U.S. SECURITIES AND EXCHANGE COMMISSION
                            WASHINGTON, D.C. 20549

                                  FORM 10-KSB

           [X]    ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE
                        SECURITIES EXCHANGE ACT OF 1934

                  For the fiscal year ended December 31, 1996

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

            For the transition period from ________ to ___________


                          COMMISSION FILE NO. 0-27236

                        MEDICAL ASSET MANAGEMENT, INC.
                (Name of Small Business Issuer in its charter)

               Delaware                               33-0359976
    (State or other jurisdiction of                (I.R.S. Employer
    incorporation or organization)              Identification Number)

                       25241 Paseo de Alicia, Suite 230
                            Laguna Hills, CA 92653
                           Telephone: (714) 829-8333



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

Title of each class to                    Name of each exchange on which
be so registered                          each class to be registered

      N/A                                       N/A

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

            Common Stock, par value $.001 per share


<PAGE>



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

      Check if  disclosure  of  delinquent  filers  in  response  to Item 405 of
Regulation  S-B is not  contained  in  this  form,  and no  disclosure  will  be
contained,  to the  best of  registrant's  knowledge,  in  definitive  proxy  or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB [X]

      State issuer's revenues for its most recent fiscal year:  $10,378,508.

      The aggregate market value of the voting stock held by  non-affiliates  as
of September 25, 1997 computed by reference to the bid price of such stock as of
November 24, 1997 was $8,379,518.

                   APPLICABLE ONLY TO CORPORATE REGISTRANTS

      The  number of shares  of the  issuer's  common  stock  outstanding  as of
September 25, 1997, was 15,799,129.

                     DOCUMENTS INCORPORATED BY REFERENCE.

      The  issuer  incorporates  by  reference  (i) the  documents  included  as
exhibits to the Form 10-SB  (Amendment No. 6) filed November 21, 1997,  (ii) the
Form 8-K filed November 22, 1996, and (iii) the Form 8-K filed December 3, 1996.

      Transitional Small Business Disclosure Format (check one): 
 Yes [  ]  No [X]


<PAGE>



           
PART I

ITEM 1.     DESCRIPTION OF BUSINESS.

      COMPANY OVERVIEW.

      Medical Asset  Management,  Inc.  (the  "Company" or "MAM") is a physician
practice  management  company  that  develops   contractual   affiliations  with
physician practices.  These contractual agreements provide clinical autonomy for
the  physicians'  practice as well as  professional  practice  management by the
Company.  Through  its  subsidiary,  Healthcare  Professional  Management,  Inc.
("HPM"),  the  Company  also  offers a full  array  of  management  services  to
physicians and other  independent  healthcare  entities under long-term  service
contracts  as  a  management  service  organization  ("MSO").  The  Company  has
long-term MSO contracts with five medical group  practices  having a total of 48
physicians in two states.  HPM also provides practice  management  services on a
consulting basis to over 200 physicians in Pennsylvania, West Virginia and Ohio.

      Under  the  Company's  standard  equity  arrangements,   the  Company  has
developed equity  affiliations with 28 physician  practices having a total of 54
physicians  in eight  states as of  November 1, 1997.  Pursuant to these  equity
affiliations,  the Company has exchanged cash and Common Stock for the ownership
and  management of the business  assets and the practices as well, as the rights
to manage such  practices.  Although the amounts and terms of such  arrangements
are separately  negotiated with each affiliated practice,  the Company typically
purchases the practice's  accounts  receivables and office  equipment and enters
into a 25-year practice  management  agreement.  This agreement provides for the
management and  administration  of all non-medical  personnel and human resource
issues.  The  agreement  also  provides  for  general  business  administration,
reimbursement  management,  and an integrated information system, which includes
electronic  patient  records  filing  and other  daily  operating  systems.  The
Company's  revenues under such  agreements are derived from the medical  service
revenues   generated  by  the   physicians.   These  revenues   consist  of  the
reimbursement of the practice's  operating expenses,  which include salaries and
benefits for clerical  personnel and management  fees.  The management  fees are
based  primarily on a  percentage  of the  practice's  medical  service  revenue
collected by the Company. Under its standard equity agreements,  the Company has
earned an average of 5% to 10% of the annual collected  medical service revenue.
Pursuant  to the  management  agreement,  the  physicians  receive a  negotiated
percentage of collected medical service revenue.  These budgeted payments are to
be used to cover  the  professional  expenses  of the  practice,  which  include
physicians'  and other  medical  providers'  salaries and  benefits,  as well as
malpractice  insurance for the physicians and other health care  providers.  The
total amount retained by physicians, excluding advances, averaged 31% of the sum
of the  Company's  net  revenues  in 1996 plus the  amounts  retained by medical
groups.

      In  addition,  the  Company,  through  HPM,  provides  services to medical
practices  through  service  contracts  and  consulting  arrangements.  Services
provided under current  long-term  service  contracts,  which range from four to
eight  years in length,  include  billing  and  collections,  accounting,  human
resource management,  financial management and marketing. The Company's revenues
under such  contracts  consist of  management  fees based on a percentage of the
practice's  medical service revenue collected by the Company.  The percentage of
medical service revenue  received as a management fee by the Company under these
non-equity  arrangements  varies with the services 

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<PAGE>

provided  to the  practice.  On  average,  in  1997  the  Company  has  received
management fees under its non-equity  long term service  contracts of between 3%
and 11% of the practice's collected medical service revenues.  Services provided
under consulting  arrangements  include  practice  management,  accounting,  tax
preparation,  employee benefits analysis and retirement and estate planning.  In
general,  the Company is compensated  under these  consulting  arrangements on a
retainer basis.

      The Company's strategy is to develop physician-driven, integrated provider
networks of small to  mid-sized  physician  groups that  deliver  high  quality,
cost-effective  health care in selected geographic markets. The Company believes
that the keys to its  continued  growth will be  dependent  upon the  successful
implementation of the current management plan to improve the Company's financial
position  and  profitability  (the  "Management   Business  Plan"),  more  fully
described in Note 2 to the Company's  financial  statements and in "Management's
Discussion  and  Analysis of  Financial  Condition  and Results of  Operations -
Liquidity and Capital  Resources;"  and its ability (i) to expand its markets by
entering into additional equity and non-equity  management service  affiliations
with physician practices and by promoting the growth of such practices,  (ii) to
enhance the operating  efficiency  and profits of such  practices,  and (iii) to
provide an integrated information system to such practices.

      As  of  December  31,  1996,   officers  and   directors  of  the  Company
beneficially  owned 6,222,537  shares,  or 41.6%,  of the Company's  outstanding
Common Stock.  Physicians  whose practices are affiliated with the Company owned
3,099,697  shares,  or  20.7%,  of the  Company's  outstanding  Common  Stock at
December 31, 1996. In addition,  during the years 1997 through 2000,  the number
of shares beneficially owned by affiliated physicians is expected to increase by
1,988,071 shares,  or 11.7%, of the Company's Common Stock,  based on the number
of shares outstanding at year end 1996 and the future issuance of nonforfeitable
shares to affiliated  physicians pursuant to then existing equity  arrangements.
Subsequent  to December  31,  1996,  the  Company  has  entered  into new equity
arrangements under which it has committed to issue an aggregate of an additional
573,311 shares of Common Stock under new equity arrangements with physicians.

      HISTORY.

      The Company was  incorporated  in Delaware on January 23,  1986,  as Eagle
High  Enterprises,  Inc.,  to  raise  investor  capital  to fund  the  Company's
acquisition of an existing business. From 1986 to June 1994, the Company engaged
in a search for technologies, properties or businesses that had long term growth
potential.  Although the Company considered a number of acquisition  candidates,
it undertook no acquisition during this period. The Company's  activities during
this period were funded  largely from the proceeds of a limited  offering of the
Company's Common Stock.

      In June 1994, the Company entered into a stock exchange agreement with the
stockholders  of  Medical  Asset  Management,  Inc.,  a  closely  held  Delaware
corporation  incorporated on May 12, 1989 ("Old MAM"), pursuant to which control
of the Company was acquired by the shareholders of Old MAM (the  "Acquisition").
Old MAM had been engaged in the  business of managing  three  medical  practices
having four  physicians  with which it became  affiliated  in the period 1991 to
1993 and  owned  certain  franchise  rights  under  the name  "Occu-Med,"  which
franchise activities have since been discontinued by the Company.

      In  connection  with  the   Acquisition,   the  shareholders  of  Old  MAM
transferred their business to the Company in exchange for 6,960,000 newly issued
shares of the Company's Common Stock,  which 

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<PAGE>

represented 80% of the outstanding  shares of the Company after giving effect to
the Acquisition.  The transaction between the Company and Old MAM was treated as
a  recapitalization  of Old MAM,  with Old MAM as the  acquirer  for  accounting
purposes, i.e. a reverse acquisition.  As such, no revaluation of net assets was
recorded.  In connection with the  Acquisition,  the Company merged Old MAM into
itself with the Company  continuing as the surviving  entity.  As a result,  the
stockholders  were able to take advantage of the already existing market for the
Company's  shares.  The Company  changed its name to "Medical Asset  Management,
Inc." in connection with the merger.

      HEALTH CARE INDUSTRY OVERVIEW.

      Concerns  over the  accelerating  cost of health care have resulted in the
increasing prominence of managed care over traditional fee-for-service medicine.
As managed care penetrates a larger number of geographic  markets,  managed care
organizations  ("MCOs") and health care providers  confront pressures to provide
high quality health care in a cost-effective manner.  Employer groups have begun
to bargain  as  consumers  of health  care in an effort to reduce  premiums  and
achieve greater accountability of MCOs and health care providers with respect to
accessibility,  choice of  provider,  quality  of care and other  indicators  of
consumer satisfaction.  In addition,  Congress has attempted to contain Medicare
and Medicaid  costs,  most recently  through the Budget  Reconciliation  Act, by
limiting payments to medical providers, including physicians.

      The focus on cost  containment  has placed  small to  mid-sized  physician
groups and sole practitioners at a disadvantage. Such physician groups typically
have higher operating costs because they often have little purchasing power with
suppliers  and lack the capital to  purchase  either new  technologies  that can
improve quality and reduce costs or the cost  accounting and quality  management
systems  necessary  to enter  into  sophisticated  risk-sharing  contracts  with
payors.

      In order to compete  effectively,  health  care  providers  have sought to
reorganize  themselves into health care delivery  systems that are better suited
to the managed care  environment.  Primary  care  physicians  have  increasingly
become the conduit for the delivery of medical care by acting as gatekeepers and
directing referrals to certain specialists, hospitals, alternate-site facilities
and diagnostic  facilities.  Many  physicians are concluding that they must have
control over the delivery and financial impact of a broader range of health care
services through the acceptance of global capitalization.  Groups of independent
physicians   and  medical  groups  are   accordingly   taking  steps  to  assume
responsibility and financial risk for integrated health care services. In brief,
physicians are increasingly  abandoning traditional private practice in favor of
affiliations  with  larger  organizations  that  offer  skilled  and  innovative
management, sophisticated information systems and capital resources.


      COMPANY STRATEGY.

      The Company's strategy is to develop physician-driven, integrated provider
networks of small to  mid-sized  physician  groups that  deliver  high  quality,
cost-effective  health care in selected geographic markets.  The Company focuses
on the market segment of small (under five providers) to medium-sized  (under 50
providers)  medical group  practices.  The Company believes that the keys to its
continued  growth  will  be the  successful  implementation  of  the  Management
Business Plan (see "Management's  Discussion and Analysis of Financial Condition
and Results of Operations - Liquidity and Capital  Resources"  and Note 2 to the
Company's  Financial  Statements)  and its  ability to (i) expand its markets by
entering into additional equity and non-equity  management service  arrangements
with
                                       3
<PAGE>

affiliated  physicians  and by  promoting  the  growth  of its  affiliated
practices,  (ii) enhance the operating  efficiency and profits of its affiliated
practices and (iii) provide an integrated  information  system to its affiliated
practices. The key elements of this strategy are as follows:

      EXPANSION  OF  MARKETS.  The  Company's  strategy is to expand its markets
through the acquisition of the operating assets of additional medical practices,
entry into additional  long-term  management  service contracts and promotion of
the  growth of its  existing  affiliated  practices,  subject  to the  Company's
ability to implement the Management  Business Plan. The Company seeks to promote
the growth of its existing  practices by creating alliances among its affiliated
physician groups,  either by forming horizontally  structured,  single-specialty
networks or  integrated,  multi-specialty  networks built upon a base of primary
care physicians in selected regional markets.  The Company also seeks to further
enhance its existing  market share by  increasing  managed care  enrollment  and
fee-for-service business in its existing affiliated physician groups.

      INCREASED OPERATIONAL EFFICIENCIES AND COST REDUCTIONS.  The Company seeks
to increase  revenues and reduce and control costs at its  affiliated  practices
through a  combination  of one or more  methods.  To increase the revenue of the
affiliated practices,  the Company recruits additional physicians,  merges other
physicians  practicing  in the  same  geographic  area  into  larger  affiliated
physician groups,  develops new clinic sites, develops ancillary services and/or
negotiates  contracts  with  managed care  organizations.  To reduce and control
costs at its  affiliated  practices,  the Company  plans to  negotiate  national
purchasing contracts, provide a single, fully-integrated information system that
can assist the physicians in developing more  cost-effective  practice patterns,
and/or  centralize  the business  management  of multiple  practices in selected
regions of the country to allow  physicians  to create  economies  of scale that
would not otherwise be possible.

      INSTALLATION OF INTEGRATED  INFORMATION  SYSTEM. The Company believes that
information  technology is critical to the growth of its integrated  health care
provider  networks  and that  the  availability  of  detailed  clinical  data is
fundamental  to quality  control and cost  containment.  The  Company  currently
provides a sophisticated  management information system, including an electronic
patient record,  to its affiliated  physicians in the  Pittsburgh,  Pennsylvania
market  area.  During  early 1998,  the Company  expects that the system will be
operational for affiliated practices in the Pennsylvania and Ohio markets and in
the Denver, Colorado region, and by the end of 1998 the Company plans to provide
the system to the balance of its affiliated  practices.  The system will collect
and analyze  clinical and  administrative  data in order to allow the Company to
manage more effectively  overhead expenses,  maximize  reimbursement and provide
the  information  to assist in  effective  utilization  management.  The Company
evaluates the administrative and clinical operations of affiliated practices and
intends to re-engineer  these  functions as appropriate to maximize the benefits
of the  information  system.  In  conjunction  with  the  implementation  of the
information  system, the Company is developing a company-wide  intranet and wide
area network that will allow access to online  purchasing,  daily  reporting and
direct online access to healthcare data banks and medical research. The Company,
through its integrated information system and accounting department,  expects to
be able to provide the financial and clinical data necessary to quantify  actual
costs related to the delivery of medical care within the  individual  practices,
within the Company's network, within the region and nationally.


                                       4
<PAGE>


      PRACTICE MANAGEMENT ACTIVITIES.

      The Company believes that its various management service  arrangements are
attractive to physicians  seeking to remain independent by offering economies of
scale in the marketplace and access to enhanced  risk-sharing  arrangements  and
other strategic  alliances  within the Company's  network.  The Company believes
that the  expansion of its network  operations is important to the future growth
of the Company.  Many of the  physicians  who  contract  with the Company have a
significant  number of patients who do not  currently  participate  in a prepaid
health plan and thus do not have access to enhanced  risk-sharing  arrangements.
Such physicians may, therefore,  seek to form physician group alliances that may
become affiliated with the Company. See "Company Strategy."

      ACQUISITION  PROGRAM. The Company's growth strategy has been to enter into
equity and non-equity  management  services  agreements with small and mid-sized
physician  practices.  The Company entered into equity  arrangements  with three
medical  practices having four physicians in 1993, nine medical practices having
a total of 11 physicians in 1994, five medical  practices having a total of five
physicians in 1995 and 12 medical  practices  having a total of 30 physicians in
1996.  As of  November  1,  1997,  the  Company  had  entered  into  new  equity
arrangements  with an  additional  13  medical  practices  having  a total of 22
physicians.  Since 1993,  14 medical  practices  having a total of 18 physicians
have terminated.

      In its largest  acquisition  to date, in April 1996 the Company  purchased
certain  business  assets  of, and  entered  into a 25-year  management  service
agreement with,  OB-GYN  Associates,  P.C.  ("OB-GYN") of Denver,  Colorado,  in
exchange  for  $1,806,000  in cash and 730,000  shares of the  Company's  Common
Stock. The Company  believes that this medical group,  consisting of nine OB/GYN
physicians in four offices, is the largest OB/GYN single-specialty medical group
in the Rocky Mountain region. For financial  information  concerning OB-GYN, see
Item 7.

      In addition,  the Company  acquired HPM, a physician  practice  management
company located in Pittsburgh,  Pennsylvania,  in exchange for 433,332 shares of
the  Company's  Common  Stock  effective  December  31,  1995.  HPM has provided
management  services  to  physician  practices  for over 35 years and  currently
provides such services on a long-term  contractual as well as a consulting basis
to physicians in Pennsylvania, Ohio and West Virginia.

      The Company constantly pursues and evaluates  potential physician practice
affiliations,  and it intends to continue  to enter into  equity and  non-equity
affiliations,  subject to limitations imposed by its financing  capabilities and
debt  facilities.  In addition,  the Company is in the process of negotiating an
equity joint venture MSO (management services organization)  arrangement with an
integrated  delivery  system.  The Company is also  negotiating  an equity joint
venture  arrangement with a clinical research company that contracts for Stage 3
clinical  trials.  There  can  be no  assurance  that  any  of  these  potential
contractual  affiliations  will be  consummated.  Under the Management  Business
Plan,  further  acquisition  activity  will be  curtailed  until  the  Company's
financial position improves.  See Note 2 to the Company's consolidated financial
statements  for the years  ended  December  31,  1996 and 1995  (the  "Company's
Financial  Statements") and  "Management's  Discussion and Analysis of Financial
Condition and Results of Operations."

      AFFILIATED  MEDICAL  PRACTICES.  As of November  1, 1997,  the Company was
managing 33 medical  practices  and clinics and 102  physicians  under equity or
non-equity  management  service  

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arrangements.  In 1996,  OB-GYN accounted for approximately 22% of the Company's
net revenues. No other practice accounted for more than 10% of the Company's net
revenues in 1996.  Based on preliminary  estimates of the Company's net revenues
for the first six months of 1997,  OB-GYN is the only  practice  to account  for
more than 10% of the  Company's net  revenues.  In 1995,  prior to the Company's
acquisition of OB-GYN,  four practices (with a total of eight physicians located
in California) accounted for 60% of the Company's net revenues.

      For operations  management  purposes,  as of July 1, 1997, the Company has
grouped its affiliated  practices into two broad  geographic  zones: the Western
Region and the Eastern Region.  Each region is under the supervision of a senior
member of the management who reports to the Company's  chief  executive  officer
and is  responsible  for  operations  and growth and  expansion of the Company's
management  affiliations with physicians.  Information  concerning the Company's
affiliated  practices  is set  forth  below  based on the  region  in which  the
practices are located:

            Western  Region.  The Company  manages 24  practices  in the Western
      Region of the United States, five in Washington, six in California, two in
      Alaska,  six  in  Colorado,  two in  Idaho,  two in  Arizona,  and  one in
      Mississippi, consisting of a total of 49 physicians.

            Eastern Region.  The Company  manages nine medical  practices in the
      Eastern part of the United States, four in Pennsylvania,  one in Ohio, one
      in Florida and three in Illinois, consisting of 53 physicians.

      Existing  affiliated   physicians  and  the  hospitals  in  which  current
affiliated  physicians  practice  are the primary  sources of  referrals  of new
acquisitions and management service relationships for the Company.

      EQUITY AFFILIATIONS.  To meet payor demand for price competitive,  quality
services,  the Company utilizes a market based approach, the goal of which is to
establish a base of primary care  physicians  allied with  specialty  physicians
into a network of  providers  serving a  targeted  geographic  area.  Affiliated
primary  care  physicians  currently  include  physicians  in  family  practice,
internal  medicine,  pediatrics and  obstetrics/gynecology.  Key  specialties of
affiliated   physicians   currently  include  allergy,   cardiology,   podiatry,
nephrology,  urology,  surgery and oncology.  The Company  markets its physician
affiliations to managed care and third-party  payors,  referring  physicians and
hospitals.  Affiliated  physicians  also  treat  fee-for-service  patients  on a
per-occurrence basis.  After-hours care is available in several of the Company's
clinics.

      Under the Company's standard equity arrangements,  physician  affiliations
are established  through the exchange of cash and Common Stock of the Company in
amounts  and on terms  that  are  separately  negotiated  with  each  individual
physician or practice group. This  consideration is payable in installments over
an agreed  period of time,  usually  four years.  The  relationship  between the
Company  and its  affiliated  physicians  is set  forth  in asset  purchase  and
management service agreements.

      Through the asset  purchase  agreement,  the Company  acquires  the assets
utilized  in the  practice  and  may  also  assume  certain  liabilities  of the
physician  group.  The  assets to be  acquired  by the  Company  under the asset
purchase  agreement  will vary,  although all have involved the  acquisition  of
certain  selected  business  assets,  such as desks,  computers,  typewriters or
filing  cabinets,  and the majority  have involved the  acquisition  of accounts
receivable.  The  Company  may also  acquire  the 

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<PAGE>

lease or fee interest of the  physician-owners  in the physical  location of the
practice. Of the practices currently under management by the Company, three have
involved the acquisition of real property by the Company.

      Under  a  management  service   agreement,   a  physician  group  or  sole
practitioner  delegates to the Company  administrative,  management  and support
functions  required  in  connection  with  its  or  his  medical  practice.  The
management service  agreements  typically have terms of 25 years and provide the
physicians  with  access  to  capital,   management  expertise,   an  integrated
information system and managed care contracts  negotiated by the Company,  while
enabling  affiliated  physicians to retain clinical control and autonomy through
their professional  corporations or similar entities.  The Company also provides
the medical group or physician with the equipment used in its medical  practice,
manages  practice  operations  and employs  substantially  all of the practice's
non-physician personnel, except for certain allied health professionals, such as
nurse practitioners, physician assistants and physical therapists. The agreement
provides that the affiliated professional corporation or entity will not compete
with the  Company.  The  Company  does not,  however,  control  the  practice of
medicine by physicians or  compliance  by them with  licensure or  certification
requirements.

Under the  Company's  standard  equity  arrangements,  the Company  collects the
medical  service  revenues for its affiliated  practices and  distributes  these
collected  revenues as provided  for in the  contract,  generally in a series of
four steps.  First, the Company uses this revenue to pay the operating  expenses
of the  practice,  which  include  salaries and benefits for  receptionists  and
medical  secretaries,  billing and collection  expenses,  office supplies,  real
property lease payments and property  insurance  expenses.  Second,  the Company
retains its minimum guaranteed  management fee as provided for in the management
service agreement with the affiliated practice,  which usually ranges from 5% to
10% of collections.  When the Company provides the fully integrated  information
system to the  affiliated  practice,  the Company  plans to increase the minimum
guaranteed  management fee by 3% of the  practice's  collected  medical  service
revenues.  Third,  the Company pays the physicians  their  negotiated,  budgeted
percentage  of  collected  revenues  to cover the  professional  expenses of the
practice,  which include  physicians' and other medical providers'  salaries and
benefits and  professional  malpractice  insurance.  The payments to  affiliated
practices for professional expenses in 1996 averaged 31% of the annual collected
medical  service  revenues.  Finally,  to the extent that there is any  residual
collected  medical  service  revenue,  the  Company  retains  such  revenue as a
supplemental  management  fee,  usually up to 30% of collected  medical  service
revenues.

      In general, the significant terms of the management service agreement with
OB-GYN  are the same as those  provided  for in the  Company's  standard  equity
arrangements, i.e., the Company will provide OB-GYN with management services for
a term of 25 years in exchange for a minimum  guaranteed  fee of 10% of OB-GYN's
collected  medical  service  revenues.  The  OB-GYN  physician-owners   received
approximately  46% of the practice's  collected medical service revenues in 1996
to cover the professional expenses of the practice.

      The Company  enhances  growth in its  practices by expanding  managed care
arrangements  (to which the affiliated  physician  groups are typically  party),
assisting in the recruitment of new physicians and expanding and adding services
that have  historically  been performed  outside of the  practices.  The Company
works closely with affiliated  physicians in targeting and recruiting physicians
and in merging sole  practitioners  or single  specialty  groups into affiliated
physician  groups.  The Company  assists in

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<PAGE>

the  development  of new and  expanded  ancillary  services,  such  as  birthing
centers,  surgery centers,  and diagnostic labs, by offering management services
and needed capital resources.

      The Company,  under the terms of its standard  equity  management  service
agreement,  employs all non-medical  personnel and has the authority to make any
changes required to improve practice  efficiency and productivity and, thus, has
the ability to control all  non-physician  operating  costs.  The Company  does,
however, establish an advisory committee for the practice, consisting of Company
and  professional  personnel,  that  recommends  guidelines  and budgets for the
practice,  including staffing,  personnel issues (both medical and non-medical),
capital  expenditures,  practice  acquisitions and practice expansion (including
patient source and physician  recruitment issues). To reduce or control expenses
the Company,  among other things,  anticipates  negotiating  national purchasing
contracts  for key  items,  reviewing  staffing  levels  to make  sure  they are
appropriate  and assisting the  physicians  in  developing  more  cost-effective
clinical practice patterns through the use of its integrated information system.

      The Company offers affiliated physicians who enter into asset purchase and
management service agreements with the Company the option to repurchase tangible
assets and the management service agreement. All existing and prospective equity
management service agreements are subject to early termination. During an agreed
period (generally four years in the case of existing  agreements and three years
in the case of pending and future agreements), the repurchase of tangible assets
requires the return of all  consideration  paid by the Company and the repayment
of all money  invested  in, or advanced  to, the  practice by the  Company.  The
repurchase  of the  management  service  agreement  requires  the  return of all
consideration  paid by the Company for the acquisition of the management service
agreement.  In the event of a repurchase  during the agreed period,  the medical
practice  also  forfeits  all  management  fees  earned  by,  and  all  accounts
receivable  that  have  been  assigned  to,  the  Company  as of the date of the
repurchase.  After the  expiration of the agreed period in equity  arrangements,
termination  of the  affiliation  requires  the  practice  to pay the  Company a
negotiated  amount of cash for  liquidated  damages  or  obligates  the  medical
providers  to abide by a contract  not to compete.  Of the  physicians  who have
placed their  business  assets  under the  management  of the Company  since the
inception of Old MAM, a total of 14 practices with 18 physicians have terminated
their  affiliation  with the  Company as of  November  1, 1997.  During 1996 two
groups  comprising  seven practices  having eight physicians were repurchased by
the physicians or terminated which resulted in $153,000 of income.

      The  table  below   indicates  the  number  of  practices  and  physicians
affiliated  with  the  Company  pursuant  to such  equity  arrangements,  net of
terminations, at the dates indicated:

<TABLE>
<CAPTION>

                                         Year Ended December 31,    November 1,
                                         1994      1995     1996        1997
                                         ----      ----     ----        ----
       <S>                                <C>       <C>      <C>        <C>
       Number of affiliated practices     12        16       21          28
       Number of affiliated physicians    15        19       41          54

</TABLE>

      The  Company's  strategy  is  to  emphasize  the  expansion  of  physician
practices under management through equity affiliations.

                                       8
<PAGE>

      NON-EQUITY  SERVICE  ARRANGEMENTS.  The Company also provides  services to
medical  practices  pursuant to non-equity  long-term service  contracts.  As of
November 1, 1997, the Company had in place long term service contracts,  ranging
from four to 25 years in length,  with five  medical  group  practices  having a
total of 48  physicians.  Services  provided  under  current  long-term  service
agreements   include  billing  and  collections,   accounting,   human  resource
management,  financial  management and marketing.  The Company's  revenues under
such  arrangements  consist  of  management  fees based on a  percentage  of the
medical  service  revenue earned by the practice.  The percentage of the medical
service revenue received as a management fee by the Company varies with the type
of services provided.  On average,  in 1997 the Company has received  management
fees under its non-equity  long-term  service contracts of between 3% and 11% of
the practice's collected medical service revenue.

      The Company also provides  management services to over 200 physicians on a
consulting  basis.  Such  consulting   services  include  practice   management,
accounting,  tax  preparation,  employee  benefits  analysis and  retirement and
estate  planning.  In general,  the Company is compensated  under its consulting
arrangements on a retainer basis.

      INFORMATION  SYSTEM.  The Company has  purchased  and is  implementing  an
integrated  information  system to support its growth and acquisition plans. The
Company's  current plan is to provide this information  system to all affiliated
practices by the end of 1998. The Company's overall information system design is
open,  modular and flexible and is intended to give  affiliated  physicians  and
staff efficient and rapid access to complex  clinical data. The system is driven
by an  individual  patient  electronic  medical  record  ("EMR")  to  complement
practice management and billing functions. The Company's use of the EMR enhances
operational  efficiencies through automation of many routine clinical functions.
The EMR also improves the capacity to link treatment  protocols by diagnosis and
physician,  thus  allowing  physicians  to check their  treatments  against such
protocols at the time of service.


      As affiliated physicians enter into more capitation contracts, the Company
believes that effective and efficient  access to key clinical  patient data will
be critical to  improving  costs and quality  outcomes.  The Company  expects to
utilize  its  information  system  to  improve   productivity,   manage  complex
reimbursement  procedures,  measure  patient care  satisfaction  and outcomes of
care,  and  integrate   information  from  multiple  facilities  throughout  the
Company's  network of  affiliated  physicians.  This  system will also allow the
Company  to analyze  clinical  and cost data so that it will be able to help its
affiliated physicians effectively achieve thresholds of profitability.

      INSURANCE.  The Company maintains  insurance,  including insurance for any
vicarious  liability of the Company that may result from its  relationship  with
its affiliated  physician groups, in an amount that it believes to be sufficient
based on historical claims and the nature and risk of its business. In addition,
the  Company  requires  each  affiliated  physician  to  maintain   professional
liability insurance coverage in accordance with applicable state regulations.

      COMPETITION.

      The physician  practice  management  industry is highly  competitive.  The
Company's  operations  compete with  national,  regional and local  companies in
providing  physician  practice  management   services.   In  addition,   certain
companies, including hospitals and insurers, are expanding their presence 



                                       9
<PAGE>

in the physician management market. Some of the Company's competitors are larger
and better  capitalized,  provide a wider variety of services,  and have greater
experience in providing  health care management  services.  The industry is also
subject to continuing changes in the provision of services and the selection and
compensation  of providers.  The  principal  methods of  competition  within the
Company's industry are as follows:  price; the range of services  provided;  the
amount and nature of consideration paid to affiliated physicians; the ability to
facilitate practice group formations; the ability to assist in gathering managed
care contracts; and the degree of autonomy retained by the physicians.

      The Company  believes  that it can  effectively  compete by employing  two
strategies.  First, the Company provides a broad range of management and support
services  (including an integrated  information  system) to small and medium, as
well as larger,  physician groups,  while, at the same time, offering physicians
greater  medical  autonomy  than  permitted by most  competitor's  arrangements.
Second,  the Company offers equity in the Company as partial  consideration  for
the acquisition of practice assets and management service contracts. The Company
expects that the relative  ownership  position in the Company of the  affiliated
physicians  will continue to rise as the Company  acquires  assets of affiliated
practices  and enters  into  management  arrangements  through  the  issuance of
additional equity consideration.

      GOVERNMENT REGULATIONS.

      As a participant in the health care industry, the Company's operations and
relationships are subject to extensive and increasing  regulation by a number of
governmental  entities at the federal,  state, and local levels.  The ability of
the Company to operate  profitably  will depend in part upon the Company and its
affiliated  physician groups  obtaining and maintaining all necessary  licenses,
certificates  of need and other  approvals  and  operating  in  compliance  with
applicable health care regulations. The Company believes that its operations are
in material  compliance with applicable law and expects to modify its agreements
and operations to conform in all material respects to future regulatory changes.
Nevertheless,  while  physician  affiliations  are becoming  more  common,  many
aspects of the Company's business  operations have not been the subject of state
or federal regulatory interpretation. The Company is also unable to predict what
additional government regulations, if any, affecting its business may be enacted
in  the  future  or how  existing  or  future  laws  and  regulations  might  be
interpreted.  Accordingly,  there  can  be no  assurance  that a  review  of the
Company's  or its  affiliated  physicians'  businesses  by courts or  regulatory
authorities  will not result in a determination  that could adversely affect the
operations of the Company or the  affiliated  physicians or that the health care
regulatory  environment  will not change so as to restrict the  Company's or the
affiliated physicians' existing operations or their expansion.

      In 1996 the affiliated  medical groups derived  approximately 35% of their
medical  service  revenue from  services  provided  under  Medicare and Medicaid
programs,  and approximately 30% from contractual  fee-for-service  arrangements
with  numerous  payors and managed  care  programs,  none of which  individually
aggregated  more than 10% of  medical  service  revenue.  The  remaining  35% of
medical service revenue was derived from various fee-for-service payors.

      As part  of its  management  services,  the  Company  plans  to  negotiate
contracts  with  licensed  insurance  companies,   such  as  health  maintenance
organizations  ("HMOs"),  under which the  affiliated  physicians  might  assume
financial risk in connection  with providing  health care services under various
capitation arrangements.  In "capitation  arrangements," the involved physicians
agree to provide  for all



                                       10
<PAGE>

or nearly all of the health  care needs of a defined  patient  population  for a
flat  fee,  which is fixed in  advance  by the  terms of the  contract.  In most
instances, the fee is paid monthly on a per capita basis, based on the number of
patients  within the insurance plan assigned to the  physicians.  The physicians
are the  parties  at risk in these  arrangements,  as they are paid the flat fee
regardless of the amount of their service  utilization by the covered  patients.
The Company's role in these  contracts  would be only that of  negotiation;  the
Company would not enter into any  risk-sharing  relationship.  To the extent the
affiliated  physicians  are in the business of insurance as a result of entering
into  risk-sharing  arrangements  with HMOs, they may be subject to a variety of
regulatory and licensing requirements applicable to insurance companies or HMOs.
The Company would not be subject to such requirements  because it is not a party
to  these  risk-sharing  arrangements.  However,  any  change  in  reimbursement
statutes,  regulations,  policies,  or  practices  could  adversely  affect  the
operations of the Company.

      Laws exist in many states that prohibit the corporate practice of medicine
other than by physicians.  Under these laws,  business  corporations such as the
Company may not engage in the practice of medicine and may not employ physicians
to practice medicine.  However, the Company believes that it is not in violation
of  any  such  applicable  state  laws  because  it  performs  only  non-medical
administrative services, does not represent to the public or its clients that it
offers  medical  services,  does not  exercise  influence  or  control  over the
practice  of  medicine  by the  affiliated  physicians  and does not  employ the
affiliated physicians.

      A portion of the Social Security Act addresses  illegal  remuneration (the
"federal   anti-kickback   statute")   by   prohibiting   the  offer,   payment,
solicitation,  or receipt of any form of remuneration to induce (i) the referral
of an individual for the provision of any item or service  reimbursable in whole
or in  part by  Medicare  or  certain  state  health  care  programs  (including
Medicaid)  or (ii)  the  purchase,  lease,  or  order  of any  item  or  service
reimbursable  in whole or in part by  Medicare  or  certain  state  health  care
programs.  The  Health  Insurance  Portability  and  Accountability  Act of 1996
extended the scope of the federal  anti-kickback  statute to include all federal
health care payment programs,  not just Medicare. In addition,  some states have
adopted similar  legislation  that applies to the  beneficiaries of Medicaid and
other health care payment  programs.  Federal and state health care  programs do
not reimburse medical practices for management fees paid to the Company, and the
Company  does not refer  patients to the  physician  practices.  Payments by the
Company to the physician  practices are not and should not be viewed as payments
within the scope of the federal  anti-kickback  statute,  nor should payments by
the physician practices to the Company.  Thus, the Company does not believe that
its  business  or any portion of its  business  constitutes  a violation  of the
federal  anti-kickback  statute.  Nevertheless,  because  of the  breadth of the
federal  anti-kickback  statute and the absence of court decisions  interpreting
its application to arrangements such as those entered into by the Company, there
can be no assurance  that the  Company's  activities  will not be  challenged by
regulatory  authorities  or that such a  challenge  will  result  in a  positive
outcome for the Company.

      The federal  anti-kickback  statute also prohibits the knowing and willful
making or causing  to be made of false  claims  with  respect  to  Medicare  and
certain state health care programs. In addition, the False Claims Act is a broad
federal statute that can be applied to physician groups and corporations such as
the Company.  The statute includes  prohibitions against knowingly presenting to
the federal  government a false or fraudulent claim for payment or approval,  as
well as knowingly  making or using a false record or statement to get a false or
fraudulent  claim paid or  approved by the  federal  government.  The statute is
increasingly  used to fight the proliferation of false and fraudulent claims for

                                       11
<PAGE>

payment through  federal health care programs.  Because the Company files claims
for payment by such federal  programs and other private  insurers,  it has taken
and continues to take  reasonable  measures to detect and prevent  errors in its
billing  process.  The Company  believes that it is in compliance with the false
claims provisions of the federal  anti-kickback statue and the False Claims Act,
although  there can be no assurance  that the Company's  activities  will not be
challenged by regulatory authorities.

      Additionally, a federal statute known as "Stark II" prohibits referrals by
a physician,  or an immediate family member, of Medicare or Medicaid patients to
an entity providing  certain services in which the physician has an ownership or
investment  interest or with which the physician has entered into a compensation
arrangement.  The services addressed by the statute include clinical  laboratory
services,  physical therapy services,  occupational therapy services,  radiology
and  ultrasound  services,  radiation  therapy  services and  supplies,  durable
medical  equipment and supplies,  parenteral and enteral nutrients and supplies,
prosthetics,  orthotics,  and  prosthetic  devices,  home  health  services  and
supplies,  outpatient  prescription drugs, and inpatient and outpatient hospital
services.  Some states have  enacted  similar  self-referral  laws.  The Company
believes that it is in compliance  with all such  legislation,  although  future
regulatory  changes  could  require  the  Company  to  modify  the  form  of its
relationships with physician groups.

      The Company and its  affiliated  physicians  are also  subject to federal,
state,  and  local  laws  dealing  with  issues  such  as  occupational  safety,
employment,   medical   leave,   insurance   regulations,   civil   rights   and
discrimination,  and  medical  waste  and  other  environmental  issues.  At  an
increasing  rate,  federal,  state  and  local  governments  are  expanding  the
regulatory  requirements  on  businesses,   including  medical  practices.   The
imposition of these  regulatory  requirements  may have the effect of increasing
operating costs and reducing the profitability of the Company's operations.

      EMPLOYEES.

      As of November 1, 1997,  the Company  employed 291  persons,  including 51
employees at the Company's  headquarters  and regional offices and 240 employees
at its affiliated  physician practices.  Of these employees,  137 were full time
and 154  were  part  time.  No  employee  of the  Company  or of any  affiliated
physician  group  is a  member  of a labor  union  or  subject  to a  collective
bargaining agreement.  The Company considers its relations with its employees to
be good.

ITEM 2.     DESCRIPTION OF PROPERTY.

      The  Company  leases  or owns  offices  in six  different  locations.  The
Company's  executive  offices are in leased  facilities  in Mesa,  Arizona.  The
Company maintains  administrative offices in leased facilities in Orange County,
California and Pittsburgh, Pennsylvania. The Company owns three office buildings
in Colorado, Mississippi and Florida in which its affiliated physicians practice
medicine.  The Company's  owned real estate in Colorado is subject to a mortgage
in the  principal  amount of  $301,000.  See Note 6 to the  Company's  Financial
Statements.  The Company  believes  that all of its real  property is adequately
covered by insurance.

     The  Company's  leased  office space is governed by lease  agreements  that
expire at various  dates  through 2005.  The cost of leased  facilities  for the
Company's  offices was  $1,418,000 in 1996as  compared to $972,000 in 1995,  See
Note 13 of the Company's audited  financial  statements for future minimum lease
payments due under noncancellable operating leases. Although the



                                       12
<PAGE>

Company believes that, at the present time, these leased facilities are adequate
for its needs,  the Company is  currently  considering  whether the  addition or
relocation  of  administrative  offices would  materially  aid in the growth and
development  of the Company.  The Company does not believe that it will have any
material  difficulty  in securing the type and scope of  facilities  that it may
need now or in the future.

ITEM 3. LEGAL PROCEEDINGS.

      The Company is presently engaged in various  proceedings  occurring in the
course of its business of entering its affiliations with physician practices and
medical related entities.  However, except as described below and in Notes 9 and
12 to the Company's Financial Statements,  management believes that the ultimate
outcome of these proceedings is not expected to be material to operations or the
Company's financial position.

      The Company is a defendant in an arbitration  proceeding captioned Century
City Plaza Radiology  Medical Group;  Neil L. Horn,  M.D.;  Neil L. Horn,  M.D.,
Inc.,  Ralph Borrows,  M.D.; Brona H. Burrows  (collectively  "Century City") v.
Medical  Asset  Management,  Inc.  filed on June  26,  1997  with  the  American
Arbitration  Association in Los Angeles,  California.  In its arbitration demand
against  the  Company,  Century  City  alleged  breach  of  contract,  breach of
fiduciary duty, request for indemnification, and constructive fraud with respect
to an asset purchase and clinic management  agreement entered into by Old MAM in
1993. Century City has requested compensatory damages in the amount of $517,000,
loss of profits in the  amount of  $400,000,  unspecified  attorneys  fees,  and
punitive  damages.  On August  1,  1997 the  Company  filed a  response  denying
liability and counterclaim  asserting claims for material  misrepresentation and
other causes of action.  The Company has  requested  damages to indemnify it for
physician  compensation,  operating  expenses,  and  management  fees as well as
punitive  damages,  interest,  attorneys fees and costs.  The proceeding is in a
discovery phase with hearings expected to be scheduled by year end 1997.

      In  addition,  the  Company has filed a civil  action  against One Capital
Corporation  in  Maricopa  County,   Arizona  Superior  Court  and,  by  way  of
counterclaim,  in Colorado for,  among other things,  breach of fiduciary  duty,
breach of oral agreement, and misappropriation of trade secrets. The Company had
entered  into a corporate  advisory  agreement  in 1995 under which the advisory
firm agreed to perform  certain  services for the Company in return for fees and
stock  options of the Company.  In an action filed against the Company in Denver
County,  Colorado  Superior  Court,  an individual  plaintiff  alleged breach of
contract.  The Company believes that plaintiff's  allegations are without merit.
In  response  to the  Company's  complaint,  One  Capital  Corporation  filed  a
counterclaim  against the Company,  seeking specific performance of the advisory
agreement and, in the  alternative,  damages.  The Company  believes One Capital
Corporation's  counterclaims are without merit. The litigation is in preliminary
stages and, therefore, the outcome cannot be determined.  However, the Company's
maximum  exposure should the advisory firm prevail would be the grant of a stock
option  with  respect  to 375,000  shares of the  Company's  common  stock at an
exercise price equivalent to a 40 to 50 percent discount from fair market value,
plus attorneys' fees.

      Information  with  respect  to  litigation   settlements  accrued  on  the
Company's financial statements for the year ended December 31, 1996 is set forth
in  Note  9 to  the  Company's



                                       13
<PAGE>

Financial  Statements.   See  also  "Management's  Discussion  and  Analysis  of
Financial Condition and Results of Operations - Results of Operations."

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

      No matter was  submitted  to a vote of  security  holders  during the last
quarter of fiscal year 1996.


                                       14
<PAGE>


PART II

ITEM 5.  MARKET FOR COMMON EQUITY AND RELATED SHAREHOLDER MATTERS.

      Neither the Company's Common Stock nor its Series A Convertible  Preferred
Stock is listed on any exchange or major reporting system.  The Company's Common
Stock is traded over the counter by means of the NASDAQ Bulletin Board system.

      The range of the high bid and low bid prices of the Company's Common Stock
for each quarter  within the last two  complete  fiscal  years,  the first three
quarters of fiscal 1997 and the fourth  quarter  through  November 7, 1997 is as
follows:

       ============================================================
                Quarter Ending           High Bid       Low Bid
       ============================================================
       1997     December 31 (through
                November 7, 1997)        $1.312         $1.187
                September 30              1.937          1.750
                June 30                   3.937          3.625
                March 31                  3.875          3.375
       ============================================================
       1996     December 31                4.94          4.88
                September 30               6.13          5.12
                June 30                    8.50          3.37
                March 31                   5.50          1.92
       ============================================================
       1995     December 31                4.75          1.75
                September 30               5.375         4.75
                June 30                    6.25          5.00
                March 31                   6.43          5.37
       ============================================================


The  above  prices  (based  on  IDD  Information   Services/Tradeline)   reflect
inter-dealer  prices,  without retail mark-up,  mark-down or commissions and may
not represent actual transactions.

      As of December 31, 1996, there were approximately 230 holders of record of
the Company's  Common Stock and one holder of record of the Series A Convertible
Preferred  Stock.  There is no market  for the  Series A  Convertible  Preferred
Stock.

      The  Company has paid no  dividends  in the past on any class of stock and
does  not  anticipate  paying  dividends  in  the  near  future.  There  are  no
restrictions that limit the payment of future dividends on any class of stock.

                                       15
<PAGE>

      1994 SALES.  In June 1994,  the  Company  issued  6,960,000  shares of its
Common Stock to the  shareholders of Old MAM in return for all of the issued and
outstanding  shares of common stock of Old MAM.  The effect of this  transaction
was for Old MAM to acquire  control of the Company,  and thereafter to merge Old
MAM with and into the Company, with the Company being the surviving entity. This
stock was exchanged  pursuant to an agreement between the 15 shareholders of Old
MAM and the  Company.  These  shareholders  exchanged  their  shares  of Old MAM
initially  for 62% of the shares of the Common Stock of the  Company.  In total,
the shareholders of Old MAM (principally Messrs. Regan and Calvert, now officers
and  directors of the  Company)  acquired 80% of the shares of the Company as of
the date of the closing of the  transaction.  The Company  shares were issued in
reliance on the exemption  under Section 4(2) of the Securities Act of 1933 (the
"Act").

      In 1994,  the  Company  issued  3,000,000  shares of Series A  Convertible
Preferred  Stock to Edward  Dickstein  in  exchange  for  outstanding  shares of
preferred  stock of Old MAM  pursuant  to a share  exchange  agreement  with the
Company.  Such issuance was exempt  pursuant to Section 4(2) of the Act. In July
1996,  750,000 shares of Common Stock were issued to the original  holder of the
Series A Convertible  Preferred Stock pursuant to the agreed  conversion  terms;
such issuance upon conversion of a like number of shares of such preferred stock
was exempt from registration pursuant to Section 3(a)(9) of the Act.

      In 1994,  the Company sold 21,400  shares of  restricted  Common Stock for
cash at $2.50 per share to  accredited  investors.  That same year,  the Company
also exchanged 366,478 shares of restricted  Common Stock with  approximately 12
physicians  for assets with a net book value of $370,000,  or the  equivalent of
$1.01 per share, in reliance on the exemption under Section 4(2) of the Act. The
Company also issued  354,286  shares of Common Stock pursuant to Regulation S to
overseas  investors  during  1994  in  consideration  for  the  cancellation  of
promissory  notes in a principal  amount of $550,000.  Certain  other DE MINIMIS
sales of shares of Common Stock to investors  also  occurred in 1994 pursuant to
Section  4(2)  of the  Securities  Act of  1933.  No  underwriter  was  used  in
connection with any of these transactions.

      1995 SALES. During 1995, the Company sold $762,000 principal amount of 12%
Series B Convertible  Redeemable Secured  Subordinated  Debentures due April 28,
2000 through Global Securities  Corporation of Vancouver,  British Columbia. The
sale of these debentures was limited to  non-residents of the United States.  In
connection  with the original  sale,  the Company  relied on Regulation S for an
exemption  from  registration.  These  debentures  in the  principal  amount  of
$718,000  were  converted by the holders into 150,305  shares of Common Stock in
1996; the issuance of shares of Common Stock upon conversion was exempt pursuant
to Section 3(a)(9) of the Act. The remaining  $44,000 of convertible  debentures
were redeemed in cash.

      During the period from August  through  December  1995,  the Company  sold
575,000 shares of Common Stock to eight accredited investors in eight individual
transactions  for a total  consideration  of $775,000  pursuant to an  exemption
under Section 4(2) of the Act.

      1996 SALES.  On May 31, 1996 the Company sold  2,000,000  shares of Common
Stock to 30 accredited investors for $8,000,000,  or $4.00 per share. Cruttenden
Roth  Incorporated  of Irvine,  California,  was the selling agent.  The Company
issued these shares in reliance upon the exemption  provided  under Section 4(2)
of the Act. On May 31,  1996,  the  Company  also  issued 



                                       16
<PAGE>

to Cruttenden Roth a warrant to purchase  140,000 shares of the Company's Common
Stock at an exercise price of $7.05 per share, which expires on May 31, 2001. No
warrants  have been  exercised  to date.  On August 1, 1996 the Company  filed a
Registration  Statement on Form SB-2 under the  Securities Act of 1933 to permit
the resale of these  2,000,000  shares as agreed in connection with that private
placement; this registration statement has not been declared effective.

      In January  1996,  the Company  issued for cash  200,000  shares of Common
Stock to certain individuals at $1 per share. In December 1996, 18,000 shares of
common  stock were  issued for cash at $3.50 per share.  The  Company  issued an
additional  283,174 shares at prices ranging from $2.50 to $3.50 per share for a
total of $948,000 in private  placement  transactions  during 1996.  The Company
issued these shares in separate transactions each in reliance upon the exemption
provided under Section 4(2) of the Act.

      In 1996,  77,918  shares  were issued as  compensation  to  physicians  in
accordance  with the terms of their  respective  asset  purchase  agreements and
certain individuals in accordance with commission agreements valued at $375,000.
In  addition,  $145,000 of legal fees were paid  through the  issuance of 43,398
shares of Common  Stock.  The Company  also  entered  into an  agreement  with a
physician in 1996 whereby the physician has the right,  but not the obligations,
to purchase Common Stock at $3 per share limited by percentages  ranging form 1%
to 5% of his  clinic's  revenue  in  return  for the  Company  being  given  the
opportunity to take over the physician's practice on retirement.  No shares have
been purchased under this agreement. The Company issued these shares in separate
transactions each in reliance upon the exemption  provided under Section 4(2) of
the Act.

      At December  31, 1996 the Company had agreed to issue,  pursuant to equity
affiliation  agreements with physicians,  a total of 1,988,071 shares during the
period 1997 to 2000.

      1997  SALES.  To date in 1997  the  Company  has  committed  to  issue  an
aggregate  of 573,811  shares of Common  Stock at prices  ranging  from $2.68 to
$4.79 per share pursuant to 10 asset purchase  agreements with  physicians.  The
Company issued these shares in separate  transactions  each in reliance upon the
exemption provided under Section 4(2) of the Act.


                                       17
<PAGE>


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

      SELECTED FINANCIAL DATA

      The following  table sets forth certain  selected  financial  data for the
three years ended December 31, 1996,  during which time the Company has operated
as a physician  practice  management  company.  The selected  financial data are
derived from the audited financial  statements of the Company which,  insofar as
periods  prior to 1996 are  concerned,  have been  restated as  indicated  under
"Overview  -  Restatement."  This  selected  financial  data  should  be read in
conjunction  with the  financial  statements  included  elsewhere  in this  Form
10-KSB,  including the pro forma  financial  statements  that give effect to the
acquisition of OB-GYN in April 1996. See  "Management's  Discussion and Analysis
of  Financial  Condition  and  Results of  Operation"  and  "Index to  Financial
Information."

      The audited consolidated  financial statements of the Company for the year
ended  December 31, 1996 and the  restatement  for the years ended  December 31,
1995 and 1994 were  available on October 30,  1997.  The Form 10-SB was filed on
November  21,  1997.  This Form  10-KSB is being  filed as soon as  practicable.
Unaudited  financial data for quarterly  periods in 1997 will be included in the
quarterly  reports on Form 10-QSB for the periods ended March 31, 1997, June 30,
1997 and September 30, 1997 to be filed as soon as possible.


                                       18
<PAGE>


<TABLE>
<CAPTION>

                         MEDICAL ASSET MANAGEMENT, INC.
                                  

                                           YEAR ENDED DECEMBER 31,
                                                     
                                       1994(4)      1995(4)        1996(4)
                                       -------      -------        -------
                                     (restated)    (restated)

STATEMENT OF OPERATIONS DATA:        (in thousands, except for per share data)
<S>                                    <C>            <C>           <C> 
                     
Net Revenue                             $  2,573      $  6,400      $ 10,379
Operating Expenses:
  Clinic expenses                          1,389         5,378         8,514
  Depreciation and amortization              149           374           988
                                        --------      --------      --------
    Total operating expenses               1,538         5,752         9,502
                                       ---------      --------      --------
 

Income from operations                     1,035           648           877
General and administrative expenses        1,283         1,841         3,880
                                        --------      --------      --------
                                            (248)       (1,193)       (3,003)
Other income (expense)                       147          (289)       (2,671)(3)
Income taxes                                  --            51          --
                                         --------      --------      --------
Net loss                                  $ (101)     $(1,533)       $(5,674)

Net loss per share                         $(.01)      $ (.15)        $ (.43)
                                         
Weighted-average number of                
Common Stock                               9,169       10,376         13,093       


BALANCE SHEET DATA:
Cash and cash equivalents               $     50      $    134      $  4,664 (1)
Working capital                              213         1,447         5,103
Total assets                               6,991        11,833        31,920
Long term debt and capital
lease  obligations (2)                        61         1,446         2,426
Total stockholders equity               $  3,781      $  7,332      $ 19,248

OTHER DATA:
Cash flows provided by
 (used in):
  Operating activities                   $(1,063)      $(1,872)      $(2,106)
  Investing activities                      (106)         (291)       (3,917)
  Financing activities                     1,128         2,247         9,289

(1) Includes restricted cash of $1,264,000 at December 31, 1996 to collateralize
the Company's line of credit.

(2) Excludes current portion of long term debt and capitalize lease obligations.
See Note 10 to the Company;s Financial  Statements with respect to the Company's
deferred  tax  liability.  

(3) See Notes 9 and 12 to the Company's Financial Statements for a discussion of
litigation settlements and clinic terminations.  

(4) See Note 4 to the  Company's  Financial  Statements  for a discussion of the
effects of acquisitions. 

</TABLE>

                                       19
<PAGE>


      OVERVIEW.

      GENERAL.  The  Company is a physician  practice  management  company  that
develops  contractual  affiliations  with  physician  practices that provide for
management by the Company and clinical autonomy for the physicians.  The Company
also  offers a full  array of  management  services  as an MSO  under  long term
service  contracts,   to  both  affiliated   physicians  and  other  independent
healthcare entities, directly and through its subsidiary, HPM. HPM also provides
management   services  on  a  consulting   basis  to  over  200   physicians  in
Pennsylvania,  West Virginia and Ohio.  As of November 1, 1997,  the Company has
entered into equity and non-equity affiliations with 33 medical practices having
a total of 102 physicians in eleven states.

      For the years  ended  December  31,  1996 and  1995,  the  medical  groups
affiliated with the Company derived  approximately  35% and 30% of their medical
service  revenue from service  provided  under  Medicare and Medicaid  programs,
respectively,  and  approximately  30% and 30% from contractual  fee-for-service
arrangements with numerous payors and managed care programs,  respectively, none
of which individually  aggregated more than 10% of medical service revenue.  The
remaining  35% and 40% of medical  service  revenue  was  derived  from  various
fee-for-service  payors. Changes in the medical group's payor mix can affect the
Company's revenue. See Note 8 to the Company's Financial Statements.

      During 1996,  management  determined that the Occu-Med  franchises held by
Old MAM at the time of its  acquisition  by the  Company  in June  1994  were no
longer valuable to the primary business of the Company and would not be a source
of future revenue.  Accordingly, the remaining net realizable value of $902,000,
or $.07 per  share,  was  written  off.  The  "Occu-Med"  concept  involved  the
marketing  of programs in the areas in  California  designed to reduce lost work
time from work-related injuries.

      RESTATEMENT.  During 1996 management  restated the prior years'  financial
statements for certain  corrections of accounting  principles and misapplication
of facts that existed at the time the 1995 and 1994  financial  statements  were
prepared.  The aggregate  amount of the  restatement  resulted in a reduction in
earnings from the previously reported net income for the year ended December 31,
1995 of $578,000 to a net loss of  $1,533,000  and a reduction in earnings  from
the  previously  reported  net loss for the year ended  December  31,  1994 of
$65,000 to a net loss of $101,000.

      The following  schedule  summarizes the effect on net income  (loss),  net
income  (loss) per share and  stockholders'  equity as a result of restating the
Company's 1995 financial  statements from that  previously  reported in November
1996:



                                       20
<PAGE>


<TABLE>
<CAPTION>

                                 Net Income       Net Income       Stockholders'
                                   (Loss)      (Loss) Per Share       Equity
                                   ------      ----------------       ------
   <S>                             <C>            <C>             <C>   
   1995:
    As previously reported         $ 578,000      $ .05           $6,657,000
     
    Adjustment                    (2,111,000)      (.20)             675,000
                                  -----------      ----            ----------
     As restated                  $(1,533,000)     $(.15)         $7,332,000

</TABLE>

      The following  schedule  summarizes the effect on net income  (loss),  net
income  (loss) per share and  stockholders'  equity as a result of restating the
Company's 1994 financial  statements from that  previously  reported in November
1996:

<TABLE>
<CAPTION>
                                 Net Income       Net Income      Stockholders'
                                   (Loss)      (Loss) Per Share      Equity
                                   ------      ----------------      ------
<S>                               <C>             <C>              <C>  
    1994:
     As previously reported      $ (65,000)       $(.00)           $1,773,000
    
     Adjustment                    (36,000)        (.00)            2,008,000
                                  ---------       ------          -----------
     As restated                 $(101,000)       $(.00)           $3,781,000

</TABLE>

      RESULTS OF OPERATIONS.

      The following table sets forth the  percentages of revenue  represented by
certain items reflected in the Company's Statement of Operations:

<TABLE>
<CAPTION>

                                              YEAR ENDED DECEMBER 31,
                                           1994        1995       1996
                                           ----        ----       ----
              <S>                         <C>        <C>         <C>   
              Revenue                     100.0%     100.0%     100.0%
              Operating expenses:
              Clinic expenses              54.0%      84.0%      82.0%
              Depreciation and 
                 amortization               5.8%       5.9%       9.6%
                                            ---        ---        --- 
                                        
          
              Income from operations       40.2%      10.1%       8.4%
              General and                  49.9%      28.8%      37.4%
              administrative
              Other income (expense)        5.8%     (4.5)%     (25.7)%
              Income tax expense               --    (0.8)%       --
                                            ----      ----       ---- 
                     Net loss              (3.9)%    (24.0)%    (54.7)%
</TABLE>


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

      At December 31, 1996, the Company  managed 26 practices  having a total of
89  physicians  in  eleven  states   pursuant  to  its  equity  and   non-equity
arrangements,  as  compared  to 19  practices  having a total  of 27  affiliated
physicians in four states at December 31, 1995. During 1996, the Company entered
into  such  arrangements  with 14  additional  practices  and  terminated  seven

                                       21
<PAGE>

practices as compared to eight additional practices and one termination in 1995.
Changes in the results of operations from 1995 to 1996 were caused  primarily by
affiliations with these additional practices (net of termations),  the continued
building of a corporate  infrastructure,  write-off  of  franchise  fees and the
settlement of certain litigation, with their corresponding professional fees.

      NET REVENUE  increased  $3,979,000,  or 62%, to  $10,379,000  in 1996,  as
compared  to  $6,400,000  in  1995.  The  Company's  revenue  growth  in 1996 is
attributable  to the  addition  of new  management  services  agreements,  which
contributed  about 50% of the total  revenue.  Revenue from existing  management
agreements in 1996 reflects a full year's results for practices acquired in 1995
as well as from the addition of new management  agreements.  The terminations of
seven  physician  groups having eight  physicians  had an adverse  effect on net
revenues in 1996.

<TABLE>
<CAPTION>

                                                       Year Ended December 31,
                                                         1995         1996
                                                         ----         ----
       <S>                                            <C>            <C>

       Revenue from Existing Management Agreements    $2,573,000    $5,239,000
       Revenue from New Management Agreements          3,827,000     5,140,000
                                                       ---------     ---------
          Total Revenue                               $6,400,000   $10,379,000

</TABLE>

      The Company's  management services agreements with the physician practices
specify the  percentage of net collected  revenues to be paid to the  affiliated
physicians  and the  percentage to be received by the Company.  Medical  service
revenue  received  by  affiliated  medical  groups  increased  by 82% in 1996 to
approximately  $21,775,000 as compared to  $11,986,000 in 1995,  offset by a 40%
increase in the provisions  for doubtful  accounts and  contractual  adjustments
also  increased  from  $2,347,000  in 1995 (20% of medical  service  revenue) to
$8,160,000 in 1996 (37% of medical service revenue). If the collected revenue is
insufficient  to pay the Company  its minimum  guaranteed  management  fee,  the
Company is  authorized  to reduce the amount of revenue  paid to the  affiliated
physicians to the extent necessary to pay the minimum guaranteed management fee.
See Note 3 to the Company's Financial Statements.

      Revenues  attributable to the operations of HPM, which was acquired by the
Company  effective  December 31, 1995,  were  $1,319,000  in 1996 as compared to
$1,090,000 in 1995,  reflecting  revenues of $225,000 from  non-equity long term
service contracts as well as $1,044,000 from consulting fees.  Long-term service
contracts  range from four to eight years in length and provide  management fees
based on a percentage of medical  service  revenue  earned by the  practice.  At
December 31, 1996, the Company, through HPM, had entered into five long-term MSO
contracts involving 48 physicians in two states,  while at December 31, 1995 the
Company had entered into three such contracts involving eight physicians.

      OPERATING  EXPENSES  consist of (i) clinic  salaries,  wages and benefits,
clinic  laboratory and fees, clinic rent, other clinic costs and consulting fees
and (ii)  depreciation and  amortization  expenses.  Clinic  operating  expenses
increased by $3,135,000,  or 58%, to $8,514,000 in 1996 from $5,379,000 in 1995.
The 58% increase in clinic  operating  expenses  was slightly  less than the 62%
increase  in 1996 net  revenues  over 1995 net  revenues.  The  increase in 1996
operating  expenses  also  reflects  the addition of an oncology  practice  with
significantly  higher drug and medication  costs.  Depreciation and amortization
expenses for 1996  increased by $614,000,  or 




                                       22
<PAGE>

164%, to $988,000, as compared to $374,000 for 1995. This increase was primarily
the result of the  amortization  and  depreciation of newly acquired  management
service agreements and fixed assets.

      INCOME FROM OPERATIONS increased $229,000, or 35% to $877,000 in 1996 from
$647,000 in 1995.  Substantially  all of this increase was  attributable  to the
addition of new affiliated physician practices.

      GENERAL AND ADMINISTRATIVE  EXPENSES consist of salaries paid to corporate
staff, administrative, legal and  accounting  and development costs. During 1996
the Company added 12 new physician  practice  affiliations,  as compared to five
new  affiliations  in  1995.  General  and  administrative  costs  increased  by
$2,039,000, or 111%, to $3,880,000 in 1996 from $1,841,000 in 1995. The increase
was  primarily  the  result  of  a  build-up  in  the  Company's  financial  and
operational staffs, additional professional and administrative costs incurred in
1996 and expenses related to the Company's SEC reporting requirements.

      OTHER INCOME  (EXPENSE)  consists  principally  of net loss on  litigation
settlements,  clinic  terminations and franchise fee write-off expenses totaling
$2,454,000 in 1996.  See Notes 9 and 12 to the Company's  Financial  Statements.
Losses on  settlements  of  lawsuits  of  $1,710,000  and the  write-off  of the
Occu-Med  franchise  agreement  of $902,000  were  partially  offset by gains on
clinic terminations of $153,000.  Interest expense declined in 1996 to $252,000,
as compared to $292,000 in 1995, primarily as a result of varying interest rates
on  the  Company's  outstanding  debt  and  the  conversion  and  retirement  of
outstanding  debentures.  Interest  income of  $114,000  in 1996  resulted  from
investing  a  portion  of  funds  received  from a  private  placement  that was
completed in June 1996.

      INCOME  TAXES  were  zero in 1996 as a result  of the loss in that year as
compared  to  $51,000  in 1995.  A  deferred  tax asset of  $3,041,000  has been
reserved because of uncertainty  about the ability of the Company to produce the
necessary taxable income to utilize the related benefit.

      NET LOSS  increased  $4,141,000,  or 270%, to a loss of $5,674,000 in 1996
from a net  loss of  $1,533,000  in 1995  The  increase  in the net loss was the
result  of  a  $2,454,000   charge  for  losses  on   settlements  of  lawsuits,
terminations of certain physician practice management  agreements,  write-off of
the  Occu-Med  franchise  agreement  and a  $2,039,000  increase  in general and
administrative  expenses in 1996 compared to general and administrative expenses
of $1,841,000 in 1995.

      NET LOSS PER SHARE  increased  to ($.43) per share in 1996 as  compared to
($.15)  per  share in 1995 as a result  of the  increase  in net loss and an 26%
increase in the weighted average number of shares of Common Stock outstanding.


                                       23
<PAGE>

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

      At December 31, 1995, the Company  managed 19 practices  having a total of
27 physicians in four states pursuant to its equity and non-equity arrangements,
as compared to 12 practices  having a total of 15  physicians in three states at
December 31, 1994.  During 1995, the Company entered into such arrangements with
eight  additional  practices  and  terminated  one agreement as compared to nine
additional  agreements  entered into and no terminations in 1994. Changes in the
results of  operations  from 1994 to 1995  reflect a full year's  results of the
practices acquired in 1994 and the affiliations with the additional practices in
1995.

      NET REVENUE  increased  $3,827,000,  or 149%,  to  $6,400,000  in 1995, as
compared  to  $2,573,000  in  1994.  The  Company's  revenue  growth  in 1995 is
attributable both to the addition of the new management agreements and increased
revenue from existing management agreements reflecting a full year's results for
the practices the Company acquired in December 1994.

<TABLE>
<CAPTION>

                                                    Year Ended December 31,
                                                    -----------------------
                                                       1994         1995
                                                       ----         ----
       <S>                                           <C>           <C>
       Revenue from Existing Management Agreements   $   435,000   $2,573,000
       Revenue from New Management Agreements          2,138,000    3,827,000
                                                      ----------   ----------
          Total Revenue                               $2,573,000   $6,400,000

</TABLE>

      Revenues attributable to the operations of HPM for 1995 and 1994, prior to
the acquisition of HPM by the Company,  were derived from consulting services to
over 300  physicians  in  Pennsylvania,  Ohio and West  Virginia.  Revenues were
$1,090,000 in 1995 as compared to $1,125,000 in 1994.

      OPERATING  EXPENSES  consist of (i) clinic  salaries,  wages and benefits,
other clinic costs and consulting fees and (ii)  depreciation  and  amortization
expenses. Operating expenses increased by approximately $4,000,000 to $5,400,000
million,  or 286%,  in 1995 from  $1,400,000  million in 1994.  The increase was
primarily  the  result  of the  Company  reflecting  a full  year's  cost of the
practices acquired in December 1994.  Depreciation and amortization expenses for
1995  increased by $224,000,  or 150%, to $374,000,  as compared to $149,000 for
1994.  This  increase  was  primarily  the  result  of  the   amortization   and
depreciation of newly acquired management service agreements and fixed assets.

      INCOME FROM  OPERATIONS  decreased  $387,000,  or 37%, to $647,000 in 1995
from $1,034,000 in 1994. While net revenue  increased by 149%,  clinic operating
expenses increased by 286%.

      GENERAL AND ADMINISTRATIVE  EXPENSES consist of salaries paid to corporate
staff,  administrative,  legal and accounting and development costs. General and
administrative  expenses  increased by $552,000,  or 43%, to  $1,841,000 in 1995
from $1,283,000 in 1994. The increase was primarily attributable to additions to
the  corporate  staff in  support  of the  increase  in  clinics  and  increased
professional fees associated with private placements completed in 1995.

                                       24
<PAGE>


      OTHER INCOME (EXPENSE)  consists of interest income,  interest expense and
other  income.  In 1995 total other  expense was  $289,000,  primarily  interest
expense,  while in 1994  total  other  income  was  $147,000,  a  difference  of
$436,000. In 1995, interest expense increased $266,000, or 1055%, to $292,000 in
1995 as compared to $25,000 in 1994.  The increase was  primarily  the result of
the  issuance  of  $762,000  in 12%  Series  B  Convertible  Redeemable  Secured
Subordinated  Debentures  in April 1995 and interest at 10% on notes  payable to
physicians  related  to  acquired  accounts  receivable.  In 1994  other  income
consisted of $169,000 in miscellaneous income that the Company recognized as the
result of debt forgiveness.

      NET LOSS PER SHARE  increased  to ($.15) per share in 1995 from ($.01) per
share in 1994 as a result of the increase in net loss in 1995 and a 13% increase
in the weighted average number of shares of Common Stock outstanding.

      LIQUIDITY AND CAPITAL RESOURCES.

      SUMMARY.  The Company has experienced  losses from operations and negative
cash flows from  operating  activities for the years ended December 31, 1996 and
1995.  Significant  contributing  factors  to the  loss  in  1996  were  lawsuit
settlements (see Notes 9 and 12 to the Company's Financial Statements),  related
professional  expenses  and general and  administrative  expenses  and the rapid
growth of the Company. In addition to these factors,  cash used in operations in
1996 was  primarily  the result of the  Company's  decision  to defer the timely
collection  of  management  fees  to  support  the  growth  of  practices  under
management agreements.  The Company has funded the loss from operations and cash
flow  shortfalls  with private  placement stock offerings and third party credit
facilities  which were secured by $1,264,000 of the  Company's  certificates  of
deposit at  December  31,  1996.  The  Company's  decision  during  1996,  which
continued  into 1997, to reinvest  funds in medical  practices  that are already
owned,  and fund  acquisitions of additional  medical  practices along with cash
required to meet debt obligations and fund operations has significantly  reduced
the amount of cash available to the Company  subsequent to December 31, 1996. As
a result, the Company will be required to seek additional  financing from banks,
institutional  investors  and other  sources  and to reduce or contain  costs in
order to fund operations and meet obligations and future commitments.

      Because  these  conditions  raise  substantial  doubt about the  Company's
ability to continue as a going concern,  the report of  independent  auditors on
the Company's  financial  statements  as of and for the year ended  December 31,
1996  included  an  explanatory  paragraph  to that  effect.  See  Note 2 to the
Company's Financial Statements and "Management Business Plan" below.

      WORKING  CAPITAL.  At December 31, 1996, the Company's net working capital
was  $5,103,000,  as compared to $1,447,000 at December 31, 1995.  The principal
component of the  Company's  working  capital are cash and accounts  receivable.
Unrestricted cash increased by $3,265,000 from $135,000 in 1995 to $3,400,000 in
1996  primarily as a result of private  placements  of  2,501,174  shares of the
Company's  Common Stock for  $8,400,000  cash net of placement  costs.  Accounts
receivable  principally represent receivable from patients and third parties for
medical services provided by physician groups.  Such amounts are recorded net of
contractual  allowances  and  estimated  bad debts.  Accounts  receivable  are a
function  of net  physician  practice  revenue  rather  than net  revenue of the
Company. Accounts receivable increased $1,325,000, or 41%, to $4,481,000 in 1996
from $3,155,000 in 1995,  reflecting the 

                                       25
<PAGE>

Company's  addition of 12 new  practices  in 1996 and the  termination  of seven
practices  in 1996.  Physician  receivables,  less  $150,000  of  allowance  for
doubtful  accounts  in 1996,  were  $2,660,000,  as compared to $27,000 in 1995,
reflecting funds advanced to practices to pay operating expenses under the terms
of the management services  agreements.  At December 31, 1996 and 1995, advances
to and  receivables  from  physician  groups  exceeded  amounts  relating to the
liability for the physician's  portion of uncollected net billings.  See Notes 4
and 8 to the Company's Financial Statements.  As part of the Management Business
Plan, the Company plans to reduce advances made to physicians.

      CASH FLOWS. Net cash used in investing  activities in 1996 was $3,917,000,
a $3,626,000  increase over $291,000 used in investing  activities  during 1995.
These  increases  were due to cash payments for the  acquisition  of non-medical
assets and management contracts,  primarily OB-GYN, where $1,806,000 of cash was
invested.

      Net cash provided by financing  activities  during 1996 was $9,289,000,  a
$7,042,000   increase  over  the  $2,247,000  net  cash  provided  by  financing
activities  during  1995.  This  increase  resulted  primarily  from  a  private
placement  of Common  Stock on May 31,  1996,  which  yielded  proceeds,  net of
offering expenses, of $7.2 million.  Approximately $2.7 million and $2.9 million
of these  proceeds  were  used to fund  acquisitions  and to  reinvest  funds in
medical practices already owned,  respectively.  The Company also entered into a
loan agreement and revolving  credit/term facility under which the Company could
borrow up to  $2,500,000.  On December 31, 1996,  the Company had an outstanding
balance of $1,264,000 under this credit facility. Net cash provided by financing
activities during 1996 was partially offset by the repayment of notes payable to
affiliated  physicians  in  connection  with  equity  arrangements.   See  "Debt
Facilities" for information concerning developments to date in 1997.

      Net cash used in operations in 1996 was  $2,106,000,  a $234,000  increase
over the $1,872,000 used in operations in 1995. While the 1996 net loss adjusted
for non cash expenditures declined to $618,000 from 1995's net loss adjusted for
non  cash  expenditures  of  $1,109,000,  increases  in 1996  assets,  primarily
accounts receivables,  required $725,000 in additional uses of cash resulting in
a net increase in cash required by operation activities of $234,000 in 1996.

      ACQUISITION PROGRAM AND CAPITAL  EXPENDITURES.  Over the past three years,
the Company entered into  contractual  affiliations  with nine practices with an
aggregate  tangible value of $553,000 in assets in 1994,  five practices with an
aggregate tangible value of $469,000 in assets in 1995, and 12 practices with an
aggregate  tangible  value of  $4,186,000  in assets  in 1996.  In  addition  to
acquiring the tangible values, the Company acquires an intangible asset equal to
the value of the  Company's  Common  Stock  issued  to  acquire  the  management
agreement.  This intangible  value is recorded at the time of acquisition  based
upon the then value of the stock issued and to be issued.  The total  intangible
value for the three years ended December 31, 1996 amounted to  $14,420,000.  The
breakdown of the consideration for these acquisitions was as follows:


                                       26
<PAGE>


<TABLE>
<CAPTION>

                                                      December 31,
                                                      ------------
                                              1994            1995        1996
                                              ----            ----        ----
<S>                                     <C>            <C>            <C>

Cash and transaction costs              $   98,000     $    5,000     $2,653,000

Liability assumed                             --             --           16,000
Notes payable                                    0        446,000      1,512,000
Common Stock issued
 and to be  issued                         697,000      3,764,000      8,752,000
                                        ----------     ----------     ----------

   Total                                $  795,000      $4,215,000   $12,933,000
                                        ==========     ==========     ==========
</TABLE>

The cash portion of the purchase price was funded by a combination of internally
generated  funds,  the  proceeds  from the sale of shares  of  Common  Stock and
convertible  debt securities in private  placement or offshore  transactions and
borrowings  under the Company's  credit  facility,  which were also used to fund
Company  operations,  as follows (net of  repayment  of debt and payments  under
capital lease obligations):

<TABLE>
<CAPTION>
                                                 December 31,
                                                 ------------
                                        1994           1995              1996
                                        ----           ----              ----
<S>                                 <C>              <C>              <C>
Debt                                $1,568,000       $  623,000       $1,587,000
Convertible debt                          --            809,000             --
Common Stock                            54,000        1,231,000        8,376,000
                                    ----------       ----------       ----------
      Total                         $1,622,000       $2,663,000       $9,963,000
                                    ==========       ==========       ==========

</TABLE>

For transactions  completed through December 31, 1996, the scheduled issuance of
shares of Common  Stock that the Company is  committed  to deliver in the future
are 693,449 shares in 1997,  592,783 shares in 1998,  544,076 shares in 1999 and
157,763 shares in 2000.

      The Company has  completed  the  acquisition  of or entered  into  service
agreements  with 13  practices  subsequent  to  December  31,  1996 and prior to
October 30, 1997. As consideration  for these  acquisitions in 1997, the Company
has agreed to pay  approximately  $1,250,000 in cash (of which $719,000 has been
paid) and has issued approximately $2,000,000 principal amount in short term and
subordinated  notes  of  which  20% is  due  on  each  of  the  subsequent  four
anniversary  dates,  and issue 576,311 shares of Common Stock over the next four
years valued at approximately $2,400,000.

      The Company's  installation  of new  information  technology in all of its
affiliated  practices  is  scheduled  to be  completed  by the end of 1998.  The
equipment and  installation  costs of $1,737,000 are being financed  principally
through notes payable in the aggregate  amount of $1,238,000,  of which $786,000
is due in 1998 and the remainder in 1999. The note is collateralized by software
licenses. The Company plans to increase its management fee charged to affiliated
physicians by 3% annually as this software is installed in each practice.

                                       27
<PAGE>

      DEBT FACILITIES.  The Company's  outstanding debt obligations consist of
a line of credit, notes payable,  long-term debt, and convertible subordinated
debt.

      At December 31, 1996, the Company had $2,500,000 available under a line of
credit with a bank.  The amount  outstanding  under the line was  $1,264,000  at
December 31, 1996 at 4.9%. Upon maturity on May 30, 1997, this note was extended
to May 29, 1998 at 6.72%.  Amounts  were  available  under this line only to the
extent the  Company  had  certificates  of deposit  to secure  the  balance.  At
December 31, 1996,  $1,236,000  remained  available  for use under the line.  On
September  3, 1997,  all  amounts  outstanding  under the line were  repaid.  On
October 16, 1997,  the Company  entered into a  $1,250,000  accounts  receivable
factoring line of credit under which approximately  $572,000 was outstanding and
repaid on November 24, 1997.  The Company  borrowings  were limited to a formula
equal to 40% of  accounts  receivable  outstanding  for less than 90 days at the
time of the  borrowing.  A factoring  commission of 1% for each 30 day period in
addition  to interest  at the  published  prime rate plus 2% could be charged on
outstanding  borrowings.  A reserve of 5% of the total outstanding  invoices was
also required. This facility was guaranteed by certain officers of the Company.

      The Company entered into a new accounts  receivable  credit facility dated
as of  November  12, 1997 under  which 80% of the net  collectible  value of the
Company's accounts receivable could be advanced up to $2.5 million.  The Company
initially borrowed  approximately  $1,600,000 on November 24, 1997, the proceeds
of which  were  used to repay the  outstanding  borrowings  under  the  existing
factoring  accounts  receivable line described above and to fund working capital
needs.

      At December 31, 1996, the Company had four notes payable totaling $301,000
due upon demand  including  interest at 10%. On July 21, 1997,  the total amount
due under these notes on that date of $318,000 was  forgiven.  This  forgiveness
will be recognized in the  Company's  financial  statements in the quarter ended
September  30, 1997.  The Company also has $ 141,000 of demand notes  payable at
interest  rates ranging from 8% to 10% due in 1997.  Also, at December 31, 1995,
the Company had  $937,000 of demand notes at interest  rates  ranging from 8% to
10%. In August 1996,  $263,000 of the 1995  balance  plus $12,000 of  additional
interest  accrued in 1996 was  converted  into  47,565  shares of Common  Stock.
Additionally,  $516,000 of the 1995 balance was forgiven in conjunction with the
termination of certain management agreements in 1996.

      At December  31,  1996,  the  Company's  long-term  debt in the  aggregate
principal  amount  of  $3,694,000  (including  current  portion  of  $1,393,000)
consisted of:

          (i) Notes payable to various  individuals  in  conjunction  with asset
      acquisitions, interest at 10%, maturing on various dates in 1996 and 1997,
      with all unpaid principal and accrued interest due at maturity date in the
      amount of $1,511,000;

          (ii) Mortgage payable to a bank,  collateralized by a building, with a
      net book value of  $510,000  interest  at 10%,  with  monthly  payments of
      $3,270 to 2011, in the amount of $301,000;



                                       28
<PAGE>

          (iii)  Unsecured  note payable to a finance  company with  interest at
      7.9%, and monthly payments of $15,550 to 1999, in the amount of $500,000;

          (iv) Note  payable to a computer  software  vendor,  interest  at 10%,
      $600,000  due in 1998,  remainder  in  1999,  collateralized  by  software
      licenses with a net book value of $1,238,000, in the amount of $738,000;

          (v) Capital lease  obligations,  varying  interest rates not exceeding
      26.5%,  with  various  due  dates  through  2001  and   collateralized  by
      equipment, in the aggregate amount of $535,000; and

          (vi) Other debt in the amount of $110,000.

      During  1995,  the  Company  issued   $762,000  in  Series  B  Convertible
Redeemable  Secured  Subordinated  Debentures which were convertible into Common
Stock at $5 per share.  Principal and accrued  interest at December 31, 1995 was
$808,000.  During 1996, the holders of $718,000 of such  convertible  debentures
converted the convertible  debentures  into 143,600 shares of Common Stock.  The
remaining $44,000 of such convertible debentures was redeemed in cash.

      Also, in 1995, in conjunction  with an  acquisition,  the Company  entered
into an  agreement  to issue to a physician  8%  convertible  debentures  not to
exceed  $450,000,  which will mature and be due for payment to the  physician in
1999. These debentures are convertible into Common Stock upon maturity at a rate
of 80% of the then  current  market  price at the time of maturity  but not less
than $5 per share.  At December  31,  1996  $125,000  of  debentures  (including
interest) were outstanding.

      OTHER  COMMITMENTS AND  CONTINGENCIES.  Reference is made to Notes 4, 6,
9 and 12 for other commitments and contingencies.

      MANAGEMENT  BUSINESS  PLAN.  Management  recognizes  that the Company must
generate  additional  financial  resources  and reduce  operating  expenses.  To
address  future  cash  requirements,  management's  plans  include,  among other
things:

     *    Securing additional  financing to cover anticipated cash requirements
          (in addition to $1,250,000 accounts receivable  factoring secured line
          of credit entered into on October 16, 1997).

     *    Reducing advances made to physicians.

     *    Reducing  compensation expense  included in general and administrative
          expense by headcount and salary reductions.

     *    Reducing  executive compensation by 30% effective November 1, 1997 and
          deferral of 1998 senior management compensation, if necessary.

     *    Completing   refinancings   of  Company-owned  medical  buildings  and
          equipment.

                                       29
<PAGE>

     *    Curtailing   acquisition  activity  until cash resources are available
          and reducing associated travel and entertainment expenditures.

 
      In addition, the Company intends to control discretionary expenditures and
to seek  additional  bank  financing or funds through  private  placements.  The
Company's  current  financing  plans include the  refinancing  of  Company-owned
medical  buildings and equipment,  and the possible issuance of up to $5,000,000
in debt and  convertible  debt  securities.  There can be no assurance  that the
additional  financing,  other  sources  of funds,  or other cost  reductions  as
described above will be achieved. If these financings, other sources of funds or
other cost reductions are not achieved within acceptable  ranges,  the Company's
liquidity would be materially adversely affected.

      IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS.

      In  February  1997,  the  Financial   Accounting  Standards  Board  issued
Statement of Financial  Accounting  Standards No. 128 (SFAS No. 128),  "Earnings
per  Share,"  which is  required to be adopted by the Company for the year ended
December 31, 1997.  The  provisions  of SFAS No. 128 will be adopted in the 1997
consolidated financial statements. At that time, the Company will be required to
change the method  currently  used to compute  earnings per share and to restate
all prior  periods.  Under the new  requirements  for  calculating  earnings per
share,  the dilutive effect of convertible  preferred stock will be excluded for
"basic  earnings per share" and only included in "diluted"  earnings per share."
Further,  contingently  issuable  shares will be included in basic  earnings per
share only if all the necessary conditions have been satisfied by the end of the
period and it is only a matter of time  before  they are  issued.  The impact of
SFAS No.  128 on the  calculation  of  earnings  per share  for the year  ending
December 31, 1997 has not been determined.

                                    * * *

               DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS

      This registration statement includes  "forward-looking  statements" within
the  meaning of Section  27A of the  Securities  Act of 1933,  as  amended,  and
Section 21E of the Securities  Exchange Act of 1934, as amended.  All statements
other  than  statements  of  historical  facts  included  in  this  registration
statement,  including without limitation,  certain statements under "Description
of Business" and  "Management's  Discussion and Analysis of Financial  Condition
and Results of Operations" may constitute forward-looking  statements.  Although
the Company  believes that the  expectations  reflected in such  forward-looking
statements are reasonable,  it can give no assurance that such expectations will
prove to have been correct.


                                       30
<PAGE>


ITEM 7.  FINANCIAL STATEMENTS


INDEX TO FINANCIAL INFORMATION
                                                                            Page

MEDICAL ASSET MANAGEMENT, INC.
      AUDITED FINANCIAL STATEMENTS
        Reports of Independent Auditors.......................................32
        Consolidated Balance Sheets as of December 31, 1996 and 1995..........34
        Consolidated Statements of Operations for the Years Ended December
        31, 1996 and 1995.....................................................36
        Consolidated Statement of Changes in Stockholders' Equity for
        the Years Ended December 31, 1996 and 1995 ...........................37
        Consolidated Statements of Cash Flows for the Years Ended
        December 31, 1996 and 1995 ...........................................38
        Notes to Consolidated Financial Statements............................39

      AUDITED FINANCIAL STATEMENTS
        Report of Independent Auditors........................................62
        Consolidated Balance Sheets as of December 31, 1995 and 1994 .........63
        Consolidated Statements of Operations for the Years
        Ended December 31, 1995 and 1994 .....................................65
        Consolidated Statement of Changes in Stockholders' Equity 
        for the Years Ended December 31, 1995 and 1994 .......................66
        Consolidated Statements of Cash Flows for the Years Ended
        December 31, 1995 and 1994 ...........................................67
        Notes to Consolidated Financial Statements............................68


OB-GYN
        Report of Independent Auditors........................................85
        Balance Sheet as of December 31, 1995 (audited).......................86
        Statement of Operations for the Year Ended December 31, 
        1995 (audited)........................................................87
        Statement of Stockholders' Equity for the Year Ended 
        December 31, 1995.....................................................88
        Statement of Cash Flows for the Year Ended December 31, 
        1995 (audited)........................................................89
        Notes to Financial Statements.........................................90

      UNAUDITED INTERIM FINANCIAL STATEMENTS
        Balance  Sheets as of December 31, 1995 and March 31, 1996  
        (unaudited)...........................................................94
        Statements of Operations for the Three Months Ended
        March 31, 1996 and 1995 (unaudited)...................................95
        Statements of Cash Flows for the Three Months Ended
        March 31, 1996 and 1995 (unaudited)...................................96
        Notes to Unaudited Financial Statements...............................97

      PRO FORMA FINANCIAL STATEMENTS
        Pro forma Statement of Operations for the Three Months
        Ended March 31, 1996 (unaudited)......................................99
        Pro forma Statement of Operations for the Year Ended
        December 31, 1995 (unaudited)........................................100
        Notes to Unaudited Pro Forma Financial Statements....................101



                                       31
<PAGE>


                        Report of Independent Auditors

The Board of Directors and Shareholders
Medical Asset Management, Inc.

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

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.

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

The accompanying  consolidated  financial statements for 1996 have been prepared
assuming that Medical Asset  Management,  Inc. will continue as a going concern.
As more  fully  described  in Note 2,  the  Company  has  experienced  recurring
operating   losses  and   negative   cash  flows  from   operating   activities.
Additionally,  the Company has continued to reinvest funds in medical  practices
and make additional  acquisitions  reducing the amount of funds available to the
Company to meet its  requirements  for operations,  obligations and commitments.
These conditions raise substantial doubt about the Company's ability to continue
as a going  concern.  Management's  plans in  regard to these  matters  are also
described  in  Note  2.  The  1996  financial  statements  do  not  include  any
adjustments  to reflect the possible  future effects on the  recoverability  and
classification  of assets or the amounts and  classification of liabilities that
may result from the outcome of these uncertainties.



Pittsburgh, Pennsylvania                                    Ernst & Young LLP
September 19, 1997,
  except for Note 15 as
  to which the date is
  October 15, 1997

                                       32

<PAGE>
                                             
                                             


                                  Report of Independent Auditors

To the Board of Directors
  and Stockholders of
  Medical Asset Management, Inc.
Mesa, Arizona

We have audited the consolidated balance sheet of Medical Asset Management, Inc.
as of December 31, 1995 and the related  consolidated  statement of  operations,
stockholders  equity,  and cash flows for the year then ended.  These  financial
statements   are  the   responsibility   of  the   Company's   management.   Our
responsibility  is to express an opinion on these financial  statements based on
our audit.

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.

In our opinion,  the financial  statements  referred to above present fairly, in
all material respects, the financial position of Medical Asset Management,  Inc.
as of December 31, 1995 and the results of its operations and cash flows for the
year then ended in conformity with generally accepted accounting principles.

As discussed in Note 1, the accompanying  consolidated financial statements have
been restated for the correction of an error.


HARLAN AND BOETTGER


San Diego, California
May 1, 1996, except
  for Notes 1 and 12 as to which
  the date is September 19, 1997.

                                       33

<PAGE>


                Medical Asset Management, Inc. and Subsidiary

                         Consolidated Balance Sheets

<TABLE>
<CAPTION>

                                                             DECEMBER 31
                                                         1996          1995
                                                     ---------------------------
<S>                                                  <C>              <C>  
                                                                     (RESTATED)
ASSETS
Current assets:
  Cash and cash equivalents                          $  3,399,513    $   34,378
  Restricted cash                                       1,264,351             -
  Accounts receivable, less $3,585,742 and
   $1,580,820 of allowances for doubtful
   accounts and contractual adjustments in              4,480,562     3,155,482
   1996 and 1995, respectively
  Physician receivables, less $150,000 of
   allowance for doubtful accounts in 1996              2,659,995        26,552
  Other current assets                                    268,728        93,841
                                                    
Total current assets                                   12,073,149     3,410,253
                                                       ----------     ---------

Property and equipment:
  Buildings                                               680,000             -
  Furniture and equipment                               1,667,857       671,752
                                                       ----------     ---------
                                                        2,347,857       671,752
  Less accumulated depreciation                           507,241       173,462
                                                       ----------     ---------
Total property and equipment, net                       1,840,616       498,290

Intangible assets and other:
  Acquired management contracts                        12,202,074     3,779,486
  Excess of cost of acquired assets over fair           5,431,397     3,569,199
  value
  Computer software licenses                            1,237,604             -
  Franchise fees                                                -     1,210,000
  Other assets                                             19,635        12,264
                                                       ----------     ---------
                                                       18,890,710     8,570,949
  Less accumulated amortization                           884,971       646,930
                                                       ----------     ---------
Total intangible assets and other, net                 18,005,739     7,924,019


                                                    ============================
Total assets                                          $31,919,504   $11,832,562
                                                    ============================
</TABLE>

                                       34
<PAGE>

<TABLE>
<CAPTION>

                                                             DECEMBER 31
                                                         1996          1995
                                                     ---------------------------
                                                                    (RESTATED)
<S>                                                  <C>            <C>   

LIABILITIES AND STOCKHOLDERS' EQUITY
 Current liabilities:
  Line of credit and notes payable                   $  1,706,771    $  936,766
  Current portion of long-term liabilities              1,393,399        21,898
  Accrued litigation settlements                        1,573,000             -
  Accounts payable                                        704,547       297,488
  Accrued payroll and payroll taxes                       268,413       244,377
  Accrued professional fees                               945,415             -
  Related party debt                                        9,830       213,361
  Accrued expenses                                        369,036       249,116
                                                      
Total current liabilities                               6,970,411     1,963,006

Notes payable, capital lease obligations and term     
  debt                                                  2,300,888       582,847
Convertible subordinated debt                             125,438       862,905
Deferred tax liability                                  3,274,294     1,091,473
Commitments and contingencies                                   -             -
                                                          -------       -------
Total liabilities                                      12,671,031     4,500,231

Stockholders' equity:
  Convertible preferred stock--$.001 par
    value--10,000,000 shares authorized; Class
    A--2,250,000 shares issued and outstanding at
    December 31, 1996 and 3,000,000 shares issued         
    and outstanding at December 31, 1995                    2,250         3,000
  Common stock--$.001 par value--50,000,000 shares 
    authorized, 14,944,603 shares
    issued and outstanding at December 31, 1996 and
    10,912,772 shares issued and outstanding at         
    December 31, 1995 (restated)                           14,945        10,913
 Additional paid-in capital                            18,381,846     6,210,962
 Common stock to be issued, 1,988,071 shares at
    December 31, 1996 and 1,131,113 shares at
    December 31, 1995                                   9,574,145     5,979,026
 Unearned remuneration                                 (1,493,817)   (3,314,800)
 Deficit                                               (7,230,896)   (1,556,770)
                                                        ---------     ---------  
Total stockholders' equity                             19,248,473     7,332,331
                                                       ----------     ---------  
Total liabilities and stockholders' equity            $31,919,504   $11,832,562
                                                       ==========    ==========

SEE ACCOMPANYING NOTES.

</TABLE>

                            

                                       35
<PAGE>




                Medical Asset Management, Inc. and Subsidiary

                    Consolidated Statements of Operations

<TABLE>
<CAPTION>

                                                       YEAR ENDED DECEMBER 31
                                                         1996          1995
                                                     ---------------------------
                                                                    (RESTATED)
<S>                                                  <C>           <C>   

Net revenue                                          $10,378,508   $  6,400,235

Operating expenses:
  Clinic salaries, wages, and benefits                 3,904,562     3,041,648
  Clinic laboratory and fees                           1,724,035       932,111
  Clinic rent                                          1,422,955       885,724
  Other clinic costs                                   1,392,433       318,910
  Consulting fees                                         70,393       200,864
  Depreciation and amortization                          987,567       373,797
                                                         -------       -------
                                                    
Total operating expenses                               9,501,945     5,753,054
                                                       ---------     ---------
                                                         876,563       647,181

General and administrative expenses                    3,880,013     1,840,991
                                                       ---------     ---------
                                                      (3,003,450)   (1,193,810)

Other income (expense):
  Net loss on litigation settlements and clinic       (2,454,093)            -
   terminations
  Interest income                                        114,202             -
  Interest expense                                      (251,561)     (291,657)
  Other (net)                                            (79,224)        2,880
                                                         -------         -----
                                                     
Total other income (expense)                          (2,670,676)     (288,777)
                                                      ----------      -------- 
                                                

Loss before income taxes                              (5,674,126)   (1,482,587)

Income tax expense                                             -        50,655
                                                      ----------      -------- 

Net loss                                             $ (5,674,126  $(1,533,242)
                                                     ------------    ----------- 
                                                     
Net loss per share                                          $(.43)       $(.15)
Weighted average number of common 
    shares outstanding                                 13,092,669    10,376,247


SEE ACCOMPANYING NOTES.

</TABLE>


                                       36
<PAGE>


<TABLE>
<CAPTION>



                  Medical Asset Management, Inc. and Subsidiary

           Consolidated Statements of Changes in Stockholders' Equity

                                                                                                 
                                                COMMON STOCK               PREFERRED STOCK                      
                                           ------------------------------------------------------   PAID-IN    
                                            SHARES        AMOUNTS         SHARES        AMOUNTS     CAPITAL    
                                           -------------------------------------------------------------------
<S>                                        <C>           <C>            <C>            <C>         <C>            
 Balance, December 31, 1994, as                                                                 
   previously reported                      9,451,486    $  9,451       3,000,000    $  3,000     $  1,747,003
    Correction of error (NOTE 1)              293,516         294              --          --        2,045,118
                                           -------------------------------------------------------------------
    Balance, December 31, 1994, as        
     restated                               9,745,002       9,745       3,000,000       3,000        3,792,121   
    Issuance of common stock                  189,000         189              --          --          386,661
    Medical practice transactions:                                                              
     Stock issued                             418,861         419              --          --        1,082,467
     Value of 728,468 shares to be          
     issued                                        --          --              --          --               --  
     Issued shares of common stock                                                              
       for fixed assets                       142,675         143              --          --          105,546
     Debt and payables exchanged for                                                            
       common stock                           417,234         417              --          --          828,167
     Capital contributed                           --          --              --          --           16,000
   Net loss                                        --          --              --          --               -- 
                                           --------------------------------------------------------------------
 Balance, December 31, 1995                10,912,772      10,913       3,000,000       3,000        6,210,962
  Issuance of shares of common stock        
   for cash                                 2,501,174       2,501              --          --        8,373,101    
  Medical practice transactions:                                                                
    Stock issued and 1,347,212 shares                                                           
      to be issued in acquisitions            541,616         542              --          --        2,669,601
    Stock issued for prior years'           
      acquisitions                            197,303         197              --          --          665,951   
    Shares canceled in termination                                                              
      including 292,951 to be issued         (270,744)       (271)             --          --       (1,170,277)
    Debt and payables exchanged for                                                             
      common stock                            234,564         235              --          --        1,138,082
    Issued shares for compensation             77,918          78              --          --          374,426
    Preferred converted to common             750,000         750        (750,000)       (750)              -- 
    Shares contributed for legal costs             --          --              --          --          120,000
  Net loss                                         --          --              --          --               -- 
                                           --------------------------------------------------------------------
 Balance, December 31, 1996                14,944,603    $ 14,945       2,250,000    $  2,250     $ 18,381,846
                                           ====================================================================


=============== 
TABLE CONTINUED
===============
                                               COMMON                         RETAINED                      
                                                STOCK         UNEARNED        EARNINGS                      
                                            TO BE ISSUED    REMUNERATION      (DEFICIT)     TOTAL       
                                           ------------------------------------------------------------ 
<S>                                        <C>            <C>            <C>              <C>
Balance, December 31, 1994, as
   previously reported                     $   367,925    $   (367,925)   $     13,245    $ 1,772,699
    Correction of error (NOTE 1)             2,657,690      (2,657,690)        (36,773)     2,008,639
                                           -------------------------------------------------------------
    Balance, December 31, 1994, as           3,025,615      (3,025,615)        (23,528)     3,781,338
    restated
    Issuance of common stock                        --              --              --        386,850
    Medical practice transactions:
     Stock issued                                   --              --              --      1,082,886
     Value of 728,468 shares to be           2,953,411        (289,185)             --      2,664,226
     issued
     Issued shares of common stock 
       for fixed assets                             --              --              --        105,689
     Debt and payables exchanged for
       common stock                                 --              --              --        828,584
     Capital contributed                            --              --              --         16,000
   Net loss                                         --              --      (1,533,242)    (1,533,242)

                                           -------------------------------------------------------------     
 Balance, December 31, 1995                  5,979,026      (3,314,800)    (1,556,770)     7,332,331
  Issuance of shares of common stock          
   for cash                                      --               --               --       8,375,602
  Medical practice transactions:
    Stock issued and 1,347,212 shares
      to be issued in acquisitions           6,082,250              --             --       8,752,393
    Stock issued for prior years'             (666,148)             --             --              --
      acquisitions
    Shares canceled in termination 
      including 292,951 to be issued        (1,762,368)      1,762,368             --      (1,170,548)
    Debt and payables exchanged for 
      common stock                                  --              --             --       1,138,317
    Issued shares for compensation            (58,615)         58,615              --         374,504
    Preferred converted to common                  --              --              --              --
    Shares contributed for legal costs             --              --              --         120,000
  Net loss                                         --              --      (5,674,126)     (5,674,126)
                                           ----------       ----------     ----------      ---------- 
                                        
 Balance, December 31, 1996                $9,574,145     $(1,493,817)    $(7,230,896)    $19,248,473
                                           ==========     ===========     ===========     ===========
                                           
    SEE ACCOMPANYING NOTES.

</TABLE>


                                       37
<PAGE>


                  Medical Asset Management, Inc. and Subsidiary

                      Consolidated Statements of Cash Flows


<TABLE>
<CAPTION>

                                                       YEAR ENDED DECEMBER 31
                                                         1996          1995
                                                     ---------------------------
                                                                    (RESTATED)
<S>                                                  <C>           <C>    

CASH FLOWS FROM OPERATING ACTIVITIES
Net loss                                             $(5,674,126)  $(1,533,242)
Adjustments to reconcile net loss to net cash used
  in operating activities:
   Depreciation and amortization                         987,567       373,797
   Bad debt and contractual allowances                 1,933,486             -
   Write-off of franchise fees                           902,000             -
   Litigation settlements and clinic terminations        588,178             -
   Deferred taxes                                              -        50,655
   Common stock issued for interest expense               36,738             -
   Common stock and debentures issued for services       607,951             -
   Changes in operating assets and liabilities,
     net of effects of acquisitions and
     terminations:
      Accounts receivable                               (632,341)     (996,301)
      Physician receivables                           (2,931,788)      (62,289)
      Other assets                                      (173,875)      124,208
      Accounts payable                                   407,059       171,217
      Accrued litigation settlements                     952,257             -
      Accrued professional fees                          945,415             -
      Other accrued expenses                             (54,728)            -
                                                       ---------      ---------
                                                     
Net cash used in operating activities                 (2,106,207)   (1,871,955)
                                                       ---------     ----------

CASH FLOWS FROM INVESTING ACTIVITIES
Increase in restricted cash                           (1,264,351)            -
Net cash used to fund acquisitions                    (2,652,934)      (91,716)
Acquisition of property and equipment                          -      (199,392)
                                                       ---------      ---------                                                     
Net cash used in investing activities                 (3,917,285)     (291,108)
                                                       ---------      ---------

CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from debt issuances                           1,587,415       623,027
Repayment of debt                                       (287,702)     (415,701)
Repayment of related party debt                         (203,531)            -
Issuance of convertible debt                                   -       808,905
Payments under capital lease obligations                (183,157)            -
Net proceeds from issuances of common stock            8,375,602     1,230,828
                                                       ---------     ---------
Net cash provided by financing activities              9,288,627     2,247,059
                                                       ---------     ---------

Net increase in cash                                   3,265,135        83,996
Cash and cash equivalents, beginning of year             134,378        50,382
                                                       ---------     ---------
Cash and cash equivalents, end of year               $ 3,399,513     $ 134,378
                                                     ===========     =========

SEE ACCOMPANYING NOTES.

</TABLE>

                                       38
<PAGE>

                  Medical Asset Management, Inc. and Subsidiary

                   Notes to Consolidated Financial Statements

                                December 31, 1996


1. ORGANIZATION AND DESCRIPTION OF BUSINESS

Medical Asset Management,  Inc. (the Company or MAM), a Delaware corporation, is
a  physician  practice  management  company  (PPM)  that  develops   contractual
affiliations with physician practices and provides for management by the Company
and clinical  autonomy for the physicians.  Through its  subsidiary,  Healthcare
Professional  Management,  Inc.  (HPM),  the  Company  offers  a full  array  of
management  services to affiliated  physicians and other independent health care
entities under long-term service contracts as a management service  organization
(MSO).  At December  31,  1996 and 1995,  the  Company  has  management  service
contracts with 26 physician practices and 19 physician practices, respectively.

2. OPERATIONS AND LIQUIDITY

The Company's  financial  statements  for the year ended  December 31, 1996 have
been prepared on a going concern basis which  contemplates  the  realization  of
assets and the settlement of liabilities and commitments in the normal course of
business.  MAM has  experienced  losses from  operations and negative cash flows
from  operating  activities  for the years  ended  December  31,  1996 and 1995.
Significant  contributing  factors to the loss in 1996 were lawsuit settlements,
related  professional  expenses and general and administrative  expenses and the
rapid growth of the Company. In addition to the preceding factors,  cash used in
operations in 1996 was  primarily the result of the Company's  decision to defer
the timely  collection  of  management  fees to support the growth of  practices
under  management  agreements.  MAM has funded the loss from operations and cash
flow  shortfalls  with private  placement stock offerings and third party credit
facilities  which are secured by  $1,264,351 of the  Company's  certificates  of
deposit at  December  31,  1996.  The  Company's  decision  during  1996,  which
continued  into 1997 to  reinvest  funds in medical  practices  that are already
owned,  and fund  acquisitions of additional  medical  practices along with cash
required to meet debt obligations and fund operations has significantly  reduced
the amount of cash available to the Company  subsequent to December 31, 1996. As
a result, the Company will be required to seek additional  financing from banks,
institutional  investors  and other  sources  and to reduce or contain  costs in
order to fund operations and meet obligations and future commitments.

Management  recognizes that the Company must generate  additional  resources and
reduce  operating   expenses.   To  address  these  future  cash   requirements,
management's plans include, among other things:



                                       39
<PAGE>


2. OPERATIONS AND LIQUIDITY (CONTINUED)

o  Securing  additional  financing to cover  anticipated cash  requirements.  As
   discussed  in Note  15,  the  Company  has  obtained  a  $1,250,000  accounts
   receivable factoring line of credit.

o  Reducing advances made to physicians.

o  Reducing compensation expense included in general and administrative expenses
   as a result of headcount and salary reductions.

o  Reducing   executive  compensation  in  1997  and deferral   of  1998  senior
   management compensation, if necessary.

o  Completing refinancings of Company-owned medical buildings and equipment.

o  Curtailing  acquisition  activity  until cash  resources  are  available  and
   reducing associated travel and entertainment expenditures.

In addition,  the Company intends to control  discretionary  expenditures and to
seek additional bank financing or funds through private placements.

There can be no assurance that additional  financing,  other sources of funds or
the cost  reductions as described in the preceding  paragraphs will be achieved.
If these financings, other sources of funds or cost reductions are not achieved,
the Company's liquidity would be materially adversely affected.

These matters raise substantial doubt about the Company's ability to continue as
a going  concern.  The financial  statements do not include any  adjustments  to
reflect the possible future effects on the  recoverability and classification of
assets or the amounts and classification of liabilities that may result from the
outcome of these uncertainties.

3. SIGNIFICANT ACCOUNTING POLICIES

PRINCIPLES OF CONSOLIDATION

The  consolidated  financial  statements  include the accounts of Medical  Asset
Management,  Inc.  and its  wholly  owned  subsidiary,  Healthcare  Professional
Management,  Inc. All significant  intercompany  balances and  transactions  are
eliminated in consolidation.


                                       40
<PAGE>


3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

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 reporting in the financial  statements and accompanying notes. Actual
results could differ from those estimates.

RESTATEMENT

During 1996, management restated the 1995 consolidated  financial statements for
certain  corrections of accounting  principles and misapplications of facts that
existed at the time the 1995 financial  statements were prepared.  The aggregate
amount  of this  restatement  resulted  in a  reduction  in  earnings  from  the
previously reported net income for the year ended December 31, 1995 of $577,913,
to a net loss of $1,533,242. The following schedule summarizes the effect on net
income (loss), net income (loss) per share and stockholders'  equity as a result
of restating the  companies'  1995  financial  statements  from that  previously
reported as restated in November 1996.

<TABLE>
<CAPTION>
                                                       NET INCOME
                                        NET INCOME    (LOSS) PER  STOCKHOLDERS'
                                          (LOSS)        SHARE        EQUITY
                                       -----------------------------------------
<S>                                    <C>              <C>       <C>    
1995:
  As previously reported               $   577,913       $ .05    $6,657,582
  Adjustment                            (2,111,155)       (.20)      674,749
                                        ----------        ----       -------
    As restated                        $(1,533,242)      $(.15)   $7,332,331
                                        ==========       =====    ==========
</TABLE>

                                       41
<PAGE>

3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

RESTATEMENT (CONTINUED)

The corrections  also required  restatement of and adjustments to the previously
reported 1996 quarterly financial information as follows (unaudited):

<TABLE>
<CAPTION>

                                                       NET INCOME
                                        NET INCOME    (LOSS) PER  STOCKHOLDERS'
                                          (LOSS)        SHARE        EQUITY
                                       -----------------------------------------
<S>                                    <C>              <C>        <C>   
1996:
Three months ended March 31
  As previously reported               $    372,564       $ .03   $  9,096,695
  Adjustment                             (1,571,482)        (.14)    2,293,646
                                         ----------         ----     ---------
  As restated                           $(1,198,918)       $(.11)  $11,390,341
                                        ===========        =====   ===========
                                      
                                  
Three months ended June 30
  As previously reported                $   385,663       $ .03    $19,101,595
  Adjustment                             (1,092,677)       (.09)     1,653,115
                                         ----------        ----      ---------
  As restated                           $  (707,014)      $(.06)   $20,754,710
                                        ===========       =====    ===========
                                       
Three months ended September 30
  As previously reported                $   717,400       $ .06    $26,226,200
  Adjustment                             (1,552,962)       (.12)    (5,007,153)
                                         ----------        ----     ---------- 
  As restated                           $  (835,562)      $(.06)   $21,219,047
                                        ===========       =====    ===========

</TABLE>

CASH EQUIVALENTS AND RESTRICTED CASH

At December 31, 1996, the Company had restricted cash of $1,264,253 (certificate
of deposits at 4.5%) as a compensating  balance for a $1,264,253  line of credit
at a bank (at 4.9%) (see Note 6). Cash  equivalents  consist of  certificate  of
deposits with maturities of six months or less.

PROPERTY AND EQUIPMENT

Property and equipment is stated at cost and depreciated using the straight-line
method over the estimated useful lives of the assets, or the underlying  leases.
Estimated  useful lives range from 3 to 5 years for equipment,  3 to 7 years for
leasehold  improvements and 15 to 25 years for buildings and improvements  based
upon the type and condition of assets. Maintenance, repairs



                                       42
<PAGE>

3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

PROPERTY AND EQUIPMENT (CONTINUED)

and minor renewals are charged to operations as incurred.  Major replacements or
betterments are capitalized.  When properties are retired or otherwise disposed,
the related cost and accumulated depreciation are eliminated from the respective
accounts  and any  gain  or loss on  disposition  is  reflected  in  operations.
Depreciation  expense which includes  amortization of assets under capital lease
was  $382,621  for the year ended  December  31, 1996 and  $148,000 for the year
ended December 31, 1995.

INTANGIBLE AND OTHER ASSETS

ACQUIRED MANAGEMENT CONTRACTS

Acquired management contracts consist of the Company's exclusive right to manage
the business side of a physician or physician group's practice  generally over a
25-year period.  These costs are established based upon historic revenues of the
acquired  clinics and are  amortized on a  straight-line  basis over the initial
terms of the contracts.  In the event of  termination of a management  contract,
the related  physician or physician  group is required to repurchase  all clinic
assets,  including intangible assets, generally at the current book value, which
includes  the return of both Company  stock  issued and rights for  to-be-issued
stock.

EXCESS OF COST OF ACQUIRED ASSETS OVER FAIR VALUE

The  excess  of the cost of  acquired  assets  over  fair  value  (goodwill)  is
amortized using the straight-line method over twenty-five years.

OTHER ASSETS

Other assets include Occu-med franchise fees and computer software licenses. The
Occu-med franchise fees were written off during 1996 (see discussion below). The
computer  software  licenses,  which were acquired for installation of physician
practice software in clinics owned or managed by the Company,  will be amortized
over five years  beginning when the  underlying  systems to utilize each license
are  installed  and  operational.  The term of the license  agreement is fifteen
years. As of December 31, 1996, there were no systems installed or operational.


                                       43
<PAGE>


3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

INTANGIBLE AND OTHER ASSETS (CONTINUED)

AMORTIZATION AND RECOVERABILITY

The Company  periodically  reviews  its  intangible  and other  assets to assess
recoverability,  and  impairments  are  recognized  in operations if a permanent
impairment  was determined to have  occurred.  An impairment is recognized  when
undiscounted  cash flows are insufficient to cover the unamortized cost of these
intangibles.  The  amount  of the  impairment,  if any,  is  measured  based  on
discounted  future  operating  cash flows using a discount rate  reflecting  the
Company's average cost of funds. The recoverability of intangible assets will be
adversely  affected if future  operating  cash flows are not sufficient to cover
the  related  costs.  During  1996,  management  determined  that  the  Occu-med
franchises were not recoverable.  Accordingly,  the remaining  recorded value of
$902,000 or $.07 per share was written off.  This amount is included in net loss
on settlements  and  terminations in the  consolidated  statement of operations.
Amortization of intangibles amounted to $604,946 and $86,000 for the years ended
December 31, 1996 and 1995, respectively.

COMMON STOCK TO BE ISSUED

As part of entering into long-term  management  contracts with medical practices
as described  above,  the Company has made  nonforfeitable  commitments to issue
shares of common stock at specified  future dates for no further  consideration.
Common  stock to be issued is shown as a  separate  component  of  stockholders'
equity and the amounts, upon issuance of the shares, will be reclassified to par
value and additional paid-in capital.

Additionally, contingent shares to be issued as remuneration related to services
provided by physicians for  acquisitions in 1994 are included in common stock to
be  issued.  Unearned  remuneration  related  to the  contingent  stock has been
recorded as a separate  component of equity equal to the  estimated  fair market
value of the stock on the effective date of the acquisition.

Remuneration expense is recorded at the estimated fair value of the stock on the
date the performance  criteria are met. Upon issuance of the contingent  shares,
their fair value is reclassified to par value and additional paid-in capital.


                                       44
<PAGE>


3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

REVENUE RECOGNITION

The  Company's  net revenues are the estimated  realizable  amounts  earned from
billings to patients, third party payors and others for services rendered at the
Company's affiliated clinics and practices,  reduced by contractual  adjustments
and the contractual  allocation of revenues to the medical  provider-owner(s) of
the clinics and  practices.  Contractual  adjustments  arise due to the terms of
certain  reimbursement and managed care contracts.  These adjustments  represent
the difference  between charges at established  rates and estimated  recoverable
amounts  and are  recognized  in the  period  the  services  are  rendered.  Any
differences   between  estimated   contractual   adjustments  and  actual  final
settlements   under   reimbursement   contracts  are  reported  as   contractual
adjustments in the year final settlements are determined.

INCOME TAXES

Income  taxes are  provided  for using the  liability  method of  accounting  in
accordance  with Statement of Financial  Accounting  Standards No. 109 (SFAS No.
109),  "Accounting  for Income Taxes."  Deferred tax assets and  liabilities are
recognized for future tax consequences  attributable to differences  between the
financial  statement  carrying  amounts of existing  assets and  liabilities and
their respective tax basis.

NET LOSS PER SHARE

The computation of fully diluted net loss per share was  antidilutive in each of
the periods  presented.  Net loss per share is computed  based upon the weighted
average number of shares of common stock outstanding during the periods.  Common
stock equivalents  consisting of convertible preferred stock, all commitments to
issue common stock at specified future dates based upon the mere passage of time
and  contingent  shares for which  conditions  for their  issuance are currently
being met are not included in the primary earnings per share calculation because
the effect would be antidilutive.


                                       45
<PAGE>


3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS

EARNINGS PER SHARE

In February 1997, the Financial  Accounting  Standards Board issued Statement of
Financial  Accounting  Standards  No. 128 (SFAS No. 128),  "Earnings Per Share,"
which is required to be adopted by the Company for the year ended  December  31,
1997.  The  provisions of SFAS No. 128 will be adopted in the 1997  consolidated
financial  statements.  At that time, the Company will be required to change the
method  currently  used to compute  earnings  per share and to restate all prior
periods.  Under the new  requirements  for calculating  earnings per share,  the
dilutive  effect of  convertible  preferred  stock will be  excluded  for "basic
earnings per share" and only included in "diluted  earnings per share." Further,
contingently  issuable  shares will be included in basic earnings per share only
if all the necessary conditions have been satisfied by the end of the period and
it is only a matter of time before  they are issued.  The impact of SFAS No. 128
on the  calculation  of earnings per share for the year ended  December 31, 1997
has not been determined.

4. ACQUISITIONS

On December 29, 1995, the Company  exchanged  433,332 shares of its common stock
valued at  $1,168,288  for 100% of the  outstanding  common stock of  Healthcare
Professional Management, Inc. This transaction was accounted for as a pooling of
interests.

The following  represents  the results of operations of Healthcare  Professional
Management,  Inc.  for the  years  ended  December  31,  1996 and 1995  that are
included in the combined net income of the Company.

<TABLE>
<CAPTION>

                                                         1996         1995
                                                     ------------- ------------
<S>                                                  <C>          <C>       
Revenues                                             $1,319,000   $1,090,000
Net loss                                                (50,000)     (17,000)

</TABLE>


On December 31, 1995,  the Company  entered into a Clinic  Management  Agreement
with OB-GYN Associates.  On April 1, 1996 (the effective date of the acquisition
for accounting  purposes),  the Company entered into an Asset Purchase Agreement
with OB-GYN Associates.  In May 1996, the Asset Purchase Agreement was finalized
with the Company  providing  for the  issuance  of 730,000  shares of its common
stock and the payment of $1,806,000 in cash (including  acquisition costs) for a
total acquisition price of $4,831,000. As of December 31,


                                       46
<PAGE>


4. ACQUISITIONS (CONTINUED)

1996,  the Company has issued 292,000 shares of its common stock as part of this
acquisition.  The remaining  438,000  shares are to be issued at 146,000  shares
each December  through 1999.  The 25-year  management  agreement  provides for a
contractual allocation to OB-GYN Associates of 54% of net collected revenues. If
after business costs are covered,  the collected  revenue is insufficient to pay
the  Company  its  minimum  guaranteed  management  fee of 10%,  the  Company is
authorized to reduce the amount of revenue paid to affiliated  physicians to the
extent necessary to pay the minimum guaranteed fee.

This acquisition has been accounted for as a purchase.  The accounts  receivable
acquired  were  valued at net  collectible  value  based upon an analysis by the
Company. The estimated fair value of assets is summarized as follows:

<TABLE>
<CAPTION>
      
      <S>                                                          <C>       
      Accounts receivable, net                                    $1,011,000
      Property and equipment                                         305,000
      Management service contract                                  3,036,000
      Excess of cost of acquired assets over fair value              429,000
      Other                                                           50,000
                                                                ------------
                                                                   4,831,000
      Less value of stock issued and to be issued                  3,025,000
                                                                ============
      Cash purchase price                                         $1,806,000
                                                                ============
</TABLE>

For the year ended December 31, 1995, the financial statements of the Company do
not include any financial results of OB-GYN Associates.

Unaudited  pro forma  results  of  operations  for 1996 and 1995,  assuming  the
acquisition  of OB-GYN  Associates  was  consummated  January  1,  1995,  are as
follows:

<TABLE>
<CAPTION>
                                                      1996           1995
                                                 --------------- --------------
                                                   (UNAUDITED)    (UNAUDITED)

<S>                                               <C>             <C>       
Net revenue                                       $11,143,508     $9,462,235
Net loss                                           (5,601,135)    (1,241,277)
Net loss per share                                       (.43)          (.12)

</TABLE>

In  addition  to  the  Healthcare  Professional  Management,   Inc.  and  OB-GYN
Associates  transactions,  the Company  entered into  acquisition  and long-term
management service agreements with 13 medical groups in 1996.


                                       47
<PAGE>


4. ACQUISITIONS (CONTINUED)

Total acquisition consideration was comprised of the following:

<TABLE>
<CAPTION>

      <S>                                                        <C>        
      Cash and transaction costs                                 $   846,934
      Notes payable                                                1,511,888
      Common stock issued and to be issued                         5,727,393
      Liabilities assumed                                             16,142
                                                                  ==========
      Total costs                                                 $8,102,357
                                                                  ==========
</TABLE>

These agreements  provided for the Company to acquire all the nonmedical  assets
and properties  which the  physicians own in connection  with the conduct of the
physicians'  medical  practice.  The assets  included (i) all of the physicians'
accounts  receivable as reflected on the physicians'  books and records,  on the
effective  date of the  agreement  and at all  times  during  the  terms  of the
agreement,  all  accounts  receivable  acquired are  reflected on the  Company's
balance  sheet  with  a  corresponding  allowance  account  for  those  accounts
considered possibly  uncollectible,  (ii) all administrative (i.e.,  nonmedical)
aspects of every kind and character pertaining to the running of the clinic, and
(iii) all other assets as described in the agreement.  Total  consideration paid
for the medical groups to enter into long-term management service agreements and
for the  nonmedical  assets  described  above may include cash,  the issuance of
common stock, the estimated value of  nonforfeitable  commitments by the Company
to issue  common  stock at future  dates  for no  additional  consideration  and
short-term and subordinated  notes. The Company has accounted for these business
acquisitions as purchases. The purchase prices were allocated to assets acquired
based upon their fair market value at the date of the agreement.

The Company  has the legal right to collect  patient  accounts  receivable  and,
therefore,  recognizes these amounts in the financial statements. The Company is
liable for certain operating expenses of the practices and,  therefore,  records
them as operating expenses. Under the majority of these agreements,  the Company
is to receive a minimum  management  fee of ten percent (10%) up to a maximum of
thirty  percent  (30%) of net billings of the practice as a management  fee. The
Company  records the management fees earned as net revenues.  Additionally,  the
Company  records a  receivable  for funds  advanced to practices to pay practice
operating  expenses  under  the  terms of the  management  services  agreements.
Management  of  the  Company  evaluates  collectibility  of the  management  fee
receivable  on an ongoing  basis and records  collectibility  reserves if deemed
necessary. The Company is also obligated to pay a percentage, if available after
collection of minimum  management  fees, of net billings to the physicians,  and
records such amounts as a reduction of revenues on its  consolidated  statements
of operations with  corresponding  liability due to physician groups for amounts
not yet collected.  At December 31, 1996 and 1995,  advances to and  receivables
from  physician  groups  exceeded  amounts  relating  to the  liability  for the
physicians' portion of the uncollected net billings.




                                       48
<PAGE>


4. ACQUISITIONS (CONTINUED)

In addition to the  acquisitions  described  above, the Company entered into two
management service agreements with a total of 40 physicians in 1996.

The Company  offers  affiliated  physicians  who enter into asset  purchase  and
management  agreements  with the Company,  the option to repurchase the tangible
assets and the  management  agreement  acquired by the Company  during the first
four  years  of each  agreement.  The  repurchase  price  is the  return  of all
consideration  paid by the  Company  and  repayment  to the Company of all money
invested or advanced to the practice. In the event of a repurchase,  the medical
practice  forfeits all  management  fees earned by the Company as of the date of
the repurchase and not paid. The accounts receivable of the medical practice are
owned or assigned to the Company as of the date of the repurchase.  In the event
of a repurchase, the practice is not bound by any covenant not to compete.

After the  first  four  years of each  agreement,  a  termination  provision  is
offered.  The termination  provision  requires the practice to pay the Company a
negotiated  amount of cash for  liquidated  damages,  or  obligates  the medical
providers to abide by a covenant not to compete.  During 1996, certain practices
were  repurchased  or terminated  which  resulted in $152,565 of income which is
included in net loss on litigation  settlements and clinic  terminations  within
the consolidated statement of operations.

For transactions  completed  through  December 31, 1996,  shares of common stock
that the Company is  committed  to issue are  693,449 in 1997,  592,783 in 1998,
544,076 in 1999,  and 157,763 in 2000.  The  accompanying  financial  statements
include the results of operations derived from the asset purchase and management
services  agreements  from  their  respective  effective  dates.  The  following
unaudited  pro forma  information  presents  the  results of  operations  of the
Company as of December 31, 1996 as if the 1996 transactions had been consummated
on January 1, 1996 and for the year ended  December  31, 1995 as if the 1996 and
1995 transactions were consummated on January 1, 1995. Such information is based
on the  historical  financial  information  of the  medical  groups and does not
include  operational or other changes which might have been effected pursuant to
the Company's management of the nonmedical aspects of such groups.




                                       49
<PAGE>


4. ACQUISITIONS (CONTINUED)

The  unaudited  pro  forma  information  presented  below  is  for  illustrative
information  only and is not necessarily  indicative of results which would have
been achieved or results which may be achieved in the future:

<TABLE>
<CAPTION>
                                                          1996        1995
                                                       ------------ -----------
                                                       (UNAUDITED) (UNAUDITED)

<S>                                                  <C>           <C>        
Revenue                                              $12,608,758   $14,833,235
Net loss                                              (5,516,496)   (1,030,025)
Net loss per share                                          (.42)         (.10)

</TABLE>

5. PROFIT SHARING PLAN

During 1996,  the Company  implemented a 401(k) profit  sharing plan (the Plan).
Substantially  all employees are eligible to  participate  in the Plan once they
have reached the age of 21 and  completed  one year of service with the Company,
as defined.  Participants  may contribute a percentage of their  compensation to
the  Plan,  but not in  excess  of the  maximum  allowed  by law.  The Plan also
provides for matching and other  additional  contributions by the Company at its
discretion. No discretionary contributions were made by the Company in 1996.

6. DEBT

RELATED PARTY DEBT

Related party debt in the amount of $9,830 and $213,361 at December 31, 1996 and
1995, respectively, consists of demand notes payable including interest at 8% to
certain officers of the Company.

LINE OF CREDIT AND NOTES PAYABLE

At December 31, 1996,  the Company has $2.5  million  available  under a line of
credit with a bank.  The amount  outstanding  under the line was  $1,264,351  at
December 31, 1996 at 4.9%. Upon maturity on May 30, 1997, this note was extended
to May 29,  1998 at 6.72%.  Amounts  are  available  under this line only to the
extent the Company has  certificates  of deposit to secure the balance (see Note
2). At December 31, 1996,  $1,235,649 remained available for use under the line.
On September 3, 1997, all amounts outstanding under the line were repaid.


                                       50
<PAGE>


6. DEBT (CONTINUED)

LINE OF CREDIT AND NOTES PAYABLE (CONTINUED)

At December 31, 1996, the Company had four notes payable  totaling  $301,498 due
upon demand  including  interest at 10%. On July 21, 1997,  the total amount due
under these notes on that date of $317,636 was forgiven.  This  forgiveness will
be  recognized  in the  Company's  financial  statements  in the  quarter  ended
September  30, 1997.  The Company  also has $141,020 of demand notes  payable at
interest rates ranging from 8% to 10% due in 1997.

At December 31, 1995, the Company had $936,766 of demand notes at interest rates
ranging  from 8% to 10%.  In August  1996,  $263,193  of the 1995  balance  plus
$12,260 of additional  interest accrued in 1996 was converted into 47,565 shares
of common  stock.  Additionally,  $515,875 of the 1995  balance was  forgiven in
conjunction with the termination of certain  management  agreements in 1996 (see
Note 3).

LONG-TERM DEBT

Long-term debt consists of the following:

<TABLE>
<CAPTION>
                                                               DECEMBER 31
                                                            1996        1995
                                                         -----------------------
<S>                                                      <C>          <C>
Notes payable to various individuals in conjunction
  with asset acquisitions, interest at 10%, maturing
  on various dates in 1996 and 1997, with all unpaid    
  principal and accrued interest due at maturity date     $1,511,190   $391,606

Mortgage payable to a bank, collateralized by a
  building, with a net book value of $510,000 interest       300,513          -
  at 10%, with monthly payments of $3,270 to 2011

Unsecured note payable to a finance company with
  interest at 7.9%, and monthly payments of $15,550 to       500,000          -
  1999

Note payable to a computer software vendor, interest
  at 10%, $600,000 due in 1998, remainder in 1999,
  collateralized by software licenses with a net book        737,500          -
  value of $1,237,604

Capital lease obligations, varying interest rates not
  exceeding 26.5%, with various due dates through 2001       534,734    175,241
  and collateralized by equipment

Other                                                        110,350     37,898
-----                                                        -------     ------
                                                                     
                                                           3,694,287    604,745
Less current portion                                       1,393,399     21,898
                                                           ---------     ------
                                                          $2,300,888   $582,847
                                                          ==========   ========
</TABLE>
                                                        

                                       51
<PAGE>


6. DEBT (CONTINUED)

LONG-TERM DEBT (CONTINUED)

Maturities  of  long-term  debt,  including  capital  lease  obligations,  as of
December 31, 1996 are as follows:

<TABLE>
<CAPTION>

      <S>                                                          <C>       
      1997                                                         $1,393,399
      1998                                                          1,526,000
      1999                                                            426,500
      2000                                                             96,000
      2001                                                             41,000
      Thereafter                                                      211,388
                                                                   ==========
                                                                   $3,694,287
                                                                   ==========
</TABLE>

CONVERTIBLE SUBORDINATED DEBT

During 1995,  the Company  issued  $762,000 in Series B  Convertible  Redeemable
Secured Subordinated Debentures  (convertible  debentures) which are convertible
into common stock at $5 per share.  Principal  and accrued  interest at December
31, 1995 was $808,095.  During 1996, the holders of $718,000 of the  convertible
debentures  converted the  convertible  debentures into 143,600 shares of common
stock. The remaining $44,000 of convertible debentures were redeemed in cash.

In 1995,  in  conjunction  with an  acquisition,  the  Company  entered  into an
agreement  to issue to a  physician  8%  convertible  debentures  not to  exceed
$450,000,  which will  mature and be due for payment to the  physician  in 1999.
These  debentures are  convertible  into common stock upon maturity at a rate of
80% of the then  current  market price at the time of maturity but not less than
$5 per share. At December 31, 1996 and 1995, $125,438 and $54,810,  respectively
of debentures (including interest) were outstanding.

7. EQUITY

PREFERRED STOCK

In 1994, the Company issued  3,000,000  shares of Class A preferred  stock which
are  convertible  into shares of common stock.  In July 1996,  750,000 shares of
common stock were issued to the original  holder of the Class A preferred  stock
pursuant to the agreed conversion  terms,  leaving a balance of 2,250,000 shares
of Class A preferred stock. In order to conform the Company's


                                       52
<PAGE>


7. EQUITY (CONTINUED)

PREFERRED STOCK (CONTINUED)

Certificate  of  Incorporation  to reflect the 1994 agreement to issue shares of
Class A preferred  stock,  on September 19, 1997 the Company filed a designation
of terms with respect to 2,250,000 shares of Class A preferred stock.

The Company's  preferred shares (1) carry no voting rights; (2) may be converted
into common shares on a one-to-one  basis subject to the limitation that no more
than 25% may be converted  into common shares in any one year and at no time may
the holders of the Class A preferred  hold  directly or  indirectly  4.9% of the
common shares outstanding;  (3) the shares carry no dividend right, except in an
amount equal to, on a per share basis,  amounts  declared  paid or set aside for
common stock; and (4) the shares have no redemption rights.

COMMON STOCK

In June 1996, the Company  completed a private placement for 2,000,000 shares of
common  stock at $4 per share.  The  proceeds  from the private  placement  were
reduced by $835,000 in underwriter  fees and expenses.  In conjunction  with the
private  placement,  warrants to purchase 140,000 shares of the Company's common
stock were issued to the underwriters for a five-year period ending May 31, 2001
at an exercise price of $7.05 per share. No warrants were exercised during 1996.

In January 1996,  the Company  issued for cash 200,000 shares of common stock to
certain  individuals at $1 per share. In December 1996,  18,000 shares of common
stock were issued for cash at $3.50 per share.  The Company issued an additional
283,174  shares  ranging  in price  from $2.50 to $3.50 per share for a total of
$947,602 in private placement transactions during 1996.

In 1996,  77,918 shares were issued as  compensation to physicians per the terms
of their  respective  asset  purchase  agreements  and certain  individuals  per
commission  agreements valued at $343,423.  In addition,  $144,864 of legal fees
were paid through the  issuance of 43,399  shares of common  stock.  The Company
also entered into an  agreement  with a physician in 1996 whereby the  physician
has the right,  but not the  obligation,  to purchase  MAM stock at $3 per share
limited by percentages  ranging from 1% to 5% of his clinic's  revenue in return
for MAM being given the  opportunity  to take over the  physician's  practice on
retirement. No shares were purchased during 1996 under this agreement.


                                       53
<PAGE>

7. EQUITY (CONTINUED)

COMMON STOCK (CONTINUED)

In years  prior to 1995,  the  Company  entered  into  arrangements  whereby the
issuance of common stock at future  dates was  contingent  upon meeting  certain
revenue  targets.  These amounts are included in unearned  remuneration  and are
charged to  compensation  expense at the fair value of the stock on the date the
revenue targets are met.

During 1996,  it was  determined  that certain  historical  stock records of the
Company were inaccurate or incomplete.  Management  believes that any inaccuracy
will not have a material impact on shares outstanding at December 31, 1996.

8. REVENUE

The  following  amounts  were  included in the  determination  of the  Company's
revenues:

<TABLE>
<CAPTION>
                                                        YEAR ENDED DECEMBER 31
                                                           1996        1995
                                                       -------------------------
<S>                                                    <C>          <C>  

Medical service revenue                                $21,774,648  $11,985,696
Healthcare Professional Management, Inc.                 1,319,185    1,090,304
                                                         ---------    ---------
                                                        23,093,833   13,076,000
Less: Provisions for doubtful accounts and
       contractual adjustments                           8,160,341    2,346,765
      Amounts retained by medical groups                 4,554,984    4,329,000
                                                         ---------    ---------
                                                        $10,378,508  $6,400,235
                                                        ===========  ==========
</TABLE>
                                                   
The  Company's  management  services  agreements  with the  physician  practices
specify  the  percentage  of  the  net  collected  revenues  to be  paid  to the
affiliated  physicians and the percentage to be received by the Company. The net
revenue  distributed to the physician pays for  professional  expenses,  such as
physicians'  and nurse  practitioners'  salaries and  benefits and  professional
malpractice  insurance.  The net  revenue  amounts  received  by the Company are
applied  to pay  the  Company's  management  fee  and  the  practice's  business
expenses,   such  as  salaries  and  benefits  for   receptionists  and  medical
secretaries,  billing and collection  expense,  office  supplies,  real property
lease payments, property insurance expense and an integrated information system.
If, after business costs are covered,  the collected  revenue is insufficient to
pay the Company its minimum guaranteed management fee, the Company is authorized
to reduce the amount of revenue paid to the affiliated  physicians to the extent
necessary to pay the


                                       54
<PAGE>


8. REVENUE (CONTINUED)

minimum  guaranteed  management  fee.  On  average,  since  1994 the  Company is
entitled  to  management  fees  between  5% and 10% of  annual  medical  service
revenues per the terms of the various management agreements.

For the years ended  December  31, 1996 and 1995,  the  medical  groups  derived
approximately  35%  and 30% of  their  medical  service  revenue  from  services
provided under Medicare and Medicaid programs,  respectively,  and approximately
30% and 30% from contractual  fee-for-service  arrangements with numerous payors
and managed care programs,  respectively,  none of which individually aggregated
more than 10% of medical service  revenue.  The remaining 35% and 40% of medical
service revenue was derived from various  fee-for-service payors. Changes in the
medical group's payor mix can affect the Company's revenue.

Accounts receivable  principally  represent  receivables from patients and third
parties for medical  services  provided by  physician  groups.  Such amounts are
recorded  net of  contractual  allowances  and  estimated  bad  debts.  Accounts
receivable  are a function of net  physician  practice  revenue  rather than net
revenue  of the  Company.  Receivables  from the  Medicare  and  State  Medicaid
programs are considered to have minimal credit risk and no other payor comprised
more than 10% of accounts receivable at December 31, 1996 and 1995.

9. NET LOSS ON LITIGATION SETTLEMENTS AND CLINIC TERMINATIONS

Net loss on settlements,  terminations and disposals for the year ended December
31, 1996 is comprised of the following:


<TABLE>
<CAPTION>

                                                                    INCOME
                                                                  (EXPENSE)
                                                                 -------------

<S>                                                              <C>         
Lawsuit settlements                                              $(1,709,990)
Clinic terminations (NOTE 4)                                         152,565
Franchise fee write-off (NOTE 3)                                    (902,000)
Other                                                                  5,332
                                                                       -----   
                                                                 $(2,454,093)
                                                                 ===========

</TABLE>

At December  31, 1996,  the Company has accrued  within  litigation  settlements
$431,250 relating to two lawsuits with physicians anticipated to settle in 1997.
Approximately  $180,000  of the total will be paid  through  the  issuance of at
least 29,000 shares of the Company's common stock.

                                       55
<PAGE>


9. NET LOSS ON LITIGATION SETTLEMENTS AND CLINIC TERMINATIONS (CONTINUED)

Additionally, in January 1997, the Company settled a lawsuit regarding the value
of an  acquisition of a health  facility.  The lawsuit was settled in two parts.
The first part requires the issuance of 49,999  shares of the  Company's  common
stock in three  quarterly  installments  of 12,500 and one installment of 12,499
shares beginning March 25, 1997 and for each quarter thereafter. At December 31,
1996,  $312,493 has been  accrued  related to this portion of the lawsuit as the
Company  has  guaranteed  the  ultimate  receipt of $6.25 per share.  The second
portion of the  lawsuit  settlement  requires  the  payment of $187,500 in cash,
$127,000  in common  stock and the  assumption  of  $274,361 in debt and payroll
taxes.  The total value of the second  portion of the settlement of $588,861 has
been  included in accrued  litigation  settlements  at  December  31,  1996.  In
conjunction  with these  settlements,  the Company has fully  reserved a related
advance of $93,841.

In  addition  to  the  above   settlements,   two  lawsuits  involving  workers'
compensation and one real estate lawsuit were settled for a total of $377,386. A
portion of this  amount  ($257,386)  has been  included  as  accrued  litigation
settlements.  The remaining  $120,000 has been included in paid-in  capital as a
result of the agreed upon  transfer of 40,000  shares owned by an officer of the
Company in partial settlement of one of the lawsuits.

10. INCOME TAXES

A  reconciliation  of U.S.  income tax computed at the statutory rate and actual
expense is as follows for the two years ended December 31, 1996 and 1995:

<TABLE>
<CAPTION>

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

<S>                                                     <C>           <C>
Statutory rate                                          34%           34%
Nondeductible items                                      -            (2)
State tax assets of federal benefit                      6             6
Increase in valuation allowance                        (40)          (38)
                                                   ===========================
                                                         -%            -%
                                                   ===========================


</TABLE>


                                       56
<PAGE>


10. INCOME TAXES (CONTINUED)

The components of the net deferred tax assets and liabilities at December 31 are
as follows:

<TABLE>
<CAPTION>
                                                       1996          1995
                                                   ---------------------------
<S>                                                <C>           <C>  
Deferred tax assets:
  Receivables                                      $   454,000   $  631,000
  Accrued expenses                                     529,000            -
  Federal net operating losses                       2,554,000    1,150,000
  State net operating losses                           470,000      202,000
                                                       -------      -------
                                                     4,007,000    1,983,000
  Valuation allowance                               (3,041,000)    (977,000)
                                                    ----------     -------- 
 Total deferred tax assets                             966,000    1,006,000

Deferred tax liabilities:
  Method of accounting                                 923,000      968,000
  Property, plant, and equipment                        43,000       38,000
  Intangibles                                        3,274,000    1,092,000
                                                     ---------    ---------
Total deferred tax liabilities                       4,240,000    2,098,000
                                                     ---------    ---------
Net deferred tax liabilities                        $3,274,000   $1,092,000
                                                    ==========   ==========
</TABLE>
                                               
The Company had net  operating  losses for federal and state income tax purposes
at  December  31,  1996 and 1995 of  approximately  $7,500,000  and  $3,400,000,
respectively. The net operating losses can be carried forward and used to offset
the  Company's   future   taxable   income.   The  federal  net  operating  loss
carryforwards will expire beginning in the year 2009.

Recognition  of a  deferred  tax  asset is  allowed  if  future  realization  is
more-likely-than-not.  A  valuation  allowance  has  been  provided  for the net
operating  losses and certain  temporary  differences that based on management's
belief are not  more-likely-than-not  to be realized.  The  valuation  allowance
increased by $2,064,000,  due in  significant  part to reserving the tax benefit
attributable to the net operating loss generated in the current period.

11. FINANCIAL INSTRUMENTS AND CONCENTRATION OF CREDIT RISK

Financial instruments which potentially subject the Company to concentrations of
credit risk consist  principally of cash,  certificates  of deposit and accounts
receivable.  The  Company  places  its cash and  certificates  of  deposit  with
high-credit quality financial institutions. At times, such investments may be in
excess of the FDIC insurance limits.


                                       57
<PAGE>


11. FINANCIAL INSTRUMENTS AND CONCENTRATION OF CREDIT RISK

The  Company  has a  concentration  of  credit  risk with  certain  governmental
agencies and  insurance  companies for the payment of patient  charges.  The net
amount  due  from  the  governmental   agencies  approximates  24%  of  the  net
receivables  outstanding.  In addition,  the Company is due certain amounts from
various physician-owned professional corporations. The net amount due from these
sources amounted to  approximately  $2,660,000 at December 31, 1996. The Company
may be able to offset certain amounts due from the physician-owned  professional
corporations with amounts due to the physician groups.

An allowance for doubtful accounts is maintained at a level considered  adequate
to provide for possible future losses.

The carrying amounts of cash,  restricted  cash,  accounts  receivable,  line of
credit and notes payable, accounts payable and accrued expenses approximate fair
value because of the short maturity of these items.

It is not  practicable  to estimate  the fair value of the Series B  Convertible
Redeemable  Secured  Subordinated  Debentures or the 8% convertible  debentures,
because  each  of  these  securities  contains  unique  terms,   conditions  and
restrictions.

12. COMMITMENTS AND CONTINGENCIES

The Company  leases office  facilities  under  operating  leases which expire at
various dates through the year 2005. In addition, the Company pays, on behalf of
the  clinics it  manages,  operating  leases for office  facilities.  It has not
assumed  and does not intend to assume  these  obligations,  but rather pays the
leases under the terms of its management  agreement  with the medical  practice.
The  accompanying  consolidated  statements of operations  include expenses from
operating  leases of  $1,418,173  and $971,890 for the years ended  December 31,
1996  and  1995,   respectively.   Future   minimum  lease  payments  due  under
noncancelable operating leases as of December 31, 1996 are as follows:

<TABLE>
<CAPTION>
                                                           MANAGED
                                             COMPANY       CLINIC
                                             LEASES        LEASES      TOTAL
                                           ------------------------------------
<S>                                        <C>         <C>           <C>    
1997                                       $ 415,000   $   747,000   $ 1,162,000   
1998                                         447,000       683,000     1,130,000
1999                                         420,000       495,000       915,000
2000                                         419,000       323,000       742,000
2001                                         352,000       261,000       613,000
Thereafter                                   182,000     1,098,000     1,280,000
                                             -------     ---------     ---------
                                          $2,235,000    $3,607,000    $5,842,000
                                          ==========    ==========    ==========
                                                    
</TABLE>


                                       58
<PAGE>


12. COMMITMENTS AND CONTINGENCIES (CONTINUED)

The Company entered into a corporate  advisory agreement in 1995 under which the
advisory firm agreed to perform certain  services for MAM in return for fees and
stock options of MAM. In response to a lawsuit filed by the Company  against the
advisory firm alleging  breach of fiduciary  duty,  breach of oral agreement and
misappropriation  of trade secrets,  the defendant filed a counterclaim  seeking
specific performance of the advisory agreement or, in the alternative,  damages.
The litigation is still in preliminary stages and, therefore, the outcome cannot
be determined.  However, the Company's maximum exposure should the advisory firm
prevail  would be the grant of a stock option with respect to 375,000  shares of
MAM common stock at an exercise price  equivalent to a 40 to 50 percent discount
from fair value plus attorney fees.

The Company is presently  involved in various  other  lawsuits  occurring in the
course of its  business of acquiring  physician  practices  and medical  related
entities.  The above  referenced  claims  are either in  discovery  or the early
phases of arbitration; however, management believes the amounts accrued (Note 9)
are  adequate  and the  ultimate  outcome of these  claims is not expected to be
material to operations or the Company's financial position.

13. RELATED PARTIES

The  management   services  agreement  activity  between  the  Company  and  the
affiliated  physician  groups is  reflected  in accounts  receivable  affiliated
physicians on the consolidated balance sheet.

The  Company  leases a portion of its  medical  office  space at rates which the
Company believes  approximate fair market value,  from entities  affiliated with
certain of the  stockholders  of physician  groups  affiliated with the Company.
Payments under these leases were approximately $187,000 and $146,000 in 1996 and
1995, respectively.



                                       59
<PAGE>


14. SUPPLEMENTAL CASH FLOW INFORMATION

Supplemental  disclosures of cash flow  information for the years ended December
31, 1996 and 1995 are summarized as follows:

<TABLE>
<CAPTION>
                                                          1996        1995
                                                      -------------------------
<S>                                                   <C>            <C>   
Cash paid for interest and income taxes:
  Interest                                             $   109,214   $  292,000
                                                          
Noncash investing and financing activities:
  Assets acquired by capital lease                         519,993       86,000
  Assets acquired with stock issuance, assumption
    of debt and other liabilities                       10,702,815    4,348,000
  Stock issued for debt                                         -       828,000
  Debt converted to stock                                  993,453            -
  
</TABLE>

15. SUBSEQUENT EVENTS

The Company has completed the acquisition of or entered into service  agreements
with ten clinics  subsequent  to December 31, 1996. As  consideration  for these
acquisitions,  the Company  will pay  approximately  $1,250,000  in cash,  issue
approximately  $2,000,000  in notes  payable and 576,311  shares of common stock
over the next five years valued at approximately $2,400,000.

On October 15, 1997, the Company entered into a $1,250,000  accounts  receivable
factoring  line of credit under which the Company can receive  advances equal to
40% of accounts receivable outstanding less than 90 days. A factoring commission
of 1% for each  30-day  period in  addition  to  interest  at the prime rate (as
published  in the WALL STREET  JOURNAL)  plus 2% will be charged on  outstanding
dollars.  A reserve of 5% of the total  outstanding  invoices is also  required.
This indefinite facility is guaranteed by certain officers of the corporation.

In  September  1997,  the  Company  signed a  nonbinding  letter of intent  with
VenturCor,   Inc.,  a  wholly  owned  subsidiary  of  ServantCor,   an  Illinois
not-for-profit  integrated  health  care  delivery  system,  to form an Illinois
statewide physician practice management company. The joint venture company would
be owned 51% by VenturCor and 49% by the Company and would offer  administrative
and managed care  contracting  services,  purchase  fixed assets from  physician
practices and enter into 25 to 40 year management  contracts with Illinois-based
physicians.  It  is  contemplated  that  the  Company  would  fund  its  capital
contribution  through a combination  of cash and shares of the Company's  common
stock  while  VenturCor  would  fund its  capital  contribution  with  cash.  In
addition, the Company and VenturCor are discussing a possible


                                       60
<PAGE>


15. SUBSEQUENT EVENTS (CONTINUED)

issuance of convertible debentures by the Company to VenturCor. No assurance can
be given  that a  mutually  acceptable  joint  venture  will be  formed  or that
VenturCor will make a direct investment in the Company.


                                       61
<PAGE>
                                             
                                             

                                  Report of Independent Auditors

To the Board of Directors
  and Stockholders of
  Medical Asset Management, Inc.
Mesa, Arizona

We have audited the  consolidated  balance  sheets of Medical Asset  Management,
Inc. as of December 31, 1995 and 1994, and the related  consolidated  statements
of  operations,  stockholders  equity,  and cash flows for the years 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 audits.

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

In our opinion,  the financial  statements  referred to above present fairly, in
all material respects, the financial position of Medical Asset Management,  Inc.
as of December  31, 1995 and 1994,  and the results of its  operations  and cash
flows for the years then ended in conformity with generally accepted  accounting
principles.

As discussed in Note 1, the accompanying  consolidated financial statements have
been restated for the correction of an error.


HARLAN AND BOETTGER


San Diego, California
May 1, 1996, except
  for Notes 1 and 12 as to which
  the date is September 19, 1997.

<PAGE>



<TABLE>
<CAPTION>

                              Medical Asset Management, Inc. and Subsidiaries

                                        Consolidated Balance Sheets

                                                           DECEMBER 31
                                                       1995           1994
                                                   -----------------------------
                                                            (RESTATED)
<S>                                                 <C>            <C>   
ASSETS                                                      
Current assets:
  Cash                                              $   134,378    $   50,382
  Accounts receivable, less $1,580,820 and
   $633,705  of allowance for doubtful                3,155,482     2,857,809
   accounts
  Affiliated physicians receivables                      26,552       231,570
  Other current assets                                   93,841       222,180
                                                         ------       -------
Total current assets                                  3,410,253     3,361,941

Property and equipment, net                             498,290       435,418

Intangible assets, net                                7,911,755     3,185,765

Other assets                                             12,264         8,133




                                                    -----------    ----------
Total assets                                        $11,832,562    $6,991,257
                                                    ===========    ==========

</TABLE>



                                       63
<PAGE>



<TABLE>
<CAPTION>
                                                           DECEMBER 31
                                                       1995           1994
                                                   -----------------------------
                                                            (RESTATED)
<S>                                                <C>             <C>  
LIABILITIES AND STOCKHOLDERS' EQUITY                      
Current liabilities:
  Line of credit and notes payable                 $    936,766    $     
  Accounts payable                                      297,488       318,172
  Accrued payroll                                       244,377             -
  Accrued expenses                                      249,116       146,509
  Related party debt                                    213,361       166,049
  Due to Physician groups                                           1,535,298
  Current portion of long-term liabilities               21,898       982,759
                                                         ------       -------
Total current liabilities                             1,963,006     3,148,787

Long-term debt:
  Notes payable and
  Capital lease obligations                             582,847         7,132
Convertible subordinated debt                           862,905        54,000
Deferred tax liability                                1,091,473             -
Commitments and contingencies                                 -             -
                                                         ------       -------
Total liabilities                                     4,500,231     3,209,919
                                                      ---------     ---------
                                                    

STOCKHOLDERS' EQUITY
Preferred stock (convertible) --$.001 par
  value--10,000,000 shares authorized; Class
  A--3,000,000 shares issued and outstanding          
  at December 31, 1995 and 1994                           3,000         3,000

Common Stock--$.001 par value--50,000,000 shares
  authorized, 10,912,772 and 9,451,486 issued and
  outstanding at December 31, 1995 and 1994,            
  respectively                                           10,913         9,745

Additional paid-in capital                            6,210,962     3,792,121
Common stock to be issued, 1,131,113 and 504,178
  shares at December 31, 1995 and 1994,           
  respectively                                        5,979,026     3,025,615
Unearned remuneration                                (3,314,800)   (3,025,615)
Retained earnings                                    (1,556,770)      (23,528)
                                                     ----------       ------- 
Total stockholders' equity                            7,332,331     3,781,338
                                                     ----------       ------- 
Total liabilities and stockholders' equity          $11,832,562    $6,991,257
                                                    ===========    ==========
                                                  

SEE ACCOMPANYING NOTES.

</TABLE>


                                       64
<PAGE>


<TABLE>
<CAPTION>

                              Medical Asset Management, Inc. and Subsidiaries

                                   Consolidated Statements of Operations


                                                      YEAR ENDED DECEMBER 31
                                                       1995           1994
                                                   -----------------------------
                                                            (RESTATED)
<S>                                                 <C>            <C>    
                                                         

Net revenue                                         $6,400,235     $2,573,319
                                                    ----------     ----------
Operating expenses:
  Clinic salaries, and benefits                      3,041,648        860,847
  Other clinic costs                                 2,136,745        528,922
  Consulting fees                                      200,864              -
  Depreciation and amortization                        373,797        149,303
                                                       -------        -------
                                                 
Total operating expenses                             5,753,054      1,539,072
                                                     ---------      ---------
                                                       647,181      1,034,247

General and administrative expenses                  1,840,991      1,283,068
                                                     ---------      ---------
                                                    (1,193,810)      (248,821)
Other income (expense):
  Interest income                                            -          3,000
  Interest expense                                    (291,657)       (25,240)
  Other (net)                                            2,880        169,630
                                                      ---------      ---------
Total other income (expense)                          (288,777)       147,390
                                                      ---------      ---------

(Loss) before income taxes                          (1,482,587)      (101,431)
                                                     ---------      ---------

Income tax                                              50,655              -
                                                     ---------      ---------   

Net income (loss)                                  $(1,533,242)   $  (101,431)
                                                    ==========      ========== 

Net (loss) per common share                              $(.15)    $    (.001)
                                                    ==========     ========== 
Weighted average number of shares of common
   outstanding                                      10,376,247      9,168,762
                                                    ==========      =========
                                                   

SEE ACCOMPANYING NOTES.

</TABLE>



                                       65
<PAGE>


<TABLE>
<CAPTION>

                Medical Asset Management, Inc. and Subsidiaries
            Consolidated Statement of Changes in Stockholders' Equity
                                                                                                  
                                  COMMON STOCK               PREFERRED STOCK                      
                                ---------------------------------------------------   PAID-IN    
                                 SHARES       AMOUNT       SHARES      AMOUNT         CAPITAL    
                                ---------------------------------------------------------------------
<S>                             <C>         <C>          <C>             <C>            <C>            
Balance, December 31, 1993      9,133,332   $  9,133     3,000,000       $  3,000       $ 1,397,067
                                                                                       
Issuance of  common                21,400         21            --             --            53,479
   stock                                                                               
Medical practice                                                                       
   transactions:                                                                       
      Stock issued                590,270        591            --             --         2,341,575
   Value of 504,178 shares                                                             
     to be issued                      --         --            --             --                -- 
                                                                                       
   Net income (loss)                   --         --            --             --                -- 
                               -----------------------------------------------------------------------
                                                                                       
Balance, December 31, 1994                                                             
  as restated                   9,745,002   $  9,745     3,000,000       $  3,000       $ 3,792,121
                                                                                       
Issuance of common stock          189,000        189            --             --           386,661
                                                                                        
Medical practice                                                                       
   transactions:                                                                       
   Stock issued                   418,861        419            --             --         1,082,467
      Value of 728,468                                                                 
      shares to be  issued             --         --            --             --                -- 
                                                                                       
   Issued shares of                                                                    
      common stock for                                                                 
      fixed assets                142,675        143            --             --           105,546
   Debt and payables                                                                   
      exchanged for                                                                    
      common stock                417,234        417            --             --           828,167
   Capital contributed                 --         --            --         16,000                -- 
   Net income (loss)                   --         --            --             --                -- 
                               -------------------------------------------------------------------------
 Balance, December 31, 1995    10,912,772   $ 10,913     3,000,000       $  3,000       $ 6,210,962
                               =========================================================================            
                                                                                         
                                                                                         
================                                                                           
TABLE CONTINUED                                                                            
================                                                                

                                      COMMON                                                  
                                       STOCK          UNEARNED           RETAINED                    
                                   TO BE ISSUED     REMUNERATION         EARNINGS         TOTAL    

                                   ---------------------------------------------------------------------- 
<S>                                <C>                <C>                 <C>                 <C>    
Balance, December 31, 1993         $        --        $        --         $    77,903         $ 1,487,103        
                                                                                            
Issuance of common stock                    --                 --                  --              53,500
                                                                                            
Medical practice                                                                            
   transactions:                                                                            
      Stock issued                          --                 --                  --           2,342,166
   Value of 504,178 shares                                                                  
     to be issued                    3,025,615         (3,025,615)                 --                  --
                                                                                            
   Net income (loss)                        --                 --            (101,431)           (101,431)
-----------------------------------------------------------------------------------------------------------
                                                                                            
Balance, December 31, 1994                                                                  
  as restated                      $ 3,025,615        $(3,025,615)        $   (23,528)        $ 3,781,338
                                                                                            
Issuance of common  stock                   --                 --                  --             386,850
                                                                                            
Medical practice                                                                            
   transactions:                                                                            
   Stock issued                             --                 --                  --           1,082,886
      Value of 728,468                                                                      
      shares to be  issued           2,953,411           (289,157)                 --           2,664,226
                                                                                            
   Issued shares of                                                                         
      common stock for                                                                      
      fixed assets                          --                 --                  --             105,689
   Debt and payables                                                                        
      exchanged for                                                                         
      common stock                          --                 --                  --             828,584
   Capital contributed                      --                 --              16,000       
   Net income (loss)                        --                 --          (1,533,242)         (1,553,242)
----------------------------------------------------------------------------------------------------------
 Balance, December 31, 1995        $ 5,979,026        $(3,314,800)        $(1,556,770)        $ 7,332,331
==========================================================================================================
SEE ACCOMPANYING NOTES.
                                                                        
</TABLE>



                                       66
<PAGE>

                 Medical Asset Management, Inc. and Subsidiaries

                    Consolidated Statements OF cASH fLOWS

<TABLE>
<CAPTION>

                                                      YEAR ENDED DECEMBER 31
                                                       1995           1994
                                                   -----------------------------
                                                           (RESTATED)
<S>                                                <C>            <C>  
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)                                  $(1,533,242)   $  (101,431)
Adjustments to reconcile net income to net
  cash used in operating activities:
   Depreciation and amortization                       373,797        149,303
   Deferred taxes                                       50,655              -
   Changes in operating assets and
     liabilities, net of effects of
     acquisitions:
     Accounts receivable                              (996,301)    (1,781,777)
     Affiliated physician fee receivable               (62,289)       (48,599)
     Other current assets                              128,339         40,500
     Accounts payable and accruals                     171,217        679,216
     Other assets                                       (4,131)             -
                                                        ------       --------        
                                               
Net cash provided by (used in) operating            
 activities                                          (1,871,955)    (1,062,788)
                                                     ----------     ---------- 
                                                   
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of intangibles                             (86,400)             -
Net cash used to fund acquisitions                      (5,316)       (98,477)
Acquisition of property and equipment                 (199,392)        (7,969)
                                                      --------         ------ 
Net cash used in investing activities                 (291,108)      (106,446)
                                                      --------       -------- 

CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from debt issuances                           623,027      1,567,980
Repayment of long-term debt                           (415,701)      (493,061)
Issuance of convertible debt                           808,905              -
Proceeds from issuances of common stock              1,230,828         53,500
                                                     ---------         ------
Net cash (used in) provided by financing           
activities                                           2,247,059      1,128,419
                                                      ---------      ---------
 
Net increase (decrease) in cash                         83,996        (40,815)
Cash, beginning of year                                 50,382         91,197
                                                        ------         ------
Cash, end of year                                     $134,378    $    50,382
                                                      ========    ===========
                                              

                             SEE ACCOMPANYING NOTES.
</TABLE>



                                       67
<PAGE>


                 Medical Asset Management, Inc. and Subsidiaries

                   Notes to Consolidated Financial Statements

                                DECEMBER 31, 1995

1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Medical Asset Management,  Inc. (Company), a Delaware corporation, is engaged in
the business of meeting the several  urgent needs of practicing  physicians  and
exploiting  emerging  opportunities in the practice of medicine through business
management  services.  Its management services involve the acquisition of assets
of medical practices,  which it enhances by increasing  patient  collections and
lowering  costs  through  its  management  and  marketing  expertise  and volume
purchasing  power.  At December 31, 1995,  Medical  Asset  Management,  Inc. has
management service agreements with 20 physician practices in four states.

In August 1994,  the Company  acquired 100% of the  outstanding  common stock of
Medical Asset Management,  Inc. (MAM) in exchange for 6,960,000 shares of common
stock of the  Company  along  with the  right to issue  3,000,000  shares of the
Company's Class A Preferred Stock in exchange for the 1,176,581  shares of MAM's
Class A Preferred Stock and the 133,000 shares of MAM's Class B Preferred Stock.
This  transaction  was  recorded  as a  recapitalization  of MAM with MAM as the
acquirer for accounting purposes (reverse acquisition).  As such, no revaluation
of net assets acquired was recorded.

Subsequent to this acquisition and pursuant to the approval of a majority of the
Company's  common  stockholders,  the  Company  changed its name from Eagle High
Enterprises, Inc. to Medical Asset Management, Inc.

The following is a summary of the Company's significant accounting policies:

PRINCIPLES OF CONSOLIDATION

The  consolidated  financial  statements  include the accounts of Medical  Asset
Management,  Inc.,  its wholly owned  subsidiaries,  Medical Asset  Corporation,
Inc., and Healthcare Professional Management, Inc. (together "the Company"). All
significant   intercompany   balances  and   transactions   are   eliminated  in
consolidation.

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 in the financial  statements and accompanying  notes. Actual
results could differ from those estimates.



                                       68
<PAGE>


1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

RESTATEMENT

During  1996,  management  restated  the prior years  financial  statements  for
certain  corrections of accounting  principles and misapplications of facts that
existed at the time the 1995 financial  statements were prepared.  The aggregate
amount  of  the  restatement  resulted  in a  reduction  in  earnings  from  the
previously  reported net income for the year ended December 31, 1995 of $577,913
to a net loss of $1,533,242. The following schedule summarizes the effect on net
income (loss), net income (loss) per share and stockholders'  equity as a result
of restating  the  companies  1995  financial  statements  from that  previously
reported in November 1996.


<TABLE>
<CAPTION>

                                                     NET INCOME
                                        NET INCOME   (LOSS) PER   STOCKHOLDERS'
                                          (LOSS)        SHARE        EQUITY
                                        ---------------------------------------
<S>                                     <C>           <C>         <C>  

1995:
  As previously reported                $   577,913   $.05         $6,657,582
  Adjustment                            (2,111,155)   $(.20)          674,749
  As restated                           (1,533,242)   $(.15)        7,332,331
                                                   
</TABLE>


                                       69
<PAGE>

1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

PROPERTY AND EQUIPMENT

Property  and  equipment  is  stated  at  cost,   and   depreciated   using  the
straight-line  method over the  estimated  useful  lives of the  assets,  or the
underlying leases. Estimated useful lives range from 3 to 5 years for equipment,
3 to 7 years for  leasehold  improvement  and 15 to 25 years for  buildings  and
improvements based upon the type and condition of assets.  Maintenance,  repairs
and minor renewals are charged to operations as incurred.  Major replacements or
betterments are capitalized.  When properties are retired or otherwise disposed,
the related cost and accumulated depreciation are eliminated from the respective
accounts and any gain or loss on disposition is reflected as income or expense.

INTANGIBLE ASSETS

   MANAGEMENT SERVICE AGREEMENTS

Management Service Agreements consist of the Company's exclusive right to manage
the business  side of a physician or physician  group's  practice over a 25-year
period.  These costs are  amortized  on a  straight-line  basis over the initial
25-year (or less) terms of the related  management  service  agreements.  In the
event of termination of a service agreement,  the related physician or physician
group is required to purchase all clinic assets,  including  intangible  assets,
generally at then current book value.

   FRANCHISE FEES

Franchise fees are agreements with certain related  parties.  Franchise fees are
amortized using the straight-line method over 25 years.

   AMORTIZATION AND RECOVERY

The Company periodically reviews its intangible assets to assess  recoverability
and  impairments  would  be  recognized  in the  statement  of  operations  if a
permanent  impairment  were  determined  to  have  occurred.  Recoverability  of
intangibles is determined based on undiscounted future operating cash flows from
the related business unit or activity. The amount of the impairment,  if any, is
measured based on discounted  future  operating cash flows using a discount rate
reflecting  the  Company's   average  cost  of  funds.  The  assessment  of  the
recoverability  of  intangible  assets  will be  impacted  if  estimated  future
operating cash flows are not achieved.

                                       70
<PAGE>


1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

COMMON STOCK TO BE ISSUED

As part of entering into long-term  management  services agreements with medical
practices  as  described  in  Note  2,  the  Company  has  made   nonforfeitable
commitments  to issue shares of common  stock at  specified  future dates for no
further  consideration.  Common  stock  to be  issued  is  shown  as a  separate
component of shareholders' equity and the amounts,  upon issuance of the shares,
will be reclassified to par value and additional paid-in capital.  Additionally,
contingent  shares to be issued as remuneration  related to services  provded by
physicians for acquisitions in 1994 (Note 14) are included in common stock to be
issued.  Unearned renumeration related to the contingent stock has been recorded
as a separate  component of equity equal to the  estimated  fair market value of
the stock on the  effective  date of the  acquisition.  Renumeration  expense is
recorded at the  estimated  fair value of the stock on the date the  performance
criteria  are met.  Upon  issuance  of the  contingent  shares,  their  value is
reclassified to par value and additional paid-in-capital.

REVENUE RECOGNITION

The Company's revenues are the estimated realizable amounts earned from billings
to  patients,  third-party  payors  and  others  for  services  rendered  at the
company's affiliated clinics and practices,  reduced by contractual  adjustments
and the contractual  allocation of revenues to the medical  provider-owner(s) of
the clinics and  practices.  Contractual  adjustments  arise due to the terms of
certain  reimbursement and managed care contracts.  These adjustments  represent
the difference  between charges at established  rates and estimated  recoverable
amounts  and are  recognized  in the  period  the  services  are  rendered.  Any
differences   between  estimated   contractual   adjustments  and  actual  final
settlements   under   reimbursement   contracts  are  reported  as   contractual
adjustments in the year final settlements are determined.

INCOME TAXES

Income  taxes are  provided  for using the  liability  method of  accounting  in
accordance with Statement of Financial  Accounting Standards No. 109 (SFAS 109),
"Accounting  for  Income  Taxes."   Deferred  tax  assets  and  liabilities  are
recognized for future tax consequences  attributable to differences  between the
financial  statement  carrying  amounts of existing  assets and  liabilities and
their respective tax basis.

NET LOSS PER SHARE

The computation of fully diluted net loss per share was  antidilutive in each of
the periods  presented.  Net income (loss) per share is computed  based upon the
weighted  average  number  of  shares of common  stock  outstanding  during  the
periods. Common share equivalents consisting


                                       71
<PAGE>

1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

NET INCOME PER SHARE (CONTINUED)

of  convertible  preferred  stock,  all  commitments  to issue  common  stock at
specified future dates based upon the mere passage of time and contingent shares
for which conditions for their issuance are currently being met are not included
in the primary per share calculation because the effect would be antidilutive.

IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS

The Company will adopt the Statement of Financial  Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be  Disposed  Of,"  during  the first  quarter  of 1996.  The  adoption  of this
Statement is not expected to have a material  effect on the Company's  financial
position or results of operations.

In October 1995, the Financial  Accounting  Standards Board issued  Statement of
Financial   Accounting   Standards   No.  123,   "Accounting   for   Stock-Based
Compensation" (SFAS No. 123). SFAS No. 123 establishes  financial accounting and
reporting  standards for stock-based  compensation plans and for transactions in
which an entity issues its equity instruments to acquire goods and services from
nonemployees.  The new  accounting  standards  prescribed  by SFAS  No.  123 are
optional,  and the Company is permitted to account for its stock  incentive  and
stock purchase plans under previously issued accounting  standards.  The Company
does not expect to adopt the new accounting standard; consequently, SFAS No. 123
will not have an impact on the Company's results of operations.

2.  ACQUISITIONS

On December 29, 1995, the Company  exchanged  433,332 shares of its common stock
valued at  $1,168,288  for 100% of the  outstanding  common stock of  Healthcare
Professional Management, Inc. The Company has recorded the transaction under the
Pooling of Interest Method for Business Combinations.


                                       72
<PAGE>

2.  ACQUISITIONS (CONTINUED)

The following  represents  the results of operations of Healthcare  Professional
Management,  Inc.  for the  years  ended  December  31,  1995 and 1994  that are
included in the combined net income of the Company.

<TABLE>
<CAPTION>
                                                       1995          1994
                                                   ---------------------------
<S>                                                <C>           <C>       
Revenues                                           $1,090,304    $1,124,978
Net (loss) income                                     (17,270)       40,809

</TABLE>

In addition to the Healthcare Professional  Management,  Inc. transaction,  from
January 1, 1994 through  December 31, 1995,  the Company  entered into long-term
management service agreements with 18 medical groups.

These agreements  provided for the Company to acquire all the non medical assets
and properties  which the  physician's own in connection with the conduct of the
physicians  medical  practice.  The assets  included  (i) all of the  physicians
accounts  receivable as reflected on the  physicians  books and records,  on the
effective  date of the  agreement  and at all  times  during  the  terms  of the
agreement,  all  accounts  receivable  acquired are  reflected on the  Company's
balance  sheet  with  a  corresponding  allowance  account  for  those  accounts
considered possibly  uncollectible,  (ii) all administrative (i.e.,  nonmedical)
aspects of every kind and character pertaining to the running of the Clinic, and
(iii) all other assets as described in the agreement.  Total  consideration paid
for the medical groups to enter into long-term management service agreements and
for the nonmedical  assets described above includes cash, the issuance of common
stock, the estimated value of nonforfeitable commitments by the Company to issue
common stock at future dates for no additional  consideration and short-term and
subordinated  notes.  The Company has recorded the business  acquisition  at the
fair market value of the assets  acquired  (purchase).  The  purchase  price was
allocated based upon their fair market value at the date of the agreement.

The  Company  has legal  title to patient  accounts  receivable,  and  therefore
recognizes these amounts in the financial statements.  The Company is liable for
certain  operating  expenses of the  practices,  and  therefore  records them as
operating  expenses.  Under these agreements the Company is to receive a minimum
management fee of 10% up to a maximum of thirty percent (30%) of net billings of
the practice as a management fee. The Company records the management fees earned
as net revenues and the related  management fee  receivable.  Additionally,  the
Company  records a  receivable  for funds  advanced to practices to pay practice
operating  expenses  under  the  terms of the  Management  Services  Agreements.
Management  of  the  Company  evaluates  collectibility  of the  management  fee
receivable  on an ongoing  basis and records  collectibility  reserves if deemed
necessary.  The Company is also  obligated  to pay a stipulated  percentage,  if
available after collection of minimum management fees, of



                                       73
<PAGE>

 2.    ACQUISITIONS (CONTINUED)

net  billings to the  physicians,  and records  such  amounts as a reduction  of
revenues on its statements of operations with corresponding  liability in due to
physician  groups.  At  December  31,  1995,  advances to and  receivables  from
physician  groups  exceeded  amounts related to the liability for the physicians
portion of the uncollected net billings.

The Company  offers  affiliated  physicians who enter into an Asset Purchase and
Management  Agreement with the Company the option to repurchase  tangible assets
and an option to repurchase the Management  Agreement with the medical practice,
acquired  by the  Company.  During the first four years of each  agreement,  the
repurchase of tangible assets requires the return of all  consideration  paid by
the Company, a mandatory repurchase of the Management  Agreement,  and repayment
to the Company of all money invested or advanced to the practice. The repurchase
of the Management Agreement requires the return of all consideration paid by the
Company  for the  acquisition  of the  Management  Agreement.  In the event of a
repurchase,  the medical  practice  forfeits all  management  fees earned by the
Company as of the date of the repurchase. The accounts receivable of the medical
practice are owned or assigned to the company as of the date of the  repurchase.
In the event of a  repurchase,  the practice is not bound by any covenant not to
compete.

After the  first  four  years of each  agreement,  a  termination  provision  is
offered.  The termination  provision  requires the Practice to pay the Company a
negotiated  amount of cash for  liquidated  damages,  or  obligates  the medical
providers to abide by a covenant not to compete.

During  1995,  the Company  acquired  the  nonmedical  assets and  entered  into
long-term management service agreements with seven medical clinics.





                                       74
<PAGE>


2.  ACQUISITIONS (CONTINUED)

During  1994,  the Company  acquired  the  nonmedical  assets and  entered  into
long-term management service agreements with 8 medical clinics.

Total acquisition transaction consideration is comprised of the following:

<TABLE>
<CAPTION>
                                                          DECEMBER 31
                                                       1995          1994
                                                   ---------      ---------
<S>                                               <C>            <C>  
Cash and transaction costs                         $    5,316    $   98,477
Short-term and subordinated notes                     446,311            -0-
Common  stock  issued  and to be              
  issued (at fair value)                            3,763,690       696,538
Liabilities assumed
                                                    ---------       --------
Total costs                                       $4,215,317       $795,015
                                                   ==========       ========
</TABLE>

The shares of common stock to be issued at specified future dates were valued at
the average market value during the  preceeding 90 day period.  The common stock
in all of the  transactions  is  delivered  20% at  closing  and 20% each on the
first, second, third, and fourth anniversaries.

For transactions  completed through December 31, 1995, the scheduled issuance of
shares of common  stock that the  Company  is  committed  to  deliver  after the
passage of time are  307,942  in 1996,  307,942  in 1997,  307,942 in 1998,  and
207,287 in 1999. The accompanying  financial  statements  include the results of
operations derived from the management services agreements from their respective
effective  dates.  The following  unaudited pro forma  information  presents the
results of operations of the Company for the year ended  December 31, 1994 as if
the 1995 and 1994  transactions  had been consummated on January 1, 1994 and for
the year ended

















                                       75
<PAGE>




2.  ACQUISITIONS (CONTINUED)

December 31, 1995 as if the 1995  transactions  were  consummated  on January 1,
1995. Such information is based on the historical  financial  information of the
medical  groups and does not include  operational  or other  changes which might
have been  affected  pursuant  to the  Company's  management  of the  nonmedical
aspects of such groups.

The pro forma information  presented below is for illustrative  information only
and is not  necessarily  indicative of results which would have been achieved or
results  which may be  achieved  in the future (in  thousands,  except per share
amounts):


<TABLE>
<CAPTION>

                                                          PRO FORMA (UNAUDITED)
                                                          YEAR ENDED DECEMBER 31

                                                             1995          1994
                                                             ----          ----
<S>                                                         <C>           <C>  
Revenue                                                     8,880         7,993
Net income                                                  (354)           430
Net income per share                                        (.03)           .05

</TABLE>

3. ACCOUNTS RECEIVABLE

The Company has  established  an  allowance  for  doubtful  accounts  based upon
anticipated  actual collections as determined by management in an amount between
10% and 20% of the gross accounts receivable balance.
Management feels that this amount is reasonable.

4. PROPERTY AND EQUIPMENT

Property and equipment is summarized as follows:

<TABLE>
<CAPTION>

                                                          1995         1994
                                                        ---------    ---------
<S>                                                      <C>         <C>      
Furniture and equipment                                  $671,752    $ 761,298
Less accumulated depreciation                            (173,462)    (325,880)
                                                         --------     --------
Property and equipment, net                              $498,290    $ 435,418
                                                         ========    =========
</TABLE>


Depreciation expense for the years ended December 31, 1995 and 1994 was $148,050
and $65,814, respectively.




                                       76
<PAGE>


5. DEBT

RELATED PARTY DEBT

Related  party debt at  December  31,  1995 and 1994  consists  of demand  notes
payable, including interest, at 8% to certain officers of the Company.



LONG-TERM DEBT

Long-term debt consists of the following:

<TABLE>
<CAPTION>

                                                          1995         1994
                                                      --------------------------
<S>                                                     <C>          <C>  

Notes payable to various  individuals  in  
  conjunction  with asset  acquisition,
  collateralized with accounts  receivable, 
  interest payable at 10%, matures at  various
  dates in 1996 and 1997, all unpaid principal         
  and accrued interest are due at due date               $391,606    $  163,806

Note payable to an individual, collateralized
  by accounts receivable,  interest payable
  at 10%,  principal  and interest  payable
  at $45,000  monthly  through December 1996.
  During 1995 the note was eliminated as a result
  of a re-valuation of accounts receivable                       
   purchased with the note.                                     -     1,540,236

Notes payable, interest payable at 12%, principal
  and any accrued interest due on demand. Notes may
  be converted into 338,494 shares of the Company's             -       550,000
  common stock in 1995.
                                                           37,898            -
Other

Capital lease obligations                                 175,241        29,245
                                                          -------        ------
                                                          604,745       989,891
Less current portion                                       21,898       982,759
                                                           ------       -------
                                                        $ 582,847        $7,132
                                                        =========        ======
                                                      
</TABLE>



                                       77
<PAGE>


5. DEBT (CONTINUED)

LONG-TERM DEBT (CONTINUED)

Future principal maturities, including capital lease obligations, as of December
31, 1995 is as follows:

<TABLE>
<CAPTION>

DECEMBER 31

   <S>                                                              <C>      
   1996                                                             $  21,898
   1997                                                               526,963
   1998                                                                16,602
   1999                                                                18,788
   2000                                                                20,494
                                                                    =========
                                                                     $604,745
                                                                    =========
</TABLE>

6. CONVERTIBLE SUBORDINATED DEBT

During 1995, the Company issued $762,000 of 12% Series B Convertible  Redeemable
Secured Subordinated  Debentures.  Interest payable semiannually,  principal and
any unpaid  interest due April 28, 2000. Upon maturity the holder shall have the
right of option, but not the obligation, to convert all or part of the debt into
fully paid shares of the Company's common stock at the conversion price of $5.00
per share.
Principal and accrued interest at December 31, 1995 was $808,095.

7. REVENUE

The  following  presents  the  amounts  included  in  the  determination  of the
Company's revenues (in thousands):

<TABLE>
<CAPTION>

                                                       YEAR ENDED DECEMBER 31
                                                          1995         1994
                                                      --------------------------
<S>                                                      <C>           <C>   
Medical service revenue, net                             $10,729       $3,784
Amounts retained by medical groups                         4,329        1,133
                                                      --------------------------
                                                        $  6,400       $2,651
                                                      ==========================

Medical service agreements at year-end                        18           12

</TABLE>


The Company's  management  services  agreements  with the practices  specify the
percentage of the net collected revenues to be paid to the affiliated physicians
and the percentage to be received by the Company. The net revenue distributed to
the physician pays for professional expenses,




                                       78
<PAGE>




7. REVENUE (CONTINUED)

such  as  physicians'  and  nurse  practitioners'   salaries  and  benefits  and
professional  malpractice  insurance.  The net revenue  amounts  received by the
Company  are  applied to pay the  Company's  management  fee and the  practice's
business  expenses,  such as salaries and benefits for receptionists and medical
secretaries,  billing and collection  expenses,  office supplies,  real property
lease  payments,  property  insurance  expenses  and an  integrated  information
system.  If,  after  business  costs are  covered,  the  collected  revenues  is
insufficient  to pay the Company  its minimum  guaranteed  management  fee,  the
Company is  authorized  to reduce the amount of revenue  paid to the  affiliated
physicians to the extent necessary to pay the minimum guaranteed management fee.
On average,  since 1994 the Company has earned management fees of between 5% and
10% of annual medical service revenues.

The range of net  billing  percentage  that the Company is  obligated  to pay to
physicians pursuant to their consulting arrangements is 33%-38%.

For the years ended  December  31, 1995 and 1994,  the  medical  groups  derived
approximately  35%  and 30% of  their  medical  service  revenue  from  services
provided under Medicare and Medicaid  programs and 30% and 30% from  contractual
fee-for-service  arrangements  with numerous  payors and managed care  programs,
none of which individually  aggregated more than 10% of medical service revenue.
The remaining 40% was derived from various  fee-for-service  payors.  Capitation
revenues  were less than 20% of total  revenue in 1995.  Changes in the  medical
group's payor mix can affect the Company's revenue.

Accounts  receivable   principally   represent  receivables  from  patients  and
third-parties for medical services provided by a physician groups.  Such amounts
are recorded net of  contractual  allowances  and estimated bad debts.  Accounts
receivable  are a function of net  physician  practice  revenue  rather than net
revenue  of the  company.  Receivables  from the  Medicare  and  State  Medicaid
programs are considered to have minimal credit risk and no other payor comprised
more than 10% of accounts receivable at December 31, 1995.








                                       79
<PAGE>



8. INCOME TAXES

Significant components of the provision for income taxes are as follows:


<TABLE>
<CAPTION>
                                                          1995         1994
                                                     --------------------------
<S>                                                   <C>              <C>  
Current:
 Federal                                              $     -          $     -
 State                                                      -                -
                                                                             -
                                                     --------          --------
Total current                                               -          $     -
                                                     ========          ========

</TABLE>

The components of the net deferred tax asset and liability at December 31 are
as follows:

<TABLE>
<CAPTION>
                                                      1995           1994
                                                     -----------------------
<S>                                                   <C>             <C>  
Deferred tax assets:
      Receivables                                     $    631,000          -
      Federal net operating losses                       1,150,000          -
      State net operating losses                           202,000          -
                                                         ---------    -------
                                                         1,983,000          -
      Valuation allowance                                 (977,000)         -
                                                         ---------    -------
Total deferred tax assets                                1,006,000          -

Deferred tax liabilities:
      Method of accounting                                 968,000          -
      Property , plant, and equipment                       38,000          -
      Intangibles                                        1,092,000          -
                                                        ----------   --------
Total deferred tax liabilities                           2,098,000          -                                              
                                                         =========   ======== 

</TABLE>


                                       80
<PAGE>


9. COMMITMENTS AND CONTINGENCIES

The Company  leases office  facilities  under  operating  leases which expire at
various dates through the year 2005.  The  accompanying  statement of operations
includes  expenses from  operating  leases of $971,890 and $239,089 for 1995 and
1994,  respectively.  Future  minimum lease  payments,  due under  noncancelable
operating leases as of December 31, 1995 are as follows:

<TABLE>
<CAPTION>

     <S>                                                         <C>        
     1996                                                         $   931,600
     1997                                                             601,056
     1998                                                             601,056
     1999                                                             414,566
     2000                                                             383,352
     2001                                                             148,632
     2002                                                             148,632
     2003                                                              56,460
     2004                                                              56,460
     2005                                                              56,460
                                                                 ============
                                                                   $3,398,274
                                                                 ============
</TABLE>

The Company is subject to legal  proceedings  and claims arising in the ordinary
course of its  business.  In the opinion of  management,  the amount of ultimate
liability with respect to these actions will not materially affect the financial
position or results of operations of the Company.

10. FAIR VALUE OF FINANCIAL INSTRUMENTS

The Company's financial  instruments consist of accounts receivable,  management
fee  receivable,  accounts  payable,  related party debt and long-term debt, and
convertible  subordinated  debt.  At December 31, 1995 and 1994,  fair values of
these instruments approximates carrying value.






                                       81
<PAGE>


11. SUPPLEMENTAL CASH FLOW INFORMATION

Supplemental  disclosures of cash flow  information for the years ended December
31, 1995 and 1994 are summarized as follows:

<TABLE>
<CAPTION>

                                                          1995          1994
                                                       -------------------------
<S>                                                    <C>           <C> 
Cash paid for interest and income taxes:
  Interest                                            $   291,657    $  25,240

Noncash investing and financing activities:
  Assets acquired by capital lease                         86,000           --
  Assets acquired with stock issuance,
    assumption of debt and other liabilities            4,348,751      296,754
  Stock issued for debt                                   828,584           --

</TABLE>


12. EQUITY

In June 1994, the Company's  shareholders approved proposals to cancel 2,000,000
shares of  common  stock  and  effect a  1-for-3.5  reverse  stock  split of the
Company's common stock. The effect of the reverse split was to convert three and
one half (3.5) shares of common stock into one (1) share of common stock.

The Company's  preferred shares (1) carry no voting rights; (2) may be converted
into common shares on a one-to-one  basis subject to the limitation that no more
than 25% may be converted  into common shares in any one year and at no time may
the holders of the Class A preferred  hold  directly or  indirectly  4.9% of the
common shares  outstanding;  (3) the shares carry no dividend  right,  except an
amount equal to, on a per share basis,  amounts  declared  paid or set aside for
common stock, and (4) the shares have no redemption  rights. In order to conform
the Company's  Certificate  of  Incorporation  to reflect the 1994  agreement to
issue the shares of class A preferred  stock, on September 19, 1997, the Company
filed a  description  of terms  with  respect  to  2,250,000  shares  of class A
preferred stock which was outstanding on that date.

During 1996,  it was  determined  that certain  historical  stock records of the
Company were inaccurate or incomplete.  Management  believes that any inaccuracy
will not have a material impact on shares outstanding at December 31, 1995.





                                       82
<PAGE>

13. SUBSEQUENT EVENTS

On December  31, 1995 the Company  entered into an Clinic  Management  Agreement
with OB-GYN Associates.  On April 1, 1996 (the effective date of the acquisition
for accounting  purposes) the Company  entered into an Asset Purchase  Agreement
with OB-GYN Associates.  In May 1996 Management Agreement and the Asset Purchase
Agreement was finalized with the Company agreeing to issue 730,000 shares of its
common  stock,  valued at $2,920,000  and paying  $1,606,202 in cash for a total
acquisition  price of  $4,526,202.  As of May 31,  1996 the  Company  has issued
146,000  shares of its common stock as part of this  acquisition.  The remaining
584,000  shares are to be issued at 146,000  shares each December  through 1999.
The 25 year management agreement provides for a contractual allocation to OB-GYN
Associates  of 54% of net  collected  revenues.  If,  after  business  costs are
covered the  collected  revenue is  insufficient  to pay the Company its minimum
guaranteed  management  fees,  the Company is authorized to reduce the amount of
revenue  payed to  affiliated  physicians  to the  extent  necessary  to pay the
minimum guaranteed fee.

This acquisition has been accounted for as a purchase.  The accounts  receivable
were valued at net collectible value based upon an analysis by the Company.  The
estimated fair value of assets is summarized as follows:

<TABLE>
<CAPTION>

      <S>                                                         <C>       
      Accounts receivable, net                                    $1,011,000
      Property and equipment                                         305,000
      Management service agreement                                 3,036,000
      Excess of cost of acquired assets over fair value              429,000
      Other                                                           50,000
                                                                 -------------
                                                                   4,831,000
      Less value of stock issued and to be issued                  3,025,000
                                                                 =============
      Cash purchase price                                         $1,806,000
                                                                 =============
</TABLE>

For the year ended December 31, 1995 the financial  statements of the Company do
not include any financial results of OB-GYN Associates.

Audited pro forma results of operations for 1995 and unaudited pro forma results
of  operations  for 1994,  assuming the  acquisition  of OB-GYN  Associates  was
consummated January 1, 1994, are as follows:

<TABLE>
<CAPTION>

                                                       1995           1994
                                                  ------------------------------
<S>                                                <C>             <C>       
Net revenue                                        $ 9,462,235     $7,356,377
Net earnings                                        (1,241,277)       254,411
Earnings per share                                        (.12)           .03

</TABLE>




                                       83
<PAGE>


                              Medical Asset Management, Inc. and Subsidiaries

                          Notes to Consolidated Financial Statements (continued)


13. SUBSEQUENT EVENTS (CONTINUED)

Audited pro forma results of operations for 1995 and unaudited pro forma results
of  operations  for 1994,  assuming the  acquisition  of OB-GYN  Associates  was
consummated January 1, 1994, are as follows:

<TABLE>
<CAPTION>

                                                      1995           1994
                                                 ------------------------------
<S>                                                   <C>           <C>       
Net revenue                                           $9462,235     $7,356,377
Net earnings                                         (1,241,277)       254,411
Earnings per share                                         (.12)           .03

</TABLE>


                                       84
<PAGE>



                         INDEPENDENT AUDITORS' REPORT



TO THE BOARD OF DIRECTORS OF
MEDICAL ASSET MANAGEMENT, INC.:


We have audited the  accompanying  balance sheet of OB-GYN  Associates,  P.C. (a
Colorado  corporation)  as of December  31, 1995,  and the related  statement of
operations and retained  earnings 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  consolidated  financial  statements  are free of
material  misstatement.  An audit includes examining,  on a test basis, evidence
supporting  the amounts and  disclosures in the financial  statements.  An audit
also includes assessing the accounting principles used and significant estimates
made by  management,  as well as  evaluating  the  overall  financial  statement
presentation.  We believe  that our audit  provides a  reasonable  basis for our
opinion.

In our opinion,  the financial  statements  referred to above present fairly, in
all material respects,  the financial position of OB-GYN Associates,  P.C. as of
December 31, 1995, and the results of their  operations and their cash flows for
the year then ended in conformity with generally accepted accounting principles.







Harlan & Boettger, CPAs
San Diego, California
September 23, 1996



                                       85
<PAGE>


<TABLE>
<CAPTION>
                             OB-GYN ASSOCIATES, P.C.

                                  BALANCE SHEET

                                DECEMBER 31, 1995

<S>                                                       <C>  
ASSETS

CURRENT ASSETS
   Cash                                                         8,518
   Investment (Note C)                                     $  378,654
   Accounts receivable, trade, net of allowance for
      doubtful accounts of $683,670 (Note A)                1,366,065
   Accounts receivable, other                                 216,072
   Accounts receivable, shareholder                            21,003
   Prepaid expenses and other current assets
                                                              105,668

                   TOTAL CURRENT ASSETS                     2,095,980

PROPERTY AND EQUIPMENT, net (Note B)                          318,749
                                                          -----------
                   TOTAL ASSETS                           $ 2,414,729
                                                          ===========
       LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES
   Accounts payable and accrued expenses                    $ 258,422
   Bank overdraft                                             162,888
   Line of credit - current (Note G)                           35,000
   Capital lease obligations                                   76,669
   Accrued pension contribution payable (Note D)                5,340
   Note payable - current (Note F)                            180,073
   Income taxes payable (Note E)                               95,443
   Deferred income taxes (Notes A and E)                       86,500
                                                               ------
       TOTAL CURRENT LIABILITIES                              900,335

COMMITMENTS (Note H)                                               -

NOTE PAYABLE LESS CURRENT PORTION (Note F)                  1,407,494
                                                            ---------
 TOTAL LIABILITIES                                          2,307,829

STOCKHOLDERS' EQUITY
   Common stock, $1 par value; 50,000 shares
     authorized; 12,500 shares issued and outstanding          12,500
   Additional paid-in-capital                                 524,768
   Stock subscription receivable (Note I)                    (160,098)
   Retained deficit                                          (270,270)

       TOTAL STOCKHOLDERS' EQUITY                             106,900

   TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY             $ 2,414,729
                                                           ===========

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

</TABLE>


                                       86
<PAGE>

                            OB-GYN ASSOCIATES, P.C.

                           STATEMENT OF OPERATIONS

                     FOR THE YEAR ENDED DECEMBER 31, 1995


<TABLE>
<CAPTION>

<S>                                                       <C>  
INCOME
   Professional fees                                       $5,212,881
   Interest income                                             33,207
   Other income                                               319,374
                                                          -----------
       TOTAL INCOME                                         5,565,462

OPERATING EXPENSES
   Payroll and payroll taxes                                2,878,709
   Liability insurance                                        235,293
   Officer's insurance                                         57,077
   General and administrative                                 799,642
   Office expense                                             167,943
   Management fees                                             72,278
   Miscellaneous                                               17,093
   Depreciation                                               126,626
   Pension plan contributions (Note D)                         25,652
   Property tax, dues & subscriptions                          71,987
   Contract labor                                             140,194
   Medical supplies                                           194,465
   Lab fees                                                    48,999
   Consulting                                                  18,450
   Interest expense                                           190,154
   Loss on sale of equipment                                   80,922
   Legal and accounting                                        42,310
                                                             --------

       TOTAL OPERATING EXPENSES                             5,167,794

INCOME BEFORE PROVISION FOR TAXES                             397,668

INCOME TAXES (Notes A and E)                                   95,433
                                                             --------
NET INCOME                                                   $302,235
                                                             ========

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

</TABLE>


                                       87
<PAGE>



                            OB-GYN ASSOCIATES, P.C.

                       STATEMENT OF STOCKHOLDERS' EQUITY

                     FOR THE YEAR ENDED DECEMBER 31, 1995

<TABLE>
<CAPTION>

                                            Additional                  
                          Common              Paid-in      Retained         
                          Shares    Amount    Capital       Deficit    Total           
                          ------    ------    -------       -------    -----           
<S>                      <C>        <C>         <C>       <C>         <C>   
BALANCE, JANUARY 1, 1995  12,500     $ 12,500   $524,768  $(572,505)  $ (35,237)

Stock subscription 
  receivable                  -            -          -          -     (160,098)
                         -------     -------    -------     ------      -------
  
Net income                12,500     $ 12,500   $524,768    302,235     302,235
                         =======     ========   ========    -------     -------

DECEMBER 31, 1995                                          (270,270)  $ 106,900
                                                           =========  =========

</TABLE>


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



                                       88
<PAGE>


                            OB-GYN ASSOCIATES, P.C.

                            STATEMENT OF CASH FLOWS

                     FOR THE YEAR ENDED DECEMBER 31, 1995

<TABLE>
<CAPTION>

<S>                                                         <C>
CASH FLOWS FROM OPERATING ACTIVITIES
   Net loss                                                  $302,235
   Adjustments to reconcile net loss to net cash
     provided by (used in) operating activities:
       Depreciation and amortization                         (274,898)
       Change in assets and liabilities:
         Increase in accounts receivable - trade             (337,314)
         Increase in receivable - other                      (128,747)
         Decrease in shareholder receivable                    71,480
         Increase in prepaid expenses and other               (56,544)
         Decrease in accounts payable and accrued            (176,528)
          expenses
         Increase in bank overdraft                           162,888
         Decrease in deferred compensation                   (140,721)
         Increase in income taxes payable                      17,533
         Decrease in deferred loss on sale of equipment       (16,140)

NET CASH USED IN OPERATING ACTIVITIES                        (576,756)

CASH FLOWS FROM INVESTING ACTIVITIES
   Sale of fixed assets                                       569,315
   Increase in investments                                    (66,996)

NET CASH USED IN INVESTING ACTIVITIES                         502,319

CASH FLOWS FROM FINANCING ACTIVITIES
   Proceeds on line of credit                                  35,000
   Principal payments on capital leases                       (84,747)
   Decrease in notes payable                                  (45,871)
   Principal payments in notes payable - long-term            (17,715)
   Proceeds from common stock receivable                      179,813
                                                              -------

NET CASH PROVIDED BY FINANCING ACTIVITIES                      66,480
                                                               ------

NET (DECREASE) IN CASH                                        (7,957)

CASH, BEGINNING OF YEAR                                        16,475

CASH, END OF YEAR                                          $    8,518
                                                           ==========


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

</TABLE>


                                       89
<PAGE>


                            OB-GYN ASSOCIATES, P.C.

                         NOTES TO FINANCIAL STATEMENTS

                     FOR THE YEAR ENDED DECEMBER 31, 1995


A.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

       ORGANIZATION

       OB-GYN  Associates,  P.C.  (the  Company) was  incorporated  as Stuart O.
       Silverberg,  M.D. and Herbert L. Jacobs, M.D., P.C. under the laws of the
       State of  Colorado  on July 1, 1969.  The  corporate  name was changed to
       OB-GYN  Associates,  P.C.  on January  21,  1971.  The  Company  provides
       neonatal medical services through its three outpatient facilities located
       in the Denver area.

       BASIS OF ACCOUNTING

       The Company's policy is to prepare its financial statements on an accrual
       basis of accounting.  Accordingly,  the accompanying financial statements
       are intended to present the financial position, results of operations and
       cash flows in conformity with generally accepted accounting principles.

       CASH

       For purposes of the  statement of cash flows,  the Company  considers all
       highly liquid debt instruments  purchased with a maturity of three months
       or less and money market funds to be cash equivalents.

       ACCOUNTS RECEIVABLE

       Accounts  receivable are stated at net realizable value. An allowance for
       doubtful  accounts has been  reflected  in the  financial  statements  to
       reduce  accounts  receivable  for managed  care  contracts  and  Medi-Cal
       charges  which the Company has agreed to accept at a discounted  fee. The
       total mandatory adjustments at 1995 are $683,670.

       PROPERTY AND EQUIPMENT

       Property and  equipment are stated at cost.  Depreciation  is provided by
       the straight-line method over their estimated useful lives as follows:

       Leasehold improvements                         5 years (term of lease)
       Furniture and fixtures                         7 years
       Equipment                                      5 - 7 years
       Software                                       3 years

       Upon retirement or disposal of depreciated  assets,  the cost and related
       depreciation  are removed and the resulting  gain or loss is reflected in
       income.  Major renewals and betterments are capitalized while maintenance
       costs and repairs are expensed in the year incurred.


                                       90
<PAGE>


A.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):

       INCOME TAXES

       Deferred tax  liabilities  are  recognized  for the estimated  future tax
       consequences  attributable to differences between the financial statement
       carrying  amounts of existing assets and liabilities and their respective
       tax bases.  Deferred tax liabilities are measured using enacted tax rates
       in effect for the year in which those temporary  differences are expected
       to be settled.  The effect on deferred tax liabilities of a change in tax
       rates is  recognized  in  income in the  period  in which  the  change is
       enacted. Temporary differences related principally to differences between
       the accrual method of accounting  used for financial  statement  purposes
       and the cash method of accounting used for tax purposes.

       CONCENTRATION OF CREDIT RISK

       Substantially all of the Company's accounts  receivables are concentrated
       within the medical  industry,  primarily health  insurance  companies and
       government insurance providers.

B.  PROPERTY AND EQUIPMENT:

       Property and equipment as of December 31, 1995 are summarized as follows:


<TABLE>
<CAPTION>
      <S>                                           <C>  

       Furniture and fixtures                          $    27,106
       Equipment                                           924,170
       Leasehold improvements                              200,147
                                                         1,151,423
       Less:  accumulated depreciation                     832,674
                                                           -------

                                                       $   318,749
                                                       ===========
</TABLE>


C.  INVESTMENT:

       The  Company  maintains  an  investment  in the form of an  annuity  with
       General  Services Life Insurance  Company.  This investment is carried at
       its cash surrender  value,  net of any fees applicable in accordance with
       the  annuity  contract.  At  December  31,  1995 the  annuity  had a cash
       surrender value of $378,654.

D.  ACCRUED PENSION AND PROFIT SHARING EXPENSE:

       The Company maintains a defined contribution profit sharing plan covering
       substantially   all   employees   subject  to  minimum  age  and  service
       requirements.  Contributions  to  the  profit  sharing  plan  are  at the
       discretion  of the Board of Directors.  Total pension and profit  sharing
       expense was $25,652 for the year ended December 31, 1995.

       It is the  policy of the  Company  to fund  accrued  pension  and  profit
       sharing  contributions  prior to the filing of the  corporate  income tax
       returns.


                                       91
<PAGE>


E.  INCOME TAXES:

       As discussed in Note A, the Company  adopted  SFAS 109,  "Accounting  for
       Income  Taxes"  in 1993 and  applied  the  provisions  of this  statement
       retroactively  to  January  1,  1992.  SFAS 109  requires  the use of the
       balance sheet method of accounting for income taxes. Under this method, a
       deferred  tax asset or liability  represents  the tax effect of temporary
       differences  between  financial  statement  and tax bases of  assets  and
       liabilities and is measured using the latest enacted tax rates.

       The  provision  for income taxes for the year ended  December 31, 1995 is
$95,443:

<TABLE>
<CAPTION>

            <S>                                              <C>      
            Current provision                                $  95,443
            Deferred liability                                  86,500
                                                             ---------

                  Net liability                               $181,943
                                                              ========

</TABLE>

F.  NOTES PAYABLE:


<TABLE>
<CAPTION>
           <S>                                                     <C>  
            Note payable to bank bearing  interest
            at the bank's variable  reference rate
            plus  2% (8%  at  December  31,  1995)
            payable  in  monthly  installments  of
            $6,000  plus   interest,   secured  by
            substantially  all the  assets  of the
            Company, matures March 1999                              $1,165,850

            Note payable to bank bearing  interest
            at 6% payable in monthly  installments
            of $5,370 including interest,  secured
            by substantially all the assets of the
            Company, matures January 1996                                 7,629

            Note payable to bank bearing  interest
            at  the  bank's  adjustable  reference
            rate  (10.25% at  December  31,  1995)
            payable  in  monthly  installments  of
            $2,500  plus   interest,   secured  by
            substantially  all the  assets  of the
            Company, matures February 1999                               95,000

            Note payable to bank bearing  interest
            at 8% payable in monthly  installments
            of  $4,000   plus   interest   through
            December  1, 1995 and  $6,000  monthly
            plus interest  thereafter  through the
            maturity date of June 1998, secured by
            substantially  all the  assets  of the
            Company                                                     145,898

            Note payable to bank bearing  interest
            at 8% payable in interest only monthly
            installments    of    $1,000   to   be
            negotiated in 1996.                                         104,833

            Note payable to bank bearing  interest
            at the bank's  reference  rate plus 1%
            (8% at December 31,  1995)  payable in
            monthly   installments  of  $935  plus
            interest, unsecured, matures September
            1998                                                         68,357 
                                                                        -------
                                                 
                                                                      1,587,567

                      Less current portion                              180,073
                                                                       ---------
                                                                     $1,407,494
                                                                     ==========

</TABLE>


                                       92
<PAGE>


G.  LINE OF CREDIT:

       The Company  maintains a line of credit  facility with a bank which bears
       interest  at 8.75%  payable in monthly  interest  only  installments  and
       secured  by  substantially  all the  assets  of the  Company.  The  final
       outstanding  balance is due and payable at the maturity date of September
       1996.

       The following is a schedule of future maturities of the line of credit as
of December 31, 1995:

<TABLE>
<CAPTION>

                  Year Ending
                  December 31,
                  ------------
                   <S>                                <C>    
                   1996                               $35,000
                   Thereafter                               -
                                                      -------
                                                      $35,000
                                                      =======
</TABLE>

H.  COMMITMENTS:

       The  Company  has  entered  into  noncancelable  building  leases for its
       operating facilities.  The agreements call for annual base rents adjusted
       annually for changes in the  consumer  price index as well as common area
       expenses.

       Net  future  minimum  rental  payments  required  under  this lease as of
       December 31, 1995 are as follows:

<TABLE>
<CAPTION>
  
             Years ended
             December 31,
             ------------
               <S>                                    <C>       
                1996                                  $  266,879
                1997                                     173,884
                1998                                     154,810
                1999                                     154,810
                2001                                     161,002
                Thereafter                               341,581
                                                         -------


                                                      $1,252,966
                                                      ==========
</TABLE>

       Total rent expense  charged to operations for the year ended December 31,
       1995 was $387,097.

I.  SUBSCRIPTION RECEIVABLE:

       During the years ended 1994 and 1995, the Company issued stock to certain
       physicians  to join the  Company.  In exchange for their  membership  the
       physicians each individually issued  subscriptions  receivable at varying
       interest  rates and due  dates.  The  balance of these  subscriptions  at
       December  31, 1995 is $160,098.  Accordingly,  the  subscribed  amount is
       reflected  in  the  accompanying   financial  statements  as  a  separate
       component of stockholders' equity.

J.  SUBSEQUENT EVENT:

       On December 30, 1995 the OB-GYN  Associates,  P.C. signed a contract with
       Medical  Asset  Management,  Inc.  Under the terms of the  agreement  the
       Company exchanged the fixed assets and accounts receivables for cash. The
       cash was obligated to be used to pay accounts payable and the St.
       Anthony's note and the Colorado National Lease.

       The cash was  received  and all  related  obligations  settled by May 31,
       1996.




                                       93
<PAGE>


                             OB-GYN Associates, P.C.

                                 Balance Sheets
                                   (Unaudited)
<TABLE>
<CAPTION>
                                                      MARCH 31,   DECEMBER 31,
                                                         1996         1995
                                                     ---------------------------
<S>                                                  <C>             <C>    
ASSETS
Current assets:
Cash                                                  $   118,514   $     8,518
Investment                                                378,654       378,654
Accounts  receivable,  net of allowance for doubtful
accounts of $617,516 and $683,670, respectively         1,571,733     1,603,140
Other assets                                              110,683       105,668
                                                          -------       -------
                                            
                                                        2,179,584     2,095,980
Property, plant, and equipment, net                       278,742       318,749
                                                          -------       -------
Total assets                                           $2,458,326    $2,414,729
                                                       ==========    ==========

LIABILITIES AND STOCKHOLDERS' EQUITY 
Current liabilities:
Accounts payable and accrued expenses                  $  260,433    $  426,650
Current portion of long-term debt and capital leases      257,848       256,742
Income taxes payable                                      121,622        95,443
Deferred income taxes                                      86,500        86,500
Line of credit                                             91,000        35,000
                                                           ------        ------
                                                          817,403       900,335
Long-term debt                                          1,346,495     1,407,494
                                                        ---------     ---------
Total liabilities                                       2,163,898     2,307,829

Stockholders' equity:
Common   stock, $1 par value; 50,000 shares
authorized; 12,500 and 12,500 issued and                  
outstanding, respectively                                  12,500        12,500
    Additional paid-in capital                            505,018       524,768
    Stock subscription receivable                        (140,348)     (160,098)
    Retained earnings (deficit)                           (82,742)     (270,270)
                                                          -------      --------                                                     
Total stockholders' equity                                294,428       106,900
                                                          -------       -------
Total liabilities and stockholders' equity             $2,458,326    $2,414,729
                                                       ==========    ==========
SEE ACCOMPANYING NOTES.

</TABLE>

                                       94
<PAGE>


                             OB-GYN Associates, P.C.

                            Statements of Operations

                                   (Unaudited)


<TABLE>
<CAPTION>

                                                    THREE MONTHS ENDED MARCH 31,
                                                          1996        1995
                                                    ---------------------------
<S>                                                   <C>           <C>       
Net revenue                                           $1,286,002    $1,343,140

Expenses:
    Practice salaries and benefits                       529,186       521,056
    Other practice costs                                 245,945       255,625
    General and administrative                           349,374       506,974
    Depreciation and amortization                         40,005        37,080
    Other (net)                                         (125,252)      (72,435)
                                                       ---------      -------- 
                                                       1,039,258     1,248,300

Net income before income taxes                           246,744        94,840
Provision for income taxes                                59,216        22,762
                                                          ------        ------
Net income                                           $   187,528  $     72,078
                                                     ===========  ============

SEE ACCOMPANYING NOTES.

</TABLE>


                                       95
<PAGE>


<TABLE>
<CAPTION>

                             OB-GYN Associates, P.C.

                            Statements of Cash Flows

                                   (Unaudited)

                                                    THREE MONTHS ENDED MARCH 31,
                                                     --------------------------
                                                       1996         1995
                                                     --------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
<S>                                                      <C>          <C>
Net income                                               $ 187,528    $  72,078
Adjustments  to  reconcile  net  income  to net cash
  provided by operating activities:
    Depreciation and amortization                           40,007       37,080
    Change in assets and liabilities:
      Decrease in accounts receivable--trade                31,407       27,069
      Increase in other current assets                      (5,015)     (19,394)
      (Decrease)  increase in  accounts
         payable and accrued expenses                     (166,217)     151,052
      Increase in income taxes payable                      26,179     (174,422)
                                                         ---------    ---------
Net cash provided by operating activities                  113,889       93,463

CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of property and equipment                         --        (11,369)
Increase in investment                                        --        (25,480)
                                                         ---------    ---------
Net cash used in investing activities                         --        (36,849)
                                                         ---------    ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds on line of credit                                  56,000         --
Principal payments on capital leases                       (16,041)     (25,678)
Decrease in term-debt                                      (43,852)     (45,339)
Proceeds from common stock receivable                         --            625
                                                         ---------    ---------
Net cash used in financing activities                       (3,893)     (70,392)
                                                         ---------    ---------

Net increase (decrease) in cash                            109,996      (13,778)
Cash, beginning of the period                                8,518       16,475
                                                         ---------    ---------
Cash, end of the period                                  $ 118,514    $   2,697
                                                         =========    =========
                                                         
</TABLE>

SEE ACCOMPANYING NOTES.




                                       96
<PAGE>


                             OB-GYN Associates, P.C.

                     Notes to Unaudited Financial Statements

1. INTERIM STATEMENT PRESENTATION

The unaudited financial statements have been prepared by OB-GYN Associates, P.C.
(the  Company)  pursuant  to the rules and  regulations  of the  Securities  and
Exchange  Commission  and  in  accordance  with  generally  accepted  accounting
principles for the  preparation of interim  financial  statements.  Accordingly,
certain  information  and  footnote  disclosures  normally  included  in  annual
financial statements have been omitted or condensed.  It is suggested that these
financial   statements  be  read  in  conjunction  with  the  audited  financial
statements and notes thereto included in this Form 8-K/A.

In the  opinion  of  management,  all  necessary  adjustments  have been made to
present  fairly  OB-GYN  Associates,   P.C.'s  financial  position,  results  of
operations and cash flows.  Such adjustments are of a normal,  recurring nature.
The results of this interim period are not necessarily indicative of results for
the entire year or any other interim period.

2. SUBSCRIPTION RECEIVABLE

During the year ended  December  31, 1995,  the Company  issued stock to certain
physicians to join the Company. In exchange for their membership, the physicians
each individually issued subscriptions  receivable at varying interest rates and
due dates. The balance of these subscriptions at March 31, 1996 and December 31,
1995 is $140,348 and $160,098, respectively.  Accordingly, the subscribed amount
is reflected in the accompanying financial statements as a separate component of
stockholders' equity.

3. SUBSEQUENT EVENTS

On December 30, 1995, the OB-GYN Associates, P.C. signed a contract with Medical
Asset Management,  Inc. (MAM).  Under the terms of the agreement MAM managed the
Company under a short-term  management agreement from December 31, 1995 to April
1, 1996. On April 1, 1996, MAM purchased the accounts  receivable and nonmedical
assets of the Company in addition to entering into a twenty-five year management
agreement for $4,526,206  consisting of cash of $1,606,202 and 730,000 shares of
MAM stock.




                                       97
<PAGE>



                         Medical Asset Management, Inc.

                    Unaudited Pro forma Financial Statements


The unaudited  pro forma  financial  information  presented in the unaudited pro
forma financial  statements is included in order to illustrate the effect on the
Medical Asset Management,  Inc.'s (the "Company" or MAM) financial statements of
the acquisition of OB-GYN Associates, P.C. on April 1, 1996 (the "Acquisition").

The  unaudited pro forma  statements  of  operations  for the three months ended
March 31, 1996 and for the year ended December 31, 1995 present  adjustments for
the Acquisition as if the Acquisition had occurred on January 1, 1995.

In the opinion of management,  all adjustments have been made that are necessary
to present fairly the pro forma data.

The unaudited pro forma financial  statements should be read in conjunction with
the Company's historic consolidated  financial statements and notes thereto, and
the historic  financial  statements and the notes thereto of OB-GYN  Associates,
P.C. The  unaudited  pro forma  statements  of  operations  are not  necessarily
indicative of the results that would have been reported had such events actually
occurred on the date specified,  nor are they indicative of the Company's future
results.




                                       98
<PAGE>

<TABLE>
<CAPTION>

                         Medical Asset Management, Inc.

                   Unaudited Pro forma Statement of Operations

                        Three Months ended March 31, 1996

                                                              PRO FORMA 
                                                             ADJUSTMENTS
                                              OB-GYN          FOR OB-GYN  
                              COMPANY       ASSOCIATES,     ASSOCIATES, P.C.     COMPANY
                            AS RESTATED        P.C.           TRANSACTION       PRO FORMA
                           ----------------------------------------------------------------
<S>                          <C>            <C>               <C>               <C>        
Net revenue                  $ 1,453,060    $ 1,286,002       $  (560,259)(a)   $ 2,178,803

Expenses:
    Practice salaries and
      benefits                 1,192,021        529,186          (321,961)(b)     1,399,246

    Other practice costs              --        245,945           (45,691)(b)       200,254

    General and
     administrative              543,200        349,374           (28,875)(b)       863,699

    Depreciation and
      amortization               138,259         40,005           24,319 (c)        202,583

    Net loss on
      litigation
      settlements and
      clinic terminations        749,000             --                --           749,000

    Other expense
      (income),  net              29,498       (125,252)          (45,588)(b)      (141,342)
                             -----------    -----------       -----------       -----------
                               2,651,978      1,039,258          (417,796)        3,273,440
                             -----------    -----------       -----------       -----------

Net income (loss) before
  income taxes                (1,198,918)       246,744          (142,463)       (1,094,637)

Provision for income taxes        59,216        (59,216)(d)            --
                                            -----------       -----------       -----------

Net income (loss)            $(1,198,918)   $   187,528       $   (83,247)      $(1,094,637)
                             ===========    ===========       ===========       ===========
                                                                       

Weighted average number of
    common stock and
    common stock equivalents
    outstanding:
        Primary                11,065,988                                        11,211,988

Loss per common share:
        Primary                     $0.11                                             $0.10
============================================================================================

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THIS STATEMENT.

</TABLE>


                                       99
<PAGE>


<TABLE>
<CAPTION>

                                       Medical Asset Management, Inc.

                                Unaudited Pro forma Statement of Operations

                                        Year ended December 31, 1995

   
                                                              PRO FORMA 
                                                             ADJUSTMENTS
                                              OB-GYN          FOR OB-GYN  
                              COMPANY       ASSOCIATES,     ASSOCIATES, P.C.     COMPANY
                            AS RESTATED        P.C.           TRANSACTION       PRO FORMA
                           ----------------------------------------------------------------
<S>                          <C>            <C>               <C>               <C>        

Net revenue                  $  6,400,235    $  5,212,881     $(2,293,668) (a)  $  9,319,448

Expenses:
    Practice salaries and
       benefits                 3,041,648       2,961,438      (2,016,454)(b)      3,986,632
    Other practice costs        2,136,745         690,938         (39,752)(b)      2,787,931
    Consulting fees               200,864          18,450              --            219,314
    General and
      administrative            1,840,991       1,099,266        (204,135)(b)      2,736,122
    Depreciation and              373,797         126,626          97,277 (b)        597,700
      amortization
    Other expense
      (income), net               288,777         (81,505)       (156,947)(b)         50,325

                                7,882,822       4,815,213      (2,320,011)        10,378,024
                             ------------    ------------    ------------       ------------


Net income (loss) before
    income taxes               (1,482,587)        397,668         (26,343)        (1,058,576)
Provision for income taxes         50,655          95,433         (95,433)(d)         50,655
                             ------------    ------------    ------------       ------------

Net income (loss)            $ (1,533,242)   $    302,235    $   (121,776)      $ (1,109,231)
                             ============    ============    ============       ============

   
                       

Weighted average number of
    common stock and
    common stock
    equivalents
    outstanding:
    Primary                   10,376,247                                          10,412,747
(Loss) per common share:
    Primary                       $(.43)                                               $(.11)
                                  =====                                                ===== 



THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THIS STATEMENT.

</TABLE>


                                      100
<PAGE>


                                       Medical Asset Management, Inc.

                             Notes to Unaudited Pro forma Financial Statements


(a)   to record contractual  allocation of 54% of net revenues to medical owners
      of OB-GYN  Associates,  P.C.  managed  by the  Company.  This  contractual
      allocation has been reduced by the amount necessary  ($521,288) to pay the
      Company its minimum  guaranteed  management  fee after  business costs are
      covered.  The pro forma  calculation  retained by the Company for the year
      ended December 31, 1996 is as follows:

<TABLE>
<CAPTION>

         <S>                                 <C>       
         OB-GYN Patient Revenue              $5,212,881
         Management Fee Percentage                   10%
                                            -----------
         Management Fee                         521,288
         Amount to cover business 
           side expenses                      2,397,925
        Total amount retained by MAM         $2,919,213

</TABLE>


(b)   to remove  medical side expenses  to be paid by  medical  owners of OB-GYN
      Associates, P.C.

(c)   to  record  amortization  of  acquired  management  contract over 25 years
      straight-line

(d)   to  reverse tax provision related to the operations of the assets acquired





                                      101
<PAGE>




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

      As reported in a Form 8-K filed by the Company on November 22,  1996,  the
Company  appointed  Ernst & Young,  LLP, on November 15, 1996,  as the Company's
independent public accountants to audit the Company's  financial  statements for
the year ended  December  31,  1996.  Harlan & Boettger  audited  the  Company's
financial statements for the years ended December 31, 1995 and 1994.

      The decision to change  independent  accountants  was  recommended  by the
Company's  management  and approved by the Board of  Directors.  The change from
Harlan & Boettger to Ernst & Young, LLP resulted from the rapid expansion of the
Company's  operations  on a  national  basis  and the  Company's  belief  that a
nationally  recognized  accounting  firm with an  expertise in health care would
provide valuable  assistance to the Company.  The report of Harlan & Boettger on
the financial  statements  of the Company for the years ended  December 31, 1995
and 1994, did not contain an adverse opinion or a disclaimer of opinion, nor was
it  qualified  or  modified  as  to  uncertainty,  audit  scope,  or  accounting
principles.  During the years ended  December  31, 1995 and 1994,  there were no
disagreements  with Harlan & Boettger on any matter of accounting  principles or
practices, financial statement disclosure, or auditing scope or procedure, which
disagreements,  if not resolved to the satisfaction of Harlan & Boettger,  would
have caused it to make a reference to the subject matter of the disagreements in
connection with its reports.




                                      102
<PAGE>


PART III

ITEM 9.  DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
         COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT.

      Information concerning the current executive officers and directors of the
Company is set forth in the following table:


       Name                           Age        Position with the Company

       John W. Regan                   48        President and Chairman
                                                 of the Board of Directors

       Dennis Calvert                  33        Senior Vice President
                                                 and Director

       Anthony F. Aulicino             55        Senior Vice President
                                                 and Director

       Clarke Underwood                51        Vice President and Chief
                                                 Financial Officer and Director

       Michael A. Zaic                 40        Vice President and
                                                 Director

       Kent Norton                     45        Vice President

       Gary L. Steib                   46        Treasurer

       J. Joshua Kopelman, M.D.        52        Director


      Mr. Regan has been President and a director of the Company since June 1994
and prior thereto  served as President and a director of Old MAM from 1986 until
June 1994.

      Mr.  Calvert has been Senior Vice  President and a director of the Company
since June 1994 and prior thereto served as Vice President and a director of Old
MAM from 1991 until June 1994.

      Mr.  Aulicino has been Senior Vice President and a director of the Company
since  December and prior thereto  served as the Chief  Executive  Officer and a
director of HPM since 1992.

      Mr.  Underwood has been Vice President and Chief Financial  Officer of the
Company since  September  1996 and prior thereto served as a director of Old MAM
from 1989 to 1994.  Following the Company's  acquisition of Old MAM in 1994, Mr.
Underwood provided consulting services to the Company.


                                      103
<PAGE>

      Mr. Zaic has been a Vice  President  and a director  of the Company  since
June 1994 and prior thereto  served as Vice  President and a director of Old MAM
from 1992 1994.

      Mr.  Norton has been a Vice  President of the Company since 1995 and prior
thereto was engaged in several private businesses and property  development.  He
has  approximately  twenty years experience as a commentator with KSL Television
in Salt Lake City.

      Mr.  Steib has served as Treasurer  of the Company  since June 1997.  From
September 1995 to June 1997 Mr. Steib was Chief Financial Officer of The Italian
Oven,  Inc.,  Vice President of Finance since September 1993 and Treasurer since
February 1992. On October 21, 1996, a voluntary  petition for  bankruptcy  under
Chapter 11 of the United  States  Bankruptcy  Code was filed with respect to The
Italian Oven, Inc. and a sale of substantially all of the assets was approved on
January 17, 1997.  From 1976 until 1991,  Mr.  Steib was  Treasurer of The Lyden
Company in Youngstown, Ohio. Mr. Steib is a certified public accountant.

      Dr. Kopelman,  a director of the Company, is a physician and member of the
OB-GYN  Associates,   P.C.  in  Denver,  Colorado,  the  largest  medical  group
affiliated with the Company.

      The officers  and  directors of the Company are elected to one year terms.
No  director or officer of the Company is an  affiliate  of any other  reporting
company. There are no family relationships between any officers and directors.



                                      104
<PAGE>


      ITEM 10.    EXECUTIVE COMPENSATION.


      The following table provides  information  about the compensation  paid by
the  Company to its Chief  Executive  Officer  and all other  current  executive
officers  who were  serving  as  executive  officers  at the end of 1996 and who
received in excess of $100,000:

<TABLE>
<CAPTION>

                           SUMMARY COMPENSATION TABLE
              
                               ANNUAL COMPENSATION
 
        NAME AND                        
        PRINCIPAL POSITION               YEAR            SALARY
        ------------------               ----            ------
         <S>                             <C>            <C>    
         JOHN W. REGAN, Chairman         1996           $200,000    
         and President of the            1995             96,000
         Company(1)(2)                   1994             72,000
         DENNIS CALVERT, Senior          1996           $107,000
         Vice President (1)(3)           1995             72,000
                                         1994             54,000
         ANTHONY F. AULICINO,            1996           $ 83,598
         Senior Vice President (4)
         CLARKE UNDERWOOD, Chief         1996           $ 28,500
         Financial Officer (5)
                                                     

(1) FOR THE THREE YEARS  BEGINNING  JANUARY 1, 1995,  MESSRS.  REGAN AND CALVERT
WERE  PAID  LESS  THAN  WHAT WAS  PROVIDED  FOR IN THEIR  EMPLOYMENT  AGREEMENTS
DISCUSSED  BELOW.  THESE  EMPLOYEES  HAVE  AGREED TO WAIVE  THEIR  RIGHT TO THIS
ADDITIONAL  COMPENSATION,  EXCEPT  FOR  PURPOSE  OF  CALCULATING  ANY  SEVERANCE
BENEFITS, AS DISCUSSED BELOW.

(2) MR. REGAN'S ANNUAL BASE SALARY FOR 1997 WAS $250,000;  EFFECTIVE NOVEMBER 1,
1997, MR. REGAN AGREED TO A 30% REDUCTION IN HIS BASE SALARY.

(3) MR. CALVERT'S ANNUAL BASE SALARY FOR 1997 WAS $187,500;  EFFECTIVE  NOVEMBER
1, 1997, MR. CALVERT AGREED TO A 30% REDUCTION IN HIS BASE SALARY.

(4) MR.  AULICINO WAS FIRST EMPLOYED BY THE COMPANY AT THE TIME HPM, OF WHICH HE
WAS  PRESIDENT,  WAS ACQUIRED BY THE COMPANY  EFFECTIVE  DECEMBER 31, 1995.  MR.
AULICINO'S ANNUAL BASE SALARY FOR 1997 WAS $187,500; EFFECTIVE NOVEMBER 1, 1997,
MR. AULICINO AGREED TO A 30% REDUCTION IN HIS BASE SALARY.

(5) MR. UNDERWOOD WAS EMPLOYED BY THE COMPANY AS ITS CHIEF FINANCIAL  OFFICER IN
AUGUST 1996; HIS ANNUAL BASE SALARY FOR 1997 WAS $140,625; EFFECTIVE NOVEMBER 1,
1997, MR. UNDERWOOD AGREED TO A 30% REDUCTION IN HIS BASE SALARY.

</TABLE>


      Messrs.  Regan and Calvert  entered into  employment  agreements  with the
Company for three years beginning January 1, 1995. These agreements require that
the employee devote 100% of his time to the business of the Company. In addition
to salary,  the Company has agreed to reimburse each employee for all authorized
actual travel,  promotion and entertainment expenses incurred in connection with
performance  of his duties.  The employee is also entitled to any  employer-paid
benefits  otherwise made  available to employees of the Company.  At the present
time, the Company is not offering any employer-paid  benefits other than medical
insurance.  Employees are entitled to sick leave and paid  holidays  pursuant to
the Company policy.  The 


                                      105
<PAGE>

employment  agreements with these two senior executive  officers provide that if
any of them is terminated  through no cause or fault of his own, the  terminated
officer  will  receive  the balance of the  then-applicable  base  salaries  for
purposes  of  their  severance  benefits  through  the  termination  date of the
employment  agreement.  The base  salaries  for  Messrs.  Regan and  Calvert for
purpose of their severance benefits under their employment  contracts for the 12
months  ended  December  31, 1997,  are  $250,000  and  $187,500,  respectively.
Additional  terms  of  employment  are set  forth in the  respective  employment
agreements, which are included as exhibits to this Form 10-KSB.

      The Company in 1996 adopted a  non-qualified  stock option plan  providing
for the issuance of up to 2,000,000  shares of Common Stock to key employees and
directors.  To date the plan has not been submitted to the  stockholders  and no
options have been granted.


ITEM 11.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

      The  following  table  sets  forth as of  December  31,  1996,  the names,
addresses,  and stock  ownership  in the Company for the current  directors  and
named executive officers of the Company and every person known to the Company to
own 5% or more of the  issued and  outstanding  shares of the  Company's  Common
Stock:


                                      106
<PAGE>

<TABLE>
<CAPTION>
                                                Shares            Percentage    
 Title of     Name and Address of               Beneficially      of      
 Class        Beneficial Owner                  Owned             Class(1) 
 -----        ----------------                  -----             --------  
<S>                                              <C>                 <C>    
 Common       John W. Regan                      4,792,740           32.1   
              Medical Asset Management, Inc.                                    
              4447 E. Broadway, Suite 102                                       
              Mesa, AZ 85206                                                    
                                                                                
 Common       Dennis Calvert                     1,108,457            7.4   
              Medical Asset Management, Inc.                                    
              25241 Paseo de Alicia, Suite                                      
              230                                                               
              Laguna Hills, CA  92653                                           
                                                                                
 Common       Clarke Underwood                    164,035             1.1      
              Medical Asset Management, Inc.                                    
              25241 Paseo de Alicia, Suite                                      
              230                                                               
              Laguna Hills, CA  92653                                           
                                                                            
 Common       Michael A. Zaic                        ---              ---      
              Medical Asset Management, Inc.                                    
              25241 Paseo de Alicia, Suite                                      
              230                                                               
              Laguna Hills, CA  92653                                           
                                                                                
 Common       Anthony F. Aulicino                 137,333              (2)   
              Health Care Professional                                          
              Management, Inc.                                                  
              Four Station Square, Suite 250                                    
              Pittsburgh, PA  15219                                             
                                                                                
 Common       J. Joshua Kopelman, M.D.             19,872              (2)   
              The OB-GYN Associates, PC                                         
              1350 S. Potomac, Suite 330                                        
              Aurora, CO  80012                                                 
                                                                                
 Common       All Officers and Directors         6,222,537            41.6  
              as a Group (eight)                                                
                                                                

(1) Based on the number of shares  outstanding  at December  31,  1996,  without
giving effect to any further conversion of Series A Convertible Preferred Stock,
the future issuance of nonforfeitable  shares to affiliated  physicians pursuant
to existing equity arrangements or the exercise of an outstanding warrant.
(2) Less than 1%.

</TABLE>

In addition,  the Company has issued,  or has committed to issue,  to affiliated
physicians  1,988,071  shares, or 11.7%, of the Company's Common Stock issued or
committed to be issued during the period 1997 to 2000.

      The Company also has 2,250,000  shares of Series A  Convertible  Preferred
Stock currently outstanding,  all of which are held by Dr. Edward Dickstein, one
of the founders of Old MAM.  Such shares may be  converted  into Common Stock on
the basis of one share of Series A Convertible Preferred Stock for each share of
Common Stock,  subject to the limitation  that no more than 25% may be converted
into Common  Stock in any one calendar  year,  and at no time may the holders of
the Class A Preferred  Stock hold directly or  indirectly  more than 4.9% of the
shares of Common Stock outstanding.


                                      107
<PAGE>

ITEM 12.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

      During 1996, an outstanding loan in the amount of $177,449 from Mr. Regan,
Chairman and President of the Company,  was repaid with the exception of $9,830;
this loan represented deferral of compensation or expense  reimbursement accrued
in  prior  periods.  See  Note  6 to  the  Company's  Financial  Statements.  In
connection with the settlement of a lawsuit against the Company,  referred to in
Note 9 to the  Company's  Financial  Statements,  Mr.  Regan  agreed to transfer
40,000  shares  of  Common  Stock  owned by him in  partial  settlement  of such
lawsuit.

      The Company is a party to a management  services  agreement with OB-GYN, a
medical group affiliated with the Company with which Dr. Kopelman, a director of
the Company, is an affiliated physician.  See generally Note 13 to the Company's
Financial Statements for information  concerning the Company's relationship with
affiliated physicians.

      In  addition,  in  connection  with  the  Company's  $1,250,000  factoring
agreement  dated  October 16, 1997,  Messrs.  Regan,  Norton and  Underwood  had
guaranteed the Company's  obligations  thereunder.  See Note 15 to the Company's
Financial Statements.

ITEM 13.  EXHIBITS AND REPORTS ON FORM 8-K
                                                                          PAGE
(a)          EXHIBITS

3.1          Certificate of Incorporation of Eagle High Enterprises,
             Inc., filed January 23, 1986.  (Incorporated by
             reference to Exhibit 3.1 to Form 10-SB (Amendment No.
             6) filed November 21, 1997).

3.2          Certificate of Amendment of Certificate of
             Incorporation of Eagle High Enterprises, Inc., filed
             June 21, 1994.  (Incorporated by reference to Exhibit
             3.2 to Form 10-SB (Amendment No. 6) filed November 21,
             1997).

3.3          Certificate of Designations filed September 19, 1997.
             (Incorporated by reference to Exhibit 3.3 to Form 10-SB
             (Amendment No. 6) filed November 21, 1997).

3.4          Bylaws of Eagle High Enterprises, Inc.  (Incorporated
             by reference to Exhibit 3.4 to Form 10-SB (Amendment
             No. 6) filed November 21, 1997).

4.1          Placement Agreement between Cruttenden Roth
             Incorporated and Medical Asset Management,
             Incorporated, dated April 30, 1996.  (Incorporated by
             reference to Exhibit 4.1 to Form 10-SB (Amendment No.
             6) filed November 21, 1997).
4.2          Medical Asset Management, Inc. Declaration of
             Registration Rights.  (Incorporated by reference to
             Exhibit 4.2 to Form 10-SB (Amendment No. 6) filed
             November 21, 1997).

4.3          Medical Asset Management, Inc. Common Stock Warrant.



                                      108
<PAGE>

             (Incorporated by reference to Exhibit 4.3 to Form 10-SB
             (Amendment No. 6) filed November 21, 1997).

4.4          Agreement to Exchange Stock between Medical Asset
             Management, Inc. and Edward Dickstein and Diana Steiner
             Dickstein, as Trustees of the Dickstein Trust, dated
             March 28, 1995.  (Incorporated by reference to Exhibit
             4.4 to Form 10-SB (Amendment No. 6) filed November 21,
             1997).

4.5          Equity-Based Incentive Plan.  (Incorporated by
             reference to Exhibit 4.5 to Form 10-SB (Amendment No.
             6) filed November 21, 1997).

4.6          Stock Exchange Agreement with Shareholders of Medical
             Asset Management, Inc. and Eagle High Enterprises,
             Inc., dated June 24, 1994.  (Incorporated by reference
             to Exhibit 4.6 to Form 10-SB (Amendment No. 6) filed
             November 21, 1997).

10.1         Employment Agreement between Medical Asset Management,
             Inc. and John Regan, dated January 1, 1995.
             (Incorporated by reference to Exhibit 10.1 to Form
             10-SB (Amendment No. 6) filed November 21, 1997).

10.2         Employment Agreement between Medical Asset Management,
             Inc. And Dennis Calvert, dated January 1, 1995.
             (Incorporated by reference to Exhibit 10.2 to Form
             10-SB (Amendment No. 6) filed November 21, 1997).

10.3         Employment Agreement between Medical Asset Management,
             Inc. and Michael Zaic, dated January 1, 1995.
             (Incorporated by reference to Exhibit 10.3 to Form
             10-SB (Amendment No. 6) filed November 21, 1997).

10.4         Factoring Agreement between ALTRES Financial L.P., a 
             Hawaii limited partnership,   and  Medical  Asset  
             Management,  Inc.,  a  Delaware
             corporation,  dated October 16, 1997. (Incorporated by 
             reference to Exhibit  10.4 to Form 10-SB  (Amendment  No. 
             6) filed  November 21, 1997).

10.5         Addendum to Factoring  Agreement  between ALTRES  Financial 
             L.P., a  Hawaii limited partnership,  and Medical Asset 
             Management,  Inc., a Delaware  corporation,  dated  October 
             22, 1997.  (Incorporated  by reference to Exhibit 10.5 to 
             Form 10-SB (Amendment No. 6) filed November 21, 1997).

10.6         Software  License   Agreement   between  the  Company  and 
             Visteon corporation,  dated September 18, 1996.  
             (Incorporated by reference to Exhibit 10.6 to Form 10-SB  
             (Amendment No. 6) filed November 21, 1997).

10.7         Addendum A to Software  License  Agreement  between the 
             Company 


                                      109
<PAGE>

             and Visteon  corporation,  dated September 18, 
             1996.  (Incorporated  by reference  to Exhibit  10.7 to 
             Form 10-SB  (Amendment  No. 6) filed  November 21, 1997).

10.8         Agreement with Healthcare Professional Management, Inc.
             Dated December 29, 1995.  (Incorporated by reference to
             Exhibit 10.8 to Form 10-SB (Amendment No. 6) filed
             November 21, 1997).

10.9         Asset Purchase and Medical Practice  Management  Agreement
             between the Company and OB-GYN  Associates,  P.C., dated 
             December 31, 1995. (Incorporated by reference to Exhibit 
             10.9 to Form 10-SB (Amendment No. 6) filed November 21, 1997).

10.10        Promissory  Note  between the Company  and  Northern
             Trust Bank of Arizona,  N.A.,  dated May 30, 1997.  
             (Incorporated by reference to Exhibit 10.10 to Form 10-SB  
             (Amendment  No. 6) filed  November 21, 1997).

10.11        Loan and Security Agreement between the Company, Healthcare 
             Professional Management, Inc. and HCFP Funding, Inc. 
             dated November 12, 1997.

10.12        Revolving Credit Note  between the Company, Healthcare 
             Professional Management, Inc. and HCFP Funding, Inc. 
             dated November 12, 1997.

16           Letter on change in certifying accountant. (Incorporated by 
             reference to Exhibit to Form 8-K filed November 22, 1996).

21           Subsidiaries of the Registrant.

27           Financial Data Schedule.


                                      110
<PAGE>

(b)          REPORTS ON FORM 8-K

             During the last quarter of fiscal year 1996,  the Company filed the
             following  reports on Form 8-K: Current Report on Form 8-K filed on
             November 22, 1996 which  reported  the  Company's  solicitation  of
             Ernst & Young, LLP as the Company's independent  auditors.  Current
             Report  Form 8-K filed on  December  3,  1996  which  reported  the
             Company's  solicitation  of  Ernst &  Young,  LLP as the  Company's
             independent auditors.

                                      111
<PAGE>




                                   SIGNATURES

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

                                    MEDICAL ASSET MANAGEMENT, INC.



                                    By: /s/ John W. Regan
                                        ----------------------------
                                          John W. Regan
                                          President and Chairman of 
                                          the Board of Directors



Date:  November 26, 1997



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

            Signature               Title                         Date
            ---------               -----                         ----


/s/ John W. Regan                President and Chairman of     November 26, 1997
--------------------------           the Board of Directors
      John W. Regan             


/s/ Dennis Calvert               Senior Vice President and     November 26, 1997
----------------------------          Director
      Dennis Calvert             


/s/ Anthony F. Aulicino          Senior Vice President and     November 26, 1997
----------------------------          Director
    Anthony F. Aulicino        


/s/ Clarke Underwood             Vice President and Chief      November 26, 1997
--------------------------          Financial Officer
      Clarke Underwood              and Director


/s/ Anthony F. Aulicino          Vice President and Director   November 26, 1997
--------------------------
      Michael A. Zaic


/s/ J. Joshua Kopelman, M.D.     Director                      November 26, 1997
--------------------------
    J. Joshua Kopelman, M.D.