SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549

                                    FORM 10-K

                X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 1997         Commission File Number 1-155

                            First Medical Group, Inc.

             (Exact name of Registrant as specified in its charter)

DELAWARE                                                    13-1920670
(STATE OR OTHER JURISDICTION OF                             (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION)                              IDENTIFICATION NO.)

1055 WASHINGTON BOULEVARD, STAMFORD, CT                     06901
----------------------------------------                    -----
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)                    (ZIP CODE)

REGISTRANT'S TELEPHONE NUMBER INCLUDING AREA CODE (203) 327-0900

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

TITLE OF EACH CLASS:                 NAME OF EACH EXCHANGE ON WHICH REGISTERED:
Common Stock $.001 par value         OTC - Bulletin Board

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

--------------------------------------------------------------------------------
                                (Title of Class)

Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 12 months (or for such  shorter  period that the  Registrant  was
required  to file  such  reports),  and  (2) has  been  subject  to such  filing
requirements for the past 90 days.
YES    X     NO
     -----      ----

Indicate by check mark if disclosure of delinquent  filers  pursuant to item 405
of regulation  S-K is not contained  herein,  and will not be contained,  to the
best of Registrant's  knowledge,  in definitive proxy or information  statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. 
YES    X     NO
     -----      ----

Approximate  aggregate market value of the voting stock held by  "nonaffiliates"
of the Registrant on March 18, 1998: $2,161,236.

Number of shares of Common Stock  outstanding  of the Registrant as of March 18,
1998: 9,397,292.

-------------
*  Registrant's  sole class of voting stock is its Common Stock $.001 par value,
which is listed on the OTC-Bulletin  Board. The determination of market value of
such Common Stock has been based  solely on the closing  price per share of such
stock  on  the  OTC-Bulletin  Board  on  the  date  indicated.  In  making  this
computation, all shares known to be owned by directors and executive officers of
the  Registrant  and all shares known to be owned by person holding in excess of
5% of the Registrant's Common Stock have been deemed held by "affiliates" of the
Registrant. Nothing herein shall affect the right of the Registrant to deny that
any  such  directors,  executive  officers  or more  than 5%  stockholder  is an
"affiliate."


<PAGE>

                                     PART I

ITEM 1.  BUSINESS

GENERAL

THE COMPANY

RECENT EVENTS

          The Company entered into an agreement on April 8, 1998 for the sale of
nine  medical  facilities  and a Medical  Service  Organization  ("MSO") that it
manages  which are  located  in  Florida.  The  facilities  are being  sold to a
publicly held company for a total consideration of $6,750,000. The agreement was
closed on April 14, 1998.  The  proceeds  from the sale will be used to pay down
the  Company's  existing  debt  as  well  as  to  provide  working  capital  for
operations.

          The  Company  also  entered  into an  agreement  to sell its  HallMark
division for a total of  $1,900,000  of which  $750,000 will be paid in cash and
the balance will be the assumption of debt.

          On July 9, 1997,  First  Medical  Corporation  ("FMC")  merged  with a
wholly  owned  subsidiary  of the Company  (the  "Merger").  As a result of such
merger, FMC became a wholly owned subsidiary of the Company.

See "Business - Merger with FMC."

          The Company, through its wholly owned subsidiary,  HallMark Electrical
Supplies  Corp.  ("HallMark"),  is engaged  in the  distribution  of  electrical
supplies for the construction industry (in the New York Metropolitan area).

See "Business - Lehigh."

          FMC is an  owner-manager  and provider of  management  and  consulting
services to physicians,  hospitals and other health care delivery  organizations
and facilities. FMC's diversified operations are currently conducted through two
divisions: (i) a physician practice management division which provides physician
management   services  including  the  operation  of  clinical   facilities  and
management  services to medical service  organizations and (ii) an international
division which currently manages western style medical centers in Eastern Europe
and the  Commonwealth of Independent  States  (formerly  Russia) (the "CIS). See
"Business - FMC." The  combined  company is currently  continuing  both lines of
business at this time.

          Unless the context otherwise indicates, the "Company" or "FMG" as used
herein means First Medical Group Inc. and its wholly-owned subsidiaries, FMC and
HallMark and their  subsidiaries,  "Lehigh"  means the Company before the Merger
and the Company other than its wholly-owned  subsidiary FMC and its subsidiaries
after the Merger and "FMC" means First Medical Corporation and its subsidiaries.

          The Company's  executive  offices are located at 1055 Washington Blvd.
Stamford, CT 06901, and its telephone number is (203) 327-0900.

MERGER WITH FMC

          On  July  9,  1997  at a  Special  Meeting  (the  "July  Meeting")  of
stockholders of the Company, the stockholders of the Company approved the Merger
pursuant to the terms of the  Agreement  and Plan of Merger  dated as of October
29, 1996, as amended (the "Merger  Agreement") among the Company,  First Medical
Corporation  ("FMC") and Lehigh Management  Corp., a wholly-owned  subsidiary of
the Company ("Merger Sub"). On the same day, Merger Sub was merged with and into
FMC and each outstanding  share of common stock of FMC (the "FMC Common Stock"),
was exchanged for (i) 1,127.675  shares of the Company's Common Stock, par value
$.001 per share  ("Common  Stock"),  and (ii)  103.7461  shares of the Company's
Series A Convertible  Preferred Stock, par value $.001 per share (the "Preferred
Stock"), each of which, as a result of the Reverse Split, was converted into 250
shares of Common Stock and has a like number of votes per share, voting together
with the Common Stock. Prior to the Merger, FMC held approximately  25.4% of the
outstanding  shares of Common Stock,  which were acquired  through two series of
transactions.



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<PAGE>

          There were outstanding  10,000 shares of FMC Common Stock  immediately
prior to the Merger.  These shares were  exchanged for a total of (i) 11,276,750
shares of Common Stock,  which, as a result of the Reverse Split, is now 375,875
shares of Common  Stock,  and (ii)  1,037,461  shares of Preferred  Stock.  As a
result of the Merger,  Holders of Common Stock  immediately  prior to the Merger
and former FMC stockholders each owned 50% of the issued and outstanding  shares
of Common Stock immediately following the Merger. All of the shares of Preferred
Stock issued to the former FMC  stockholders  were  converted into Common Stock.
Holders  of  Common  Stock  immediately  prior  to the  Merger  and  former  FMC
stockholders  own  approximately  4% and 96%,  respectively,  of the outstanding
Common  Stock.   Although  legally  The  Lehigh  Group  acquired  First  Medical
Corporation for accounting purposes, First Medical Corporation is considered the
accounting acquirer (i.e., the reverse acquisition),  since the former owners of
FMC acquired 96% of the stock of the Company.

          Under the terms of the  Merger  Agreement  and  concurrently  with the
implementation  of a Reverse Stock Split,  the Company changed its name to First
Medical Group, Inc.

LEHIGH

          Lehigh  (formerly  The  LVI  Group  Inc.)  through  its  wholly  owned
subsidiary,  HallMark  Electrical Supplies Corp., is engaged in the distribution
of  electrical   supplies  for  the  construction   industry  both  domestically
(primarily in the New York Metropolitan area) and for export.

          Prior to 1994, Lehigh, through its wholly owned subsidiaries, had been
engaged in the following other businesses:  (i) through certain of its operating
subsidiaries  ("NICO  Construction")  interior  construction:  (ii)  through its
wholly  owned   subsidiary,   LVI   Environmental   Services  Group  Inc.  ("LVI
Environmental"),  and subsidiaries  thereof,  asbestos abatement:  (iii) through
Riverside  Mfg.,  Inc.  ("Riverside"),   the  design,  production  and  sale  of
electrical products: (iv) through Mobile Pulley and Machine Works, Inc. ("Mobile
Pulley"),  the manufacture and sale of dredging equipment and precision machined
castings: and (v) through LVI Energy Recovery Corporation ("LVI Energy"), energy
recovery and power generation and landfill closure  services.  All of such other
businesses were transferred or sold prior to 1994.

HALLMARK

          ELECTRICAL SUPPLIES

          HallMark was  acquired by Lehigh in December  1988.  HallMark's  sales
include electrical conduit, armored cable, switches,  outlets,  fittings, panels
and wire which are purchased by Hallmark from electrical equipment  manufactures
in the United  States.  All of HallMark's  sales are  domestic.  All of Lehigh's
revenues are attributed to HallMark.

          Domestic  sales are made by  HallMark  employees.  Fourteen  customers
accounted for  approximately  69%, 61%, and 72% (including  one customer,  which
accounted for  approximately  14%, 25%, and 18%) of  HallMark's  total  domestic
sales in 1997, 1996 and 1995,  respectively.  The loss of any of these customers
could have a material  adverse  effect on its  business.  From  November 1, 1992
until October 31, 1996,  HallMark's export business was conducted primarily from
Miami, Florida. HallMark's export business has been discontinued.

          HallMark's   only   customer   whose  sales  exceed  10%  of  Lehigh's
consolidated  revenues  (prior to the Merger) is Adco  Electric.  This  customer
accounted for an aggregate of approximately 14% of Lehigh's consolidated revenue
(prior to the Merger).

          Management   believes  that  many  companies  (certain  of  which  are
substantially  larger and have greater financial resources than HallMark) are in
competition  with  HallMark.  Management  believes that the primary  factors for
effective  competition between Hallmark with its competitors are price, in-stock
merchandise and a reliable delivery service. As a result, orders for merchandise
are received daily and shipped daily; hence, backlog is insignificant.

          Management  believes  that  HallMark is generally in  compliance  with
applicable governmental  regulations and that these regulations have not had and
will not have a material adverse effect on its business or financial condition.



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<PAGE>

          EMPLOYEES

          As of March 1, 1998  HallMark had 36 employees.  Approximately  80% of
such employees are compensated on an hourly basis.

          Lehigh and  HallMark  comply with  prevailing  local  contracts in the
respective geographic locations of particular jobs with respect to wages, fringe
benefits and working conditions.  Most employees of HallMark are unionized.  The
current  collective  bargaining  agreement  for  Hallmark,  which  is  with  the
International  Brotherhood  of Electrical  Workers,  Local Union #3,  expires on
April 30, 1999.

FMG

          FMG  is  an  international  provider  of  management,  consulting  and
financial  services to  physicians,  hospitals  and other  health care  delivery
organizations  and  facilities.   FMG's  diversified  operations  are  currently
conducted through two divisions:  (i) a physician practice  management  division
which  provides  physician  management  services,  including  the  operation  of
clinical  facilities and management  services to Medical Service  Organizations,
and (ii) an international division which currently manages western-style medical
centers in Eastern Europe and the CIS.

INDUSTRY BACKGROUND

          The role of the  primary  care  physician  is  changing  dramatically.
Historically,  the health care  services  industry was based on a model in which
physician  specialists  played a predominant  role.  This model  contributed  to
over-utilization of specialized health care services and, in turn,  increases in
health care costs at rates  significantly  higher than  inflation.  In response,
third-party payers have been implementing  measures to contain costs and improve
the availability of medical services. These measures, which include managing the
utilization  of  specialized  health care  services and  alternative  methods of
reimbursement, have caused the health care industry to evolve toward models that
contain health care costs more  efficiently.  In these models,  the primary care
physician  and  physician  management   organization  are  playing  increasingly
important roles.

          FMG believes that two important  trends  contributing to the evolution
of the health care services industry define its business  opportunities.  First,
physicians are increasingly abandoning traditional private practices in favor of
affiliations  with larger  organizations  such as FMG that can provide  enhanced
management  capabilities,   information  systems  and  capital  resources.  This
transformation  of physician  practice is based on an  increasingly  competitive
health care  environment  characterized  by intense cost  containment  pressure,
increased  business  complexity and  uncertainly  regarding the impact of health
care reform on physicians.

          The  second  trend  is that  many  payers  and  their  intermediaries,
including  HMO's,  are  increasingly  looking to outside  providers of physician
services to manage their professional medical requirements and to share the risk
of providing services through capitation  arrangements.  As these payers seek to
limit their health care costs by reducing the fee-for-service  component paid to
their  medical  service  providers,  there is  additional  pressure  on  smaller
providers to consolidate  and realize the  efficiencies  that can be achieved by
operating in larger practice groups.

          DOMESTIC OPERATIONS

          Cost containment,  industry consolidation and changes in reimbursement
methods  are  causing  difficulties  for  health  care  providers,  particularly
not-for-profit  hospitals.  As  a  result  of  intense  competition  from  large
for-profit hospitals,  not-for-profit hospitals must develop effective plans for
attracting  and  retaining  patient  flow.  Such plans may include,  among other
things,  (i)  reducing  or  changing  the  services  provided in order to better
utilize  current  facilities,  equipment  and  space,  (ii)  entering  into  new
contracts with physician groups,  HMO's, and other third party payors, and (iii)
various  cost-cutting  measures.  Ultimately,  a facility's  ability to adapt to
changing  environments  requires  access to capital  and  management  expertise,
services which FMG is willing and able to provide.



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<PAGE>

          INTERNATIONAL MARKETS

          The  American  health care  delivery  system and its related  services
remain a valuable  export.  The  internationally  recognized  level of training,
technology  and services  associated  with the American  health care systems and
their professionals  continues to enjoy increasing demand among both expatriates
and  wealthy  nationals  in FMG's  expanding  foreign  markets.  FMG's  value is
reflected in the premium prices, which its clients are willing to pay for access
to comprehensive American health care and related services.

STRATEGY OF FMG

          FMG's  strategy  with  respect to its  physician  practice  management
division is to develop its  business by  addressing  significant  changes in the
role and  practice  patterns of the primary  care  physician  in the health care
services industry. Elements of this strategy include:

          (i) FMG plans to offer health care  providers a full array of advanced
management  services  including,  but not  limited to:  utilization  management;
information  systems;  human resources  management;  financial  control systems;
outcomes  measurement and monitoring;  customer service  programs;  training and
education; financial services; strategic planning; network development; and risk
contracting.  These  services  will be  offered  as a  comprehensive  package or
individually,  but through one point of contact,  creating a "one-stop shop" for
management services.

          (ii)  FMG's   management   believes  that  nationwide   concerns  over
escalating  health  care costs and the  possibility  of  legislated  reforms are
increasing  the  emphasis on managed  care,  integrated  networks of health care
providers  and  prepaid,   capitated   arrangements.   Increased   managed  care
penetration  is  generating  more  recognition  of  the  benefits  of  organized
physician  groups  serving  large  patient  populations  as well as reducing the
reimbursement  rates for services  rendered.  In anticipation of such changes in
the health care  environment,  FMG  continues  to review and revise its business
mix.

          (iii) Continued  Development of the International  Division.  FMG will
continue the  development  and  expansion  of its  international  division.  FMG
believes that through its continuing development efforts, FMG will be positioned
to become a premier owner,  operator and manager of  international  primary care
clinics, acute care hospitals and other health care delivery organizations.

          (iv) FMG strives to deliver a  comprehensive  range of diverse medical
services  to meet the  specific  needs of its  clients  in each of FMG's  unique
markets.  In response to demands for western  style  hospitals  in the CIS,  FMG
commenced development of the American Hospital of Moscow,  pursuant to which FMG
will establish the first western-style hospital in the CIS.

          (v) An integral  part of FMG's  strategy is to provide an  environment
for medical  education  and training of local medical  professionals  and health
care  administrators.  In  this  regard,  FMG  will  continue  to be  active  in
sponsoring  exchange programs with western facilities and teaching  institutions
such as the Baylor College of Medicine in Houston, Texas. FMG has also organized
an in-house  mentor program to expose local medical  professionals  and aspiring
physicians to the western health care system.

DIVISION OF FMG

          PHYSICIAN PRACTICE MANAGEMENT DIVISION

          FMG's physician practice management operations are currently conducted
through MedExec.  MedExec  functions in two capacities as a management  services
organization:  (i) owning and operating  twelve primary care centers (located in
Florida and Indiana)  which have full risk contracts for primary care and Part B
services and partial risk (50%) contracts for Part A services, and (ii) managing
sixteen   multi-specialty   groups   (located   in  Florida   and  Texas)   with
fee-for-service and full risk contracts for primary care and Part B services and
partial  risk (50%)  contracts  for Part A  services.  Full risk  contracts  are
contracts  with  managed  care  companies  where  FMC  assumes  essentially  all
responsibility  for a managed  care  members'  medical  costs and  partial  risk
contracts are contracts where FMC assumes partial  responsibility  for a managed
care members'  medical  costs.  Revenue from the primary care centers is derived
primarily  from the  predetermined  amounts  paid per  member  (capitation")  by
Humana.  In addition to the  payments  from  Humana,  




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the primary care centers  received  copayments from commercial  members for each
office  visit,  depending  upon  the  specific  plan  and  options  selected  by
individual   members   and  receive   payments   from   non-HMO   members  on  a
fee-for-service basis. Revenue from the multi-specialty practices managed by FMC
are determined based on per member per month fees and/or a percentage of the net
profits for Part A and Part B service funds for such centers.

          Revenue from the multi-specialty practices are obtained by FMC through
management  agreements.  In Florida,  FMC is entitled to receive (i) from Humana
Medicare  members,  an  amount  equal to  $4.50  per  member  per  month  plus a
percentage of Part A profits,  Part B profits and Medicare Membership Conversion
fees ranging from 9% to 4% based upon Medicare  membership,  and (ii) for Humana
commercial HMO members, an amount equal to $1.50 per member per month plus 5% of
Part A profits and Part B profits.  The members of the practices are patients of
the physicians who are enrolled as Humana members.

          FMC is not  licensed  to  practice  medicine.  FMC  employs or manages
licensed  physicians to work at the primary care centers in Florida and Indiana,
which  centers  provide  the  delivery  of  medicine.  In  Texas,  FMC  provides
utilization,  billing, human resources,  management information systems,  senior
executive  management,  financial consulting and risk evaluation as a management
services  organization.  In order to  better  serve  its  existing  markets  and
potential markets,  FMC has established four geographic  operating  regions,  to
wit, the East Coast of Florida,  the West Coast of Florida, the Midwest, and the
Southwest.

          In  connection  with the  operation  of such  primary  care centers in
Florida and Indiana, FMC employs all of the personnel,  including physicians who
agree to provide the necessary  clinical skills,  required in such centers.  FMC
compensates its physician  employee's bi-weekly pursuant to the terms of written
employment  agreements.  The written employment agreements are for a term of 2-3
years,  provide for  termination  "with cause",  provide for a base salary and a
bonus (which bonus is  determined  by formula  comprised of quality  management,
utilization     management,     medical    records    documentation,     patient
satisfaction/patient  education  and  time  and  motion  management)  contain  a
non-competition  provision  and contain  provisions  outlining the duties of the
physician and FMC.

          FMC currently employs physicians in Florida and Indiana,  which states
do not have regulations on the corporate  practice of medicine.  In Texas, there
are regulations on the corporate  practice of medicine,  and FMC does not employ
any  physicians  and has no  ownership  interest  in or control of the entity in
which  physicians are employed.  In all states other than Texas,  FMC retains an
ownership  interest or control in the various clinics it operates.  FMC operates
an  office  in  Illinois  for  administrative  services  only  and has  employed
physicians in Indiana.  FMC maintains a proprietary  database for physicians who
might be  available  to be  employed  at FMC's  owned and  operated  clinics  in
particular  specialties  and  locations,  and  experts  to  create  an  in-house
recruiting department.

          FMC  generates  fees at its primary care centers on a  fee-for-service
basis and/or capitated basis. Under fee-for-service arrangements,  FMC bills and
collects the charges for medical  services  rendered by  contracted  or employed
health care  professionals  and also  assumes  the  financial  risks  related to
patient volume, payor risk,  reimbursement and collection rates. Under capitated
arrangements,  FMC assumes the risk and  receives  revenues at a fixed rate from
HMO's at  contractually  agreed-upon  per  member  per  month  rates for all the
primary care needs of a patient. Under its HMO contracts,  FMC receives a fixed,
prepaid   monthly  fee  for  each   covered   life  in  exchange   for  assuming
responsibility  for the  provision  of  medical  services,  subject  to  certain
limitations.  To the extent that  enrollees  require more  frequent or extensive
care than was  anticipated  by FMC,  the revenue to FMC under a contract  may be
insufficient  to cover the costs of the care that was  provided.  A  substantial
portion of the patients  seeking  clinical  services from the company's  primary
care  centers  are  members  of  HMO's  with  which  FMC  maintain   contractual
relationships.

          Additionally,  FMC has entered into  contracts  with certain  HMO's to
manage the  delivery of  comprehensive  medical  services to  enrollees at FMC's
clinics  located in Florida,  Texas and Indiana.  A  substantial  portion of the
revenues of FMC's  managed care  business  are derived from prepaid  contractual
arrangements with Humana, pursuant to which Humana pays FMC a capitated fee. FMC
employs  primary care  physicians to work at FMC clinics in Florida and Indiana.
FMC also provides for other services with  hospitals and medical  specialists at
negotiated  prices for both capitated and non-capitated  (i.e.  fee-for-service)
services.  Due to FMC's risk for the cost of providing health care services,  it
carefully manages  utilization of primary care,  hospital and medical specialist
services.

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          In  addition,  FMC  contracts  with  primary  care  medical  practices
pursuant to which FMC provides a variety of management services.  In particular,
FMC provides  management services which improve physician  practices'  operating
efficiencies  through  standardization  of operating  processes,  including  the
installation  of information  technology and billing  systems,  and assists such
practices in contracting on a network basis to insurers, HMO's and other payers.
In consideration for such management services, FMC receives an annual management
fee and participates in profits.

          Neither FMC, its subsidiary,  MedExec, nor its affiliates are licensed
to operate as HMO's.

          INTERNATIONAL MEDICAL CLINICS DIVISION

          FMG's International  division currently  specializes in developing and
managing health care facilities in Eastern Europe,  the CIS and other developing
countries.   Currently,  FMG  contracts  to  provide  services  in  Moscow,  St.
Petersburg and Kiev of the CIS; Warsaw, Poland; and Prague, Czech Republic.

          Revenues of FMG's  international  division are primarily  derived from
fee-for-service  charges and annual  non-refundable  membership  fees charged to
corporations,  families and individuals.  A variety of diverse  membership plans
are available and can be tailored to meet the unique needs of corporate clients.
Based upon its  experience,  FMG's  management  believes that a significant  and
increasing portion of the international division's revenues will be derived from
local  customers who seek medical  services on a  fee-for-service  basis.  Local
customers   currently   account  for  approximately  25%  of  the  international
division's revenue.

          Generally,  corporations are required to pay an annual  membership fee
as well as placing  an advance  deposit  with FMG for future  services  rendered
based on the selected membership plan and size of the respective  organizations.
Membership  plans offer a wide range of  benefits  including  24-hour  emergency
access,  monthly  medical  newsletters  and  specials;  fee  discounts and cross
membership with other clinics.  FMG also offers an insurance  processing service
for  corporate   members.   FMG's  corporate   membership   currently   includes
approximately five hundred international corporations.

          In order to meet the changing needs of FMG's corporate  clients and to
provide  expanded  access to western health care to potential  clients,  FMG has
recently  developed  and  implemented  a variety of  comprehensive  managed care
plans.  These plans range from  individual  and family plans to corporate  plans
covering up to 2,000 employees in various and sometimes remote locations.

          Based  upon  its  experience,   FMG's   management   believes  that  a
significant and increasing portion of the international division's revenues will
be derived from local customers who seek medical  services on a  fee-for-service
basis.

COMPETITION

          The provision of physician management services is a highly competitive
business in which FMG competes  for  contracts  with  several  national and many
regional and local providers of physician management services.  Furthermore, FMG
competes with traditional  managers of health care services,  such as hospitals,
which directly recruit and manage physicians.  Certain of FMG's competitors have
access to substantially greater financial resources than FMG.

          Internationally,   FMG  has   relatively   little   competition  on  a
multinational  scale,  but faces strong  competition in local markets from small
entrenched and start-up health care providers.

          While the bases for competition  vary somewhat between business lines,
competition is generally based on cost and quality of care.  More  particularly,
in the area of  managed  care,  FMG  believes  the  market  for  developing  and
providing  management  of  primary  care  networks  in the United  States  which
contract with HMO's and employers will  increasingly be based on patient access,
quality of care, management and cost.

MARKETING

          FMC's  physician  practice   management  division  has  developed  two
marketing methods. The primary method is to conduct joint marketing efforts with
HMO's. These efforts focus on customer service,  quality and access programs and
are  designed  to attract  new members to the HMO,  retain  current  members 

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and enroll members at the company's  medical centers.  The second method focuses
on  development  of local market  awareness and creating a positive image of FMC
among the physician  community in order to create  opportunities  for additional
physician management contracts.

          The management,  consulting and financial  services division currently
relies on the  ability of the  management  team to leverage  their  reputations,
experience  and  network of  contacts  to develop new clients or arrange for new
contracts with existing clients.

          International  marketing is done at a local level through  traditional
media  advertising  and  promotional  activities.  The image  and  status of the
clinics themselves and the medical personnel are carefully cultivated through an
intensive public  relations  campaign.  The network of international  clinics is
also collectively marketed to multinational corporations through representatives
also collectively marketed to multinational corporations through representatives
who maintain relationships and develop new contracts with the benefits managers.

GOVERNMENT REGULATION OF DOMESTIC OPERATIONS

          FMC's domestic  operations and  relationships are subject to a variety
of  governmental  and  regulatory  requirements.  A  substantial  portion of the
company's revenue is derived from payments made by  government-sponsored  health
care programs  (primarily  Medicare).  These programs are subject to substantial
regulation by the federal and state governments,  which are continually revising
and reviewing the programs and their regulations.  Any determination of material
noncompliance  with such regulatory  requirements or any change in reimbursement
regulations,  policies,  practices,  interpretations  or  statutes  that  places
material  limitations  on  reimbursement  amounts or practices  could  adversely
affect the operations of FMC.

          In  addition to current  regulation,  the public and state and federal
governments have recently focused significant  attention on reforming the health
care system in the United States.  A broad range of health care reform  measures
have been  introduced in Congress and in certain state  legislatures.  Among the
proposals under  consideration are cost controls on hospitals,  insurance market
reforms  to  increase  the  availability  of  group  health  insurance  to small
businesses,  requirements that all businesses offer health insurance coverage to
their employees and the creation of a single  government  health  insurance plan
that would cover all citizens.  It is not clear at this time what proposals will
be adopted,  if any, or, if adopted,  what effect,  if any, such proposals would
have on FMC's business. Certain proposals, such as cutbacks in Medicare programs
and  containment  of health  care costs  that  could  include a freeze on prices
charged by physicians and other health care providers could adversely affect the
Company. There can be no assurance that currently proposed or future health care
legislation  or  other  changes  in  the  administration  or  interpretation  of
governmental  health care  programs will not have a material  adverse  effect on
FMC's operating results.

          Continuing  budgetary  constraints at both the federal and state level
and the rapidly escalating costs of health care and reimbursement  programs have
led,  and  may  continue  to  lead,  to  relatively  significant  reductions  in
government and other third-party reimbursements for certain medical charges. The
Company's health care professionals are subject to periodic audits by government
reimbursement  programs to determine the adequacy of coding  procedures  and the
reasonableness of charges.

          All Medicare and Medicaid  providers and  practitioners are subject to
claims review, audits and retroactive adjustments,  recoupments,  civil monetary
penalties,  criminal  fines and penalties,  and/or  suspension or exclusion from
payment  programs for  improper  billing  practices.  Federal  regulations  also
provide for withholding payments to recoup amounts due to the programs. Periodic
audits of health care  professionals by government  reimbursement  programs have
not had any impact on FMC.

          Federal law prohibits the offer,  payment,  solicitation or receipt of
any form of  remuneration in return for the referral of Medicare or state health
care program  (e.g.,  Medicaid)  patients or patient care  opportunities,  or in
return for the purchase,  lease,  order or  recommendation  of items or services
that are covered by Medicare or state health care  programs.  Violations of this
law are felonies  and may subject  violators to  penalties  and  exclusion  from
Medicare and all state health care  programs.  In addition,  the  Department  of
Health  and  Human   Services  may  exclude   individuals   and  entities   from
participation  in Medicare and all state health care programs based on a finding
in  administrative  proceedings  that the  individual or entity has violated the
antikickback  statute. FMC has not violated the antikickback  statute; if either
FMC or its  employees  violated the statute they could be subject to  sanctions.
Only one physician  holds FMC common stock and this physician does not refer any
patients to FMC, is the medical director of FMC,  

                                       8
<PAGE>
oversees the medical aspect of the physician practice management  division,  and
has no bonus  arrangement with FMC;  therefore  management  believes the Federal
anti-kickback statute is not applicable.

          Every state imposes  licensing  requirements on individual  physicians
and on health care facilities. In addition, federal and state law regulate HMO's
and other managed care  organizations  with which FMC may have  contracts.  Many
states require  regulatory  approval before  acquiring or  establishing  certain
types of health care  equipment,  facilities  or  programs.  Since FMC is not an
insurer,  there is no insurance regulation of FMC's operations.  Texas prohibits
the corporate practice of medicine.  The business structure that FMC has adopted
in Texas in order to comply with the  prohibitions on the corporate  practice of
multi-specialty  medicine is a full  service  management  agreement  wherein FMC
manages an independent  group of physicians by providing  utilization,  billing,
human resources,  management  information systems,  senior executive management,
financial consulting and risk evaluation for a negotiated fee.

          The laws of many states  prohibit  physicians from splitting fees with
nonphysicians  and  prohibit  business  corporations  from  providing or holding
themselves  out as providers of medical care.  While FMC believes it complies in
all  material  respects  with state fee  splitting  and  corporate  practice  of
medicine  laws,  there can be no assurance  that,  given  varying and  uncertain
interpretations  of such laws,  FMC would be found to be in compliance  with all
restrictions on fee splitting and corporate  practice of medicine in all states.
FMC  currently  operates in Texas  through  professional  corporations,  and has
recently formed professional corporations or qualified professional corporations
to do business in several other states where corporate practice of medicine laws
may require the company to operate  through  such a structure.  A  determination
that FMC is in violation of  applicable  restrictions  on fee  splitting and the
corporate  practice  of  medicine  in any  state  in  which  it has  significant
operations could have a material adverse effect on the company.

          FMC currently  operates in only one state that prohibits the corporate
practice of medicine,  which state is Texas.  Risks  associated  with  expanding
FMC's business into other states that have this type of prohibition  include (i)
the issue of  consolidation  of revenues and (ii) preventing FMC from exploiting
the  physician-patient   relationship  in  pursuit  of  profits.  FMC  does  not
consolidate  the revenues  from Texas,  but  operates as a  management  services
organization under a management contract. If FMC expands its business into other
states which prohibit the corporate  practice of medicine,  it will operate as a
management services organization under a management contract.

          FMC attempts to mitigate the risk of  potentially  high medical  costs
incurred in catastrophic  cases through  stop-loss  provisions,  reinsurance and
other  special  reserves  which  limit  FMC's  financial  risk.  To  date,  such
protection has been provided to FMC through its provider agreements with Humana.
There can be no assurances that the agreements,  which provide such insurance to
FMC, will continue.  If assumption of capitated  payments risk through contracts
with HMO's could be  construed  as  insurance,  FMC  believes  there would be no
affect  from  state  insurance  laws due to the  circumstance  that all of FMC's
contracts  with  HMO's  provides  for  stop-loss  coverage  by  the  HMO's.  Any
determination of material noncompliance with insurance regulations or any change
in the stop-loss  coverage by the HMO's could adversely affect the operations of
FMC.

          Over the last  twenty  years,  the  health  care  industry  has become
subject to an increasing  number of lawsuits  alleging  medical  malpractice and
related  legal  theories,  including the  withholding  of approval for necessary
medical services.  Often, such lawsuits seek large damage awards, forcing health
care professionals to incur substantial  defense costs. Due to the nature of its
business,  FMC,  from time to time,  becomes  involved as a defendant in medical
malpractice lawsuits, some of which are currently ongoing, and is subject to the
attendant risk of  substantial  damage awards.  The most  significant  source of
potential   liability  in  this  regard  is  the   negligence   of  health  care
professionals employed or contracted by the company.

          One  part of  FMC's  management  services  involve  the  provision  of
professional  liability  insurance  ("PLI")  coverage  for its  physicians.  FMC
currently  provides  this  coverage  through an umbrella  PLI policy with Zurich
American  Insurance  Group  maintained  for  substantially  all of the company's
employees  and  independent  contractors.  This PLI  policy  generally  provides
coverage in the amount of $1,000,000 per physician and per claim,  subject to an
aggregate per physician  limit of $3,000,000 per year. In its insurance  policy,
FMC also maintains the right to purchase extended coverage beyond the expiration
of the  policy  period for an agreed  upon  premium to cover the costs of claims
asserted   after  the  expiration  of  the  effective   policy.   FMC  maintains
professional  liability  insurance  on a claims  made  basis in  amounts  deemed
appropriate by management, based upon historical claims and the nature and risks
of its  business.  However,  there can be no  assurance  that a future  claim or
claims  will not exceed the limits of  available  insurance  

                                       9
<PAGE>

coverage,  that any insurer will remain solvent and able to meet its obligations
to provide coverage for any claim or claims or that coverage will continue to be
available  or  available  with  sufficient  limits to  adequately  insure  FMC's
operations in the future. EMPLOYEES

          As  of  March  1,  1998,   FMC  had   approximately   755   employees.
Approximately 20% of such employees are compensated on an hourly basis.

          FMC  complies  with  prevailing  local  contracts  in  the  respective
geographic  locations of particular jobs with respect to wages,  fringe benefits
and working conditions.

ITEM 2.  PROPERTIES

          FMG's  principal  executive  office  is  located  at  1055  Washington
Boulevard,  Stamford,  Connecticut  06901,  and its  telephone  number  is (203)
327-0900.

          FMC leases  approximately  2,400 square feet in Stamford,  Connecticut
expiring on September 30, 2000 at an annual rent of $65,000 which  progressively
escalates to $75,000 in the third year of this lease.  FMC leases  approximately
5,000 square feet in Miami, Florida to provide  administrative  support pursuant
to a lease  expiring on December 31, 1998 at an annual  rental of $147,000.  FMC
leases  approximately  1,400  square  feet  in  Tampa,  Florida  for  use by SPI
Hillsborough  pursuant to a lease  expiring  on  November  30, 2001 at an annual
rental of  $26,736.  FMC leases  approximately  4,100  square  feet in  Maywood,
Illinois  pursuant to a lease  expiring on November 30, 2001 at an annual rental
of $48,000.

          In addition,  FMG through its  subsidiaries  leases two  facilities in
Warsaw and Prague,  which  facilities  are used as medical  clinics,  at monthly
rents of $3,110 and $6,700, respectively.

          HallMark leases 28,250 square feet of office and warehouse  facilities
in Brooklyn,  New York,  pursuant to a lease  expiring on June 30,  2004,  at an
annual  rental  of  approximately  $78,000  (which  progressively  escalates  to
$106,000 in 2003).  In  December  1994,  HallMark  leased  4,500  square feet of
additional  warehouse  facilities  in  Brooklyn,  New York,  pursuant to a lease
expiring on June 30, 2004, at an annual rental of $18,000  (which  progressively
escalates to $21,600).

          FMG believes that all of its  facilities are adequate for the business
in which it is engaged.

ITEM 3.  LEGAL PROCEEDINGS

          FMG  is  involved  in  various  legal  proceedings  incidental  to its
business,  substantially all of which involve claims to the alleged  malpractice
of employed and contracted  medical  professionals  and to the failure to render
care resulting in a violation or infringement of civil rights and, no individual
item of litigation or group of similar items of litigation,  taking into account
the  insurance  coverage  available  to FMG,  is not  likely to have a  material
adverse effect on FMG's financial condition.

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

          At a Special  Meeting of the Company's  shareholders  held on November
12,  1997,  the holders of the  Company's  common stock  approved the  following
proposals:

          To effect a 1 - for 30 reverse  stock split of the common  stock,  par
value $.001 per share, of the Company's common stock.

          Shares Voted            Shares Voted        Shares withheld
          IN FAVOR                AGAINST             OR ABSTAINED
          --------                -------             ------------

          225,334,799             178,532             6,536


                                       10
<PAGE>

To approve the Company's Stock Option Plan.

          Shares Voted            Shares Voted        Shares withheld
          IN FAVOR                AGAINST             OR ABSTAINED
          --------                -------             ------------

          224,172,883             1,312,535           34,449


Proposal to approve the Company's Compensation Plan.

          Shares Voted            Shares Voted        Shares withheld
          IN FAVOR                AGAINST             OR ABSTAINED
          --------                -------             ------------

          217,617,583             1,295,176           6,607,108

PART II
-------

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

          The  Common  Stock is listed on the OTC  Bulletin  Board.  On March 3,
1998,  there were  approximately  7,791  holders  of record of the Common  Stock
(excluding shares held in "nominee" or "street" name).

          The  following  table  reflects the range of the reported high and low
closing prices of Common Stock on the NYSE for the calendar quarters  indicated.
The information in the table and in the following paragraph has been adjusted to
reflect  retroactively  all applicable  stock splits and stock dividends but not
the  Reverse  Split,  except for the fourth  quarter  for the period  commencing
November 13, 1997 through the date hereof.

1996:

First Quarter                                           $ 11/16        $ 7/16
Second Quarter                                             9/16           3/8
Third Quarter                                             11/16           1/4
Fourth Quarter                                            15/32           1/8


1997:

First Quarter                                             $ 1/4       $ 13/32
Second Quarter                                            14/32           1/8
Third Quarter                                             15/32          3/32
Fourth Quarter from October 1,

1997 through November 12, 1997                              1/4           1/8
Fourth Quarter from November 13,
1997 through December 31, 1997                            4-1/4         1-1/4

1998:

First Quarter through March 3, 1998                       $ 3/8         $ 1/4

          The prices  above  reflect  trading  of the  Common  Stock on the NYSE
through November 12, 1997.  Subsequent to the delisting of the Common Stock from
the NYSE,  the prices  above for the period from  November  13, 1997 through the
date hereof reflect trading of the Common Stock on the OTC Bulletin Board.

The Company has not paid any dividends in 1996 or 1997.

                                       11
<PAGE>
ITEM 6.  SELECTED FINANCIAL DATA

FIRST MEDICAL GROUP, INC. & SUBSIDIARIES
Selected Financial Information
(in Thousands, Except For Per Share Data)

STATEMENT OF OPERATING DATA
---------------------------
<TABLE>
<CAPTION>

Years ended
December 31,                                        1993(1)         1994(1)        1995(1)         1996(1)           1997
                                                    -------         -------        -------         -------           ----

Revenues:

<S>                                                 <C>            <C>             <C>             <C>             <C>     
    Capitated revenue                               $ 10,563       $ 20,253        $ 21,744        $ 45,070        $ 58,234
    Fee-for-service & related rev                        524          1,065             928           7,944          12,849
    Other                                               --             --              --              --             8,392
                                                    --------       --------        --------        --------        --------

Total revenue                                         11,087         21,318          22,672          53,014          79,475
Medical expenses/Cost of Sales                         8,405         16,568          18,444          43,526          71,438
                                                    --------       --------        --------        --------        --------
Gross profit                                           2,682          4,750           4,228           9,488           8,037
Operating expenses:

    Salaries and related benefits                        670          1,651           2,434           3,503           3,842
    Other operating expenses                             991          1,771           2,200           8,201
                                                                                                                      5,194

    Impairment loss from

    intangibles                                         --             --              --              --             3,960
                                                    --------       --------        --------        --------        --------
Total operating expenses                               1,661          3,422           4,634           8,697          16,003
                                                    --------       --------        --------        --------        --------
Income (loss) from operations                          1,021          1,328            (406)            791          (7,966)
Other expenses (income)                                  218            (35)            (42)             55             576
                                                    --------       --------        --------        --------        --------
Net income (loss) before
income tax benefit                                       803          1,364            (364)            736          (8,542)
Income taxes (2)                                         321            545            --               413             (63)
                                                    --------       --------        --------        --------        --------

Net income (loss) before
cumulative effect of a change

in accounting principle (2)                              482            818            (364)            323          (8,479)

Cumulative effect of a change

in accounting principle                                 --             --              --              --              (991)
                                                    --------       --------        --------        --------        --------

Net income (loss) (2)                               $    482       $    818        $   (364)       $    323        $ (9,470)
                                                    ========       ========        ========        ========        ========

Net income (loss) per
share before cumulative
effect of a change in

accounting principle                                $    .05       $    .09        $   (.04)       $    .04        $   (.92)

Cumulation effect of
change in accounting

principle                                               --             --              --              --              (.11)
                                                    --------       --------        --------        --------        --------

Net income (loss)                                   $    .05       $    .09        $   (.04)       $   1.04        $  (1.03)
                                                    ========       ========        ========        ========        ========

Pro forma fully diluted weighted
     average number of FMG shares

     currently outstanding (3)                         9,021          9,021           9,021           9,021           9,202
Cash Dividends as Declared                          $     17       $    117        $     38        $   --          $   --
</TABLE>

                                       12
<PAGE>

<TABLE>
<CAPTION>
BALANCE SHEET DATA

<S>                                                 <C>            <C>             <C>             <C>             <C>      
Working Capital                                     $    279       $    272        $   (302)       $ (2,047)       $ (1,405)
Total Assets                                           2,739          4,128           3,045          12,323          27,545
Current Liabilities                                    1,341          3,157           2,817          10,596          22,506
Stockholder's Equity                                   1,398            972             227             703          (1,054)
Book Value per share-fully diluted                  $    .15       $    .11        $    .03        $    .08        $   (.11)
</TABLE>

- - - - - - - - - - - -
(1)       The  selected  financial  data for the years ended  December 31, 1992,
          1993,  1994  and  1995 has been  derived  from  the  audited  combined
          financial  statements of MedExec,  Inc. and subsidiaries;  SPI Managed
          Care,  Inc.,  and  SPI  Managed  Care  of  Hillsborough  County,  Inc.
          (collectively, "MedExec"). The data for 1996 has been derived from the
          1996 consolidated financial statements of FMC.

(2)       Prior to December 31, 1995, MedExec.  Inc., and prior to May 1994, SPI
          Managed Care, Inc. were S corporations  and not subject to Federal and
          Florida  corporate  income taxes.  The  Statement of  Operations  data
          reflects a proforma  provision  for income taxes as if the Company was
          subject to Federal and Florida corporate income taxes for all periods.
          This proforma  provision for income taxes is computed using a combined
          effective  Federal  and  State  tax rate of 40% 1996 and 1997  reflect
          actual income tax expense.

(3)       The amount of FMC stock issued and  outstanding  has been  adjusted to
          reflect the  exchange of 10,000  shares for  11,276,750  shares of the
          Lehigh  Group,  plus the  conversion  of the  Preferred  Stock and the
          1-for-30 reverse stock split.

          On July 9,  1997 at a  Special  Meeting  (the  "Special  Meeting")  of
          stockholders of the Lehigh Group, Inc. ("Lehigh"), the stockholders of
          Lehigh approved the merger (the "Merger") pursuant to the terms of the
          Agreement and Plan of Merger dated as of October  29,1996 (the "Merger
          Agreement") among Lehigh, First Medical Corporation ("FMC") and Lehigh
          Management Corp., a wholly-owned  subsidiary of Lehigh ("Merger Sub").
          On the same  day,  Merger  Sub was  merged  with and into FMC and each
          outstanding share of common stock of FMC (the "FMC Common Stock"), was
          exchanged for (i) 1,127.675 shares of Lehigh's Common Stock, par value
          $.001 per share ("Lehigh Common  Stock"),  and (ii) 103.7461 shares of
          Lehigh's  Series A Convertible  Preferred  Stock,  par value $.001 per
          share (the "Lehigh  Preferred  Stock"),  each of which is  convertible
          into 250 shares of Lehigh  Common Stock and has a like number of votes
          per share, voting together with the Lehigh Common Stock.

ITEM 7. MANAGEMENT'S  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

          The  following  discussion  should  be read in  conjunction  with  the
consolidated  financial  statements,  including  the  notes  thereto,  contained
elsewhere in this 10-K.

GENERAL

          On July 9,  1997 at a  Special  Meeting  (the  "Special  Meeting")  of
stockholders of the Lehigh Group,  Inc.  ("Lehigh"),  the stockholders of Lehigh
approved the merger (the  "Merger")  pursuant to the terms of the  Agreement and
Plan of Merger  dated as of October  29,  1996 (the  "Merger  Agreement")  among
Lehigh,  First  Medical  Corporation  ("FMC")  and Lehigh  Management  Corp.,  a
wholly-owned  subsidiary of Lehigh  ("Merger  Sub"). On the same day, Merger Sub
was merged with and into FMC and each  outstanding  share of common stock of FMC
(the "FMC Common  Stock"),  was exchanged  for (i) 1,127.675  shares of Lehigh's
Common  Stock,  par value  $.001 per share  ("Lehigh  Common  Stock"),  and (ii)
103.7461  shares of Lehigh's  Series A Convertible  Preferred  Stock,  par value
$.001 per share (the "Lehigh  Preferred  Stock"),  each of which is  convertible
into 250  shares  of  Lehigh  Common  Stock  and has a like  number of votes per
shares,  voting  together  with the  Lehigh  Common  Stock.  As a result of such
merger,  legally  FMC  became a wholly  owned  subsidiary  of the  Company.  See
"Business - Merger with FMC." The financial  statements  presented reflect First
Medical  Corporation's  acquisition of Lehigh since the acquisition date of July
9, 1997.  Although legally The Lehigh Group acquired First Medical  Corporation,
for accounting  purposes First Medical  



                                       13
<PAGE>

Corporation   is  considered  the  accounting   acquirer   (i.e.,   the  reverse
acquisition).  Therefore,  the  operating  results of Lehigh are included in the
statement  of  operation  since  the  acquisition  date  (July 9,  1997) and the
December  31, 1997  balance  sheet  reflects  the effect of the  acquisition  of
Lehigh.  The  acquisition of Lehigh's  business has no material  effect on First
Medical's business since they are completely separate industries.

RESULTS OF OPERATIONS - FMG

YEAR ENDED DECEMBER 31, 1997
COMPARED WITH YEAR ENDED
DECEMBER 31, 1996

          REVENUE. Total revenue of FMG for the twelve months ended December 31,
1997 and 1996 were $79.5 million and $53.0 million,  respectively,  of which 73%
and 85%,  respectively,  was derived from prepaid  contractual  agreements  with
Humana pursuant to which Humana pays FMG a capitated fee ("HMO revenue"). During
the twelve months ended December 31, 1997, $62.1 million or 78% of FMG's revenue
were derived from the physician practice  management  division,  $9.0 million or
11% was  derived  from the  international  medical  clinics  division,  and $8.4
million or 11% was  derived  from the  electrical  supply  division.  During the
twelve  months  ended  December  31, 1996,  revenue  derived from the  physician
practice management division was $46.3 million, or 87% of FMG's revenue and $6.7
million or 13% was derived from the international medical clinics division.  The
HMO revenue growth was primarily a result of 1) new provider  agreements,  as of
September  1996, to manage a center in New Port Richey,  Florida,  as of October
1996,  to manage  additional  centers in Lutz,  Florida  and South  Dale  Mabry,
Florida and as of February 1996, to manage two centers in Gary, Indiana,  and as
of August 1997 to manage a center in Springhill,  Florida; 2) changing to a full
risk  contract as of October  1996 in Hammond,  Indiana;  and 3)  including  the
Durham,  Texas medical  center in the 1997  consolidated  financial  statements.
Revenue  related to these  additional  centers  represent  an  increase of $19.1
million and the revenue related to the other centers  decreased by $6.0 million,
due to a decrease in membership in the South Florida market.

          MEDICAL  EXPENSE/COST  OF  SALES.  Medical  expenses  increased  $22.0
million,  or 51%,  to  $65.5  million  (excluding  the  cost of  sales  from the
electrical  supply  division) for the twelve months ended December 31, 1997 from
$43.5 million for the same period in 1996. The entire increase ($21.9 million or
100%) resulted from medical services provided under the new provider  agreements
and the consolidating of Durham,  Texas in 1997. Medical expenses related to the
other domestic centers  decreased by $1.8 million (from $34.1 million in 1996 to
$32.3  million  in  1997)  due  to  the  lower   membership  and  revenue  base.
International  clinics medical expenses increased $1.8 million,  to $7.1 million
in 1997 from $5.4 million in 1996 due to increased number of patients.  Domestic
medical  expenses as a percentage of HMO and fee for service  revenue  ("medical
loss  ratios")  were 97% and 84%,  respectively,  for the  twelve  months  ended
December 31, 1997 and 1996. The increase in medical  expenses was due to changes
in the program benefits provided Humana. FMG has recently  implemented  controls
to monitor medical expenses in the future. The recently  implemented controls to
monitor expenses primarily relate to a more diligent review of utilization. Cost
of sales as of percentage  of revenues for the  electrical  supply  distribution
business was 70.9%.

          OPERATING EXPENSES.  Operating expenses (excluding the impairment loss
on  intangibles)  increased by $3.3 million,  or 38%, to $12.0 million,  for the
twelve  months ended  December 31, 1997 from $8.7 million for the same period in
1996.  The increase was  primarily  due to the  electrical  supply  distribution
division for $2.4 million.  The remaining increase of $.9 million was due to the
additional  costs from  operating  the new  centers.  As a percent  of  revenue,
operating  expense  decreased to 15.2% in 1997 as compared to 16.4% for the same
period  in  1996.  Write-off  of  intangibles  of  $3.9  million  represent  the
impairment  loss  from  the  goodwill   recorded  at  the  time  of  the  Lehigh
acquisition.

          OTHER EXPENSE.  Interest expense increased  $520,856,  from $55,523 in
1996 to $576,379 in 1997 due to the  interest  related to the debt  assumed from
the Lehigh  merger  (approximately  $300,000  in  interest)  with the  remaining
increase due to higher  borrowing levels to support the operating losses in 1997
in the physician practice management division.

          The cumulative effect of a change in accounting  principle of $991,405
relates  to the  consolidating  of the  Durham  Clinic in 1997  pursuant  to the
emerging issues taskforce abstract No. 97-2.

          NET (LOSS)  INCOME.  Net loss for the twelve months ended December 31,
1997 was $9.5 million  compared to net income of $.3 million for the same period
in 1996.

                                       14
<PAGE>

YEAR ENDED DECEMBER 31, 1996 COMPARED TO
YEAR ENDED DECEMBER 31, 1995

          REVENUE.  The total  revenues of FMC for the year ended  December  31,
1996 and 1995 were $53.0 million and $22.7 million,  respectively,  of which 85%
and 96%,  respectively,  was derived from prepaid  contractual  agreements  with
Humana  pursuant to which Humana pays FMC a capitated fee (""MO  revenue").  HMO
Revenue  is  derived  primarily  from  the  predetermined   prepaid  contractual
arrangements  paid per member per month by Humana to the  primary  care  centers
which  are  owned  and  operated  b  the  Company.   Under  the   capitated  fee
arrangements,  FMC  assumes  the risk of  providing  medical  services  for each
managed  care  member.  To the extent  that  members  require  more  frequent or
extensive  care, the revenue to FMC may be insufficient to cover the cost of the
care that was provided.  During the year ended December 31, 1996,  $46.4 million
or 88% of FMC's  revenues  were derived from the physician  practice  management
division  and $6.7  million or 12% was derived  from the  international  medical
clinics division.  As of December 31, 1996 the FMC Healthcare  Services division
had not  obtained  any  definitive  management  consulting  service  agreements.
Revenue  increased by $30.3  million or 133% to $53.0 million for the year ended
December  31,  1996,  from $22.7  million for the same  period in 1995.  The HMO
revenue growth was primarily a result of FMC's  acquisition  during January 1996
of  controlling   ownership  of  Broward   Managed  Care,   Inc.  (the  "Broward
acquisition"),  which  has  Humana  affiliated  provider  agreements  ("provider
agreement")  to operate and manage two primary care  centers in Broward  County,
Florida  ("Broward"),  and new provider  agreements,  as of September  1996,  to
manage a center  in New Port  Richey,  Florida  ("New  Port  Richey")  and as of
October  1996,  to manage  additional  centers in Lutz,  Florida  and South Dale
Mabry, Florida. Revenue related to the Broward, New Port Richey, Lutz, and South
Dale  Mabry  centers  represents  $20.3  million or 87% of the  increase  in HMO
revenue.  As  discussed  in  Note  1  of  the  audited  consolidated   financial
statements,  FMC  (through  the  transaction  between  MedExec  and  AMC)  has a
management  services  agreement  with three clinics in the CIS.  During the year
ended  December 31, 1996,  revenues  generated  by this  international  division
accounted for $6.7 million of the $30.3 million  increase  discussed  above. FMC
intends to finance the growth of the clinics in Eastern  Europe  primarily  with
the capital  contribution  from GDS. The $30.3 million increase in FMC's revenue
is also net of the decrease resulting from the termination in August 1995 of the
provider agreement to manage the center in Brandon,  Florida. The Brandon center
generated $3.5 million in revenue during the year ended December 31, 1995.

          MEDICAL EXPENSES.  Medical expenses increased $25.1 million,  or 136%,
to $43.5 million for the year ended December 31, 1996 from $18.4 million for the
same  period in 1995.  The  majority  of the  increase  ($21.6  million  or 86%)
resulted from medical services provided under the Broward, New Port Richey, Lutz
and South Dale Mabry provider  agreements.  Medical  expenses related to the AMC
clinics  accounted  for $5.4  million or 22% of the  increase.  The  increase in
medical expense is net of the decrease related to the termination of the Brandon
provider  agreement in 1995.  Medical  expenses for Brandon were $3.3 million in
1995.  Medical  expenses  as a  percentage  of HMO and fee for  service  revenue
("medical loss ratio") were 84% for the years ended December 31, 1996 and 1995.

          OPERATING  EXPENSES.  Operating expenses increased by $3.1 million, or
89%, to $8.7 million, for the year ended December 31, 1996 from $4.6 million for
the same period in 1995.  The increase  was  primarily  due to new  employees to
staff the primary care centers in Broward, New Port Richey, Lutz, and South Dale
Mabry  and 4.8  million  in  expenses  incurred  by FMC in  connection  with the
development  and  opening  of two  international  centers.  As a  percentage  of
revenue,  however,  operating  expenses  decreased  to 15% from 20% for the same
period in 1995.

          NET INCOME.  Net income for the year ended  December  31, 1996 was $.3
compared to a net loss of $(.4) for the year ended December 31, 1995.

YEAR ENDED DECEMBER 31, 1995 COMPARED TO
YEAR ENDED DECEMBER 31, 1994

          REVENUE. Revenue increased by 41.4 million, or 7%, to $22.7 million in
1995, from $21.3 million in 1994 due to increased revenue from existing provider
agreements  offset  by the  termination  during  August  1995  of  the  provider
agreement to manage the center in Brandon, Florida.

          MEDICAL EXPENSES.  Medical expenses increased $1.8 million, or 11%, to
$18.4  million in 1995 from $16.6  million in 1994  primarily  as a result of an
increase in medical  services  rendered.  The 



                                       15
<PAGE>

medical loss ratio was 81% for the year ended  December 31, 1995 compared to 78%
for the year ended December 31, 1994.

          OPERATING EXPENSES. Operating expenses increased $1.2 million, or 35%,
to $4.6 million in 1995 from $3.4  million in 1994 due mainly to the  additional
$1.1 million of expenses  incurred by FMC during  1995.  These  expenses  relate
primarily to additional  compensation to former officers of FMC under employment
agreements,  development cost incurred relating to the Chicago market, reprising
adjustments

from Humana related to previous years and legal and  professional  fees incurred
in connection with a proposed merger with another  company.  Humana from time to
time renegotiates certain contracts, which results in retroactive adjustments to
the  financial  statements.   In  1995,  Humana  renegotiated  certain  hospital
contracts in the Tampa market retroactive to the beginning of 1994. As a result,
hospitals  rebilled  FMC for  previously  billed  claims  in  order  to  recover
additional  funds from FMC for 1994 and 1995.  The ongoing  impact,  as with any
price increase is higher  medical costs.  The repricing is noted because 1995 in
effect included two years of price  increases  instead of one. As per FAS No. 5,
FMC records retroactive  adjustments when they are probable and estimable.  As a
percentage of revenue,  operating  expenses for the year ended December 31, 1995
increased to 20% from 16% for the year ended December 31, 1994.

          Net Income (Loss). Net loss for 1995 was $(.4) million compared to net
income in 1994 of $1.4 million,  a decrease of $1.8 million,  which is primarily
due to the  increase in medical  services  rendered,  the  write-off  of certain
accounts   receivables  and  additional   compensation  to  shareholders   under
employment  agreements.  The accounts receivables which were written-off because
they were uncollectible  related to certain management  services provided by FMC
totaling  $.47  million.  The amount was reversed  out of revenues  where it was
originally  recorded  during  the year  rather  than  written  off in  operating
expenses as a bad debt. The remaining accounts  receivable  balances were deemed
to be collectible.

LIQUIDITY AND CAPITAL RESOURCES
-------------------------------

          At December 31, 1997, FMG had cash of $1.2 million compared to $63,014
at December 31, 1996.  As of December 31, 1997,  the unused  portion of the $2.5
million  credit  facility  was  $210,000.  The  increase  in cash was due to FMG
receiving approximately  $4,500,000 as a result of the merger. FMC received $4.5
million dollars from Generale De Sante International, Plc ("GDS") as a result of
an  investment  GDS made in FMC.  To date  $3.5  million  has been  used to fund
development  and  operating  losses of MedExec,  Inc.,  $500,000 was used to pay
professional  fees in connection  with the merger and the remaining $1.0 million
will be used for general working capital requirements.

          FMG had cash of $63,014 at December  31, 1996  compared to $198,763 at
December 31, 1995.

          Net cash used in operating  activities was ($7.2) million for the year
ended December 31, 1997.

          Net cash used in investing  activities  of  approximately  $92,000 was
primarily the result of $437,000 in capital  expenditures,  organizational costs
of $387,000 and the acquisition of Lehigh for $732,000.

          Net cash  provided by  financing  activities  of $8.3  million was the
result of $285,000 in proceeds received from loans from Humana,  $3.8 million in
loans from banks,  $4.5 million capital  contribution from GDS, less payments of
$341,000 to certain shareholders.

          FMG believes  that cash from  operations,  borrowings  under  existing
credit  facilities  and asset  divestitures  will be  sufficient  to satisfy its
contemplated cash requirements for at least the next twelve months.

          To  date,  FMG's  principal  uses of cash  have  been to  support  its
operating  activities.  FMG  has met  its  cash  requirements  in  recent  years
primarily  from  its  operating  activities,   advances  from  Humana  and  bank
borrowings.  FMG believes that funds  generated  from  operations,  availability
under its  credit  facilities,  and asset  divestitures  will be  sufficient  to
finance its current and anticipated  operations and planned capital expenditures
at least through 1998.

          FMG's long term capital  requirements  beyond 1997 will depend on many
factors,  including,  but not  limited  to,  the rate at which FMG  expands  its
business.  To the extent that the funds  generated  from the  sources  described
above are  insufficient to fund FMG's  activities in the short or long term, FMG
would need 



                                       16
<PAGE>

to raise additional funds through public or private financing.  No assurance can
be given that additional  financing will be available or that, if available,  it
will be available on terms favorable to FMG.

          As of  December  31,  1997,  FMG also has a credit  facility  for $2.5
million bearing interest at 1/2% above prime, of which $500,000 is guaranteed by
certain  current and former  officers of FMG. The  expiration  date for the $2.5
million  facility is July 31, 1998. FMG also borrowed an additional  $537,000 to
purchase Lehigh stock in connection with the merger. FMC purchased this block of
stock to increase its voting power at the Special  Shareholders meeting that was
held July 9, 1997, to vote in favor of the Merger.  The expiration  date for the
$537,000 facility is October 1998.

          FMG also  maintains a secured line of credit with a domestic  bank for
$0.4 million bearing  interest at prime.  The $0.4 million drawn under this line
of credit at  December  31,  1997 has been  used by FMG in  connection  with the
satisfaction  of  development  costs  relating  to  FMG's  Midwest   operations.
Amortization  of $3,333 per month commenced as to the first $200,000 in November
1997 and as to the remaining $200,000, in May 1998.

          FMG, is in default in the payment of interest  (approximately $785,400
interest  was past  due as of  December  31,  1997)  on the  $390,000  aggregate
principal amount of its 13 1/25 Senior  Subordinated Notes due May 15, 1998 ("13
1/2% Notes") and 14 7/8% Subordinated  Debentures due October 15, 1995 ("14 7/8%
Debentures") that remain  outstanding and were not surrendered to the Company in
connection with its financial restructuring consummated in 1991. The Company has
been  unable to locate the  holders of the 13 1/2% Notes and 14 7/8%  Debentures
(with the  exception  of certain of the 14 7/8%  Debentures,  which were retired
during 1996).

EFFECT OF RECENTLY ISSUED ACCOUNTING STANDARDS

          In June 1997, the Financial  Accounting Standards Board issued two new
disclosure standards.

          Statement of Financial  Accounting Standards No. 130 ("SFAS No. 130"),
Reporting Comprehensive Income,  establishes standards for reporting and display
of comprehensive income, its components and accumulated balances.  Comprehensive
income is defined to include all changes in equity except those  resulting  from
investments by owners and distributions to owners. Among other disclosures, SFAS
No. 130 requires that all items that are required to be recognized under current
accounting  standards as  components  of  comprehensive  income be reported in a
financial  statement  that is  displayed  with  the  same  prominence  as  other
financial statements.

          Statement of Financial  Accounting Standards No. 131 ("SFAS No. 131"),
Disclosures  about  Segments of an  Enterprise  and Related  Information,  which
supersedes  SFAS  No.  14,  Financial  Reporting  for  Segments  of  a  Business
Enterprise,  establishes  standards for the way that public  enterprises  report
information about operating segments in annual financial statements and requires
reporting of selected  information about operating segments in interim financial
statements issued to the public.  It also establishes  standards for disclosures
regarding products and services,  geographic areas and major customers. SFAS No.
131  defines  operating  segments as  components  of an  enterprise  about which
separate financial  information is available that is evaluated  regularly by the
chief  operating  decision  maker in deciding how to allocate  resources  and in
asserting performance.

          Both of these new standards are effective for financial statements for
periods  beginning after December 15, 1997 and require  comparative  information
for earlier years to be restated.  Results of operations and financial  position
will be unaffected by implementation of these new standards. The Company has not
determined  whether either of these two standards will have a material impact on
its financial statement disclosure.

IMPACT OF INFLATION

          Inflation has not had a significant impact on the Company's operations
over the past three years.

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

          See pages F-1 through  F-62 and page S-1 of this Form 10-K,  which are
incorporated herein by reference.

                                       17
<PAGE>

ITEM  9.  CHANGES  IN AND  DISAGREEMENTS  WITH  ACCOUNTANTS  ON  ACCOUNTING  AND
FINANCIAL DISCLOSURE

NOT APPLICABLE



                                       18
<PAGE>

PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

          The table set forth below sets forth  information  with respect to the
directors  and  executive  officers  of  the  Company.  Information  as to  age,
occupation  and other  directorships  has been  furnished  to the Company by the
individual  named.  Dennis A.  Sokol,  Salvatore  J.  Zizza,  Elliot H. Cole and
Richard  Berman  are  currently  directors  of the  Company  and  will  serve as
directors until the next annual meeting of stockholders of the Company (or until
their  respective  successors  are duly  elected  and  qualified  or until their
earlier death, resignation or removal).

DIRECTORS AND EXECUTIVE OFFICERS

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

Dennis A. Sokol       52      Chairman of the Board,  Chief  Executive  Officer
                              and  Director  of the  Company  and  Chairman  of
                              the Board and Chief Executive Officer of FMC

Salvatore J. Zizza    52      Chief   Financial    Officer,    Executive   Vice
                              President,   Treasurer   and   Director   of  the
                              Company

Robert A. Bruno       41      Vice  President,  General  Counsel and  Secretary
                              of the Company

Robert H. Glasser     42      Vice President of Finance and Controller

Elliot H. Cole        65      Vice  Chairman  of the Board and  Director of the
                              Company

Richard Berman        53      Director of the Company

         Mr.  Sokol  has been a  director  and  Chairman  of the Board and Chief
Executive Officer of the Company since the Merger, which was consummated on July
9, 1997.  Mr. Sokol has served as the Chairman of the Board and Chief  Executive
Officer of FMC since its  formation in January  1996.  Prior to the formation of
FMC, Mr. Sokol served as the Chairman of the Board and Chief  Executive  Officer
of Hospital Corporation  International,  Plc., the former international division
of Hospital  Corporation  of America,  Inc.,  which  entity  owned and  operated
hospitals and primary care facilities in the United Kingdom, Central and Eastern
Europe, the Middle East and Pacific Rim, and American Medical Clinics,  Ltd. Mr.
Sokol was the founder,  and from 1984 to 1988 served as Chief Executive  Officer
of MedServ  Corporation,  a multifaceted  medical service company. Mr. Sokol was
the founder,  and from 1989 to 1992 served as the Chief Executive Officer of the
American-Soviet   Medical  Consortium  whose  members  included  Pfizer,   Inc.,
Colgate-Palmolive  Company,  Hewlett-Packard Company, MedServ, Amoco Corporation
and  Federal  Express  Corporation.  In all,  Mr.  Sokol has over  thirty  years
experience in the medical services industry.

         Mr. Zizza has been a director of the Company since 1985 (except that he
did not serve as a director  during the period from March 15, 1991 through April
16, 1991) and Executive Vice President and Treasurer since 1997. He was Chairman
of the Board of the Company from April 16, 1991 until the Merger,  and was Chief
Executive Officer of the Company from April 16, 1991 through August 22, 1991 and
President  of NICO Inc.  ("NICO")  from 1983 through  August 22,  1991.  He also
served as President of the Company from October 1985 until April 16, 1991. He is
also a director of the Gabelli  Equity Trust,  Inc.; The Gabelli Asset Fund; The
Gabelli Growth Fund; The Gabelli Convertible Securities Funds, Inc.; The Gabelli
Global MultiMedia Trust Inc. and Hollis Eden  Pharmaceuticals  Corp. (a NASDAQ -
listed  company).  In  1995,  Mr.  Zizza  became  Chairman  of the  Board of The
Bethlehem Corporation (an AMEX company).

         Mr.  Bruno has  served as Vice  President  and  General  Counsel of the
Company  since May 5, 1993 and as Secretary  since August 22, 1994. He served on
the Board from March 31, 1994 until July 9, 1997.  He also has served as General
Counsel to NICO and its subsidiaries since June 1983 (except he did not serve as
General  Counsel to NICO  during the period of January 1, 1992  through  May 31,
1993).

                                       19
<PAGE>

         Mr. Glasser joined FMC in May 1997 as Corporate Controller.  As of July
9, 1997 he was named Vice  President  Finance of FMG.  From October 1995 through
May 1997 Mr.  Glasser  was a founder  and Chief  Financial  Officer of All Round
Foods,  Inc. a sales and marketing  company in the food service  industry.  From
February  1992 to  October  1995 Mr.  Glasser  was a  Partner  in the  Corporate
Recovery Services Group at BDO Seidman LLP. He was a senior manager at KPMG Peat
Marwick LLP in its Corporate Recovery Services  Department from May 1988 through
February 1992. Mr. Glasser is a Certified Public Accountant in the states of New
York  and  Connecticut  and  is  a  Certified   Insolvency  and   Reorganization
Accountant.

         Mr.  Cole has been a director  of the  Company  since July 1997 and has
served as the Co-Vice  Chairman of FMC's Board of Directors  since its formation
in January  1996.  Mr. Cole is a senior  partner in the law firm of Patton Boggs
LLP,  Washington,  D.C.,  a firm of  approximately  250  lawyers.  Mr.  Cole has
practiced  corporation  law and been  engaged in Federal  matters  for more than
thirty-five  years. Mr. Cole has served as a trustee of Boston  University since
1977 as well as being a member of numerous corporate and not-for-profit boards.

         Mr. Berman has been a director of the Company since August 1997.  Since
1995, Mr. Berman has been the President of Manhattanville  College. From 1991 to
1994 he was  employed by  Howe-Lewis  International,  initially  as President of
North America and subsequently as President and Chief Executive Officer. He also
is a director of HCIA,  Inc.,  Health  Insurance  Plan of Greater New York,  the
Independent  College Fund and a member of the Special  Advisory  Panel on Empire
Blue Cross/Blue  Shield and the New York State Council on Health Care and on the
Board of Directors for Lillian Vernon since 1997 (an AMEX company).

         No  family  relationship  exists  between  any  of  the  directors  and
executive officers of the Company.

         All directors  will serve until the annual meeting of  stockholders  of
the Company to be held in 1998 and until their  respective  successors  are duly
elected and  qualified or until their  earlier  death,  resignation  or removal.
Officers  are  elected  annually  by the  Board of  Directors  and  serve at the
discretion thereof.

ITEM 11.      EXECUTIVE COMPENSATION

          The following table sets forth a summary of  compensation  awarded to,
earned by or paid to the Chief  Executive  Officer  and the  other  most  highly
compensated  executive  officers of the Company  whose total  annual  salary and
bonus exceeded  $100,000 for services  rendered in all capacities to the Company
during each of the years ended December 31, 1997, December 31, 1996 and December
31, 1995:

                                       20
<PAGE>

                                                SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>

                                                                                    Long Term
                                                                                    Compensation
                                                ANNUAL COMPENSATION                 AWARDS

                                                                                    Securities
                                                                                    Underlying
                                                                                    Options

                                                                   Other Annual     (Number of     All Other
NAME AND PRINCIPAL POSITION       YEAR       SALARY     BONUS     COMPENSATION (1)  SHARES)        COMPENSATION (2)
---------------------------       ----       ------     -----     ----------------  -------        ----------------

<S>                               <C>      <C>            <C>           <C>           <C>              <C>   
Salvatore J. Zizza  (3)           1997     $200,000       0             0             0                $1,288
                                  1996     $200,000       0             0             0                $1,272
                                  1995     $200,000       0             0             0                $1,272

Dennis Sokol  (4) (6)             1997     $296,800       0             0             0               $57,980
                                  1996     $267,200       0             0             0               $29,790
                                  1995     $250,000       0             0             0                    $0

Kenneth Burkhart  (6)             1997     $172,763       0             0             0                    $0
                                  1996            0       0             0             0                    $0
                                  1995            0       0             0             0                    $0

Shannon Slusher  (7)              1997     $125,000       0             0             0               $33,000  (8)
                                  1996      $80,000       0             0             0               $35,000  (8)
                                  1995      $90,000       0             0             0               $35,000  (8)

Vladimir Checklin  (7)            1997     $150,000       0             0             0               $12,000  (9)
                                  1996            0       0             0             0                    $0
                                  1995            0       0             0             0                    $0

Michael Cavanaugh  (5) (6)        1997     $236,114       0             0             0                    $0
                                  1996     $236,725       0             0             0                    $0
                                  1995     $242,695       0             0             0                    $0

Stuart Kaufman  (5) (6)           1997            0       0             0             0                    $0
                                  1996     $110,800       0             0             0                    $0
                                  1995     $199,952       0             0             0                    $0

Stephanie Schmidt  (5) (6)        1997            0       0             0             0                    $0
                                  1996     $140,421       0             0             0                    $0
                                  1995     $150,000       0             0             0                    $0

Mark Kugler  (5) (6)              1997            0       0             0             0                    $0
                                  1996     $205,785       0             0             0                    $0
                                  1995     $206,329       0             0             0                    $0

Mel Levinson  (5) (6)             1997            0       0             0             0                    $0
                                  1996     $116,997       0             0             0                    $0
                                  1995     $200,924       0             0             0                    $0

Asif Jamal  (5) (6)               1997            0       0             0             0                    $0
                                  1996      $84,818       0             0             0                    $0
                                  1995     $150,000       0             0             0                    $0

Jeff Fine  (5) (6)                1997            0       0             0             0                    $0
                                  1996     $110,800       0             0             0                    $0
                                  1995     $200,924       0             0             0                    $0

</TABLE>

<PAGE>

(1)      As to each individual  named, the aggregate amount of personal benefits
         not  included  in the  Summary  Compensation  Table does not exceed the
         lesser of $50,000 or 10% of the total annual salary and bonus  reported
         for the named executive officer.

(2)      Represents  premiums  paid by the  Company  with  respect  to term life
         insurance  for  the  benefit  of the  named  executive  officer  or the
         Company.

(3)      Until the Merger,  Mr. Zizza was Chairman of the Board,  President  and
         Chief  Executive  Officer  of  the  Company  and at  present  he is the
         Executive Vice President and Treasurer. On August 22, 1994, the Company
         and Mr. Zizza entered into an employment  agreement.  Mr. Zizza and the
         Company amended the terms of Mr. Zizza's employment agreement effective
         as of the time of  Merger.  In  general,  as  amended,  the  employment
         agreement  provides for his employment  through December 31, 2000 at an
         annual salary of $200,000  (subject to increase,  at the  discretion of
         the  Board  of  Directors,  if the  Company  acquires  one or more  new
         businesses,  to a level  commensurate with the compensation paid to the
         top executives of comparable businesses). In addition, Mr. Zizza may be
         entitled to a bonus, at the discretion of the Company.

(4)      During  1995  these  individuals  were  employed  by  American  Medical
         Clinics, Inc.

(5)      During 1995 these individuals were employed by MedExec Inc.

(6)      During 1996 and 1997 these individuals were employed by FMC as a result
         of the  reorganization  among MedExec Inc.,  American  Medical Clinics,
         Inc. and FMC.

(7)      These individuals were employed by American Medical Clinics, Inc.

(8)      Represents  a housing  allowance  of  $30,000,  $30,000 and $25,000 for
         1995,  1996  and  1997  respectively.  Also  represented  is  a  travel
         allowance  of  $5,000,  $5,000  and  $8,000  for  1995,  1996  and 1997
         respectively.

(9)      Represents a housing allowance.

Dividends paid to shareholders of American Medical Clinics,  Inc.,  MedExec Inc.
and FMC have not been included.

COMPENSATION OF DIRECTORS

         Prior to the Merger,  the Company's  directors received no compensation
for serving on the Board of Directors other than the reimbursement of reasonable
expenses incurred in attending  meetings.  Since the consummation of the Merger,
executive  directors have continued to receive no  compensation;  however,  each
non-executive  director  now is  entitled to receive  annually  shares of Common
Stock with a fair  market  value of $10,000  (pro-rated  in 1997 to reflect  the
portion of the year following the Merger):  The non-executive  directors had not
received any shares for 1997. In April 1996,  Lehigh granted options to purchase
15,000 shares of Common Stock at an exercise price of $.50 per share to a former
non-executive  officer  director and options to purchase 10,000 shares of Common
Stock  at an  exercise  price of $.50 per  share to three  former  non-executive
officer directors,  two of whom were members of the Compensation Committee.  The
options granted in 1996 do not give effect to the November 1997 reverse split.

INDEMNIFICATION OF OFFICERS AND DIRECTORS

         The  Certificate of  Incorporation  and By-laws of the Company  contain
provisions  permitted by the Delaware  General  Corporation Law (under which the
Company is  organized),  that, in essence,  provide that  directors and officers
shall be  indemnified  for all losses that may be incurred by them in connection
with any claim or legal  action in which they may become  involved  by reason of
their  service as a director  or  officer  of the  Company if they meet  certain


                                       22
<PAGE>

specified  conditions.  In addition,  the  Certificate of  Incorporation  of the
Company  contains  provisions that limit the monetary  liability of directors of
the Company for certain breaches of their fiduciary duty of care and provide for
the advancement by the Company to directors and officers of expenses incurred by
them in defending suits arising out of their service as such.

         Insofar as indemnification for liabilities arising under the Securities
Act of 1933,  as amended (the  "Securities  Act") may be permitted to directors,
officers  or  persons   controlling  the  Company   pursuant  to  the  foregoing
provisions,  the Company has been  informed  that in the opinion of the SEC such
indemnification  is  against  public  policy  as  expressed  in the  Act  and is
therefore unenforceable.

OPTIONS

         No options were granted  during 1997 to the  executive  officers of the
Company  named in the Summary  Compensation  Table or to other  employees of the
Company. However, four former non-executive officer directors were granted stock
options in 1996. See  "Compensation  of  Directors".  In July 1997, the Board of
Directors  established  a Stock  Option Plan (the "Stock  Option  Plan") and the
Incentive Compensation Plan (the "Incentive Compensation Plan").

         No options  were  exercised  by the  executive  officers of the Company
named in the Summary  Compensation  Table during the fiscal year ended  December
31, 1997. The following  table sets forth the number and dollar value of options
held by such persons on December 31, 1997,  none of which were "in the money" at
December 31, 1997.

AGGREGATED OPTION EXERCISES IN
1997 AND YEAR-END OPTIONS

Number of Unexercised Options and Warrants at
Year-End

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

NAME                     Exercisable             Unexercisable
---------                ---------------         ------------------

Salvatore Zizza          281,919

Robert Bruno               8,333

THE STOCK OPTION PLAN

         The  purpose  of the Stock  Option  Plan is to  advance  the  Company's
interests by providing  additional incentive to attract and retain in the employ
of the Company and its subsidiaries,  qualified and competent persons to provide
management  services,  to encourage the sense of proprietorship and to stimulate
the active interest of such persons in the development and financial  success of
the Company and its  subsidiaries.  The Stock Option Plan provides for the grant
of incentive stock options and nonqualified  stock options within the meaning of
Section 422 of the Internal  revenue Code of 1986, as amended (the  "Code"),  as
well as stock  appreciation  rights ("Rights") with respect to stock options and
restricted stock ("Restricted Stock") awards.

         The  Stock  Option  Plan,  which is  administered  by the  Compensation
Committee of the Board of Directors  (but can also be  administered  directly by
the Board of  Directors),  currently  authorizes  the  issuance  of a maximum of
500,000  shares of Common Stock (on a post Reverse  Split  basis),  which may be
newly issued  shares or previously  issued shares held by any  subsidiary of the
Company.  If  any  award  under  the  Stock  Option  Plan  terminates,   expires
unexercised  or is  cancelled,  the shares of Common Stock that would  otherwise
have been issuable  pursuant thereto will be available for issuance  pursuant to
the grant of new awards

         The purchase price of each share of Common Stock  purchasable  under an
incentive  option granted under the Stock Option Plan is to be determined by the
Compensation  Committee at the time of grant, but is to not be less than 100% of
the fair  market  value of a share of  Common  Stock on the date the  option  is
granted;  PROVIDED,  HOWEVER,  that with respect to an optionee who, at the time
such  incentive  option is  granted,  owns  more than 10% of the total  combined
voting  power  of  all  classes  of  stock  of  the  Company  or of  any  of its
subsidiaries,  the  purchase  price per share is to be at least 110% of the fair
market  value per share 



                                       23
<PAGE>

on the date of grant.  The term of each  option is to be
fixed by the  Compensation  Committee,  but no option is to be exercisable  more
than five years after the date such option is granted.

         The  aggregate  fair  market  value,  determined  as of  the  date  the
incentive  option is  granted,  of shares  of Common  Stock for which  incentive
options are  exercisable  for the first time to any optionee during any calendar
year under the Stock  Option Plan (and/or any other stock  options  plans of the
Company or any of its  subsidiaries)  shall not exceed  $100,000.  The aggregate
number of shares of Common  Stock  subject  to options  granted  under the Stock
Option  Plan  granted  during any  calendar  year to any one  director is not to
exceed that number of shares as equals ten percent of the outstanding  shares of
the Company for which options may be granted under the Stock Option Plan.

         The  Compensation  Committee  shall have the  authority to grant Rights
with respect to all or some of the shares of Common Stock covered by any option,
which  Rights may be granted  together  with or  subsequent  to the grant of the
option.  Rights  entitle the holder to cash equal to the  difference  between an
Offer Price Per Share (as  defined in the Stock  Option  Plan) and the  exercise
price of the related option if shares of Stock  representing  20 percent or more
of the  aggregate  votes of the Stock voting  together as a single  class.  If a
Right  is  exercised,  the  related  Option  is  terminated,  and  if an  option
terminates or is exercised, the corresponding Right terminates.

         In addition,  the  Compensation  Committee  shall have the authority to
award  Restricted  Stock which entitles the recipient to acquire,  at no cost or
for a purchase price determined by the Compensation Committee,  shares of Common
Stock subject to such restrictions and conditions as the Compensation  Committee
may  determine  at the time of  grant.  Conditions  may be  based on  continuing
employment  and/or   achievement  of   pre-established   performance  goals  and
objectives.  A  recipient  of  Restricted  Stock  shall  have  the  rights  of a
stockholder with respect to the voting of the Restricted Stock,  subject to such
other conditions  contained in the written instrument  evidencing the Restricted
Stock.   However,   generally  Restricted  Stock  may  not  be  sold,  assigned,
transferred,  pledged or otherwise  encumbered  or disposed of, and,  generally,
upon the termination of the recipient's employment with the Company, the Company
shall  have the right,  at the  discretion  of the  Compensation  Committee,  to
repurchase such Restricted  Stock at its purchase price.  Nonetheless,  once the
pre-established  performance  goals,  objectives and other  conditions have been
attained,  such shares of Restricted  Stock shall no longer be Restricted  Stock
and shall be deemed "vested" and will be freely transferable.

         The Board of Directors may amend, suspend or terminate the Stock Option
Plan,  except that no  amendment  may be adopted that would impair the rights of
any optionee  without his consent.  Further,  no amendment may be adopted which,
without the approval of the  stockholders  of the Company,  would (i) materially
increase the number of shares  issuable  under the Stock Option Plan,  except as
provided in itself,  (ii) materially increase the benefits accruing to optionees
under  the  Stock  Option  Plan,   (iii)   materially   modify  the  eligibility
requirements  for  participation  in the Stock  Option Plan,  (iv)  decrease the
exercise price of an incentive option to less than 100% of the fair market value
per  share of  Common  Stock on the  date of  grant or the  exercise  price of a
nonqualified  option  to less  than 80% of the fair  market  value  per share of
Common Stock on the date of grant,  or (v) extend the term of any option  beyond
that provided for in the Stock Option Plan.

         The Compensation Committee may amend the terms of any option previously
granted,  prospectively or  retroactively,  but no such amendment may impair the
rights of any option without his consent.  The  Compensation  Committee may also
substitute new options for previously granted options, including options granted
under other plans  applicable to the participant and previously  granted options
having higher option prices, upon such terms as it may deem appropriate.

         The number of shares of Common Stock  available  under the Stock Option
Plan and the terms of any option or other award granted  thereunder  are subject
to  adjustment  in  the  event  of  a  merger,  reorganization,   consolidation,
recapitalization,   stock  dividend  or  other  change  in  corporate  structure
affecting the shares of Common Stock, if the Compensation  Committee  determines
that such event equitably requires such an adjustment.

         As of March 1, 1998, there were no options  outstanding under the Stock
Option Plan and no Restricted Stock had been awarded.

                                       24
<PAGE>

INCENTIVE COMPENSATION PLAN

         The  purpose  of the  Incentive  Compensation  Plan is to  advance  the
Company's interests by providing additional incentives to those key employees of
the  Company  who  contribute  the most to the growth and  profitability  of the
Company and to encourage  such key  employees to continue as employees by making
their  compensation  competitive  with  compensation  opportunities in competing
businesses and industries.

         The  Incentive   Compensation   Plan,  which  is  administered  by  the
Compensation  Committee of the Board of Directors (but can also be  administered
directly by the Board of Directors),  authorizes the  Compensation  Committee to
determine by March 15 of each year which key employees  will be eligible in such
year for incentive compensation pursuant to the Incentive Compensation Plan (the
"Participants")  and to establish targets for such fiscal year for the Company's
earnings  per share.  If the targets are  achieved  then each  Participant  will
receive (i) a cash bonus equal to 10% of his base salary for such year,  (ii) an
amount of Common  Stock (the "Stock  Bonus")  determined  by dividing 30% of his
base salary by (50%) of the  average of the high and low closing  prices for the
Common Stock during such year (or, if lower,  50% of the closing  sales price on
the last  trading  day of such year),  and (iii) a cash  payment  sufficient  to
satisfy such participant's income tax liability with respect to his Stock Bonus.
There is no maximum number of shares of Common Stock, which may be awarded under
the Incentive Compensation Plan.

         The Compensation  Committee may amend the Incentive  Compensation Plan,
except  that no  amendment  may be adopted  that would  impair the rights of any
Participant with respect to the year in which such amendment had been adopted.

         The Plan shall  terminate  on December 31, 2002 except for the delivery
of shares of Common Stock and/or cash due to  Participants  with respect to such
year.

         If,  prior to the end of any Fiscal Year,  a  Participant's  employment
terminates on account of (i) death,  (ii) retirement,  (iii) total and permanent
disability,  or (iv) the Company's termination of the Participant without cause,
the Participant  will  nonetheless  remain eligible to receive amounts under the
Incentive  Compensation Plan for such year if the Participant shall have been an
active,  full-time  employee for a period of at least two years  preceding  such
termination. In all other cases, the Participant will be ineligible.

         No bonuses or stock have been awarded under the Incentive  Compensation
Plan.

BOARD REPORT ON EXECUTIVE COMPENSATION

         The Compensation  Committee is responsible for developing the Company's
executive  compensation  policies,  determining  the  compensation  paid  to the
Company's  Chief  Executive  Officer  and  its  other  executive   officers  and
administering  the Stock Option Plan and the Incentive  Compensation  Plan.  The
Compensation  Committee  did not meet in 1996  since  all  executives  were paid
pursuant to  previously  executed  employment  agreements  and the report is the
report of the entire Board of Directors.

The Compensation Committee did not meet in 1997.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

         Until  the  meeting  on July 9,  1997 at  which  the  current  Board of
Directors were elected,  Anthony Amhurst and Charles Gargano were members of the
Compensation  Committee  and were  directors.  Currently,  Mr.  Cole is the only
member  of  the  Compensation  Committee  and  is  a  director.   There  are  no
Compensation Committee interlock  relationships to be disclosed pursuant to Item
402 of Registration S-K.



                                       25
<PAGE>

PERFORMANCE GRAPH

         The graph below compares the cumulative total shareholder return on the
Common Stock of the Company with the cumulative  total return on the NYSE Market
Index and MG Group  Index  (assuming  the  investment  of $100 in the  Company's
Common Stock,  the NYSE Market Index and MG Group Index on January 1, 1992,  and
reinvestment of all dividends).

                  - - - - - - - - - - - - FISCAL YEAR ENDING - - - - - - - - - -

<TABLE>

COMPANY                            1992             1993           1994           1995          1996            1997


<S>                                <C>             <C>            <C>            <C>            <C>           <C>   
FIRST MEDICAL GROUP INC            100             72.22          61.11          25.01          25.01         111.14
INDUSTRY INDEX                     100            115.50         128.20         160.45         159.58         164.64
BROAD MARKET                       100            119.95         125.94         163.35         202.99         248.30

</TABLE>

                                       26
<PAGE>


ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

         The following table sets forth information on March 12, 1998 (except as
otherwise  noted below) with respect to each person  (including any "group",  as
that term is used in Section 13(d)(3) of the Securities Exchange Act of 1934, as
amended) known to the Company to be the beneficial  owner of more than 5% of the
Common Stock.


    Name of Address                 Amount and Nature of         Percent
    OF BENEFICIAL OWNER             BENEFICIAL OWNERSHIP (1)     OF CLASS
    -------------------             ------------------------     --------

General De Sante                             2,047,860            21.79%
International PLC
4 Cornwall Terrace
London, NW 1 4QP
England

SAJH Partners                                1,595,021(2)         16.93%
1055 Washington Bvld.
Stamford, CT  06901

Dennis A. Sokol                                482,644             5.14%
1055 Washington Blvd.
Stamford, CT  06901


(1)      Except as otherwise indicated, each of the person listed above has sole
         voting and  investment  power with  respect to all shares  shown in the
         table as beneficially owned by such person.

(2)      Dennis  Sokol is the  Managing  Partner of SAJH  Partners  and has a 1%
         partnership  interest  in the  partnership  and  consequently  could be
         deemed  under  Rule  13D-3  of  the  Exchange  Act to  have  beneficial
         ownership of such shares.  Mr.  Sokol  disclaims  ownership of all such
         shares other than as a result of his 1% partnership interest.


SECURITY OWNERSHIP OF MANAGEMENT

The following table indicates the number of shares of Common Stock  beneficially
owned on March 12, 1998 by (i) each  director of the  Company,  (ii) each of the
executive  officers named in the Summary  Compensation Table set forth above and
(iii) all directors and executive officers of the Company as a group.

    Amount and Nature of
    NAME OF BENEFICIAL OWNER     BENEFICIAL OWNERSHIP (1)     PERCENT OF CLASS
    ------------------------     ------------------------     ----------------

Dennis A. Sokol (2)                        482,644                  5.14

Salvatore J. Zizza (3)                     290,436                  3.00

Elliot H. Cole                             321,165                  3.32

Richard Berman                                   0                 -------

Robert A. Bruno (4)                         10,423                    *

Robert H. Glasser                                0                 -------


All executive officers 
and directors as a group.
(6 persons)                              1,104,668                 11.46

                                       27
<PAGE>



*     Less than 1%


(1)  Except as otherwise indicated, each person listed above has sole voting and
     investment power with respect to all shares shown in the table.

(2)  See note 2 of the table under the caption  "Security  Ownership  of Certain
     Beneficial Owners" above.

(3)  Includes 281,919 options to purchase common stock at $.875 per share.

(4)  Includes 8,333 options to purchase common stock at $.875 per share.


ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS


         FMC and Generale de Sante International,  Plc ("GDS") were parties to a
Subscription  Agreement,  dated  June  11,  1996  pursuant  to  which  GDS  paid
$5,000,000  in order to acquire a variety of ownership  interests in FMC and its
subsidiaries,  including (i) 10% of the outstanding shares of FMC's common stock
(the  "FMC  Common  Stock"),  each  share of which was  automatically  exchanged
pursuant to the Merger for 1,127.675  shares of Common Stock and 103.7461 shares
of Preferred Stock,  and (ii) shares of FMC's 9% Series A Convertible  Preferred
Stock  (the "FMC  Preferred  Stock")  convertible  into 10% of the shares of FMC
Common Stock,  which shares of FMC Preferred Stock were converted  following the
Merger. Consequently,  when GDS converted its shares of FMC Preferred Stock, GDS
received  shares of Lehigh Common Stock and Lehigh  Preferred  Stock.  Together,
with the shares issued for the FMC Common  Stock,  these shares would give GDS a
total  of  approximately  21.79%  ownership  interest  and  voting  power of the
Company. See "Security Ownership of Certain Beneficial Owners of the Company."

         For information  regarding the employment  arrangements  and options of
Mr. Zizza, see note 3 to the Summary  Compensation Table and note 3 to the table
regarding Security  Ownership of Certain  Beneficial Owners of the Company.  Mr.
Zizza and the  Company  have  entered  into  negotiations  for the  purchase  of
Hallmark Electrical Supplies Corporation.

         Mr.  Bruno has an  employment  agreement  with the Company that expires
December 31, 2000 at an annual salary of $120,000. For information regarding Mr.
Bruno's options see note 4 to the table regarding  security ownership of certain
beneficial owners of the Company.

         On January 1, 1996,  FMC and Dr.  Levinson,  who was a director  of the
Company, entered into an agreement for the period commencing January 1, 1996 and
terminating  December 31, 1998 and providing for a payment of $100,000  (subject
to increase in accordance  with the consumer  price index)  annually  during the
period.  Dr.  Levinson's  contract was not terminated as a result of the Merger.
Dr. Levinson resigned as a director of the Company on February 5, 1998.

         FMC and Dennis A. Sokol,  the  Chairman of the Board,  Chief  Executive
Officer  and  Director  of the  Company  and  Chairman  of the  Board  and Chief
Executive  Officer of FMC, have an oral agreement  whereby FMC has agreed to pay
Mr.  Sokol an  annual  salary of  $300,000  per year for his  services  as FMC's
Chairman of the Board and Chief  Executive  Officer.  At the  discretion  of the
Compensation  Committee  of the Board of FMC, Mr. Sokol may be awarded an annual
bonus. Mr. Sokol is also a shareholder of American  Medical Clinics,  which is a
plaintiff in the following lawsuit:

HOSPITAL CORPORATION INTERNATIONAL,  LTD. AND AMERICAN MEDICAL CENTERS, INC. VS.
PEPSICO  INC.,  CASE NUMBER  94CVS 888  SUPERIOR  COURT,  CRAVEN  COUNTY,  NORTH
CAROLINA

         On January 1, 1996,  American Medical Clinics ("AMC")  shareholders and
MedExec  shareholders  entered  into a  Reorganization  Agreement  to form First
Medical Corporation ("FMC"). As part of the 



                                       28
<PAGE>

Agreement,  the AMC  shareholders  did not assign its  interest  to include  any
recovery from the Litigation other than as stated below.

         In this lawsuit instituted by Hospital Corporation International,  Ltd.
and American  Medical  Centers Inc.  against  Pepsico  Inc.,  and certain  other
parties  about  which AMC has fully  informed  the FMC (the  "Litigation"),  FMC
agreed to pay the  ongoing  legal  fees and other  expenses  connected  with the
Litigation.  If the  Litigation is settled or otherwise  brought to a successful
conclusion,  the proceeds of such settlement or other  successful  conclusion of
the Litigation (the "Proceeds") will be shared as follows:  (a) AMC and FMC will
first be  reimbursed  in full  for  their  respective  legal  fees and  expenses
incurred in connection  with the Litigation  (the "Fees") or a pro rata share of
the Fees incurred by each of them if the Proceeds are  insufficient to reimburse
AMC and FMC for the Fees in full;  and (b) the balance of the  Proceeds  will be
shared on a proportionate  basis between FMC and the former shareholders of AMC.
The portion to be paid to FMC shall be a fraction,  the  numerator of which will
be the amount of the Fees paid by FMC and the  denominator  of which will be the
net  Proceeds  remaining  after  the  reimbursement  of  the  fees  pursuant  to
subparagraph (a) above. The former  shareholders of AMC will receive the balance
of the Proceeds.

         The  Company  and Elliot H. Cole,  the Vice  Chairman  of the Board and
Director of the Company,  have an oral agreement  whereby the Company has agreed
to pay Mr. Cole a  consulting  fee of $60,000  per year for his  services as the
Company's  Vice  Chairman  of the  Board.  Mr.  Cole is a member of the law firm
Patton  Boggs,  L.L.P.  which  renders  legal  services  to the  Company  and is
representing the Plaintiff in the aforemention Litigation discussed in this Item
13.



                                       29
<PAGE>

                                     PART IV

     ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

<TABLE>
<CAPTION>
                                                                                               PAGE

     a.   (1)      FINANCIAL STATEMENTS

<S>                <C>                                                                     <C>

                   The following  financial  statements are Included in Part II,
                   Item 8 of this Annual Report on Form 10-K:

                   The First Medical Group, Inc. ("FMG")
                   Report of Independent Public

                   Accountants as of December 31, 1997                                      F-2

                   Consolidated Balance Sheet, December

                   31, 1997                                                                 F-3

                   Consolidated Statement of Operations,

                   Year Ended December 31, 1997                                             F-4

                   Consolidated Statement of Changes in
                   Shareholders' Equity (Deficit), Year

                   Ended December 31, 1997                                                  F-5

                   Consolidated Statement of Cash Flows,

                   Year Ended December 31, 1997                                             F-6

                   Notes to Consolidated Financial

                   Statements.                                                              F-7 - F-20

                   First Medical Corporation

                   Independent Auditors' Report                                             F-21
                   Consolidated Balance Sheet - December 31, 1996                           F-22
                   Consolidated Statement of Income for the Year Ended

                      December 31, 1996                                                     F-23
                   Consolidated Statement of Stockholder's Equity for the Year

                      Ended December 31, 1996                                               F-24
                   Consolidated Statement of Cash Flows for the Year Ended

                      December 31, 1996                                                     F-25 to F-26
                   Notes to Consolidated Financial Statements                               F-27 to F-41

                   MedExec, Inc. and Subsidiaries; SPI Managed Care, Inc.; and
                   SPI Managed Care of Hillsborough County, Inc.:
                   Independent Auditor's Report                                             F-42
                   Combined Balance Sheets - December 31, 1995 and 1994                     F-43
                   Combined Statements of Operations for Each of The Years in The

                      Three-Year Period Ended December 31, 1995                             F-44
                   Combined Statements of Stockholder's Equity For Each of The

                      Years in The Three-Year Period Ended December 31, 1995                F-45
                   Combined Statements of Cash Flows for Each of The Years
                      in The Three-Year Period Ended December 31, 1995                      F-46
</TABLE>


                                       30
<PAGE>

<TABLE>
<CAPTION>
                                                                                               PAGE

<S>                <C>                                                                     <C>

                   Notes to Combined Financial Statements                                   F-47 to F-62

     a.   (2)      SCHEDULE

                   The following  schedule for the Years F-20 Ended December 31,
                   1997 and 1996 are submitted herewith:

                   Schedule II - Valuation and Qualifying

                   Accounts                                                                 S-1

                   All  other   schedules  are  omitted  because  they  are  not
                   applicable  or  the  required  information  is  shown  in the
                   financial statements or notes thereto.

     a.   (3)      EXHIBITS

                   The Exhibits to this Annual Report on Form 10-K are listed in
                   the  Exhibit  Index  annexed  hereto  and   incorporated   by
                   reference.

          (b)      REPORTS ON FORM 8-K

                   There was no Form 8-K filed during the last  quarter  covered
                   by this report.

</TABLE>



                                   SIGNATURES
                                   ----------

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

                                            First Medical Group, Inc.

                                            By:  /s/ Dennis A. Sokol
                                                 ----------------------
                                                      Dennis A. Sokol
                                                      Chairman

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

<TABLE>
<CAPTION>

<S>                        <C>                                           <C> 
/S/ Dennis A. Sokol        Chairman of the Board of Directors,           April 15, 1998
---------------------      President and Chief Executive Officer
Dennis A. Sokol


/S/ Salvatore J. Zizza     Director and Chief Financial Officer          April 15, 1998
---------------------
Salvatore J. Zizza


/S/ Elliot H. Cole         Director and Vice Chairman                    April 15, 1998
---------------------      of the Board
Elliot H. Cole


/S/ Richard Berman         Director                                      April 15, 1998
---------------------
Richard Berman


/S/ Robert H. Glasser      Controller                                    April 15, 1998
---------------------
Robert H. Glasser
</TABLE>

                          INDEX TO FINANCIAL STATEMENTS
                             AND SUMPLEMENTARY DATA
                                                                      Page

First Medical Group, Inc. ("FMG")                                   F-2
Report of Independent Certified Public Accountants as of
   December 31, 1997
Consolidated Balance Sheet, December 31, 1997                       F-3
Consolidated Statement of Operations, Year Ended                    F-4
   December 31, 1997

Consolidated Statement of Changes in Shareholders'                  F-5
   (Deficit) Year Ended December 31, 1997

Consolidated Statement of Cash Flows, Year Ended                    F-6
   December 31, 1997

Notes to Consolidated Financial Statements                          F-7 to F-20

First Medical Corporation
Independent Auditors' Report                                        F-21
Consolidated Balance Sheet - December 31, 1996                      F-22
Consolidated Statement of Income for the Year Ended
   December 31, 1996                                                F-23
Consolidated Statement of Stockholder's Equity for the Year
   Ended December 31, 1996                                          F-24
Consolidated Statement of Cash Flows for the Year Ended
    December 31, 1996                                               F-25 to F-26
Notes to Consolidated Financial Statements                          F-27 to F-41

MedExec, Inc. and Subsidiaries; SPI Managed Care, Inc.; and
SPI Managed Care of Hillsborough County, Inc.:
Independent Auditor's Report                                        F-42
Combined Balance Sheets - December 31, 1995 and 1994                F-43
Combined Statements of Operations for Each of The Years in The
    Three-Year Period Ended December 31, 1995                       F-44
Combined Statements of Stockholder's Equity For Each of The
    Years in The Three-Year Period Ended December 31, 1995          F-45
Combined Statements of Cash Flows for Each of The Years
    in The Three-Year Period Ended December 31, 1995                F-46
Notes to Combined Financial Statements                              F-47 to F-62

Schedule, Years Ended December 31, 1997 and 1996
   II - Valuation and Qualifying Accounts                           S-1

All other  schedules  are omitted  because the  required  information  is either
inapplicable  or is included in the  consolidated  financial  statements  or the
notes thereto.


                                      F-1

<PAGE>
Independent Auditor's Report

The Board of Directors
First Medical Corporation

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

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

In our opinion, such consolidated financial statements referred to above present
fairly, in all material respects,  the consolidated  financial position of First
Medical Corporation as of December 31, 1996, and the results of their operations
and their cash flows for the year then ended  December 31, 1996,  in  conformity
with generally accepted accounting principles.

                                               KPMG PEAT MARWICK LLP

March 25, 1997, except as to
note 2(m) which is as of November 12, 1997

                                      F-2
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS



First Medical Group, Inc.
Stamford, Connecticut


We have audited the  accompanying  consolidated  balance  sheet of First Medical
Group, Inc. as of December 31, 1997, and the related  consolidated  statement of
operations, shareholder's deficit and cash flows for the year then ended.
These financial  statements are the responsibility of the company's  management.
Our responsibility is to express an opinion on these financial  statements based
on our audit.

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

As described in note 14, the Company has entered into two separate agreements to
sell certain medical operations, as well as its "HallMark" subsidiary. The total
revenues of the Companies being divested  account for  approximately  74% of the
total consolidated revenues of the Company for the year ended December 31, 1997.

In our opinion, the consolidated  financial statements referred to above present
fairly, in all material respects, the financial position of First Medical Group,
Inc. at December 31, 1997, and the consolidated  results of their operations and
their cash flows for the year then ended in conformity  with generally  accepted
accounting principles.



New York, New York

                                                    BDO Seidman, LLP
March 27, 1998, except for Note 14
  which is as of April 14, 1998


                                      F-2
<PAGE>
FIRST MEDICAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET

                                                                    December 31,
                                     ASSETS                             1997
                                                                   ------------
Current assets:
  Cash and cash equivalents                                        $  1,151,416
  Humana IBNR receivable and claims reserve fund                      8,953,707
  Other receivables, net of allowance for doubtful accounts
    of $1,015,287                                                     7,620,638
  Due from related parties                                            1,139,760
  Inventories                                                         1,963,859
  Prepaid expenses and other current assets                             266,813
                                                                   ------------

     Total current assets                                            21,096,193

Property and equipment, net                                             732,917
Intangible assets,net                                                 5,361,616
Other assets                                                            354,659
                                                                   ------------
                                                                   $ 27,545,385
                                                                   ============

                      LIABILITIES AND SHAREHOLDER'S DEFICIT

Current liabilities:
  Accounts payable                                                 $  4,601,993
  Accrued expenses                                                    4,610,078
  Accrued medical claims, including IBNR                              8,189,829
  Corporate deposits                                                    731,372
  Loans payable to Humana, current maturities                           366,489
  Loans payable to banks, current maturities                          3,457,812
  Obligations to certain shareholders, current maturities               548,267
                                                                   ------------

     Total current liabilities                                       22,505,840

  Loans payable to Humana, net of current maturities                    293,141
  Loans payable to banks, net of current maturites                    5,133,042
  Obligations to certain shareholders, net of current maturiites        667,083

Commitments and contingencies

Shareholders' deficit:

  Capital stock,par value $.001;authorized shares 100,000,000
  shares issued 9,397,292                                                 9,397
  Additional paid in capital                                          8,083,488
  Retained deficit                                                   (9,146,606)
                                                                   ------------
     Total shareholders' deficit                                     (1,053,721)
                                                                   ------------
                                                                   $ 27,545,385
                                                                   ============

See accompanying notes to consolidated financial statements.



                                      F-3
<PAGE>
FIRST MEDICAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS

                                                                    Year Ended
                                                                     December
                                                                     31, 1997

Revenues:
  Capitated revenue - Humana                                       $ 58,234,005
  Fee for service and related revenue                                12,849,421
  Other revenue                                                       8,391,632
                                                                   ------------
      Total revenue                                                  79,475,058

Medical expenses                                                     65,512,662
Cost of sales                                                         5,925,503
      Total cost of services and sales                               71,438,165
                                                                   ------------

          Gross margin                                                8,036,893

Operating expenses:
  Salaries and related benefits                                       3,841,911
  General and administrative                                          7,169,363
  Impairment loss on intangibles                                      3,959,551
  Depreciation and amortization                                       1,031,337
                                                                   ------------
      Operating loss                                                 (7,965,269)
  Interest expense, net                                                 576,379

Loss before income tax benefit and cumulative effect
  of a change in accounting principle                                (8,541,649)
Income tax benefit
                                                                        (62,736)

Net loss before cumulative effect of a change
  in accounting principle                                          $  8,478,913

  Cumulative  effect of a change in
   accounting principle                                                (991,405)

Net loss                                                           $ (9,470,318)
                                                                   ============
Loss per share - basic and diluted
  Loss before cumulative effect of a change in accounting
    principle                                                      $       (.92)
  Cumulative effect of change in accounting principle                      (.11)
                                                                   ------------
      Net loss                                                     $      (1.03)

Weighted average number of common shares
    outstanding                                                       9,202,117


See accompanying notes to consolidated financial statements.


                                      F-4
<PAGE>
FIRST MEDICAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES OF SHAREHOLDERS' (DEFICIT) EQUITY

<TABLE>
<CAPTION>
                                                                                 Additional            Retained           Total
                                                                 Common            Paid-in             Earnings        Shareholders'
                                                                 Stock             capital            (Deficit)      (Deficit)Equity
                                                              -----------        -----------        -----------         -----------
<S>                                                           <C>                <C>                <C>                 <C>        
Balance, December 31, 1996                                    $       100        $   379,685        $   323,712         $   703,497

Merger with Lehigh (recapitalization)                               9,297          2,538,803               --             2,548,100
Capital contribution from GDS                                        --            5,000,000               --             5,000,000

Capital contribution to AMCD                                         --              165,000               --               165,000

Net loss                                                             --                 --           (9,470,318)         (9,470,318)
                                                              -----------        -----------        -----------         -----------

Balance, December 31, 1997                                    $     9,397        $ 8,083,488        $(9,146,606)        $(1,053,721)
                                                              ===========        ===========        ===========         ===========
</TABLE>

See accompanying notes to consolidated financial statements.


                                      F-5
<PAGE>
FIRST MEDICAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1997


Cash flow from operating activities:
  Net income                                                       $ (9,470,318)
  Adjustments to reconcile net loss to net cash used in
    operating activities:
      Depreciation and amortization                                   1,031,337
      Deferred income tax liability, net                               (112,500)
      Impairment loss from intangibles                                3,959,551
      Cumulative effect of a change in accounting principles            991,405
      (Increase) decrease in assets, net of acquisitions:
        Humana IBNR receivable and claims reserve fund                 (715,373)
        Other receivables                                            (1,921,513)
        Due from related parties, net                                (1,300,980)
        Inventories                                                      17,269
        Prepaid expenses and other current assets                      (318,859)
        Intangibles and other assets                                 (2,746,309)
      Increase (decrease) in liabilities, net of acquisitions:
        Accounts payable and other accrued expenses                   2,680,130
        Accrued medical claims, including IBNR                        1,106,122
        Corporate deposits                                              (75,104)
        Taxes payable                                                  (300,000)
                                                                   ------------
          Net cash used in operating  activities                     (7,175,142)
                                                                   ------------
Cash flows used in investing activities:
  Capital expenditures                                                 (436,600)
  Organizational costs                                                 (386,975)
  Acquisition of Lehigh, net of cash acquired                           731,667
                                                                   ------------
          Net cash used in investing activities                         (91,908)
                                                                   ------------
Cash flow provided from financing activities:
  Proceeds from loan payable Humana                                     369,978
  Proceeds from loans payable to banks                               13,882,098
  Repayment of loan payable Humana                                      (85,348)
  Repayments of loans payable to banks                              (10,025,277)
  Proceeds from payable to stockholders                                 136,597
  Payment of obligations to stockholders                               (477,111)
  Capital contribution from GDS                                       4,511,512
                                                                   ------------
          Net cash provided by financing activities                   8,312,449
                                                                   ------------
Increase in cash and cash equivalents                                 1,045,398
Cash and cash equivalents, beginning of the year                         63,014
Cash and cash equivalents for Durham, beginning of the year              43,004
                                                                   ------------
Cash and cash equivalents end of period                            $  1,151,416
                                                                   ============
See accompanying notes to consolidated financial statements 


                                      F-6
<PAGE>
FIRST MEDICAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 1997

1.    ORGANIZATION AND OPERATION.

First Medical Group, Inc. ("FMG" or the "Company") is primarily an international
provider of  management,  consulting  and financial  services to physicians  and
other health care delivery  organizations  and facilities.  FMG's operations are
conducted through three divisions:  (a) a physician practice management division
which provides physician management services including the operation of clinical
facilities  and  management  services to medical  groups,  (b) an  international
division which manages medical centers in Eastern Europe and the Commonwealth of
Independent  States (the former  Soviet Union)  ("CIS"),  and through its merger
with Lehigh (see  below),  (c) a  distributor  of  electrical  supplies  for the
construction industry.

The  consolidated  financial  statements  include  the  accounts  of FMG and its
majority  owned  subsidiaries:   MedExec,  Inc.  and  subsidiaries  ("MedExec");
American Medical Clinics Management Company,  Inc.  ("AMCMC");  American Medical
Clinics Development Corporation, Limited ("AMCD"); FMC Healthcare Services, Inc.
("FMC-HS")  and  Hallmark  Electrical  Supplies  Corporation  ("Hallmark").  All
significant  intercompany  balances and  transactions  have been  eliminated  in
consolidation.

On July 9, 1997, the  stockholders  of Lehigh approved the merger (the "Merger")
pursuant to the terms of the Agreement and Plan of Merger dated October 29, 1996
(the "Merger Agreement") among The Lehigh Group Inc.  ("Lehigh"),  First Medical
Corporation  ("FMC") and Lehigh  Management  Corp., a wholly owned subsidiary of
Lehigh ("Merger Sub"). On the same day, Merger Sub was merged with and into FMC.
As a result of such merger,  legally FMC became a wholly owned subsidiary of the
Company.  However,  the  financial  statements  presented  reflect First Medical
Corporation's  acquisition of Lehigh since the acquisition date of July 9, 1997.
Although  legally The Lehigh  Group  acquired  First  Medical  Corporation,  for
accounting  purposes  First Medical  Corporation  is considered  the  accounting
acquirer  (i.e.,  the  reverse  acquisition),  since  the  former  owners of FMC
acquired 96% of the stock of the Company.  Therefore,  the operating  results of
Lehigh are included in the statement of operations  since the  acquisition  date
(July 9, 1997) and the December 31, 1997  balance  sheet  reflects the effect of
the acquisition of Lehigh.

MedExec, Inc. ("MedExec") was incorporated on March 14, 1991.

On January 1, 1996 MedExec and American  Medical  Clinics ("AMC") entered into a
transaction which consisted of the following:

o      AMC and MedExec incorporated FMC;

o      All of the  outstanding  shares of MedExec  and AMC were  converted  into
       shares of FMC;

o      The shareholders of MedExec and AMC received 48% and 52% of the shares of
       FMC, respectively;

o      100%  of the AMC  shares  were  distributed  to the  shareholders  of FMC
       (former shareholders of MedExec received 48% of the distributed shares of
       AMC);

o      In  connection  with the above  transaction,  FMC entered  into  separate
       employment  contracts  with  three  executives  of  MedExec  whereby  the
       respective  executives are guaranteed payments regardless of any services
       rendered.  The  agreements  are for a  three-year  period  and  when  the
       contracts  expire they  include an  additional  two-year  covenant not to
       compete. The employment  /non-compete  agreements have been classified as
       intangible  assets in the financial  statements  and are being  amortized
       over five years. (See Note 5).

The above  transaction was accounted for under the purchase method of accounting
with MedExec  being  deemed the  accounting  acquirer  despite the fact that AMC
received  52% of the shares of FMC.  This result was reached due to, among other
factors, the fact that immediately after this transaction, the FMC Board of



                                      F-7
<PAGE>

Directors was comprised of four former  shareholders of MedExec and three former
shareholders  of AMC and the fact that MedExec  constituted  the larger share of
operations.  Because  of the short  term  monetary  nature of AMC's  assets  and
liabilities,  historical book values  constituted  fair value on the transaction
date  resulting in no purchase price  adjustments  under  Accounting  Principles
Board Opinion No. 16.

On January 2, 1996, AMCMC, a newly formed subsidiary of FMC, acquired from AMC a
membership list (contracts to provide medical services to customers) and assumed
certain liabilities of AMC. The transaction was accounted for under the purchase
method of accounting  because,  in essence,  the purchase of the membership list
represented  the  acquisition.  AMCMC acquired the income stream of an operating
enterprise.  Goodwill was recorded in the amount of  $1,020,275  related to this
transaction.

AMCMC, a wholly-owned  subsidiary of the Company,  has entered into a management
services  agreement  with the AMC  clinics  located in the CIS,  whereby the AMC
clinics provide medical services to AMCMC customers (See Note 8). AMCMC collects
all of the revenues  directly from its members,  which it is legally entitled to
collect. AMCMC also pays all of AMC's expenses, including but not limited to the
salaries of the physicians, which it is legally obligated to pay.

On January 20, 1996,  the Company  entered into an  agreement  with  Generale de
Sante  International,  Plc  ("GDS") to form  AMCD,  an Irish  Company.  AMCD was
established to develop and operate medical clinics throughout the world with the
exception  of  within  the CIS.  On July 9,  1997,  GDS,  as  stipulated  in the
agreement,  contributed  $5,000,000 in capital (less approximately  $489,000 FMG
owed to GDSI) in exchange for 2,047,860 shares of the Company's common stock.

The Company through its FMC-Texas subsidiary manages a multi specialty physician
practice in Texas  pursuant to a management  agreement  entered into in February
1996.  Pursuant to Emerging  Issues Task Force No.  97-2,  effective  January 1,
1997, the Company  consolidated  this practice.  The operations of this practice
are included in the  statement of  operations  of the Company for the year ended
December  31,  1997.  The  cumulative  effect of the  change  in the  accounting
principle is reported in the statement of operations for the year ended December
31, 1997.

(A)    PHYSICIAN PRACTICE MANAGEMENT DIVISION-MEDEXEC

The Company's physician practice  management  operations are currently conducted
through MedExec.  MedExec  functions in two capacities as a management  services
organization:  (i) owning and operating  twelve primary care centers (located in
Florida and Indiana)  which have full risk contracts for primary care and Part B
services and partial risk (50%) for Part A services,  and (ii)  managing  eleven
multi-specialty  groups (located in Florida and Texas) with  fee-for-service and
full risk  contracts for primary care and Part B services and partial risk (50%)
for Part A  services.  Full risk  contracts  are  contracts  with  managed  care
companies where FMC assumes  essentially all  responsibility  for a managed care
member's  medical  costs and partial  risk  contracts  are  contracts  where FMC
assumes partial responsibility for a managed care member's medical costs.

Ownership  and  operation  of primary care  centers  ("centers")  with full risk
contracts are achieved through  MedExec's  subsidiaries:  SPI Managed Care, Inc.
("SPI"),  incorporated  on February 19, 1988,  SPI Managed Care of  Hillsborough
County,  Inc.  ("SPI  Hillsborough"),  incorporated  on April 20, 1993,  Broward
Managed  Care,  Inc.  ("BMC"),  incorporated  on January 21,  1994,  and Midwest
Managed Care, Inc. ("Midwest"), incorporated on March 29, 1995.

SPI, SPI Hillsborough and BMC provide health care services subject to affiliated
provider  agreements  entered into with Humana Medical Plan, Inc.; Humana Health
Plan of Florida,  Inc.; and Humana Health Insurance Company of Florida, Inc. and
their  affiliates.  Midwest  provides health care services subject to affiliated
provider  agreements  entered into with Humana Health Plan, Inc.;  Humana Health
Chicago,  Inc.; and Humana Health Chicago  Insurance  Company,  Humana Insurance
Company and their  affiliates.  All of the Humana entities will  collectively be
known as  "Humana".  The Company is  dependent on Humana for the majority of its
operations.  For the year ended December 31, 1997, 73% of the Company's  revenue
is from such agreements with Humana.

SPI operates two centers in Dade County,  Florida  located in Kendall and Cutler
Ridge.



                                      F-8
<PAGE>

SPI  Hillsborough  operates five centers on the west coast of Florida located in
Plant  City,  New Port  Richey,  Lutz  Springhill  and  South  Dale  Mabry.  The
affiliated  provider  agreements to operate the centers in New Port Richey, Lutz
and South Dale Mabry were entered into in 1996 and 1997 for Springhill.

BMC operates two centers in Broward  County,  Florida  located in Plantation and
Sunrise.

During 1996, Midwest operated one center in Hammond,  Indiana. In February 1997,
Midwest also began to operate additional centers in Gary, Indiana.

Health  services  are provided to Humana  members  through the centers and their
networks of physicians and health care  specialists.  Services to be provided by
the centers  include  medical and surgical  services,  including all  procedures
furnished in a physician's office such as X-rays,  nursing services,  blood work
and other incidental,  drugs and medical  supplies.  The centers are responsible
for providing all such services and for directing and authorizing all other care
for Humana members. The centers are financially  responsible for all out-of-area
care rendered to a member and provide  direct care as soon as the member is able
to return to the designated medical center.

Humana has agreed to pay the centers  monthly for  services  provided to members
based  on  a  predetermined  amount  per  member  ("capitation")   comprised  of
in-hospital  services  and  other  services  defined  by  contract  ("Part  A"),
in-office  ("Primary")  and other  medical  services  defined by the  agreements
("Part B"). For the Gary center, Humana has guaranteed a monthly amount to cover
the costs of providing  primary care  services and other  operating  costs.  The
guaranteed  payments were made until the earlier of the date on which the center
achieves a certain  membership level or six months to one calendar year from the
commencement  date of the  agreement at which point Humana will pay the center a
capitation fee.

SPI Managed Care of Broward, Inc. ("SPI Broward"),  incorporated in the State of
Florida  on July 15,  1992,  managed  the full risk  managed  care  segment of a
nonaffiliated multi-specialty group practice in Broward County, Florida.

Effective   February  1,  1996,   First   Medical   Corporation-Texas   Division
(FMC-Texas") began managing a multi-specialty medical practice in Houston, Texas
("Houston  medical  practice")  that has a full risk  contract  with  Humana and
fee-for-service.

On December 31, 1995, FMC had a 23.75% and 50% investment,  respectively, in BMC
and SPI Broward.  Effective  January 1, 1996 the Company acquired 71.25% and 50%
interest,  respectively, in BMC and SPI Broward, respectively for $50,000 plus a
multiple of the  average  earnings  before  income  taxes of these two  entities
during the years ending  December  31, 1996 and 1997.  The multiple is three for
cash  consideration,  and 3.5 times for a  combination  of stock and cash.  This
acquisition  gave the Company a 95% and 100%  investment in BMC and SPI Broward,
respectively.  The final value of the  consideration  is not yet determinable as
the seller has the option of obtaining  cash and/or stock and the price is based
on the average of 1996 and 1997  earnings.  Additional  goodwill was recorded at
December 31, 1997 of $1.5 million, which represents management's estimate of the
final consideration in accordance with the purchase method of accounting.

2.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(a)   Principles of Consolidation

      The consolidated  financial  statements include all of the accounts of the
      Company and its wholly owned subsidiaries.  All intercompany  accounts and
      transactions have been eliminated in consolidation.

(b)   Cash and Cash Equivalents

      Cash  equivalents  consist  of  demand  deposits.   For  purposes  of  the
      consolidated  statement of cash flows,  the Company  considers  all highly
      liquid debt instruments  with original  maturities of three months or less
      to be cash equivalents.

(c)   Humana IBNR Receivable and Claims Reserve Funds



                                      F-9
<PAGE>

      Humana  withholds  certain  amounts from the centers'  Part A, Part B, and
      supplemental funding in order to cover claims incurred but not reported or
      paid.  The amount is used by Humana to pay the centers' Part A, Part B and
      supplemental  costs.  The amounts withheld by Humana to cover incurred but
      not  reported or paid claims  varies by center based on the history of the
      respective center and is determined solely by Humana.

      Humana also withholds a certain amount each month from the centers' Part A
      capitation funding.  This amount represents a "catastrophic  reserve fund"
      to be utilized for the payment of a center's Part A costs in the event the
      center ceases  operations  and the incurred but not reported  reserves are
      not adequate to reimburse  providers  for Part A services  rendered.  This
      amount is calculated monthly by Humana.

      The withholdings are used to pay the centers' medical claims, which Humana
      pays on the centers'  behalf.  The remaining amount after claims have been
      paid is remitted  to the  Company.  The Company  records the impact of the
      above transactions on a grossed-up basis.

(d)   Inventories

      Inventories  are stated at the lower of cost or market  using a  first-in,
      first-out  basis to  determine  cost.  Inventories  consist of  electrical
      supplies held for resale.

(e)   Property and Equipment

      Property and  equipment are stated at cost.  Depreciation  on property and
      equipment is  calculated  on the  straight-line  method over the estimated
      useful lives.  Amortization of leasehold improvements is provided over the
      life of each respective lease.

(f)   Intangible Assets

      Goodwill, which represents the excess of purchase price over fair value of
      net  assets  acquired,  is  amortized  on a  straight-line  basis over the
      expected  periods to be  benefited,  15 years.  The Company  assesses  the
      recoverability  of  this  intangible  asset  by  determining  whether  the
      amortization  of the  goodwill  balance  over  its  remaining  life can be
      recovered through undiscounted future operating cash flows of the acquired
      operation. The amount of goodwill impairment, if any, is measured based on
      projected  discounted  future  operating  cash flows using a discount rate
      reflecting  the  Company's  average cost of funds.  The  assessment of the
      recoverability  of goodwill will be impacted if estimated future operating
      cash flows are not achieved.

      The  Company  entered  into  non-compete  agreements  with  a  two  former
      employees  and  shareholders.   These  non-compete  agreements  are  being
      amortized on a straight-line basis over the life of the agreements,  which
      are two and three years respectively.

      The Company  entered  into three  employment/non-compete  agreements  with
      three   shareholders.   The  agreements  consist  of  guaranteed  payments
      regardless  if any  services  are  rendered.  These  agreements  are being
      amortized  on a straight  line basis over 5 years which is the life of the
      agreement (3 years) plus the subsequent non-compete period (2 years).

      Deferred  organization costs consist principally of legal,  consulting and
      investment  banking fees, which were incurred  strictly in connection with
      the  incorporation of FMC on January 1, 1996 and the merger with Lehigh on
      July 9, 1997. The costs related to the FMC transaction and the merger with
      Lehigh are being amortized over five years.

(g)   Impairment of Long-Lived Assets

      The Company  adopted the  provisions of SFAS No. 121,  Accounting  for the
      Impairment of Long-Lived  Assets and for Long-Lived  Assets to Be Disposed
      Of, on January 1, 1997. This Statement required that long-lived assets and
      certain  identifiable  intangibles  be reviewed  for  impairment  whenever
      events change and  circumstances  indicate that the carrying  amount of an
      asset may not be recoverable. Recoverability of assets to be held and used
      is measured by a comparison  of the carrying  amount of an asset of future
      net cash flows  expected to be generated by the asset.  If such assets are
      considered to be 





                                      F-10
<PAGE>

      impaired,  the  impairment  to be  recognized is measured by the amount by
      which the  carrying  amount of the  assets  exceeds  the fair value of the
      assets. Assets to be disposed of are reported at the lower of the carrying
      amount or fair values less costs to sell.  Adoption of this  Statement did
      not have a material impact on the Company's financial position, results of
      operations, or liquidity. In 1997, the Company recorded an impairment loss
      of approximately $3.9 million relating to the goodwill associated with the
      merger (see footnote number 4).

(h)   (h)  Income Taxes

      Income  taxes are  accounted  for under  the asset and  liability  method.
      Deferred  tax assets and  liabilities  are  recognized  for the future tax
      consequences  attributable to differences  between the financial statement
      carrying  amounts of existing assets and liabilities and their  respective
      tax bases and operating  loss and tax credit  carryforwards.  Deferred tax
      assets are measured  using enacted rates to apply to taxable income in the
      years in which those temporary differences are expected to be recovered or
      settled.  The effect on deferred tax assets and liabilities of a change in
      tax  rates is  recognized  in  income  in the  period  that  includes  the
      enactment date.

(i)   Earnings Per Share

      During 1997, the Financial  Accounting Standards Board issued Statement of
      Financial  Accounting  Standards  No. 128,  "Earnings  per  Share",  which
      provides for the calculation of "basic" and "diluted"  earnings per share.
      This  Statement is effective for financial  statements  issued for periods
      ending  after  December  15, 1997.  Basic  earnings per share  includes no
      dilution  and  is  computed  by  dividing   income   available  to  common
      shareholders by the weighted  average number of common shares  outstanding
      for the period.  Diluted  earnings per share reflect,  in periods in which
      they have a dilutive  effect,  the effect of common  shares  issuable upon
      exercise of stock  options and other stock  equivalents.  The  adoption of
      this new statement had no impact on the Company.

(j)   Revenue and Medical Cost Recognition

      Revenue  from Humana for  primary  care,  Part A, Part B and  supplemental
      funds are recognized  monthly on the basis of the number of Humana members
      assigned to the primary  care  centers and the  contractually  agreed-upon
      rates. The primary care centers receive monthly payments from Humana after
      all  expenses  paid by Humana on behalf of the centers;  estimated  claims
      incurred  but not  reported and claims  reserve  fund  balances  have been
      determined.  In addition to Humana  payments,  the  primary  care  centers
      receive  copayments  from  commercial  members  from  each  office  visit,
      depending upon the specific plan and options selected and receive payments
      from non-Humana members on a fee-for-service basis.

      Medical  services are recorded as expenses in the period in which they are
      incurred. Accrued medical claims are reflected in the consolidated balance
      sheet and are based upon costs incurred for services rendered prior to and
      up to December 31, 1997.  Included are services  incurred but not reported
      as of December 31, 1997,  based upon actual costs  reported  subsequent to
      December 31, 1997 and a reasonable estimate of additional costs.

      AMCMC and AMCD  revenues  are derived from  medical  services  rendered to
      patients and annual  membership fees charged to individuals,  families and
      corporate  members.  Membership fees are non-refundable and are recognized
      as revenue in the year  received.  Corporate  members are also required to
      make an advance  deposit  based upon plan type,  number of  employees  and
      dependents. The advance deposits are initially recorded as deferred income
      and then as revenue when  services are provided.  As the advance  deposits
      are  utilized,  additional  advance  deposits  are  required to be made by
      corporate members.

      Fee-for-service  revenue  is  reported  at the  estimated  net  realizable
      amounts from patients and third-party payors as services are rendered.

      Revenue for the electrical  supplies  distribution  business is recognized
      when products are shipped or when services are rendered.




                                      F-11
<PAGE>

(k)   Use of Estimates

      The  preparation  of financial  statements  in conformity  with  generally
      accepted  accounting  principles requires management to make estimates and
      assumptions that affect the 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.

(l)   Fair Value of Financial Instruments

      The  carrying  amount of  financial  instruments  including  cash and cash
      equivalents,  Humana  IBNR  receivable  and claims  reserve  funds,  other
      receivables,  prepaid expenses and other current assets,  accounts payable
      and other  accrued  expenses,  accrued  medical  claims,  loan  payable to
      Humana,  loans payable to banks,  obligations to certain  stockholders and
      long-term debt  approximate fair value at December 31, 1997 because of the
      short term maturity of these instruments.  The carrying amounts of certain
      long-term debt including loans payable  approximate fair value because the
      interest rates on these instruments reflect prevailing market rates.

(m)   Foreign Currency

      The  financial  statements  of  the  Company's  foreign  subsidiaries  are
      remeasured into the US dollar  functional  currency for  consolidation and
      reporting purposes. Current rates of exchange are used to remeasure assets
      and  liabilities and revenue and expense are remeasured at average monthly
      exchange  rates  prevailing  during the year.  The  effect of  translation
      adjustments would not have a material effect on the financial statements.

(n)   Stop-loss Funding

      The primary care centers are charged a stop-loss-funding fee by Humana for
      the  purpose of  limiting a center's  exposure to Part A costs and certain
      Part B costs associated with a member's health services.

      Since the SPI, SPI Hillsborough and Durham centers are not responsible for
      claims in excess of the threshold,  income and the corresponding  expense,
      both  equal  to  the  stop-loss   funding  are   recognized  by  SPI,  SPI
      Hillsborough and Durham. These amounts are included in revenue and medical
      expenses,  respectively,  in the  accompanying  consolidated  statement on
      income. Stop-loss funding for the SPI, SPI Hillsborough and Durham centers
      for the year ended December 31, 1997 was approximately $5,102,000.

      For the year ended  December 31, 1997,  the  stop-loss  threshold for both
      part A and Part B costs for  Medicare  members  was $40,000 per member per
      calendar year for both SPI, SPI  Hillsborough  and Durham.  For commercial
      members,  the  stop-loss  threshold  for both  Part A and Part B costs was
      $20,000 and $15,000 for both SPI, SPI Hillsborough and Durham.

      For Midwest,  the stop-loss thresholds for Part A and for Part B costs for
      Medicare  members were $40,000 and $10,000,  respectively,  per member per
      calendar year and the stop-loss  thresholds  for Part A and for Part B for
      commercial members were $50,000 and $10,000  respectively,  per member per
      calendar year.

(o)   Maternity Funding

      The primary care centers are charged a maternity funding fee on commercial
      membership for the purpose of limiting the center's exposure to Part A and
      Part B costs  associated with a commercial  member's  pregnancy or related
      illness.  Since the SPI,  SPI  Hillsborough  and  Durham  centers  are not
      responsible  for  claims  in  excess  of  the  amount  contributed  to the
      maternity  fund,  income and expenses both equal to the maternity fund are
      recognized by SPI, SPI Hillsborough and Durham are included in revenue and
      medical expenses,  respectively in the accompanying consolidated statement
      of operations.  Maternity funding for the SPI, SPI Hillsborough and Durham
      centers for the year ended December 31, 1997 was approximately $966,000.



                                      F-12
<PAGE>

3.    Property and Equipment, Net

      Property and equipment at December 31, 1997 consists of the following:



        Medical, computer and office equipment                $  941,479
        Machinery and equipment                                  501,851
        Furniture and fixtures                                    99,879
        Leasehold improvements                                   434,715
                                                              ----------
                                                               1,977,924

        Less:  Accumulated depreciation and amortization       1,245,007

        Property and equipment, net                           $  732,917

4.    Intangible Assets

      Intangible assets at December 31, 1997 consists of:


        Goodwill                                              $2,998,908
        Employment/non-compete agreements with                   964,800
           former executives
        Organization costs                                       830,658
        Non-compete agreements with former                     1,095,000
           Shareholders
        Other                                                    480,005

                                                               6,369,371

        Less:  Accumulated amortization                        1,007,755

                                                              $5,361,616

      As  stated  in note 1, the  following  transactions  created  goodwill  at
      December 31, 1997.



        AMCMC                                                 $1,020,075
        BMC BMC and SPI Broward                                1,827,778
        Midwest Managed Care                                     150,855
                                                              ----------

                                                              $2,998,908

      The  Company  recorded  $1.5  million  in  1997  in  additional   goodwill
      associated with the purchase of BMC.

      The Company  continually  reevaluates the propriety of the carrying amount
      of goodwill and other intangible assets as well as the amortization period
      to determine whether current events and circumstances  warrant adjustments
      to the carrying  value and estimates of useful  lives.  As of December 31,
      1997, the Company  believed that no significant  impairment of goodwill or
      other intangible  assets (noted above) have occurred and that no reduction
      of the amortization periods is warranted.

      Subsequent to the merger with The Lehigh Group, Inc., the Company lost its
      listing on the New York Stock  Exchange and had received an  indication of
      value of  Lehigh's  only  wholly  owned  subsidiary,  HallMark  Electrical
      Supply,  Inc. On the basis of the value,  the delisting  from the New York
      Stock and the proposed sale of the HallMark  subsidiary,  the goodwill was
      deemed to be  unrecoverable,  and as a result the Company  recorded a $3.9
      million  impairment  loss in 1997  which  represented  the  entire  amount
      recorded as  goodwill at the time of the merger (net of amounts  amortized
      during the year).



                                      F-13
<PAGE>

5.    Loans Payable to Humana

      Loans payable to Humana at December 31, 1997 consist of the following:


      Secured loan for $250,000 bearing interest at 9.5%. Payable
      in 48 monthly  installments  beginning in February  1997 of
      $6,850 which includes  principal and interest.  The loan is
      secured by the Company's  equipment and  furnishings at the
      Houston medical practice.  Proceeds from the loan were used
      primarily  for the  purchase  of  equipment  at the Houston
      medical practice.                                                $ 225,362

      Secured loan for $75,000 bearing interest at 9.5%.  Payable
      in twelve monthly  installments  beginning in February 1997
      which includes  principal and interest of $7,172.  The loan
      is secured by the Company's  equipment and  furnishings  at
      the Houston medical  practice.  Proceeds from the loan were
      used  primarily  for working  capital needs of FMC-Texas in
      Houston medical practice.                                           14,288

      Unsecured loan for $240,000 bearing no interest. Payable in
      12 monthly installments beginning in April 1997 of $20,000.
      Proceeds  from  the  loan  were  used   primarily  for  the
      operations of a Midwest Center medical practice.                   240,000

      Advance of $50,000 bearing interest at 10% per year for the
      purchase and  installation of a computer system and related
      training  at the  Midwest  locations.  The  loan  is due by
      September 30, 2000. Monthly  installments to Humana will be
      a minimum of 10% of any positive  balance in Midwest's Part
      A Fund. In the event no positive balance exists in the Part
      A Fund,  Midwest  will make a minimum  monthly  payment  of
      $1,268 until the loan is repaid.                                    50,000

      Advance of $50,000 bearing interest at 10% per year for the
      purchase and  installation of a computer system and related
      training  at a  Midwest  locations.  The  loan  is  due  by
      September 30, 2000. Monthly  installments to Humana will be
      a minimum of 10% of any positive  balance in Midwest's Part
      A Fund. In the event no positive balance exists in the Part
      A Fund,  Midwest  will make a minimum  monthly  payment  of
      $1,268 until the loan is repaid.                                    50,000

      Unsecured  loan for $100,000  bearing no interest.  Payable
      through a monthly  set-off  from a  portion  of  capitation
      premiums paid by Humana to a Midwest  medical  center.  The
      loan is due by July 1999.                                           79,980
                                                                      ----------

      Total long-term loans payable to Humana                            659,630


                              F-14
<PAGE>

      Less current installments                                          366,489



      Loans  payable to Humana,  excluding  current  installments       $293,141
                                                                        ========


      The  aggregate  maturities of loans payable to Humana for each of the five
      years subsequent to December 31, 1997 are as follows:

            1998                                            $  366,489
            1999                                               180,783
            2000                                                98,739
            2001                                                13,619
            2002                                                   -
                                                            ----------
                                                            $  659,630
                                                            ==========

6.  LONG-TERM DEBT

      Long-term debt at December 31, 1997 consist of the following:


      Secured  term loan for  $537,812  bearing  interest at 1/2%
      above  prime  (9.0%  at  December  31,  1997):  The loan is
      secured by all shares of FMG  common  stock  issued to FMC.
      Principal  payment are made monthly with the balance due on
      October 1998.  The $537,812  drawn under this loan was used
      to purchase  Lehigh stock in  connections  with the Merger.       $537,812

      Line of credit  for  $2,500,000  bearing  interest  at 1/2%
      above  prime  (9.0%  at  December  31,  1997).  The line is
      secured  by all of  the  assets  of  FMC  and  $500,000  is
      guaranteed by certain  current and former  officers of FMC.
      The line expires in July 1998. The amounts drawn under this
      line of  credit  was used  primarily  for  working  capital
      requirements.                                                    2,290,000

      Secured  term loan for $200,000  bearing  interest at prime
      (8.50% at December  31,  1997).  The loan is secured by the
      assets of FMG's  Midwest  Managed  Care  operations  and is
      guaranteed  by FMC.  Principal  payments of $3,333 are made
      monthly with the balance due in November 2000.  Interest is
      paid   monthly.   The  $200,000  was  used   primarily  for
      development costs relating to Midwest.                             193,333

      Secured  term loan for $200,000  bearing  interest at prime
      (8.50%  December  31,  1997).  The loan is  secured  by the
      assets  of FMG's  Midwest  Managed  Care  operation  and is
      guaranteed by FMC. The principal  balance is due on May 12,
      1998. Interest is due monthly. The $200,000 was drawn under
      this  loan  for  development  costs  relating  to  Midwest.       200,000



                              F-15
<PAGE>

      Secured line of credit for $5.0 million bearing interest at
      prime plus 2% (10.50% at December  31,  1997).  The line of
      credit  is  secured  by  accounts  receivable,   inventory,
      property  and  equipment.  The line of  credit  expires  in
      November  1999.  The amount  drawn under the line of credit
      was used to support working capital needs in the electrical
      distribution business.                                          4,979,709

      Subordinated Debentures - 14-7/8% interest rate                   290,000

      Senior Subordinated Notes - 13-1/2% interest rate                 100,000
                                                                        -------

                                                                      8,590,854

            Less current portion                                     (3,457,812)
                                                                     ---------- 

                        Total Long-term Debt                         $5,133,042
                                                                     ==========

            The Company is in default in the payment of interest  (approximately
$781,000  interest  was  past  due as of  December  31,  1997)  on the  $390,000
aggregate  principal amount of its 13-1/2% Senior Subordinated Notes due May 15,
1998 ("13-1/2% Notes") and 14-7/8% Subordinated  Debentures due October 15, 1995
("14-7/8%  Debentures') that remain  outstanding and were not surrendered to the
Company in connection with its financial restructuring  consummated in 1991. The
Company has been  unable to locate the holders of the 13-1/2%  Notes and 14-7/8%
Debentures (with the exception of certain of the 14-7/8% Debentures,  which were
retired  during  1996).  Interest  relating  to the debt is  included in accrued
expenses.

            The  aggregate  yearly  maturities  of long-term  debt for the years
ended after December 31,1997 are as follows:

1998                                             $3,457,812
1999                                              5,019,709
2000                                                113,333
2001                                                      -
2002                                                      -
                                                 ----------

Total                                            $8,590,854
                                                 ==========

7.  RELATED PARTY TRANSACTIONS

At  December  31,  1997,   obligations  to  certain  shareholders  includes  the
following:


      Obligation to pay consulting fees to three  stockholders in
      connection  with the  transaction  between MedExec and AMC.
      Obligations  have been  recorded as a liability  due to the
      stockholders  not having to provide any  services  for this
      consideration to be paid.  Payable monthly in the amount of
      $26,800.  Obligations  will be repaid by December 31, 1998.
      The amount of  consideration  paid in 1997 related to these
      agreements were $254,600.                                         $388,600

      Obligation  under  non  compete  agreement  with  a  former
      employee and stockholder payable in monthly installments of
      $8,333 until June 1998.                                             50,000



                              F-16
<PAGE>

      Obligation  under  non  compete  agreement  with  a  former
      employee and stockholder payable in monthly installments of
      $9,139 until April 2000.                                           246,750

      Obligations  under  non-compete  agreement  with  a  former
      employee and stockholder.                                          530,000


      Total obligation to stockholders                                 1,215,350
      Less current installments                                          548,267
                                                                       ---------

      Total   obligations  to  stockholders,   excluding  current
      installments                                                     $ 667,083
                                                                       =========

The aggregate  maturities of  obligations to  stockholders  for each of the five
years subsequent to December 31, 1997 are as follows:

1998                                             $   548,267
1999                                                 109,668
2000                                                 557,415
2001                                                       -
2000                                                       -
                                                 -----------
Total                                            $ 1,215,350
                                                 ===========

The Company paid salaries or consulting fees to  stockholders  of  approximately
$1,645,600  which is included in the  consolidated  statement  of income for the
year ended December 31, 1997.

Certain  stockholders have guaranteed $500,000 of the outstanding line of credit
with the financial institution which is described in note 6.

At December 31, 1997, the Company has amounts  outstanding  from the AMC clinics
which is owned by certain  current  and former  shareholders  of FMC,  under its
management agreement with AMCMC, which total $1,139,760.

(8)  Income Tax

      The components of loss before income tax benefit and cumulative  effect of
      a change in accounting  principle for the year ended December 31, 1997 are
      as follows:

                        Domestic                                $(9,743,532)
                        Foreign                                   1,201,883
                                                                -----------

      Total loss before income tax benefit and cumulative
      effect of a change in accounting principle                $(8,541,649)
                                                                ============

      The  components of income tax benefit for the year ended December 31, 1997
are as follows:

      Current tax provision - foreign operations                $   267,291
      Write off of prior year deferred tax liability               (112,500)
      Write off of prior year income taxes payable                 (217,527)
                                                                -----------
            Net Income Tax Benefit                              $  ( 62,736)
                                                                ===========

At December 31, 1997, The Company had a net deferred tax asset amounting to $4.5
million.  The net deferred tax asset at December 31, 1997 consists  primarily of
net operating loss ("NOL") carryforwards,  and temporarily differences resulting
from accounts  receivable and inventory reserves and goodwill.  The deferred tax
asset is fully  offset  by a  valuation  allowance  of the  same  amount  due to
uncertainty regarding its ultimate utilization.

Deferred tax assets:
   Nondeductible accrual and allowances                         $   660,000



                              F-17
<PAGE>

   Goodwill                                                         191,000
   Net operating loss carryforward                                3,700,000

Deferred tax liability:
   Depreciation and amortization                                    (40,000)
   Goodwill asset                                                         -
                                                                -----------

Net deferred tax asset/(liability)                                4,511,000
   Less:  Valuation allowance                                     4,511,000
                                                                -----------

Deferred income taxes                                           $         -
                                                                ===========

Due to the Company's  large loss in 1997, no federal taxes have been provided in
the accompanying  consolidated statement of operations. As of December 31, 1997,
the Company had NOL
carryforwards of approximately $9.3 million expiring through 2017.

The Company has provided a 100%  valuation  allowance  due to the net  operating
loss  carryforward.  In  assessing  the  recoverability  of deferred tax assets,
management  considers  whether it is more likely than not that some or a portion
of the deferred assets will be realized in the near future.

9.  Leases

      The Company has  several  noncancelable  operating  leases  primarily  for
      office space and equipment  that expire  throughout  2001.  Future minimum
      lease payments required under  noncancelable  operating leases at December
      31, 1997 are as follows:

                        Year ending
                        December 31,
                        ------------


                        1998                      $478,000
                        1999                       389,000
                        2000                       289,000
                        2001                       193,000
                        2002                       121,000
                        Thereafter                 192,000
                                                 ---------


Total minimum lease payments                    $1,662,000

            Rental expense during 1997 amounted to approximately $662,500.

The  Company  also rents  medical  facilities  through its  affiliated  provider
agreements  with Humana.  The total non-lease  rental expense  relating to these
facilities use is approximately $1,315,000 for the year ended December 31, 1997.

10.  BUSINESS AND CREDIT CONCENTRATIONS

      The Company  derives  the  majority  of its  revenue  from its  affiliated
      provider agreements with Humana. In 1997, 73% or approximately $57,560,000
      of the  revenue of the  Company  was  derived  from such  agreements  with
      Humana.  The amount of revenue is based on the number of members  assigned
      to each of the centers. Humana members include 11,129 Medicare members and
      9,531  commercial  members,  at December 31, 1997. The  fluctuation of the
      number of  members  significantly  affects  the  Company's  business.  The
      receivable from Humana at December 31, 1997 was $8,953,707.

11.  RETIREMENT PLANS

      The  Company   sponsors  401(K)  plans  (the  "Plans")  for  its  domestic
      operations.  Employees  who have  worked a minimum  of six  months or 1000
      hours  and are at  least 21 years  of age may  participate  in the  Plans.
      Employees  may  contribute  to the Plans up to 14 percent of their  annual
      salary, not to exceed $9,500 




                              F-18
<PAGE>
      in 1997. The Company's  matching  contribution is 25 cents for each dollar
      of  the  employee's  elected  contribution,  up to  four  percent  of  the
      employee's  annual  salary.  The  Company's   matching   contribution  was
      approximately $32,000 for the year ended December 31, 1997.

12.  COMMITMENTS AND CONTINGENCIES

      Legal Proceeding

      To the best of the  Company's  knowledge,  there are no  material  claims,
      dispute or other unsettled  matters  (including  retroactive  adjustments)
      concerning third party reimbursements that would have a material effect on
      the consolidated financial statements of the Company.

      Governmental Regulations

      The Company's operations have been and may be affected by various forms of
      governmental regulation and other actions. It is presently not possible to
      predict the  likelihood of any such  actions,  the form which such actions
      may take, or the effect such actions may have on the Company.

      Physician Contracts

      The Company has entered into  employment  agreements of two to three years
      with  its  primary  care   physicians  and  into  contracts  with  various
      independent  physicians to provide  specialty and other referral  services
      both on a prepaid and a negotiated  fee-for-service  basis. Such costs are
      included in the consolidated statement of income as medical expense.

      Malpractice and Professional Liability Insurance

      The Company maintains  professional  liability  insurance on a claims-made
      basis through November 1, 1998 including  retrospective  coverage for acts
      occurring since inception of its operations. Incidents and claims reported
      during the policy period are  anticipated to be covered by the malpractice
      carrier.  The Company  intends to keep such insurance in force  throughout
      the foreseeable future. At December 31, 1997, there are no asserted claims
      made against the Company that were not covered by the policy.

      Physicians  providing medical services to members are provided malpractice
      insurance coverage (claim-made basis),  including  retrospective  coverage
      for acts occurring since their affiliation with the Company.

13.  SEGMENT INFORMATION

      The Company operates in two industry segments.  HallMark Electric Supplies
      Corporation,  a wholly owned subsidiary of the Company,  is engaged in the
      distribution  of  electrical  supplies  for  the  construction   industry.
      Approximately 90% of the Hallmark's sales are domestic and 10% are export.
      First  Medical  Group,  Inc. is a national and  international  provider of
      management,  consulting  and financial  services to  physicians  and other
      health  care  organizations  and  facilities.  Approximately  87%  of  its
      revenues are derived from its domestic  operations  while 13% is generated
      through its international operations.

      The  industrial  and  geographical   information   relating  to  revenues,
      operating loss,  total assets,  and  depreciation and amortization for the
      year ended December 31, 1997 is as follows:

            INDUSTRIAL SEGMENTS

                                          Electrical
                                           Supplies      Medical
                                         Distribution    Service       Total
                                         ------------    -------       -----

      Revenues                             $8,391,632  $71,003,426  $79,475,058
      Loss before income tax benefit
      and cumulative effect of a change
      in accounting principle              (3,500,485)  (5,041,164)  (8,541,649)


                                      F-19
<PAGE>

      Total Assets                         13,914,766   13,630,619    27,545,385

      Depreciation and Amortization           174,033      857,304     1,031,337

            GEOGRAPHIC DATA

      The  Company's  operations  are conducted in several  geographic  regions:
      United States,  Europe and the  Commonwealth  of Independent  States.  The
      following is a summary of the company's  operations by geographic segment,
      as of and for the year ended December 31, 1997.

<TABLE>
<CAPTION>
                                                                                           Commonwealth of
                                                       United States            Europe    Independent States      Total
                                                       -------------            ------    ------------------      -----

<S>                                                    <C>                <C>                <C>               <C>         
        Revenue                                        $ 70,455,902       $    698,688       $  8,320,468      $ 79,475,058
        Income (loss) before taxes and
        cumulative effect of a change in
        accounting principle                             (9,743,532)           (66,472)         1,268,355        (8,541,649)

        Total Assets                                     24,449,123             89,360          3,006,902        27,545,384

</TABLE>
      14.    SUBSEQUENT EVENTS

      The Company entered into an agreement on April 8, 1998 for the sale of ten
      medical facilities located in Florida.  The facilities are being sold to a
      publicly  held  Company  for a  total  consideration  of  $6,750,000.  The
      agreement was closed on April 14, 1998. The proceeds from the sale will be
      used to pay down the Company's existing debt as well as to provide working
      capital for operations.

      The Company also  entered  into an agreement in principle  for the sale of
      its HallMark  subsidiary  to an  officer/shareholder  of the Company for a
      total consideration of $1,901,000 including a cash payment of $750,000 and
      the assumption of specific liabilities of the Company.
      The transaction is scheduled to close in the near future.

      The following  unaudited pro forma condensed  financial  information gives
      effect to the transactions  described above as if such events had occurred
      on  January  1,  1997.   This  financial   information  is  presented  for
      informational  purposes only and does not purport to represent  what FMG's
      results  of  operations  would  actually  have been if the  aforementioned
      transactions  had  occurred  on the dates  specified  or to project  FMG's
      results of operations for any future periods.


                                      F-20
<PAGE>
FIRST MEDICAL GROUP, INC.
UNAUDITED PRO-FORMA CONDENSED BALANCE SHEET
December 31, 1997


<TABLE>
<CAPTION>
                                                                HISTORICAL        ADJUSTMENTS        ADJUSTMENTS          PRO-FORMA
                                                                                  (See Note 1)       (See Note 2)
                         ASSETS
<S>                                                            <C>                <C>                <C>                <C>         
Cash                                                           $  1,151,416       $  1,391,602       $   (183,379)      $  2,359,639
Other current assets                                             19,944,777         (5,442,037)        (9,240,545)         5,262,195
Other assets                                                      6,449,192         (2,214,123)           (95,128)         4,139,941
Net assets held for disposal                                           --                 --            1,903,000          1,903,000
                                                               ------------       ------------       ------------       ------------

Total assets                                                   $ 27,545,385       $ (6,264,558)      $ (7,616,052)      $ 13,664,775
                                                               ============       ============       ============       ============

LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)

Current liabilities                                            $ 22,505,840       $(10,819,090)      $ (2,636,343)      $  9,050,407
Other liabilities                                                 6,093,266           (161,345)        (4,979,709)           952,212

Shareholders' equity (deficit)                                   (1,053,721)         4,715,877               --            3,662,156
                                                               ------------       ------------       ------------       ------------

Total liabilities and shareholders'
   equity (deficit)                                            $ 27,545,385       $ (6,264,558)      $ (7,616,052)      $ 13,664,775
                                                               ============       ============       ============       ============

</TABLE>
Note 1:
(a)  Recording  sale of Florida  medical  centers for $6.75  million in cash for
certain net assets of $430,049 with  difference  recorded to retained  earnings.
(b) Pay-off  loans at bank for  $2,827,812  with  proceeds  from sale and reduce
interest  expense by $180,000.
(c) Pay-off  amounts due to Humana in Florida and Texas of  $1,227,045  with the
proceeds from the sale.
(d) Pay-off  amounts due for accounts  payable and other accrued  liabilities of
$1,483,541 with the proceeds from the sale.
(e) Write-off goodwill of $1,784,074 recorded from the purchase of BMC.
(f) Reclass accrued medical claims payable of $5,442,037 to IBNR receivable.


Note 2:
(a)  Reclass  Hallmark  Electrical  Supplies Corp. assets and liabilities to net
assets held for disposal of $1,903,000.





                                      F-21
<PAGE>
FIRST MEDICAL GROUP, INC.
RESULTS OF OPERATIONS FOR DIVISIONS TO BE SOLD
December 31, 1997

<TABLE>
<CAPTION>
                                                                                   MEDICAL
                                                               HISTORICAL          CENTERS            HALLMARK          PRO-FORMA
                                                              ------------       ------------       ------------       ------------
                                                                                 (See Note 1)       (See Note 2)
<S>                                                           <C>                <C>                <C>                <C>         
Revenues                                                      $ 79,475,058       $(50,318,639)      $ (8,362,965)      $ 20,793,454
    Cost of operations                                          71,438,165        (47,695,118)        (5,925,502)        17,817,545
                                                              ------------       ------------       ------------       ------------

Gross margin                                                     8,036,893         (2,623,521)        (2,437,463)         2,975,909

    General and administrative                                  16,002,162         (4,731,087)        (2,078,029)         9,193,046
    Other expenses                                                 576,379          1,475,138           (218,586)         1,832,931
                                                              ------------       ------------       ------------       ------------

Income from operations                                          (8,541,648)           632,428           (140,848)        (8,050,068)

Income from operations of discontinued                             140,848            140,848
   division                                                           --                 --                 --                 --
                                                              ------------       ------------       ------------       ------------

Loss before tax benefit                                         (8,541,648)           632,428               --           (7,909,220)
Income tax benefit                                                  62,737               --                 --               62,737
                                                              ------------       ------------       ------------       ------------

Net loss                                                      $ (8,478,911)      $    632,428       $       --         $ (7,846,483)
                                                                                                                       ============
                                                              ============       ============       ============       ============
</TABLE>
Note 1:
(a) Reverse the 1997 combined  statement of  operations  of the medical  centers
sold.
(b) Reverse the 1997  statement of  operations  for the Miami  corporate  office
overhead, net of adjustments.
(c) Reduce interest expense by approximately  $180,000 as a result of paying off
loans to bank.
(d) Write-off goodwill of $1,784,074 recorded from the purchase of BMC.


Note 2:
(a) Reverse and reclass the  statement of  operations  for  Hallmark  Electrical
Supplies Corp. to income from discontinued operations of $140,848.


                                      F-22

<PAGE>

                            FIRST MEDICAL CORPORATION

                           CONSOLIDATED BALANCE SHEET
                                December 31, 1996

                                ASSETS
<TABLE>
<CAPTION>

<S>                                                                                                            <C>
Current assets:
Cash and cash equivalents                                                                                      $63,014
Humana IBNR receivable and claims reserve funds (note 10)                                                    7,308,482
Other receivables, net of $50,000 reserve for uncollectible accounts                                           536,506
Due from related parties, net (note 7)                                                                         462,329
Prepaid expenses and other current assets (note 1(d))                                                          179,125
                                                                                                          ------------
Total current assets                                                                                         8,549,456

Property and equipment, net (note 3)                                                                           399,841
Intangible assets, net (note 4)                                                                              2,735,848
Minority interest                                                                                              338,077
Other assets (note 1(d))                                                                                       300,000
                                                                                                          ------------

                                                                                                           $12,323,222
                                                                                                          =============

                           Liabilities and Stockholders' Equity

Current liabilities:

Accounts payable and other accrued expenses                                                                 $2,037,447
 Accrued medical claims, including amounts incurred but not reported                                         6,070,506
Corporate deposits                                                                                             806,476
Loans payable to Humana (note 5)                                                                                97,628
Loans payable to banks (note 6)                                                                                750,000
Obligations to certain stockholders (note 7)                                                                   421,600
Deferred income taxes, net (note 8)                                                                            112,500
Income taxes payable (note 8)                                                                                  300,000
                                                                                                          ------------

Total current liabilities                                                                                   10,596,157

Loans payable to Humana, net of current maturities (note 5)                                                    277,372
Obligations to certain stockholders, net of current maturities (note 7)                                        746,196
                                                                                                           -----------

Total liabilities                                                                                           11,619,725
                                                                                                           -----------

Stockholders' equity:

Capital stock 15,000 shares authorized; 10,000 shares issued and outstanding at                                    100
   par value, $.01 per share
Additional paid-in capital                                                                                     379,685
 Retained earnings                                                                                             323,712
                                                                                                           -----------
Total stockholders' equity                                                                                     703,497
                                                                                                           -----------
Commitments and contingencies (note 12)

                                                                                                           $12,323,222
                                                                                                           ===========

</TABLE>

See accompanying notes to consolidated financial statements.

                                      F-23

<PAGE>

                            FIRST MEDICAL CORPORATION

                        CONSOLIDATED STATEMENT OF INCOME

                          Year ended December 31, 1996
<TABLE>
<CAPTION>

<S>                                                                                                 <C>
Revenues:
Capitated revenue - Humana (note 10)                                                                $       45,069,743
Fee for service                                                                                              7,075,458
Other revenue                                                                                                  869,124
                                                                                                            ----------

Total revenue                                                                                               53,014,325
                                                                                                           -----------
 Medical expenses                                                                                           43,526,181
                                                                                                           -----------
         Gross profit                                                                                        9,488,144
Operating expenses:


Salaries and related benefits (note 7)                                                                       3,502,860
General and administrative                                                                                   4,172,568
Depreciation and amortization                                                                                  530,490
Minority interest in net loss of consolidated subsidiaries                                                    (338,077)
Preopening and development costs related to international clinics                                              828,568
                                                                                                           -----------
                                                                                                             

         Total operating expenses                                                                            8,696,409

Income before interest, taxes, and other                                                                       791,735
                                                                                                           -----------
Other expense:

Interest expense, net                                                                                         (55,523)

Other expense                                                                                                 (55,523)
                                                                                                              ------- 


Income before taxes                                                                                            736,212
Provision for income taxes (note 8)                                                                            412,500
                                                                                                           -----------

 Net income                                                                                         $          323,712
                                                                                                           ===========

 Supplemental Earnings per share after giving effect to
 the merger and the 1-for-30 reverse stock split
 with Lehigh Group, Inc. on July 9, 1997 (see note 2(M))                                            $             .04
                                                                                                           ==========

</TABLE>

See accompanying notes to consolidated financial statements

                                      F-24

<PAGE>
                            FIRST MEDICAL CORPORATION

                 CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY

                          Year ended December 31, 1996

<TABLE>
<CAPTION>

                                                                    Additional                         Total
                                                      Capital         paid-         Retained       stockholders'
                                                       Stock        in capital      earnings          equity
                                                       -----        ----------      --------          ------

<S>                                                     <C>            <C>           <C>
Balance, December 31, 1995                              $1,500          $1,200        $224,595         $227,295

FMC Corporate transaction                               (1,400)        225,995       (224,595)               --

Capital contribution to AMCD                               --          152,490              --          152,490

Net income                                                 --               --         323,712          323,712
                                                        ------        --------        --------         --------

Balance, December 31, 1996                              $  100        $379,685        $323,712         $703,497
                                                         ======        =======         =======          =======
</TABLE>


See accompanying notes to consolidated financial statements.

                                      F-25
<PAGE>

                            FIRST MEDICAL CORPORATION

                      CONSOLIDATED STATEMENT OF CASH FLOWS

                      For the year ended December 31, 1996

Cash flows from operating activities:

<TABLE>
<CAPTION>
<S>                                                                                                      <C>
 Net income                                                                                              $323,712
  Adjustments to reconcile net income to net cash used in operating activities:
  Depreciation and amortization                                                                           530,490
  Gain on equity investments                                                                              (78,259)
  Minority interest in net loss of consolidated subsidiaries                                             (338,077)
  Change in assets and liabilities, net of acquisitions :
   Increase in Humana IBNR receivable and claims reserve funds                                         (2,343,563)
   Increase in other receivables                                                                         (536,506)
   Increase in due from related parties, net                                                             (457,447)
   Increase in prepaid expenses and other current assets                                                  (94,438)
   Increase in other assets                                                                              (300,000)
   Increase in accounts payable and other accrued expenses                                                450,634
   Increase in accrued medical claims, including amounts incurred but not reported                      1,858,086
   Increase in corporate deposits                                                                          56,201
   Increase in income taxes payable                                                                       278,272
   Increase in deferred income taxes liability, net                                                        83,027
                                                                                                         --------

    Net cash used in operating activities                                                                (567,868)
                                                                                                        -----------

Cash flows used in investing activities:

 Capital expenditures                                                                                    (119,328)
 Organizational costs                                                                                    (477,790)
 Acquisition of additional ownership interests in BMC, SPI Broward, and Midwest, net                     (151,249)
  of cash acquired
 Proceeds from sale of investment                                                                         300,000
                                                                                                        ---------

    Net cash used in investing activities                                                                (448,367)
                                                                                                        ----------

 Cash flows provided by financing activities:

  Proceeds from loan payable to Humana                                                                    325,000
  Proceeds from loans payable to banks                                                                    650,000
  Repayment of loans payable to banks                                                                    (250,000)
  Proceeds from payable to stockholders                                                                   374,596
  Payment of obligation to stockholders                                                                  (371,600)
  Contribution to capital of AMCD                                                                         152,490
                                                                                                        ---------
 Net cash provided by financing activities                                                                880,486
                                                                                                        ---------
 Decrease in cash and cash equivalents                                                                   (135,749)
 Cash and cash equivalents, beginning of year                                                             198,763
                                                                                                        ---------
 Cash and cash equivalents, end of year                                                                  $ 63,014
                                                                                                         ========

Supplemental disclosure cash flow information: Cash paid during the year for:
  Interest                                                                                               $ 48,748
                                                                                                         ========
  Income taxes                                                                                           $ 33,291
                                                                                                         ========
</TABLE>


                                      F-26

<PAGE>

                            FIRST MEDICAL CORPORATION

                CONSOLIDATED STATEMENT OF CASH FLOWS (CONTINUED)

Supplemental disclosure of noncash flow:

 (1) As  described  in note (1),  AMCMC  purchased  certain  assets and  assumed
     certain  liabilities  in the  amount of  $1,020,275  which is  included  in
     goodwill at December 31, 1996 (note 4).

 (2) The Company  entered into a noncompete  agreement  with a  shareholder  and
     former employee in the amount of $200,000.

 (3) Effective  January 1, 1996, the Company acquired a controlling  interest in
     two of its equity investments (see note 1(a)). The fair value of the assets
     acquired and liabilities assumed were:

                         Assets            Liabilities           Net Assets
                         ------            -----------           ----------

SPI Broward             $  117,085               55,558                61,527

Broward                 $3,082,464            3,242,579             (160,155)

 (4) The  Company  entered  into  employment/non-compete  agreements  with three
     executives in the amount of $964,800.

See accompanying notes to consolidated financial statements.

                                      F-27
<PAGE>
                            FIRST MEDICAL CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 1996

(1) ORGANIZATION AND OPERATION

First Medical Corporation ("FMC" or the "Company") is an international  provider
of management,  consulting, and financial services to physicians,  hospitals and
other health care delivery  organizations  and facilities.  FMC's operations are
conducted through three divisions:  (a) a physician practice management division
which provides physician management services including the operation of clinical
facilities  and  management  services to medical  groups,  (b) an  international
division which manages medical centers in Eastern Europe and the Commonwealth of
Independent States (the former Soviet Union) ("CIS"),  and (c) a recently formed
hospital services  division which will provide a variety of  administrative  and
clinical  services to  proprietary  acute care  hospitals  and other health care
providers.

The  consolidated  financial  statements  include  the  accounts  of FMC and its
majority  owned  subsidiaries:   MedExec,  Inc.  and  subsidiaries  ("MedExec");
American Medical Clinics Management Company,  Inc.  ("AMCMC");  American Medical
Clinics Development  Corporation,  Limited ("AMCD") and FMC Healthcare Services,
Inc.  ("FMC-HS").  All significant  intercompany  balances and transactions have
been eliminated in consolidation.

MedExec, Inc. ("MedExec") was incorporated on March 14, 1991.

On January 1, 1996 MedExec and American Medical Clinics, Inc. (AMC) entered into
a transaction which consisted of the following:

*    AMC and MedExec incorporated FMC;

*    All of the outstanding shares of MedExec and AMC were converted into shares
     of FMC;

*    The  shareholders  of MedExec and AMC received 48% and 52% of the shares of
     FMC, respectively;

*    100% of the AMC shares were  distributed to the shareholders of FMC (former
     shareholders of MedExec received 48% of the distributed shares of AMC);

*    In  connection  with the  above  transaction,  FMC  entered  into  separate
     employment   contracts  with  three   executives  of  MedExec  whereby  the
     respective  executives are guaranteed  payments  regardless if any services
     are  rendered.  The  agreements  are for a three  year  period and when the
     contracts  expire  they  include an  additional  two year  covenant  not to
     compete.  The  employment/non-compete  agreements  have been  classified as
     intangible assets in the financial statements and are being authorized over
     five years. (See Note 4).

The above  transaction was accounted for under the purchase method of accounting
with MedExec  being  deemed the  accounting  acquirer  despite the fact that AMC
received  52% of the shares of FMC.  This  result was reached due to among other
factors  the fact that  immediately  after  this  transaction,  the FMC Board of
Directors was comprised of four former  shareholders of MedExec and three former
shareholders  of AMC and the fact that MedExec  constituted  the larger share of
operations.  Because  of the short  term  monetary  nature of AMC's  assets  and
liabilities,  historical book values  constituted  fair value on the transaction
date  resulting in no purchase price  adjustments  under  Accounting  Principles
Board No. 16.

                                      F-28
<PAGE>
On January 2, 1996, AMCMC, a newly formed subsidiary of FMC, acquired from AMC a
membership list (contracts to provide medical services to customers) and assumed
certain liabilities of AMC. The transaction was accounted for under the purchase
method of accounting  because,  in essence,  the purchase of the membership list
represented  the  acquisition.  AMCMC acquired the income stream of an operating
enterprise.  Goodwill was recorded in the amount of  $1,020,275  related to this
transaction.

AMCMC, a wholly owned  subsidiary of the Company,  has entered into a management
services  agreement  with the AMC  clinics  located in the CIS,  whereby the AMC
clinics provide medical services to AMCMC customers (see note 7). AMCMC collects
all of the revenues  directly from its members,  which it is legally entitled to
collect. AMCMC also pays all of AMC's expenses, including but not limited to the
salaries of the physicians, which it is legally obligated to pay.

On January 20, 1996,  the Company  entered into an  agreement  with  Generale de
Sante  International,  plc  ("GDS") to form  AMCD,  an Irish  company.  AMCD was
established to develop and operate medical clinics throughout the world with the
exception  of within the CIS.  The  Company  and GDS's  shareholderings  in AMCD
Common Stock, as revised,  are 51% and 49%,  respectively.  The authorized share
capital of AMCD is comprised of 1,000 shares of Common  Stock,  $1.00 par value.
As consideration for the shares, the Company agreed to contribute certain assets
at historical cost in the amount of $300,001.  GDS agreed to contribute $299,999
to AMCD and provide a credit  facility of up to $1.2  million to be used for the
development  of new clinics.  These  contributions  resulted in total capital of
AMCD of  $600,000.  Included in the  statement  of cash flows for the year ended
December 31, 1996 is $152,490 for GDS's capital  contribution  of $299,999.  GDS
has an option to  purchase  up to 51% of the  AMCD's  Common  stock in the event
certain changes in management  control occur. The additional  consideration will
be determined by the Company and GDS.

 (A) PHYSICIAN PRACTICE MANAGEMENT DIVISION - MEDEXEC

The Company's physician practice  management  operations are currently conducted
through MedExec.  MedExec  functions in two capacities as a management  services
organization:  (i) owning and  operating  nine primary care centers  (located in
Florida and Indiana)  which have full risk contracts for primary care and part B
services and partial risk (50%) for part A services,  and (ii) managing  sixteen
multi-specialty  groups  (located in Florida and Texas) with fee-for service and
full risk  contracts for primary care and part B services and partial risk (50%)
for part A  services.  Full risk  contracts  are  contracts  with  managed  care
companies where FMC assumes  essentially all  responsibility  for a managed care
members'  medical  costs and partial  risk  contracts  are  contracts  where FMC
assumes partial responsibility for a managed care members' medical costs.

Ownership  and  operation  of primary care  centers  ("centers")  with full risk
contracts are achieved through  MedExec's  subsidiaries:  SPI Managed Care, Inc.
("SPI"),  incorporated  on February 19, 1988,  SPI Managed Care of  Hillsborough
County,  Inc.  ("SPI  Hillsborough"),  incorporated  on April 20, 1993,  Broward
Managed  Care,  Inc.  ("BMC"),  incorporated  on January 21,  1994,  and Midwest
Managed Care, Inc. ("Midwest"), incorporated on March 29, 1995.

                                      F-29
<PAGE>

                            FIRST MEDICAL CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 1996

SPI,  SPI  Hillsborough,  and  BMC  provide  health  care  services  subject  to
affiliated  provider  agreements  entered into with Humana  Medical Plan,  Inc.;
Humana  Health Plan of Florida,  Inc.;  and Humana Health  Insurance  Company of
Florida,  Inc.  and their  affiliates.  Midwest  provides  health care  services
subject to affiliated  provider agreements entered into with Humana Health Plan,
Inc., Humana Health Chicago,  Inc.; and Humana Health Chicago Insurance Company,
Humana Insurance Company and their  affiliates.  All of the Humana entities will
collectively  be known as  "Humana".  The Company is dependent on Humana for the
majority of its operations.  For the year ended December 31, 1996, 85 percent of
the Company's revenue is from such agreements with Humana.

SPI operates two centers in Dade County,  Florida  located in Kendall and Cutler
Ridge.

SPI  Hillsborough  operates four centers in the west coast of Florida located in
Plant City, New Port Richey, Lutz, and South Dale Mabry. The affiliated provider
agreements to operate the centers in New Port Richey,  Lutz and South Dale Mabry
were entered into in 1996.

BMC operates two centers in Broward  County,  Florida  located in Plantation and
Sunrise.

During 1996, Midwest operated one center in Hammond,  Indiana. In February 1997,
Midwest also began to operate an additional center in Gary, Indiana.

Health  services  are provided to Humana  members  through the centers and their
networks of physicians and health care  specialists.  Services to be provided by
the centers  include  medical and surgical  services,  including all  procedures
furnished in a physician's office such as X-rays,  nursing services,  blood work
and other incidental,  drugs and medical  supplies.  The centers are responsible
for providing all such services and for directing and authorizing all other care
for Humana members. The centers are financially  responsible for all out-of-area
care rendered to a member and provide  direct care as soon as the member is able
to return to the designated medical center.

Humana has agreed to pay the centers  monthly for  services  provided to members
based  on  a  predetermined  amount  per  member  ("capitation")   comprised  of
in-hospital  services  and  other  services  defined  by  contract  ("Part  A"),
in-office  ("Primary")  and other  medical  services  defined by the  agreements
("Part  B").  For new or  start-up  centers  like the Gary  center,  Humana  has
guaranteed  a  monthly  amount  to cover the  costs of  providing  primary  care
services and other operating costs.  The guaranteed  payments are made until the
earlier of the date on which the center achieves a certain  membership  level or
six months to one calendar year from the  commencement  date of the agreement at
which point Humana will pay the center a capitation.

SPI Managed Care of Broward, Inc. ("SPI Broward"),  incorporated in the State of
Florida  on July 15,  1992,  manages  the full risk  managed  care  segment of a
nonaffiliated   multi-specialty  group  practice  in  Broward  County,  Florida.
Effective   February  1,  1996,   First   Medical   Corporation-Texas   Division
("FMC-Texas")  began  managing a  multi-specialty  medical  practice in Houston,
Texas ("Houston medical practice") that has a full risk contract with Humana and
fee-for-service.

On December 31, 1995, FMC had a 23.75% and 50% investment,  respectively, in BMC
and SPI Broward.  Effective  January 1, 1996 the Company acquired 71.25% and 50%
interest,  respectively, in BMC and SPI Broward, respectively for $50,000 plus a
multiple of the  average  earnings  before  income  taxes of these two  entities
during the years ending  December  31, 1996 and 1997.  The multiple is three for
cash  consideration,  and 3.5 times for a combination  of stock and cash.  Based
upon the earnings of BMC for the year ended  December 31, 1996 and assuming that
the multiple used is 3.5 times,  the purchase  price for the  acquisition  would

                                      F-30

<PAGE>
                            FIRST MEDICAL CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 1996

approximate  $1.7  million.  This  acquisition  gives the Company a 95% and 100%
investment  in BMC  and  SPI  Broward,  respectively.  The  final  value  of the
consideration  is not yet determinable as the seller has the option of obtaining
cash  and/or  stock  and as the price is based on the  average  of 1996 and 1997
earnings.  Additional  goodwill will be recorded at the time the  transaction is
finalized in  accordance  with the purchase  method of  accounting.  Goodwill at
December 31, 1996 amounted to $327,778.

On December 31, 1995, the Company had a 66 2/3% investment in Midwest. Effective
January 1, 1996,  the Company  acquired the  remaining  investment  and recorded
goodwill of  $150,855 as a result of the  purchase  method of  accounting.  Book
value constituted fair value on the transaction date.

(B) HOSPITAL SERVICES DIVISION- FMC-HS

FMC-HS was incorporated on June 13, 1996 and is 51% owned by the Company and 49%
owned by General de Sante  International,  PLC  ("GDS").  The Company  commenced
operations  in August  1996 and plans to  provide  management,  consulting,  and
financial services to troubled not-for-profits and other health care providers.

(C) PROPOSED LEHIGH MERGER

On October 29, 1996, the Company entered into a proposed  merger  agreement with
the Lehigh  Group,  Inc.  ("Lehigh")  whereby  upon  merger,  FMC would  control
approximately  96% of Lehigh.  The  proposed  merger is  subject to  stockholder
approval of Lehigh and the Company. Under the terms of the proposed merger, each
share of the FMC Common Stock would be  exchanged  for (i)  1,127.675  shares of
Lehigh Common Stock and (ii) 103.7461  shares of Lehigh  Preferred  Stock.  Each
share of Lehigh  Preferred  Stock will be convertible  into 250 shares of Lehigh
Common  Stock and will have a like  number of votes per share,  voting  together
with the Lehigh Common Stock. Currently,  there are outstanding 10,000 shares of
FMC Stock.  As a result of these  actions,  immediately  following  the  merger,
current Lehigh stockholders and FMC stockholders will each own 50% of the issued

                                      F-31
<PAGE>
                 FIRST MEDICAL CORPORATION NOTES TO CONSOLIDATED
                     FINANCIAL STATEMENTS DECEMBER 31, 1996

and  outstanding  shares of Lehigh  Common  Stock.  In the event that all of the
shares of  Lehigh  Preferred  Stock  issued to the  Company's  stockholders  are
converted into Lehigh Stock,  Lehigh  stockholders will own approximately 4% and
the  Company's  stockholders  will  own  approximately  96%  of the  issued  and
outstanding  shares of Lehigh Common Stock. In addition,  under the terms of the
proposed merger agreement, Lehigh will be renamed "First Medical Group, Inc."

In connection with the proposed merger, Lehigh issued a convertible debenture to
the  Company in the amount of  $300,000  with  interest at two percent per annum
over the prime  lending  rate.  The  debenture is recorded in other  assets.  In
addition,  the Company  advanced  $50,000 to Lehigh.  The advance is included in
prepaid expenses and other current assets.

On February 12, 1997, the Company purchased 1,920,757 shares of Lehigh stock for
$.281 per share.

(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 (A)  CASH AND CASH EQUIVALENTS

Cash equivalents  consist of demand  deposits.  For purposes of the consolidated
statement  of  cash  flows,  the  Company   considers  all  highly  liquid  debt
instruments  with  original  maturities  of  three  months  or less to be a cash
equivalent.

(B) HUMANA IBNR RECEIVABLE AND CLAIMS RESERVE FUNDS (63)

Humana  withholds  certain  amounts each month from the centers' Part A, Part B,
and  supplemental  funding in order to cover claims incurred but not reported or
paid.  The  amount  is used by  Humana  to pay the  centers'  Part A, Part B and
supplemental  costs.  The amounts  withheld by Humana to cover  incurred but not
reported or paid claims varies by center based on the history of the  respective
center and is determined solely by Humana.

Humana also  withholds  a certain  amount  each month from the  centers'  Part A
capitation funding.  This amount represents a "catastrophic  reserve fund" to be
utilized for the payment of a center's Part A costs in the event a center ceases
operations  and the  incurred  but not  reported  reserves  are not  adequate to
reimburse  providers  for Part A services  rendered.  This amount is  calculated
monthly by Humana.

The withholdings are used to pay the centers' medical claims,  which Humana pays
on the  centers'  behalf.  The  remaining  amount after claims have been paid is
remitted to the company.

(C) PROPERTY AND EQUIPMENT

Property  and  equipment  are  stated  at cost.  Depreciation  on  property  and
equipment is calculated  on the straight  line method over the estimated  useful
lives.  (Medical and office  equipment - 5 years and  Furniture and fixtures - 7
years)

(D) INTANGIBLE ASSETS

Goodwill,  which  represents the excess of purchase price over fair value of net
assets acquired, is amortized on a straight-line basis over the expected periods
to be  benefited,  15 years.  The Company  assesses the  recoverability  of this
intangible asset by determining whether the amortization of the goodwill balance
over its remaining life can be recovered through  undiscounted  future operating
cash flows of the acquired operation. The amount of goodwill impairment, if any,
is measured based on projected  discounted  future  operating cash flows using a
discount rate reflecting the Company's  average cost of funds. The assessment of

                                      F-32

<PAGE>

                 FIRST MEDICAL CORPORATION NOTES TO CONSOLIDATED
                     FINANCIAL STATEMENTS DECEMBER 31, 1996


the  recoverability  of goodwill will be impacted if estimated  future operating
cash flows are not achieved.

The Company  entered into a  non-compete  agreement  with a former  employee and
shareholder.  This  non-compete  agreement is being amortized on a straight line
basis over the life of the agreement which is two years.

The Company  entered  into three  employment/non-compete  agreements  with three
shareholders.  The agreements consist of guaranteed  payments  regardless if any
services are rendreed.  These  agreements are being amortized on a straight line
basis  over 5 years  which  is the  life of the  agreement  (3  years)  plus the
subsequent non-compete period (2 years).

Deferred  organization  costs  consist  principally  of  legal,  consulting  and
investment  banking fees which were  incurred  strictly in  connection  with the
incorporation  of FMC and proposed merger with Lehigh.  The costs related to the
FMC transaction  are being  amortized over five years.  The costs related to the
subsequent Lehigh merger will begin amortizing when the merger is complete.

(E) IMPAIRMENT OF LONG-LIVED ASSETS

The  Company  adopted  the  provisions  of  SFAS  No.  121,  Accounting  for the
Impairment of Long-Lived  Assets and for Long-Lived Assets to Be Disposed Of, on
January 1, 1996.  This  Statement  required that  long-lived  assets and certain
identifiable  intangibles be reviewed for impairment  whenever  events change in
circumstances  indicate  that  the  carrying  amount  of an  asset  may  not  be
recoverable.  Recoverability  of  assets  to be held and used is  measured  by a
comparison of the carrying  amount of an asset of future net cash flows expected
to be generated by the asset. If such assets are considered to be impaired,  the
impairment  to be  recognized  is measured  by the amount by which the  carrying
amount of the assets exceed the fair value of the assets.  Assets to be disposed
of are reported at the lower of the carrying amount or fair values less costs to
sell. Adoption of this Statement did not have a material impact on the Company's
financial  position,  results of  operations,  or liquidity.  The Company has no
impaired assets at December 31, 1996.

(F) INCOME TAXES

Income taxes are accounted for under the asset and  liability  method.  Deferred
tax assets  and  liabilities  are  recognized  for the  future tax  consequences
attributable to differences  between the financial statement carrying amounts of
existing  assets and  liabilities  and their  respective tax bases and operating
loss and tax  credit  carryforwards.  Deferred  tax assets  are  measured  using
enacted  tax rates  expected  to apply to  taxable  income in the years in which
those temporary  differences are expected to be recovered or settled. The effect
on deferred tax assets and liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date.

(G) REVENUE AND MEDICAL COST RECOGNITION

Revenue from Humana for primary care, Part A, Part B and  supplemental  funds is
recognized  monthly on the basis of the number of Humana members assigned to the
primary care centers and the contractually  agreed-upon  rates. The primary care
centers receive  monthly  payments from Humana after all expenses paid by Humana
on behalf of the centers,  estimated claims incurred but not reported and claims
reserve fund balances have been determined.  In addition to Humana payments, the
primary care centers receive copayments from commercial members from each office
visit,  depending  upon the  specific  plan and  options  selected  and  receive
payments from non-Humana members on a fee-for-service basis.

                                      F-33
<PAGE>

                 FIRST MEDICAL CORPORATION NOTES TO CONSOLIDATED
                     FINANCIAL STATEMENTS DECEMBER 31, 1996

Medical  services  are  recorded  as  expenses  in the  period in which they are
incurred. Accrued medical claims are reflected in the consolidated balance sheet
and are based upon  costs  incurred  for  services  rendered  prior to and up to
December  31,  1996.  Included  are  services  incurred  but not  reported as of
December 31, 1996,  based upon actual costs reported  subsequent to December 31,
1996 and a reasonable estimate of additional costs.


AMCMC and AMCD revenues are derived from medical  services  rendered to patients
and annual  membership  fees  charged to  individuals,  families  and  corporate
members.  Membership fees are  non-refundable and are recognized as revenue over
the term of the membership.  Corporate members are also required to make advance
deposits based upon plan type,  number of employees and dependents.  The advance
deposits  are  initially  recorded as  deferred  income and then  recognized  as
revenue  when  service  is  provided.  As the  advance  deposits  are  utilized,
additional advance deposits are required to be made by corporate members.


FMC-HS will recognize revenue under the management consulting service agreements
on a fee-for-service basis as services are rendered by FMC-HS personnel.

Fee-for-service revenue is reported at the estimated net realizable amounts from
patients and third-party payors as services are rendered.

(H) USE OF ESTIMATES

Management  of the  Company  has  made a number  of  estimates  and  assumptions
relating  to the  reporting  of assets and  liabilities  and the  disclosure  of
contingent  assets and  liabilities  to  prepare  these  consolidated  financial
statements in conformity with generally accepted accounting  principles.  Actual
results could differ from those estimates.

(I) FAIR VALUE OF FINANCIAL INSTRUMENTS

The  carrying   amount  of  financial   instruments   including  cash  and  cash
equivalents, Humana IBNR receivable and claims reserve funds, other receivables,
prepaid  expenses and other current assets,  accounts  payable and other accrued
expenses,  accrued medical claims, loan payable to Humana, loans payable to bank
and obligations to certain  stockholders  approximate fair value at December 31,
1996 because of the short term maturity of these instruments.

(J) FOREIGN CURRENCY

The financial  statements of the Company's  foreign  subsidiaries are remeasured
into the US dollar functional currency for consolidation and reporting purposes.
Current  rates of exchange  are used to  remeasure  assets and  liabilities  and
revenue and expense are remeasured at average monthly  exchange rates prevailing
during the year.

(K) STOP-LOSS FUNDING

The primary care  centers are charged a stop-loss  funding fee by Humana for the
purpose of limiting a center's exposure to Part A costs and certain Part B costs
associated with a member's heath services.


                                      F-34

<PAGE>

                 FIRST MEDICAL CORPORATION NOTES TO CONSOLIDATED
                     FINANCIAL STATEMENTS DECEMBER 31, 1996

For the year ended  December 31, 1996,  the stop-loss  threshold for both part A
and Part B costs for Medicare  members was $40,000 per member per calendar  year
for  both  SPI and SPI  Hillsborough.  For  commercial  members,  the  stop-loss
threshold  for both Part A and part B costs was  $20,000 and $15,000 for SPI and
SPI Hillsborough, respectively.

Since the SPI and SPI  Hillsborough  centers are not  responsible  for claims in
excess of the threshold, income and the corresponding expense, both equal to the
stop-loss funding are recognized by SPI and SPI Hillsborough.  These amounts are
included in revenue  and medical  expenses,  respectively,  in the  accompanying
consolidated  statement  of  income.  Stop-loss  funding  for  the  SPI  and SPI
Hillsborough  centers for the year ended  December  31,  1996 was  approximately
$4,733,000.

For  Midwest,  the  stop-loss  thresholds  for Part A and for  Part B costs  for
Medicare members were $45,000 and $15,000, respectively, per member per calendar
year and the  stop-loss  thresholds  for  Part A and for  Part B for  commercial
members were $60,000 and $15,000 respectively, per member per calendar year.

(L) MATERNITY FUNDING

The primary  care  centers are  charged a  maternity  funding fee on  commercial
membership for the purpose of limiting the center's  exposure to Part A and Part
B costs  associated  with a commercial  member's  pregnancy or related  illness.
Since the SPI and SPI  Hillsborough  centers are not  responsible  for claims in
excess of the amount contributed to the maternity fund, income and expenses both
equal to the maternity fund are recognized by SPI and SPI  Hillsborough  and are
included in revenue  and  medical  expenses,  respectively  in the  accompanying
consolidated  statement  of  operations.  Maternity  funding for the SPI and SPI
Hillsborough  centers for the year ended  December  31,  1996 was  approximately
$1,403,000.

(M) SUPPLEMENTAL EARNINGS PER SHARE

On July 9, 1997 the Company  merged with Lehigh Group,  Inc. As a result of this
merger and the  conversion  of Preferred  Stock and the 1-for-30  reverse  stock
split on November  12,  1997,  the Company had shares  outstanding  of 9,021,400
resulting in a net earnings per share of $.04 per share.

(3) PROPERTY AND EQUIPMENT, NET

Property and equipment at December 31, 1996 consists of the following:

Medical, computer and office equipment        $703,793

Furniture and fixtures                          37,986
                                              --------
                                               741,779

Less: accumulated depreciation                 341,938
                                             ---------

Property and equipment, net                   $399,841
                                             =========

                                      F-35

<PAGE>
                 FIRST MEDICAL CORPORATION NOTES TO CONSOLIDATED
                     FINANCIAL STATEMENTS DECEMBER 31, 1996

(4) INTANGIBLE ASSETS

 Intangible assets at December 31, 1996 consist of:

Goodwill                                    $1,498,908

Employment/non-compete agreements
  with executives                              964,800

Organization costs                             480,337

Noncompete agreement with former
  shareholder                                  200,000
                                            ----------

                                             3,144,045

Less: accumulated amortization                 408,197
                                            ----------

                                            $2,735,848
                                            ==========

As stated in note 1, the following transactions created goodwill at December 31,
1996:

AMCMC                                       $1,020,275

BMC and SPI Broward                            327,778

Midwest Managed Care                           150,855
                                            ----------
                                            $1,498,908
                                            ==========

The Company  continually  reevaluates  the  propriety of the carrying  amount of
goodwill  and  other  intangible  assets as well as the  amortization  period to
determine  whether current events and circumstances  warrant  adjustments to the
carrying value and estimates of useful lives. At this time, the Company believes
that no  significant  impairment  of  goodwill  or other  intangible  assets has
occurred and that no reduction of the amortization periods is warranted.

(5) LOANS PAYABLE TO HUMANA

Loans payable to Humana at December 31, 1996 consist of the following:
<TABLE>
<CAPTION>

<S>                                                                                   <C>
     Secured loan for $250,000 bearing  interest at 9.5%.  Payable in 48 monthly
     installments  beginning in February 1997 of $6,850 which includes principal
     and  interest.   The  loan  is  secured  by  the  Company's  equipment  and
     furnishings at the Houston  Medical  Practice.  Proceeds from the loan were
     used  primarily  for the  purchase  of  equipment  at the  Houston  medical
     practice.                                                                        $ 250,000
</TABLE>


                                      F-36

<PAGE>

                 FIRST MEDICAL CORPORATION NOTES TO CONSOLIDATED
                     FINANCIAL STATEMENTS DECEMBER 31, 1996

<TABLE>
<CAPTION>

<S>                                                                                   <C>
     Secured  loan for  $75,000  bearing  interest  at 9.5%.  Payable  in twelve
     monthly  installments  beginning in February 1997 which includes  principal
     and interest of $7,172. The loan is secured by the Company's  equipment and
     furnishings at the Houston  Medical  Practice.  Proceeds from the loan were
     used primarily for working capital needs of the Houston medical practice.          75,000

     Advance of $50,000  bearing  interest at 10% per year for the  purchase and
     installation  of a computer  system and  related  training  at the  Midwest
     locations.  The loan is due by September 30, 2000. Monthly  installments to
     Humana will be a minimum of 10% of any positive balance in Midwest's Part A
     Fund. In the event no positive  balance exists in the Part A fund,  Midwest
     will make a minimum  monthly  payment  of $1,268  until the loan is repaid.
                                                                                          50,000
                                                                                        --------

Total long-term loans payable to Humana                                                  375,000

Less current installments                                                                 97,628
                                                                                        --------

Loans payable to Humana, excluding current installments                               $  277,372
                                                                                      ===========
</TABLE>


 The aggregate  maturities of loans payable to Humana for each of the five years
 subsequent to December 31, 1996 are as follows:

1997                                                    $ 97,628

1998                                                      81,751

1999                                                      82,688

2000                                                     106,097

2001                                                       6,836
                                                        --------
                                                        $375,000
                                                        ========

(6) LOANS PAYABLE TO BANKS

 Loans payable to banks at December 31, 1996 consists of the following:
<TABLE>
<CAPTION>

<S>                                                                                   <C>
     Unsecured line of credit for $200,000  bearing  interest at prime (8.25% at
     December 31, 1996). The line of credit is personally  guaranteed by several
     stockholders of the Company and other individuals. The principal balance is
     due on June 2, 1997. Interest is due monthly. The $200,000 drawn under this
     line of  credit  was used  primarily  for  development  costs  relating  to
     Midwest.                                                                         $ 200,000
</TABLE>



                                      F-37

<PAGE>

                 FIRST MEDICAL CORPORATION NOTES TO CONSOLIDATED
                     FINANCIAL STATEMENTS DECEMBER 31, 1996
<TABLE>
<CAPTION>

<S>                                                                                   <C>
     Line of credit for $1,500,000  bearing  interest at 1/2% above prime (8.75%
     at December 31,  1996).  $900,000 of the line is secured by MedExec's  cash
     and certain net assets of the Company.  Secured assets total  $1,237,976 at
     December  31,  1996.  The  principal  balance  is due on May 31,  1997  and
     interest  is due  monthly.  In  order to  borrow  the  additional  $600,000
     (unsecured  portion of line), the bank would require the personal guarantee
     of a  stockholder  of the Company.  The  $550,000  drawn under this line of
     credit was used primarily for working capital requirements.                        550,000
                                                                                      ---------
                                                                                      $ 750,000
                                                                                      =========
</TABLE>


FMC recently  obtained a loan  commitment in the amount of  $3,300,000  from the
same bank which provided the $1,500,000 line of credit.  The commitment is for a
120 day loan  bearing  interest at the prime plus 1/2%  (8.75% at  December  31,
1996).  The purpose of the loan is to provide  financing for the Lehigh  merger.
The loan is secured by all of the assets of FMC, 50% of the shares of FMC Common
Stock owned by FMC's Chairman and Chief Executive Officer and any and all shares
of Lehigh Common Stock are issuable to FMC.

The  various  debt  agreements  contain  certain   covenants.   Under  the  most
restrictive  of these  provisions,  certain  stockholders  of the  Company  must
personally  guarantee  $600,000 for the $1,500,000 line of credit as well as the
additional $3,300,000 line of credit.

(7) RELATED PARTY TRANSACTIONS

At  December  31,  1996,   obligations  to  certain  shareholders  includes  the
following:
<TABLE>
<CAPTION>

<S>                                                                                   <C>
     Obligation to pay consulting fees to three  stockholders in connection with
     the transaction between MedExec and AMC.  Obligations have been recorded as
     a liability due to the  stockholders not having to provide any services for
     this  consideration  to be paid.  Payable monthly in the amount of $26,800.
     Obligations   will  be  repaid  by  December  31,   1998.   The  amount  of
     consideration paid in 1996 related to these agreements was $321,600.             $ 643,200

     Credit   facility   bearing   interest  at  4.5%  from   General  de  Sante
     International,  plc of up to $1,200,000 to be used for the  development  of
     the  clinics of AMCD.  $100,000 is to be repaid on demand at any time after
     July 10, 2001,  $100,000 is to be repaid on demand at any time after August
     9, 2001 and $174,596 on demand any time after  January 17, 2002,  or on the
     date GDS subscribes for shares in FMC under the subscription agreement (see
     note 12).                                                                          374,596
</TABLE>

                                      F-38

<PAGE>
                 FIRST MEDICAL CORPORATION NOTES TO CONSOLIDATED
                     FINANCIAL STATEMENTS DECEMBER 31, 1996
<TABLE>
<CAPTION>

<S>                                                                                   <C>
     Obligation  under  non  compete   agreement  with  a  former  employee  and
     stockholder payable in monthly installments of $8,333 until June 1998 (note
     4).                                                                              150,000
                                                                                      -------

     Total  obligations  to  stockholders                                           1,167,796
     Less current  installments                                                       421,600
                                                                                    ----------

     Total obligations to stockholders, excluding current installments              $ 746,196
                                                                                    ==========

</TABLE>

The aggregate  maturities of  obligations to  stockholders  for each of the five
years subsequent to December 31, 1996 are as follows:

1997                                              $421,600
1998                                               371,600
1999                                                    --
2000                                                    --
2001                                               200,000
Thereafter                                         174,596
                                                ----------
 Total                                          $1,167,796
                                                ==========

 The Company paid salaries or consulting fees to  stockholders of  approximately
 $1,520,700  which is included in the  consolidated  statement of income for the
 year ended December 31, 1996.

 Certain  stockholders  have guaranteed the $200,000  outstanding  loan with the
 financial  institution which is described in note 6. In addition, a stockholder
 will  guarantee  any amount in excess of  $900,000  which  becomes  outstanding
 related to the $1,500,000 line of credit described in note 6.

 On January  24,  1997 the  Company  acquired  director  and  officer  liability
 insurance in the amount of  $3,000,000  with  coverage  expiring on December 5,
 1997.  Coverage  under this  policy  extends to all duly  elected or  appointed
 directors and officers (past, present and future).

 At December 31, 1996, the Company has amounts  outstanding from the AMC clinics
 under its management agreement with AMCMC which total $462,329.

(8) INCOME TAXES


                       CURRENT          DEFERRED          TOTAL

US Federal             $256,000           $112,500        $368,500

State and Local          44,000                 --          44,000
                       --------           --------        --------

                       $300,000           $112,500        $412,500
                       ========           ========        ========

                                      F-39
<PAGE>

                 FIRST MEDICAL CORPORATION NOTES TO CONSOLIDATED
                     FINANCIAL STATEMENTS DECEMBER 31, 1996

 Income tax  expense  differed  from the amounts  computed  by  applying  the US
 federal income tax rate of 34% to pretax income as a result of the following:

Income tax expense at the statutory rate                         $250,300
Reduction in valuation allowance                                  (29,300)
Unutilized net operating losses of AMCD                           122,000
State taxes, net of federal benefit                                31,500
Nondeductible merger costs and meals and entertainment             38,000
                                                                 --------

 Income tax expense recorded in financial statements             $412,500
                                                                 ========


 The tax effects that give rise to a significant  portion of the deferred income
 tax assets for the year ended December 31, 1996 are as follows:

Deferred tax assets:

   Executive compensation                                        $250,616
    Net loss carryforward                                          58,703
                                                                 --------
     Deferred tax asset                                           309,319
    Valuation allowance                                          (102,403)
                                                                 --------
         Net deferred tax asset                                  206,916
 Deferred tax liabilities:

     Goodwill asset                                               319,416
                                                                 --------
         Net deferred tax liability                              $112,500
                                                                 ========

   The Company has provided a valuation  allowance for deferred tax assets as of
   December 31, 1996 for $102,403.  In assessing the  realizability  of deferred
   tax assets, management considers whether it is more likely than not that some
   or a portion of the deferred assets will be realized in the near future.

(9)      LEASES

         The Company has several  noncancelable  operating  leases primarily for
         office space and equipment that expire  throughout 2001. Future minimum
         lease  payments  required  under  noncancelable   operating  leases  at
         December 31, 1996 are as follows:


                                      F-40

<PAGE>

                 FIRST MEDICAL CORPORATION NOTES TO CONSOLIDATED
                     FINANCIAL STATEMENTS DECEMBER 31, 1996

                      Year ending
                      December 31,
                      ------------

                         1997                  $  349,327
                         1998                     339,834
                         1999                     120,487
                         2000                      55,204
                         2001                      49,656
                                                 --------
Total minimum lease payments                     $914,508
                                                 ========

         Rental expense during 1996 amounted to approximately $259,000.

(10)     BUSINESS AND CREDIT CONCENTRATIONS

         The Company  derives the  majority of its revenue  from its  affiliated
         provider agreements with Humana 85% or approximately $45,070,000 of the
         revenue of the Company for the year ended December 31, 1996 was derived
         from such agreements with Humana. The amount of revenue is based on the
         number of  members  assigned  to each of the  centers.  Humana  members
         include  10,287  Medicare  members  and  10,420  commercial  members at
         December  31,  1996.   The   fluctuation   of  the  number  of  members
         significantly  affects the  Company's  business.  The  receivable  from
         Humana at December 31, 1996 is $7,308,482.

         Revenue  generated  by services  provided by the AMC clinics in the CIS
         represents  12%  or  approximately  $6,534,000  of the  revenue  of the
         Company for the year ended December 31, 1996.

(11)     RETIREMENT PLANS

         The  Company  sponsors  401(k)  plans (the  "Plans")  for its  domestic
         operations.  Employees  who have worked a minimum of six months or 1000
         hours and are at least 21 years of age may  participate  in the  Plans.
         Employees may  contribute to the Plans up to 14 percent of their annual
         salary,   not  to  exceed  $9,500  in  1996.  The  Company's   matching
         contribution  is 25 cents  for each  dollar of the  employee's  elected
         contribution,  up to four percent of the employee's annual salary.  The
         Company's matching  contribution was approximately $35,000 for the year
         ended December 31, 1996.

(12)     COMMITMENTS AND CONTINGENCIES

         LEGAL PROCEEDINGS

         The  Company  and  certain  stockholders  are  defendants  in a lawsuit
         brought on by a  stockholder  and former  employee.  The  plaintiff  is
         seeking damages in excess of $1 million.  Management,  stockholders and
         legal counsel for the Company intends to vigorously defend this action.
         They are not able to determine  the extent of damages,  if any, at this
         time.  Therefore,  no  accrual  has  been  recorded  in  the  financial
         statements at December 31, 1996.

         To the best of the Company's  knowledge,  there are no material claims,
         disputes or other unsettled matters (including retroactive adjustments)
         concerning third party reimbursements that would have a material effect
         on the consolidated financial statements of the Company.


                                      F-41

<PAGE>

                 FIRST MEDICAL CORPORATION NOTES TO CONSOLIDATED
                     FINANCIAL STATEMENTS DECEMBER 31, 1996

         GOVERNMENTAL REGULATIONS

         The Company's operations have been and may be affected by various forms
         of  governmental  regulation  and other  actions.  It is presently  not
         possible to predict the likelihood of any such actions,  the form which
         such  actions  may take,  or the effect  such  actions  may have on the
         Company.

         PHYSICIAN CONTRACTS

         The Company  has entered  into  employment  agreements  of two to three
         years with its primary care  physicians and into contracts with various
         independent physicians to provide specialty and other referral services
         both on a prepaid and a negotiated  fee-for-service  basis.  Such costs
         are  included  in the  consolidated  statement  of  income  as  medical
         expense.

         SUBSCRIPTION AGREEMENT

         In June 1996,  FMC entered into a  subscription  agreement  with GDS by
         which GDS has the right to purchase various  percentages of interest in
         both FMC and its subsidiaries.

         MALPRACTICE AND PROFESSIONAL LIABILITY INSURANCE

         The Company maintains professional liability insurance on a claims-made
         basis through  November 1, 1997  including  retrospective  coverage for
         acts occurring since inception of its operations.  Incidents and claims
         reported  during the policy period are anticipated to be covered by the
         malpractice  carrier.  The Company  intends to keep such  insurance  in
         force  throughout the foreseeable  future.  At December 31, 1996, there
         are no asserted  claims made  against the Company that were not covered
         by the policy.

         Physicians   providing   medical   services  to  members  are  provided
         malpractice   insurance   coverage   (claim-made   basis),    including
         retrospective  coverage for acts occurring since their affiliation with
         the Company.

                                      F-42

<PAGE>
                          Independent Auditors' Report

The Board of Directors
MedExec, Inc.;

     SPI Managed Care, Inc.; and
     SPI Managed Care of Hillsborough County, Inc.:

We have audited the accompanying  combined  balance sheets of MedExec,  Inc. and
subsidiaries;  SPI Managed  Care,  Inc.;  and SPI Managed  Care of  Hillsborough
County,  Inc.  as of  December  31,  1995 and  1994,  and the  related  combined
statements of  operations,  stockholders'  equity and cash flows for each of the
years in the three-year period ended December 31, 1995. These combined financial
statements   are  the   responsibility   of  the   Company's   management.   Our
responsibility is to express an opinion on these combined  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 combined financial statements are free of
material  misstatement.  An audit includes examining,  on a test basis, evidence
supporting the amounts and disclosures in the combined financial statements.  An
audit also includes  assessing the accounting  principles  used and  significant
estimates  made by  management,  as  well as  evaluating  the  overall  combined
financial  statement  presentation.   We  believe  that  our  audits  provide  a
reasonable basis for our opinion.

In our opinion,  such combined  financial  statements  referred to above present
fairly, in all material  respects,  the combined  financial position of MedExec,
Inc.  and  subsidiaries;  and SPI Managed  Care,  Inc.;  and SPI Managed Care of
Hillsborough  County,  Inc. as of December 31, 1995 and 1994, and the results of
their  operations  and their cash flows for each of the years in the  three-year
period ended December 31, 1995, in conformity with generally accepted accounting
principles.

/S/ KPMG PEAT MARWICK LLP

Miami, Florida
May 17, 1996, except as to note 15,
which is as of December 23, 1996

                                      F-43

<PAGE>
                         MEDEXEC, INC. AND SUBSIDIARIES;
                           SPI MANAGED CARE, INC.; AND

                  SPI MANAGED CARE OF HILLSBOROUGH COUNTY, INC.

                             Combined Balance Sheets

                           December 31, 1995 and 1994
<TABLE>
<CAPTION>

                             ASSETS                                          1995                              1994
                             ------                                          ----                              ----

Current assets:

<S>                                                                     <C>                              <C>
     Cash and cash equivalents                                          $    198,763                       468,528
     Humana IBNR receivable                                                2,062,924                     2,848,518
     Due from affiliates and related parties, net                             54,565                       196,745
     Claims reserve funds                                                    116,212                       126,357
     Prepaid expenses and other current assets                                82,413                        37,269
     Deferred income taxes (note 12)                                           --                           51,713
                                                                    ---------------------       -----------------------

          Total current assets                                             2,514,877                     3,729,130

Property and equipment, net (note 4)                                         298,060                       207,199
Deferred income taxes (note 12)                                                --                            8,287
Investments in other affiliated entities (note 3)                            229,094                       178,968
Intangible assets, net                                                         2,547                         4,896
                                                                    ---------------------       -----------------------

                                                                         $ 3,044,578                    4 ,128,480
                                                                    =====================       =======================

              LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:

     Accounts payable and other accrued expenses                             594,822                       556,366
     Accrued medical claims, including amounts incurred
          but not reported                                                 1,880,318                     2,484,258
     Due to Humana                                                           192,143                        56,152
     Loan payable to Humana                                                   50,000                         --
     Loan payable to bank                                                    100,000                         --
     Income taxes payable                                                      --                           60,000
                                                                    ---------------------       -----------------------

   Total current liabilities                                               2,817,283                     3,156,776
                                                                    ---------------------       -----------------------

 Commitments and contingencies (note 13)

Stockholders' equity (notes 8 and 9):

     Capital stock                                                             1,500                         1,500
     Additional paid-in capital                                                1,200                         1,200
     Retained earnings                                                       224,595                       969,004
                                                                    ---------------------       -----------------------

   Total stockholders' equity                                                227,295                       971,704
                                                                    ----------------            -----------------------

                                                                        $  3,044,578                     4,128,480
                                                                    =====================       =======================
</TABLE>


            See accompanying notes to combined financial statements.

                                       F-44

<PAGE>

                         MEDEXEC, INC. AND SUBSIDIARIES;
                           SPI MANAGED CARE, INC.; AND

                  SPI MANAGED CARE OF HILLSBOROUGH COUNTY, INC.

                        COMBINED STATEMENTS OF OPERATIONS

     For each of the years in the three year period ended December 31, 1995
<TABLE>
<CAPTION>

                                                                1995                 1994                    1993
                                                            --------------   ----------------------   --------------

<S>                                                           <C>                 <C>                    <C>
Revenue (note 9)                                              $22,671,902         21,317,887             11,086,690
 Medical expenses                                              18,443,943         16,567,554              8,404,521
                                                            --------------   ----------------------   --------------

    Gross profit                                                4,227,959          4,750,333             2,682,169
                                                            --------------   ----------------------   --------------

Operating expenses (note 9):

      Salaries and related benefits                             2,434,241          1,650,970            670,536
      Depreciation and amortization                                68,499             50,408             46,676
      Other                                                     2,131,639          1,720,198            944,237
                                                            --------------   ----------------------   --------------

    Total operating expenses                                    4,634,379          3,421,576          1,661,449
                                                            --------------   ----------------------   --------------

Operating income (loss)                                          (406,420)         1,328,757          1,020,720
                                                            --------------   ----------------------   --------------

Other (expense) income:

      Gain (loss) on equity investments (note 3)                   50,126             28,260           (149,295)
      Interest income                                              11,310              9,593              4,071
      Loss on Dominion Healthnet, Inc. (note 3)                        --                 --            (80,009)
      Other, net                                                  (19,425)            (2,948)             7,356
                                                            --------------   ----------------------   --------------

    Other income (expense), net                                    42,011             34,905           (217,877)
                                                            --------------   ----------------------   --------------

    Net income (loss)                                          $ (364,409)         1,363,662            802,843
                                                            ==============   ======================   ==============
</TABLE>


                                           (56)

See accompanying notes to combined financial statements.

                                      F-45

<PAGE>

                         MEDEXEC, INC. AND SUBSIDIARIES;
                           SPI MANAGED CARE, INC.; AND

                  SPI MANAGED CARE OF HILLSBOROUGH COUNTY, INC.

                   COMBINED STATEMENTS OF STOCKHOLDERS' EQUITY

     For each of the years in the three year period ended December 31, 1995
<TABLE>
<CAPTION>

                                                         Capital     Additional paid-                                    Total
                                                          stock         in capital        Retained       Due to      stockholders'
                                                         (NOTE 8)        (NOTE 8)         EARNINGS    STOCKHOLDERS       EQUITY
                                                          ------          ------          --------    ------------       ------

<S>                                                       <C>            <C>          <C>             <C>              <C>
Balance, December 31, 1992                                $  900          1,200         143,701         37,000            182,801
      Net income                                              --             --         802,843             --            802,843
      Dividend distributions                                  --             --        (170,745)            --           (170,745)
      Issuance of stock                                      100             --              --             --                100
      Proceeds from due to stockholders                       --             --              --        583,112            583,112
                                                           -----       --------       ----------      --------       ------------

Balance, December 31, 1993                                 1,000          1,200         775,799        620,112          1,398,111
      Net income                                              --             --       1,363,662             --          1,363,662

      Distribution of Midway Airlines stock, at cost          --             --        (200,444)      (599,556)          (800,000)
      Dividend distributions                                  --             --        (970,013)            --           (970,013)
      Issuance of stock                                      500             --              --             --                500
      Repayment of due to stockholders, net                   --             --              --        (20,556)          (20 ,556)
                                                           -----       --------         --------      --------       ------------

Balance, December 31, 1994                                 1,500         1,200           969,004            --            971,704
      Net loss                                                --            --          (364,409)           --           (364,409)
      Dividend distributions                                  --            --          (380,000)           --           (380,000)
                                                           -----       -------        ----------      --------       -------------

Balance, December 31, 1995                                $1,500         1,200           224,595            --            227,295
                                                           =====         =====        ==========      ========       ============
</TABLE>


         See accompanying notes to combined financial statements.

                                      F-46


<PAGE>

                         MEDEXEC, INC. AND SUBSIDIARIES;
                           SPI MANAGED CARE, INC.; AND

                  SPI MANAGED CARE OF HILLSBOROUGH COUNTY, INC.

                        COMBINED STATEMENTS OF CASH FLOWS

     For each of the years in the three year period ended December 31, 1995
<TABLE>
<CAPTION>
                                                                                  1995           1994           1993
                                                                                  ----           ----           ----
Cash flows from operating activities:

<S>                                                                              <C>             <C>         <C>
  Net income (loss)                                                              $(364,409)      1,363,662       802,843
  Adjustments to reconcile  net income  (loss) to net cash
   provided by operating activities:

  Depreciation and amortization                                                    68,499           50,408        46,676
  Deferred income taxes                                                              --            (60,000)         --
  Loss on disposal of fixed assets                                                   --              --              801
  (Gain) loss on equity investments                                                (50,126)        (28,260)      149,295
   Write-off of investments                                                          --             597             --
  (Increase) decrease in assets:
    Humana IBNR receivable                                                         785,594      (1,547,044)     (764,831)
    Due from affiliates and related parties                                        142,180        (177,572)       53,369
    Claims reserve funds                                                            10,145          13,217      (115,742)
    Prepaid expenses and other current assets                                       14,856         (33,076)       (3,653)
  Increase (decrease) in liabilities:

    Accounts payable and other accrued expenses                                     38,456         393,636        85,077
    Accrued medical claims, including amounts incurred
      but not reported                                                            (603,940)      1,359,770       583,266
    Due to Humana                                                                  135,991           2,822        14,779
    Income taxes payable                                                           (60,000)         60,000          --
                                                                                  --------     -----------       --------

      Net cash provided by operating activities                                   117,246        1,398,160       851,880
                                                                                  --------     -----------       --------

  Cash flows from investing activities:

    Capital expenditures                                                          (157,011)        (95,559)     (133,922)
    Proceeds from sale of fixed assets                                                --               --         19,900
    Purchase of investments                                                           --               --     (1,100,600)
                                                                                   -------      ----------    ----------

     Net cash used in investing activities                                        (157,011)        (95,559)   (1,214,622)
                                                                                   -------      ----------    ----------

  Cash flows from financing activities:

    Proceeds from issuance of stock                                                  --             500             100
    Proceeds from loan payable to Humana                                            50,000           --              --
    Proceeds from loan payable to bank                                             100,000           --              --
    Dividend distributions                                                        (380,000)       (970,013)     (170,745)
    Due to stockholders                                                                 --         (20,556)      583,112
                                                                                  --------         --------     --------

      Net cash (used in) provided by financing activities                         (230,000)       (990,069)      412,467
                                                                                   -------      ----------      --------

  (Decrease) increase in cash and cash equivalents                                (269,765)        312,532        49,725

  Cash and cash equivalents, beginning of year                                     468,528         155,996       106,271
                                                                                   -------         -------       -------

  Cash and cash equivalents, end of year                                          $198,763         468,528       155,996
                                                                                   =======         =======       =======
Supplemental disclosure of cash flow information:
    Cash paid during the year for income taxes                                    $ 60,000           --             --
                                                                                  ========         =======       =======
</TABLE>

Supplemental  schedule of noncash  investing and operating  activities:

    MedExec,  Inc.  distributed its $800,000 investment in Midway Airlines stock
as a dividend to its shareholders during the year ended December 31, 1994.

See accompanying notes to combined financial statements.

                                      F-47
<PAGE>
                         MEDEXEC, INC. AND SUBSIDIARIES;
                           SPI MANAGED CARE, INC.; AND

                  SPI MANAGED CARE OF HILLSBOROUGH COUNTY, INC.
                     NOTES TO COMBINED FINANCIAL STATEMENTS

                           December 31, 1995 and 1994

(1)      ORGANIZATION AND OPERATIONS

         (A)      ORGANIZATION

                  The accompanying  combined  financial  statements  include the
                  accounts of MedExec,  Inc. and subsidiaries  ("MedExec");  SPI
                  Managed  Care,   Inc.   ("SPI");   and  SPI  Managed  Care  of
                  Hillsborough County, Inc. ("SPI Hillsborough")  (collectively,
                  the   "Company"),   which  are   affiliated   through   common
                  stockholders and the same management. SPI and SPI Hillsborough
                  are 100%-owned by MedExec stockholders. (55)

                  MedExec was incorporated on March 14, 1991.

                  Dominion  Healthnet,  Inc.  ("Dominion")  was  incorporated on
                  September  13, 1991.  MedExec  owned 55 percent of Dominion at
                  December 31, 1995, and 1994.

                  HCO Miami,  Inc.  ("HCO Miami") was  incorporated  on June 18,
                  1993. MedExec owned 70 percent and SPI owned 20 percent of HCO
                  Miami at December 31, 1995 and 1994.

                  Midwest  Managed Care, Inc.  ("Midwest")  was  incorporated on
                  March 29,  1995.  MedExec  owned  66.67  percent of Midwest at
                  December 31, 1995.

                  SPI, formerly known as Surgical Park, Inc. was incorporated on
                  February  19,  1988.  Surgical  Park,  Inc.  changed  its name
                  pursuant to an amendment to its Articles of

                  Incorporation on May 7, 1990.

                  SPI Hillsborough was incorporated on April 20, 1993.

         (B)      NATURE OF OPERATIONS   (57-61)

                  SPI and SPI  Hillsborough  operate in the state of Florida and
                  Midwest (which commenced  operations  during 1995) operates in
                  the states of Illinois and Indiana.  SPI and SPI  Hillsborough
                  provide  health care services  subject to affiliated  provider
                  agreements entered into with Humana Medical Plan, Inc.; Humana
                  Health Plan of Florida,  Inc.; Humana Health Insurance Company
                  of Florida, Inc. and their affiliates. Midwest provides health
                  care  services  subject  to  affiliated   provider  agreements
                  entered into with Humana  Health  Plan,  Inc.;  Humana  Health
                  Chicago, Inc.; Humana Health Chicago Insurance Company; Humana
                  Insurance  Company  and their  affiliates.  All of the  Humana
                  entities will  collectively be known as "Humana".  The Company
                  is dependent on Humana for the majority of its operations. For
                  the years ended December 31, 1995,  1994 and 1993, 96 percent,
                  95 percent,  and 95  percent,  respectively  of the  Company's
                  revenue are from such

                                      F-48

<PAGE>
                         MEDEXEC, INC. AND SUBSIDIARIES;
                           SPI MANAGED CARE, INC.; AND

                  SPI MANAGED CARE OF HILLSBOROUGH COUNTY, INC.

                     NOTES TO COMBINED FINANCIAL STATEMENTS

                  agreements with Humana. Health services are provided to Humana
                  members through SPI, SPI  Hillsborough  and Midwest's  primary
                  care medical  centers and its network of physicians and health
                  care specialists.

                  SPI operates two centers in Dade County,  Florida:  in Kendall
                  ("Kendall") and Cutler Ridge ("Cutler  Ridge") at December 31,
                  1995 and 1994.

                  At December 31, 1994, SPI Hillsborough operated two centers in
                  Hillsborough County, Florida: in Brandon ("Brandon") and Plant
                  City  ("Plant  City").   Effective  August  31,  1995,  Humana
                  terminated  its  Brandon   contract  with  SPI   Hillsborough.
                  Included in accrued  medical  claims at December 31, 1995,  is
                  approximately  $103,000  pertaining  to Brandon's  open claims
                  through the  termination  date. The Brandon center had revenue
                  of approximately $3,521,000,  $3,943,000, and $208,000 for the
                  years ended December 31, 1995, 1994 and 1993, respectively.

                  Midwest operates one center in Hammond, Indiana ("Hammond").

                  Dominion   provides  networks  of  hospitals  and  doctors  to
                  international  travel assistance  companies outside the United
                  States. At December 31, 1995, Dominion had one contract with a
                  Canadian  insurance  company to care for its insured traveling
                  to the United States.

                  HCO Miami  provides  utilization  review  and case  management
                  services for HMO and PPO members of affiliated companies.

         (C)      AFFILIATED PROVIDER AGREEMENTS

                  Effective April 1, 1990 and September 1, 1990, SPI through the
                  Cutler Ridge and Kendall centers,  respectively,  entered into
                  provider   agreements   with  Humana,   which  will   continue
                  indefinitely unless terminated according to certain provisions
                  of the agreements.  Such agreements  specify that either party
                  may elect to terminate the agreements,  with or without cause,
                  at any time upon giving 60 days written  notice.  In addition,
                  these  agreements may be terminated by mutual written  consent
                  of  both  parties  at any  time.  Amendments  to the  original
                  provider  agreements  with Humana were entered into  effective
                  September 1, 1991 and January 1, 1993 for the Cutler Ridge and
                  Kendall centers, respectively under full-risk agreements.

                  The  Brandon and Plant City  centers  entered  into  five-year
                  non-risk  provider  agreements  with Humana  effective June 1,
                  1993  and   January  1,  1994,   respectively.   Under   these
                  agreements, the Brandon and Plant City centers are responsible
                  only  for  primary  (in-  office)  medical   services.   These
                  agreements  allow for similar  termination  provisions  to the
                  agreements for the other centers, except that either party may
                  elect to terminate the

                                      F-49


<PAGE>


                         MEDEXEC, INC. AND SUBSIDIARIES;
                           SPI MANAGED CARE, INC.; AND

                  SPI MANAGED CARE OF HILLSBOROUGH COUNTY, INC.

                     NOTES TO COMBINED FINANCIAL STATEMENTS

                  agreements without cause after the first two years upon giving
                  six months written  notice.  Amendments to the  aforementioned
                  provider  agreements  with Humana were entered into  effective
                  May 1, 1994 under full-risk agreements.  The Brandon agreement
                  with Humana was terminated effective August 31, 1995.

                  The Hammond  center  entered into a three-year  risk  provider
                  agreement  with  Humana  effective  October  1,  1995  with an
                  automatic  three-year renewal.  However, the Hammond center is
                  operating  under a non-risk  amendment  ("Amendment")  to this
                  agreement  and is  responsible  only for  primary  (in-office)
                  medical services.  The Hammond center will continue to operate
                  under the  Amendment  until the  earlier  of the date on which
                  Midwest  achieves a certain  membership  level or one calendar
                  year from the commencement  date of the agreement,  October 1,
                  1996. This agreement allows for similar termination provisions
                  to the agreements  for the other  centers,  except that either
                  party may elect to terminate the agreement at any  anniversary
                  date of the agreement  upon giving at least six months written
                  notice.

                  Services  to be  provided  by the SPI,  SPI  Hillsborough  and
                  Midwest  centers   include  medical  and  surgical   services,
                  including all  procedures  furnished in a  physician's  office
                  such  as  X-rays,  nursing  services,  blood  work  and  other
                  incidentals, drugs and medical supplies. SPI, SPI Hillsborough
                  and Midwest  centers are  responsible  for  providing all such
                  services and for  directing  and  authorizing  all other care,
                  including emergency and inpatient care for Humana members. The
                  SPI and SPI Hillsborough  centers are financially  responsible
                  for all  out-of-area  care  rendered to a member and  provides
                  direct  care as soon as the  member  is able to  return to the
                  designated medical center.

                  Humana has agreed to pay the SPI and SPI Hillsborough  centers
                  monthly  for   services   provided  to  members   based  on  a
                  predetermined amount per member  ("capitation"),  comprised of
                  in-hospital  services and other  services  defined by contract
                  ("Part A"), in- office  ("Primary") and other medical services
                  defined by the agreements ("Part B"). Humana has agreed to pay
                  the Midwest center a guaranteed  monthly  amount  ("guaranteed
                  payment")  to  cover  the  costs  of  providing  primary  care
                  services and to cover  Midwest's other  operating  costs.  The
                  guaranteed payments will be made until the earlier of the date
                  on which the  Midwest  center  achieves  a certain  membership
                  level or one calendar year from the  commencement  date of the
                  agreement at which point  Humana will pay Midwest  capitation.
                  Midwest  shall not be at risk for Parts A and B until  Midwest
                  has been assigned certain membership.

         (D)      HUMANA IBNR RECEIVABLE  (63)

                  Humana  withholds a certain amount each month from the SPI and
                  SPI  Hillsborough  centers'  Part A,  Part B and  supplemental
                  funding in order to cover claims incurred but


                                      F-50

<PAGE>

                         MEDEXEC, INC. AND SUBSIDIARIES;
                           SPI MANAGED CARE, INC.; AND

                  SPI MANAGED CARE OF HILLSBOROUGH COUNTY, INC.

                     NOTES TO COMBINED FINANCIAL STATEMENTS

                  not  reported or paid.  This amount is to be used by Humana to
                  pay the centers  Part A, Part B and  supplemental  costs.  The
                  amounts  withheld by Humana to cover incurred but not reported
                  or paid  claims  varies by center  based on the history of the
                  respective  center and is  determined  solely by  Humana.  The
                  amounts  withheld are used to pay the centers'  medical claims
                  which Humana pays on the centers' behalf. The remaining amount
                  after claims have been paid is remitted to the  Company.  (See
                  note 1(f))

                  Management  does not believe it has a significant  exposure to
                  effects related to third-party  reimbursement programs and the
                  related  revenue  recognition  policy  because they  generally
                  apply to hospitals. Furthermore, FMC has Medicare and Medicaid
                  contracts  only in regard to one facility and  fee-for-service
                  in only one facility.  There is a risk,  however,  even though
                  FMC  is  not  a  direct   recipient   of   third-party   payor
                  arrangements  because  Medicare  and  Medicaid  may change its
                  payments.

         (E)      DUE FROM AFFILIATES AND RELATED PARTIES

                  Due from  affiliates and related  parties  represents  current
                  amounts  receivable  from  affiliates to cover their operating
                  expenses.

         (F)      CLAIMS RESERVE FUNDS

                  Humana  withholds a certain amount each month from the SPI and
                  SPI  Hillsborough  centers'  Part A capitation  funding.  This
                  amount represents a "catastrophic reserve fund" to be utilized
                  for the  payment of the  center's  Part A costs in the event a
                  center  ceases  operations  and the  incurred but not reported
                  reserves are not adequate to  reimburse  providers  for Part A
                  services  rendered.  This  amount  is  calculated  monthly  by
                  Humana.

         (G)      DUE TO HUMANA

                  Due to  Humana  represents  amounts  advanced  to SPI  and SPI
                  Hillsborough by Humana to cover certain operating expenses. No
                  interest is charged by Humana. No due date is specified on the
                  amounts advanced.

         (H)      PHYSICIAN CONTRACTS

                  SPI, SPI Hillsborough and Midwest have entered into employment
                  agreements with its primary care physicians and into contracts
                  with various  independent  physicians to provide specialty and
                  other  referral  services  both on a prepaid and a  negotiated
                  fee-for-service   basis.  Midwest  has  also  entered  into  a
                  consulting  agreement  with a physician.  Prepaid  physicians'
                  service  costs are based upon a fixed fee per member,  payable
                  on a monthly

                                      F-51
<PAGE>

                         MEDEXEC, INC. AND SUBSIDIARIES;
                           SPI MANAGED CARE, INC.; AND

                  SPI MANAGED CARE OF HILLSBOROUGH COUNTY, INC.

                     NOTES TO COMBINED FINANCIAL STATEMENTS

                  basis.  Such costs are included in the  accompanying  combined
                  statements of income as salaries and related benefits.

         (I)      MALPRACTICE AND PROFESSIONAL LIABILITY INSURANCE

                  The Company maintains  professional  liability  insurance on a
                  claims-made basis through July 1996,  including  retrospective
                  coverage for acts occurring since inception of its operations.
                  Incidents  and claims  reported  during the policy  period are
                  anticipated  to be covered  by the  malpractice  carrier.  The
                  Company intends to keep such insurance in force throughout the
                  foreseeable future.

                  At December 31, 1995, there are no asserted claims against the
                  Company that were not covered by the policy. Management of the
                  Company has accrued approximately $181,100 for incidents which
                  may have  occurred  but have yet to be  identified  under  its
                  incident reporting system, based on industry experience.

                  Physicians  providing medical services to members are provided
                  malpractice insurance coverage (claims-made basis),  including
                  retrospective   coverage  for  acts   occurring   since  their
                  affiliation with the Company.

         (J)      MEMBERSHIP

                  Humana members  assigned to SPI and SPI  Hillsborough  centers
                  include  approximately  3,100,  and  4,200  Medicare  members,
                  respectively,   and  3,400,  and  5,300  commercial   members,
                  respectively,  at December 31, 1995 and 1994.  At December 31,
                  1995,  Humana  members  assigned to the Midwest center include
                  approximately 60 commercial and 200 Medicare members.

         (K)      STOP-LOSS FUNDING

                  The SPI and SPI  Hillsborough  centers are charged a stop-loss
                  funding  fee by Humana for the  purpose of limiting a center's
                  exposure to Part A costs and certain  Part B costs  associated
                  with a member's health services. At December 31, 1995, Midwest
                  was under a non-risk  agreement  with  Humana,  and as such no
                  stop-loss funding fees were charged to the Midwest center.

                  For the year ended December 31, 1993, the stop-loss  threshold
                  which  applies to Part A costs only,  for Medicare  members of
                  SPI  and  SPI   Hillsborough,   was   $20,000   and   $25,000,
                  respectively,  per hospital stay within certain admitting-time
                  criteria. For commercial members, the threshold is $15,000 for
                  SPI and SPI Hillsborough per calendar year for both Part A and
                  Part B costs. For the year ended December 31, 1994, the stop-


                                      F-52


<PAGE>
                         MEDEXEC, INC. AND SUBSIDIARIES;
                           SPI MANAGED CARE, INC.; AND

                  SPI MANAGED CARE OF HILLSBOROUGH COUNTY, INC.

                     NOTES TO COMBINED FINANCIAL STATEMENTS

                  loss  threshold,  which  applies  to  Part A costs  only,  for
                  Medicare  members  was  $28,000  for SPI and  $32,600  for SPI
                  Hillsborough  per calendar year. For commercial  members,  the
                  threshold is $20,000 for SPI and $28,000 for SPI  Hillsborough
                  per  calendar  year for both Part A and Part B costs.  For the
                  year ended December 31, 1995, the stop-loss threshold for both
                  Part A and Part B costs for  Medicare  members was $40,000 per
                  member per  calendar  year for both SPI and SPI  Hillsborough.
                  For commercial members,  the stop-loss threshold for both Part
                  A and Part B costs was  $20,000  and  $15,000  for SPI and SPI
                  Hillsborough, respectively.

                  Since the SPI and SPI Hillsborough centers are not responsible
                  for  claims  in  excess  of  the  threshold,  income  and  the
                  corresponding expense, both equal to the stop-loss funding are
                  recognized  by SPI and SPI  Hillsborough.  These  amounts  are
                  included in revenue and medical expenses, respectively, in the
                  accompanying combined statements of income.  Stop-loss funding
                  for the SPI and SPI  Hillsborough  centers for the years ended
                  December 31, 1995, 1994 and 1993 was approximately $2,115,000,
                  $1,919,000, and $956,000, respectively.

                  The Company is  responsible  for payment of medical  servicers
                  provided to is members by third party  providers.  As a result
                  of its  agreements  with Humana,  which  limits the  Company's
                  exposure as to certain  catastrophic and maternity claims, the
                  Company  is  reimbursed  for the  amounts in excess of certain
                  thresholds.   Therefore,  these  amounts  are  shown  as  both
                  revenues and expenses.

         (L)      MATERNITY FUNDING

                  The SPI and SPI  Hillsborough  centers are charged a maternity
                  funding  fee on  commercial  membership  for  the  purpose  of
                  limiting  the  centers'  exposure  to Part A and  Part B costs
                  associated  with a  commercial  member's  pregnancy or related
                  illness.  Since the SPI and SPI  Hillsborough  centers are not
                  responsible for claims in excess of the amount  contributed to
                  the  maternity  fund,  income and  expenses  both equal to the
                  maternity  funding are recognized by SPI and SPI  Hillsborough
                  and  are   included   in   revenue   and   medical   expenses,
                  respectively,  in  the  accompanying  combined  statements  of
                  income.  Maternity  funding  for the SPI and SPI  Hillsborough
                  centers for the years ended  December 31, 1995,  1994 and 1993
                  was   approximately   $825,000,    $917,000,   and   $499,000,
                  respectively.  At  December  31,  1995,  Midwest  was  under a
                  non-risk  agreement  with  Humana  and as  such  no  maternity
                  funding fees were charged to the Midwest center.


                                      F-53
<PAGE>

                         MEDEXEC, INC. AND SUBSIDIARIES;
                           SPI MANAGED CARE, INC.; AND

                  SPI MANAGED CARE OF HILLSBOROUGH COUNTY, INC.

                     NOTES TO COMBINED FINANCIAL STATEMENTS

(2)      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

         (A)      PRINCIPLES OF CONSOLIDATION AND COMBINATION

                  The accompanying  combined  financial  statements  include the
                  accounts  of the  companies  listed  in note  1(a)  which  are
                  related   through  common   ownership  and   management.   All
                  significant  intercompany  balances and transactions have been
                  eliminated  in  the   consolidation   of  MedExec,   Inc.  and
                  subsidiaries,  and the subsequent  combination of MedExec, SPI
                  and SPI Hillsborough.

         (B)      CASH AND CASH EQUIVALENTS

                  Cash and cash  equivalents  consist  of demand  deposits.  For
                  purposes of the combined statements of cash flows, the Company
                  considers  all highly  liquid debt  instruments  with original
                  maturities of three months or less to be cash equivalents.

         (C)      PROPERTY AND EQUIPMENT

                  Property and  equipment  are stated at cost.  Depreciation  on
                  property and  equipment  is  calculated  on the  straight-line
                  method over the estimated useful lives of the assets.

         (D)      INVESTMENTS IN OTHER AFFILIATED ENTITIES

                  The Company accounts for equity  investments with a percentage
                  of  ownership  between  20 percent  and 50  percent  under the
                  equity method of accounting, which requires the recognition by
                  the Company of its pro rata share of the investee's  income or
                  loss.  Equity  investments of less than 20 percent are carried
                  at cost.

         (E)      INTANGIBLE ASSETS

                  Intangible  assets  arose  in  business  acquisitions.   These
                  intangibles are being amortized on a straight-line  basis over
                  five  years.  At  December  31,  1995  and  1994,  accumulated
                  amortization    was    approximately    $9,200   and   $6,600,
                  respectively.

         (F)      INCOME TAXES

                  MedExec,  Inc.  qualified as an S  corporation  for income tax
                  purposes at December 31, 1995,  and 1994.  MedExec,  Inc. uses
                  accelerated depreciation methods for reporting


                                      F-54
<PAGE>

                         MEDEXEC, INC. AND SUBSIDIARIES;
                           SPI MANAGED CARE, INC.; AND

                  SPI MANAGED CARE OF HILLSBOROUGH COUNTY, INC.

                     NOTES TO COMBINED FINANCIAL STATEMENTS

                  taxable   income  or  losses  which  are  passed   through  to
                  stockholders  under the  Company's S  Corporation  status.  As
                  stated in footnote 14 to these combined financial  statements,
                  effective  January 1, 1996 MedExec's tax status  automatically
                  changed from an S Corporation to a C  Corporation.  The effect
                  of this  change will  result in  additional  state and federal
                  deferred   income   taxes   attributable   to  the   temporary
                  differences at the time of change to be recorded as a deferred
                  tax liability with a  corresponding  reduction in income.  The
                  deferred  tax  liabilities  at December 31, 1995 and 1994 were
                  approximately   $13,500  and  $126,000.   The  amount  of  the
                  liability  at  December  31,  1995  would be payable in future
                  years as the net cumulative temporary differences reverse.

                  SPI qualified as an S  corporation  for income tax purposes at
                  December  31,  1993.  In May  1994,  the  stockholders  of SPI
                  voluntarily  revoked  SPI's  election  to be  treated  as an S
                  corporation  pursuant to the  Internal  Revenue  Code  Section
                  1362(d).

                  Effective  January  1, 1993,  SPI  Hillsborough  and  Dominion
                  adopted the  provisions  of Statement of Financial  Accounting
                  Standards  No. 109,  "Accounting  for Income Taxes" ("SFAS No.
                  109").  Effective May 1994, SPI adopted the provisions of SFAS
                  No. 109. The adoption of SFAS No. 109 had no cumulative effect
                  on the  combined  statements  of income  for the  years  ended
                  December  31,  1994 and 1993.  Under  the asset and  liability
                  method of SFAS No. 109,  deferred  tax assets and  liabilities
                  are recognized for the future tax consequences attributable to
                  differences  between the financial  statement carrying amounts
                  of existing assets and  liabilities  and their  respective tax
                  bases  and  operating  loss  and  tax  credit   carryforwards.
                  Deferred tax assets and liabilities are measured using enacted
                  tax rates  expected  to be applied  to  taxable  income in the
                  years in which those temporary  differences are expected to be
                  recovered  or  settled.  Under  SFAS No.  109,  the  effect on
                  deferred tax assets and  liabilities  of a change in tax rates
                  is  recognized  in  income in the  period  that  includes  the
                  enactment date.

                  Under federal income tax principles, the Company cannot file a
                  consolidated income tax return. Thus, losses of one entity may
                  not offset  income of  another  entity  within the  controlled
                  group.

         (G)      REVENUE AND MEDICAL COST RECOGNITION

                  Revenue  from  Humana  for  primary  care,  Part A, Part B and
                  supplemental  funds are recognized monthly on the basis of the
                  number  of  Humana  members   assigned  to  the  SPI  and  SPI
                  Hillsborough centers and the contractually  agreed-upon rates.
                  The SPI and SPI Hillsborough  centers receive monthly payments
                  from  Humana  after  all  medical  expenses  paid by Humana on
                  behalf  of the  SPI and SPI  Hillsborough  centers,  estimated
                  claims  incurred  but not  reported  and claims  reserve  fund
                  balances have been determined. Medical expenses paid by Humana
                  on behalf of the  Company,  accordingly,  are  included in the
                  

                                      F-55

<PAGE>

                         MEDEXEC, INC. AND SUBSIDIARIES;
                           SPI MANAGED CARE, INC.; AND

                  SPI MANAGED CARE OF HILLSBOROUGH COUNTY, INC.

                     NOTES TO COMBINED FINANCIAL STATEMENTS

                  combined  statements  of  operations.   During  1995,  Midwest
                  recognizes  revenue  based  on the  gross  monthly  guaranteed
                  payment  amount.  The  Midwest  center  receives a net monthly
                  payment  from  Humana  after  all  expenses  paid by Humana on
                  behalf of the Midwest center have been determined. In addition
                  to Humana  payments,  the SPI,  SPI  Hillsborough  and Midwest
                  centers receive  copayments  from commercial  members for each
                  office  visit,  depending  upon the specific  plan and options
                  selected and receive  payments  from  non-Humana  members on a
                  fee-for-service basis.

                  Medical  services  are  recorded  as expenses in the period in
                  which they are incurred.  Accrued  medical  claims for SPI and
                  SPI  Hillsborough as reflected in the combined  balance sheets
                  are based upon costs  incurred for services  rendered prior to
                  and  up to the  combined  balance  sheet  date.  Included  are
                  services  incurred but not reported as of the combined balance
                  sheet date based upon actual costs reported  subsequent to the
                  combined  balance  sheet  date and a  reasonable  estimate  of
                  additional costs.

                  In the accompanying combined statements of operations, medical
                  expenses  include amounts paid to hospitals,  nursing care and
                  rehabilitative  facilities,  home health services,  diagnostic
                  services,   pharmacy  costs,   physician  referral  fees,  and
                  hospital based physician costs.

         (H)      USE OF ESTIMATES

                  Management  of the Company has made a number of estimates  and
                  assumptions   relating   to  the   reporting   of  assets  and
                  liabilities  and  the  disclosure  of  contingent  assets  and
                  liabilities to prepare these consolidated financial statements
                  in conformity with generally accepted  accounting  principles.
                  Actual results could differ from those estimates.

         (I)      RECLASSIFICATIONS

                  Certain amounts in the 1994 and 1993 financial statements have
                  been reclassified to conform with the 1995 presentation.

(3)      INVESTMENTS IN OTHER AFFILIATED ENTITIES

         At  December  31,  1993,  MedExec  had a 30 percent  investment  in HCO
         Networks,  Inc.  ("HCON"),  a claims  management  company.  MedExec has
         accounted  for its  initial  investment  of  $300,000  under the equity
         method. For the years ended December 31, 1995, 1994 and 1993, MedExec's
         equity  interest  in the net  income  (loss) of HCON was  approximately
         $50,000, $28,000 and ($150,000), respectively.

                                      F-56

<PAGE>

                         MEDEXEC, INC. AND SUBSIDIARIES;
                           SPI MANAGED CARE, INC.; AND

                  SPI MANAGED CARE OF HILLSBOROUGH COUNTY, INC.

                     NOTES TO COMBINED FINANCIAL STATEMENTS

         At December  31,  1993,  MedExec had an $800,000  investment  in Midway
         Airlines  ("Midway"),   which  represented   approximately  16  percent
         ownership in Midway.  The Company has accounted  for its  investment in
         Midway under the cost method.  During the year ended December 31, 1994,
         the  Company   distributed  as  a  dividend  to  its  stockholders  its
         investment in Midway. The recorded value of the investment approximated
         the fair value at the time of distribution.

         At  December  31, 1995 and 1994,  MedExec had a 55 percent  interest in
         Dominion.  Dominion has been consolidated in the accompanying  combined
         financial statements.

         MedExec  also  has a 50  percent  investment  in SPI  Managed  Care  of
         Broward, Inc. ("SPI Broward"),  a health care management company, and a
         23.75 percent  investment in Broward Managed Care, Inc. ("BMC"),  which
         operates two Humana primary care health  centers.  At December 31, 1995
         and 1994,  MedExec's  investment in SPI Broward and BMC is $0 under the
         equity method of accounting.


                                      F-57


<PAGE>

                         MEDEXEC, INC. AND SUBSIDIARIES;
                           SPI MANAGED CARE, INC.; AND

                  SPI MANAGED CARE OF HILLSBOROUGH COUNTY, INC.

                     NOTES TO COMBINED FINANCIAL STATEMENTS

(4)      PROPERTY AND EQUIPMENT, NET

         Property and equipment, net consists of the following:

                                                                   Estimated
                                          1995           1994      Useful Lives
                                          ----           ----      ------------

Medical and office equipment             $453,035       267,578    5 years
 Furniture and fixtures                    32,276        68,426    7 years
                                          -------       -------
                                          485,311       336,004
Less accumulated depreciation             187,251       128,805
                                          -------       -------

Property and equipment, net              $298,060       207,199
                                          =======       =======


(5)      LOAN PAYABLE TO HUMANA

         Loan  payable to Humana  represents  funds  advanced to Midwest for the
         purchase and  installation of a computer  system and related  training.
         The  loan is due by  September  30,  2000  and is  payable  in  monthly
         installments  beginning the first month during which Midwest is at full
         risk  under  the  terms  of  the  Humana  provider  agreement.  Monthly
         installments  to Humana will be a minimum of 10 percent of any positive
         balance in  Midwest's  Part A fund.  In the event no  positive  balance
         exists in the Part A fund on or at any time after  September  30, 1996,
         Midwest shall make a minimum  monthly  payment of $1,268 until the loan
         is repaid.  Interest  is payable at 10 percent per year unless the note
         is paid in full by Midwest by  September  30,  1996 at which  point any
         interest  owed to Humana will be waived.  Management  believes  that it
         will  repay  the loan  before  September  30,  1996 and as such has not
         accrued any interest at December  31, 1995.  The loan is secured by the
         computer  equipment which has a book value of approximately  $55,000 at
         December 31, 1995.

(6)      LOAN PAYABLE TO BANK

         At December 31, 1995,  Midwest had a $200,000  unsecured line of credit
         bearing interest at prime. The line of credit is personally  guaranteed
         by all of the  stockholders  of  MedExec  at  December  31,  1995.  The
         principal  balance is due October 1, 1996, and interest is due monthly.
         At December 31, 1995,  $100,000 was drawn under this line of credit and
         was used primarily for development costs relating to Midwest.


                                      F-58
<PAGE>
                         MEDEXEC, INC. AND SUBSIDIARIES;
                           SPI MANAGED CARE, INC.; AND

                  SPI MANAGED CARE OF HILLSBOROUGH COUNTY, INC.

                     NOTES TO COMBINED FINANCIAL STATEMENTS

(7)      LEASES

         Future minimum lease payments  required under non cancelable  operating
         leases at December 31, 1995 are as follows:

               Year ended                              Operating
              DECEMBER 31,                                LEASES

                  1996                                  $182,327
                  1997                                   188,584
                  1998                                   193,875
                  1999                                     3,968
               Thereafter                                     --
                                                        --------

            Total minimum lease payments                $568,754
                                                        ========

         Rent expense  incurred under an assigned office lease agreement for the
         years ended December 31, 1995, 1994 and 1993 amounted to  approximately
         $186,000, $70,000, and $54,000, respectively.

(8)      Capital Stock

         The  shares'  authorized,  issued,  related  par value  and  additional
         paid-in capital for each of the combined companies at December 31, 1995
         and 1994 are as follows:
<TABLE>
<CAPTION>

                                                               Stock         Stock      Stock total      Additional
                                                             Authorized     Issued       par value    paid-in capital
                                                             ----------     ------       ---------    ---------------

<S>                                                             <C>            <C>            <C>
          MedExec, Inc.                                           500          500      $     500               700
          SPI Managed Care, Inc.                                  500          500            500               500
          SPI Managed Care of Hillsborough
          County, Inc.                                          1,000          500            500                --
                                                                                           ------              -----

                                                                                         $  1,500             1,200
                                                                                            =====             =====
</TABLE>


(9)      RELATED PARTY TRANSACTIONS

         The Company paid salaries to stockholders of approximately  $1,389,000,
         $772,600, and $652,000 which are included in the combined statements of
         income  for  the  years  ended  December  31,  1995,   1994  and  1993,
         respectively.

                                      F-59

<PAGE>

                         MEDEXEC, INC. AND SUBSIDIARIES;
                           SPI MANAGED CARE, INC.; AND

                  SPI MANAGED CARE OF HILLSBOROUGH COUNTY, INC.

                     NOTES TO COMBINED FINANCIAL STATEMENTS

         The  Company  recorded  $111,459  and  $225,288 in  administration  fee
         revenue from SPI Broward  during the years ended  December 31, 1995 and
         1994, respectively.

         The Company recorded approximately $162,000 and $116,050 in utilization
         revenue  from BMC during the years  ended  December  31, 1995 and 1994,
         respectively.

         The Company had  receivables  from  affiliates  and related  parties of
         $59,023 and $196,745 at December 31, 1995 and 1994, respectively, and a
         payable to related parties of $4,458 at December 31, 1995.

(10)     FAIR VALUE OF FINANCIAL INSTRUMENTS

         The carrying amount of financial  instruments  including cash, accounts
         receivable, prepaid expenses and other current assets, accounts payable
         and other accrued expenses,  loan payable to Humana and loan payable to
         bank  approximate  fair value at December 31, 1995 because of the short
         maturity of these instruments.

(11)     RETIREMENT PLANS

         The Company  sponsors  401(k) plans (the  "Plans").  Employees who have
         worked a minimum of six months or 1,000 hours and are at least 21 years
         of age may participate in the Plans.  Employees may contribute up to 14
         percent of their annual salary,  not to exceed $9,240 in 1995 and 1994,
         and $8,994 in 1993, to the Plans. The Company's  matching  contribution
         is 25 cents for each dollar of the employee's elected contribution,  up
         to four percent of the employee's annual salary. The Company's matching
         contribution was approximately  $21,000,  $14,000,  and $8,000 in 1995,
         1994 and 1993, respectively.

(12)     INCOME TAXES

         Income tax expense consists of the following:

                                             1995          1994         1993
                                             ----          ----         ----
            Current expense (benefit):

                 federal and state          $(120,279)     60,000        --
            Deferred expense (benefit)        120,279     (60,000)       --
                                              -------     -------     ------

                                            $    --           --         --
                                              =========    ========    ======


                                      F-60

<PAGE>

                         MEDEXEC, INC. AND SUBSIDIARIES;
                           SPI MANAGED CARE, INC.; AND

                  SPI MANAGED CARE OF HILLSBOROUGH COUNTY, INC.

                     NOTES TO COMBINED FINANCIAL STATEMENTS

A  reconciliation  of income tax  expense  and the amount that would be computed
using the statutory federal income tax rate is as follows:
<TABLE>
<CAPTION>

                                             1995                    1994                 1993
                                      ----------------------   --------------------    --------------

                                      Amount    Percent        Amount    Percent      Amount     Percent
                                      ------    -------        ------    -------      ------     -------

<S>                                  <C>          <C>          <C>         <C>        <C>          <C>
Tax expense (benefit)at the
statutory rate                       (137,839)    (34%)         463,645     34%        272,967       34%

S corporation income taxed
at the stockholder level               95,277      23%         (532,270)   (39)%      (292,767)     (37)%

Change in the beginning-
of-the year balance of the
valuation allowance for
deferred tax assets
allocated to income tax
expense                                42,562      11%           68,625       5%         19,800       3%
                                     --------     ---         ---------   -----       ---------    ----

                                    $    --        --              --        --            --        --
                                     ========     ===         =========   ======      =========    =====
</TABLE>

The tax effects of temporary differences that give rise to a significant portion
of the deferred tax assets and deferred tax  liabilities  of those  entities for
which no  Subchapter S election is in effect at December 31, 1995 and 1994,  are
presented as follows:
<TABLE>
<CAPTION>

                                                                                      1995           1994
                                                                                      ----           ----
                Deferred tax assets:

<S>                                                                              <C>                 <C>
                  Revenue and expenses recognized for financial
                      reporting purposes in a different period than
                      for income tax purposes                                    $    7,646          127,925
                  Net loss carryforward                                             123,341           20,500
                                                                                    -------          -------
                      Total deferred tax assets                                     130,987          148,425

                    Less valuation allowance                                       (130,987)         (88,425)
                                                                                   --------         --------

                      Net deferred tax asset                                           --              60,000

                Deferred tax liabilities                                               --                --
                                                                                    =======           ======

                      Net deferred tax asset                                     $     --             60,000
                                                                                    =======           ======

</TABLE>

                                      F-61

<PAGE>

                         MEDEXEC, INC. AND SUBSIDIARIES;
                           SPI MANAGED CARE, INC.; AND

                  SPI MANAGED CARE OF HILLSBOROUGH COUNTY, INC.

                     NOTES TO COMBINED FINANCIAL STATEMENTS

         The  valuation  allowance for deferred tax assets as of January 1, 1994
         was $19,800.  The net change in the  valuation  allowance for the years
         ended December 31, 1995 and 1994 is $42,562 and $68,625,  respectively.
         The Company  reclassed $60,000 of its deferred tax asset as of December
         31,  1995  to  current  tax  receivable  upon  utilization  of its  net
         operating loss.

         At December 31, 1995, the companies not  qualifying as S  corporations,
         collectively  had a net operating loss  carryforward  of  approximately
         $486,000 for tax purposes, which expire in 2009.

(13)     COMMITMENTS AND CONTINGENCIES

         (A)      GOVERNMENTAL REGULATION

                  The  Company's  operations  have been and may  continue  to be
                  affected by various forms of governmental regulation and other
                  actions.   It  is  presently   not  possible  to  predict  the
                  likelihood  of any such  actions,  the form which such actions
                  may take, or the effect such actions may have on the Company.

         (B)      STOCKHOLDER AGREEMENTS

                  The Company entered into  employment  agreements and change in
                  control  severance  agreements  with the  stockholders  during
                  1994. Such agreements are in effect through April 1, 1999.

(14)     SUBSEQUENT EVENTS

         Effective  January 1, 1996, the Company  entered into an agreement with
         First Medical Corporation ("FMC"). All of the outstanding shares of the
         Company  were  converted  into shares of FMC.  In  exchange  for and in
         conversion of all of the issued and outstanding  shares of the Company,
         FMC has issued and delivered  common shares of FMC to the  stockholders
         of the Company.

         Effective  January 2, 1996,  the  Company  acquired an  additional  one
         percent interest in SPI Broward from Broward Medical Management ("BMM")
         for $1.00 and an equal split of the profits of SPI  Broward.  Effective
         January 2, 1996,  the Company  acquired  an  additional  27.25  percent
         interest in Broward Managed Care from BMM for $100,000.

         Effective January 1, 1996, the MedExec tax status automatically changed
         from an S Corporation to a C Corporation as a result of its merger into
         FMC. See Note 2(f) above.

         On April 4, 1996, the Company sold its investment in HCON for $300,000,
         resulting in a gain of $40,967.

                                      F-62

<PAGE>

                         MEDEXEC, INC. AND SUBSIDIARIES;
                           SPI MANAGED CARE, INC.; AND

                  SPI MANAGED CARE OF HILLSBOROUGH COUNTY, INC.

                     NOTES TO COMBINED FINANCIAL STATEMENTS

         Effective  February 1, 1996, the Company began operations in its Durham
         center located in Houston, Texas.

         The Company has entered into various employment and management services
         agreements throughout 1996.

(15)     OTHER MATTERS


         In October,  1996 FMC entered into a merger  agreement  with The Lehigh
         Group,   Inc.   ("Lehigh")   whereby  upon  merger  FMC  would  control
         approximately 96 percent of the merged company.  In connection with the
         proposed  merger,  which is subject  to  stockholder  approval  of both
         companies,  FMC and Lehigh have been named in a lawsuit. In the opinion
         of FMC and its legal counsel, such suit will not have a material effect
         on the financial statements of FMC, if not resolved favorably.

         In June,  1996 FMC entered into a subscription  agreement with Generale
         De Sante  International,  PLC  ("GDS")  by which  GDS has the  right to
         purchase   various   percentages  of  interest  in  both  FMC  and  its
         subsidiaries.


                                      F-63

<PAGE>
                                  EXHIBIT INDEX

EXHIBIT

2.1  Agreement  and Plan of Merger,  dated as of October 28,  1996,  between the
Registrant,  the Registrant Acquisition Corp. and First Medical Corporation,  as
amended  (incorporated  by  reference  to Exhibit 2.1 to the  Registrants  Proxy
Statement for a Special Meeting of Stockholders to be held July 9, 1997).

3(a) Restated  Certificate of  Incorporation,  By-Laws and Amendments to By-Laws
(incorporated by reference to Exhibits A and B to the Registrant's Annual Report
on  Form  10-K  for  the  year  ended  December  31,  1970.  Exhibits  3 and  1,
respectively, to the Registrant's Current Reports on Form 8-K dated September 8,
1972 and May 9, 1973,  and Exhibit 3 to the  Registrant's  Annual Report on Form
10-K for the year ended December 31, 1980).

3(b)  Certificate of Amendment to Restated  Certificate of  Incorporation  dated
September  30,  1983   (incorporated   by  reference  to  Exhibit  4(a)  to  the
Registrant's Quarterly Report on Form 10-Q for the quarter ended June 29, 1985).

3(C)  Certificate of Amendment to Restated  Certificate of  Incorporation of the
Registrant filed with the Secretary of State of the State of Delaware on October
31, 1985 (incorporated by reference to Exhibit 4 (C) to the Registrant's Current
Report on Form 8-K dated November 7, 1985).

3(d)  Certificate of Amendment to Restated  Certificate of  Incorporation of the
Registrant filed with the Secretary of State of the State of Delaware on January
2, 1986  (incorporated by reference to Exhibit 3(d) to the  Registrant's  Annual
Report on Form 10-K for the year ended December 31, 1985).

3(e)  Certificate of Amendment to Restated  Certificate of  Incorporation of the
Registrant filed with the Secretary of State of the State of Delaware on June 4,
1986  (incorporated by reference to Exhibit 4 (a) to the Registrant's  Quarterly
Report on Form 10-Q for the quarter ended June 30, 1986).

3(f)  Certificate of Amendment to Restated  Certificate of  Incorporation of the
Registrant  filed with the  Secretary of State of the State of Delaware on March
15, 1991 (incorporated by reference to Exhibit 3 (g) to the Registrant's  Annual
Report on Form 10-K for the year ended December 31, 1990).

3(g)  Certificate of Amendment to Certificate of Incorporation of the Registrant
filed with the  Secretary of State of the State of Delaware on December 27, 1991
(incorporated by reference to Exhibit 3(h) to the Registrant's  Annual Report on
Form 10-K for the year ended December 31, 1991).

3(h)  Certificate of Amendment to Certificate of Incorporation of the Registrant
filed with the  Secretary  of State of the State of Delaware on January 27, 1995
(incorporated by reference to Exhibit 3(i) to the Registrant's  Annual Report on
Form 10-K for the year ended December 31, 1994).

3(i)  Form of Certificate  of Designation of the Series A Convertible  Preferred
Stock.

3(j)  Amended  and  Restated  By-Laws  of the  Registrant,  as  amended  to date
(incorporated by reference to Exhibit 3(ii) to the  Registrant's  Current Report
on Form 8-K dated July 17, 1996).

4(a) Form of Indenture,  dated as of October 15, 1985, among  Registrant,  NICO,
Inc. and J. Henry Schroder Bank & Trust the  Registrant,  as Trustee,  including
therein the form of the subordinated  debentures to which such Indenture relates
(incorporated by reference to Exhibit 4(a) to the Registrant's Current Report on
Form 8-K dated November 7, 1985).

                                      E-1
<PAGE>

4(b)  Amendment to Indenture  dated as of March 14, 1991  referenced  to in Item
4(b) (1)  (incorporated by reference to Exhibit 4(b) (2) to Registrant's  Annual
Report on Form 10-K for the year ended December 31, 1990).

4(C) Indenture dated as of March 15, 1991 (the "class B Note  Indenture")  among
the Registrant,  NICO, the guarantors  signatory thereto,  and Continental Stock
Transfer and Trust the Registrant,  as Trustee, pursuant to which the 8% Class B
Senior Secured  Redeemable Notes due March 15, 1999 of NICO were issued together
with the form of such Notes  (incorporated  by  reference to Exhibit 4(i) to the
Registrant's Annual Report on Form 10-K for the year ended December 31, 1990).

4(d)  First  Supplemental  Indenture  dated as of May 5, 1993  between  NICO and
Continental Stock Transfer & Trust the Registrant,  as trustee under the Class B
Note Indenture  (incorporated  by reference to Exhibit 4(h) to the  Registrant's
Annual Report on Form 10-K for the year ended December 31, 1993).

4(e) Form of indenture  between the Registrant,  NICO and Shawmut Bank, N.A., as
Trustee,  included  therein the form of Senior  Subordinated  Note due April 15,
1998  (incorporated  by  reference  to Exhibit  4(b) to  Amendment  No. 2 to the
Registrant's Registration Statement on Form S-2 dated May 13, 1988).

10(a) Guaranty of LVI  Environmental  dated as of May 5, 1993  (incorporated  by
reference to Exhibit  10(f) to the  Registrant's  Annual Report on Form 10-K for
the year ended December 31, 1993).

10(b) Indemnification Agreement dated as of May 5, 1993 among LVI Environmental,
the   Registrant   and  certain   directors  and  officers  of  the   Registrant
(incorporated by reference to Exhibit 10(h) to the Registrant's Annual Report on
Form 10-K for the year ended December 31, 1993).

10(C)  Assumption  Agreement dated as of May 5, 1993 among the Registrant,  NICO
and LVI  Holding for the  benefit of holders of certain  securities  of Hold-Out
Notes (as defined  therein)  (incorporated  by reference to Exhibit 10(i) to the
Registrant's Annual Report on Form 10-K for the year ended December 31, 1993).

10(d) Exchange Offer and Registration Rights Agreement dated s of March 15, 1991
made  by  the  Registrant  in  favor  of  those  persons  participating  in  the
Registrant's exchange offers (incorporated by reference to Exhibit 10 (j) to the
Registrant's  Annual  Report  on Form  10-K/A  Amendment  #2 for the year  ended
December 31, 1993).

10(e) Employment  Agreement  between the Registrant and Salvatore J. Zizza dated
August 22, 1994  (incorporated  by reference to Exhibit 10.1 to the Registrant's
Current Report on Form 8-K filed with the Securities and Exchange  Commission in
September 1994).

10(f)  Options of Mr.  Zizza to purchase an aggregate  of  10,250,000  shares of
Common Stock of the Registrant (incorporated by reference to Exhibit 10.2 to the
Registrant's  Current  Report on Form 8-K filed with the Securities and Exchange
Commission in September 1994).

10(g)  Registration  Rights  Agreement  dated as of August 22, 1994  between Mr.
Zizza and the  Registrant  (incorporated  by  reference  to Exhibit  10.3 to the
Registrant's  Current  Report on form 8-K filed with the Securities and Exchange
Commission in September 1994).

10(h)  Consulting  Agreement dated as of August 22, 1994 between Dominic Bassani
and  the  Registrant   (incorporated   by  reference  to  Exhibit  10.4  to  the
Registrant's  Current  Report on form 8-K filed with the Securities and Exchange
Commission in September 1994).

10(i)  Warrants of Mr.  Bassani to purchase an aggregate of 7,750,000  shares of
Common Stock of the Registrant (incorporated by reference to Exhibit 10.5 to the
Registrant's  Current  Report on Form 8-K filed with the Securities and Exchange
Commission in September 1994).

                                      E-2
<PAGE>

10(j)  Registration  Rights  Agreement  dated as of August 22, 1994  between Mr.
Bassani and the  Registrant  (incorporated  by  reference to Exhibit 10.6 to the
Registrant's  Current  Report on Form 8-K filed with the Securities and Exchange
Commission in September 1994).

10(k) Form of  Registration  Rights  Agreement dated as of August 22, 1994 among
the  Registrant  and the  investors in the Private  Placement  (incorporated  by
reference to Exhibit 10.7 to the  Registrant's  Current Report on Form 8-K filed
with the Securities and Exchange Commission in September 1994).

10(l)  Warrant of Goldis  Financial  Group,  Inc.,  to purchase an  aggregate of
386,250 shares of Common Stock of the Registrant  (incorporated  by reference to
Exhibit  10.8 to the  Registrant's  Current  Report on Form 8-K  filed  with the
Securities and Exchange Commission in September 1994).

10(m)  Employment  Agreement  between the  Registrant  and Robert A. Bruno dated
January 1, 1995  (incorporated  by  reference to Exhibit  10(m) to  Registrant's
Annual Report on Form 10-K for the year ended December 31, 1995).

10(n)  Subordinated  debenture  dated March 28, 1996 between the  Registrant and
Macrocom  Investors,   LLC  (incorporated  by  reference  to  Exhibit  10(n)  to
Registrant's Annual Report on Form 10-K for the year ended December 31, 1995).

10(o) Option  Letter  Agreement,  dated October 29, 1996,  between  Salvatore J.
Zizza and First Medical  Corporation  (incorporated by reference to Exhibit 99.7
to the  Registrant's  Current  Report of Form 8-K filed with the  Securities and
Exchange Commission in November 1996).

10(p) $100,000 Promissory Note, dated as of October 28, 1996, from First Medical
Corporation to Salvatore J. Zizza  (incorporated by reference to Exhibit 99.8 to
the  Registrant's  Current  Report of Form 8-K  filed  with the  Securities  and
Exchange Commission in November 1996).

11       Computation of earnings per share

12

21        Subsidiaries of the Registrant  (incorporated  by reference to Exhibit
          21 to  Registrant's  Annual  Report  on Form  10-K for the year  ended
          December 31, 1995).

*23.1     Consent of BDO Seidman, LLP.

*23.2     Consent of KPMG Peat Marwick LLP.

*27       Financial data schedule

-    - - - - - - - - - - - - -
o         Filed herewith.
<PAGE>
FIRST MEDICAL GROUP, INC. AND SUBSIDIARIES
SCHEDULE II

                        VALUATION AND QUALIFYING ACCOUNTS
                     YEARS ENDED DECEMBER 31, 1997 AND 1996

                          (DOLLAR AMOUNTS IN THOUSANDS)

<TABLE>
<CAPTION>
                                                    BALANCE AT   ACQUISITION     CHARGED TO        OTHER     BALANCE AT
                                                     BEGINNING        OF          COSTS AND       CHARGES      END OF
DECEMBER 31,        DESCRIPTION                       OF YEAR       LEHIGH        EXPENSES      AND (DED'S)     YEAR
------------------------------------------------------------------------------------------------------------------------


<S>                                                     <C>            <C>             <C>         <C>        <C>   
     1997        Allowance for doubtful accounts        $ 50           403             8           570        $1,015

                 Inventory obsolescence reserve         $ --           175            --            93        $  268


     1996        Allowance for doubtful accounts        $ --            --            --            50        $   50


                 Inventory obsolescence reserve         $ --            --            --            --        $    -

</TABLE>