AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 17, 1998
REGISTRATION NO. 333-55977

================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
-----------------
MEDE AMERICA CORPORATION
(Exact name of registrant as specified in its charter)

DELAWARE 7374 11-3270245
State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer Identification No.)
incorporation or organization) Classification Code Number)

90 MERRICK AVENUE, SUITE 501
EAST MEADOW, NEW YORK 11554
(516) 542-4500

(Address, including zip code, and telephone number, including area
code, of registrant's principal executive offices)
-----------------
DAVID M. GOLDWIN, ESQ.
GENERAL COUNSEL
MEDE AMERICA CORPORATION
90 MERRICK AVENUE, SUITE 501
EAST MEADOW, NEW YORK 11554
(516) 542-4500
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
-----------------
COPIES TO:

MARK J. TANNENBAUM, ESQ. FREDERICK W. KANNER, ESQ.
REBOUL, MACMURRAY, HEWITT, DEWEY BALLANTINE LLP
MAYNARD & KRISTOL 1301 AVENUE OF THE AMERICAS
45 ROCKEFELLER PLAZA NEW YORK, NY 10019
NEW YORK, NY 10111 (212) 259-8000
(212) 841-5700

APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.

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

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

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

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

If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]

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

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 THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.

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

SUBJECT TO COMPLETION, DATED JULY 17, 1998

PROSPECTUS

3,600,000 SHARES

[LOGO]

MEDE AMERICA CORPORATION

COMMON STOCK

------------------
All of the shares of Common Stock offered hereby (the "Offering") are being
sold by MEDE AMERICA Corporation ("MEDE AMERICA" or the "Company"). Prior to the
Offering, there has been no public market for the Common Stock of the Company.
It is currently estimated that the initial public offering price will be between
$13.00 and $15.00 per share. See "Underwriting" for information relating to the
factors to be considered in determining the initial public offering price. The
Company intends to apply to have the Company's Common Stock approved for
quotation on the Nasdaq National Market under the symbol "MEDE."

------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 9 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS
OF THE COMMON STOCK OFFERED HEREBY.

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECUR-
ITIES AND EXCHANGE COMMISSION OR ANY OTHER STATE SECURITIES COMMIS-
SION 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.

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

PRICE UNDERWRITING PROCEEDS
TO DISCOUNTS AND TO
PUBLIC COMMISSIONS(1) COMPANY(2)

Per Share ......... $ $ $
Total(3) .......... $ $ $

================================================================================
(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."

(2) Before deducting expenses estimated at $950,000, payable by the Company.

(3) The Company has granted to the Underwriters a 30-day option to purchase up
to 540,000 additional shares of Common Stock on the same terms as set forth
above solely to cover over-allotments, if any. If such option is exercised
in full, the total Price to Public, Underwriting Discounts and Commissions
and the Proceeds to Company will be $ , $ and $ , respectively. See
"Underwriting."

------------------
The shares of Common Stock are being offered by the several Underwriters
named herein, subject to prior sale, when, as and if delivered and accepted by
them, and subject to their right to reject orders in whole or in part. It is
expected that certificates for such shares of Common Stock will be made
available for delivery at the offices of Smith Barney Inc., 333 West 34th
Street, New York, New York 10001, on or about , 1998.

------------------
SALOMON SMITH BARNEY
WILLIAM BLAIR & COMPANY
VOLPE BROWN WHELAN & COMPANY

, 1998

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.

CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS THAT
STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING BY OVER-ALLOTMENT, STABILIZING BIDS, EFFECTING SYNDICATE COVERING
TRANSACTIONS OR IMPOSING OF PENALTY BIDS. FOR A DESCRIPTION OF THESE
ACTIVITIES, SEE "UNDERWRITING."

MEDE AMERICA is a trademark of the Company. All other trade names,
trademarks or service marks appearing in this Prospectus are the property of
their respective owners and are not the property of the Company.

PROSPECTUS SUMMARY

The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information and the financial statements,
including the notes thereto, appearing elsewhere in this Prospectus.

THE COMPANY

MEDE AMERICA is a leading provider of electronic data interchange ("EDI")
products and services to a broad range of providers and payors in the healthcare
industry. The Company offers an integrated suite of EDI solutions that allows
hospitals, pharmacies, physicians, dentists and other healthcare providers and
provider groups to electronically edit, process and transmit claims, eligibility
and enrollment data, track claims submissions throughout the claims payment
process and obtain faster reimbursement for their services. In addition to
offering greater processing speed, the Company's EDI products reduce processing
costs, increase collection rates and result in more accurate data interchange.
The Company maintains over 540 direct connections with insurance companies,
Medicare and Medicaid agencies, Blue Cross and Blue Shield systems and other
third party payors, as well as over 500 indirect connections with additional
payors through claims clearinghouses. Currently, the Company processes over
900,000 transactions per day for over 65,000 providers located in all 50 states.

Since its formation in March 1995, the Company has expanded both through
internal growth and the acquisition of five healthcare EDI processing
businesses. As part of its strategy of providing an integrated suite of EDI
solutions to a broad range of healthcare providers, the Company has focused on
acquisitions that provided entry into new markets or expanded the Company's
product suite. The Company has actively pursued the integration of its
acquisitions and, in the process, has either divested, closed or restructured
various operations of the acquired entities in order to eliminate non-core or
redundant operations and achieve cost savings and operating efficiencies.

The penetration of electronic processing varies significantly among the
different markets within the healthcare industry. According to Health Data
Directory, in 1997 electronic processing accounted for approximately 13% of
total dental claims, 38% of total physician medical claims, 83% of total
hospital medical claims and 86% of total pharmacy claims. The Company believes
that there is significant market potential for EDI processing in the non-claim
area, including eligibility verification, remittance transactions and other data
exchange transactions such as claims tracking, referrals and physician
scripting. The Company believes that EDI penetration in these non-claim
transaction categories is low, and as a result, the EDI transaction growth in
these areas will exceed that of the EDI claims processing market.

The Company believes that it has several competitive strengths which will
enable it to capitalize on the significant growth opportunities in the
healthcare EDI marketplace.

COMPREHENSIVE SUITE OF EDI PRODUCTS AND SERVICES. The Company has followed
a strategy of developing or acquiring EDI products and services that may be
offered to a broad range of healthcare providers. The Company's products
incorporate open architecture designs and "best of

breed" technology and may be purchased as modular additions to the client's
existing data storage and retrieval system, or as part of a comprehensive EDI
processing system. The Company believes it is well positioned to take advantage
of the expected growth of EDI in areas such as eligibility, managed care
transactions and physician scripting.

BROAD AND DIVERSIFIED CLIENT BASE. The Company's client base is highly
diversified, consisting of approximately 42,000 pharmacies, 8,000 dental
offices, 1,000 hospitals and clinics and 14,000 physicians. The Company's broad
and diversified client base provides it with transaction-based revenues that
tend to be recurring and positions it to capitalize on the rapid consolidation
taking place within the healthcare industry.

DIRECT RELATIONSHIPS WITH PROVIDERS AND PAYORS. The range of MEDE AMERICA's
services and the extent of its connectivity with payors provides the opportunity
to achieve deeper penetration of its provider base, while at the same time
offering more complete solutions to new clients. MEDE AMERICA believes that it
is strongly positioned to offer reliable, one-stop shopping to providers for all
their EDI needs.

FOCUS ON CLIENT SERVICE. The Company has focused on implementing a wide
range of client service and support functions including the use of automated
client service tracking software, expanded client help desk and account
executive support functions and extensive client feedback mechanisms. The
Company believes that its high quality client service enhances the satisfaction
of its clients and generates new revenue opportunities in the form of expanded
transaction volume and sales of new products and services.

LEADING TECHNOLOGY AND PRODUCT PLATFORMS. Over the past two years, MEDE
AMERICA has invested significant capital in new hardware and software systems to
increase its transaction processing capacity. As a result of such technology
investments, MEDE AMERICA believes it is able to provide high quality service to
its clients in the form of high network availability, batch transaction
reliability and high rates of payor claims acceptance. MEDE AMERICA also
believes that its technology platform, which is operating at approximately
one-third of its total capacity, provides the Company with substantial operating
leverage.

EXPERIENCED MANAGEMENT TEAM. Each member of the Company's senior management
team has over 15 years of experience in the information technology and
transaction processing industries and has extensive background in working with
emerging companies in the information processing industry. The Company believes
that the range and depth of its senior management team position it to address
the evolving requirements of its clients and to manage the growth required to
meet its strategic goals.

The Company's mission is to be the leading provider of integrated
healthcare transaction processing technology, networks and databases, enabling
its clients to improve the quality and efficiency of their services. To achieve
this objective, the Company is pursuing a growth strategy comprised of the
following elements: provide a comprehensive suite of EDI solutions; further
penetrate its existing client base through cross-selling of emerging products
and services; develop new EDI solutions to meet the evolving electronic
transaction processing needs of its clients; continue to utilize strategic
alliances with key players in the healthcare industry; and pursue strategic
acquisitions in order to expand the Company's product offerings, enter new
markets and capitalize on the Company's operating leverage.

The Company's executive offices are located at 90 Merrick Avenue, Suite
501, East Meadow, New York 11554, and its telephone number is (516) 542-4500.

THE OFFERING

COMMON STOCK OFFERED BY THE COMPANY.. 3,600,000 shares

COMMON STOCK TO BE OUTSTANDING AFTER
THE OFFERING........................ 11,581,204 shares (1)(2)

USE OF PROCEEDS.................... To retire all outstanding bank and
subordinated indebtedness and accrued
interest thereon, and for other general
corporate purposes, including working
capital.

PROPOSED NASDAQ NATIONAL MARKET
SYMBOL............................ MEDE

- -----------
(1) Reflects the proposed recapitalization of the Company's capital stock (the
"Recapitalization"). The Recapitalization involves the conversion of all
outstanding Preferred Stock, including accrued but unpaid dividends, into
Common Stock and the exercise of all outstanding warrants, however, cash
realized by the Company upon any exercise of the Underwriters' overallotment
option would be applied to the payment of accrued dividends in lieu of
having such dividends convert into Common Stock.

(2) Excludes 483,041 shares of Common Stock issuable upon the exercise of stock
options outstanding as of June 30, 1998 under the MEDE AMERICA Corporation
and Its Subsidiaries Stock Option and Restricted Stock Purchase Plan (the
"Stock Plan"), of which 212,758 are exercisable. The weighted average
exercise price of all outstanding stock options is $4.84 per share. See
"Management -- Employee Benefit Plans."

RECENT DEVELOPMENTS

The Company is currently in the process of compiling preliminary financial
results for the three months ended June 30, 1998 and expects to report the
following financial information:

Revenues for the three months ended June 30, 1998 were $12.1 million
compared to $10.3 million in the corresponding period of fiscal 1997,
representing an increase of 18%. Net loss for the three months ended June 30,
1998 was $(738,000) compared to $(3.6 million) in the corresponding period of
fiscal 1997, representing a decrease of 80%. The Company processed 63.8 million
transactions in the three months ended June 30, 1998, compared to 49.3 million
transactions processed in the corresponding period of fiscal 1997, representing
an increase of 29%.

RISK FACTORS

Prospective purchasers should consider all of the information contained in
this Prospectus before making an investment in shares of Common Stock. In
particular, prospective purchasers should consider the factors set forth herein
under "Risk Factors."

SUMMARY CONSOLIDATED FINANCIAL DATA

YEAR ENDED JUNE 30,
-------------------------------------------------------------------
ACTUAL PRO FORMA(1)
---------------------------------------------------- --------------
1995 1996 1997 1997
---------------- ---------------- ------------------ --------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)

STATEMENT OF OPERATIONS DATA:
Revenues(3) ................................ $ 16,246 $ 31,768 $ 35,279 $ 41,824
Operating expenses:
Operations ................................ 9,753 19,174 16,817 18,601
Sales, marketing and client services ...... 3,615 7,064 8,769 10,450
Research and development .................. 2,051 2,132 3,278 3,513
General and administrative ................ 3,119 6,059 5,263 5,516
Depreciation and amortization ............. 2,995 5,176 5,293 7,062
Write-down of intangible assets ........... 8,191 (4) 9,965 (5) -- --
Acquired in-process research and
development(6) ........................... -- -- 4,354 4,354
Other charges(7) .......................... 2,864 538 2,301 3,581
--------- --------- --------- ---------
Total operating expenses ................... 32,588 50,108 46,075 53,077
--------- --------- --------- ---------
Loss from operations ....................... (16,342) (18,340) (10,796) (11,253)
Other (income) expense ..................... -- 313 (893) (893)
Interest expense (income), net ............. 189 584 1,504 356
--------- --------- --------- ---------
Loss before provision for income taxes ..... (16,531) (19,237) (11,407) (10,716)
Provision for income taxes ................. 70 93 57 57
--------- --------- --------- ---------
Net loss ................................... (16,601) (19,330) (11,464) (10,773)
Preferred stock dividends .................. (27) (2,400) (2,400) --
--------- --------- --------- ---------
Net loss applicable to common
stockholders............................... $(16,628) $(21,730) $ (13,864) $ (10,773)
========= ========= ========= =========
Basic net loss per common share ............ $ (3.17) $ (4.14) $ (2.56)(8) $ (1.18)
Weighted average common shares
outstanding - Basic ....................... 5,238 5,245 5,425 9,131

NINE MONTHS
ENDED MARCH 31,
---------------------------------------------
ACTUAL PRO FORMA(2)
------------------------------- -------------
1997 1998 1998
------------ ------------------ -------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)

STATEMENT OF OPERATIONS DATA:
Revenues(3) ................................ $ 24,964 $ 30,189 $31,835
Operating expenses:
Operations ................................ 12,104 12,485 12,730
Sales, marketing and client services ...... 6,143 7,769 8,067
Research and development .................. 2,455 2,886 2,929
General and administrative ................ 3,340 3,307 3,468
Depreciation and amortization ............. 3,502 4,846 5,156
Write-down of intangible assets ........... -- -- --
Acquired in-process research and
development(6) ........................... 4,354 -- --
Other charges(7) .......................... 990 -- --
-------- --------- -------
Total operating expenses ................... 32,888 31,293 32,350
-------- --------- -------
Loss from operations ....................... (7,924) (1,104) (515)
Other (income) expense ..................... (885) 13 13
Interest expense (income), net ............. 779 2,470 (134)
-------- --------- -------
Loss before provision for income taxes ..... (7,818) (3,587) (394)
Provision for income taxes ................. 43 37 37
-------- --------- -------
Net loss ................................... (7,861) (3,624) (431)
Preferred stock dividends .................. (1,800) (1,800) --
-------- --------- -------
Net loss applicable to common
stockholders............................... $ (9,661) $ (5,424) $ (431)
======== ========= =======
Basic net loss per common share ............ $ (1.81) $ (0.96)(8) $ (0.05)
Weighted average common shares
outstanding - Basic ....................... 5,345 5,677 9,277

AS OF MARCH 31, 1998
---------------------------
ACTUAL AS ADJUSTED
------------ ------------

BALANCE SHEET DATA:
Working capital ................................... $ 3,276 $ 7,889
Total assets ...................................... 54,179 58,363
Long-term debt, including current portion ......... 40,499 1,324
Redeemable cumulative preferred stock ............. 30,623 --
Stockholders' equity (deficit) .................... (25,337) 49,362

YEAR ENDED JUNE 30,
-------------------------------------------------------
ACTUAL PRO FORMA(1)
---------------------------------------- --------------
1995 1996 1997 1997
------------- ------------- ------------ --------------
(IN THOUSANDS, EXCEPT PER TRANSACTION DATA)

OTHER DATA:
EBITDA(9) .................................. $ (13,347) $ (13,164) $ (5,503) $ (4,191)
Adjusted EBITDA(9) ......................... (2,292) (2,052) 2,211 4,803
Cash flows from operating activities ....... (3,561) (1,653) (4,020) --
Cash flows from investing activities ....... (22,074) (4,919) (12,221) --
Cash flows from financing activities ....... 33,434 657 15,521 --
Transactions processed(10)
Pharmacy .................................. -- 107,032 126,201 145,903
Medical ................................... -- 16,030 23,085 27,814
Dental .................................... -- 6,021 12,188 12,188
--------- --------- --------- --------
Total transactions processed ............. -- 129,083 161,474 185,905
Transactions per FTE(10)(11) ............... -- 322 415 478
Revenue per FTE(11) ........................ $ 48 $ 79 $ 91 $ 108
Operating expenses per transaction(10) ..... -- 0.39 0.29 0.29

NINE MONTHS
ENDED MARCH 31,
---------------------------------------
ACTUAL PRO FORMA(2)
------------------------- -------------
1997 1998 1998
------------ ------------ -------------
(IN THOUSANDS, EXCEPT PER TRANSACTION DATA)

OTHER DATA:
EBITDA(9) .................................. $ (4,422) $ 3,742 $ 4,641
Adjusted EBITDA(9) ......................... 922 3,742 4,641
Cash flows from operating activities ....... (2,991) (3,842) --
Cash flows from investing activities ....... (11,630) (11,630) --
Cash flows from financing activities ....... 15,818 15,008 --
Transactions processed(10)
Pharmacy .................................. 88,463 136,685 140,234
Medical ................................... 14,921 23,514 23,514
Dental .................................... 8,759 10,767 10,767
--------- ---------- ---------
Total transactions processed ............. 112,143 170,966 174,515
Transactions per FTE(10)(11) ............... 293 478 487
Revenue per FTE(11) ........................ $ 65 $ 84 $ 89
Operating expenses per transaction(10) ..... 0.29 0.18 0.19

(Footnotes on following page)

(1) Gives effect to (i) the acquisition of Time-Share Computer Systems, Inc.
("TCS") in February 1997, (ii) the acquisition of The Stockton Group, Inc.
("Stockton") in November 1997, (iii) the Recapitalization and (iv) the
Offering, as if they had occurred on July 1, 1996.

(2) Gives effect to (i) the acquisition of Stockton in November 1997, (ii) the
Recapitalization and (iii) the Offering, as if they had occurred on July 1,
1996.

(3) During the periods presented, the Company made a series of acquisitions and
divested certain non-core or unprofitable operations. Revenues attributable
to these divested operations, which are included in the statement of
operations data, were $1,595,000, $3,517,000, $2,252,000, $1,941,000 and
$241,000 in the fiscal years ended June 30, 1995, 1996 and 1997 and the nine
months ended March 31, 1997 and 1998, respectively.

(4) Reflects the write-off of goodwill related to the acquisitions of Medical
Processing Center, Inc. ("MPC") and Wellmark, Inc. ("Wellmark").

(5) Reflects the write-down of costs relating to client lists and related
allocable goodwill obtained in the acquisition of General Computer
Corporation, subsequently renamed MEDE AMERICA Corporation of Ohio ("MEDE
OHIO").

(6) Reflects the write-off of acquired in-process research and development costs
upon the consummation of the TCS acquisition.

(7) Reflects (i) expenses recorded relating to contingent consideration paid to
former owners of acquired businesses of $538,000, $2,301,000 and $990,000 in
the fiscal years ended June 30, 1996 and 1997 and the nine months ended
March 31, 1997, respectively, (ii) expenses of $2,864,000 relating to the
spin-off of the Company by Card Establishment Services, Inc. ("CES") in the
fiscal year ended June 30, 1995 and (iii) non-cash stock compensation of
$1,280,000 relating to Stockton in the pro forma fiscal year ended June 30,
1997.

(8) Supplemental net loss per share, giving effect to the Recapitalization,
would be $(1.55) and $(0.47) for the fiscal year ended June 30, 1997 and the
nine months ended March 31, 1998, respectively.

(9) EBITDA represents net income (loss) plus provision for income taxes, net
interest expense, other (income) expense and depreciation and amortization.
EBITDA is not a measurement in accordance with generally accepted accounting
principles ("GAAP") and should not be considered an alternative to, or more
meaningful than, earnings (loss) from operations, net earnings (loss) or
cash flow from operations as defined by GAAP or as a measure of the
Company's profitability or liquidity. Not all companies calculate EBITDA in
the same manner and, accordingly, EBITDA shown herein may not be comparable
to EBITDA shown by other companies. The Company has included information
concerning EBITDA herein because management believes EBITDA provides useful
information. Adjusted EBITDA represents EBITDA plus certain other charges as
described below. The following table summarizes EBITDA and adjusted EBITDA
for all periods presented:

YEAR ENDED JUNE 30,
------------------------------------------------------
ACTUAL PRO FORMA
------------------------------------------ -----------
1995 1996 1997 1997
-------------- -------------- ------------ -----------
(IN THOUSANDS)

EBITDA .................................. $ (13,347) $ (13,164) $ (5,503) $ (4,191)
Contingent consideration paid to
former owners of acquired busi-
nesses ................................ -- 538 2,301 2,301
Write-down of intangible assets ......... 8,191 9,965 -- --
Acquired in-process research and
development ........................... -- -- 4,354 4,354
Expenses related to the CES spin-
off ................................... 2,864 -- -- --
Non-cash stock compensation ............. -- -- -- 1,280
Contract and legal settlement provi-
sions ................................. -- 609 1,059 1,059
---------- ---------- -------- --------
Adjusted EBITDA ......................... $ (2,292) $ (2,052) $ 2,211 $ 4,803
========== ========== ======== ========

NINE MONTHS ENDED
MARCH 31,
----------------------------------
ACTUAL PRO FORMA
----------------------- ----------
1997 1998 1998
------------ ---------- ----------
(IN THOUSANDS)

EBITDA .................................. $ (4,422) $ 3,742 $ 4,641
Contingent consideration paid to
former owners of acquired busi-
nesses ................................ 990 -- --
Write-down of intangible assets ......... -- -- --
Acquired in-process research and
development ........................... 4,354 -- --
Expenses related to the CES spin-
off ................................... -- -- --
Non-cash stock compensation ............. -- -- --
Contract and legal settlement provi-
sions ................................. -- -- --
-------- ------- -------
Adjusted EBITDA ......................... $ 922 $ 3,742 $ 4,641
======== ======= =======

- -----------
(10) Transaction volumes are not available for the fiscal year ended June 30,
1995.

(11) Full-time equivalents ("FTE") represents the number of full-time employees
and part-time equivalents of full-time employees as of the end of the
period shown.

QUARTERLY FINANCIAL INFORMATION

The following table summarizes certain quarterly financial information for
all periods presented:

THREE MONTHS ENDED
---------------------------------------------------------------------------------
9/30/96 12/31/96 3/31/97 6/30/97 9/30/97 12/31/97 3/31/98
----------- ---------- ----------- ----------- ----------- ---------- -----------
(IN THOUSANDS)

STATEMENT OF OPERATIONS DATA:
Revenues ............................... $ 8,179 $ 7,831 $ 8,954 $ 10,315 $ 9,241 $ 9,849 $ 11,099
Income (loss) from operations .......... (1,301) (1,108) (5,515) (2,872) (850) (264) 10
Net loss ............................... (1,465) (1,324) (5,072) (3,603) (1,517) (1,191) (916)
OTHER DATA:
EBITDA (1) ............................. $ (199) $ (64) $ (4,159) $ (1,081) $ 704 $ 1,309 $ 1,729
Contingent consideration paid to former
owners of acquired businesses ........ 330 330 330 1,311 -- -- --
Acquired in-process research and devel-
opment ............................... -- -- 4,354 -- -- -- --
Contract and legal settlement provisions -- -- -- 1,059 -- -- --
-------- -------- -------- -------- -------- -------- --------
Adjusted EBITDA(1) ..................... $ 131 $ 266 $ 525 $ 1,289 $ 704 $ 1,309 $ 1,729
======== ======== ======== ======== ======== ======== ========

See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Quarterly Operating Results."

- -----------
(1) EBITDA represents net income (loss) plus provision for income taxes, net
interest expense, other (income) expense and depreciation and amortization.
EBITDA is not a measurement in accordance with GAAP and should not be
considered an alternative to, or more meaningful than, earnings (loss) from
operations, net earnings (loss) or cash flow from operations as defined by
GAAP or as a measure of the Company's profitability or liquidity. Not all
companies calculate EBITDA in the same manner and, accordingly, EBITDA shown
herein may not be comparable to EBITDA shown by other companies. The Company
has included information concerning EBITDA herein because management
believes EBITDA provides useful information. Adjusted EBITDA represents
EBITDA plus certain other charges as described above.
- -----------

Except as otherwise noted herein, all information in this Prospectus (i)
assumes no exercise of the Underwriters' over-allotment option and (ii) has been
adjusted to give effect to a one-for-4.5823 reverse stock split of all
outstanding Common Stock (the "Reverse Stock Split"). The Company's Preferred
Stock, $.01 par value ("Preferred Stock"), provides for conversion of the
aggregate liquidation value of the Preferred Stock, including accrued but unpaid
dividends, into Common Stock at the initial public offering price per share.
However, cash realized by the Company upon any exercise of the Underwriters'
overallotment option would be applied to the payment of accrued dividends in
lieu of having such dividends convert into Common Stock. Except as otherwise
noted herein, each reference in this Prospectus to Common Stock issuable upon
conversion of all of the Preferred Stock assumes a conversion price of $14.00.
Based on an aggregate liquidation preference of the Preferred Stock of
$31,220,578 (including $7,224,978 of accrued dividends) as of June 30, 1998,
2,229,982 shares of Common Stock would be so issuable as of such date. In
addition, concurrently with the consummation of the Offering, an additional
66,375 shares of Common Stock will be issued upon the exercise of all
outstanding Common Stock purchase warrants. Such conversion of the Preferred
Stock, and exercise of warrants, are referred to herein as the
"Recapitalization". See "Capitalization," "Description of Common Stock,"
"Principal Stockholders" and "Underwriting."

RISK FACTORS

In addition to other information contained in this Prospectus, prospective
investors should carefully consider the following risk factors before purchasing
the shares of Common Stock offered hereby. This Prospectus contains
forward-looking statements relating to future events or the future financial
performance of the Company. Prospective investors are cautioned that such
forward-looking statements are not guarantees of future performance and involve
risks and uncertainties. Actual events or results may differ materially from
those discussed in the forward-looking statements as a result of various factors
and the matters set forth in this Prospectus generally.

HISTORY OF OPERATING LOSSES; LIMITED OPERATING HISTORY

The Company has experienced substantial net losses, including net losses of
$16.6 million, $19.3 million, $11.5 million and $3.6 million for the fiscal
years ended June 30, 1995, 1996 and 1997, respectively, and the nine months
ended March 31, 1998. The Company had an accumulated deficit of approximately
$51.5 million as of March 31, 1998. In connection with its acquisitions
completed to date, the Company has incurred significant acquisition-related
charges and will record significant amortization expense related to goodwill and
other intangible assets in future periods. There can be no assurance that the
Company will be able to achieve or sustain revenue growth or profitability on a
quarterly or annual basis. See "Selected Consolidated Financial Data" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."

The Company's operating history is limited. The Company's prospects must be
considered in light of the risks, expenses and difficulties frequently
encountered by companies with limited operating histories, particularly
companies in new and rapidly evolving markets such as EDI and transaction
processing. Such risks include, but are not limited to, an evolving and
unpredictable business model and the difficulties inherent in the management of
growth. To address these risks, the Company must, among other things, maintain
and increase its client base, implement and successfully execute its business
and marketing strategies, continue to develop and upgrade its technology and
transaction-processing systems, provide superior client service, respond to
competitive developments, and attract, retain and motivate qualified personnel.
There can be no assurance that the Company will be successful in addressing such
risks or in achieving profitability, and the failure to do so could have a
material adverse effect on the Company's business, financial condition and
results of operations.

ACQUISITION STRATEGY; NEED FOR ADDITIONAL CAPITAL

The Company's strategy includes acquisitions of healthcare EDI businesses
that complement or supplement the Company's business. The success of such a
strategy will depend on many factors, including the Company's ability to
identify suitable acquisition candidates, the purchase price and the
availability and terms of financing. Significant competition for acquisition
opportunities exists in the healthcare EDI industry, which may significantly
increase the costs of and decrease the opportunities for acquisitions. Although
the Company is actively pursuing possible acquisitions, there can be no
assurance that any acquisition will be consummated. No assurances can be given
that the Company will be able to operate any acquired businesses profitably or
otherwise successfully implement its expansion strategy. The Company may finance
future acquisitions through borrowings or the issuance of debt or equity
securities. There can be no assurance that future lenders will extend credit on
favorable terms, if at all. Further, any borrowings would increase the Company's
interest expense and any issuance of equity securities could have a dilutive
effect on the holders of Common Stock. The Company will not be able to account
for acquisitions under the "pooling of interests" method for at least two years
following the Offering. Accordingly, such future acquisitions may result in
significant goodwill and a corresponding increase in the amount of amortization
expense and could also result in write-downs of purchased assets, all of which
could adversely affect the Company's operating results in future periods.

INTEGRATION OF ACQUIRED BUSINESSES

The success of the Company's acquisition strategy also depends to a large
degree on the Company's ability to effectively integrate the acquired products
and services, facilities, technologies, personnel and operations into the
Company. The process of integration often requires substantial management atten-

tion and other corporate resources, and the Company may not be able to
accurately predict the resources that will be needed to integrate acquired
operations. There can be no assurance that the Company will be able to
effectively integrate any or all acquired companies or operations. Any failure
to do so could result in operating inefficiencies, redundancies, management
distraction or technological difficulties (among other possible adverse
consequences), any of which could have a material adverse effect on the
Company's business, financial condition and results of operations.

EVOLVING INDUSTRY STANDARDS AND RAPID TECHNOLOGICAL CHANGES

The market for the Company's products and services is characterized by
rapidly changing technology, evolving industry standards and the frequent
introduction of new and enhanced services. The Company's success will depend
upon its ability to enhance its existing services, to introduce new products and
services on a timely and cost-effective basis to meet evolving client
requirements, to achieve market acceptance for new products or services and to
respond to emerging industry standards and other technological changes. There
can be no assurance that the Company will be able to respond effectively to
technological changes or new industry standards. Moreover, there can be no
assurance that other companies will not develop competitive products or
services, or that any such competitive products or services will not have an
adverse effect on the Company's business, financial condition and results of
operations.

DEPENDENCE ON CONNECTIONS TO PAYORS

The Company's business is enhanced by the substantial number of payors
(such as insurance companies, Medicare and Medicaid agencies and Blue Cross/Blue
Shield organizations) to which the Company has electronic connections. These
connections may either be made directly or through a clearinghouse or other
intermediary. The Company has attempted to enter into suitable contractual
relationships to ensure long term payor connectivity; however, there can be no
assurance that the Company will be able to maintain its links with all payors
with whom it currently has connections. In addition, there can be no assurance
that the Company will be able to develop new connections (either directly or
through clearinghouses) on satisfactory terms, if at all. Lastly, certain
third-party payors provide EDI systems directly to healthcare providers,
bypassing third-party processors such as the Company. The failure to maintain
its existing connections with payors and clearinghouses or to develop new
connections as circumstances warrant, or an increase in the utilization of
direct links between providers and payors, could have a material adverse effect
on the Company's business, financial condition and results of operations.

DEVELOPMENT OF EDI PROCESSING IN THE HEALTHCARE INDUSTRY

The Company's strategy anticipates that electronic processing of healthcare
transactions, including transactions involving clinical as well as financial
information, will become more widespread and that providers and third-party
payors increasingly will use EDI processing networks for the processing and
transmission of data. Electronic transmission of healthcare transactions is
still developing, and complexities in the nature and types of transactions which
must be processed have hindered, to some degree, the development and acceptance
of EDI processing in this market. There can be no assurance that continued
conversion from paper-based transaction processing to EDI processing in the
healthcare industry will occur or that, to the extent it does occur, healthcare
providers and payors will use independent processors such as the Company.
Furthermore, if EDI processing extensively penetrates the healthcare market or
becomes highly standardized, it is possible that competition among transaction
processors will focus increasingly on pricing. If competition causes the Company
to reduce its pricing in order to retain market share, the Company may suffer a
material adverse change in its business, financial condition and results of
operations.

POTENTIAL VARIABILITY IN QUARTERLY OPERATING RESULTS

The Company's quarterly operating results have varied significantly in the
past and are likely to vary from quarter to quarter in the future. Quarterly
revenues and operating results may fluctuate as a result of a variety of
factors, including: integration of acquired businesses; seasonal variability of
demand

for healthcare services generally; the number, timing and significance of
announcements and releases of product enhancements and new products by the
Company and its competitors; the timing and significance of announcements
concerning the Company's present or prospective strategic alliances; the loss of
clients due to consolidation in the healthcare industry; legislation or changes
in government policies or regulations relating to healthcare EDI processing;
delays in product installation requested by clients; the length of the sales
cycle or the timing of sales; client budgeting cycles and changes in client
budgets; marketing and sales promotional activities; software defects and other
quality factors; and general economic conditions.

The Company's operating expense levels, which will increase with the
addition of acquired businesses, are relatively fixed. If revenues are below
expectations, net income is likely to be disproportionately adversely affected.
Further, in some future quarters the Company's revenues or operating results may
be below the expectations of securities analysts and investors. In such event,
the trading price of the Company's Common Stock would likely be materially
adversely affected. See "Summary -- Quarterly Financial Information" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Quarterly Operating Results."

PROPOSED HEALTHCARE DATA CONFIDENTIALITY LEGISLATION

Legislation that imposes restrictions on third-party processors' ability to
analyze certain patient data without specific patient consent has been
introduced in the U.S. Congress. Although the Company does not currently access
or analyze individually identifiable patient information, such legislation, if
adopted, could adversely affect the ability of third-party processors to
transmit information such as treatment and clinical data, and could adversely
affect the Company's ability to expand into related areas of the EDI healthcare
market. In addition, the Health Insurance Portability and Accountability Act,
passed in 1997, mandates the establishment of federal standards for the
confidentiality, format and transmission of patient data, as well as
recordkeeping and data security obligations. It is possible that the standards
so developed will necessitate changes to the Company's operations, which could
have a material adverse effect on the Company's business, financial condition
and results of operations.

COMPETITION

The Company faces significant competition from healthcare and
non-healthcare EDI processing companies. The Company also faces potential
competition from other companies, such as vendors of provider information
management systems, which have added or may add their own proprietary EDI
processing systems to existing or future products and services. Competition may
be experienced in the form of pressure to reduce per transaction prices or
eliminate per transaction pricing altogether. If EDI processing becomes the
standard for claims and information processing, a number of larger and better
capitalized entities may elect to enter the industry and further increase
competitive pricing pressures. Many of the Company's existing and potential
competitors are larger and have significantly greater financial, marketing,
technological and other resources than the Company. There can be no assurance
that increased competition will not have a material adverse effect on the
Company's business, financial condition and results of operations. See "Business
- -- Competition."

RISK OF INTERRUPTION OF DATA PROCESSING

The Company currently processes its data through its facilities in
Twinsburg, Ohio, Mitchel Field, New York, and Atlanta, Georgia. The Twinsburg
and Mitchel Field sites are designed to be redundant. Additionally, the Company
transmits data through a number of different telecommunications networks, using
a variety of different technologies. However, the occurrence of an event that
overcomes the data processing and transmission redundancies then in place could
lead to service interruptions and could have a material adverse effect on the
Company's business, financial condition and results of operations.

YEAR 2000 COMPLIANCE

and/or software used by many companies (including the Company) will need to be
upgraded to comply with such "Year 2000" requirements. Significant uncertainty
exists in the software industry concerning the potential consequences of the
Year 2000 phenomenon. Although the Company currently offers software products
that are designed or have been modified to comply with the Year 2000
requirements, there can be no assurance that the Company's current software
contains all necessary date code changes. The Company believes that certain
installations of its products and certain products currently used by its clients
in conjunction with third-party vendors' products are not Year 2000 compliant.
Certain of the Company's physician benefit management clients are being migrated
from the Company's PBM system in Ohio to its PBM system acquired from Stockton.
The total revenue from such clients is expected to be $6,351,000 in fiscal 1999.
A testing and migration timetable for all such clients has been developed, with
migration activities scheduled for completion in mid-1999.

While the Company has plans to address the problems related to its own
products within the coming year, there can be no assurance that the costs of
bringing these systems into compliance will not be significantly greater than
expected or that compliance will be achieved in a timely manner. In addition,
there can be no assurance that the Company's current products do not contain
undetected errors or defects associated with Year 2000 date functions that may
result in material costs to the Company. Moreover, even if the Company's
products and services satisfy such requirements, the products and services
provided to the Company's clients by other software vendors, and the systems
used by certain payors, may not be Year 2000 compliant, thereby disrupting the
ability of the Company's clients to use the Company's software or to obtain
reimbursement in a timely manner. An adverse impact on such clients due to the
Year 2000 issue could also have a material adverse effect on the Company's
business, financial condition and results of operations. See "Business -- Year
2000 Compliance."

DEPENDENCE ON KEY PERSONNEL

The Company's performance depends in significant part on the continued
service of its executive officers, its product managers and key sales, marketing
and development personnel. The Company considers its key management personnel to
be Thomas P. Staudt, President and Chief Executive Officer, William M. McManus
and Roger L. Primeau, in charge of the pharmacy/medical and dental operations,
respectively, James T. Stinton, the Company's Chief Information Officer, and
Richard Bankosky, the Company's Chief Financial Officer. No single individual is
considered by the Company to be critical to the Company's success. The Company
does not maintain employment agreements with these officers or other employees
(with limited exceptions) and the failure to retain the services of such persons
could have a material adverse effect on the Company's business, financial
condition and results of operations.

UNCERTAINTY AND CONSOLIDATION IN THE HEALTHCARE INDUSTRY

The healthcare industry is subject to changing political, economic and
regulatory influences that may affect the procurement practices and operations
of healthcare industry participants. Federal and state legislatures periodically
consider programs to modify or amend the United States healthcare system at both
the federal and state level. These programs may contain proposals to increase
governmental involvement in healthcare, lower reimbursement rates or otherwise
change the environment in which healthcare industry participants operate.
Healthcare industry participants may react to these proposals and the
uncertainty surrounding such proposals by curtailing or deferring investments,
including investments in the Company's products and services. In addition, many
healthcare providers are consolidating to create larger healthcare delivery
organizations. This consolidation reduces the number of potential clients for
the Company's services, and the increased bargaining power of these
organizations could lead to reductions in the amounts paid for the Company's
services. Other healthcare information companies, such as billing services and
practice management vendors, which currently utilize the Company's services,
could develop or acquire transaction processing and networking capabilities and
may cease utilizing the Company's services in the future. The impact of these
developments in the healthcare industry is difficult to predict and could have a
material adverse effect on the Company's business, financial condition and
results of operations. To the extent that the current trend toward consolidation
in the industry continues, MEDE AMERICA may find it more difficult to obtain
access to payors, information provid-

ers and practice management software vendors on whom its ability to deliver
services and enroll new clients now depends. Loss of access to these industry
participants could materially adversely affect the Company's business, financial
condition and results of operations.

DEPENDENCE ON INTELLECTUAL PROPERTY; RISK OF INFRINGEMENT

The Company's ability to compete effectively depends to a significant
extent on its ability to protect its proprietary information. The Company relies
on a combination of statutory and common law copyright, trademark and trade
secret laws, client licensing agreements, employee and third-party nondisclosure
agreements and other methods to protect its proprietary rights. The Company does
not include in its software any mechanisms to prevent or inhibit unauthorized
use, but generally enters into confidentiality agreements with its consultants,
clients and potential clients and limits access to, and distribution of, its
proprietary information. The Company has not filed any patent applications with
respect to its intellectual property. It is the Company's policy to defend its
intellectual property; however, there can be no assurance that the steps taken
by the Company to protect its proprietary information will be adequate to
prevent misappropriation of its technology or that the Company's competitors
will not independently develop technologies that are substantially equivalent or
superior to the Company's technology.

The Company is also subject to the risk of alleged infringement by it of
intellectual property rights of others. Although the Company is not currently
aware of any pending or threatened infringement claims with respect to the
Company's current or future products, there can be no assurance that third
parties will not assert such claims. Any such claims could require the Company
to enter into license arrangements or could result in protracted and costly
litigation, regardless of the merits of such claims. No assurance can be given
that any necessary licenses will be available or that, if available, such
licenses can be obtained on commercially reasonable terms. Furthermore,
litigation may be necessary to enforce the Company's intellectual property
rights, to protect the Company's trade secrets, to determine the validity and
scope of the proprietary rights of others or to defend against claims of
infringement. Such litigation could result in substantial costs and diversion of
resources and could have a material adverse effect on the Company's business,
financial condition and results of operations.

The Company expects that software developers will increasingly be subject
to such claims as the number of products and competitors providing software and
services to the healthcare industry increases and overlaps occur. Any such
claim, with or without merit, could result in costly litigation or might require
the Company to enter into royalty or licensing agreements, any of which could
have a material adverse effect on the Company's business, financial condition
and results of operations. Such royalty or licensing agreements, if required,
may not be available on terms acceptable to the Company or at all.

RISK OF PRODUCT DEFECTS

Products such as those offered by the Company may contain errors or
experience failures, especially when initially introduced or when new versions
are released. While the Company conducts extensive testing to address these
errors and failures, there can be no assurance that errors or performance
failures will not occur in products under development or in enhancements to
current products. Any such errors or failures could result in loss of revenues
and clients, delay in market acceptance, diversion of development resources,
damage to the Company's reputation or increased service costs, any of which
could have a material adverse effect on the Company's business, financial
condition and results of operations. To date, the Company has not experienced
any material product defects.

CONTROL BY EXISTING STOCKHOLDERS

After the Offering, 49.7% of the Common Stock will be owned by investment
funds affiliated with Welsh, Carson, Anderson & Stowe, a private investment firm
("WCAS") and 7.9% will be owned by investment funds affiliated with William
Blair Capital Partners L.L.C. ("WBCP"). See "Principal Shareholders" and
"Description of Capital Stock -- Recapitalization." As a result of this
concentration of ownership, these shareholders may be able to exercise control
over matters requiring shareholder ap-

proval, including the election of directors and approval of significant
corporate transactions. Such control may have the effect of delaying or
preventing a change in control of the Company. The Company's Board of Directors
currently includes Thomas E. McInerney and Anthony J. de Nicola, designees of
WCAS, and Timothy M. Murray, a designee of WBCP. The funds affiliated with WCAS
may be deemed to be controlled by their respective general partners, the
general partners of each of which include some or all of the following
individuals: Thomas E. McInerney and Anthony J. de Nicola, directors of the
Company, Patrick J. Welsh, Russell L. Carson, Bruce K. Anderson, Richard H.
Stowe, Andrew M. Paul, Robert A. Minicucci, Paul B. Queally and Laura M.
VanBuren. The funds affiliated with WBCP may be deemed to be controlled by
their respective general partners, the general partners of which include
William Blair & Company L.L.C. and certain of its employees, including Timothy
E. Murray, a director of the Company.

NO PUBLIC MARKET FOR THE COMMON STOCK; PRICE AND MARKET VOLATILITY

Prior to this Offering, there has been no public market for the Common
Stock, and there can be no assurance that an active trading market will develop
or be sustained after this Offering or that the market price of the Common Stock
will not decline below the initial public offering price. The initial public
offering price has been determined by negotiations between the Company and the
Representatives of the Underwriters and may not be indicative of the market
price of the Common Stock in the future. See "Underwriting" for a discussion of
the factors considered in determining the initial public offering price. The
stock market has from time to time experienced extreme price and volume
fluctuations, particularly in the securities of technology companies, which have
often been unrelated to the operating performance of individual companies.
Announcements of technological innovations or new and enhanced commercial
products by the Company or its competitors, market conditions in the industry,
developments or disputes concerning proprietary rights, changes in earnings,
economic and other external factors, political and other developments and
period-to-period fluctuations in financial results of the Company may have a
significant impact on the market price and marketability of the Company's Common
Stock. Fluctuations in the trading price of the Common Stock may also adversely
affect the liquidity of the trading market for the Common Stock.

POTENTIAL ADVERSE EFFECT OF ANTI-TAKEOVER PROVISIONS

The Company's Board of Directors is authorized to issue up to 5,000,000
shares of Preferred Stock and to determine the price, rights, preferences and
privileges of those shares without any further vote or action by the Company's
stockholders. The rights of the holders of Common Stock will be subject to, and
may be adversely affected by, the rights of the holders of any shares of
Preferred Stock that may be issued in the future. While the Company has no
present intention to issue shares of Preferred Stock, any such issuance, while
providing desirable flexibility in connection with possible acquisitions and
other corporate purposes, could have the effect of making it more difficult for
a third party to acquire a majority of the outstanding voting stock of the
Company. In addition, such Preferred Stock may have other rights, including
economic rights senior to the Common Stock, and, as a result, the issuance
thereof could have a material adverse effect on the market value of the Common
Stock. Furthermore, the Company is subject to the anti-takeover provisions of
Section 203 of the Delaware General Corporation Law (the "DGCL"), which
prohibits the Company from engaging in a "business combination" with an
"interested stockholder" for a period of three years after the date of the
transaction in which such person first becomes an "interested stockholder,"
unless the business combination is approved in a prescribed manner. The
application of these provisions could have the effect of delaying or preventing
a change of control of the Company. Certain other provisions of the Amended and
Restated Certificate of Incorporation and the Company's Bylaws could also have
the effect of delaying or preventing changes of control or management of the
Company, which could adversely affect the market price of the Company's Common
Stock. See "Description of Capital Stock -- Preferred Stock" and "-- Delaware
Laws and Certain Charter and Bylaw Provisions; Anti-Takeover Measures."

SHARES ELIGIBLE FOR FUTURE SALE; POSSIBLE ADVERSE EFFECT ON FUTURE MARKET PRICE

Sales of Common Stock (including Common Stock issued upon the exercise of
outstanding stock options) in the public market after this Offering could
materially adversely affect the market price of the Common Stock. Upon the
completion of this Offering and giving effect to the Recapitalization, the

Company will have 11,581,204 shares of Common Stock outstanding, assuming no
exercise of stock options and no exercise of the Underwriters' over-allotment
option. Of these outstanding shares of Common Stock, the 3,600,000 shares sold
in this Offering will be freely tradeable, without restriction under the
Securities Act of 1933, as amended (the "Securities Act"), unless purchased by
"affiliates" of the Company, as that term is defined in Rule 144 under the
Securities Act. The remaining 7,981,204 shares of Common Stock held by existing
stockholders are "restricted securities" as that term is defined in Rule 144
under the Securities Act and were issued and sold by the Company in reliance on
exemptions from the registration requirements of the Securities Act. These
shares may be resold in the public market only if registered or pursuant to an
exemption from registration, such as Rule 144 under the Securities Act. All
officers, directors and certain holders of Common Stock beneficially owning, in
the aggregate, approximately shares of Common Stock and options to purchase
shares of Common Stock, have agreed, pursuant to certain lock-up agreements,
that they will not sell, offer to sell, solicit an offer to purchase, contract
to sell, grant any option to sell, pledge, or otherwise transfer or dispose of,
directly or indirectly, any shares of Common Stock owned by them, or that could
be purchased by them through the exercise of options to purchase Common Stock of
the Company, for a period of 180 days after the date of this Prospectus without
the prior written consent of Smith Barney Inc. Upon expiration of the lock-up
agreements, all shares of Common Stock currently outstanding will be immediately
eligible for resale, subject to the requirements of Rule 144. The Company is
unable to predict the effect that sales may have on the then prevailing market
price of the Common Stock. See "Management -- Employee Benefit Plans,"
"Description of Capital Stock" and "Shares Eligible for Future Sale."

BENEFITS OF THE OFFERING TO CURRENT STOCKHOLDERS

Prospective investors should be aware that current holders of the Company's
Common Stock and Preferred Stock will benefit from the Offering. Approximately
$25.2 million of the net proceeds of the Offering will be used to prepay all
then outstanding principal and accrued interest on a Senior Subordinated Note
(as herein defined) held by WCAS Capital Partners II, L.P., one of the Company's
principal stockholders. In addition, approximately $17.8 million of the net
proceeds will be used to repay all then outstanding indebtedness under the
Company's current Credit Facility (as herein defined). The Credit Facility,
which is guaranteed by the Company's four principal stockholders, will be
replaced with a new facility, which will not be guaranteed by a third party. See
"Use of Proceeds" and "Certain Transactions."

After the Offering, all existing stockholders will benefit from certain
changes including the creation of a public market for the Company's Common
Stock. Moreover, the current shareholders will realize an immediate increase in
market and tangible book value. Assuming an initial public offering price of
$14.00 per share, the aggregate unrealized gain to current stockholders of the
Company, based on the difference between such public offering price of the
Common Stock and the acquisition cost of their equity, will be $82.7 million.
See "Dilution."

IMMEDIATE AND SUBSTANTIAL DILUTION

Purchasers of Common Stock in the Offering will incur immediate and
substantial dilution in the net tangible book value per share of Common Stock in
the amount of $12.98 per share, at an assumed initial public offering price of
$14.00 per share. To the extent that outstanding options to purchase Common
Stock are exercised, there will be further dilution. See "Dilution."

ABSENCE OF DIVIDENDS

No dividends have been paid on the Common Stock to date and the Company
does not anticipate paying dividends on the Common Stock in the foreseeable
future. Moreover, it is expected that the terms of the Amended Credit Facility
will prohibit the Company from paying dividends on the Common Stock. See
"Dividend Policy."

RISKS ASSOCIATED WITH FORWARD-LOOKING STATEMENTS

This Prospectus contains certain statements that are "forward-looking
statements," which include, among other things, the discussions of the Company's
business strategy and expectations concerning developments in the healthcare EDI
industry, the Company's market position, future operations, transaction growth,
margins and profitability, and liquidity and capital resources. Investors in the
Common Stock offered hereby are cautioned that such forward-looking statement
involves risks and uncertainties, and that although the Company believes that
the assumptions on which the forward-looking statements contained herein are
reasonable, any of those assumptions could prove to be inaccurate, and as a
result, the forward-looking statements based on those assumptions also could be
incorrect. The uncertainties in this regard include, but are not limited to,
those identified in the risk factors discussed above. In light of these and
other uncertainties, the inclusion of a forward-looking statement herein should
not be regarded as a representation by the Company that the Company's plans and
objectives will be achieved.

THE COMPANY

MEDE AMERICA is a leading provider of EDI products and services to a broad
range of providers and payors in the healthcare industry. The Company offers an
integrated suite of EDI solutions that allows hospitals, pharmacies, physicians,
dentists and other healthcare providers and provider groups to electronically
edit, process and transmit claims, eligibility and enrollment data, track claims
submissions throughout the claims payment process and obtain faster
reimbursement for their services. In addition to offering greater processing
speed, the Company's EDI products reduce processing costs, increase collection
rates and result in more accurate data interchange. The Company maintains over
540 direct connections with insurance companies, Medicare and Medicaid agencies,
Blue Cross and Blue Shield systems and other third party payors, as well as over
500 indirect connections with additional payors through claims clearinghouses.
Currently, the Company processes over 900,000 transactions per day for over
65,000 providers located in all 50 states. The Company's mission is to be the
leading provider of integrated healthcare transaction processing technology,
networks and databases, enabling its clients to improve the quality and
efficiency of their services.

The Company was formed in March 1995 through the consolidation and
subsequent spin-off of three subsidiaries of Card Establishment Services, Inc.
("CES"), in connection with the acquisition by First Data Corporation of CES'
credit card processing business. The three subsidiaries, MedE America, Inc.,
Medical Processing Center, Inc. ("MPC") and Wellmark, Inc. ("Wellmark"), which
comprised the heathcare services business of CES, historically provided EDI
services to hospitals and physicians. After the spin-off, the Company made
several strategic acquisitions to strengthen its core hospital/medical business
and to expand into the pharmaceutical and dental markets. In March 1995, the
Company acquired General Computer Corporation, subsequently renamed MEDE AMERICA
Corporation of Ohio (referred to herein as "MEDE OHIO"), a developer of EDI
systems and services for the pharmaceutical industry, and in June 1995 the
Company acquired Latpon Health Systems, Incorporated ("Latpon"), a developer of
proprietary EDI claims processing software for hospitals and physicians. These
acquisitions were followed by acquisitions of Electronic Claims and Funding,
Inc. ("EC&F"), and Premier Dental Systems, Corp. ("Premier"), in October 1995.
These companies were engaged in the EDI and management software businesses in
the dental market. The Company enhanced its presence in the pharmacy market by
acquiring Time-Share Computer Systems, Inc. ("TCS"), in February 1997 and The
Stockton Group, Inc. ("Stockton") in November 1997.

The Company's executive offices are located at 90 Merrick Avenue, Suite
501, East Meadow, New York 11554, and its telephone number is (516) 542-4500.

USE OF PROCEEDS

The net proceeds to the Company from the sale of the shares of Common Stock
offered hereby, assuming an initial public offering price of $14.00 per share,
are estimated to be $45.9 million ($53.0 million if the Underwriters'
over-allotment option is exercised in full), after deducting the estimated
offering fees and expenses payable by the Company. The Company intends to use
the net proceeds from the Offering as follows: (i) approximately $25.2 million
to prepay all then outstanding principal and accrued interest on its outstanding
10% Senior Subordinated Note due February 14, 2002 (the "Senior Subordinated
Note"); (ii) approximately $17.8 million to repay all then outstanding
indebtedness under its current credit facility (the "Credit Facility"); and
(iii) the balance for general corporate and working capital purposes. Cash
realized by the Company upon any exercise of the Underwriters' overallotment
option would be applied to the payment of accrued dividends in lieu of having
such dividends convert into Common Stock. See "Certain Transactions." Pending
application to the foregoing uses, such proceeds will be invested in short-term,
investment-grade, interest-bearing obligations.

Outstanding borrowings under the Credit Facility currently bear interest at
a weighted average rate of 6.93% per annum, are guaranteed by WCAS and WBCP and
mature on October 31, 1999. The Company has received a letter from the lender
under the Credit Facility committing to provide an amended credit facility (the
"Amended Credit Facility") with total available credit of $10.0 million upon
substantially the same terms and conditions as the Credit Facility. Borrowings
under the Amended Credit Facility will not be guaranteed by any third party. It
is anticipated that the Amended Credit facility will take effect upon the
consummation of the Offering. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources."

DIVIDEND POLICY

The Company has never declared or paid any dividends on its Common Stock
and does not anticipate paying any cash dividends in the foreseeable future.
Moreover, it is expected that the terms of the Amended Credit Facility will
prohibit the Company from paying dividends on the Common Stock. The Company
currently intends to retain any earnings to fund future growth and the operation
of its business. See "Risk Factors -- Absence of Dividends."

CAPITALIZATION

The following table sets forth the capitalization of the Company as of
March 31, 1998 on an actual basis and as adjusted to reflect the
Recapitalization and the issuance and sale by the Company of 3,600,000 shares of
Common Stock offered hereby, assuming an initial public offering price of $14.00
per share, after deducting the estimated offering fees and expenses payable by
the Company, and the application of the net proceeds thereof as described under
"Use of Proceeds." The following table should be read in conjunction with the
Consolidated Financial Statements and the notes thereto and the "Unaudited Pro
Forma Consolidated Financial Information" appearing elsewhere in this
Prospectus.

AS OF MARCH 31, 1998
-----------------------------
ACTUAL AS ADJUSTED(1)
----------- ---------------
(IN THOUSANDS)

Long-term debt (including current portion)
Senior Subordinated Note(2) .................. $ 23,250 $ --
Credit Facility(2) ........................... 15,925 --
Other debt ................................... 1,324 1,324
--------- ---------
Total long-term debt ....................... 40,499 1,324
--------- ---------
Redeemable cumulative preferred stock ......... 30,623 --
--------- ---------
Stockholders' (deficit) equity
Common Stock(3) .............................. 57 116
Additional paid-in capital ................... 26,069 102,555
Accumulated deficit .......................... (51,463) (53,309)
--------- ---------
Total stockholders' (deficit) equity ......... (25,337) 49,362
--------- ---------
Total capitalization ......................... $ 45,785 $ 50,686
========= =========

- ----------
(1) As adjusted to reflect the Recapitalization and the sale of 3,600,000 shares
of Common Stock offered by the Company hereby at an assumed initial public
offering price of $14.00 per share and the anticipated application of the
estimated net proceeds therefrom.

(2) As of June 30, 1998, the outstanding principal amount plus accrued interest
on the Senior Subordinated Note was approximately $25.6 million and the
outstanding indebtedness under the Credit Facility plus accrued interest was
approximately $16.9 million.

(3) Excludes 483,041 shares of Common Stock reserved for issuance upon exercise
of stock options outstanding under the Stock Plans, as of June 30, 1998, at
a weighted average exercise price of $4.84 per share, of which 212,758 are
exercisable. See "Management-Employee Benefit Plans." Includes 66,375 shares
of Common Stock issuable upon exercise of the Common Stock purchase warrants
as contemplated by the Recapitalization. See "Description of Capital Stock."

DILUTION

The pro forma deficit in net tangible book value of the Company as of March
31, 1998, after giving effect to the Recapitalization, was approximately $(32.4)
million or $(4.08) per share of Common Stock. Pro forma net deficit in tangible
book value per share is determined by dividing the net tangible deficit in book
value of the Company (pro forma tangible assets less total liabilities) by the
number of shares of Common Stock outstanding. Dilution per share represents the
difference between the amount per share paid by purchasers of shares of Common
Stock in the Offering and the pro forma net tangible book value per share of
Common Stock immediately after completion of the Offering. Without taking into
account any changes in such pro forma net tangible book value after March 31,
1998, other than to give effect to (i) the sale of 3,600,000 shares of Common
Stock by the Company in this Offering at an assumed initial public offering
price of $14.00 per share and after deducting the estimated fees and offering
expenses, (ii) the application of the estimated net proceeds therefrom and (iii)
the Recapitalization, the pro forma net tangible book value of the Company as of
March 31, 1998 would have been approximately $11.7 million or $1.02 per share.
This represents an immediate increase in pro forma net tangible book value of
$5.10 per share to existing stockholders and an immediate dilution in pro forma
net tangible book value of $12.98 per share to new investors. The following
table illustrates this dilution on a per share basis.

Assumed initial public offering price per share ...................... $ 14.00
Pro forma net tangible book value per share before this Offering(1). $(4.08)
Increase per share attributable to new investors ................... 5.10
------
Pro forma net tangible book value per share after this Offering ...... 1.02
-------
Dilution per share to new investors(2) ............................... $ 12.98
=======

- ----------
(1) Pro forma net tangible book value per share of Common Stock is determined by
dividing the Company's pro forma deficit in net tangible book value at March
31, 1998 of $(32.4) million, by the pro forma number of shares of Common
Stock outstanding, in each case after giving effect to the Recapitalization.

(2) Dilution per share to new investors is determined by subtracting pro forma
net tangible book value per share after this Offering from the initial
public offering price per share.

The following table sets forth, on a pro forma basis as of March 31, 1998,
after giving effect to the Recapitalization, the number of shares of Common
Stock purchased from the Company, the total consideration paid and the average
price per share paid by existing stockholders (excluding the fair value of
companies contributed in the March 1995 spin-off from CES) and to be paid by new
investors, based on an assumed initial public offering price of $14.00 per share
and before deducting estimated fees and expenses payable by the Company:

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

Existing stockholders ......... 7,932,917 68.8% $28,325,000 36.0% $ 3.57
New investors ................. 3,600,000 31.2 50,400,000 64.0 14.00
--------- ----- ----------- -----
Total ......................... 11,532,917 100.0% $78,725,000 100.0%
========== ===== =========== =====

The foregoing tables assume no exercise of any outstanding stock options to
purchase Common Stock. At March 31, 1998 there were 488,497 shares of Common
Stock issuable upon the exercise of stock options outstanding under the
Company's Stock Plans, of which 212,083 were currently exercisable. Such options
have a weighted average exercise price of $4.83 per share. To the extent such
options are exercised, there will be further dilution to the new investors. See
"Capitalization," "Management -- Employee Benefit Plans" and "Description of
Capital Stock."

UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION

The following unaudited pro forma consolidated financial information has
been prepared by the Company's management from the historical Consolidated
Financial Statements of the Company and the notes thereto included elsewhere in
this Prospectus. The unaudited pro forma consolidated statements of operations
for the year ended June 30, 1997 and the nine months ended March 31, 1998
include adjustments that give effect to (i) the acquisition of TCS in February
1997, (ii) the acquisition of Stockton in November 1997, (iii) the
Recapitalization and (iv) the Offering, as if they had occurred as of July 1,
1996. The unaudited pro forma consolidated balance sheet as of March 31, 1998
gives effect to (i) the Recapitalization and (ii) the Offering as if they had
occurred on such date.

The pro forma adjustments are based upon available information and certain
assumptions that the Company believes are reasonable under the circumstances.
The unaudited pro forma consolidated financial information should be read in
conjunction with the historical financial statements of the Company and Stockton
and the respective notes thereto, "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the other financial
information included herein. The unaudited pro forma consolidated financial
information is provided for information purposes only and does not purport to be
indicative of the results which would have been obtained had the acquisitions of
TCS and Stockton, the Recapitalization and the Offering been completed on the
dates indicated or which may be expected to occur in the future.

UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED JUNE 30, 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)

ACTUAL
---------------------------------------
COMPANY TCS(1) STOCKTON(2)
-------------- ---------- -------------

Revenues ...................................... $ 35,279 $ 2,743 $ 3,802
Operating expenses:
Operations ................................... 16,817 1,145 563
Sales, marketing and client services ......... 8,769 781 900
Research and development ..................... 3,278 132 103
General and administrative ................... 5,263 93 160
Depreciation and amortization ................ 5,293 90 109
Non-cash stock compensation .................. -- -- 1,280
Contingent consideration paid to former
owners of acquired businesses ............... 2,301 -- --
Acquired in-process research and
development ................................. 4,354 -- --
---------- ------- -------
Total operating expenses ...................... 46,075 2,241 3,115
---------- ------- -------
Income (loss) from operations ................. (10,796) 502 687
Other (income) expense ........................ (893) -- --
Interest expense, net ......................... 1,504 -- 100
---------- ------- -------
Income (loss) before provision for income
taxes ........................................ (11,407) 502 587
Provision for income taxes .................... 57 -- --
---------- ------- -------
Net income (loss) ............................. (11,464) 502 587
Preferred stock dividends ..................... (2,400) -- --
---------- ------- -------
Net income (loss) applicable to common
stockholders ................................. $ (13,864) $ 502 $ 587
========== ======= =======
Basic net loss per common share ............... $ (2.56)
Weighted average common shares
outstanding - Basic .......................... 5,425 -- --

RECAPITALIZATION
AND ACQUISITIONS PRO OFFERING PRO FORMA,
ADJUSTMENTS FORMA ADJUSTMENTS AS ADJUSTED
------------------ ------------- ----------------- --------------

Revenues ...................................... $ -- $ 41,824 $ -- $ 41,824
Operating expenses:
Operations ................................... 76 (3) 18,601 -- 18,601
Sales, marketing and client services ......... -- 10,450 -- 10,450
Research and development ..................... -- 3,513 -- 3,513
General and administrative ................... -- 5,516 -- 5,516
Depreciation and amortization ................ 1,627 (4) 7,062 7,062
(57)(5)
Non-cash stock compensation .................. -- 1,280 -- 1,280
Contingent consideration paid to former
owners of acquired businesses ............... -- 2,301 -- 2,301
Acquired in-process research and
development ................................. -- 4,354 -- 4,354
--------- --------- ---------- ----------
Total operating expenses ...................... (1,646) 53,077 -- 53,077
--------- --------- ---------- ----------
Income (loss) from operations ................. (1,646) (11,253) -- (11,253)
Other (income) expense ........................ -- (893) -- (893)
Interest expense, net ......................... 1,583 (6) 3,187 (2,831)(7) 356
--------- --------- ---------- ----------
Income (loss) before provision for income
taxes ........................................ (3,229) (13,547) 2,831 (10,716)
Provision for income taxes .................... -- 57 -- 57
--------- --------- ---------- ----------
Net income (loss) ............................. (3,229) (13,604) 2,831 (8) (10,773)
Preferred stock dividends ..................... 2,400 (9) -- -- --
--------- --------- ---------- ----------
Net income (loss) applicable to common
stockholders ................................. $ (829) $ (13,604) $ 2,831 $ (10,773)
========= ========= ========== ==========
Basic net loss per common share ............... $ (1.18)
Weighted average common shares
outstanding - Basic .......................... 106 (10) 5,531 3,600 (11) 9,131

UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED MARCH 31, 1998
(IN THOUSANDS, EXCEPT PER SHARE DATA)

ACTUAL
----------------------------
COMPANY STOCKTON(12)
------------- --------------

Revenues .................................. $ 30,189 $1,646
Operating expenses:
Operations ............................... 12,485 216
Sales, marketing and client services. 7,769 298
Research and development ................. 2,886 43
General and administrative ............... 3,307 161
Depreciation and amortization ............ 4,846 54

--------- -------
Total operating expenses .................. 31,293 772
--------- ------
Income (loss) from operations ............. (1,104) 874
Other (income) expense .................... 13 --
Interest expense (income), net ............ 2,470 27
--------- ------
Income (loss) before provision for
income taxes ............................. (3,587) 847
Provision for income taxes ................ 37 --
--------- ------
Net income (loss) ......................... (3,624) 847
Preferred stock dividends ................. (1,800) --
--------- ------
Net income (loss) applicable to
common stockholders ...................... $ (5,424) $ 847
========= ======
Basic net loss per common share ........... $ (0.96)
Weighted average common shares
outstanding - Basic ...................... 5,677 --

RECAPITALIZATION
AND ACQUISITIONS OFFERING PRO FORMA,
ADJUSTMENTS PRO FORMA ADJUSTMENTS AS ADJUSTED
------------------ ------------- ----------------- ------------

Revenues .................................. $ -- $ 31,835 $ -- $ 31,835
Operating expenses:
Operations ............................... 29 (3) 12,730 -- 12,730
Sales, marketing and client services. -- 8,067 -- 8,067
Research and development ................. -- 2,929 -- 2,929
General and administrative ............... -- 3,468 -- 3,468
Depreciation and amortization ............ 291 (4) 5,156 -- 5,156
(35)(5)
--------- --------- ---------- ---------
Total operating expenses .................. 285 32,350 -- 32,350
--------- --------- ---------- --------
Income (loss) from operations ............. (285) (515) -- (515)
Other (income) expense .................... -- 13 -- 13
Interest expense (income), net ............ 258 (6) 2,755 (2,889)(7) (134)
--------- --------- ---------- --------
Income (loss) before provision for
income taxes ............................. (543) (3,283) 2,889 (394)
Provision for income taxes ................ -- 37 -- 37
--------- --------- ---------- --------
Net income (loss) ......................... (543) (3,320) 2,889 (8) (431)
Preferred stock dividends ................. 1,800 (9) -- -- --
--------- --------- ---------- --------
Net income (loss) applicable to
common stockholders ...................... $ 1,257 $ (3,320) $ 2,889 $ (431)
========= ========= ========== ========
Basic net loss per common share ........... $ (0.05)
Weighted average common shares
outstanding - Basic ...................... -- 5,677 3,600 (10) 9,277

NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS

DESCRIPTION OF ACQUISITIONS

The acquisitions of TCS and Stockton were accounted for using the purchase
method of accounting and, accordingly, the net assets acquired have been
recorded at estimated fair value on their respective dates of acquisition
and the historical statement of operations data of the Company reflect the
results of operations of these businesses from their respective dates of
acquisition. The purchase prices and the allocation of the purchase prices
to the acquired assets are as follows:

TCS STOCKTON
---------- ---------
(IN THOUSANDS)

Cash purchase price ......................... $11,645 $10,674
======= =======
Computer equipment .......................... $ 400 $ 260
Purchased client lists ...................... -- 742
Purchased software and technology ........... 2,619 968
Goodwill .................................... 4,092 8,704
In-process research and development ......... 4,354 --
------- -------
$11,645 $10,674
======= =======

The Company is also contingently liable for additional consideration of up
to $2,600,000 (plus interest at an annual rate of 7.25%) if Stockton's
revenue during the 12-month period ending September 30, 1998 is at least
$5,000,000. No accrual has been made for the contingent liability as of
March 31, 1998. Such contingent consideration will be treated as additional
purchase price and will, therefore, be added to goodwill when and if it
becomes accruable.

The Stockton purchased client lists are being amortized on a straight-line
basis over five years. The purchased software and technology generally is
being amortized on a straight-line basis over three years for TCS and over
five years for Stockton. Goodwill is being amortized on a straight-line
basis over seven years for the TCS acquisition and over 20 years for the
Stockton acquisition. Computer equipment is being amortized on a
straight-line basis over three years.

(1) Represents the historical results of operations of TCS from July 1, 1996
through the date of acquisition by the Company in February 1997.

(2) Represents the historical results of operations of Stockton from July 1,
1996 through June 30, 1997.

(3) Represents rent expense relating to a new operating lease for the Stockton
facility.

(4) Represents adjustments for amortization expense related to the acquisitions
of TCS and Stockton as if they had occurred July 1, 1996, as follows:

YEAR ENDED NINE MONTHS ENDED
JUNE 30, 1997 MARCH 31, 1998
-------------------------------- ------------------
TCS STOCKTON TOTAL STOCKTON
------- ---------- --------- ------------------
(IN THOUSANDS)

Purchased client lists .................... $ -- $ 148 $ 148 $ 55
Purchased software and technology ......... 509 194 703 73
Goodwill .................................. 341 435 776 163
---- ----- ------ -----
$850 $ 777 $1,627 $ 291
==== ===== ====== =====

(5) Represents the elimination of depreciation and amortization expenses
relating to assets of Stockton that were not acquired.

(6) The interest expense adjustment relating to the TCS and Stockton
acquisitions is as follows:

YEAR ENDED NINE MONTHS ENDED
JUNE 30, 1997 MARCH 31, 1998
--------------- ------------------
(IN THOUSANDS)

Elimination of historical interest expense of Stockton ........... $ (111) $ (38)
Interest expense on portion of Senior Subordinated Note used
to fund TCS acquisition including amortization of discount ..... 939 --
Interest expense on borrowings under the Credit Facility used
to fund Stockton acquisition at a composite interest rate of 7.07% (The
effect of a .125% variance in the interest rate on the pro forma
adjustment for the year ended June 30, 1997 and the nine months ended
March 31, 1998 would be $14 and
$5, respectively.).............................................. 755 296
------- ------
$ 1,583 $ 258
======= ======

(7) The interest expense adjustment relating to the Offering is as follows:

YEAR ENDED NINE MONTHS ENDED
JUNE 30, 1997 MARCH 31, 1998
--------------- ------------------
(IN THOUSANDS)

Interest expense on Senior Subordinated Note
including amortization of discount ........... $ (1,992) $ (2,125)
Interest expense on borrowings under the Credit
Facility ..................................... (839) (764)
-------- --------
$ (2,831) $ (2,889)
======== ========

(8) In connection with the repayment of outstanding indebtedness under the
Credit Facility and the Senior Subordinated Note, the Company will record
an extraordinary charge relating to the elimination of deferred financing
costs associated with the Credit Facility and the write-off of the
remaining discount on the Senior Subordinated Note. Such charge would have
approximated $86,000 as of July 1, 1996, representing solely the write-off
of deferred financing costs associated with the Credit Facility. Such
charge would have approximated $1,846,000 as of March 31, 1998, consisting
of $96,000 relating to the write-off of deferred financing costs associated
with the Credit Facility and $1,750,000 relating to the write-off of the
remaining discount on the Senior Subordinated Note. Such charge has been
excluded from the pro forma statements of operations.

(9) Represents the elimination of the dividends accrued on the Preferred Stock
due to the Recapitalization.

(10) Represents the pro rata portion of Common Stock issued in connection with
the Senior Subordinated Note relating to the TCS acquisition.

(11) Represents the sale by the Company of 3,600,000 shares of Common Stock in
the Offering.

(12) Represents the historical results of operations of Stockton from July 1,
1997 through the date of acquisition by the Company in November 1997.

UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET

AS OF MARCH 31, 1998
-------------------------------
ADJUSTMENTS
RELATING TO THE
ACTUAL RECAPITALIZATION
------------ ------------------
(IN THOUSANDS)

ASSETS
Current Assets:
Cash and cash equivalents .......................... $ 1,455 $ --
Accounts receivable, less allowance for doubt-
ful accounts ..................................... 7,463 --
Formulary receivables .............................. 1,502 --
Inventory .......................................... 240 --
Prepaid expenses and other current assets .......... 489 --
--------- -----------
Total current assets ............................. 11,149 --
Property and equipment, Net ......................... 4,944 --
Goodwill-Net ........................................ 32,408 --
Other intangible assets-Net ......................... 5,247 --
Other assets ........................................ 431 --
--------- -----------
Total ............................................... $ 54,179 $ --
========= ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current Liabilities:
Accounts payable ................................... $ 2,753 $ --
Accrued expenses and other current liabilities. 4,880 --
Current portion of long-term debt .................. 240 --
--------- -----------
Total current liabilities ........................ 7,873 --
Long-term debt ...................................... 40,259 --
Other long-term liabilities ......................... 761 --
Redeemable cumulative preferred stock ............... 30,623 (30,623)(1)
Stockholders' equity (deficit): .....................
Common Stock ....................................... 57 22 (1)
1 (2)
Additional paid-in capital ......................... 26,069 30,601 (1)
(1)(2)
Accumulated deficit ................................ (51,463) --
--------- -----------
Total stockholders' equity (deficit) ............. (25,337) 30,623
--------- -----------
Total ............................................... $ 54,179 $ --
========= ===========

AS OF MARCH 31, 1998
---------------------------------------------
ADJUSTMENTS
RELATING TO PRO FORMA,
PRO FORMA THE OFFERING AS ADJUSTED
----------- -------------------- ------------
(IN THOUSANDS)

ASSETS
Current Assets:
Cash and cash equivalents .......................... $ 1,455 $ 4,280 (3) $ 5,735
Accounts receivable, less allowance for doubt-
ful accounts ..................................... 7,463 -- 7,463
Formulary receivables .............................. 1,502 -- 1,502
Inventory .......................................... 240 -- 240
Prepaid expenses and other current assets .......... 489 -- 489
--------- ------------ ---------
Total current assets ............................. 11,149 4,280 15,429
Property and equipment, Net ......................... 4,944 -- 4,944
Goodwill-Net ........................................ 32,408 -- 32,408
Other intangible assets-Net ......................... 5,247 -- 5,247
Other assets ........................................ 431 (96)(4) 335
--------- ------------ ---------
Total ............................................... $ 54,179 $ 4,184 $ 58,363
========= ============ =========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current Liabilities:
Accounts payable ................................... $ 2,753 -- $ 2,753
Accrued expenses and other current liabilities. 4,880 (717)(3) 4,163
Current portion of long-term debt .................. 240 384 (4) 624
--------- ------------ ---------
Total current liabilities ........................ 7,873 (333)(3) 7,540
Long-term debt ...................................... 40,259 (40,925) (3) 700
1,366 (4)
Other long-term liabilities ......................... 761 -- 761
Redeemable cumulative preferred stock ............... -- -- --
Stockholders' equity (deficit): .....................
Common Stock ....................................... 80 36 (3) 116
Additional paid-in capital ......................... 56,669 45,886 (3) 102,555
Accumulated deficit ................................ (51,463) (1,846)(4) (53,309)
--------- ------------ ---------
Total stockholders' equity (deficit) ............. 5,286 44,076 49,362
--------- ------------ ---------
Total ............................................... $ 54,179 $ 4,184 $ 58,363
========= ============ =========

NOTES TO UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET

(1) Represents the conversion of outstanding Preferred Stock and $6,627,000 of
accrued dividends on the Preferred Stock into Common Stock in connection
with the Recapitalization.

(2) Represents the exercise of all Common Stock purchase warrants in connection
with the Recapitalization.

(3) Represents the sale by the Company of 3,600,000 shares of Common Stock at an
assumed public offering price of $14.00 per share and the application of the
net proceeds to the Company as follows:

PROCEEDS
Gross proceeds from Offering ................................. $ 50,400
Underwriting discount and commissions ........................ (3,528)
Estimated Offering expenses .................................. (950)
---------
Net proceeds ............................................... 45,922
---------
USES
Repay Senior Subordinated Note ............................... (25,000)
Repay borrowings under the Credit Facility ................... (15,925)
Repay accrued interest on Senior Subordinated Note and borrow-
ings under the Credit Facility ............................. (717)
---------
Total uses ................................................. (41,642)
---------
Excess proceeds ............................................ $ 4,280
=========

(4) Represents a $96,000 decrease in other assets relating to the elimination of
deferred financing costs associated with the Credit Facility and the
write-off of the remaining discount on the Senior Subordinated Note of
$1,750,000, both of which will be recorded as extraordinary items upon the
consummation of the Offering.

SELECTED CONSOLIDATED FINANCIAL DATA

The statement of operations data presented below for the years ended June
30, 1995, 1996 and 1997 and the nine months ended March 31, 1998 and the balance
sheet data as of June 30, 1996 and 1997 and March 31, 1998, are derived from,
and qualified by reference to, the audited consolidated financial statements of
the Company included elsewhere herein. The balance sheet data as of June 30,
1995 and March 31, 1997 are derived from, and qualified by reference to, the
respective audited and unaudited consolidated financial statements of the
Company not included herein. The statement of operations data for the nine month
period ended March 31, 1997 is derived from the unaudited consolidated financial
statements of the Company included elsewhere herein. In the opinion of
management, the unaudited consolidated financial statements have been prepared
on the same basis as the audited consolidated financial statements and include
all adjustments, consisting only of normal recurring adjustments necessary for a
fair presentation of the financial position and results of operations for such
period. The results for the nine month period ended March 31, 1998 are not
necessarily indicative of the results to be expected for the related full fiscal
year. The selected consolidated financial data should be read in conjunction
with, and is qualified in its entirety by, the Consolidated Financial Statements
of the Company, the notes thereto and the other financial information included
elsewhere in this Prospectus.

YEAR ENDED JUNE 30,
----------------------------------------------------
1995 1996 1997
---------------- ---------------- ------------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)

STATEMENT OF OPERATIONS DATA:
Revenues(1) .......................................... $ 16,246 $ 31,768 $ 35,279
Operating expenses:
Operations .......................................... 9,753 19,174 16,817
Sales, marketing and client services ................ 3,615 7,064 8,769
Research and development ............................ 2,051 2,132 3,278
General and administrative .......................... 3,119 6,059 5,263
Depreciation and amortization ....................... 2,995 5,176 5,293
Write-down of intangible assets ..................... 8,191 (2) 9,965 (3) --
Acquired in-process research and development (4).. -- -- 4,354
Other charges (5) ................................... 2,864 538 2,301
--------- --------- ---------
Total operating expenses ............................. 32,588 50,108 46,075
--------- --------- ---------
Loss from operations ................................. (16,342) (18,340) (10,796)
Other (income) expense ............................... -- 313 (893)
Interest expense, net ................................ 189 584 1,504
--------- --------- ---------
Loss before provision for income taxes ............... (16,531) (19,237) (11,407)
Provision for income taxes ........................... 70 93 57
--------- --------- ---------
Net loss ............................................. (16,601) (19,330) (11,464)
Preferred stock dividends ............................ (27) (2,400) (2,400)
--------- --------- ---------
Net loss applicable to common stockholders ........... $(16,628) $(21,730) $ (13,864)
========= ========= =========
Basic net loss per common share ...................... $ (3.17) $ (4.14) $ (2.56)(6)
Weighted average common shares outstanding-Basic ..... 5,238 5,245 5,425

NINE MONTHS
ENDED MARCH 31,
-------------------------------
1997 1998
------------ ------------------
(IN THOUSANDS, EXCEPT PER SHARE
DATA)

STATEMENT OF OPERATIONS DATA:
Revenues(1) .......................................... $ 24,964 $ 30,189
Operating expenses:
Operations .......................................... 12,104 12,485
Sales, marketing and client services ................ 6,143 7,769
Research and development ............................ 2,455 2,886
General and administrative .......................... 3,340 3,307
Depreciation and amortization ....................... 3,502 4,846
Write-down of intangible assets ..................... -- --
Acquired in-process research and development (4).. 4,354 --
Other charges (5) ................................... 990 --
-------- ---------
Total operating expenses ............................. 32,888 31,293
-------- ---------
Loss from operations ................................. (7,924) (1,104)
Other (income) expense ............................... (885) 13
Interest expense, net ................................ 779 2,470
-------- ---------
Loss before provision for income taxes ............... (7,818) (3,587)
Provision for income taxes ........................... 43 37
-------- ---------
Net loss ............................................. (7,861) (3,624)
Preferred stock dividends ............................ (1,800) (1,800)
-------- ---------
Net loss applicable to common stockholders ........... $ (9,661) $ (5,424)
======== =========
Basic net loss per common share ...................... $ (1.81) $ (0.96)(6)

Weighted average common shares outstanding-Basic ..... 5,345 5,677

AS OF JUNE 30, AS OF MARCH 31,
----------------------------------------- --------------------------
1995 1996 1997 1997 1998
--------- ------------- ------------- ----------- ------------
(IN THOUSANDS)

BALANCE SHEET DATA:
Working capital ................................... $ 504 $ (4,207) $ (2,567) $ (546) $ 3,276
Total assets ...................................... 59,511 43,031 45,459 47,784 54,179
Long-term debt, including current portion ......... 5,805 11,601 25,161 25,278 40,499
Redeemable cumulative preferred stock ............. 24,023 26,423 28,823 28,223 30,623
Stockholders' equity (deficit) .................... 12,942 (8,472) (20,069) (15,916) (25,337)

NINE MONTHS
YEAR ENDED JUNE 30, ENDED MARCH 31,
--------------------------------------------- ---------------------------
1995 1996 1997 1997 1998
------------- ------------- ------------- ------------- -----------
(IN THOUSANDS, EXCEPT PER TRANSACTION DATA)

OTHER DATA:
EBITDA (7) ..................................... $ (13,347) $ (13,164) $ (5,503) $ (4,422) $ 3,742
Adjusted EBITDA (7) ............................ (2,292) (2,052) 2,211 922 3,742
Cash flows from operating activities ........... (3,561) (1,653) (4,020) (2,991) (3,842)
Cash flows from investing activities ........... (22,074) (4,919) (12,221) (11,630) (11,630)
Cash flows from financing activities ........... 33,434 657 15,521 15,818 15,008
Transactions processed(8)
Pharmacy ...................................... -- 107,032 126,201 88,463 136,685
Medical ....................................... -- 16,030 23,085 14,921 23,514
Dental ........................................ -- 6,021 12,188 8,759 10,767
--------- --------- --------- --------- ---------
Total transactions processed ................. -- 129,083 161,474 112,143 170,966
Transactions per FTE (8)(9) .................... -- 322 415 293 478
Revenue per FTE (9) ............................ $ 48 $ 79 $ 91 $ 65 $ 84
Operating expenses per transaction (8) ......... -- 0.39 0.29 0.29 0.18

- ----------
(1) During the periods presented, the Company made a series of acquisitions and
divested certain non-core or unprofitable operations. Revenues attributable
to these divested operations, which are included in the statement of
operations data, were $1,595,000, $3,517,000, $2,252,000, $1,941,000 and
$241,000 in the fiscal years ended June 30, 1995, 1996 and 1997 and the nine
months ended March 31, 1997 and 1998, respectively.

(2) Reflects the write-off of goodwill related to the acquisitions of MPC and
Wellmark.

(3) Reflects the write-down of costs relating to client lists and related
allocable goodwill obtained in the acquisition of MEDE OHIO.

(4) Reflects the write-off of acquired in-process research and development costs
upon the consummation of the TCS acquisition.

(5) Reflects: (i) expenses recorded relating to contingent consideration paid to
former owners of acquired businesses of $538,000, $2,301,000, and $990,000
in the fiscal years ended June 30, 1996 and 1997 and the nine months ended
March 31, 1997, respectively; and (ii) expenses of $2,864,000 relating to
the spin-off of the Company by CES in the fiscal year ended June 30, 1995.

(6) Supplemental net loss per share, giving effect to the Recapitalization,
would be $(1.55) and $(0.47) for the fiscal year ended June 30, 1997 and the
nine months ended March 31, 1998, respectively.

(7) EBITDA represents net income (loss) plus provision for income taxes, net
interest expense, other (income) expense and depreciation and amortization.
EBITDA is not a measurement in accordance with GAAP and should not be
considered an alternative to, or more meaningful than, earnings (loss) from
operations, net earnings (loss) or cash flow from operations as defined by
GAAP or as a measure of the Company's profitability or liquidity. Not all
companies calculate EBITDA in the same manner and, accordingly, EBITDA shown
herein may not be comparable to EBITDA shown by other companies. The Company
has included information concerning EBITDA herein because management
believes EBITDA provides useful information. Adjusted EBITDA represents
EBITDA plus certain other charges as described below. The following table
summarizes EBITDA and adjusted EBITDA for all periods presented:

NINE MONTHS
YEAR ENDED JUNE 30, ENDED MARCH 31,
------------------------------------------ ------------------------
1995 1996 1997 1997 1998
-------------- -------------- ------------ ------------- ----------
(IN THOUSANDS)

EBITDA ............................................... $ (13,347) $ (13,164) $ (5,503) $ (4,422) $ 3,742
Contingent consideration paid to former owners of ac-
quired businesses ................................... -- 538 2,301 990 --
Write-down of intangible assets ...................... 8,191 9,965 -- -- --
Acquired in-process research and development ......... -- -- 4,354 4,354 --
Expenses related to the CES spin-off ................. 2,864 -- --
Contract and legal settlement provisions ............. -- 609 1,059 -- --
---------- ---------- -------- --------- -------
Adjusted EBITDA ...................................... $ (2,292) $ (2,052) $ 2,211 $ 922 $ 3,742
========== ========== ======== ========= =======

- ----------
(8) Transaction volumes are not available for the fiscal year ended June 30,
1995.

(9) Full-time equivalents ("FTE") represents the number of full-time employees
and part-time equivalents of full-time employees as of the end of the period
shown.

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

The following discussion of the financial condition and results of
operations of the Company should be read in conjunction with the financial
statements, including the notes thereto, of the Company included elsewhere in
this Prospectus. This Prospectus contains forward-looking statements relating to
future events or future financial performance of the Company. Prospective
investors are cautioned that any such forward-looking statements are not
guarantees of future performance and involve risks and uncertainties. Actual
events or results may differ materially from those discussed in the
forward-looking statements as a result of various factors, including the risk
factors set forth under "Risk Factors" and the matters set forth in this
Prospectus generally.

OVERVIEW

MEDE AMERICA is a leading provider of EDI products and services to a broad
range of providers and payors in the healthcare industry. The Company's
integrated suite of EDI solutions and services allows hospitals, pharmacies,
physicians, dentists and other healthcare providers and provider groups to
electronically edit, process and transmit claims, eligibility and enrollment
data, track claims submissions throughout the claims payment process and obtain
faster reimbursement for their services. Currently, the Company processes over
900,000 transactions per day for over 65,000 providers located in all 50 states.

Since its formation, the Company has expanded both through internal growth
and the acquisition of five healthcare transaction processing businesses. As
part of its strategy of providing an integrated suite of EDI products to a broad
range of healthcare providers, the Company has focused on acquisitions that
provided entry into new markets or expanded the Company's product suite. All
acquisitions have been accounted for under the purchase method of accounting.
The Company has actively pursued the integration of its acquisitions and, in the
process, has either divested, closed or modified various operations of the
acquired entities in order to eliminate non-core or redundant operations and
achieve cost savings and operating efficiencies. These integration activities
impacted the Company's financial results in the fiscal years ended June 30,
1995, 1996 and 1997 and the nine months ended March 31, 1998 and are ongoing.

The following table summarizes the Company's acquisitions and divested
products and operations:

PRIMARY PRODUCTS DIVESTED PRODUCTS
DATE OF FOUNDING/ OF FOUNDING/ DATE
FOUNDING COMPANIES ACQUIRED MARKET ACQUIRED COMPANY ACQUIRED COMPANY DIVESTED
- ------------------ -------- ------ ---------------- ---------------- --------

MedE America, Inc. 4/94(1) Medical Eligibility Verification, -- --
Enrollment

MPC 5/94(1) Medical Hospital Claims, Data Entry 1/97
Physician Billing Physician Billing 12/96
Physician Billing 8/97

Wellmark 5/94(1) Medical Hospital Claims, -- --
Physician Billing

COMPANIES ACQUIRED BY
MEDE AMERICA
MEDE OHIO 3/95 Pharmacy Switching, PBM, Practice Management 2/96
Third Party Billing Software

Practice Management 12/97
Software

Latpon 6/95 Medical Hospital Claims Physician Billing 3/96

EC&F/Premier 10/95 Dental Dental Claims, Practice Practice Management 3/97
Management Software Software

TCS 2/97 Pharmacy/ PBM, Switching, -- --
Medical Eligibility Verification

11/97 Pharmacy PBM -- --
Stockton

- -----------------
(1) Represents date acquired by CES.

In March 1995, the majority stockholder of the Company acquired all of the
outstanding shares of MEDE OHIO for a cash purchase price of approximately
$22,593,000, including transaction expenses. The majority stockholder
subsequently merged MEDE OHIO into the Company. MEDE OHIO develops EDI systems
for the pharmacy market and provides transaction switching/routing services. The
acquisition was accounted for under the purchase method and the Company recorded
total intangible assets of $25,814,000, consisting of $892,000 of software,
$2,527,000 of client lists and $22,395,000 of goodwill. During fiscal year 1996,
the Company wrote-down $9,965,000 of costs relating to client lists and related
allocable goodwill due to a loss of approximately 25% of the acquired MEDE OHIO
client base. The loss of this significant portion of MEDE OHIO's client base was
primarily due to problems experienced by the Company in the post-merger
integration of MEDE OHIO's operations into the Company's operations. This
post-merger integration process took place during the same general time period
in which the Company was spun-off from CES and a new management team was
installed at the Company. The Company generally is amortizing the software over
three years and the remaining value of client lists is being amortized over five
years. The goodwill is being amortized over 20 years.

In June 1995, the Company acquired substantially all of the assets of
Latpon for a cash purchase price of approximately $2,470,000, plus the
assumption of approximately $963,000 of liabilities (primarily long-term debt).
Latpon, a developer of claims processing software, provided EDI transaction
processing services to hospitals and hospital-based physician groups. Latpon
also provided electronic and manual business office administrative services. The
acquisition was accounted for under the purchase method and the Company recorded
total intangible assets of $2,291,000, consisting of $993,000 of software and
client lists and $1,298,000 of goodwill. The Company generally is amortizing the
software over five years and is amortizing the client lists and goodwill over
five years and 20 years, respectively.

In October 1995, the Company acquired two commonly-owned companies, EC&F,
an all payor EDI dental claims processor, and Premier, a dental practice
management software vendor. The acquisitions were funded with an initial cash
payment of $4,050,000, including transaction expenses, and contingent earnout
payments based on the achievement of certain EBITDA growth targets by the EC&F
business over three one-year periods ending on September 30, 1998. The Company
recorded expenses of $538,000 during fiscal year 1996 relating to the first such
period and an aggregate $2,301,000 during fiscal year 1997 primarily relating to
the second and third such periods. The Company does not believe that any
additional amounts will be payable pursuant to this earn-out arrangement. The
acquisitions of EC&F and Premier were accounted for under the purchase method
and the Company recorded total intangible assets of $4,350,000, consisting of
$764,000 of software, and $3,586,000 of goodwill. The Company generally is
amortizing the software over three years and is amortizing the goodwill over 20
years. The Company sold Premier in January 1997 for a cash payment of $388,000.
There was no gain or loss on the sale of Premier.

In February 1997, the Company acquired TCS, a provider of pharmacy
switching and PBM transaction processing systems and services for pharmacies and
eligibility verification services for physicians, for a total cash payment of
$11,465,000, including transaction expenses. The acquisition was accounted for
under the purchase method and the Company recorded total intangible assets of
$11,065,000, consisting of $4,354,000 of in-process research and development,
$2,619,000 of software and $4,092,000 of goodwill. As of the date of the
acquisition, the Company wrote off the acquired in-process research and
development which had not reached technological feasibility and had no
alternative future use. The Company generally is amortizing the software over
three years and is amortizing the goodwill over seven years.

The in-process research and development acquired from TCS consisted of
advanced Windows software technology for PC and client server platforms for
healthcare EDI transactions. Products under development included: (1) a plan
member eligibility verification for workers compensation; (2) medical claims
processing system to meet the HCFA 1500 EDI standard; and (3) a switching system
for internet claims from retail pharmacies. At the time of the acquisition, the
Company estimated that continued development activities for six months to one
year resulting in additional estimated research and development costs of
$460,000 would be required in order to prove feasibility and bring the project
to commercial viability. It was the opinion of management that such projects had
an above average probability of successful completion and could contribute to
revenue, profit and cash flow within 18 to 24 months from the date of purchase.
At this time, all three projects are substantially complete. However, any or all
of these projects could fail to produce an economic gain. Such failure, if
encountered, would not affect the Company's current product suite and financial
results, but would decrease the Company's opportunities for growth. Estimated
costs to complete the acquired in-process research and development projects as
of the date of acquisition were as follows:

ESTIMATED RESEARCH AND DEVELOPMENT EXPENSE (IN THOUSANDS)

WORKERS COMP. HCFA 1500 PHARMACY TOTAL
--------------- ----------- ---------- ------

Fiscal 1997 .......... $ 58 $ 70 $ 65 $193
Fiscal 1998 .......... 80 97 90 267
---- ---- ---- ----
Total ............... $138 $167 $155 $460
==== ==== ==== ====

In November 1997, the Company acquired Stockton, a provider of PBM
transaction processing systems and related services for the pharmacy market.
Stockton was purchased for an initial cash payment of $10,674,000 including
transaction expenses, and a contingent earnout payment based upon the
achievement of certain revenue growth targets. If such revenue targets are
achieved over the 12-month period ending September 30, 1998, a maximum payment
of $2,600,000 (plus interest at an annual rate of 7.25%) will be made in
December 1998. Such additional consideration will be treated as additional
purchase price and will, therefore, be added to goodwill when and if it becomes
accruable. The acquisition was accounted for under the purchase method and the
Company recorded total intangible assets of

$10,414,000, consisting of $1,710,000 of software and client lists and
$8,704,000 of goodwill. The Company generally is amortizing the software over
five years and is amortizing the client lists and goodwill over five years and
20 years, respectively.

Revenues

Revenues are derived from the sale of transaction processing products and
services primarily on a fee-for-transaction basis. Transaction fees vary
depending upon transaction type and service provided. The Company currently
receives fees from providers for the majority of its transactions including
claims processing, eligibility verification, claims switching, pharmacy script
processing and tracking and Medicaid enrollment. The Company also receives fees
from payors for the transmission of electronic claims and formulary payments
from pharmaceutical manufacturers relating to the Company's PBM script
processing and management reporting services. These transaction-based revenues
comprise the predominant portion of the Company's total revenues and tend to be
recurring. Other revenue is derived from one-time payments related to
installation and implementation services, software license fees and EDI systems
equipment sales. See "Business -- Suite of EDI Products and Services."

Transaction-based revenues and related formulary services revenues (if
applicable), which constitute the majority of the Company's total revenues, are
recognized at the time the transactions are processed and the services are
provided. Revenues associated with software support and implementation fees,
each constituting less than 3% of the Company's revenues for the nine months
ended March 31, 1998, are recognized ratably over the contract period or as the
service is provided. Revenue from licensing of software, which also constitutes
less than 3% of the Company's total revenues for the nine months ended March 31,
1998, is recognized upon installation if it is determined that the Company has
no significant remaining obligations and collectibility of the resulting
receivable is probable.

Operating Expenses

Operations Expense. Operations expense consists of data and voice
telecommunications expense, salaries and benefits for operations employees and
other costs associated with transaction processing and services provided to
clients, such as network and telecommunications, maintenance, computer
operations and systems administration, facilities and other additional indirect
expenses. Since 1996, operations expense as a percentage of revenues and
operations expense per transaction have declined as a result of the Company's
integration and restructuring efforts and increased operating leverage.
Restructuring charges recorded in connection with the Company's integration
activities have resulted in variability in the Company's quarterly operating
results.

Sales, Marketing and Client Services Expense. Sales, marketing and client
services expense consists primarily of salaries, benefits, commissions and
related indirect costs and expenditures for marketing programs, trade shows,
advertising, help desk software and related client communications. As the
Company continues to implement its growth strategy, sales, marketing and client
services expenses are expected to continue to increase.

Research and Development Expense. Research and development expense consists
primarily of salaries, benefits and related indirect expenses associated with
the design, research and development of new products and enhancements to
existing current products. The development of new software products and
enhancements to existing software products are expensed as incurred until
technological feasibility has been established. After technological feasibility
has been established, any additional software development costs are capitalized
in accordance with Statement of Financial Accounting Standards ("SFAS") No. 86,
"Accounting For the Cost of Computer Software To Be Sold, Leased or Otherwise
Marketed." Amortization of purchased software and technology and of capitalized
software development costs is provided on a product-by-product basis at the
greater of the amount computed using (a) the ratio of current revenues for a
product to the total of current and anticipated future revenues or (b) the
straight-line method over the remaining estimated economic life of the product.
Generally, an original estimated economic life of three to five years is
assigned to purchased software and technology and an original estimated economic
life of five years is assigned to capitalized software development costs.
Amortization begins in the period in which the related product is available for
general release to customers. During

the nine months ended March 31, 1998, the Company capitalized $319,000 of
software development costs on a project for which technological feasibility had
been established but was not yet available for client release. Prior to July 1,
1997, the Company did not have any software development projects for which
significant development costs were incurred between the establishment of
technological feasibility and general client release of the product. The Company
believes that the development of enhanced and new product offerings are
essential to remaining competitive and it expects that development expenses will
increase in the future.

General and Administrative Expense. General and administrative expense
primarily consists of salaries, benefits and related indirect costs for the
administrative, executive, finance, legal, human resources and internal systems
personnel, as well as accounting and legal fees. As the Company implements its
growth strategy, general and administrative expenses are expected to increase.

Depreciation and Amortization Expense. The Company depreciates the cost of
its tangible capital assets on a straight-line basis over the estimated economic
life of the asset: three to five years for computer equipment, five years for
furniture and fixtures, and 20 to 25 years for buildings and improvements.
Acquisition-related intangible assets, which include the value of software and
client lists, are amortized based on the estimated useful economic life of the
asset at the time of acquisition, and therefore will vary among acquisitions.
The Company recorded amortization expense relating to goodwill and other
intangible assets of $3,541,000 and $3,389,000 during the fiscal year ended June
30, 1997 and the nine months ended March 31, 1998, respectively.

RESULTS OF OPERATIONS

The following table sets forth, for the periods indicated, certain items
from the consolidated statements of operations of the Company expressed as a
percentage of total revenues.

NINE MONTHS ENDED
YEAR ENDED JUNE 30, MARCH 31,
------------------------------ ------------------
1995 1996 1997 1997 1998
-------- -------- -------- -------- -------

Revenues ...................................... 100% 100% 100% 100% 100%
Operating Expenses:
Operations ................................... 60 60 48 48 41
Sales, marketing and client services ......... 22 22 25 25 26
Research and development ..................... 13 7 9 10 10
General and administrative ................... 19 19 15 13 11
Depreciation and amortization ................ 18 16 15 14 16

NINE MONTHS ENDED MARCH 31, 1998 COMPARED TO NINE MONTHS ENDED MARCH 31, 1997

Revenues

Revenues for the nine months ended March 31, 1998 were $30.2 million
compared to $25.0 million in the corresponding period of fiscal 1997,
representing an increase of 21%. The increase was primarily attributable to
incremental revenue from the acquisitions of TCS and Stockton in February 1997
and November 1997, respectively, partially offset by the loss of revenues from
operations that were divested. The increase was also due to the growth of the
existing business.

The Company processed 171 million transactions in the nine months ended
March 31, 1998, compared to 112 million transactions processed in the
corresponding period of fiscal 1997, representing an increase of 52%. The
increase resulted from the addition of new clients, increased transaction volume
from existing clients and the acquisitions of TCS and Stockton. The average
price per transaction received by the Company declined by 13% between such
periods, as a result of the greater proportion of transactions processed under
contracts with volume-based terms and pricing and a larger proportion of lower
priced eligibility verification transactions as a result of the acquisition of
TCS.

Operating Expenses

Operations expense was $12.5 million for the nine months ended March 31,
1998 compared to $12.1 million in the corresponding period of fiscal 1997,
representing an increase of 3%. As a percentage of revenues, operations expense
decreased from 48% for the first nine months of fiscal 1997 to 41% in the
corresponding period of fiscal 1998. The containment of operations expense in
the nine months ended March 31, 1998 was a result of ongoing cost reduction
programs, systems consolidation for recent acquisitions and the impact of the
divested operations, which results are included in the 1997 period but not the
1998 period.

Sales, marketing and client services expense was $7.8 million for the nine
months ended March 31, 1998 compared to $6.1 million in the corresponding period
of fiscal 1997, representing an increase of 26%. As a percentage of revenues,
sales, marketing and client services expense increased from 25% for the first
nine months of fiscal 1997 to 26% in the corresponding period of fiscal 1998.
This increase was primarily due to the inclusion of TCS and Stockton in the
results of operations for the nine months ended March 31, 1998 and, to a lesser
extent, increases in expenses relating to the hiring of new employees for client
support and help desk service, the installation of help desk tracking software
and resources devoted to telesales.

Research and development expense was $2.9 million for the nine months ended
March 31, 1998 compared to $2.5 million in the corresponding period of fiscal
1997, representing an increase of 18%. As a percentage of revenues, research and
development expense was 10% for each such period. The Company capitalized
$319,000 of software development costs in the first nine months of 1998,
however, no software development costs were capitalized in the corresponding
period of fiscal 1997. Prior to July 1, 1997, the Company did not have any
software development projects for which significant development costs were
incurred between the establishment of technological feasibility and general
client release of the product.

General and administrative expense was $3.3 million for the nine months
ended March 31, 1998 and the corresponding period of fiscal 1997. As a
percentage of revenues, general and administrative expense decreased from 13%
for the first nine months of fiscal 1997 to 11% in the corresponding period of
fiscal 1998. This decrease was primarily a result of cost controls and the
consolidation and integration activities related to the Company's recent
acquisitions.

Depreciation and amortization expense was $4.8 million for the nine months
ended March 31, 1998 compared to $3.5 million in the corresponding period of
fiscal 1997, representing an increase of 38%. As a percentage of revenues,
depreciation and amortization expense increased from 14% for the first nine
months of fiscal 1997 to 16% in the corresponding period of fiscal 1998. This
increase was primarily attributable to the increased amortization expense
related to the acquisitions of TCS in February 1997 and Stockton in November
1997.

There were no acquisition-related expenses for the nine months ended March
31, 1998, as compared to $5.3 million of such expenses in the corresponding
period of fiscal 1997. Included in the amount for the prior period is a $4.4
million write-off related to in-process research and development from the
acquisition of TCS (for software that had not achieved technological feasibility
and had no alternative use), and a contingent earnout charge of $990,000
recorded by the Company in connection with the EC&F purchase agreement. In
addition, in the nine months ended March 31, 1997, the Company recorded a gain
of $885,000 from a sale of securities. See Note 12 of "Notes to Consolidated
Financial Statements."

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

Revenues

Revenues for the fiscal year ended June 30, 1997 were $35.3 million
compared to $31.8 million in fiscal 1996, representing an increase of 11%. The
increase was primarily attributable to revenue from the acquisition of TCS in
February 1997, partially offset by the loss of revenues from operations that
were divested. The increase was also due to the growth of the existing business.

The Company processed 161 million transactions in the fiscal year ended
June 30, 1997 compared to 129 million transactions processed in fiscal 1996,
representing an increase of 25%. The increase resulted from the addition of new
clients, the growth of business from existing clients and the TCS acquisition.
The average price per transaction in fiscal 1997 declined by 4% from fiscal
1996, primarily as a result of the divested operations having higher claims
pricing.

Operating Expenses

Operations expense was $16.8 million for the fiscal year ended June 30,
1997 compared to $19.2 million in fiscal 1996, representing a decrease of 12%.
As a percentage of revenues, operations expense decreased from 60% during the
first nine months of 1996 to 48% in fiscal 1996. The operations expense
improvement was a result of ongoing cost reduction programs, systems
consolidation for recent acquisitions and the divestitures of non-core or
unprofitable operations.

Sales, marketing and client services expense was $8.8 million for the
fiscal year ended June 30, 1997 compared to $7.1 million in fiscal 1996,
representing an increase of 24%. As a percentage of revenues, sales, marketing
and client service expense increased from 22% in fiscal 1996 to 25% in fiscal
1997. This increase was primarily due to the inclusion of the TCS acquisition in
the results for five months and, to a lesser extent, to the addition of client
support personnel and the increase in help desk tracking software expenses.

Research and development expense was $3.3 million for the fiscal year ended
June 30, 1997 compared to $2.1 million in fiscal 1996, representing an increase
of 54%. As a percentage of revenues, research and development expense increased
from 7% in fiscal 1996 to 9% in fiscal 1997. This increase in research and
development expense was due to the hiring of new employees and other expenses
related to the expansion of the Company's processing capacity and the
implementation of new technology processing platforms throughout its data
processing centers.

General and administrative expense was $5.3 million for the fiscal year
ended June 30, 1997 compared to $6.1 million in fiscal 1996, representing a
decrease of 13%. As a percentage of revenues, general and administrative expense
decreased from 19% in fiscal 1996 to 15% in fiscal 1997. This decrease was
primarily a result of consolidation and integration activities.

Depreciation and amortization expense was $5.3 million for fiscal year
ended June 30, 1997 compared to $5.2 million in fiscal 1996, representing an
increase of 2%. As a percentage of revenues, depreciation and amortization
expense decreased from 16% in fiscal 1996 to 15% in fiscal 1997.

Acquisition-related expenses for the fiscal year ended June 30, 1997
included a $4.4 million write-off related to in-process research and development
from the acquisition of TCS (for software that had not achieved technological
feasibility and had no alternative use), and a contingent earnout charge of $2.3
million recorded by the Company in connection with the EC&F purchase agreement.
In addition, in the nine months ended March 31, 1997, the Company recorded a
gain of $885,000 from a sale of securities. See Note 12 of "Notes to
Consolidated Financial Statements."

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

Revenues

Revenues for the fiscal year ended June 30, 1996 were $31.8 million
compared to $16.2 million in fiscal 1995, representing an increase of 96%. The
increase in revenues was primarily attributable to the inclusion of MEDE OHIO
results for the full 12 months in fiscal 1996, compared to nearly four months in
fiscal 1995, the acquisition of Latpon in June 1995 and the acquisition of EC&F
and Premier in October 1995.

Operating Expenses

Operations expense was $19.2 million in the fiscal year ended June 30, 1996
compared to $9.8 million in fiscal 1995, representing an increase of 97%. As a
percentage of revenues, operations expense was 60% for both periods.

Sales, marketing and client services expense was $7.1 million in the fiscal
year ended June 30, 1996 compared to $3.6 million in fiscal 1995, representing
an increase of 95%, reflecting the impact of acquisitions. As a percentage of
revenues, sales, marketing and client services expense was 22% for both periods.

Research and development expense was $2.1 million for each of the fiscal
years ended June 30, 1996 and 1995. As a percentage of revenues, research and
development expense decreased from 13% in fiscal 1995 to 7% in fiscal 1996. This
decrease in research and development expense as a percentage of revenues
resulted from the inclusion of MEDE OHIO and EC&F in the Company's operations.

Their products tended to be less development intensive.

General and administrative expense was $6.1 million in the fiscal year
ended June 30, 1996 compared to $3.1 million in fiscal 1995, representing an
increase of 94%, reflecting the impact of acquisitions. As a percentage of
revenues, general and administrative expense was 19% for both periods.

Depreciation and amortization expense was $5.2 million in the fiscal year
ended June 30, 1996 compared to $3.0 million in fiscal 1995, representing an
increase of 73%. As a percentage of revenues, depreciation and amortization
expense decreased from 18% in fiscal 1995 to 16% in fiscal 1996. The increase in
depreciation and amortization expense was predominantly attributable to
amortization related to three acquisitions treated under purchase accounting:
MEDE OHIO in March 1995; Latpon in June 1995 and EC&F/Premier in October 1995.

During the fiscal year ended June 30, 1996, the Company wrote down
approximately $10.0 million of costs relating to client lists and related
allocable goodwill obtained in the acquisition of MEDE OHIO. Such intangible
assets were written down to the net present value of the estimated future cash
flows to be derived from these clients as of June 30, 1996. The write-down was
required due to a loss of approximately 25% of the acquired MEDE OHIO client
base. In addition, a contingent earnout charge of $538,000 was recorded in
connection with the EC&F purchase agreement during the fiscal year ended June
30, 1996.

QUARTERLY OPERATING RESULTS

THREE MONTHS ENDED
--------------------------------------------------------------------------------------
9/30/96 12/31/96 3/31/97 6/30/97 9/30/97 12/31/97 3/31/98
----------- ------------ ----------- ------------- ----------- ------------ ----------
(IN THOUSANDS)

Revenues .................................. $ 8,179 $ 7,831 $ 8,954 $10,315 $ 9,241 $ 9,849 $11,099
Operating Expenses:
Operations ............................... 4,298 3,683 4,123 4,713 4,285 3,942 4,258
Sales, marketing and client services. 1,925 1,957 2,261 2,626 2,385 2,432 2,952
Research and development ................. 783 754 918 823 806 1,059 1,021
General and administrative ............... 1,042 1,171 1,127 1,923 1,061 1,107 1,139
Depreciation and amortization ............ 1,102 1,044 1,356 1,791 1,554 1,573 1,719
Acquired in-process research and
development ............................ -- -- 4,354 -- -- -- --
Payment to former owners of ac-
quired businesses ...................... 330 330 330 1,311 -- -- --
-------- -------- -------- ------- -------- -------- -------
Total operating expenses .................. 9,480 8,939 14,469 13,187 10,091 10,113 11,089
-------- -------- -------- ------- -------- -------- -------
Income (loss) from operations ............. (1,301) (1,108) (5,515) (2,872) (850) (264) 10
Other (income) expense .................... -- -- (885) (8) -- -- 13
Interest expense, net ..................... 150 202 427 725 655 915 900
-------- -------- -------- --------- -------- -------- -------
Loss before provision for income taxes (1,451) (1,310) (5,057) (3,589) (1,505) (1,179) (903)
Provision for income taxes ................ 14 14 15 14 12 12 13
-------- -------- -------- --------- -------- -------- -------
Net loss .................................. $ (1,465) $ (1,324) $ (5,072) $(3,603) $ (1,517) $ (1,191) $ (916)
======== ======== ======== ========= ======== ======== =======

LIQUIDITY AND CAPITAL RESOURCES

Since inception, the Company has used capital from external sources to fund
its internal growth and operations and to make acquisitions. Such capital
requirements have been provided by (i) the Company's four principal
stockholders, through periodic purchases of the Company's debt and equity
securities and (ii) the Credit Facility. Since June 30, 1995 an investment fund
affiliated with WCAS has purchased a Senior Subordinated Note in the principal
amount of $25,000,000 and 370,993 shares of Common Stock from the Company for an
aggregate $25.0 million, which was used in connection with the acquisition of
TCS, to repay borrowings under the Credit Facility and for general working
capital purposes. See "Certain Transactions."

As of March 31, 1998, the Company had outstanding borrowings of $15,925,000
under the Credit Facility. Such borrowings currently bear interest at a weighted
average rate of 7.07% per annum. The total availability under the Credit
Facility is $20.0 million. See "Certain Transactions." All indebtedness under
the Credit Facility has been, and currently is, guaranteed by the Company's four
principal stockholders. The Company has received a letter from the lender under
the Credit Facility committing to provide an amended credit facility with total
available credit of $15.0 million. This facility would be comprised of a $7.5
million term loan to be used for acquisitions and a $7.5 million revolving
credit loan to be used for working capital purposes, each with a maximum term of
two years from October 31, 1998. Interest for the term and revolver loans is
computed at .25% above the bank's base rate, or 1.25% above a Eurodollar based
rate. Such borrowing rates are at the option of the Company for any particular
period during which borrowings exist. Covenants under the existing agreement
include: customary covenants and restrictions on additional liabilities and
disposition of assets, achieving year 2000 compliance by August 1999,
maintaining financial records and reporting, a maximum quarterly leverage ratio,
a minimum interest coverage ratio, as well as prior

approval for acquisitions. Borrowings under the Amended Credit Facility will not
be guaranteed by any third party. It is anticipated that the Amended Credit
Facility will take effect upon the consummation of the Offering.

As of March 31, 1998, the Company had cash and cash equivalents of $1.5
million and net working capital of $3.3 million. Net cash used in operations was
$1.7 million, $4.0 million and $3.8 million for the fiscal years ended June 30,
1996 and 1997 and the nine months ended March 31, 1998, respectively. The $3.8
million net cash used in operations for the nine months ended March 31, 1998 was
used primarily for contingent earnout charges on acquisitions made in prior
fiscal years, and other accounts payable and accrued expenses totaling $3.7
million. In addition, $1.1 million of the net cash used was attributable to an
increase in formulary accounts receivable relating to Stockton (formulary
receivables normally have a 7-12 month collection cycle).

Cash used for investment purposes was $4.9 million, $12.2 million and $11.6
million for the fiscal years ended June 30, 1996 and 1997 and the nine months
ended March 31, 1998, respectively. Cash used for investment purposes during the
nine months ended March 31, 1998 was primarily used to acquire Stockton for
$10.7 million and also to fund capital expenditures (predominantly computer and
network hardware and software) in the amount of $646,000. The Company expects to
spend at least $2.0 million per annum for the foreseeable future for capital
investment to support growth in transaction processing.

Cash provided by financing activities was $657,000, $15.5 million and $15.0
million for the fiscal years ended June 30, 1996 and 1997 and the nine months
ended March 31, 1998, respectively. Cash provided by financing activities during
the nine months ended March 31, 1998 was primarily provided from borrowings
under the Credit Facility which was partially offset by principal repayments of
debt and capital lease obligations. In the fiscal year ended June 30, 1997, cash
was provided by the issuance of a Senior Subordinated Note in the principal
amount of $25,000,000 and 370,993 shares of Common Stock for aggregate proceeds
of $25.0 million, which proceeds were partially offset by the repayment of
outstanding borrowings under the Credit Facility and principal repayments of
debt and capital lease obligations.

Approximately $43.0 million of the proceeds of the Offering will be applied
to the repayment of the Company's outstanding indebtedness under the Credit
Facility and the Senior Subordinated Note. In connection with the repayment of
outstanding indebtedness under the Credit Facility and the Senior Subordinated
Note, the Company will record an extraordinary charge of approximately $1.7
million relating to the elimination of deferred financing costs associated with
the Credit Facility and the write-off of the remaining discount on the Senior
Subordinated Note. The Company expects to use the Amended Credit Facility to
finance the Company's future acquisitions and general working capital needs. The
Company also expects to finance acquisitions through the issuance of additional
equity and debt securities. The Company believes that the proceeds of the
Offering, together with existing cash balances and cash generated by operations
in the near term, and the borrowings expected to be made available under the
Amended Credit Facility, will be sufficient to finance the Company's operations
for at least 18 months. However, future acquisitions may require funding beyond
the Company's cash resources and currently anticipated capital or operating
requirements could change, with the result that the Company may be required to
raise additional funds through the public or private sale of additional
securities. See "Risk Factors -- Acquisition Strategy; Need for Additional
Capital."

YEAR 2000 COMPLIANCE

The Company has reviewed the Year 2000 compliance of its systems and has
adopted a program intended to ensure that it achieves compliance with respect to
all products, services and internal systems in a timely manner. Under such plan,
$1,020,000 has been budgeted through December 1999, of which $160,000 has been
spent through April 30, 1998. Certain of the Company's physician benefit
management clients are being migrated from the Company's PBM system in Ohio to
its PBM system acquired from Stockton. The total revenue from such clients is
expected to be $6,351,000 in fiscal 1999. A testing and migration timetable for
all such clients has been developed, with migration activities scheduled for
completion in mid-1999. The Company believes that it does not require additional
technology to achieve Year 2000 compliance and that it has sufficient resources
to implement its plan. The Company expects

that the combined amount of budgeted expenses for Year 2000 compliance plus the
ongoing product development and development expenditures will increase as a
percent of revenue in future periods. However, there can be no assurance that
expenditures required to achieve compliance with Year 2000 requirements will not
exceed those amounts. See "Risk Factors -- Year 2000 Compliance" and "Business
- -- Year 2000 Compliance."

IMPACT OF INFLATION

Inflation has not had a material impact on the Company's historical
operations or financial condition.

RECENT ACCOUNTING PRONOUNCEMENTS

Recent pronouncements of the Financial Accounting Standards Board, which
are not required to be adopted at this date, include SFAS No. 130, "Reporting
Comprehensive Income", SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information" and SFAS No. 132, "Employers' Disclosures
about Pensions and Other Postretirement Benefits." These pronouncements are not
expected to have a material impact on the Company's financial statements.

In March 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use." This statement is not required
to be adopted at this date. The Company is currently evaluating the impact of
this statement on its financial statements.

NET OPERATING LOSSES

As of March 31, 1998, the Company had net operating loss carryforwards for
federal income tax purposes of approximately $34,650,000. Such loss
carryforwards expire in the fiscal years 2005 through 2013. Because of certain
changes in ownership, as defined in the Internal Revenue Code, which occurred
during 1996 and 1995, certain of these net operating loss carryforwards are
subject to annual limitations. See Note 7 of "Notes to Consolidated Financial
Statements."

BUSINESS

GENERAL

MEDE AMERICA is a leading provider of EDI products and services to a broad
range of providers and payors in the healthcare industry. The Company offers an
integrated suite of EDI solutions that allows hospitals, pharmacies, physicians,
dentists and other healthcare providers and provider groups to electronically
edit, process and transmit claims, eligibility and enrollment data, track claims
submissions throughout the claims payment process and obtain faster
reimbursement for their services. In addition to offering greater processing
speed, the Company's EDI products and services reduce processing costs, increase
collection rates and result in more accurate data interchange. The Company
maintains over 540 direct connections with insurance companies, Medicare and
Medicaid agencies, Blue Cross and Blue Shield systems and other third party
payors, as well as over 500 indirect connections with additional payors through
claims clearinghouses. Currently, the Company processes over 900,000
transactions per day for over 65,000 providers located in all 50 states. The
Company's mission is to be the leading provider of integrated healthcare
transaction processing technology, networks and databases, enabling its clients
to improve the quality and efficiency of their services.

The Company was formed in March 1995 through the consolidation and
subsequent spin-off of three subsidiaries of CES, in connection with the
acquisition by First Data Corporation of CES' credit card processing business.
The three subsidiaries, MedE America, Inc., MPC, and Wellmark, which comprised
the healthcare services business of CES, historically provided EDI services to
hospitals and physicians. Since its formation, the Company has expanded both
through internal growth and the acquisition of five healthcare transaction
processing businesses. As part of its strategy of providing an integrated suite
of EDI products and services to a broad range of healthcare providers, the
Company has focused on acquisitions that provided entry into new markets or
expanded the Company's product suite. The Company has actively pursued the
integration of its acquisitions and, in the process, has either divested, closed
or restructured various operations of the acquired entities in order to
eliminate non-core or redundant operations and achieve cost savings and
operating efficiencies.

INDUSTRY OVERVIEW

Innovations over the past decade in computer and telecommunications
technologies have resulted in the development of EDI systems to electronically
process and transmit information among the various participants in the
healthcare industry. These systems were designed to replace paper-based
recording and transmission of information, enabling greater processing speed,
reduced processing costs and more accurate data interchange. Electronic
processing enables providers to verify patient eligibility or obtain
authorization for services at the time of appointment, registration or at the
time of claim submission. The healthcare EDI processor then interfaces with the
payor to obtain an eligibility or authorization confirmation, which is
transmitted back to the provider. To obtain payment, providers must submit
claims information in formats specified by the respective payors. Healthcare EDI
processors can facilitate this process by utilizing customized software programs
that can perform "edits" to the data supplied by providers and re-format that
data to meet the data specifications of payors. Electronically transmitted
claims are sent either directly from the provider to the payor, or through the
healthcare EDI processor (which in turn transmits the claims to the payor
directly or through one or more intermediaries). The claim is received and
reviewed by the payor and the remittance response is communicated (usually not
electronically) back to the provider. Each of these steps in the healthcare
delivery process gives rise to a current or potential EDI transaction.

According to Health Data Directory, in 1997 over 4.1 billion electronic and
paper claims were paid in all sectors of the healthcare services market, and
over the past five years healthcare claims increased at an average rate of 5.5%
per year. The Company expects the volume of healthcare claims to continue to
grow as the U.S. population ages and life expectancy of the U.S. population
increases. The increase in claims has been accompanied by an increase in the
proportion of claims that are electronically processed. From 1993 to 1997, the
proportion of total healthcare claims that were electronically processed

increased from 41% to approximately 60% at an average rate of 16% per year. The
Company expects the electronic processing of healthcare claims to continue to
increase as a result of increased reliance on electronic commerce and increased
emphasis on cost containment in the healthcare industry.

As compared to claims processing, the electronic processing of non-claim
information transactions in the healthcare industry, such as eligibility
inquiries, enrollment in Medicare and Medicaid programs, referrals, formulary
inquiries to pharmacy benefit managers and prescription delivery, has emerged
only recently and is less pervasive. The Company believes that only a small
percentage of non-claim information transactions are managed electronically. In
addition to opportunities to expand its claims processing business, the Company
believes that there are significant possibilities to expand electronic
processing to non-claim areas in the healthcare market, for the following
reasons:

o As advanced technology continues to penetrate the healthcare industry, an
increasing amount of healthcare data will be managed electronically. For
example, healthcare providers are implementing practice management
software systems to manage the clinical, financial and administrative
aspects of their businesses. Increasingly, these software systems
incorporate EDI processing capabilities.

o Efforts by government and private insurers to contain healthcare costs are
expected to motivate hospitals and physicians to use EDI not only to lower
costs, but also to improve operating efficiencies and increase accuracy.
For example, state Medicaid programs and some private insurance companies
now encourage providers to verify patients' medical benefits eligibility
electronically.

o As the healthcare industry continues to undergo consolidation, the larger
scale of the resulting entities may result in increased EDI use. For
example, various managed care companies have encouraged their provider
networks to utilize EDI for authorizations, enrollment verification,
encounter reports and referrals.

Currently, the EDI market is fragmented and consists of several nationally
prominent EDI claims processors and several hundred regional EDI service
providers who occupy selected niches in specialized markets and geographical
sectors. Over the past several years, many of the regional EDI service providers
have been acquired by national organizations. The Company believes that
competitive conditions in the healthcare information industry will continue to
favor consolidation as larger, more diversified organizations are able to reduce
costs and offer an integrated package of standardized products and services.

COMPETITIVE STRENGTHS

The Company believes that it has several competitive strengths which will
enable it to capitalize on the significant growth opportunities in the
healthcare EDI marketplace.

COMPREHENSIVE SUITE OF EDI PRODUCTS AND SERVICES. The Company has followed
a strategy of developing or acquiring EDI products and services that may be
provided to a broad range of healthcare clients. The Company's products
incorporate open architecture designs and "best of breed" technology and may be
purchased as modular additions to the client's existing data storage and
retrieval system, or as part of a comprehensive EDI processing system. They are
designed to be compatible with a broad variety of hospital, medical, pharmacy
and dental practice management and billing systems. In addition, new products
can be added to respond to changing client requirements, and the scalability of
the Com-

pany's products permits the client to accommodate increasing transaction volumes
without requiring substantial new investments in software and hardware. Because
of these product characteristics, the Company believes it is well positioned to
take advantage of the expected growth of EDI in areas such as eligibility,
managed care transactions and pharmacy to physician scripting.

BROAD AND DIVERSIFIED CLIENT BASE. The Company markets its products and
services to a broad range of healthcare providers including the medical market,
comprised of hospitals, clinics and physicians, the dental market comprised of
small to medium-sized dental practice groups, and the pharmacy market, which
includes retail pharmacies (independents and chains) as well as PBMs. In
addition, the Company has relationships through practice management system
vendors and other intermediaries. The Company's client base is highly
diversified, consisting of approximately 42,000 pharmacies, 8,000 dental
offices, 1,000 hospitals and clinics and 14,000 physicians. The Company's broad
and diversified client base provides it with transaction-based revenues that
tend to be recurring and positions it to capitalize on the rapid consolidation
taking place within the healthcare industry.

DIRECT RELATIONSHIPS WITH PROVIDERS AND PAYORS. The Company has developed
over 540 direct connections with healthcare payors including Medicare and
Medicaid agencies, Blue Cross and Blue Shield systems and commercial insurance
companies, and the Company is able to access over 500 additional payors through
contractual relationships with multiple claims clearinghouses. Additionally, the
Company has direct client relationships with providers such as hospitals,
clinics, physicians and pharmacies. The range of MEDE AMERICA's services and the
extent of its connectivity with payors provides the opportunity to achieve
deeper penetration of its provider base, while at the same time offering more
complete solutions to new clients. MEDE AMERICA believes that it is strongly
positioned to offer reliable, one-stop shopping to both providers and payors for
all their EDI needs.

FOCUS ON CLIENT SERVICE. The Company has focused on implementing a wide
range of client service and support functions. These support activities include
the use of automated client service tracking software, expanded client help desk
and account executive support functions, and extensive client feedback
mechanisms. This focus has enhanced the Company's awareness of client needs and
improved the Company's ability to respond to those needs. As a result of these
activities, of the clients that contributed to the Company's revenues in the
1997 fiscal year, approximately 90% continued as clients of the Company and
contributed to the Company's revenues in the nine months ended March 31, 1998.
The Company believes that its high quality client service enhances the
satisfaction of its clients and generates new revenue opportunities in the form
of expanded transaction volume and sales of new products and services.

LEADING TECHNOLOGY AND PRODUCT PLATFORMS. The Company recognizes the
critical role of technology and telecommunications platforms to ensure reliable
and high quality service. Over the past two years, MEDE AMERICA has invested
significant capital in new hardware and software systems resulting in an
estimated three-fold increase in transaction processing capacity. The Company
has designed its products on a modular client/server model, using open
architecture and commonly available hardware, with redundant processing
capabilities. The Company's redundancies in its computing capacity and its
dual-site operations enable it to provide uninterrupted processing and data
transmission with little if any downtime. As a result of such technology
investments, MEDE AMERICA believes it is able to provide high quality service to
its clients in the form of high network availability, batch transaction
reliability and high rates of payor claims acceptance. MEDE AMERICA also
believes that its technology platform, which is operating at approximately
one-third of its total capacity, provides it with substantial operating
leverage.

GROWTH STRATEGY

o PROVIDE COMPREHENSIVE SUITE OF EDI SOLUTIONS. The Company believes that it
is critical to provide a full range of state of the art EDI solutions to
clients at every stage of the healthcare transaction spectrum. The Company
strives to develop fully modular products with open architecture to allow
for easy installation and integration with existing systems. These
features enhance the ability of the Company to offer one-stop shopping for
a client's EDI needs.

o FURTHER PENETRATE EXISTING CLIENT BASE. The Company believes that the
market for EDI transaction processing among its current clients has
significant potential. As EDI becomes more widespread in the healthcare
industry, the use of emerging EDI products and services such as
eligibility, enrollment, electronic credit card transactions and
electronic statement processing will become increasingly commonplace. The
Company believes that it is well positioned to cross sell such emerging
products and services to its existing client base.

o DEVELOP NEW EDI PRODUCTS AND SERVICES. The Company intends to develop new
EDI solutions to meet the evolving electronic transaction processing needs
of its existing and future healthcare clients. The Company believes that
the use of EDI will expand to encompass an increasing range of services
such as referrals, remittances and workers' compensation transactions. The
Company has a team of 97 research and development and technical support
professionals dedicated to developing, supporting and commercializing new
and enhanced EDI solutions. In addition, the Company intends to undertake
acquisitions in order to expand its suite of product offerings.

o UTILIZE STRATEGIC PARTNERSHIPS TO EXPAND CLIENT BASE. MEDE AMERICA's
strategic alliances with vendors, distributors and dealers of practice
management software have played an important role in building
relationships with small groups of physicians, pharmacists and dentists.
These companies promote MEDE AMERICA's EDI products as a modular addition
to their practice management software. The Company also has strategic
relationships with large hospital groups, Medicaid intermediaries, PBMs
and professional organizations. The Company believes that such strategic
partnerships provide important opportunities for increasing the Company's
revenue base.

o PURSUE STRATEGIC ACQUISITIONS. Currently, the EDI market includes several
hundred regional EDI service providers which occupy selected niches in
specialized markets and geographical areas. The Company intends to
capitalize on the fragmented market for the provision of EDI services by
aggressively pursuing consolidation opportunities in order to increase its
client and revenue base, expand its product suite, enter into new
geographic markets, utilize its operating leverage to increase efficiency
and add new talent and technical capacity in emerging areas of the EDI
processing industry.

SUITE OF EDI PRODUCTS AND SERVICES

MEDE AMERICA's products and services enable its healthcare clients to
process and transmit transactions more efficiently and accurately, reducing
costs and increasing overall processing speed. The Company's EDI products
incorporate open architecture designs and "best of breed" technology and may be
purchased as modular additions to existing data storage and retrieval systems or
as part of a comprehensive EDI processing system. They are designed to be
compatible with a broad variety of hospital, medical, pharmacy and dental
practice management and billing systems. In addition, new products can be added
to respond to changing client requirements. The scalability of the Company's
products permits its clients to accommodate increasing transaction volumes
without substantial new investments in software and hardware. The following
table illustrates the breadth of the Company's product and service offerings:

MEDE AMERICA'S SUITE OF EDI PRODUCTS AND SERVICES

NAME OF PRODUCT/SERVICE DESCRIPTION OF
AND MARKETS SERVED PRODUCT/SERVICE FEATURES CLIENT BENEFITS
- -------------------------- ----------------------------------------------- --------------------------------------------

HEALTHCARE CLAIM
PROCESSING

MEDEClaim -- o Downloads claims data from client soft- o Accelerates cash flow through faster
All Markets ware applications and provides claims claim reimbursement.
data entry and correction capability. Ed- o Increases cash flow through high level of
its, formats and screens transaction data payor acceptance of edited claims.
to meet payor-specific requirements. o Improves accounts receivables manage-
ment.
o Reduces administrative expenses.

OTHER CLAIM SERVICES
MEDE Assist -- o Bills, on a batch basis, pharmacy pre- o Improves accounts receivable manage-
Pharmacy scriptions and performs non-electronic ment and accelerates cash flow.
reconciliation and payor accounts re- o Reduces administrative expenses.
ceivable management.

Claims Tracking -- o Tracks and provides a lock box service o Improves accounts receivable manage-
Dental for payor reimbursements. ment and accelerates cash flow.

ELIGIBILITY VERIFICATION
MEDE Eligibility -- o Verifies patients' eligibility for specific o Reduces costs by minimizing fraud.
All Markets healthcare benefits for Medicaid and o Ensures patient services are supported
commercial payors. by a designated health benefit plan.
o Reduces administrative expenses.

MEDICAID ENROLLMENT
Medicaid o Processes and tracks Medicaid enrollment o Reduces expenses through on-line
Enrollment Manage- applications allowing for the verification application process.
ment System (MEMS) and processing of Medicaid claims. Uti- o Reduces application processing time.
-- Medical lized by hospitals and government agen- o Improves Medicaid claims billing and col-
cies in New York, New Jersey and lection.
California. o Reduces bad debt.

TRANSACTION SWITCHING
MEDE Xchange -- o Routes real-time and batch transaction o Reduces costs.
All Markets data from clients to facilitate transaction o Increases network availability and
transmission to payors. reliability.
o Supports a broad array of access methods o Provides extensive payor connectivity.
including dial-up, dial
to packet, ISDN and frame relay.

NAME OF PRODUCT/SERVICE DESCRIPTION OF
AND MARKETS SERVED PRODUCT/SERVICE FEATURES CLIENT BENEFITS
- ------------------------- --------------------------------------------- --------------------------------------------

REAL-TIME BENEFIT
MANAGEMENT
MEDE Select -- o Adjudicates on-line claims, incorporat- o Accelerates cash flow through faster
All Markets ing patient eligibility and benefit review. claim reimbursement.
o Increases cash flow through high level of
payor acceptance of edited claims.
o Improves accounts receivables manage-
ment.
o Reduces administrative expenses.

PHARMACY PRACTICE
MANAGEMENT
SYSTEMS (PPM)
Solution Plus -- o Facilitates dispensing, inventory and o Expands drug pricing and coverage
Pharmacy pricing of products for hospital, outpa- capabilities.
tient and clinic pharmacies. o Improves cash flow.
o Provides on-line claims adjudication. o Improves efficiency of pharmacy
management and operations.

OTHER PRODUCTS AND
SERVICES
Link -- o Connects physicians to pharmacies for the o Reduces costs related to manual genera-
Medical and Pharmacy transmission of prescriptions and related tion and transmission of prescriptions.
information and approvals. o Increases accuracy and transmission speed
of prescriptions.

Formulary o Administers and manages formulary pro- o Reduces drug costs and increases PBM
Management -- grams for PBMs. revenue through manufacturer incentives,
Pharmacy o Promotes the usage by healthcare plans of o Promotes compliance with payor formu-
designated drug products. laries.

Patient Statements -- o Facilitates patient statement billing. o Reduces costs and improves patient
All Markets relations.

Credit/Debit Card and o Assists patients in making co-payments or o Reduces bad debt and enhances patient
Check Guarantee -- paying other out-of-pocket charges. convenience.
All Markets

Additional EDI o Processes data relating to referrals, en- o Reduces practice expense and improves
Transactions -- counters and benefit pre-certifications. efficiency and patient relations.
All Markets

CLIENTS

The Company markets its products primarily to hospitals, pharmacies,
physicians, dentists and other healthcare providers and provider groups
(including HMOs, PPOs and healthcare practice management vendors). The Company
processes transactions for providers in all 50 states, with 75% of its
transactions generated by providers in 28 states. The Company believes it is one
of the largest pharmacy transaction routers in the U.S. (based on volume)
serving more than 42,000 pharmacies in various EDI capacities. MEDE AMERICA has
a strong presence in the medical market in New York, New Jersey, California,

Florida, Minnesota, and Ohio, currently providing EDI services to more than
1,000 hospitals and clinics, and 14,000 physicians. In the dental market, MEDE
AMERICA serves more than 8,000 dental offices. No single client of the Company
accounted for more than 3% of the Company's revenues in fiscal year 1997.

SALES, MARKETING AND CLIENT SERVICES

The Company markets its products through a national sales and client
services organization consisting of 75 sales associates organized according to
market, client type and product category. The Company also has a client services
organization consisting of 57 associates dedicated to help desk and client
support functions. A significant component of compensation for all sales
personnel is performance based, although the Company bases quotas and bonuses on
a number of factors in addition to actual sales, such as client satisfaction and
collection of receivables.

MEDE AMERICA's marketing efforts include direct sales, telesales, strategic
partnerships with healthcare vendors, trade shows, direct marketing,
telemarketing, the Internet, and specific advertising and marketing campaigns
where appropriate. In the medical and pharmacy markets, the Company's current
strategic business alliances include relationships with some of the country's
largest hospitals, hospital networks, hospital information systems vendors,
practice management software vendors, pharmacy chains, healthcare organizations
and payors. The Company also maintains strategic alliances with certain state
Medicaid programs.

MEDE AMERICA's strategic alliances with vendors, distributors and dealers
of practice management software have played an important role in building
relationships with individual and small groups of physicians, pharmacies and
dentists. These companies promote MEDE AMERICA's EDI products as modular
additions to their practice management software. MEDE AMERICA has also won
endorsements from 18 state dental associations, representing nearly half of all
dentists in practice today. The Company's sales channels include targeting
dental practice management companies and payor-driven programs aimed at their
network providers. Recent significant expansion of MEDE AMERICA's direct
connectivity to dental payors has contributed to its ability to generate revenue
from this market while at the same time eliminating its dependence on other
processors and clearinghouses.

RESEARCH AND DEVELOPMENT

As of June 30, 1998, the Company employed 65 people in the areas of product
design, research and development, and 32 people in the areas of quality
assurance and technical support. The Company's product development strategy is
focused on continuous enhancement of its existing products to increase their
functionality and ease of use, and the development of new products for
additional EDI transactions and telecommunications offerings. Particular
attention is devoted to the ongoing integration of developed and acquired
systems and applications into a consolidated suite of EDI product offerings and
supporting services for the markets served by the Company.

In the Company's 1995, 1996 and 1997 fiscal years, research and development
expenditures totaled $2,051,000, $2,132,000 and $3,278,000, respectively,
representing approximately 13%, 7% and 9%, respectively, of the Company's total
revenues. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."

TECHNOLOGY AND OPERATIONS

MEDE AMERICA recognizes the crucial role of technology and
telecommunications in the EDI marketplace. Since the beginning of fiscal 1996,
the Company has acquired new hardware and software and made data center
improvements costing more than $5.0 million. As a result, the Company is
currently operating at approximately one-third of its operating capacity. The
continuing use of newer emerging technologies and platforms has contributed
significantly to the Company's current operational position. Examples of such
innovations include the use of Internet technologies for data transmissions,
on-line transaction monitoring tools and development of Windows-based front-end
applications for clients.

Advanced Open Architecture

MEDE AMERICA's products and applications offer clients the benefits of an
"open architecture" EDI system. As a result, a client's system can expand or
change without incurring significant incremental capital expenditures for
hardware or software. The open architecture of the Company's systems also
improves reliability and connectivity, and facilitates the cross selling of MEDE
AMERICA's products, in part because of the following characteristics:

o SCALABILITY. The Company's systems are designed to take full advantage of
the client/server environment, UNIX operating systems and Redundant Array
of Inexpensive Disks ("RAID") technology, allowing clients to expand their
processing capacity in order to accommodate the growth of their
businesses.

o MODULARITY. The Company's client/server systems have been developed with
discrete functionality that can be replicated and utilized with additional
hardware. This modularity enables MEDE AMERICA to optimize application and
hardware performance.

o REDUNDANCY. The implementation of a dual site, geographically dispersed
On-Line Transaction Processing ("OLTP") switch (Twinsburg, Ohio and
Mitchel Field, New York) and RAID technology for batch processing
significantly reduces the risk of business interruption. Each site is
designed to be entirely self-supporting.

o OPEN SYSTEMS. Through the use of an open systems architecture MEDE AMERICA
is able to add new functionality to applications without re-designing its
applications or architecture.

o INDUSTRY STANDARDS. Through the adoption and active use of pertinent
standards for healthcare EDI processing, MEDE AMERICA can support client
and payor processing requirements and provide standard interfaces to other
EDI processing organizations.

o EASE OF USE. The Company's products are either Windows-based or GUI-based
and function in UNIX, Novell and Windows NT operating environments,
thereby enhancing ease of use by MEDE AMERICA's clients.

o TELECOMMUNICATIONS OFFERINGS. MEDE AMERICA is an early adopter of emerging
telecommunications systems enabling the Company to migrate to newer
services, such as ISDN, dial to packet, frame relay, virtual private
networks and Internet communications. These new offerings provide the
Company with a competitive advantage through improved service levels or
pricing. To ensure reliable connectivity to its EDI clients, the Company
has established relationships with multiple telecommunications vendors.

COMPETITION

Competition in the market for the Company's products and services is
intense and is expected to increase. The EDI market is characterized by rapidly
changing technology, evolving user needs and frequent introduction of new
products. Many of the Company's competitors and potential competitors have
significantly greater financial, technical, product development, marketing and
other resources and market recognition than the Company. In addition, many of
the Company's competitors also currently have, or may develop or acquire,
substantial installed client bases in the healthcare industry. As a result of
these factors, the Company's competitors may be able to respond more quickly to
new or emerging technologies, changes in client requirements and political,
economic or regulatory changes in the healthcare industry, and may be able to
devote greater resources to the development, promotion and sale of their
products than the Company.

The Company's principal competitors include National Data Corporation,
Envoy Corporation and SSI, Inc. in claims processing and eligibility
verification; QuadraMed Corporation in claims processing; Medifax, Inc. and HDX
Healthcare Data Exchange Corporation in eligibility verification; and Envoy
Corporation in the dental market. MEDE AMERICA also may face potential
competition from other companies not currently involved in healthcare electronic
data transmission, which may enter the market as EDI becomes more established.
The Company believes that existing and potential clients in the

healthcare EDI market evaluate the products and services of competing EDI
providers on the basis of the compatibility of the provider's software, cost,
ease of installation, the range of applications available, the quality of
service and the degree of payor connectivity. See "Risk Factors --
Competition."

GOVERNMENT REGULATION

The healthcare industry in the United States is subject to changing
political, economic and regulatory influences that may affect the procurement
practices and operations of healthcare organizations. During the past several
years, the healthcare industry has been subject to increasing levels of
governmental regulation of, among other things, reimbursement rates and certain
capital expenditures. For example, legislation has been proposed that would
mandate standards and impose restrictions on the Company's ability to transmit
healthcare data and recently, Congress has had under consideration proposals to
reform the healthcare system. While some of these proposals, if enacted, could
increase the demand for EDI products and services in the healthcare industry by
emphasizing cost containment, they might change the operating environment for
the Company's clients in ways that cannot be predicted. Healthcare organizations
could react to these proposals by curtailing or deferring investments, including
those for the Company's products and services.

The confidentiality of patient records and the circumstances under which
such records may be released for inclusion in the Company's databases are
subject to substantial regulation. State laws and regulations govern both the
disclosure and the use of confidential patient medical record information.
Although compliance with these laws and regulations is at present principally
the responsibility of the hospital, physician or other healthcare provider,
regulations governing patient confidentiality rights are evolving rapidly. The
Health Insurance Portability and Accountability Act, passed in 1997, mandates
the establishment of national standards for the confidentiality of patient data,
as well as record keeping, data format and data security obligations that will
apply to transaction processors, among others. It is possible that standards so
developed will necessitate changes to the Company's operations. Additional
legislation governing the dissemination of medical record information has been
proposed at both the federal and state levels. This legislation may require
holders of such information to implement security measures that may require
substantial expenditures by the Company. There can be no assurance that changes
to state or federal laws will not materially restrict the ability of healthcare
providers to submit information from patient records using the Company's
products. See "Risk Factors -- Proposed Healthcare Data Confidentiality
Legislation."

YEAR 2000 COMPLIANCE

Many currently installed computer systems and software products are coded
to accept only two digit entries in the date code field. These date code fields
will need to accept four digit entries to distinguish 21st century dates from
20th century dates. As a result, prior to January 1, 2000, computer systems
and/or software used by many companies may need to be upgraded to comply with
such "Year 2000" requirements. Significant uncertainty exists in the software
industry concerning the potential consequences of the Year 2000 phenomenon. To
date, the Company has expended approximately $160,000 in addressing Year 2000
problems. The Company estimates that it will incur approximately $860,000 in
additional costs relating to its Year 2000 compliance program; however, there
can be no assurance that such amount will be sufficient to cover all costs
relating to Year 2000 issues. The Company believes that the majority of all
transactions being processed by it are running on Year 2000 compliant systems.
However, the Company believes that some systems with which its own computers
interact (for example, some payor and practice management systems) are not yet
Year 2000 compliant, and that the failure of these systems to be made Year 2000
compliant in a timely manner may adversely affect some of the Company's
operations. In addition, certain systems operated by MEDE AMERICA are not yet
Year 2000 compliant. The applications running on these systems are expected to
be discontinued, migrated to other systems or corrected before 2000. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Year 2000 Compliance." However, there can be no assurance that the
Company's systems will achieve Year 2000 compliance in a timely manner, if at
all. See "Risk Factors -- Year 2000 Compliance."

EMPLOYEES

As of June 30, 1998, the Company employed 364 people, including 112 in
operations, 75 in sales, 12 in marketing, 57 in client services, 65 in research
and development, 15 in finance, 18 in administration

and ten in corporate. None of the Company's employees is represented by a union
or other collective bargaining group. The Company believes its relationship
with its employees to be satisfactory.

FACILITIES

The following chart summarizes the Company's facilities and their monthly
transaction capacities:

ESTIMATED
MONTHLY
TRANSACTION OWNED/LEASE
FACILITY PERSONNEL TRANSACTION TYPE CAPACITY EXPIRATION DATE
- ------------------------------ ----------- ------------------------------ ------------- ----------------------

Ohio (Primary Medical and 152 Eligibility 2,000,000 Owned
Pharmacy Data Center) Real-Time Benefit Management 6,000,000
Switching 48,000,000

New York (Secondary Medical 33 Eligibility Enrollment 2,000,000 January 2003
and Pharmacy Data Center) 25,000

Georgia (Dental Data Center) 56 Dental Claims 1,600,000 January 2001

Corporate Headquarters, 115 Real-Time Benefit Management 2,000,000 Various dates between
Sales & Development January 1999 and Feb-
Offices (5 sites) and ruary 2003.
PBM Processing

INTELLECTUAL PROPERTY

The Company considers its methodologies, computer software and many of its
databases to be proprietary. The Company relies on a combination of trade
secrets, copyright and trademark laws, contractual provisions and technical
measures to protect its rights in various methodologies, systems, products and
databases. The Company has no patents covering its software technology. Due to
the nature of its application software, the Company believes that patent and
trade secret protection are less significant than the Company's ability to
further develop, enhance and modify its current products. However, any
infringement or misappropriation of the Company's proprietary software and
databases could disadvantage the Company in its efforts to retain and attract
new clients in a highly competitive market and could cause the Company to lose
revenues or incur substantial litigation expense. The Company seeks to protect
its proprietary information through nondisclosure agreements with its
consultants, clients and potential clients, and limits access to, and
distribution of, its proprietary information. See "Risk Factors -- Dependence on
Intellectual Property; Risk of Infringement."

Substantial litigation regarding intellectual property rights exists in the
software industry, and the Company expects that software products may be
increasingly subject to third-party infringement claims as the number of
competitors in the Company's industry segment grows and the functionality of
products overlaps. Although the Company believes that its products do not
infringe on the intellectual rights of others, there can be no assurance that
such a claim will not be asserted against the Company in the future, or that a
license or similar agreement will be available on reasonable terms in the event
of an unfavorable ruling on any such claim. See "Risk Factors -- Dependence on
Intellectual Property; Risk of Infringement."

LEGAL PROCEEDINGS

In June 1995, the Company acquired substantially all of the assets of
Latpon for a purchase price of $2,470,000, plus the assumption of approximately
$963,000 of liabilities. On June 6, 1998, Curtis J. Oakley filed a complaint
with the Supreme Court of the State of New York, County of Nassau asserting
multiple causes of action against several persons, including a cause of action
naming the Company as a defendant, based on his alleged ownership of a 22%
interest in Latpon. According to the complaint, Mr. Oakley's claim against the
Company is for $2 million or such other amount as may be equivalent to the
present value of his alleged ownership interest in Latpon's predecessor. The
Company believes that it is fully indemnified by the former owners of Latpon
under the Latpon acquisition agreement against any costs or damages arising from
this claim. By letter dated July 10, 1998, one of the former owners of Latpon
confirmed that he would indemnify the Company in accordance with the terms of
the acquisition agreement.

MANAGEMENT

DIRECTORS AND EXECUTIVE OFFICERS

The directors and executive officers of the Company are as follows:

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

Thomas E. McInerney(2) ........... 56 Chairman of the Board of Directors

Thomas P. Staudt ................. 45 President and Chief Executive Officer, Director

Richard P. Bankosky .............. 55 Chief Financial Officer, Treasurer and Secretary

James T. Stinton ................. 48 Chief Information Officer

William M. McManus ............... 43 Senior Vice President and General Manager -- Medical
and Pharmacy

Roger L. Primeau ................. 55 Senior Vice President and General Manager -- Dental

Anthony J. de Nicola(1) .......... 33 Director

Timothy M. Murray(1)(2) .......... 45 Director

- ----------
(1) Member of Audit Committee

(2) Member of Compensation Committee

Set forth below is information about each of the Company's executive
officers and directors.

THOMAS E. MCINERNEY has been Chairman of the Board of Directors of the
Company since March 1995 and a general partner of WCAS, an investment firm which
specializes in the acquisition of companies in the information services and
healthcare industries, since September 1986. Prior to joining WCAS, Mr.
McInerney was President and Chief Executive Officer of Dama Telecommunications
Corporation, a voice and data communications services company which he
co-founded in 1982. Mr. McInerney has also been President of the Brokerage
Services Division and later Group Vice President-Financial Services of ADP, with
responsibility for the ADP divisions that serve the securities, commodities,
bank, thrift and electronic funds transfer industries, and has held positions
with the American Stock Exchange, Citibank and American Airlines. Mr. McInerney
holds a B.A. degree from St. Johns University, and attended New York University
Graduate School of Business Administration. He is a director of Aurora
Electronics, Inc., The BISYS Group, Inc. and several private companies.

THOMAS P. STAUDT has been a director and the President and Chief Executive
Officer of the Company since March 1995. He served as President and Chief
Operating Officer of CES from May 1993, and as a director from August 1994,
until the sale of CES to First Data Corporation and the formation of the
Company in March 1995. At CES, Mr. Staudt was responsible for credit card and
healthcare transaction processing operations. Prior to joining CES, Mr. Staudt
was President and Chief Operating Officer of Harbridge Merchant Services, Inc.,
which he joined in December 1991. Mr. Staudt has also held positions with A.C.
Nielsen, a subsidiary of Dun & Bradstreet Corporation, and Wells Fargo Bank.
Mr. Staudt holds a B.S. degree from the U.S. Naval Academy and an M.B.A. from
San Francisco State University.

RICHARD P. BANKOSKY has been Chief Financial Officer, Treasurer and
Secretary of the Company since May 1996. He served as Chief Financial Officer
and Treasurer for TII Industries, Inc. from April 1995 to February 1996. Prior
to joining TII, he was Chief Financial Officer, Treasurer and Secretary for TSI
International Software Ltd from February 1989 to April 1995. Mr. Bankosky also
served as Chief Financial Officer and Secretary for V Band Systems Inc., was
founder and Chief Operating Officer of NCR Credit Corporation and served as
Director of Corporate Development at NCR Corporation. He holds a B.E.E. degree
in Computers and Electrical Engineering from Rensselaer Polytechnic Institute
and an M.B.A. from Adelphi University.

JAMES T. STINTON has been Chief Information Officer of the Company since
October 1995. He served as Release Manager at Charles Schwab & Company from
April 1992 to September 1995. In that position he was responsible for the
development, coordination, testing and implementation for the Microsoft NT and
UNIX Client Server software. Prior to joining Charles Schwab & Company, he was
POS Systems Architect and Vice President at Wells Fargo Bank from February 1982
to April 1992. Mr. Stinton holds a degree from ONC Business Studies, Coventry
Technical College, Coventry, England, and a graduate certificate from Consumer
Banking Association, Retail Banking Management, McIntire Business School of the
University of Virginia.

WILLIAM M. MCMANUS has been Senior Vice President and General Manager --
Pharmacy and Medical of the Company since May 1997 and Senior Vice President and
General Manager -- Pharmacy since February 1996. From April 1994 through
February 1996 he was head of pharmacy system sales for National Data
Corporation. In that position he had overall responsibility for sales, marketing
and product management programs. Prior to April 1994, Mr. McManus held senior
level positions at OmniSYS, Inc., Healthcare Computer Corporation, PDX, Inc.,
and the computer division of Foxmeyer Corporation. Mr. McManus holds a B.S.
degree in Health and Physical Education from the University of South Carolina
and completed postgraduate courses in education and pharmacy at the University
of South Carolina.

ROGER L. PRIMEAU has been Senior Vice President and General Manager --
Dental of the Company since October 1996. From August 1989 through June 1996 he
was Vice President, Administration and Customer Relations of National
Electronic Information Corporation ("NEIC"). Prior to joining NEIC, Mr. Primeau
worked at Columbia Life Insurance Co. and Aetna Life & Casualty in a variety of
management positions. Mr. Primeau holds a B.S. degree in Biology from Holy
Cross College.

ANTHONY J. DE NICOLA has been a director of the Company since March 1995
and has been a general partner of WCAS since April 1994. Prior to joining WCAS,
Mr. de Nicola was an associate at William Blair & Company, L.L.C., an
investment banking firm with which he had been affiliated since 1990.
Previously, Mr. de Nicola worked in the Mergers and Acquisitions Department of
Goldman Sachs & Co. and held positions at McKinsey & Company and IBM. Mr. de
Nicola holds a B.A. degree from DePauw University and an M.B.A. from Harvard
Business School. He is a director of SEER Technologies, Inc. and several
private companies.

TIMOTHY M. MURRAY has been a director of the Company since March 1995 and
is a principal of William Blair & Company, L.L.C., an investment banking firm
with which he has been associated since 1979. He has also been the managing
partner of William Blair Leveraged Capital Fund since its formation in 1988 and
is a Managing Director of WBCP. Mr. Murray holds a B.A. degree from Duke
University and an M.B.A. from the University of Chicago. He is a director of
Daisytek International Corporation and several private companies.

THE BOARD OF DIRECTORS

COMMITTEES OF THE BOARD OF DIRECTORS

The only standing committees of the Board of Directors of the Company are
the Audit Committee and the Compensation Committee. The Audit Committee reviews
the results and scope of audits and other services provided by the Company's
independent public accountants. Its members are Messrs. de Nicola and Murray. In
May 1998, the Board of Directors constituted a Compensation Committee composed
of Messrs. McInerney and Murray which will be responsible for making
recommendations concerning salaries and incentive compensation for executive
officers of the Company. Prior to May 1998, the Board of Directors had sole
responsibility for establishing executive officer compensation. Thomas E.
Staudt, the Company's President and Chief Executive Officer, participated in the
deliberations of the Board concerning executive compensation.

COMPENSATION OF DIRECTORS

Prior to the Offering, the directors of the Company received no
compensation in respect of their service on the Board of Directors. Following
the Offering, under the "New Stock Plan" (as defined in, and described more
fully under, "-- Employee Benefit Plans"), each director who is not an employee
of

the Company or any parent, subsidiary or affiliate of the Company and is not
(and is not affiliated with) a beneficial owner of 5% or more of the voting
stock of the Company (a "non-employee director") will be paid an annual retainer
of $7,500, plus $1,000 for each Board of Directors or committee meeting
attended, and will receive annually a non-qualified stock option to purchase up
to 1,000 shares of Common Stock at the fair market value of the Common Stock on
the date of grant.

Directors are entitled to reimbursement for out-of-pocket expenses
incurred while attending meetings of the Board of Directors or committee
meetings.

EXECUTIVE COMPENSATION

The following table sets forth certain information concerning the
compensation paid by the Company to its Chief Executive Officer and each of the
four other most highly paid executive officers of the Company (the "Named
Executive Officers") in the 1997 fiscal year:

SUMMARY COMPENSATION TABLE

LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
------------------------------------------------- ---------------
SECURITIES
OTHER ANNUAL UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION SALARY($) BONUS($)(1) COMPENSATION($) OPTIONS(#)(2) COMPENSATION($)
- --------------------------------------- ----------------- ------------- ----------------- --------------- ----------------

Thomas P. Staudt ...................... 180,000 50,000 -- 220,414 --
President and Chief Executive
Officer
Richard P. Bankosky ................... 135,000 20,000 -- 29,461 --
Chief Financial Officer, Treasurer
and Secretary
William M. McManus .................... 122,072 20,000 68,558 27,279 --
Senior Vice President and General
Manager -- Pharmacy and Medical
Roger L. Primeau ...................... 85,000 (3) 12,000 -- 18,113 --
Senior Vice President and General
Manager -- Dental
James T. Stinton ...................... 152,500 20,000 -- 34,917 --
Chief Information Officer ............

- ----------
(1) Bonuses are granted under a bonus formula annually established by the Board
of Directors, based upon the performance (measured by EBITDA) of the Company
(or certain operating divisions thereof). Unless a specified percentage of
the EBITDA target is achieved, no bonus is paid. EBITDA targets are adjusted
to reflect accounting changes, acquisitions and other significant, one-time
events.

(2) Total number granted through June 30, 1997 (exercised and unexercised).

(3) Mr. Primeau's employment commenced in October 1996.

OPTION GRANTS IN LAST FISCAL YEAR

The following table sets forth certain information regarding grants of
options to purchase Common Stock in fiscal 1997 to each of the Named Executive
Officers:

POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF
STOCK
PRICE APPRECIATION
INDIVIDUAL GRANTS FOR OPTION TERM(1)
-------------------------------------------------------------- -------------------
NUMBER OF % OF TOTAL
SECURITIES OPTIONS GRANTED EXERCISE
UNDERLYING OPTIONS TO EMPLOYEES IN PRICE EXPIRATION
GRANTED(#) FISCAL YEAR(2) ($/SHARE) DATE 5%($) 10%($)
-------------------- ----------------- ----------- ----------- --------- ---------

Thomas P. Staudt ............ 2,182 4.27% 5.73 2/14/07 7,863 19,926
Richard P. Bankosky ......... 2,182 4.27% 5.73 2/14/07 7,863 19,926
William M. McManus .......... 5,455 10.68% 5.73 (3) 19,657 49,816
Roger L. Primeau ............ 18,112 35.47% (4) (5) 65,268 165,401
James T. Stinton ............ 2,182 4.27% 5.73 2/14/07 7,863 19,926

- ----------
(1) Potential realizable value is based on the assumption that the price per
share of Common Stock appreciates at the assumed annual rate of stock
appreciation for the option term. The assumed 5% and 10% annual rates of
appreciation (compounded annually) over the term of the option are set forth
in accordance with the rules and regulations adopted by the Securities and
Exchange Commission and do not represent the Company's estimate of stock
price appreciation.

(2) Based upon total grants of options to purchase 51,059 shares in fiscal year
1997.

(3) Of such options, 2,182 expire February 14, 2007 and 3,273 expire June 9,
2007.

(4) Of such options, 16,367 are at an exercise price of $4.58 and 1,745 are at
an exercise price of $5.73.

(5) Of such options, 16,367 expire September 16, 2006 and 1,745 expire February
14, 2007.

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

NUMBER OF SECURITIES UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS AT
JUNE 30, 1997(#) JUNE 30, 1997($)
------------------------------- ------------------------------
EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
------------- --------------- ------------- --------------

Thomas P. Staudt ............ 65,469 133,120 $300,000 $612,500
Richard P. Bankosky ......... 5,455 24,005 25,000 112,500
William M. McManus .......... 7,637 19,641 38,750 92,500
Roger L. Primeau ............ 0 18,112 0 85,000
James T. Stinton ............ 6,546 28,370 30,000 132,500

SEVERANCE AGREEMENTS

The Company maintains severance agreements with each of its executive
officers providing for salary continuation for a period of six months (twelve
months in the case of Mr. Staudt) if the executive is terminated for any reason
other than malfeasance, misconduct or moral turpitude.

NON-COMPETITION, NON-SOLICITATION AND CONFIDENTIALITY AGREEMENTS

Each executive officer and certain other employees of the Company have
entered into a Non-Competition, Non-Solicitation and Confidentiality Agreement
with the Company, the terms of which are as follows. For a term of 12 months
following the cessation of such employee's employment with the Company, the
employee will neither compete with the Company in the United States nor solicit
any customer or employee of the Company. In addition, the employee will not
disclose any trade secrets (as defined in the agreement) and, for a term of 12
months following the cessation of his or her employment by the Company, will not
disclose any confidential information (as defined in the agreement).

EMPLOYEE BENEFIT PLANS

Under the MEDE AMERICA Corporation and its Subsidiaries Stock Option and
Restricted Stock Purchase Plan (the "Stock Plan"), up to 655,000 shares of
Common Stock are reserved for issuance to the officers and employees of the
Company. These shares may be issued either outright, as restricted stock awards,
or they may be issued pursuant to either "incentive stock options" under Section
422(b) of the Internal Revenue Code of 1986, as amended (the "Code"), or
"non-qualified" stock options. As of June 30, 1998, options to purchase up to an
aggregate 483,041 shares of Common Stock were outstanding, of which 212,758
options were exercisable. The weighted average exercise price for all options
granted under the Stock Plan is $4.84 per share. Following the Offering, the
Board of Directors has provided that no additional grants or awards will be made
under the Stock Plan.

Under the MEDE AMERICA Corporation and its Subsidiaries 1998 Stock Option
and Restricted Stock Purchase Plan (the "New Stock Plan"), a variety of awards,
including incentive stock options intended to qualify under Section 422 of the
Internal Revenue Code of 1986, as amended (the "Code"), "non-qualified" stock
options, restricted stock awards and other stock-based awards, may be granted to
officers, employees, directors, consultants and advisors of the Company and its
subsidiaries. An aggregate, 1,500,000 shares of Common Stock are currently
reserved for issuance under the New Stock Plan. The Board of Directors will
initially administer the New Stock Plan, but may delegate such responsibility to
a committee of the Board (the "Plan Administrator").

The terms and conditions of individual awards made to employees and
consultants and, except as described below, non-employee directors, may vary,
subject to the following guidelines: (i) the exercise price of options may not
be less than 85% of the fair market value of the Common Stock on the date of
grant provided, however, that neither (a) the exercise price of incentive stock
options nor (b) the exercise price of non-qualified stock options intended to
qualify as "performance-based compensation" within the meaning of the Code may
be less than 100% of the fair market value of the Common Stock on the date of
grant (or, in the case of incentive stock options granted to a stockholder
owning in excess of 10% of the total combined voting power of all classes of
Company stock, 110% of the fair market value); (ii) the maximum number of shares
of Common Stock which may be the subject of awards granted to any employee under
the New Stock Plan during any calendar year may not exceed 300,000; (iii) the
term of incentive stock options may not exceed ten years from the date of grant;
and (iv) no awards may be granted after June 30, 2008.

Except as described below with respect to non-employee directors, the Plan
Administrator determines, within the guidelines set forth above, the amount of
each award, the conditions and limitations applicable to the exercise of an
option, the exercise price therefor and the form of payment that may be used to
exercise the award, which may include cash, check, shares of Common Stock and
promissory notes.

Each non-employee director automatically receives non-qualified stock
options to purchase up to 1,000 shares of Common Stock upon his or her initial
election to the Board of Directors and upon each anniversary thereof upon which
he or she is still serving as a director. The exercise price for each such
option is the fair market value on the date of grant. Non-employee director
options vest six months after grant and the exercise period may not exceed ten
years, provided that, subject to certain exceptions in the event of death or
disability, no non-employee director options may be exercised more than 90 days
after such director ceases to serve as a director.

The Board of Directors may grant restricted and unrestricted share awards
entitling recipients to acquire shares of Common Stock, subject to the right of
the Company to repurchase all or a part of such shares at their purchase price
from the recipient in the event that conditions specified by the Plan
Administrator are not satisfied prior to the end of the applicable restricted
period. Shares of restricted stock may not be sold, assigned, transferred,
pledged or otherwise encumbered during the applicable restricted period. The
Plan Administrator may, in its sole discretion, grant or sell (at a purchase
price per share equal to at least 85% of the fair market value) shares of Common
Stock free of any restrictions under the New Stock Plan. In the event of a
merger or sale of all or substantially all the assets of

the Company, the Board of Directors may, in its discretion, take any one or more
of certain actions including accelerating all unvested or unrealizable awards,
terminating all unexercised options and requiring the acquiring company to
assume all outstanding awards.

While the Company currently anticipates that most grants under the New
Stock Plan will consist of stock options, the Company may also grant restricted
stock awards, which entitle recipients to acquire shares of Common Stock subject
to certain conditions. Options or other awards that are granted under the New
Stock Plan but expire unexercised are available for future grants. Vesting of
options under the New Stock Plan would be subject to acceleration at the
discretion of the Board of Directors under certain circumstances.

Under the Company's 1998 Employee Stock Purchase Plan (the "Purchase
Plan"), employees of the Company, including directors of the Company who are
employees, are eligible to participate in quarterly plan offerings in which
payroll deductions may be used to purchase shares of Common Stock. The purchase
price of such shares is the lower of 85% of the fair market value of the Common
Stock on the day the offering commences and 85% of the fair market value of the
Common Stock on the date the offering terminates. The first offering period
under the Purchase Plan will not commence until the completion of the Offering.

In fiscal 1998, the Company has granted options to purchase an aggregate
37,095 shares of Common Stock to the Named Executive Officers, as follows:
12,001 shares for Mr. McManus, 8,729 shares for Mr. Staudt and 5,455 shares for
each of Messrs. Bankosky, Stinton and Primeau. Such options have an exercise
price of $5.73 per share of Common Stock.

In addition, on [July ], 1998, the Board the Directors determined to grant
options to purchase an aggregate 400,000 shares of Common Stock under the New
Stock Plan to certain employees of the Company (including the Named Executive
Officers) contingent upon consummation of the Offering. Such options, which
include both incentive and non-qualified stock options, will have an exercise
price equal to the price to the public in the Offering and generally will vest
ratably over four years from the date of grant except that the initial
installment of options to be granted to certain executive officers, including
the Named Executive Officers, will vest immediately upon consummation of the
Offering. The grants to be received by each of the Named Executive Officers are
as follows: 160,000 shares for Mr. Staudt, 40,000 shares for each of Messrs.
Bankosky and McManus, 16,000 shares for Mr. Primeau and 30, 000 shares for Mr.
Stinton.

CERTAIN TRANSACTIONS

In June 1995, the Company acquired MEDE OHIO, through a merger between the
Company and the parent of MEDE OHIO ("Parent"). Parent was owned by Welsh,
Carson, Anderson & Stowe V, L.P. ("WCAS V"), which had formed Parent to acquire
MEDE OHIO in an all cash merger that was consummated in March 1995. The
acquisition price of MEDE OHIO, including amounts required to finance the merger
and to provide MEDE OHIO with working capital and pre-merger bridge financing,
was approximately $22.6 million. The exchange ratio in the merger between Parent
and the Company was based on the acquisition cost of MEDE OHIO and an
independent valuation of the Company that was performed in connection with the
spin-off of the Company by CES. In the merger and a related offering to raise
working capital for the Company, the Company issued an aggregate 1,772,354
shares of Common Stock and 171,889 shares of Preferred Stock to investment funds
and individuals affiliated with WCAS, and an aggregate 866,504 shares of Common
Stock and 28,987 shares of Preferred Stock to investment funds affiliated with
WBCP.

In October 1995, WCAS V and Welsh, Carson, Anderson & Stowe VI, L.P. ("WCAS
VI"), each advanced the Company $1.75 million as bridge financing for the
Company's acquisition of EC&F and Premier. The loan bore interest at the rate of
10% per annum and matured on December 31, 1995. The Company repaid the loan in
December 1995.

On December 18, 1995, the Company issued to its four principal
stockholders, WCAS V, WCAS VI, William Blair Capital Partners V, L.P. ("Blair
V"), and William Blair Leveraged Capital Fund, Limited Partnership ("Blair
LCF"), warrants to purchase an aggregate 52,532 shares of Common Stock at an
exercise price of $4.58 per share in connection with their agreement to
guarantee the Company's obligations under the Credit Facility.

On January 10, 1997, the Company increased the amount of available
borrowings under the Credit Facility, and in connection therewith, WCAS V, WCAS
VI, Blair V and Blair LCF, each agreed to guarantee payment of a portion of the
additional debt to be incurred under the increased credit line. In consideration
for such guarantees, the Company issued to WCAS V, WCAS VI, Blair V and Blair
LCF warrants to purchase an aggregate 18,330 shares of Common Stock. The
warrants have a ten-year term and the exercise price thereunder is $5.73 per
share.

On October 31, 1997, the Company increased the amount of available
borrowings under the Credit Facility, and in connection therewith, WCAS V, WCAS
VI, Blair V and Blair LCF each agreed to guarantee payment of a portion of the
additional debt to be incurred under the increased credit line. In consideration
for such guarantees, the Company issued to WCAS V, WCAS VI, Blair V and Blair
LCF warrants to purchase an aggregate 34,200 shares of Common Stock. The
warrants have a ten year term and the exercise price thereunder is $5.73 per
share.

On February 14, 1997 the Company issued a 10% Senior Subordinated Note due
February 14, 2002 in the principal amount of $25,000,000, plus an aggregate
370,993 shares of Common Stock, to WCAS Capital Partners II, L.P. ("WCAS CP
II"), for an aggregate purchase price of $25,000,000. WCAS CP II is an affiliate
of each of WCAS V and WCAS VI, and Thomas McInerney and Anthony de Nicola, both
directors of the Company, are general partners of the sole WCAS CP II general
partner. The Company intends to use a portion of the proceeds of the Offering to
repay in full the Credit Facility and the 10% Senior Subordinated Note. See "Use
of Proceeds." The Company does not anticipate further borrowing from or seeking
further loan guarantees from any of the entities referred to above.

In connection with the Offering, the terms of the Preferred Stock will be
amended to provide for conversion of the aggregate liquidation value of the
Preferred Stock including accrued but unpaid dividends into Common Stock at the
price per share received by the Company upon the consummation of its initial
public offering; provided further, however, that cash realized by the Company
upon any exercise of the Underwriters' overallotment option would be applied to
the payment of accrued dividends in lieu of having such dividends convert into
Common Stock. In addition, in connection with the Offering, the holders of the
outstanding Common Stock purchase warrants agreed to exercise all such warrants
by the net issuance exercise method for an aggregate shares of Common Stock.
WCAS V, WCAS VI, Blair

V and Blair LCF are the owners of an aggregate 193,100 shares of Preferred
Stock, and warrants to purchase 52,532 and 52,533 shares of Common Stock at
exercise prices of $4.58 and $5.73 per share, respectively.

Blair V and Blair LCF, and Timothy Murray, a director of the Company, are
each affiliates of William Blair & Company, L.L.C., an underwriter of the
Offering. See "Underwriting."

PRINCIPAL STOCKHOLDERS

The following table sets forth certain information regarding beneficial
ownership of the Company's Common Stock as of June 30, 1998, and as adjusted to
reflect the sale of Common Stock offered hereby, by (i) each person (or group of
affiliated persons) known by the Company to own beneficially more than five
percent of the outstanding shares of Common Stock, (ii) each of the Company's
directors, (iii) each of the Named Executive Officers and (iv) all directors and
executive officers of the Company as a group. The numbers of shares set forth
below (i) give effect to the Recapitalization and the Reverse Stock Split, (ii)
assume an Offering price of $14.00 per share of Common Stock, and (iii) assume a
sale of 3,600,000 shares of Common Stock in the Offering. Unless otherwise
indicated, the address for each stockholder is c/o the Company, 90 Merrick
Avenue, Suite 501, East Meadow, New York 11554.

SHARES BENEFICIALLY OWNED(1)
--------------------------------------
PERCENTAGE OWNED(2)
------------------------
BEFORE AFTER
NAME AND ADDRESS OF BENEFICIAL OWNER NUMBER OFFERING OFFERING
- ------------------------------------------------- ----------- ---------- -----------

Welsh, Carson, Anderson & Stowe (3) ............. 5,754,393 72.10% 49.69%
320 Park Avenue, 25th Floor
New York, NY 10019
William Blair & Co., L.L.C. (4) ................. 918,465 11.51% 7.93%
222 West Adams Street
Chicago, Illinois 60606
Mellon Bank, as Trustee (5) ..................... 617,852 7.74% 5.33%
767 Fifth Avenue, 26th Floor
New York, NY 10153
Thomas P. Staudt (6) ............................ 166,211 2.05% 1.42%
Richard P. Bankosky ............................. 11,346 - -
James T. Stinton (7) ............................ 13,529 - -
William M. McManus (8) .......................... 16,147 - -
Roger L. Primeau (9) ............................ 6,982 - -
Thomas E. McInerney (10) ........................ 5,622,136 70.44% 48.55%
320 Park Avenue, 25th Floor
New York, NY 10019
Anthony J. de Nicola (11) ....................... 5,598,277 70.14% 48.34%
320 Park Avenue, 25th Floor
New York, NY 10019
Timothy M. Murray (12) .......................... 915,319 11.47% 7.90%
222 West Adams Street
Chicago, Illinois 60606
All current directors and executive officers as a 6,762,026 83.15% 57.63%
group (10 persons) .............................

- ----------
- Represents beneficial ownership of less than 1% of the Common Stock.

(1) Gives effect to the Recapitalization and the Reverse Stock Split. Unless
otherwise indicated, the entities and individuals identified in this table
have sole voting and investment power with respect to all shares shown as
beneficially owned by them, subject to community property laws, where
applicable.

(2) The percentages shown are based on 7,981,204 shares of Common Stock
outstanding on June 30, 1998, plus, as to each entity or group listed
unless otherwise noted, the number of shares of Common Stock deemed to be
owned by such holder pursuant to Rule 13d-3 under the Exchange Act as of
such date, assuming exercise of options held by such holder that are
exercisable within 60 days of the date of this Prospectus.

(3) Includes 2,571,773 shares of Common Stock held by WCAS V, 2,587,939 shares
of Common Stock held by WCAS VI, 62,233 shares of Common Stock held by WCAS
Information Partners L.P. ("WCAS Info."), 370,993 shares of Common Stock
held by WCAS CP II, and 161,455 shares of Common Stock held by individual
partners of WCAS. Such partners are also partners of the sole general
partner of each of the foregoing limited partnerships. The respective
general partners of WCAS V, WCAS VI, WCAS Info. and WCAS CP II are WCAS V
Partners, L.P., WCAS VI Partners, L.P., WCAS INFO Partners and WCAS CP II
Partners. The individual partners of each of these partnerships include
some or all of Patrick J. Welsh, Russell L. Carson, Bruce K. Anderson,
Richard H. Stowe, Thomas E. McInerney, Andrew M. Paul, Robert A. Minicucci,
Anthony J. de Nicola, Paul B. Queally and Laura M. VanBuren. The partners
of WCAS who are also directors of the Company are Thomas E. McInerney (who
is also Chairman of the Board of Directors) and Anthony J. de Nicola. Each
of the foregoing persons may be deemed to be the beneficial owner of the
Common Stock owned by WCAS.

(4) Includes 601,489 shares of Common Stock held by Blair V, 313,830 shares of
Common Stock held by Blair LCF and 3,146 shares of Common Stock held by an
individual affiliated with WBCP. Timothy M. Murray, a partner of WBCP, is
also a director of the Company and may be deemed to be a beneficial owner
of the Company's Common Stock owned by WBCP.

(5) Includes 308,926 shares of Common Stock held by Mellon Bank as Trustee for
the General Motors Salaried Employees Pension Trust and 308,926 shares of
Common Stock held by Mellon Bank as Trustee for the General Motors Hourly
Rate Employees Pension Fund.

(6) Includes options to purchase up to 109,551 shares of Common Stock.

(7) Includes options to purchase up to 13,529 shares of Common Stock.

(8) Includes options to purchase up to 16,147 shares of Common Stock.

(9) Includes options to purchase up to 6,982 shares of Common Stock.

(10) Includes 2,571,773 shares of Common Stock held by WCAS V, 2,587,939 shares
of Common Stock held by WCAS VI, 62,233 shares of Common Stock held by WCAS
Info. and 370,993 shares of Common Stock held by WCAS CP II. Mr. McInerney
disclaims beneficial ownership of such shares.

(11) Includes 2,571,773 shares of Common Stock held by WCAS V, 2,587,939 shares
of Common Stock held by WCAS VI, 62,233 shares of Common Stock held by WCAS
Info. and 370,993 shares of Common Stock held by WCAS CP II. Mr. de Nicola
disclaims beneficial ownership of such shares.

(12) Includes 601,489 shares of Common Stock held by Blair V and 313,830 shares
of Common Stock held by Blair LCF. Mr. Murray disclaims beneficial
ownership of such shares.

DESCRIPTION OF CAPITAL STOCK

The Company's authorized capital stock consists of 30,000,000 shares of
Common Stock, and 5,000,000 shares of Preferred Stock. Upon completion of this
Offering, and after giving effect to the Recapitalization and the Reverse Stock
Split, there will be 11,581,204 shares of Common Stock (12,107,304 shares if the
Underwriters' over-allotment option is exercised) and no shares of Preferred
Stock outstanding. As of June 30, 1998, before giving effect to the
Recapitalization and the Reverse Stock Split there were 26,049,938 shares of
Common Stock outstanding and 239,956 shares of Preferred Stock outstanding, held
of record by 127 stockholders. In addition, as of May 29, 1998, before giving
effect to the Recapitalization and the Reverse Stock Split there were
outstanding options to purchase 2,213,600 shares of Common Stock and warrants to
purchase 481,440 shares of Common Stock. Pursuant to the Recapitalization, all
such warrants will be exercised (for an aggregate 66,375 post Reverse Stock
Split shares), and all shares of Preferred Stock will be converted into an
aggregate 2,229,982 shares of Common Stock (based on the aggregate liquidation
preference of the Preferred Stock as of June 30, 1998, after giving effect to
the Reverse Stock Split and assuming no exercise of the Underwriters'
over-allotment option) prior to the consummation of the Offering.

COMMON STOCK

The holders of Common Stock are entitled to one vote for each share held of
record on all matters submitted to a vote of stockholders. Subject to the rights
and preferences of the holders of any outstanding Preferred Stock, the holders
of Common Stock are entitled to receive ratably such dividends as are declared
by the Board of Directors out of funds legally available therefor. In the event
of a liquidation, dissolution or winding up of the Company, holders of Common
Stock have the right to a ratable portion of assets remaining after the payment
of all debts and other liabilities, subject to the liquidation preferences of
the holders of any outstanding Preferred Stock. Holders of Common Stock have
neither preemptive rights nor rights to convert their Common Stock into any
other securities and are not subject to future calls or assessments by the
Company. There are no redemption or sinking fund provisions applicable to the
Common Stock. All outstanding shares of Common Stock are, and the shares offered
hereby upon issuance and sale will be, fully paid and non-assessable. The
rights, preferences and privileges of the holders of Common Stock are subject
to, and may be adversely affected by, the rights of the holders of shares of
Preferred Stock that the Company may designate and issue in the future.

PREFERRED STOCK

Upon the closing of this Offering and assuming no exercise of the
Underwriters' over-allotment option, all of the outstanding shares of the
Preferred Stock together with accrued but unpaid dividends thereon will be
automatically converted at the public offering price into 2,229,982 shares of
Common Stock.

The Board of Directors is authorized, subject to certain limitations
prescribed by Delaware law, without further action by the stockholders, to issue
up to 5,000,000 shares of Preferred Stock, $.01 par value, in one or more series
and to fix the rights, preferences, privileges and restrictions thereof,
including dividend rights, conversion rights, voting rights, terms of
redemption, liquidation preferences, sinking fund terms and the number of shares
constituting any series or the designation of such series. The Company believes
that the power to issue Preferred Stock will provide flexibility in connection
with possible corporate transactions. The issuance of Preferred Stock, however,
could adversely affect the voting power of holders of Common Stock and restrict
their rights to receive payments upon liquidation. It could also have the effect
of delaying, deferring or preventing a change in control of the Company. The
Company has no present plans to issue any shares of Preferred Stock.

WARRANTS

As of June 30, 1998, there were outstanding warrants to purchase 66,375
shares of Common Stock (on a "net exercise" basis) held by four investors. These
warrants will be exercised in full upon the closing of this Offering.

DELAWARE LAWS AND CERTAIN CHARTER AND BYLAW PROVISIONS; ANTI-TAKEOVER MEASURES

Upon the consummation of this Offering made hereby, the Company will be
subject to the provisions of Section 203 of the DGCL, an anti-takeover law. In
general, Section 203 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 the business combination is, or the
transaction in which the person became an interested stockholder was, approved
in a prescribed manner or another prescribed exception applies. For purposes of
Section 203, a "business combination" is defined broadly to include a merger,
asset sale or other transaction resulting in a financial benefit to the
interested stockholder, and subject to certain exceptions, an "interested
stockholder" is a person who, together with affiliates and associates, owns (or
within three years prior, did own) 15% or more of the corporation's voting
stock.

All directors elected to the Company's Board of Directors serve until the
next annual meeting of the stockholders and the election and qualification of
their successors or their earlier death, resignation or removal. The Board of
Directors is authorized to create new directorships and to fill such positions
so created. The Board of Directors (or its remaining members, even though less
than a quorum) is also empowered to fill vacancies on the Board of Directors
occurring for any reason for the remainder of the term of the vacant
directorship.

The Company's Bylaws provide that, for nominations to the Board of
Directors or for other business to be properly brought by a stockholder before
an annual meeting of stockholders, the stockholder must first have given timely
notice thereof in writing to the Secretary of the Company. To be timely, a
stockholder's notice generally must be delivered not less than sixty days nor
more than ninety days prior to the anniversary of the immediately preceding
annual meeting. The notice by a stockholder must contain, among other things,
certain information about the stockholder delivering the notice and a
description of the proposed business to be brought before the meeting.

Certain of the provisions of the Amended and Restated Certificate of
Incorporation and Bylaws discussed above could make more difficult or discourage
a proxy contest or other change in the management of the Company or the
acquisition or attempted acquisition of control by a holder of a substantial
block of the Company's stock. It is possible that such provisions could make it
more difficult to accomplish, or could deter, transactions which stockholders
may otherwise consider to be in their best interests.

As permitted by the DGCL, the Amended and Restated Certificate of
Incorporation provides that Directors of the Company shall not be personally
liable to the Company or its stockholders for monetary damages for breach of
their fiduciary duties as Directors, except for liability (i) for any breach of
their duty of loyalty to the Company and its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) for unlawful payments of dividends or unlawful stock
repurchases or redemptions, as provided in Section 174 or successor provisions
of the DGCL or (iv) for any transaction from which the Director derives an
improper personal benefit.

The Amended and Restated Certificate of Incorporation and Bylaws provide
that the Company shall indemnify its Directors and officers to the fullest
extent permitted by Delaware law (except in some circumstances, with respect to
suits initiated by the Director or officer) and advance expenses to such
Directors or officers to defend any action for which rights of indemnification
are provided. In addition, the Amended and Restated Certificate of Incorporation
and Bylaws also permit the Company to grant such rights to its employees and
agents. The Bylaws also provide that the Company may enter into indemnification
agreements with its Directors and officers and purchase insurance on behalf of
any person whom it is required or permitted to indemnify. The Company believes
that these provisions will assist the Company in attracting and retaining
qualified individuals to serve as Directors, officers and employees.

TRANSFER AGENT AND REGISTRAR

The transfer agent and registrar for the Common Stock is ChaseMellon
Shareholder Services.

SHARES ELIGIBLE FOR FUTURE SALE

Prior to this Offering there has been no market for the Common Stock of the
Company. The Company can make no prediction as to the effect, if any, that sales
of shares or the availability of shares for sale will have on the market price
prevailing from time to time. Nevertheless, sales of significant amounts of the
Common Stock in the public market, or the perception that such sales may occur,
could adversely affect prevailing market prices. See "Risk Factors -- Shares
Eligible for Future Sale."

Upon completion of this Offering, the Company expects to have 11,581,204
shares of Common Stock outstanding (excluding 483,041 shares reserved for
issuance upon the exercise of outstanding stock options) (12,121,204 shares of
Common Stock outstanding if the Underwriters' over-allotment option is exercised
in full). Of these shares, the 3,600,000 shares offered hereby will be freely
tradable without restrictions or further registration under the Securities Act,
except for any shares purchased by "affiliates" of the Company, as that term is
defined in Rule 144 under the Securities Act, which will be subject to the
resale limitations imposed by Rule 144, as described below.

All of the remaining 7,981,204 shares of Common Stock outstanding will be
"restricted securities" within the meaning of Rule 144 and may not be resold in
the absence of registration under the Securities Act, or pursuant to exemptions
from such registration including, among others, the exemption provided by Rule
144 under the Securities Act. Of the restricted securities, 590,768 shares are
eligible for sale in the public market immediately after this Offering pursuant
to Rule 144(k) under the Securities Act. A total of 7,343,585 additional
restricted securities will be eligible for sale in the public market in
accordance with Rule 144 or 701 under the Securities Act beginning 90 days after
the date of this Prospectus. Taking into consideration the effect of the lock-up
agreements described below and the provisions of Rules 144 and 144(k),

restricted shares will be eligible for sale in the public market
immediately after this Offering, restricted shares (excluding shares issuable
upon the exercise of outstanding stock options) will be eligible for sale
beginning 90 days after the date of this Prospectus, and the remaining
restricted shares will be eligible for sale upon the expiration of the lock-up
agreements 180 days after the date of this Prospectus, subject to the provisions
of Rule 144 under the Securities Act.

In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this Prospectus, a person (or persons whose shares are required to
be aggregated) whose restricted securities have been outstanding for at least
one year, including a person who may be deemed an "affiliate" of the Company,
may only sell a number of shares within any three-month period which does not
exceed the greater of (i) one percent of the then outstanding shares of the
Company's Common Stock (approximately 115,673 shares after this Offering) or
(ii) the average weekly trading volume in the Company's Common Stock in the four
calendar weeks immediately preceding such sale. Sales under Rule 144 are also
subject to certain requirements as to the manner of sale, notice and the
availability of current public information about the Company. A person who is
not an affiliate of the issuer, has not been an affiliate within three months
prior to the sale and has owned the restricted securities for at least two years
is entitled to sell such shares under Rule 144(k) without regard to any of the
limitations described above.

All officers, directors and certain holders of Common Stock beneficially
owning, in the aggregate, shares of Common Stock and options to purchase shares
of Common Stock, have agreed, pursuant to certain lock-up agreements, that they
will not sell, offer to sell, solicit an offer to purchase, contract to sell,
grant any option to sell, pledge, or otherwise transfer or dispose of, directly
or indirectly, any shares of Common Stock owned by them, or that could be
purchased by them through the exercise of options to purchase Common Stock of
the Company, for a period of 180 days after the date of this Prospectus without
the prior written consent of Smith Barney Inc. Upon expiration of the lock-up
agreements, all shares of Common Stock currently outstanding will be immediately
eligible for resale, subject to the requirements of Rule 144. The Company is
unable to predict the effect that sales may have on the then prevailing market
price of the Common Stock. See "Management -- Employee Benefit Plans" and
"Description of Capital Stock."

UNDERWRITING

Under the terms and subject to the conditions contained in the Underwriting
Agreement dated the date hereof, each Underwriter named below has severally
agreed to purchase, and the Company has agreed to sell to such Underwriter,
shares of Common Stock which equal the number of shares set forth opposite the
name of such Underwriter below.

UNDERWRITER NUMBER OF SHARES

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

Smith Barney Inc. ..........................
William Blair & Company, L.L.C. ............
Volpe Brown Whelan & Company, LLC ..........

------------
Total ...................................

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

The Underwriters are obligated to take and pay for all shares of Common
Stock offered hereby (other than those covered by the over-allotment option
described below) if any such shares are taken.

The Underwriters, for whom Smith Barney Inc., William Blair & Company,
L.L.C. and Volpe Brown Whelan & Company, LLC are acting as representatives (the
"Representatives"), propose initially to offer part of the shares of Common
Stock directly to the public at the public offering price set forth on the cover
page hereof and part to certain dealers at a price that represents a concession
not in excess of $ per share under the public offering price. The Underwriters
may allow, and such dealers may reallow, a concession not in excess of $ per
share to other Underwriters or to certain other dealers. After the initial
public offering, the public offering price and such concessions may be changed
by the Underwriters. The Representatives have informed the Company that the
Underwriters do not intend to confirm sales to accounts over which they exercise
discretionary authority.

The Company has granted to the Underwriters an option, exercisable for 30
days from the date of this Prospectus, to purchase up to an aggregate of 540,000
additional shares of Common Stock at the public offering price set forth on the
cover page hereof less underwriting discounts and commissions. The Underwriters
may exercise such option to purchase additional shares solely for the purpose of
covering over-allotments, if any, incurred in connection with the sale of the
shares offered hereby. To the extent such option is exercised, each Underwriter
will become obligated, subject to certain conditions, to purchase approximately
the same percentage of such additional shares as the number set forth next to
such Underwriter's name in the preceding table bears to the total number of
shares in such table.

The Company and the Underwriters have agreed to indemnify each other
against certain liabilities, including liabilities under the Securities Act.

The Company and its executive officers and directors and certain other
holders of Common Stock and securities convertible into or exercisable or
exchangeable for Common Stock have agreed that for a period of 180 days after
the date of this Prospectus they will not, without the prior written consent of
Smith Barney Inc., sell, offer to sell, solicit an offer to purchase, contract
to sell, grant any option to sell,

pledge or otherwise dispose of Common Stock or any securities convertible into
or exercisable or exchangeable for Common Stock except in certain limited
circumstances. See "Shares Eligible for Future Sale."

In connection with this Offering and in accordance with applicable law and
industry practice, the Underwriters may over-allot or effect transactions which
stabilize, maintain or otherwise affect the market price of the Common Stock at
levels above those which might otherwise prevail in the open market, including
by entering stabilizing bids, effecting syndicate covering transactions or
imposing penalty bids. A stabilizing bid means the placing of any bid, or the
effecting of any purchase, for the purpose of pegging, fixing or maintaining the
price of a security. A syndicate covering transaction means the placing of any
bid on behalf of the underwriting syndicate or the effecting of any purchase to
reduce a short position created in connection with the offering. A penalty bid
means an arrangement that permits Smith Barney Inc., as managing underwriter, to
reclaim a selling concession from a syndicate member in connection with the
Offering when shares of Common Stock originally sold by the syndicate member are
purchased in syndicate covering transactions. Such transactions may be effected
on the Nasdaq National Market, in the over-the-counter market, or otherwise. The
Underwriters are not required to engage in any of these activities. Any such
activities, if commenced, may be discontinued at any time.

Prior to this Offering, there has been no public market for the Common
Stock. Consequently, the initial public offering price for the Common Stock has
been determined by negotiations between the Company and the Representatives.
Among the factors considered in determining the initial public offering price
were the history of, and the prospects for, the Company's business and the
industry in which it competes, an assessment of the Company's management, its
past and present operations, the past and present results of operations of the
Company and the trend of such results of operations, the prospects for earnings
of the Company, the present state of the Company's development, the general
condition of the securities market at the time of this Offering and the market
prices of similar securities of comparable companies at the time of this
Offering.

William Blair & Company, L.L.C., one of the Representatives of the
Underwriters, is affiliated with Blair V and Blair LCF, two of the Company's
principal stockholders and, by virtue of such affiliation, is, prior to the
Offering, an "affiliate" of the Company within the meaning of Rule 2720 of the
Conduct Rules of the National Association of Securities Dealers, Inc.
Accordingly, the Offering is being made in conformity with certain applicable
provisions of Rule 2720. Smith Barney Inc., another Underwriter of the Offering
(the "Independent Underwriter"), will act as a "qualified independent
underwriter," as defined in Rule 2720, in connection with the Offering. The
Independent Underwriter, in its role as qualified independent underwriter, has
performed due diligence investigations and reviewed and participated in the
preparation of this Prospectus and the Registration Statement of which this
Prospectus forms a part. The Independent Underwriter will not receive any
additional fees for serving as a qualified independent underwriter in connection
with the Offering. The price of shares of Common Stock sold to the public will
be no higher than that recommended by the Independent Underwriter.

Timothy M. Murray, a director of the Company, is a managing director of
WBCP and a principal of William Blair & Company, L.L.C.

LEGAL MATTERS

The validity of the Common Stock offered hereby will be passed upon for the
Company by Reboul, MacMurray, Hewitt, Maynard & Kristol and for the Underwriters
by Dewey Ballantine LLP, New York, New York.

EXPERTS

The consolidated financial statements of the Company as of June 30, 1996
and 1997 and March 31, 1998, and for each of the three years in the period ended
June 30, 1997, and for the nine months ended March 31, 1998, included in this
Prospectus, and the related financial statement schedule included else-

where in this Registration Statement, have been audited by Deloitte & Touche
LLP, independent auditors, as stated in their reports appearing herein and
elsewhere in the Registration Statement, and have been so included in reliance
upon such report given upon their authority as experts in accounting and
auditing.

The statement of operations of Stockton for the year ended June 30, 1997
included in this Prospectus has been audited by Deloitte & Touche LLP,
independent auditors, as stated in their report appearing herein and has been so
included in reliance upon such report given upon their authority as experts in
accounting and auditing.

ADDITIONAL INFORMATION

The Company has filed with the Securities and Exchange Commission (the
"Commission"), Washington, D.C. 20549, a Registration Statement on Form S-1,
including amendments thereto (the "Registration Statement"), under the
Securities Act with respect to the shares of Common Stock offered hereby. This
Prospectus, which constitutes part of the Registration Statement, does not
contain all of the information set forth in the Registration Statement and the
exhibits and schedules filed therewith, 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 Common Stock offered hereby,
reference is hereby made to such Registration Statement and to the exhibits and
schedules filed therewith. Statements contained in this Prospectus regarding the
contents of any contract or other document referred to are not necessarily
complete, and in each instance reference is made to the copy of such contract or
other document filed as an exhibit to the Registration Statement, each such
statement being deemed to be qualified in its entirety by such reference. The
Registration Statement, including all exhibits and schedules thereto, may be
inspected without charge at the principal office of the Commission, 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the following regional offices of
the Commission: the New York regional office located at 7 World Trade Center,
Suite 1300, New York, New York 10048, and the Chicago regional office located at
the Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661-2511. Copies of this material may also be obtained from the Commission's
Public Reference Section at 450 Fifth Street, N.W., Washington, D.C. 20549, at
prescribed rates. In addition, such material may also be accessed electronically
at the Commission's Internet home page: (http:// www.sec.gov).

The Company intends to furnish its stockholders with annual reports
containing financial statements audited by its independent public accountants,
and will make available quarterly reports for the first three quarters of each
fiscal year containing unaudited financial information and such other periodic
reports as the Company may determine to be appropriate or as may be required by
law.

INDEX TO FINANCIAL STATEMENTS

PAGE
-----

MEDE AMERICA CORPORATION:
Independent Auditors' Report ............................................................ F-2

Consolidated Balance Sheets as of June 30, 1996 and 1997 and March 31, 1998 ............. F-3

Consolidated Statements of Operations for the Years Ended June 30, 1995, 1996 and 1997
and the Nine Months Ended March 31, 1997 (Unaudited) and 1998 ......................... F-4

Consolidated Statements of Stockholders' Equity (Deficit) for the Years Ended June 30,
1995, 1996 and 1997 and the Nine Months Ended March 31, 1998 .......................... F-5

Consolidated Statements of Cash Flows for the Years Ended June 30, 1995, 1996 and 1997
and the Nine Months Ended March 31, 1997 (Unaudited) and 1998 ......................... F-6

Notes to Consolidated Financial Statements .............................................. F-7

THE STOCKTON GROUP, INC.:

Independent Auditors' Report ............................................................ F-21

Statements of Income for the Year Ended June 30, 1997 and the Three Months Ended
September 30, 1997 (Unaudited) ........................................................ F-22

Notes to Financial Statement ............................................................ F-23

F-1

INDEPENDENT AUDITORS' REPORT

To the Board of Directors and Stockholders of
MEDE America Corporation

We have audited the accompanying consolidated balance sheets of MEDE America
Corporation and subsidiaries (the "Company") as of June 30, 1996 and 1997 and
March 31, 1998, and the related consolidated statements of operations,
stockholders' equity (deficit) and cash flows for each of the three years in the
period ended June 30, 1997 and the nine months ended March 31, 1998. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

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

In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of MEDE America Corporation and
subsidiaries as of June 30, 1996 and 1997 and March 31, 1998, and the results of
their operations and their cash flows for each of the three years in the period
ended June 30, 1997 and the nine months ended March 31, 1998 in conformity with
generally accepted accounting principles.

Jericho, New York

May 8, 1998

(July 17, 1998 as to Note 13)

The accompanying consolidated financial statements include the effects of a
reverse stock split of the Company's common stock anticipated to be approved by
the Company's Board of Directors prior to the consummation of this public
offering. The above opinion is in the form which will be signed by Deloitte &
Touche LLP upon consummation of the reverse stock split, which is described in
Note 13 of the notes to consolidated financial statements and assuming that,
from May 8, 1998 to the date of such reverse stock split, no other events will
have occurred that would affect the accompanying consolidated financial
statements and notes thereto.

DELOITTE & TOUCHE LLP

Jericho, New York

July 17, 1998

F-2

MEDE AMERICA CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1996 AND 1997 AND MARCH 31, 1998
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

PRO FORMA
STOCKHOLDERS'
JUNE 30, EQUITY
--------------------------- MARCH 31, MARCH 31,
1996 1997 1998 1998
------------ ------------ ----------- --------------
(UNAUDITED)
(NOTE 1.O.)

ASSETS
CURRENT ASSETS:
Cash and cash equivalents ...................................... $ 2,639 $ 1,919 $ 1,455
Accounts receivable, less allowance for doubtful accounts of
$1,400, $1,716, and $958, respectively........................ 5,989 6,318 7,463
Formulary receivables .......................................... 74 405 1,502
Inventory ...................................................... 136 172 240
Prepaid expenses and other current assets ...................... 661 486 489
--------- --------- ---------
Total current assets ......................................... 9,499 9,300 11,149
PROPERTY AND EQUIPMENT -- Net (Notes 3 and 6) ................... 5,601 5,517 4,944
GOODWILL -- Net (Notes 1 and 2) ................................. 23,059 25,177 32,408
OTHER INTANGIBLE ASSETS -- Net (Notes 1 and 4) .................. 4,340 5,014 5,247
OTHER ASSETS .................................................... 532 451 431
--------- --------- ---------
TOTAL ........................................................... $ 43,031 $ 45,459 $ 54,179
========= ========= =========
LIABILITIES AND STOCKHOLDERS' (DEFICIT)
EQUITY
CURRENT LIABILITIES:
Accounts payable ............................................... $ 2,567 $ 2,134 $ 2,753
Accrued expenses and other current liabilities (Notes 5 and
10) .......................................................... 9,739 9,195 4,880
Current portion of long-term debt (Note 6) ..................... 1,400 538 240
--------- --------- ---------
Total current liabilities .................................... 13,706 11,867 7,873
--------- --------- ---------
LONG-TERM DEBT (Note 6) ......................................... 10,201 24,623 40,259
--------- --------- ---------
OTHER LONG-TERM LIABILITIES (Note 10) ........................... 1,173 215 761
--------- --------- ---------
REDEEMABLE CUMULATIVE PREFERRED STOCK:
$.01 par value; 250 shares authorized; 240 shares issued and
outstanding (aggregate liquidation value of $23,996 plus ac-
crued dividends) (Note 9) .................................... 26,423 28,823 30,623 $ --
--------- --------- --------- ---------
COMMITMENTS AND CONTINGENCIES (Note 11)

STOCKHOLDERS' (DEFICIT) EQUITY:
Common stock, $.01 par value; 6,329 shares authorized; 5,280,
5,671, and 5,680 shares issued and outstanding, respectively 53 57 57 79
Additional paid-in capital ..................................... 27,850 27,713 26,069 56,670
Accumulated (deficit) equity ................................... (36,375) (47,839) (51,463) (51,463)
--------- --------- --------- ---------
Total stockholders' (deficit) equity ......................... (8,472) (20,069) (25,337) $ 5,286
--------- --------- --------- ---------
TOTAL ........................................................... $ 43,031 $ 45,459 $ 54,179
========= ========= =========

See notes to consolidated financial statements.

F-3

MEDE AMERICA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED JUNE 30, 1995, 1996 AND 1997 AND
NINE MONTHS ENDED MARCH 31, 1997 (UNAUDITED) AND 1998
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

NINE MONTHS ENDED
YEAR ENDED JUNE 30, MARCH 31,
------------------------------------------ ---------------------------
1995 1996 1997 1997 1998
------------ ------------ ------------ ------------ ------------
(UNAUDITED)

REVENUES .......................................... $ 16,246 $ 31,768 $ 35,279 $ 24,964 $ 30,189
--------- --------- --------- -------- --------
OPERATING EXPENSES:
Operations ....................................... 9,753 19,174 16,817 12,104 12,485
Sales, marketing and client services ............. 3,615 7,064 8,769 6,143 7,769
Research and development (Note 1) ................ 2,051 2,132 3,278 2,455 2,886
General and administrative ....................... 3,119 6,059 5,263 3,340 3,307
Depreciation and amortization .................... 2,995 5,176 5,293 3,502 4,846
Contingent consideration paid to former owners of
acquired businesses (Note 2) ................... -- 538 2,301 990 --
Write-down of intangible assets (Note 1) ......... 8,191 9,965 -- -- --
Acquired in-process research and development
(Note 2) ....................................... -- -- 4,354 4,354 --
Spin-off expense (Note 10) ....................... 2,864 -- -- -- --
--------- --------- --------- -------- --------
Total operating expenses ......................... 32,588 50,108 46,075 32,888 31,293
--------- --------- --------- -------- --------
LOSS FROM OPERATIONS .............................. (16,342) (18,340) (10,796) (7,924) (1,104)
OTHER (INCOME) EXPENSE (Note 12) .................. -- 313 (893) (885) 13
INTEREST EXPENSE, Net ............................. 189 584 1,504 779 2,470
--------- --------- --------- -------- --------
LOSS BEFORE PROVISION FOR INCOME
TAXES ............................................ (16,531) (19,237) (11,407) (7,818) (3,587)
PROVISION FOR INCOME TAXES (Note 7) ............... 70 93 57 43 37
--------- --------- --------- -------- --------
NET LOSS .......................................... (16,601) (19,330) (11,464) (7,861) (3,624)
PREFERRED STOCK DIVIDENDS ......................... (27) (2,400) (2,400) (1,800) (1,800)
--------- --------- --------- -------- --------
NET LOSS APPLICABLE TO COMMON
STOCKHOLDERS ..................................... $ (16,628) $ (21,730) $ (13,864) $ (9,661) $ (5,424)
========= ========= ========= ======== ========
BASIC NET LOSS PER COMMON SHARE ................... $ (3.17) $ (4.14) $ (2.56) $ (1.81) $ (0.96)
========= ========= ========= ======== ========
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING -- BASIC ............................. 5,238 5,245 5,425 5,345 5,677
========= ========= ========= ======== ========

See notes to consolidated financial statements.

F-4

MEDE AMERICA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
YEARS ENDED JUNE 30, 1995, 1996 AND 1997 AND
NINE MONTHS ENDED MARCH 31, 1998
(IN THOUSANDS)

COMMON STOCK ADDITIONAL TOTAL
----------------- PAID-IN ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT CAPITAL DEFICIT EQUITY (DEFICIT)
-------- -------- ------------ ------------- -----------------

BALANCE, JULY 1, 1994 (Note 1) ........................ -- $-- $ 23,540 $ (444) $ 23,096
Net loss ............................................. -- -- -- (16,601) (16,601)
Preferred stock dividends ............................ -- -- (27) -- (27)
Capital contribution by stockholders and shares issued
in connection with MEDE OHIO acquisition, and
capital reorganization (Note 8) .................... 5,237 52 3,952 -- 4,004
Capital contribution of intercompany debt owed to CES
resulting from the Spin-off (Note 10) .............. -- -- 2,470 -- 2,470
----- --- -------- --------- ---------
BALANCE, JUNE 30, 1995 ................................ 5,237 52 29,935 (17,045) 12,942
Net loss ............................................. -- -- -- (19,330) (19,330)
Preferred stock dividends ............................ -- -- (2,400) -- (2,400)
Issuance of warrants ................................. -- -- 121 -- 121
Exercise of stock options ............................ 43 1 194 -- 195
----- --- -------- --------- ---------
BALANCE, JUNE 30, 1996 ................................ 5,280 53 27,850 (36,375) (8,472)
Net loss ............................................. -- -- -- (11,464) (11,464)
Preferred stock dividends ............................ -- -- (2,400) -- (2,400)
Issuance of common stock ............................. 371 4 2,121 -- 2,125
Issuance of warrants ................................. -- -- 52 -- 52
Exercise of stock options ............................ 20 -- 90 -- 90
----- --- -------- --------- ---------
BALANCE, JUNE 30, 1997 ................................ 5,671 57 27,713 (47,839) (20,069)
Net loss ............................................. -- -- -- (3,624) (3,624)
Preferred stock dividends ............................ -- -- (1,800) -- (1,800)
Issuance of warrants ................................. -- -- 98 -- 98
Exercise of stock options ............................ 9 -- 40 -- 40
Compensation relating to grant of options ............ -- -- 18 -- 18
----- --- -------- --------- ---------
BALANCE, MARCH 31, 1998 ............................... 5,680 $57 $ 26,069 $ (51,463) $ (25,337)
===== === ======== ========= =========

See notes to consolidated financial statements.

F-5

MEDE AMERICA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED JUNE 30, 1995, 1996 AND 1997 AND NINE MONTHS
ENDED MARCH 31, 1997 (UNAUDITED) AND 1998
(IN THOUSANDS)

YEAR ENDED JUNE 30,
----------------------------------------------
1995 1996 1997
--------------- ------------- ----------------

CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ..................................................... $(16,601) $ (19,330) $ (11,464)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation and amortization ............................... 2,995 5,176 5,418
Provision for doubtful accounts ............................. 518 406 316
Write-down of intangible assets ............................. 8,191 9,965 --
Acquired in-process research and development ................ -- -- 4,354
(Gain) loss on sale of assets ............................... -- 313 (8)
Non-cash compensation expense ............................... -- -- --
Changes in operating assets and liabilities net of
effects of businesses acquired:
Accounts receivable ........................................ 648 977 (861)
Formularly receivables ..................................... -- (74) (331)
Inventory .................................................. (66) 262 (45)
Prepaid expenses and other current assets .................. (85) (179) 175
Other assets ............................................... 74 243 13
Accounts payable and accrued expenses and other cur-
rent liabilities ......................................... (589) 997 (629)
Other long-term liabilities ................................ 1,354 (409) (958)
-------- --------- -----------
Net cash used in operating activities .................... (3,561) (1,653) (4,020)
-------- --------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Business acquisitions, net of cash acquired .................. (21,566) (3,648) (11,450)
Purchases of property and equipment .......................... (508) (1,271) (1,477)
Additions to goodwill and other intangible assets ............ -- -- (143)
Proceeds from sale of property and equipment ................. -- -- 461
Proceeds from sale of net assets of Premier .................. -- -- 388
-------- --------- -----------
Net cash used in investing activities .................... (22,074) (4,919) (12,221)
-------- --------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Due to stockholders .......................................... 4,484 (4,484) --
Issuance of Senior Subordinated Note ......................... -- -- 22,875
Issuance of preferred stock .................................. 23,996 -- --
Issuance of common stock ..................................... 4,004 -- 2,125
Proceeds from intercompany debt due to CES ................... 1,297 -- --
Net proceeds (repayments) under Credit Facility .............. -- 8,250 (8,250)
Principal repayments of debt ................................. (1) (2,852) (801)
Principal repayments of capital lease obligations ............ (346) (452) (518)
Exercise of stock options .................................... -- 195 90
---------- --------- -----------
Net cash provided by financing activities ................ 33,434 657 15,521
---------- --------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS .................................................. 7,799 (5,915) (720)
CASH AND CASH EQUIVALENTS, BEGINNING OF
PERIOD ....................................................... 755 8,554 2,639
---------- --------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD....................... $ 8,554 $ 2,639 $ 1,919
========== ========= ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid during the period for:
Interest .................................................... $ 246 $ 394 $ 1,541
========== ========= ===========
Income taxes ................................................ $ 348 $ 69 $ 111
========== ========= ===========
Non-cash investing and financing activities:
Assets acquired under capital leases or by incurring debt..... $ 848 $ 205 $ 129
========== ========= ===========
Issuance of warrants ......................................... $ -- $ 121 $ 52
========== ========= ===========

NINE MONTHS ENDED
MARCH 31,
-----------------------------
1997 1998
-------------- --------------
(UNAUDITED)

CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ..................................................... $ (7,861) $ (3,624)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation and amortization ............................... 3,543 5,096
Provision for doubtful accounts ............................. 195 265
Write-down of intangible assets ............................. -- --
Acquired in-process research and development ................ 4,354 --
(Gain) loss on sale of assets ............................... (8) 13
Non-cash compensation expense ............................... -- 18
Changes in operating assets and liabilities net of
effects of businesses acquired:
Accounts receivable ........................................ 17 (1,410)
Formularly receivables ..................................... (105) (1,097)
Inventory .................................................. 9 (68)
Prepaid expenses and other current assets .................. 94 (3)
Other assets ............................................... 84 118
Accounts payable and accrued expenses and other cur-
rent liabilities ......................................... (2,368) (3,696)
Other long-term liabilities ................................ (945) 546
---------- ----------
Net cash used in operating activities .................... (2,991) (3,842)
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Business acquisitions, net of cash acquired .................. (11,450) (10,674)
Purchases of property and equipment .......................... (703) (646)
Additions to goodwill and other intangible assets ............ (83) (492)
Proceeds from sale of property and equipment ................. 218 182
Proceeds from sale of net assets of Premier .................. 388 --
---------- ----------
Net cash used in investing activities .................... (11,630) (11,630)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Due to stockholders .......................................... -- --
Issuance of Senior Subordinated Note ......................... 22,875 --
Issuance of preferred stock .................................. -- --
Issuance of common stock ..................................... 2,125 --
Proceeds from intercompany debt due to CES ................... -- --
Net proceeds (repayments) under Credit Facility .............. (8,250) 15,925
Principal repayments of debt ................................. (636) (508)
Principal repayments of capital lease obligations ............ (336) (449)
Exercise of stock options .................................... 40 40
---------- ----------
Net cash provided by financing activities ................ 15,818 15,008
---------- ----------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS .................................................. 1,197 (464)
CASH AND CASH EQUIVALENTS, BEGINNING OF
PERIOD ....................................................... 2,639 1,919
---------- ----------
CASH AND CASH EQUIVALENTS, END OF PERIOD....................... $ 3,836 $ 1,455
========== ==========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid during the period for:
Interest .................................................... $ 368 $ 1,734
========== ==========
Income taxes ................................................ $ 34 $ 95
========== ==========
Non-cash investing and financing activities:
Assets acquired under capital leases or by incurring debt..... $ 14 $ 120
========== ==========
Issuance of warrants ......................................... $ 52 $ 98
========== ==========

See notes to consolidated financial statements.

F-6

MEDE AMERICA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 1995, 1996 AND 1997 AND
NINE MONTHS ENDED MARCH 31, 1997 AND 1998
(Information as it relates to the nine months
ended March 31, 1997 is unaudited)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

a. Description of Business - MEDE America Corporation and subsidiaries (the
"Company") is a leading provider of electronic data interchange ("EDI")
products and services to a broad range of providers and payors in the
healthcare industry. The Company's integrated suite of EDI products and
services permits hospitals, pharmacies, physicians, dentists, and other
healthcare providers and provider groups to electronically edit, process and
transmit claims, eligibility and enrollment data, track claims submissions
through the claims payment process and obtain faster reimbursement for their
services.

The accompanying consolidated financial statements include the accounts of
MEDE America Corporation and its wholly-owned subsidiaries: MEDE America,
Inc. ("MEDE"), Medical Processing Center, Inc. ("MPC"), Wellmark Incorporated
("Wellmark"), Electronic Claims and Funding, Inc. ("EC&F"), Premier Dental
Systems Corp. ("Premier"), and MEDE America Corporation of Ohio, Inc. ("MEDE
OHIO") (formerly General Computer Corporation). MPC, Wellmark, and MEDE
formerly constituted the healthcare information services business unit of
Card Establishment Services ("CES"). On March 9, 1995, CES was acquired by
First Data Corporation. Prior to this transaction, the former owners of CES
spun off the healthcare information services business unit as a new company
with MEDE America Corporation formed to serve as the holding company (the
"Spin-off"). Because there was no change in ownership as a result of this
Spin-off, the accompanying consolidated financial statements accounted for
MEDE, MPC, and Wellmark on an historical cost basis. Effective July 1, 1997,
MEDE, MPC and EC&F were merged into MEDE America Corporation.

The Company has instituted certain cost reduction programs and anticipates
continuing improvements in its operations. The Company anticipates that these
changes, among others, should bring the Company to profitability which, when
coupled with its revolving credit facility, will enable the Company to
satisfy its short-term cash flow and working capital requirements.
Additionally, the Company has received support from certain of its
stockholders in the past and believes that continued support would be
available if necessary to meet cash flow and working capital requirements.
However, if the IPO (as herein defined) is consummated as proposed, such
stockholders may not provide continued support (see Note 13).

b. Principles of Consolidation -- All significant intercompany transactions and
balances are eliminated in consolidation.

c. Revenue Recognition -- Transaction and related formularly services revenues
(if applicable) are recognized at the time the transactions are processed and
the services are rendered. Other service revenues (including post-contract
customer support) and other revenues (including revenues relating to
insignificant obligations at the time sales are recorded) are recognized
ratably over applicable contractual periods or as service is provided.
Revenue from the licensing of software is recognized only after it is
determined that the Company has no significant remaining obligations and that
collectibility of the resulting receivable is probable. Revenue from hardware
sales is recognized when the hardware is shipped.

d. Cash and Cash Equivalents -- The Company considers all highly liquid
instruments with original maturity dates of three months or less to be
components of cash and cash equivalents.

e. Accounts Receivable -- Accounts receivable are due primarily from companies
in the healthcare industry. Credit is extended based on an evaluation of the
customer's financial condition, and generally collateral is not required.

F-7

MEDE AMERICA CORPORATION AND SUBSIDIARIES NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

f. Formularly Receivables -- Formularly receivables represent amounts due for
pharmacy related services provided to Practice Benefit Management ("PBM")
clients. Services include prescription processing from EDI transactions and
collecting and distributing pharmaceutical company fees for sponsored
programs to the PBM client. These receivables have a 7-12 month collection
cycle.

g. Inventory -- Inventory is stated at the lower of cost (first-in, first-out)
or market.

h. Property and Equipment -- Property and equipment is stated at cost less
accumulated depreciation and amortization, and is depreciated using the
straight-line method over the estimated useful lives of the related assets.

i. Goodwill -- Goodwill represents the excess of cost over the fair value of net
assets acquired and is amortized on a straight-line basis over 7 to 20 years.
Accumulated amortization amounted to $1,858,000 $3,306,000 and $4,816,000 as
of June 30, 1996 and 1997 and March 31, 1998, respectively.

j. Other Intangible Assets -- Other intangible assets include purchased client
lists, purchased software and technology, and capitalized software
development costs. Purchased client lists are amortized on a straight-line
basis over three to five years. Amortization of purchased software and
technology and of capitalized software development costs is provided on a
product-by-product basis at the greater of the amount computed using (a) the
ratio of current revenues for a product to the total of current and
anticipated future revenues or (b) the straight-line method over the
remaining estimated economic life of the product. Generally, an original
estimated economic life of three to five years is assigned to purchased
software and technology and an original estimated economic life of five years
is assigned to capitalized software development costs. Amortization begins in
the period in which the related product is available for general release to
customers.

k. Software Development Costs -- The development of new software products and
enhancements to existing software products are expensed as incurred until
technological feasibility has been established. After technological
feasibility is established, any additional costs are capitalized in
accordance with Statement of Financial Accounting Standards ("SFAS") No. 86,
"Accounting For the Cost of Computer Software To Be Sold, Leased or Otherwise
Marketed." During the nine months ended March 31, 1998, the Company
capitalized $319,000 of software development costs on a project for which
technological feasibility had been established but was not yet available for
customer release. Prior to July 1, 1997, the Company did not have any
software development projects for which significant development costs were
incurred between the establishment of technological feasibility and general
customer release of the product.

l. Impairment of Long-Lived Assets -- In accordance with SFAS No. 121
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to Be Disposed Of," the Company continually evaluates whether events and
circumstances have occurred that indicate the remaining estimated useful life
of goodwill and/or other intangible assets may warrant revision or that all
or a portion of the remaining balance may not be recoverable.

As a result of this evaluation process, during the fiscal year ended June 30,
1995, the Company wrote-off goodwill totaling $8,191,000 related to the
acquisitions of MPC and Wellmark. Such write-off was required as a result of
losses incurred by MPC and Wellmark, the absence of new business generated by
MPC and Wellmark (which the Company's management attributed to obsolete
technology), projected operating and cash flow losses for MPC and Wellmark
and as a result of the June 1995 acquisition of Latpon (as hereinafter
defined) whose software technology was utilized to replace the systems used
by MPC and Wellmark to provide services to clients. Also, as a result of this
evaluation process, during the fiscal year ended June 30, 1996, the Company
wrote-down approximately $9,965,000 of costs relating to client lists and
related allocable goodwill obtained in the acquisition of MEDE OHIO. Such
intangible assets were written down to the net present value of the estimated
future cash flows to be derived from these clients as of June 30, 1996. The
write-down was required due to a loss of approximately 25% of the acquired
MEDE OHIO client base.

F-8

MEDE AMERICA CORPORATION AND SUBSIDIARIES NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

m. Income Taxes -- The Company accounts for income taxes under SFAS No. 109,
"Accounting For Income Taxes," which requires recognition of deferred tax
assets and liabilities for the expected future tax consequences of events
that have been included in the Company's financial statements or tax returns.
Under this method, deferred tax assets and liabilities are determined based
on the differences between the financial accounting and tax bases of assets
and liabilities using enacted tax rates in effect for the year in which the
differences are expected to reverse.

n. Use of Estimates in the Preparation of Financial Statements -- The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported 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.

o. Pro Forma Stockholders' Equity -- Pro forma stockholders' equity as of March
31, 1998 reflects the conversion of 239,956 shares of preferred stock plus
$6,627,000 of accrued preferred stock dividends at the assumed initial public
offering ("IPO") price of $14.00 per share. See Note 13.

p. Unaudited Interim Financial Statements -- In the opinion of management, the
unaudited consolidated financial statements for the nine months ended March
31, 1997 are presented on a basis consistent with the audited consolidated
financial statements and reflect all adjustments, consisting of only normal
recurring adjustments, necessary for a fair presentation of the results
thereof. The results of operation for interim periods are not necessarily
indicative of the results to be expected for the entire year.

q. Reclassifications -- Certain amounts in prior years' financial statements
have been reclassified to conform with the 1998 presentation.

2. ACQUISITIONS

a. MEDE OHIO -- In March 1995, the majority stockholder of the Company acquired
all of the outstanding shares of MEDE OHIO for a cash purchase price of
approximately $22,593,000, including transaction expenses. The majority
stockholder subsequently merged MEDE OHIO into the Company (the "Merger") and
contributed an additional $1,279,000 as part of the capital reorganization
described in Note 8a. The Merger was recorded using the purchase method of
accounting. The purchase price paid by the Company for MEDE OHIO to its
majority stockholder was equal to the purchase price paid by its majority
stockholder. Therefore, the purchase accounting adjustments relating to the
acquisition of MEDE OHIO are based upon the estimated fair values of acquired
assets and liabilities upon their acquisition by the majority stockholder of
the Company in March 1995. Purchased software and technology and client lists
were valued at $892,000 and $2,527,000, respectively. Purchased software and
technology generally is being amortized over three years and purchased client
lists are being amortized over five years (see Note 1). MEDE OHIO is a
developer of electronic systems which provide EDI services relating to
insurance claims for prescription and other medical services.

b. Latpon -- In June 1995, the Company purchased certain assets of Latpon Health
Systems, Incorporated ("Latpon") for a cash purchase price of approximately
$2,470,000, plus the assumption of approximately $963,000 of liabilities
(primarily long-term debt). Purchased software and technology and client
lists were valued at $850,000 and $143,000, respectively, and generally are
being amortized over five years. Latpon provides electronic claims processing
for hospital and hospital-based physician groups, as well as business office
services that electronically and manually manage business office
administration.

c. EC&F and Premier -- In October 1995, the Company acquired all of the
outstanding shares of EC&F and Premier, which companies had common ownership,
for a cash purchase price of approximately $4,050,000, including transaction
expenses. The transaction was financed through loans ob-

F-9

MEDE AMERICA CORPORATION AND SUBSIDIARIES NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

tained from the Company's majority stockholder. Such loans were subsequently
repaid with borrowings under the Company's Credit Facility. In addition, the
Company is contingently liable for additional consideration if certain
earnings levels are attained relating to EC&F during the three-year period
following the consummation of the transaction. At June 30, 1996, the Company
accrued $538,000 in connection with the contingent liability relating to
earnings levels attained during the first year. At June 30, 1997, the Company
accrued a settlement totaling $2,216,000 relating to the contingent liability
for the second and third years. Purchased software and technology was valued
at $764,000 and generally is being amortized over three years. EC&F and
Premier are developers of electronic systems which provide EDI services to
the dental industry. In March 1997, the Company sold the operating net assets
of Premier for $540,000, including the buyer's assumption of $152,000 of
Premier liabilities. There was no gain or loss on the sale of such net
assets.

d. TCS -- In February 1997, the Company purchased certain assets of Time-Share
Computer Systems, Inc. ("TCS") for $11,465,000, including transaction
expenses. Purchased research and development, which had not reached
technological feasibility and had no alternative future use amounted to
$4,354,000 and was charged to operations at the acquisition date. Purchased
software and technology was valued at $2,619,000 and generally is being
amortized over three years. TCS provides data processing and information
management services to healthcare providers and pharmacies through integrated
electronic data interchange systems. The acquisition was financed by a
portion of the proceeds from the Senior Subordinated Note and Share Purchase
Agreement (as hereinafter defined) (Note 6).

e. Stockton -- In November 1997, the Company purchased certain assets and
assumed certain liabilities of The Stockton Group, Inc. ("Stockton") for a
cash purchase price of $10,674,000, including transaction expenses. In
addition, the Company is contingently liable for additional consideration of
up to $2,600,000 (plus interest at an annual rate of 7.25%) if Stockton's
revenue during the 12-month period ended September 30, 1998 is at least
$5,000,000. No accrual has been made for this contingent liability as of
March 31, 1998. Such contingent consideration will be treated as additional
purchase price and will, therefore, be added to goodwill when and if it
becomes accruable. Purchased software and technology and client lists were
valued at $968,000 and $742,000, respectively, and generally are being
amortized over five years. Stockton is engaged in the business of providing
EDI and transaction processing services to the healthcare industry. The
transaction was financed through borrowings under the Company's revolving
credit facility.

These acquisitions were recorded using the purchase method of accounting and,
accordingly, the results of operations of these acquired companies are included
in the consolidated results of operations of the Company since the dates of
their respective acquisitions. The purchase price of each acquisition has been
allocated to the respective net assets acquired based upon their fair values.
Goodwill, which represents the excess of cost over the estimated fair value of
the net assets acquired, for these transactions were as follows: MEDE OHIO --
$22,395,000; Latpon -- $1,298,000; EC&F and Premier -- $3,586,000; TCS --
$4,092,000 and Stockton -- $8,704,000. Goodwill is being amortized over 20 years
except for the goodwill recorded in connection with the acquisition of TCS which
is being amortized over seven years.

F-10

MEDE AMERICA CORPORATION AND SUBSIDIARIES NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

The following unaudited pro forma information for the year ended June 30, 1997
and the nine months ended March 31, 1998 includes the operations of the Company,
inclusive of the operations of both TCS and Stockton as if the acquisitions had
occurred at July 1, 1996. This pro forma information gives effect to the
amortization expense associated with goodwill and other intangible assets
acquired, adjustments related to the fair market value of the assets and
liabilities acquired, interest expense relating to financing the acquisitions,
and related income tax effects.

YEAR ENDED NINE MONTHS ENDED
JUNE 30, 1997 MARCH 31, 1998
--------------- ------------------
(IN THOUSANDS)

Revenues .................................... $ 41,824 $ 31,835
========= ========
Loss from operations ........................ $ (11,253) $ (515)
========= ========
Net loss .................................... $ (13,604) $ (3,320)
========= ========
Net loss applicable to common stock ......... $ (16,004) $ (5,120)
========= ========
Basic net loss per share .................... $ (2.95) $ (0.90)
========= ========

3. PROPERTY AND EQUIPMENT

JUNE 30,
USEFUL LIVES ------------------- MARCH 31,
(IN YEARS) 1996 1997 1998
-------------- -------- -------- ----------
(IN THOUSANDS)

Land .......................................... $ 489 $ 210 $ 104
Building and improvements ..................... 20-25 2,452 2,190 2,156
Furniture and fixtures ........................ 5 897 1,150 1,229
Computer equipment ............................ 3-5 4,077 5,696 6,442
------ ------ ------
7,915 9,246 9,931
Less accumulated depreciation and amortization. 2,314 3,729 4,987
------ ------ ------
Property and equipment -- net ................. $5,601 $5,517 $4,944
====== ====== ======

4. OTHER INTANGIBLE ASSETS

Other intangible assets consist of the following:

JUNE 30,
--------------------- MARCH 31,
1996 1997 1998
--------- --------- ----------
(IN THOUSANDS)

Purchased client lists .................... $2,989 $2,989 $3,732
Less, accumulated amortization ............ 925 1,518 2,016
------ ------ ------
2,064 1,471 1,716
------ ------ ------
Purchased software and technology ......... 3,727 6,494 7,544
Less, accumulated amortization ............ 1,451 2,951 4,332
------ ------ ------
2,276 3,543 3,212
------ ------ ------
Software development costs ................ -- -- 319
------ ------ ------
Other intangible assets -- net ............ $4,340 $5,014 $5,247
====== ====== ======

F-11

MEDE AMERICA CORPORATION AND SUBSIDIARIES NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

5. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

Accrued expenses and other current liabilities consist of the following:

JUNE 30,
--------------------- MARCH 31,
1996 1997 1998
--------- --------- ----------
(IN THOUSANDS)

Accrued wages and related employee benefits ......... $1,020 $1,010 $1,554
Rebate liability .................................... 2,926 488 47
Pharmacy claims liability ........................... 91 576 798
Accrued professional fees ........................... 496 795 109
Deferred revenue .................................... 933 749 822
Accrued reorganization costs (Note 10) .............. 1,273 1,008 --
Due to former owners of acquired business ........... 538 2,216 --
Accrued litigation settlement ....................... -- 860 145
Accrued interest .................................... 22 5 717
Other ............................................... 2,440 1,488 688
------ ------ ------
Total ............................................... $9,739 $9,195 $4,880
====== ====== ======

6. LONG-TERM DEBT

Long-term debt consists of the following:

JUNE 30,
----------------------- MARCH 31,
1996 1997 1998
---------- ---------- ----------
(IN THOUSANDS)

Senior subordinated note less unamortized discount of $2,000,000 at
June 30, 1997 and $1,750,000 at March 31, 1998 (a).................... $ -- $23,000 $23,250
Credit Facility (b) ................................................... 8,250 -- 15,925
Obligations under capital leases (c) .................................. 1,158 769 440
Loan payable relating to an acquisition, collateralized by
$261,000 of certificates of deposits at March 31, 1998 due in
quarterly payments of $15,000 through February 2002, interest
at 6.7 percent........................................................ 392 342 291
Note payable, in connection with the sale of certain assets due in
monthly installments of $6,000 through January 2000, interest at 6.8
percent .............................................................. 241 180 131
Notes payable to former shareholders of EC&F, repaid in 1998 .......... 117 95 --
Note payable, collateralized by land and building of MEDE OHIO, due
in monthly installments of $19,000 through July 2000, interest at 12.5
percent .............................................................. 730 592 462
Note payable to bank, repaid in 1997 .................................. 296 -- --
Note payable to bank, repaid in 1998 .................................. 173 173 --
Other ................................................................. 244 10 --
------- ------- -------
11,601 25,161 40,499
Less current portion .................................................. 1,400 538 240
------- ------- -------
Total ................................................................. $10,201 $24,623 $40,259
======= ======= =======

- ----------

F-12

MEDE AMERICA CORPORATION AND SUBSIDIARIES NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

(a) On February 14, 1997, the Company entered into an agreement with an
affiliate of certain shareholders of the Company under which the Company
issued a $25,000,000 senior subordinated note (the "Senior Subordinated
Note") and 370,993 shares of its common stock valued at $2,125,000
(representing the estimated fair value of the Common Stock) for total
consideration of $25,000,000 (the "Senior Subordinated Note and Share
Purchase Agreement"). The $2,125,000 relating to the shares of common stock
was recorded as a discount on the Senior Subordinated Note and is being
amortized over the term of the Senior Subordinated Note. The Senior
Subordinated Note bears interest at the rate of 10% per annum, payable
quarterly. One half of the principal sum is due on February 14, 2001, and
the second half is due on February 14, 2002. The terms of the Senior
Subordinated Note and Share Purchase Agreement place restrictions on the
consolidation, merger, or sale of the Company, indebtedness, and the payment
of any cash dividends.

(b) The revolving line of credit from a bank (the "Credit Facility") , as
currently amended on October 30, 1997, provides for maximum borrowings of
$20,000,000 and expires on October 31, 1999. Borrowings under the agreement
bear interest at either the bank's base rate, as defined, plus .25% or an
offshore rate, as defined, plus 1.25%. The weighted average interest rate on
outstanding borrowings at March 31, 1998 was 7.07%. The Company is required
to pay a commitment fee of .375% per annum on the unused portion of the
Credit Facility. All borrowings under the agreement are guaranteed by
certain stockholders of the Company. In consideration for the granting of
such guarantees, the stockholders were issued warrants to purchase 52,530
shares (valued at $121,000), 18,330 shares (valued at $52,000) and 34,200
shares (valued at $98,000) of the Company's common stock during the years
ended June 30, 1996 and 1997 and the nine months ended March 31, 1998,
respectively. All warrants issued were valued using the Black-Scholes Option
Pricing Model. The aggregate fair value of these warrants is recorded in
other assets as deferred financing costs and is being amortized over the
life of the agreement. The terms of the agreement, among other matters,
require the Company to maintain certain leverage and interest coverage
ratios and place restrictions on additional investments, indebtedness and
the payment of any cash dividends.

(c) The Company leases certain computer and office equipment under capital lease
arrangements expiring through July 2000. The gross value of the equipment
held under capital leases was $1,980,000, $2,110,000, and $2,247,000 as of
June 30, 1996 and 1997 and March 31, 1998, respectively, and the related
accumulated amortization was $994,000, $1,524,000, and $1,848,000,
respectively.

Maturities of long-term debt as of March 31, 1998 are as follows:

DISCOUNT
YEAR ENDING JUNE 30, GROSS ON NOTE NET
- -------------------------------------------------------- --------- --------- ---------
(IN THOUSANDS)

1998 (three months from April 1, 1998 to June 30, 1998). $ 180 $ 92 $ 88
1999 ................................................... 580 394 186
2000 ................................................... 16,354 435 15,919
2001 ................................................... 12,591 481 12,110
2002 ................................................... 12,544 348 12,196
------- ------ -------
Total .................................................. $42,249 $1,750 $40,499
======= ====== =======

Based upon the borrowing rates currently available to the Company for loans with
similar terms, the fair value of the Company's debt approximates the carrying
amounts.

7. INCOME TAXES

The provision for income taxes for the fiscal years ended June 30, 1995, 1996
and 1997 and the nine months ended March 31, 1997 and 1998 consists entirely of
current state income taxes.

F-13

MEDE AMERICA CORPORATION AND SUBSIDIARIES NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

The provision for income taxes varies from the amount computed by applying the
statutory U.S. Federal income tax rate to the loss before provision for income
taxes as a result of the following:

U.S. Federal statutory rate ................... $ (5,621) $ (6,541) $ (3,878) $ (2,658) $ (1,220)
Increases (reductions) due to:
Nondeductible expenses ....................... 1,169 3,674 293 220 183
State taxes .................................. 70 93 57 43 37
Net operating losses not producing current tax
benefits ................................... 4,452 2,867 3,585 2,438 1,037
-------- -------- -------- -------- --------
Total ........................................ $ 70 $ 93 $ 57 $ 43 $ 37
======== ======== ======== ======== ========

The net deferred tax asset is comprised of the following:

JUNE 30,
--------------------------- MARCH 31,
1996 1997 1998
------------ ------------ ------------
(IN THOUSANDS)

Accounts receivable .................................... $ 607 $ 685 $ 375
Inventory .............................................. 2 -- --
Property and equipment ................................. (45) (61) 197
Goodwill ............................................... 2,024 3,540 3,619
Other intangible assets ................................ (163) 366 410
Accrued expenses and other current liabilities ......... 2,026 1,264 666
Net operating loss carryforwards ....................... 10,121 12,656 13,861
--------- --------- ---------
14,572 18,450 19,128
Less valuation allowance ............................... (14,572) (18,450) (19,128)
--------- --------- ---------
Total .................................................. $ -- $ -- $ --
========= ========= =========

The valuation allowance increased during the years ended June 30, 1996 and 1997
and the nine months ended March 31, 1998 primarily as a result of additional net
operating loss carryforwards and net deductible temporary differences, for which
realization was not considered to be more likely than not. In the event that the
tax benefits relating to the valuation allowance are subsequently realized,
approximately $5,600,000 of benefits would reduce goodwill.

As of March 31, 1998, the Company had Federal net operating loss carryforwards
of approximately $34,650,000. Such loss carryforwards expire in the fiscal years
2005 through 2013. Because of the changes in ownership, as defined in the
Internal Revenue Code, which occurred during 1995 and 1996, certain net
operating loss carryforwards are subject to annual limitations.

8. STOCKHOLDERS' EQUITY

a. Capital Reorganization -- In connection with the acquisition and subsequent
merger of MEDE OHIO into the Company (Note 2), the capital structure of the
Company was adjusted such that each existing common stockholder of the
Company had the right to receive, in exchange for each common share held,
either (i) a cash payment of one dollar (the "MEDE Cash Consideration"), or
(ii) a unit consisting of one-half of one share of MEDE America Corporation
newly issued common stock and five one-thousandths of a share of MEDE America
Corporation newly issued preferred stock ("MEDE Unit"), together with cash in
lieu of fractional interests.

F-14

MEDE AMERICA CORPORATION AND SUBSIDIARIES NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

The Merger agreement required that a minimum of $5,000,000 of additional
capital be contributed to the Company through the issuance of additional MedE
Units ("Additional MEDE Units"). Stockholders who elected to receive the MEDE
Units were eligible to purchase, through a subscription agreement, Additional
MEDE Units up to the number that would maintain their pre-merger ownership
percentage. The majority stockholder of the Company guaranteed, by adjusting
the number of additional units they would purchase, that the excess of cash
received from the sale of Additional MEDE Units over the MEDE Cash
Consideration would yield the minimum of $5,000,000 of additional capital.

As a result of the Merger and the related capital reorganization, the Company
issued 5,237,456 shares of newly issued common stock and 239,956 shares of
newly issued preferred stock (Note 9).

The Company distributed $4,484 of MEDE Cash Consideration during July 1995.

b. Stock Option and Restricted Stock Purchase Plan -- In March 1995, the Company
established a stock option and restricted stock purchase plan (the "Stock
Plan"). The Stock Plan permits the granting of any or all of the following
types of awards: incentive stock options ("ISOs"); nonqualified stock options
("NQSO"); or restricted stock. The Stock Plan authorizes the issuance of
655,000 shares of common stock. ISOs may not be granted at a price less than
the fair market value of the Company's common stock on the date of grant (or
110 percent of the fair market value in the case of persons holding ten
percent or more of the voting stock of the Company) and expire not more than
ten years from the date of grant (five years in the case of ISOs granted to
persons holding ten percent or more of the voting stock of the Company). The
vesting period relating to the ISOs is determined by the Option Committee of
the Board of Directors at the date of grant. The exercise price, expiration
date, and vesting period relating to NQSOs are determined by the Option
Committee of the Board of Directors at the date of grant.

The table below summarizes the activity of the Stock Plan for the years ended
June 30, 1995, 1996 and 1997 and the nine months ended March 31, 1998:

WEIGHTED
NUMBER EXERCISE AVERAGE
OF PRICE EXERCISE
SHARES RANGE PRICE
------------ --------------- -----------

Balance July 1, 1994 ............ -- $ -- $ --
Options granted ............... 480,316 $ 4.58 $ 4.58
------- ------------ -------
Balance June 30, 1995 ........... 480,316 $ 4.58 $ 4.58
Options granted ............... 117,950 $ 4.58 $ 4.58
Options exercised ............. (42,556) $ 4.58 $ 4.58
Canceled/lapsed ............... (91,217) $ 4.58 $ 4.58
------- ------------ -------
Balance, June 30, 1996 .......... 464,493 $ 4.58 $ 4.58
Options granted ............... 51,059 $ 4.58-$5.73 $ 5.17
Options exercised ............. (19,642) $ 4.58 $ 4.58
Canceled/lapsed ............... (65,684) $ 4.58 $ 4.58
------- ------------ -------
Balance, June 30, 1997 .......... 430,226 $ 4.58-$5.73 $ 4.64
Options granted ............... 81,926 $ 5.73 $ 5.73
Options exercised ............. (8,598) $ 4.58-$5.73 $ 4.64
Canceled/lapsed ............... (15,057) $ 4.58-$5.73 $ 4.62
------- ------------ -------
Balance, March 31, 1998 ......... 488,497 $ 4.58-$5.73 $ 4.83
======= ============ =======

F-15

MEDE AMERICA CORPORATION AND SUBSIDIARIES NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

During March 1998, the Company granted 47,565 options at an exercise price of
$5.73 per share. Based upon an independent valuation, the Company later
learned that the value of the Company's stock at the date of grant was $6.09.
As a result, the Company recorded compensation expense of $18,000 relating to
the granting of these options.

Significant option groups outstanding at March 31, 1998 and related weighted
average price and life information were as follows:

WEIGHTED
AVERAGE WEIGHTED WEIGHTED
REMAINING AVERAGE AVERAGE
RANGE OF NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
EXERCISE PRICE OUTSTANDING LIFE (YEARS) PRICE EXERCISABLE PRICE
- ---------------- ------------- -------------- ---------- ------------- ---------

$ 4.58 381,260 7.5 $ 4.58 201,394 $ 4.58
$ 5.73 107,237 9.6 $ 5.73 10,689 $ 5.73
------- -------
488,497 7.9 $ 4.83 212,083 $ 4.64
======= =======

The Company applies APB opinion No. 25 and related interpretations in
accounting for its Option Plan. Accordingly, no compensation cost has been
recognized. If compensation cost for the Company's stock options had been
determined consistent with SFAS No. 123, "Accounting for Stock-Based
Compensation," the Company's net loss and net loss per share for the years
ended June 30, 1996 and 1997 and the nine months ended March 31, 1998 would
have been as follows:

NINE MONTHS
YEAR ENDED JUNE 30, ENDED
----------------------------- MARCH 31,
1996 1997 1998
------------- ------------- ------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)

Net loss -- as reported ......................... $ (19,330) $ (11,464) $ (3,624)
Net loss -- pro forma ........................... (19,345) (11,518) (3,678)
Basic net loss per share -- as reported ......... (4.14) (2.56) (0.96)
Basic net loss per share -- pro forma ........... (4.15) (2.57) (0.96)

The weighted average fair value of the options granted for the years ended
June 30, 1996 and 1997, and for the nine months ended March 31, 1998 is
estimated at $1.56, $1.83, and $1.92 on the date of grant (using the minimum
value option pricing model) with the following weighted average assumptions
for the years ended June 30, 1996 and 1997, and for the nine months ended
March 31, 1998, respectively: a risk-free interest rate of 5.93%, 6.39%, and
5.86%; an expected option life of seven years and no expected volatility or
dividend yield. As required by SFAS No. 123, the impact of outstanding
nonvested stock options granted prior to July 1, 1995 has been excluded from
the pro forma calculation; accordingly, the 1996, 1997 and 1998 pro forma
adjustments are not indicative of future period pro forma adjustments when
the calculation will apply to all applicable stock options.

F-16

MEDE AMERICA CORPORATION AND SUBSIDIARIES NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

c. Net income (loss) per share -- In 1997, the Company adopted SFAS No. 128,
"Earnings Per Share." Basic income per share is determined by using the
weighted average number of shares of common stock outstanding during each
period. Diluted income per share further assumes the issuance of common
shares for all dilutive outstanding stock options and warrants as calculated
using the treasury stock method. Diluted earnings per share is not shown for
any of the periods presented because the effect of including outstanding
options and warrants would be antidilutive. The calculation for the years
ended June 30, 1995, 1996 and 1997 and the nine months ended March 31, 1997
and 1998 was as follows:

YEAR ENDED JUNE 30,
-----------------------------------------------------------------------------------------------------
1995 1996 1997
---------------------------------- ---------------------------------- -----------------------------
PER-SHARE PER-SHARE PER-SHARE
LOSS SHARES AMOUNT LOSS SHARES AMOUNT LOSS SHARES AMOUNT
------------- -------- ----------- ------------- -------- ----------- --------- --------- ---------
(IN THOUSANDS)

Net loss ..................... $ (16,601) $ (19,330) $ (11,464)
Less: Preferred dividends .... (27) (2,400) (2,400)
--------- ----- --------- ---------
Basic net loss per share ..... $ (16,628) 5,238 $(3.17) $ (21,730) 5,245 $(4.14) $ (13,864) 5,425 $(2.56)
========= ===== ====== ========= ===== ====== ========= ===== ======

NINE MONTHS ENDED MARCH 31,
----------------------------------------------------------------------------
1997 1998
------------------------------------- ------------------------------------
PER-SHARE PER-SHARE
LOSS SHARES AMOUNT LOSS SHARES AMOUNT
------------ -------- ----------- ------------ -------- ----------
(IN THOUSANDS)

Net loss .......................... $ (7,861) $ (3,624)
Less: Preferred dividends ......... (1,800) (1,800)
-------- --------
Basic net loss per share .......... $ (9,661) 5,345 $(1.81) $ (5,424) 5,677 $(0.96)
======== ===== ====== ======== ===== ======

9. REDEEMABLE CUMULATIVE PREFERRED STOCK

As of June 30, 1996 and 1997 and March 31, 1998, the Company had outstanding
239,956 shares of preferred stock. The preferred stock is subject to mandatory
redemption in two equal installments on May 31, 2001 and 2002; however, the
Company may redeem the preferred stock in whole at any time or in part from time
to time at its option. The Company would also be required to redeem the
preferred stock should it consummate a public offering of its common stock
pursuant to which the Company receives aggregate net proceeds of at least
$15,000,000. (See Note 13).

The redemption price, as well as liquidation value, of the preferred stock is
$100 per share plus any accrued but unpaid dividends. Dividends on this
preferred stock, which are cumulative, are payable, if declared, at $10 per
share per annum. No dividends have been declared or paid. At March 31, 1998,
cumulative undeclared and unpaid dividends on this preferred stock totaled
$6,627,000.

10. SPIN-OFF TRANSACTIONS

a. Spin-Off Expenses -- As a result of the Spin-off (Note 1), the Company
recorded a charge amounting to $2,864,000. Such charge represented amounts to
be paid to former stockholders of MEDE (who remained as executives of MEDE)
pursuant to contractual agreements which required such payments to be made
upon a change in control. The net present value of remaining payments totaled
$1,420,000 and $1,005,000 as of June 30, 1996 and 1997, respectively, of
which $500,000 and $1,005,000 were included in accrued reorganization costs
as of June 30, 1996 and 1997, respectively, and $920,000 was included in
other long-term liabilities as of June 30, 1996.

b. Capital Contribution of Intercompany Debt to CES -- On March 9, 1995, the
date of the Spin-off, Wellmark and MPC owed CES $2,247,000 and $492,000,
respectively. Such balances were forgiven concurrent with the Spin-off. In
addition, the Company assumed approximately $269,000 of liabilities relating
to CES employees. The net amount was recorded as a contribution of capital to
the Company at the Spin-off date.

F-17

MEDE AMERICA CORPORATION AND SUBSIDIARIES NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

11. COMMITMENTS AND CONTINGENCIES

a. Leases -- The Company leases certain offices and equipment under operating
leases. The minimum noncancelable lease payments are as follows (in
thousands):

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

1998 (three months from April 1, 1998 to June 30, 1998). $ 225
1999 ................................................... 909
2000 ................................................... 914
2001 ................................................... 809
2002 ................................................... 571
Thereafter ............................................. 381
------
Total minimum lease payments ........................... $3,809
======

Rent expense for the years ended June 30, 1995, 1996 and 1997 and the nine
months ended March 31, 1997 and 1998 was $951,000, $853,000, $1,093,000,
$800,000 and $837,000, respectively.

b. Litigation -- The Company is engaged in various litigation in the ordinary
course of business. Management, based upon the advice of legal counsel, is of
the opinion that the amounts which may be awarded or assessed in connection
with these matters, if any, will not have a material effect on the
consolidated financial position or results of operations.

c. Employment Contracts -- The Company has employment contracts with certain of
its employees with annual enumeration ranging from $95,000 to $110,000.
Future minimum payments under these contracts are as follows (in thousands):

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

1998 (three months from April 1, 1998 to June 30, 1998). $ 51
1999 ................................................... 205
2000 ................................................... 80
----
$336
====

d. Defined Contribution Plans -- The Company maintained four defined
contribution plans (the "Plans") for all eligible employees, as defined by
the Plans until April 1, 1996. On April 1, 1996, the Company combined the
Plans into one defined contribution plan (the "New Plan"). The Company
previously made matching contributions at various percentages to three of the
Plans in accordance with the respective Plan documents and currently makes
matching contributions to the New Plan in an amount equal to fifty percent of
the employee salary deductions to a maximum of four percent of the employees
salary in accordance with the New Plan document. The Company incurred
$130,000, $197,000, $227,000, $169,000 and $148,000 for employer
contributions to the Plans/New Plan for the years ended June 30, 1995, 1996,
and 1997 and the nine months ended March 31, 1997 and 1998, respectively.

F-18

MEDE AMERICA CORPORATION AND SUBSIDIARIES NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

e. Service Agreements -- The Company has entered into service agreements with
telecommunications providers which require the Company to utilize certain
minimum monthly amounts of the services of such providers. These agreements
expire through November 2001. The Company was in compliance with the terms of
these agreements as of March 31, 1998. The minimum monthly amounts under
these agreements are as follows (in thousands):

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

1998 (three months from April 1, 1998 to June 30, 1998). $ 477
1999 ................................................... 1,795
2000 ................................................... 1,497
2001 ................................................... 1,429
2002 ................................................... 543
-------
Total .................................................. $ 5,741
=======

12. OTHER INCOME

In February 1997, the Company exercised 26,712 options to purchase common shares
of First Data Corporation and subsequently sold the common shares resulting in a
pre-tax gain of $885,000. Such options were issued to former employees of the
Company prior to the Spin-off but reverted to the Company upon the termination
of these employees.

13. SUBSEQUENT EVENTS

a. Proposed Public Offering -- In 1998, the Company determined to work towards
an IPO of the Company's common stock on a firm commitment basis. The proposed
IPO contemplates that a total of 3,600,000 shares of common stock will be
offered at a price between $13.00 and $15.00 per share. The net proceeds of
the IPO will be used to retire all outstanding balances under its Senior
Subordinated Note and its Credit Facility plus any related accrued interest
(Note 6) and for other general corporate purposes including working capital.

b. Reverse Stock Split and Increase in Authorized Common Stock and Preferred
Stock -- In conjunction with the proposed IPO, the Company intends to
authorize a reverse stock split of all issued and outstanding common shares
at the rate of 1 for 4.5823, which will decrease the number of issued and
outstanding shares as of March 31, 1998 from approximately 26,025,000 to
approximately 5,680,000. This intended stock split has been retroactively
reflected in the accompanying financial statements for all periods presented.
The Company also intends to increase the number of shares of authorized
common stock to 30,000,000 and the number of shares of authorized preferred
stock to 5,000,000.

c. Recapitalization -- In conjunction with the proposed IPO, the Company
contemplates a recapitalization of its capital stock (the
"Recapitalization"). The Recapitalization involves the conversion of all
outstanding preferred stock into common stock (based upon liquidation value
as defined in Note 9) and the exercise of all outstanding warrants (Note 6).
However, cash realized by the Company upon any exercise of the underwriters'
overallotment option would be applied to the payment of accrued dividends in
lieu of having such dividends convert into common stock. To effect the
conversion of preferred stock, the Company must first amend the preferred
stock agreement to allow convertibility. The preferred stock conversion will
be effected based upon the IPO price per share. Assuming an IPO price of
$14.00 per share and no exercise of the underwriters' overallotment, the
preferred stock will be converted into approximately 2,187,000 shares of
common stock. The warrants will be converted, in a cashless exercise, into
approximately 66,000 shares of common stock.

d. Stock Purchase Plan -- In anticipation of the proposed IPO, the Board has
approved the 1998 Employee Stock Purchase Plan (the "Purchase Plan").
Employees of the Company, including direc-

F-19

MEDE AMERICA CORPORATION AND SUBSIDIARIES NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

tors of the Company who are employees, are eligible to participate in
quarterly plan offerings in which payroll deductions may be used to purchase
shares of common stock. The purchase price of such shares is the lower of 85
percent of the fair market value of the common stock on the day the offering
commences and 85 percent of the fair market value of the common stock on the
date the offering terminates. The first offering period under the Purchase
Plan will not commence until the completion of the IPO.

e. New Stock Option and Restricted Stock Purchase Plan -- In anticipation of the
proposed IPO, the Board has approved the 1998 Stock Option and Restricted
Stock Purchase Plan (the "New Stock Plan"). The New Stock Plan permits the
granting of any or all of the following types of awards: incentive stock
options; nonqualified stock options; restricted stock; or other stock-based
awards, to officers, employees, directors, consultants and advisors of the
Company. To date, no options have been granted under the New Stock Plan,
however, the Board determined to grant options to purchase an aggregate
400,000 shares of common stock pursuant to the New Stock Plan to certain
employees of the Company (including certain executive officers) contingent
upon consummation of the IPO. Such options, which include both incentive and
non-qualified stock options, will have an exercise price equal to the price
to the public in the IPO and generally will vest ratably over four years from
the date of grant except that the initial installment of options to be
granted to certain executive officers will vest immediately upon consummation
of the IPO.

f. Revolving Line of Credit -- During July 1998, the Company received a letter
from the lender under the Credit Facility committing to provide an amended
credit facility with total available credit of $15.0 million. This facility
would be comprised of a $7.5 million term loan to be used for acquisitions
and a $7.5 million revolving credit loan to be used for working capital
purposes, each with a maximum term of two years from October 31, 1998.
Interest for the term and revolver loans is computed at .25% above the bank's
base rate, or 1.25% above a Eurodollar based rate. Such borrowing rates are
at the option of the Company for any particular period during which
borrowings exist.

F-20

INDEPENDENT AUDITORS' REPORT

To the Board of Directors and Stockholder of
The Stockton Group, Inc.:

We have audited the accompanying statement of income of The Stockton Group, Inc.
(the "Company") for the year ended June 30, 1997. This financial statement is
the responsibility of the Company's management. Our responsibility is to express
an opinion on this financial statement 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 statement of income is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the statement of income. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall statement of income presentation.
We believe that our audit of the statement of income provides a reasonable basis
for our opinion.

In our opinion, such statement of income presents fairly, in all material
respects, the results of operations of the Company for the year ended June 30,
1997 in conformity with generally accepted accounting principles.

DELOITTE & TOUCHE LLP

Charlotte, North Carolina
October 7, 1997

F-21

THE STOCKTON GROUP, INC.
STATEMENTS OF INCOME
YEAR ENDED JUNE 30, 1997 AND THE THREE MONTHS
ENDED SEPTEMBER 30, 1997 (UNAUDITED)

YEAR ENDED THREE MONTHS ENDED
JUNE 30, 1997 SEPTEMBER 30, 1997
--------------- -------------------
(UNAUDITED)

REVENUES ....................................... $ 3,801,953 $1,056,748
OPERATING EXPENSES:
Operations .................................... (563,295) (137,495)
Sales, marketing, and client services ......... (899,366) (203,133)
Research and development ...................... (103,153) (24,405)
General and administrative .................... (159,517) (72,425)
Non-cash stock compensation (Note 4) .......... (1,280,000) --
Depreciation and amortization ................. (109,336) (37,411)
------------ ----------
Total operating expenses .................... (3,114,667) (474,869)
------------ ----------
INCOME FROM OPERATIONS ......................... 687,286 581,879
INTEREST EXPENSE ............................... (111,260) (22,574)
OTHER INCOME ................................... 11,229 8,020
------------ ----------
NET INCOME (Note 1) ............................ $ 587,255 $ 567,325
============ ==========

See notes to financial statement.

F-22

THE STOCKTON GROUP, INC.
NOTES TO FINANCIAL STATEMENT
YEAR ENDED JUNE 30, 1997 AND THE THREE MONTHS ENDED
SEPTEMBER 30, 1997 (UNAUDITED)

(INFORMATION AS IT RELATES TO THE THREE MONTHS ENDED
SEPTEMBER 30, 1997 IS UNAUDITED)

1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES

Description of Business -- The Stockton Group, Inc. (the "Company"), was
incorporated as an S Corporation in the State of South Carolina in July 1993.
The Company provides computer-based prescription drug claims processing to
Pharmaceutical Benefit Managers ("PBMs"), Health Maintenance Organizations
("HMOs"), Preferred Provider Organizations ("PPOs"), insurance companies,
Third-Party Administrators ("TPAs"), self-insured employers, and Taft-Hartley
Funds. The Company's services range from claims processing to full-service
program management, including eligibility verification, drug coverages and
exclusions, concurrent utilization review, drug pricing verification, supply
limitations and other applicable plan design requirements. The Company supports
a network of over 40,000 pharmacies nationwide.

In addition to claims processing fees, the Company receives rebate revenue from
drug manufacturers for prescription drug transactions that are processed through
the Company's system.

Use of Estimates in the Preparation of Financial Statements -- The preparation
of financial statements in conformity with generally accepted accounting
principles requires management to make estimates and assumptions that affect the
reported 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.

Major Customers -- For the year ended June 30, 1997, three customers accounted
for approximately 15%, 12% and 10%, respectively, of total revenues.

Revenue Recognition -- Revenue from prescription drug claims processing services
and rebates from drug manufacturers are recognized when the services are
delivered.

Property and Equipment -- Property and equipment is depreciated using the
double-declining balance method over the estimated useful lives of the related
assets. Assets under capital leases are depreciated using the straight-line
method over the lease term.

Income Taxes -- The Company has elected to be taxed as an S Corporation, and as
such its income is included in the current taxable income of its stockholder.
Accordingly, no provision has been made in the accompanying financial statements
for federal or state income taxes.

Unaudited Interim Financial Statement -- In the opinion of management, the
unaudited statement of income for the three months ended September 30, 1997 is
presented on a basis consistent with the audited statement of income and
reflects all adjustments, consisting of only normal recurring adjustments,
necessary for a fair presentation of the results thereof. The results of
operations for the three months ended September 30, 1997 is not necessarily
indicative of the results to be expected for the entire year.

2. NOTE PAYABLE TO STOCKHOLDER

The Company had a note payable to stockholder with an outstanding principal
balance of $359,621 at June 30, 1997. The note bore interest at a rate of prime
plus .25% (8.75% at June 30, 1997).

3. LEASE COMMITMENTS

The Company leased certain equipment under operating leases expiring at various
dates through April 2000. Rent expense for the year ended June 30, 1997 was
approximately $12,000.

F-23

THE STOCKTON GROUP, INC.
NOTES TO FINANCIAL STATEMENT - (CONTINUED)

In addition, the Company leased its office facility and certain computer and
office equipment under capital lease arrangements with interest rates ranging
from 14.5% to 25%, expiring through July 2011. The lease arrangement for the
office facility was with a corporation in which the Company's sole stockholder
holds an ownership interest.

4. STOCK-BASED COMPENSATION ARRANGEMENTS

During 1994, the Company granted a key employee the right to acquire common
stock equivalent to a 25% equity ownership in the Company at no cost. The shares
have not yet been issued. At the date of the grant, the Company recorded
compensation cost equal to the fair market value of shares to be awarded to the
executive.

During 1997, the Company entered into an employment agreement with another new
key executive. Among other things, the agreement granted the executive the right
to acquire a 10% equity ownership in the Company at a nominal cost ($1.00) or,
if the Company is sold within one year, to receive 10% of the sales proceeds as
defined. Accordingly, the Company has recorded compensation cost in 1997, equal
to the estimated cash settlement to be paid to the executive based upon the
anticipated proceeds from the sale of the Company. (See Note 5).

5. SUBSEQUENT EVENT

In November 1997, the Company sold certain computer equipment, intangible assets
and the operations of the Company to MEDE America Corporation. All other assets
and liabilities remained with the Company. The purchase price was $10,400,000 in
cash. In addition, the purchase agreement requires additional consideration of
up to $2,600,000 (plus interest at an annual rate of 7.25%) to be paid if
Stockton's revenue during the 12-month period ended September 30, 1998 is at
least $5,000,000.

******

F-24

====================================== ======================================
NO DEALER, SALESPERSON OR OTHER
PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY
REPRESENTATIONS CONTAINED IN THIS
PROSPECTUS AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS NOT
CONTAINED HEREIN MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY, ANY OF THE UNDERWRITERS OR BY 3,600,000 SHARES
ANY OTHER PERSON. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER TO SELL, OR A
SOLICITATION OF AN OFFER TO BUY, ANY
SECURITIES OTHER THAN THE SHARES OF
COMMON STOCK OFFERED HEREBY, NOR DOES
IT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY ANY OF [LOGO]
THE SECURITIES OFFERED HEREBY, TO ANY
PERSON IN ANY JURISDICTION IN WHICH IT
IS UNLAWFUL TO MAKE SUCH AN OFFER OR
SOLICITATION TO SUCH PERSON. NEITHER
THE DELIVERY OF THIS PROSPECTUS NOR
ANY SALE MADE HEREUNDER SHALL, UNDER
ANY CIRCUMSTANCES CREATE ANY
IMPLICATION THAT THE INFORMATION
CONTAINED HEREIN IS CORRECT AS OF ANY MEDE AMERICA
DATE SUBSEQUENT TO THE DATE HEREOF. CORPORATION

---------------------------------
TABLE OF CONTENTS

PAGE
----
Prospectus Summary .............. 3 COMMON STOCK
Risk Factors .................... 9
Use Of Proceeds ................. 18
Dividend Policy ................. 18
Capitalization .................. 19
Dilution ........................ 20
Unaudited Pro Forma Consolidated
Financial Information ........ 21 --------------------------
Selected Financial Data ......... 28
Management's Discussion And PROSPECTUS
Analysis Of Financial
Condition And Results Of --------------------------
Operations ................... 30
Business ........................ 41
Management ...................... 52
Certain Transactions ............ 57
Principal Stockholders .......... 58
Description Of Capital Stock .... 60
Shares Eligible For Future Sale . 62
Underwriting .................... 63
Legal Matters ................... 64
Experts ......................... 64
Additional Information .......... 65 SALOMON SMITH BARNEY
Index To Financial Statements ... F-1

---------------------------------- WILLIAM BLAIR & COMPANY

UNTIL _____ , 1998 (25 DAYS AFTER
THE DATE OF THIS PROSPECTUS) ALL VOLPE BROWN WHELAN & COMPANY
DEALERS EFFECTING TRANSACTIONS IN THE
COMMON STOCK, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION,
MAY BE REQUIRED TO DELIVER A
PROSPECTUS. THIS DELIVERY REQUIREMENT
IS IN ADDITION TO THE OBLIGATION OF
DEALERS TO DELIVER A PROSPECTUS WHEN JULY , 1998
ACTING AS UNDERWRITERS AND WITH
RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.

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

PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

The following table sets forth the Registrant's expenses in connection with
the issuance and distribution of the securities being registered. Except for the
SEC Registration Fee and the National Association of Securities Dealers, Inc.
("NASD") Filing Fee, the amounts listed below are estimates:

SEC Registration Fee ......................... $ 18,320
NASD Filing Fee .............................. 6,710
Nasdaq Listing Fees .......................... *
Legal Fees and Expenses ...................... *
Blue Sky Fees and Expenses ................... 10,000
Accounting Fees and Expenses ................. *
Printing and Engraving ....................... *
Transfer Agent and Register Fees and Expenses. *
Miscellaneous ................................ $ *
---------
Total ........................................ $950,000
=========

- ----------
* To be filed by Amendment.

ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS

The Company's Amended and Restated Certificate of Incorporation (the
"Restated Certificate") and By-laws provide that the Company shall indemnify to
the fullest extent authorized by the Delaware General Corporation Law ("DGCL"),
each person who is involved in any litigation or other proceeding because such
person is or was a director or officer of the Company or is or was serving as an
officer or director of another entity at the request of the Company, against all
expense, loss or liability reasonably incurred or suffered in connection
therewith. The Restated Certificate and By-laws provide that the right to
indemnification includes the right to be paid expenses incurred in defending any
proceeding in advance of its final disposition; provided, however, that such
advance payment will only be made upon delivery to the Company of an
undertaking, by or on behalf of the director or officer, to repay all amounts so
advanced if it is ultimately determined that such director is not entitled to
indemnification. If the Company does not pay a proper claim for indemnification
in full within 60 days after a written claim for such indemnification is
received by the Company, the Restated Certificate and Restated Bylaws authorize
the claimant to bring an action against the Company and prescribe what
constitutes a defense to such action.

Section 145 of the DGCL permits a corporation to indemnify any director or
officer of the corporation against expenses (including attorney's fees),
judgments, fines and amounts paid in settlement actually and reasonably incurred
in connection with any action, suit or proceeding brought by reason of the fact
that such person is or was a director or officer of the corporation, and, with
respect to any criminal action or proceeding, if he or she had no reason to
believe his or her conduct was unlawful. In a derivative action, (i.e., one
brought by or on behalf of the corporation), indemnification may be made only
for expenses, actually and reasonably incurred by any director or officer in
connection with the defense or settlement of such an action or suit, if such
person acted in good faith and in a manner that he reasonably believed to be in,
or not opposed to, the best interests of the corporation, except that no
indemnification shall be made if such person shall have been adjudged to be
liable to the corporation, unless and only to the extent that the court in which
the action or suit was brought shall determine that the defendant is fairly and
reasonably entitled to indemnity for such expenses despite such adjudication of
liability.

II-1

Pursuant to Section 102(b)(7) of the DGCL, the Restated Certificate
eliminates the liability of a director to the corporation or its stockholders
for monetary damages for such breach of fiduciary duty as a director, except for
liabilities arising (i) from any breach of the director's duty of loyalty to the
corporation or its stockholders, (ii) from acts or omissions not in good faith
or which involve intentional misconduct or a knowing violation of law, (iii)
under Section 174 of the DGCL, or (iv) from any transaction from which the
director derived an improper personal benefit.

The Company expects to obtain primary and excess insurance policies
insuring the directors and officers of the Company against certain liabilities
that they may incur in their capacity as directors and officers. Under such
policies, the insurers, on behalf of the Company, may also pay amounts for which
the Company has granted indemnification to the directors or officers.

Additionally, reference is made to the Underwriting Agreement filed as
Exhibit 1.1 hereto, which provides for indemnification by the Underwriters of
the Company, its directors and officers who sign the Registration Statement and
persons who control the Company, under certain circumstances.

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES

In the three years preceding the filing of this Registration Statement, the
Corporation has sold the following securities that were not registered under the
Securities Act:

(a) Issuances of Capital Stock

On June 27, 1995, in connection with the acquisition by the Registrant of
MEDE Ohio and a related offering, the Registrant issued an aggregate 239,956
shares of Preferred Stock and 13,999,538 shares of Common Stock to the
stockholders of the parent company of MEDE Ohio and stockholders of the
Registrant.

On December 18, 1995, in connection with their agreement to guarantee the
Registrant's obligations under a credit agreement between the Registrant and
Bank of America Illinois (the "Credit Facility"), the Registrant issued to WCAS
V, WCAS VI, Blair V and Blair LCF warrants to purchase an aggregate 240,720
shares of Common Stock at an exercise price of $1.00 per share.

On July 18, 1996, the Company issued 500 shares of Common Stock to Sharon
Hallberg, an employee of the Company, as a performance bonus.

On January 10, 1997, in connection with their agreement to guarantee
additional obligations of the Registrant under and amendment to the Credit
Facility, the Company issued to WCAS V, WCAS VI, Blair V and Blair LCF warrants
to purchase an aggregate 84,000 shares, of Common Stock at an exercise price of
$1.25 per share.

On February 14, 1997, the Company issued to WCAS CP II, for a purchase
price of $25 million, (i) a 10% Senior Subordinated Note due February 14, 2002
in the aggregate principal amount of $25,000,000 and (ii) 1,700,000 shares of
Common Stock.

On September 9, 1997, the Company issued 500 shares of Common Stock to Ed
Feltner, an employee of the Company, as a performance bonus.

On October 31, 1997, in connection with their agreement to guarantee
additional obligations of the Registrant under the amended Credit Agreement, the
Company issued to WCAS VI and Blair V warrants to purchase an aggregate 156,720
shares, of Common Stock at an exercise price of $1.25 per share.

(b) Certain Grants and Exercises of Stock Options

The MEDE America Corporation and its Subsidiaries Stock Option and
Restricted Stock Purchase Plan was adopted by the Registrant's Board of
Directors on March 22, 1995. As of May 29, 1998, options to purchase up to an
aggregate 3,349,000 shares of Common Stock, had been granted to employees of the
Registrant and its subsidiaries thereunder, of which options to purchase up to
an aggregate 2,389,600 shares of Common Stock, at a weighted average exercise
price of $1.09 per share, were outstanding as of such date. The Company has
issued an aggregate 350,400 shares of Common Stock upon the exercise of such
options.

II-2

The securities issued in the foregoing transactions in paragraphs (a) and
(b) above were offered and sold in reliance upon exemptions from Securities Act
registration set forth in Section 4(2) of the Securities Act, or any regulations
promulgated thereunder, relating to sales by an issuer not involving a public
offering. No underwriters were involved in the foregoing sales of securities.

The sale and issuance of the above securities were deemed to be exempt from
registration under the Securities Act in reliance on Section 4(2) of the
Securities Act, or Regulation D promulgated thereunder, or Rule 701 promulgated
under Section 3(b) of the Securities Act, as transactions by an issuer not
involving a public offering or transactions pursuant to compensatory benefit
plans and contracts relating to compensation as provided under such Rule 701.
The recipients of securities in each such transaction represented their
intention to acquire the securities for investment only and not with a view to
or for sale in connection with any distribution thereof and appropriate legends
were affixed to the share certificates and instruments issued in such
transactions. All recipients had adequate access, through their relationships
with the Company, to information about the Registrant.

ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a) Exhibits

EXHIBIT
NUMBER DESCRIPTION
- --------- -----------------------------------------------------------------

1.1 -- Form of Underwriting Agreement.

2.1+ -- Asset Purchase Agreement among MEDE AMERICA Corporation,
General Computer Corporation, Time-Share Computer Systems, et al,
dated as of February 3, 1997.

2.2+ -- Asset Purchase Agreement among MEDE AMERICA Corporation,
General Computer Corporation, The Stockton Group, et al, dated as
of October 20, 1997.

3.1+ -- Certificate of Incorporation of the Registrant as amended.

3.2 -- Form of Registrant's Amended and Restated Certificate of
Incorporation.

3.3 -- Amended Bylaws of the Registrant.

3.4+ -- Agreement and Plan of Merger, dated as of May 17, 1995, between
MEDE AMERICA Corporation and GENCC Holdings Corporation.
4.1* -- Specimen certificate for shares of Common Stock.

4.2+ -- Note and Share Purchase Agreement between MEDE AMERICA
Corporation and WCAS Capital Partners II, L.P., dated as of
February 14, 1997.

4.3 + -- Warrant Agreement dated as of October 31, 1997 among MEDE AMERICA
Corporation, Welsh, Carson, Anderson & Stowe V, L.P., Welsh,
Carson Anderson & Stowe VI, L.P., William Blair Leveraged Capital
Fund Limited Partnership and William Blair Capital Part- ners V,
L.P., and Warrants issued thereunder.

4.4 + -- Warrant Agreement dated as of January 10, 1997 among MEDE AMERICA
Corporation, Welsh, Carson, Anderson & Stowe V, L.P., Welsh,
Carson Anderson & Stowe VI, L.P., William Blair Leveraged Capital
Fund Limited Partnership and William Blair Capital Part- ners V,
L.P., and Warrants issued thereunder.

4.5 + -- Warrant Agreement dated as of December 18, 1995 among MEDE
AMERICA Corpora- tion, Welsh, Carson, Anderson & Stowe V, L.P.,
Welsh, Carson Anderson & Stowe VI, L.P., William Blair Leveraged
Capital Fund Limited Partnership and William Blair Capital
Partners V, L.P., and Warrants issued thereunder.

5.1* -- Opinion of Reboul, MacMurray, Hewitt, Maynard & Kristol, with
respect to the legality of securities being registered.

10.1 -- MEDE AMERICA Corporation and Its Subsidiaries Stock Option and
Restricted Stock Purchase Plan as amended.

10.2+ -- Credit Agreement between MEDE AMERICA Corporation and Bank of
America Illinois dated as of December 18, 1995 as amended, with
accompanying guarantees.

10.3 -- Form of Indemnification Agreement between MEDE AMERICA
Corporation and Directors thereof.

II-3

EXHIBIT
NUMBER DESCRIPTION
- ---------- ----------------------------------------------------------------

10.4* -- Agreement of Lease dated as of October 15, 1991 between HMCC
Associates and MedE America, Inc.

10.5 -- Lease Agreement dated as of July 10, 1995 as amended January 3,
1997 between T&J Enterprises, LLC and Electronic Claims &
Funding, Inc.

10.6 -- Commitment Letter dated July 15, 1998 from Bank of America
National Trust & Savings Association to MEDE AMERICA Corporation,
regarding amendment to Credit Facility.

10.7 -- Form of Non-Competition, Non-Solicitation and Confidentiality
Agreement between MEDE AMERICA Corporation and Employees.

10.8 -- MEDE AMERICA Corporation and Its Subsidiaries 1998 Stock Option
and Restricted, Stock Purchase Plan.

21.1 + -- Subsidiaries of the Company.

23.1 -- Consent of Deloitte & Touche LLP, independent accountants.

23.2 -- Consent of Deloitte & Touche LLP, independent accountants.

23.3* -- Consent of Reboul, MacMurray, Hewitt, Maynard & Kristol (see
Exhibit 5.1).

24.1 + -- Power of Attorney.

27.1 + -- Financial Data Schedule.

- ----------

* To be filed by amendment.
+ Previously filed.

(b) Financial Statement Schedules
Schedule II -- Valuation and Qualifying Accounts

ITEM 17. UNDERTAKINGS

(a) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the provisions described under "Item
14-Indemnification of Directors and Officers" above, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.

(b) The undersigned Registrant hereby undertakes that:

(1) For purposes of determining any liability under the Securities Act of
1933, 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 purpose of determining any liability under the Securities Act
of 1933, 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.

(c) The undersigned Registrant hereby undertakes to provide to the
underwriter at the closing specified in the underwriting agreements,
certificates in such denominations and registered in such names as required by
the underwriter to permit prompt delivery to each purchaser.

II-4

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment to the Registration Statement to be signed on its
behalf by the undersigned thereunto duly authorized, on June 3, 1998.

MEDE AMERICA CORPORATION

By: THOMAS P. STAUDT
------------------------------
Thomas P. Staudt
President and
Chief Executive Officer

Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities held on the dates indicated.

SIGNATURES TITLE DATE
- --------------------------- --------------------------------------- --------------

THOMAS P. STAUDT President and Chief Executive July 17, 1998
- ------------------------- Officer (Principal executive officer);
Thomas P. Staudt Director

THOMAS P. STAUDT Chief Financial Officer (Principal July 17, 1998
- ------------------------- financial and accounting officer)
Richard P. Bankosky

THOMAS P. STAUDT Director July 17, 1998
- -------------------------
Thomas E. McInerney

THOMAS P. STAUDT Director July 17, 1998
- -------------------------
Anthony J. de Nicola

THOMAS P. STAUDT Director July 17, 1998
- -------------------------
Timothy M. Murray

II-5

SCHEDULE II

MEDE AMERICA CORPORATION AND SUBSIDIARIES
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS

COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- ---------------------------------- ------------ -------------------------- ----------------- -----------
ADDITIONS
--------------------------
CHARGED TO
BALANCE AT CHARGED TO OTHER BALANCE AT
BEGINNING COST AND ACCOUNTS- DEDUCTIONS END OF
DESCRIPTIONS OF PERIOD EXPENSES DESCRIBE -DESCRIBE PERIOD
- ---------------------------------- ------------ ------------ ----------- ----------------- -----------
(IN THOUSANDS)

Year ended June 30, 1995 -
Allowance for bad debts ......... $ 868 $518 $-- $ -- (1) $1,386
====== ==== === == ======
Year ended June 30, 1996 -
Allowance for bad debts ......... $1,386 $406 $-- $ 392 (1) $1,400
====== ==== === ======== ======
Year ended June 30, 1997 -
Allowance for bad debts ......... $1,400 $316 $-- $ -- (1) $1,716
====== ==== === ======== ======
Nine months ended
March 31, 1998 -
Allowance for bad debts ......... $1,716 $265 $ $ 1,023 (1) $ 958
====== ==== === ======== ======

- ----------
(1) Amounts written off.

S-1

EXHIBIT INDEX

EXHIBIT
NUMBER DESCRIPTION
- --------- -----------------------------------------------------------------

1.1 -- Form of Underwriting Agreement.
2.1+ -- Asset Purchase Agreement among MEDE AMERICA Corporation,
General Computer Corporation, Time-Share Computer Systems, et al,
dated as of February 3, 1997.
2.2+ -- Asset Purchase Agreement among MEDE AMERICA Corporation,
General Computer Corporation, The Stockton Group, et al, dated as
of October 20, 1997.
3.1+ -- Certificate of Incorporation of the Registrant as amended.
3.2 -- Form of Registrant's Amended and Restated Certificate of
Incorporation.
3.3 -- Amended Bylaws of the Registrant.
3.4+ -- Agreement and Plan of Merger, dated as of May 17, 1995, between
MEDE AMERICA Corporation and GENCC Holdings Corporation.
4.1* -- Specimen certificate for shares of Common Stock.
4.2+ -- Note and Share Purchase Agreement between MEDE AMERICA
Corporation and WCAS Capital Partners II, L.P., dated as of
February 14, 1997.
4.3 + -- Warrant Agreement dated as of October 31, 1997 among MEDE AMERICA
Corporation, Welsh, Carson, Anderson & Stowe V, L.P., Welsh,
Carson Anderson & Stowe VI, L.P., William Blair Leveraged Capital
Fund Limited Partnership and William Blair Capital Part- ners V,
L.P., and Warrants issued thereunder.
4.4 + -- Warrant Agreement dated as of January 10, 1997 among MEDE AMERICA
Corporation, Welsh, Carson, Anderson & Stowe V, L.P., Welsh,
Carson Anderson & Stowe VI, L.P., William Blair Leveraged Capital
Fund Limited Partnership and William Blair Capital Part- ners V,
L.P., and Warrants issued thereunder.
4.5 + -- Warrant Agreement dated as of December 18, 1995 among MEDE
AMERICA Corpora- tion, Welsh, Carson, Anderson & Stowe V, L.P.,
Welsh, Carson Anderson & Stowe VI, L.P., William Blair Leveraged
Capital Fund Limited Partnership and William Blair Capital
Partners V, L.P., and Warrants issued thereunder.
5.1* -- Opinion of Reboul, MacMurray, Hewitt, Maynard & Kristol, with
respect to the legality of securities being registered.
10.1 -- MEDE AMERICA Corporation and Its Subsidiaries Stock Option and
Restricted Stock Purchase Plan as amended.
10.2+ -- Credit Agreement between MEDE AMERICA Corporation and Bank of
America Illinois dated as of December 18, 1995 as amended, with
accompanying guarantees.
10.3 -- Form of Indemnification Agreement between MEDE AMERICA
Corporation and Directors thereof.
10.4* -- Agreement of Lease dated as of October 15, 1991 between HMCC
Associates and MedE America, Inc.
10.5 -- Lease Agreement dated as of July 10, 1995 as amended January 3,
1997 between T&J Enterprises, LLC and Electronic Claims &
Funding, Inc.
10.6 -- Commitment Letter dated July 15, 1998 from Bank of America
National Trust & Savings Association to MEDE AMERICA Corporation,
regarding amendment to Credit Facility.
10.7 -- Form of Non-Competition, Non-Solicitation and Confidentiality
Agreement between MEDE AMERICA Corporation and Employees.
10.8 -- MEDE AMERICA Corporation and Its Subsidiaries 1998 Stock Option
and Restricted, Stock Purchase Plan.
21.1 + -- Subsidiaries of the Company.
23.1 -- Consent of Deloitte & Touche LLP, independent accountants.
23.2 -- Consent of Deloitte & Touche LLP, independent accountants.
23.3* -- Consent of Reboul, MacMurray, Hewitt, Maynard & Kristol (see
Exhibit 5.1).
24.1+ -- Power of Attorney.
27.1+ -- Financial Data Schedule.

- ----------

* To be filed by amendment.
+ Previously filed.