VALUE
---------- -------- ----------

Balance at June 30, 1995........................... -- $ -- $ --
Options granted.................................... 1,006,566 1.37 1,380,000
---------- ----------
Balance at June 30, 1996........................... 1,006,566 $1,380,000
======== =========

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

As of June 30, 1996, none of these options have been exercised and there
have been no options forfeited.

13. STOCK WARRANTS:

At June 30, 1996, the Company had outstanding warrants to purchase 21,335
and 36,470 shares of Common Stock at $1.43 and $1.37 per share, respectively.
The warrants become exercisable in January 1997 and expire at various dates
through December 2001.

14. EMPLOYEE BENEFIT PLAN:

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

15. SIGNIFICANT CUSTOMER:

The Company has provided Quality Management Program services to various
hospitals owned and managed by Quorum Health Care, Inc. ("Quorum") since 1991.
Hospitals owned and managed by Quorum represented approximately 53% and 42% of
the Company's Quality Management Program revenue in fiscal 1995 and 1996,
respectively.

16. SUBSEQUENT EVENTS:

Pending Acquisition

On July 16, 1996, the Company submitted a letter of intent to acquire most
of the issued and outstanding common stock of Canton Management Group, Inc., a
Mississippi corporation ("Canton").

F-14
67

BIRMAN MANAGED CARE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Under the terms of the agreement, the Company will acquire 1,000,000 shares
of newly issued preferred stock of Canton for $1.00 per share, payable $700,000
in cash and $300,000 by a promissory note. The promissory note bears interest at
a rate of 2% per annum and is payable in varying annual installments over two
years. In addition, the Company will acquire approximately 33% of the
outstanding common stock of Canton for a $500,000 promissory note which bears
interest at a rate of 2% per annum and is payable in varying annual installments
over four years.

Canton will purchase and retire approximately 65% of the outstanding common
stock held by persons other than the Company for $1,000,000, payable $700,000 in
cash and $300,000 by a promissory note. The promissory note bears interest at a
rate of 2% per annum and is payable in varying annual installments over two
years.

Line of Credit

In August 1996, the Company arranged a $1,000,000 maximum principal amount
working capital revolving line of credit facility ("facility") with American
National Bank and Trust Company of Chicago. The facility has an initial maturity
date of October 31, 1997. The facility provides for the accrual of interest at a
floating annual rate equal to the lender's prime rate on the unpaid principal
balance. The facility is secured by the accounts receivable of the Quality
Management Program and Hughes & Associates, Inc.

Reincorporation

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

Initial Public Offering

In September 1996, the Company anticipates filing a registration statement
for an initial public offering ("IPO") of 1,550,000 units ("Units"), each Unit
consisting of one share of Common Stock of the Company and one redeemable Common
Stock Purchase Warrant ("Warrant"). Each Warrant constitutes an option to
purchase one share of Common Stock of the Company at a price equal to 130% of
the IPO price of the Units, subject to adjustment in certain circumstances,
exercisable at any time until 36 months from the date of the Prospectus relating
to the IPO. The anticipated IPO price to the public is expected to range between
$5.75 and $6.75 per Unit.

Directors' Option Plan

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

Executive Bonus Plan

F-15
68

BIRMAN MANAGED CARE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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

F-16
69

BIRMAN MANAGED CARE, INC. AND SUBSIDIARIES

INTRODUCTION TO
PROFORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

The following unaudited Proforma Condensed Consolidated Balance Sheet as of
June 30, 1996, and the unaudited Proforma Condensed Consolidated Statement of
Operations for the year ended June 30, 1996 give effect to the acquisition by
Birman Managed Care, Inc. of Canton Management Group, Inc. pursuant to the
Acquisition Agreement pending between the parties, and are based on the
estimates and assumptions set forth herein and in the notes to such statements.
This proforma information has been prepared utilizing the historical financial
statements and notes thereto, which are incorporated by reference herein. The
unaudited Proforma Condensed Consolidated Financial Statements do not purport to
be indicative of the results which actually would have been obtained had the
purchase been effected on the dates indicated or of the results which may be
obtained in the future.

The unaudited Proforma Condensed Consolidated Financial Statements is based
on the purchase method of accounting for the acquisition of Canton Management
Group, Inc. The proforma entries are described in the accompanying footnotes to
the unaudited Proforma Condensed Consolidated Financial Statements.

The unaudited Proforma Condensed Consolidated Balance Sheet and the
unaudited Proforma Condensed Consolidated Statement of Operations and the
related notes should be read in conjunction with Birman Managed Care, Inc.'s
audited consolidated financial statements contained elsewhere in this
Prospectus. In management's opinion, all adjustments necessary to reflect the
acquisition have been made.

F-17
70

BIRMAN MANAGED CARE, INC. AND SUBSIDIARIES

PROFORMA CONDENSED CONSOLIDATED BALANCE SHEET
JUNE 30, 1996
(UNAUDITED)

HISTORICAL
CANTON
MANAGEMENT
HISTORICAL GROUP, INC.
BIRMAN (A DEVELOPMENT PROFORMA
CONSOLIDATED STAGE COMPANY) PROFORMA ENTRIES CONSOLIDATED
------------ -------------- ---------------- ------------

Cash................................... $ 1,872,343 $ 2,143 $ (700,000)(1) $ 1,174,486
Accounts receivable.................... 1,043,771 998 1,044,769
Prepaid expenses....................... 9,903 -- 9,903
Notes receivable....................... 653,496 -- 653,496
Deferred tax asset..................... 95,549 -- 95,549
Property, plant and equipment.......... 293,684 2,641 296,325
Deferred taxes, long-term.............. -- 24,000 (24,000)(2) --
License and goodwill................... 16,145 -- 1,109,390(1) 1,125,535
Other assets........................... 25,000 132,425 157,425
Restricted certificates of deposit..... -- 500,000 500,000
----------- -------- -----------
Total Assets................. 4,009,891 662,207 5,057,488
=========== ======== ===========
Current portion -- long-term debt...... 2,435 -- 200,000(1) 202,435
Current portion of capital lease....... 1,540 -- 1,540
Accounts payable....................... 117,025 11,190 128,215
Accrued expenses....................... 2,050 -- 2,050
Income taxes payable................... 635,205 -- 635,205
Long-term debt......................... 7,037 -- 600,000(1) 607,037
Deferred income taxes.................. 55,620 -- (24,000)(2) 31,620
Minority interest...................... -- -- 260,407(1) 260,407
Preferred stock........................ -- -- --
Common stock........................... 6,931 -- 6,931
Additional paid-in capital............. 1,780,612 707,227 (707,227_)(1) 1,780,612
Retained earnings (deficit)............ 1,401,436 (56,210) 56,210(1) 1,401,436
----------- -------- -----------
$ 4,009,891 $662,207 $ 5,057,488
=========== ======== ===========

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

(1) To record the purchase of Canton Management Group, Inc. pursuant to the
acquisition agreement between the parties, and record the minority
interest.

(2) To reclassify long-term deferred income taxes.

See accompanying notes to proforma condensed consolidated financial statements
(as adjusted).

F-18
71

BIRMAN MANAGED CARE, INC. AND SUBSIDIARIES

PROFORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED JUNE 30, 1996 (UNAUDITED)

HISTORICAL
CANTON
MANAGEMENT
HISTORICAL GROUP, INC.
BIRMAN (A DEVELOPMENT PROFORMA PROFORMA
CONSOLIDATED STAGE COMPANY) ENTRIES CONSOLIDATED
------------ -------------- -------- ------------

Revenue......................................... $ 8,416,946 $ -- $ 8,416,946
Cost of revenues................................ 2,278,932 -- 2,278,932
----------- -------- -----------
Gross profit.................................... 6,138,014 -- 6,138,014
General and administrative expenses............. 4,236,607 71,961 (1) 4,308,568
----------- -------- -----------
Income from operations.......................... 1,901,407 (71,961) 1,829,446
Other income (expense).......................... (2,643) 12,211 (2) 9,568
----------- -------- -----------
Income before provision for income taxes........ 1,898,764 (59,750) 1,839,014
Income taxes.................................... (726,983) 17,900 (709,083)
----------- -------- -----------
Net income (loss)............................... $ 1,171,781 $(41,850) $ 1,129,931
=========== ======== ===========
Net income (loss) per share..................... $ .15 $ (.42) $ .12
=========== ======== ===========
Weighted average number of shares outstanding... 7,725,434 100,000 9,275,434
=========== ======== ===========

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

(1) Amortization of the licenses recorded in connection with the purchase of
Canton Management Group, Inc. will be reported on a straight-line basis over
35 years, commencing when operations begin.

(2) Does not include the effects of additional interest expense on notes payable
as amount is immaterial.

See accompanying notes to proforma condensed consolidated financial statements
(as adjusted).

F-19
72

BIRMAN MANAGED CARE, INC. AND SUBSIDIARIES

NOTES TO PROFORMA CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (AS ADJUSTED)
(UNAUDITED)

1. PENDING ACQUISITION

On July 16, 1996, the Company submitted a letter of intent to acquire most
of the issued and outstanding common stock of Canton Management Group, Inc., a
Mississippi corporation ("Canton").

Under the terms of the agreement, the Company will acquire 1,000,000 shares
of newly issued preferred stock of Canton for $1 per share, payable $700,000 in
cash and $300,000 by a promissory note. The promissory note bears interest at a
rate of 2% per annum and is payable in varying annual installments over two
years. In addition, the Company will acquire approximately 33% of the
outstanding Common Stock of Canton for a $500,000 promissory note, which bears
interest at a rate of 2% per annum and is payable in varying annual installments
over four years.

Canton will purchase and retire approximately 65% of the outstanding Common
Stock held by persons other than the Company for $1,000,000, payable $700,000 in
cash and $300,000 by a promissory note. The promissory note bears interest at a
rate of 2% per annum and is payable in varying annual installments over two
years.

2. EFFECT OF PENDING ACQUISITION

The adjustments to the Proforma Condensed Consolidated Balance Sheet as of
June 30, 1996 reflect the pending acquisition as if it occurred on June 30,
1996. The Proforma Condensed Consolidated Statement of Operations for the year
ended June 30, 1996 reflects the pending acquisition as if it occurred on the
first day of the period presented.

F-20
73

CANTON MANAGEMENT GROUP, INC.,
DBA PROGRESSIVE HEALTH MANAGEMENT, INC.
(A DEVELOPMENT STAGE COMPANY)

FINANCIAL STATEMENTS

JUNE 30, 1996

F-21
74

REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

Canton Management Group, Inc.
DBA Progressive Health Management, Inc.
(A Development Stage Company)
Jackson, Mississippi

We have audited the accompanying balance sheet of Canton Management, Inc.
DBA Progressive Health Management, Inc. (A Development Stage Company) (the
"Company") as of June 30, 1996, and the related statements of operations and
accumulated deficit and cash flows for the year then ended. We have also audited
the statements of operations and cash flows for the period from October 3, 1993
(Inception) to June 30, 1996, except that we did not audit the financial
statements for the period from October 3, 1993 to June 30, 1995; those
statements were audited by other auditors whose report was dated August 7, 1996.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audit.

In our opinion, based on our audit and the report of other auditors, the
financial statements referred to above present fairly, in all material respects,
the financial position of Canton Management Group, Inc. DBA Progressive Health
Management, Inc. (A Development Stage Company) at June 30, 1996, and the results
of their operations and their cash flows for the year then ended, and for the
period from October 3, 1993 (Inception) to June 30, 1996, in conformity with
generally accepted accounting principles.

BDO Seidman, LLP
Los Angeles, California
August 7, 1996

F-22
75

REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

Canton Management Group, Inc.
DBA Progressive Health Management, Inc.
(A Development Stage Company)
Jackson, Mississippi

We have audited the accompanying statements of operations and accumulated
deficit, and cash flows for the year ended June 30, 1995 of Canton Management,
Inc. DBA Progressive Health Management, Inc. (A Development Stage Company) (the
"Company"). 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.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the results of operations and cash flows of Canton
Management Group, Inc. DBA Progressive Health Management, Inc. (A Development
Stage Company) at June 30, 1995 in conformity with generally accepted accounting
principles.

Semple & Cooper, P.L.C.
Phoenix, Arizona
August 7, 1996

F-23
76

CANTON MANAGEMENT GROUP, INC., DBA

PROGRESSIVE HEALTH MANAGEMENT, INC.
(A DEVELOPMENT STAGE COMPANY)

BALANCE SHEET
JUNE 30, 1996

ASSETS
Current assets:
Cash and cash equivalents (Note 1)...................................... $ 2,143
Interest income receivable.............................................. 998
--------
Total current assets............................................ 3,141
--------
Office equipment, Net (Note 4)............................................ 2,641
--------
Other assets:
Restricted certificates of deposit (Notes 1 and 2)...................... 500,000
Organization and license costs (Note 1)................................. 132,425
Deferred tax asset (Notes 1 and 3)...................................... 24,000
--------
Total other assets.............................................. 656,425
--------
Total assets.................................................... $662,207
========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable........................................................ $ 11,190
--------
Stockholder's equity: (Note 5)
Preferred stock, no par value, 1,000,000 shares authorized; no shares
issued or outstanding................................................ --
Class A voting common stock, no par value, 100,000 shares authorized;
100,000 shares issued and outstanding................................ --
Class B non-voting common stock, no par value, 100,000 shares
authorized; no shares issued or outstanding.......................... --
Paid-in capital......................................................... 100,000
Contributed capital..................................................... 607,227
Accumulated deficit, during development stage........................... (56,210)
--------
Total stockholder's equity...................................... 651,017
--------
Total liabilities and stockholder's equity...................... $662,207
========

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

F-24
77

CANTON MANAGEMENT GROUP, INC., DBA
PROGRESSIVE HEALTH MANAGEMENT, INC.
(A DEVELOPMENT STAGE COMPANY)

STATEMENTS OF OPERATIONS AND ACCUMULATED DEFICIT
FOR THE YEARS ENDED JUNE 30, 1995 AND 1996 AND
FOR THE PERIOD FROM
OCTOBER 3, 1993 (INCEPTION) TO JUNE 30, 1996

FOR THE PERIOD
FROM
OCTOBER 3,
YEAR ENDED YEAR ENDED 1993 (INCEPTION)
JUNE 30, JUNE 30, TO JUNE 30,
1995 1996 1996
---------- ---------- ----------------

Revenue:
Donated services.................................... $ -- $ -- $132,425
Interest income..................................... 9,724 12,211 23,489
-------- -------- --------
Total revenue............................... 9,724 12,211 155,914
-------- -------- --------
Expenses:
Advertising......................................... 788 -- 2,395
Consulting.......................................... 67,800 41,500 148,525
Depreciation........................................ 1,056 1,056 2,641
Donations........................................... -- 1,000 1,000
Dues................................................ 5,000 1,100 11,354
Fees and licenses................................... 25 25 1,450
Legal and accounting................................ 7,659 8,194 10,729
Office.............................................. 3,554 3,021 15,514
Printing............................................ 213 244 1,027
Rent................................................ 12,000 12,000 25,000
Telephone........................................... 4,746 2,527 6,288
Travel and entertainment............................ 5,587 1,294 10,201
-------- -------- --------
Total expenses.............................. 108,428 71,961 236,124
-------- -------- --------
Loss before income tax benefit........................ (98,704) (59,750) (80,210)
Income tax benefit.................................... 29,600 17,900 24,000
-------- -------- --------
Net loss.............................................. (69,104) (41,850) (56,210)
Retained earnings (deficit), beginning of period...... 54,744 (14,360) --
-------- -------- --------
Accumulated deficit, end of period.................... $(14,360) $(56,210) $(56,210)
======== ======== ========

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

F-25
78

CANTON MANAGEMENT GROUP, INC., DBA
PROGRESSIVE HEALTH MANAGEMENT, INC.
(A DEVELOPMENT STAGE COMPANY)

STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JUNE 30, 1995 AND 1996 AND
FOR THE PERIOD FROM
OCTOBER 3, 1993 (INCEPTION) TO JUNE 30, 1996

FOR THE
PERIOD FROM
OCTOBER 3,
1993
YEAR ENDED YEAR ENDED (INCEPTION)
JUNE 30, JUNE 30, TO JUNE 30,
1995 1996 1996
---------- ---------- -----------

Cash flows from operating activities:
Net loss............................................... $ (69,104) $ (41,850) (56,210)
Reconciliation of net loss to cash used by operating
activities:
Donated services....................................... -- -- (132,425)
Depreciation........................................... 1,056 1,056 2,641
Changes in operating assets and liabilities:
Investment income receivable........................... -- (998) (998)
Deferred income taxes.................................. (29,600) (17,900) (24,000)
Accounts payable....................................... 2,663 4,566 11,190
---------- ---------- ----------
Net cash used by operating activities............... (94,985) (55,126) (199,802)
---------- ---------- ----------
Cash flows from investing activities:
Purchase of office equipment........................... -- -- (5,282)
Purchase of restricted certificate of deposit.......... (250,000) (250,000) (500,000)
---------- ---------- ----------
Net cash used by investing activities............... (250,000) (250,000) (505,282)
---------- ---------- ----------
Cash flows from financing activities:
Paid-in capital........................................ -- 100,000 100,000
Contributed capital.................................... 93,920 190,948 607,227
---------- ---------- ----------
Net cash provided by financing activities........... 93,920 290,948 707,227
---------- ---------- ----------
Net increase (decrease) in cash and cash equivalents..... (251,065) (14,178) 2,143
Cash and cash equivalents, beginning of period........... 267,386 16,321 --
---------- ---------- ----------
Cash and cash equivalents, end of period................. $ 16,321 $ 2,143 $ 2,143
========== ========== ==========

The accompanying notes are an integral part of the financial statements

F-26
79

CANTON MANAGEMENT GROUP, INC., DBA
PROGRESSIVE HEALTH MANAGEMENT, INC.
(A DEVELOPMENT STAGE COMPANY)

NOTES TO FINANCIAL STATEMENTS

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

Organization and Operations:

Progressive Health Management, Inc. was incorporated in Mississippi on
October 3, 1993 for the purpose of providing health care services to Mississippi
Medicaid enrollees on a capitated fee basis contracted with the State of
Mississippi. Progressive Health Management, Inc. was licensed by the State of
Mississippi as a Health Maintenance Organization (HMO) on February 15, 1994.

Progressive Health Management, Inc. was merged with and into Canton
Management Group, Inc. (the "Company") on May 6, 1994.

The Company has been approved by the Mississippi State Department of Health
to provide HMO coverage in the counties of Madison, Attala, Carroll, Grenada,
Holmes, Humphreys, Leaks, Leflore, Montgomery and Yazoo.

As of June 30, 1996, the Company had no contracts in effect with the State
of Mississippi to provide any services for enrollees. The Company expects these
contracts to be negotiated before December 31, 1996, at which time the Company
will officially commence operations as an HMO.

Accounting Estimates:

Cash and Cash Equivalents:

The Company considers all highly liquid debt instruments purchased with an
initial maturity of three months or less to be cash equivalents.

Minimum Net Worth Requirements:

The Company was required by the State of Mississippi to provide a minimum
cash insolvency reserve of $500,000 as of June 30, 1996.

Office Equipment:

Office equipment is stated at cost less accumulated depreciation.
Depreciation is calculated using the straight-line method based on the estimated
useful lives of the assets. The estimated useful lives are five years.

Organization and License Costs:

Costs associated with the organization of the Company and license costs
have been capitalized and will be amortized over a five year period and
thirty-five year period once operations commence.

Donated Services:

The Company has recognized services donated by physicians, attorneys and
consultants in the amount of $132,425. These services have been recorded as
donated services in the period received.

F-27
80

CANTON MANAGEMENT GROUP, INC., DBA
PROGRESSIVE HEALTH MANAGEMENT, INC.
(A DEVELOPMENT STAGE COMPANY)

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

Income Taxes:

The Company provides for income taxes in accordance with Statement of
Financial Accounting Standards No. 109 ("SFAS No. 109"), "Accounting for Income
Taxes". Under SFAS No. 109 deferred income tax assets and liabilities are
computed annually for differences between the financial statement and tax basis
of assets and liabilities that will result in taxable or deductible amounts in
the future, based on enacted tax laws and rates applicable to the periods in
which the differences are expected to affect taxable income. Valuation
allowances are established when necessary to reduce deferred tax assets to the
amount expected to be realized. Income tax expense is the tax payable or
refundable for the period, plus or minus the changes during the period in
deferred tax assets and liabilities.

2. RESTRICTED CERTIFICATES OF DEPOSIT:

As of June 30, 1996, the Company held two $250,000 certificates of deposit
bearing interest rates of 4.8% and 3.8%, respectively, and having a maturity
date of September 20, 1996. The certificates of deposit are restricted for use
as insolvency reserves to meet the minimum net worth requirements of the State
of Mississippi.

3. INCOME TAXES:

Deferred tax assets as of June 30, 1996 consist solely of net operating
loss carryforwards of approximately $24,000.

The Company has unused net operating losses available for carryforward to
offset future taxable income and tax liabilities for income tax reporting
purposes, which expire as follows:

YEAR ENDING
JUNE 30, AMOUNT
----------- -------

2009............................................................ $46,108
2010............................................................ 44,029
-------
$90,137
=======

The Tax Reform Act of 1986 contains provisions which limit the federal net
operating loss carryforwards available that can be used in any given year in the
event of certain occurrences, which include significant ownership changes.

4. OFFICE EQUIPMENT:

At June 30, 1996, office equipment consists of the following:

Office equipment................................................... $ 5,282
Less accumulated depreciation...................................... (2,641)
-------
Office equipment, net.............................................. $ 2,641
=======

5. CONTRIBUTED CAPITAL:

The shareholders of the Company have made various unrestricted cash
contributions of $607,227 for the period from October 3, 1993 (inception)
through June 30, 1996.

F-28
81

CANTON MANAGEMENT GROUP, INC., DBA
PROGRESSIVE HEALTH MANAGEMENT, INC.
(A DEVELOPMENT STAGE COMPANY)

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

6. STATEMENTS OF CASH FLOWS:

Non-Cash Investing and Financing Activities:

During the period from the date of inception, October 3, 1993 through June
30, 1996, the Company recognized investing and financing activities that
affected its assets and liabilities, but did not result in cash receipts or
payments. These non-cash activities are as follows:

Organization costs in the amount of $132,425 were donated to the Company.

No payments were made for income taxes or interest.

7. SUBSEQUENT EVENT:

In April 1996, the Mississippi legislature approved a pilot capitation
project for Medicaid recipients. The pilot capitation project was approved in
only three counties in which the Company is approved to provide HMO coverage.
Those counties are Humphreys, Leflore and Yazoo. Although not approved
presently, the Company may apply for approval to provide HMO coverage in other
counties included in the pilot project. The scope of the counties included in
the pilot project is not expected to change until the 1997 session of the
Mississippi legislature convenes. The Company has not negotiated any Medicaid
capitation contracts or enrolled any participants as of June 30, 1996.

F-29
82
======================================================

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

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

TABLE OF CONTENTS

PAGE
----

Prospectus Summary.................... 3
Risk Factors.......................... 6
The Company........................... 13
Use of Proceeds....................... 14
Dividend Policy....................... 14
Dilution.............................. 15
Capitalization........................ 16
Selected Historical and Pro Forma
Consolidated Financial Data......... 17
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 18
Business.............................. 22
Management............................ 37
Certain Transactions.................. 43
Principal Stockholders................ 44
Description of Securities............. 44
Shares Eligible for Future Sale....... 47
Underwriting.......................... 49
Legal Opinions........................ 51
Experts............................... 51
Additional Information................ 51
Index to Consolidated Financial
Statements.......................... F-1

UNTIL , 1996 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE OBLIGATIONS OF DEALERS TO
DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR
UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
======================================================

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

BIRMAN
MANAGED CARE, INC.

1,550,000 UNITS
EACH UNIT CONSISTING
OF
ONE SHARE OF COMMON STOCK
AND
ONE REDEEMABLE
COMMON STOCK PURCHASE
WARRANT

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

W.B. MCKEE
SECURITIES, INC.
, 1996
======================================================
83
PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS

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

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

The registrant's By-laws (filed as Exhibit 3.3 to this Registration
Statement) generally provide for indemnification of its officers and directors
to the extent permitted by Section 145 of the Delaware Corporation Law.

Reference is hereby made to the Underwriting Agreement (filed as Exhibit
1.1 to this Registration Statement) which contains provisions indemnifying
officers and directors of the Company for certain civil liabilities, including
liabilities under the Securities Act of 1933, as amended.

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ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

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

AMOUNT*
----------

S.E.C. Registration Fee.................................................. $10,448.33
NASD Filing Fee.......................................................... 46,452.71
Qualification Under State Securities Laws (including legal fees)**.......
Printing**...............................................................
Legal Fees and Expenses**................................................
Accounting Fees**........................................................
Transfer Agent and Registrar Fees and Expenses**.........................
Miscellaneous**..........................................................
----------
Total**........................................................ $
==========

- ---------------
* All fees and expenses are estimates except the Securities and Exchange
Commission registration fee and the National Association of Securities
Dealers, Inc. filing fee. All fees and expenses of this offering are to be
paid by the Company.

** To be completed by amendment.

ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES

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

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

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

Between July 2, 1995 and November 30, 1995, the Company sold a total of
359,227 shares of Common Stock to 14 investors for an aggregate consideration of
$492,500 or $1.37 per share. The Common Stock in this transaction was issued in
reliance on the exemption provided by Section 4(2) of the Securities Act.

Between January 10, 1996 and June 30, 1996, the Company sold 1,101,398
shares of Common Stock to 22 investors for an aggregate consideration of
$1,510,000 or $1.37 per share. The Common Stock in this transaction was issued
in reliance on Regulation D promulgated under the Securities Act ("Regulation
D").

On February 28, 1996, the Company sold 36,470 shares of Common Stock to one
non-resident foreign investor who agreed not to sell the shares into the United
States or to United States residents or citizens for a period of one year
following the date of purchase. The aggregate consideration was $50,000 or $1.37
per share. The jurisdiction of the Securities Act did not extend to the offer
and sale of these shares under the circumstances indicated and, therefore, no
registration under the Securities Act was required.

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85
During the three years ended June 30, 1996, the Company granted to eight of
its officers and key employees, in reliance upon the exemption provided by
Section 4(2) of the Securities Act, incentive stock options pursuant to the
Company's 1995 Stock Option Plan to purchase a total of 1,006,566 shares of
Common Stock at an exercise price of $1.37 per share.

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

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

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

ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

A. EXHIBITS

1.1 Form of Underwriting Agreement.
1.2 Form of Agreement Among Underwriters.
1.3 Form of Selected Dealer Agreement.
3.1 Certificate of Incorporation of Birman Managed Care, Inc.
3.2 By-laws of Birman Managed Care, Inc.
3.3 Certificate of Merger dated September 9, 1996 by and between Birman Managed Care,
Inc. -- Delaware and Birman Managed Care, Inc.
4.1 Reference is made to Exhibits 3.1 through 3.3.
4.2 Specimen Common Stock Certificate.*
4.3 Form of Warrant Agreement.
4.4 Specimen Warrant Certificate.*
4.5 Form of Representative's Warrant Agreement.
4.6 Form of Representative's Warrant.
5.1 Form of Opinion of Rudnick & Wolfe.*
10.1 Employment Agreement by and between Birman Managed Care, Inc. and David N. Birman,
M.D. entered into on March 1, 1996.
10.2 Employment Agreement by and between Birman Managed Care, Inc. and Sue D. Birman
entered into on March 1, 1996.
10.3 Employment Agreement by and between Birman Managed Care, Inc. and Robert D. Arkin
entered into on March 1, 1996; Amendment No. 1 by and between Birman Managed Care,
Inc. and Robert D. Arkin entered into on March 1, 1996.
10.4 Employment Agreement by and between Birman Managed Care, Inc., BMC Health Plans, Inc.
and Vincent W. Wong entered into on March 1, 1996.
10.5 Employment Agreement by and between Birman Managed Care, Inc. and Douglas A. Lessard
entered into on March 1, 1996; Amendment No. 1 by and between Birman Managed Care,
Inc. and Douglas A. Lessard entered into on March 1, 1996; Amendment No. 2 by and
between Birman Managed Care, Inc. and Douglas A. Lessard entered into on September 1,
1996.

II-3
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10.6 Employment Agreement by and between Birman Managed Care, Inc. and Mark C. Wade entered
into on July 1, 1995; Amendment No. 1 by and between Birman Managed Care, Inc., BMC
Health Plans, Inc. and Mark C. Wade entered into on October 30, 1995; Amendment No. 2
by and between Birman Managed Care, Inc. and Mark C. Wade entered into on September 1,
1996.
10.7 Employment Agreement by and between Birman Managed Care, Inc. and Brad Seitzinger,
M.D. entered into on August 26, 1991.
10.8 Employment Agreement by and between Birman Managed Care, Inc. and Bill Barenkamp
entered into on November 9, 1993.
10.9 Consulting Agreement by and between Richard M. Ross, RRCG, L.L.C., and Birman Managed
Care, Inc. entered into as of September 1, 1996.
10.10 1995 Stock Option Plan for Birman Managed Care, Inc. dated October 31, 1995.
10.11 1996 Non-Employee Directors' Non-Qualified Stock Option Plan of Birman Managed Care,
Inc.
10.12 Stock Purchase Agreement by and between Birman Managed Care, Inc., Canton Management
Group, Inc. and Wesley Prater, M.D., Larry Cooper, M.D., Kelvin Ramsey, M.D., L.C.
Tennin, M.D., Louis Saddler, M.D., James Goodman, Ph.D, Vic Caracci, Michael T.
Caracci, Robert T. Teague, M.S.W., Vincent Caracci, Charlie Hills, Harold Wheeler,
M.D., Stephanie Tucker, Winifred Fulgham and Joyce Johnson entered into on September
6, 1996.
10.13 Promissory Note by David N. Birman, M.D. and payable to the Company.
10.14 Loan and Security Agreement dated August 21, 1996 by and between American National
Bank
and Trust Company of Chicago and Birman & Associates, Inc.
10.15 Loan and Security Agreement dated August 21, 1996 by and between Hughes & Associates,
Inc.
10.16 Promissory Note (Secured) dated August 21, 1995 in the stated principal amount of
$1,000,000 payable to American National Bank & Trust Company of Chicago by Birman &
Associates and Hughes & Associates, Inc.
10.17 Form of Indemnification Agreement for Birman Managed Care, Inc.
10.18 Executive Bonus Plan.
10.19 Agreement by and between National Benefit Resources, Inc. and Birman Managed Care,
Inc. entered into on April 16, 1996.
11.1 Calculation of Income (Loss) Per Share.
21.1 List of Subsidiaries.
23.1 Consent of BDO Seidman, LLP. Re: Birman Managed Care, Inc.
23.2 Consent of BDO Seidman, LLP Re: Canton Management Group, Inc.
23.3 Consent of Semple & Cooper, P.L.C. Re: Birman Managed Care, Inc.
23.4 Consent of Semple & Cooper, P.L.C. Re: Canton Management Group, Inc.
23.5 Consent of Rudnick & Wolfe (to be included in the Opinion to be filed as Exhibit 5.1
hereto).*
24.1 Powers of Attorney of Certain Officers and Directors.
27 Financial Data Schedule.

- ---------------
* To be filed by amendment.

ITEM 17. UNDERTAKINGS

A. The small business issuer will provide to the Underwriter at the closing
specified in the Underwriting Agreement certificates in such denominations and
registered in such names as required by the Underwriters to permit prompt
delivery to each purchaser.

B. Insofar as indemnification by the registrant for liabilities arising
under the Securities Act of 1933, as amended (the "Securities Act"), may be
permitted to directors, officers and controlling persons of the small business
issuer pursuant to the foregoing provisions or otherwise, the small business
issuer has been advised that

II-4
87

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

C. The undersigned small business issuer hereby undertakes that:

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

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

D. The small business issuer hereby undertakes:

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

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

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

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

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

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

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

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88

SIGNATURES

In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form SB-2 and authorizes the registration
statement to be signed on its behalf by the undersigned, in the City of
Cookeville, State of Tennessee, on September 12, 1996.

BIRMAN MANAGED CARE, INC.

By: /s/ DAVID N. BIRMAN

------------------------------------
David N. Birman, M.D., President

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

SIGNATURE TITLE DATE
- ----------------------------------- ------------------------------------- -------------------

/s/ DAVID N. BIRMAN Chairman of the Board, President and September 12, 1996
- ----------------------------------- Chief Executive Officer
David N. Birman
/s/ SUE D. BIRMAN Executive Vice President, Director September 12, 1996
- -----------------------------------
Sue D. Birman
/s/ ROBERT D. ARKIN Executive Vice President, Chief September 12, 1996
- ----------------------------------- Operating Officer, Secretary, and
Robert D. Arkin Director
/s/ DOUGLAS A. LESSARD Vice President, Treasurer and Chief September 12, 1996
- ----------------------------------- Financial Officer
Douglas A. Lessard
Director September 12, 1996
- -----------------------------------
Diedrich Von Soosten
/s/ JAMES J. RHODES* Director September 12, 1996
- -----------------------------------
James J. Rhodes

* By Power of Attorney

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APPENDIX A

Description of Graphic and Image Material

1. Location: Inside Front Cover Page of Prospectus
Caption: Birman Quality Management Program
Subcaption: 80 Client Hospital Implementations in 13 States
Description: This illustration depicts the implementation of the Company's
Quality Management Program using three pictures. At the top of
the page is a picture of two physicians conferring over a
medical record, captioned "Birman physicians consult with
attending physicians." An arrow leads to a second picture
depicting one of the physicians in the first picture attending
to a patient, captioned "Attending physicians apply Quality
Management Programs." An arrow leads from the second picture to
the third picture that depicts a hand writing on a medical
record, captioned "Client hospitals optimize reimbursements and
utilization." To depict the continuity of the flow of
information, an arrow leads from the third picture back to the
first picture. In the background of the illustration is a map
of the United States running from the east coast to the
Mississippi River depicting by state the locations of past and
present hospital-clients of the Company's Quality Management
Program.

2. Location: Inside Back Cover Page of Prospectus
Caption: Birman Health Plans Target Underserved Rural Markets
Description: This illustration depicts the Company's health plan strategy.
At the top of the page is a picture of a family, captioned
"Point of Service -- Patient Chooses Treatment Option At Each
Visit." An arrow points from the family to an arc having three
points of reference labelled HMO, PPO, and Traditional
Indemnity, respectively. Below the arc is a map of the
Southeastern and Southcentral United States showing, by state,
the penetration of HMOs based upon the 1995 HMO-PPO Digest
published by Hoechst Marion Roussel, Inc., captioned "Current
Penetration of HMO Patients by State." The percentages of the
population of the states that are enrollees in HMOs reflected
in the illustration are as follows:

Southeast Southcentral
- --------------------------- -------------------------------
State Percentage State Percentage
- ----- ---------- ----- ----------

Delaware 25.6% Kentucky 12.4%
Maryland 29.7% Tennessee 9.0%
West Virginia 3.2% Arkansas 6.4%
Virginia 14.1% Mississippi 0.8%
North Carolina 8.7% Alabama 7.6%
South Carolina 5.4% Louisiana 7.4%
Georgia 10.9%
Florida 18.0%