SECURITIES AND EXCHANGE COMMISSION
                              Washington, DC 20549

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

                                    FORM 10-K


                        FOR ANNUAL AND TRANSITION REPORTS
                     PURSUANT TO SECTIONS 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934


(Mark One)

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

         For the fiscal year ended June 30, 1997

                                       OR

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


 For the transition period from _____________________ to________________________



                         Commission file number: 0-26348

                                    HPR INC.
             (Exact name of registrant as specified in its charter)

                               Delaware 04-2985551
                (State or other jurisdiction of (I.R.S. Employer
                incorporation or organization) Identification No)

                                245 First Street
                               Cambridge, MA 02142
                    (Address of principal executive offices)

                                 (617) 679-8000
              (Registrant's telephone number, including area code)



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

          Title of each class Name of each exchange on which registered

                   None _____________________________________

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


                          Common Stock, par value $0.01
                                (Title of class)


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

Indicate by check mark if disclosure of delinquent  filers  pursuant to Item 405
of Regulation  S-K is not contained  herein,  and will not be contained,  to the
best of registrant's  knowledge,  in definitive proxy or information  statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]

The aggregate  market value of the voting stock held by stockholders who are not
affiliates of the  registrant was  approximately  $268 million based on the last
reported  sale price of the  registrant's  Common  Stock on the Nasdaq  National
Market on August 11, 1997.

As of  August  11,  1997,  there  were  outstanding  15,334,919  shares  of  the
registrant's Common Stock, $0.01 par value per share.

                       DOCUMENTS INCORPORATED BY REFERENCE

Certain of the  information  called for by Parts I through IV of this  report on
Form 10-K is  incorporated  by  reference  from  certain  portions  of the Proxy
Statement of the  registrant to be filed  pursuant to  Regulation  14A and to be
sent to stockholders in connection with the Annual Meeting of Stockholders to be
held on October 31, 1997.  Such Proxy  Statement,  except for the parts  therein
that have been  specifically  incorporated  herein  by  reference,  shall not be
deemed "filed" as part of this report on Form 10-K.




























                                     PART I

Item 1. Business

The Company

    The Company was  incorporated on September 28, 1987 in  Massachusetts  under
the name HPR, Inc. The Company re-incorporated in Delaware on December 20, 1991,
under the name Health  Payment  Review,  Inc. On July 24, 1995,  the name of the
Company  was  changed  to  HPR  Inc.  Unless  the  context  otherwise  requires,
references  herein to the  "Company"  and "HPR"  refer to HPR Inc.,  a  Delaware
corporation,  its  wholly-owned  subsidiaries  and HPR, Inc., its  Massachusetts
predecessor.  On June 3, 1992, Concurrent Review Technology,  Inc., a California
corporation, was merged into the Company's wholly- owned subsidiary,  Concurrent
Review Technology,  Inc., a Delaware corporation. On August 16, 1995 the Company
established a wholly-owned  subsidiary,  HPR Securities  Corp., a  Massachusetts
corporation.  On April 30, 1996, the Company acquired The Integrity Group, Inc.,
an Alabama corporation,  which became a wholly-owned subsidiary of HPR. On April
18, 1997 the Company established a wholly-owned  subsidiary,  HPR International,
Inc., a Barbados corporation. The Company's executive offices are located at 245
First Street,  Cambridge,  Massachusetts  02142.  Its telephone  number is (617)
679-8000.

General

    HPR  develops  and  markets  software  and  proprietary   database  products
incorporating  clinical knowledge that enable payors and providers of healthcare
services to better manage the  financial  risk  associated  with the delivery of
healthcare and the quality of care.  HPR products are used to manage  healthcare
costs  and  quality  of care by  clinically  evaluating  providers'  claims  for
payment;  measuring  efficiency,  quality,  and  medical  outcomes;  determining
appropriate  utilization of medical  services;  influencing  physician  referral
patterns and profiling practice patterns;  assisting in HEDIS(R) reporting;  and
managing and supporting the physician credentialing and accreditation processes.
The Company's  clinical  knowledge  bases are developed and maintained by a full
time medical staff in consultation with  board-certified  physicians  serving on
Company-organized panels.

    The  Company's  products are designed to meet the needs of parties  assuming
financial  risk for the  delivery of  healthcare.  HPR believes  that  providing
clinical  knowledge in usable form is essential  to its  customers.  The Company
believes  it can be  distinguished  from its  competitors  through the depth and
integrity of its "clinical  knowledge bases," as further described below. HPR is
currently marketing its CodeReview(R),  Medicare  CodeReview(TM),  ProMatch(TM),
Patterns  Review(R),  CRMS  Fundamentals(TM),   Episode  Profiler(TM),   Quality
Profiler(TM),   Referral   Profiler(TM),   Patterns   Profiler(TM),   HealthPlan
Reporter(TM),  Credentialer(TM),  and CCMS  Core(TM)  products.  HPR markets its
products  through a combination of a national direct sales force and third-party
marketing agreements.

     The Company was  incorporated in 1987. In 1988, the Company  introduced its
first product,  CodeReview. In 1992, the Company acquired the clinical knowledge
base for Patterns Review by means of a merger with Concurrent Review Technology,
Inc.,  and  shortly  thereafter  released  Patterns  Review.  In  1993  Medicare
CodeReview  was  released,  and in May 1995,  the  Company  released  its fourth
product,  Episode  Profiler.  In October  1995,  the Company  released its fifth
product,  Quality Profiler. With the acquisition of The Integrity Group, Inc. in
April  1996,  the  Company  acquired  and began  marketing  its  sixth  product,
Credentialer.  During fiscal 1997 the Company  introduced  four more products to
market:  Referral  Profiler in July 1996,  Patterns  Profiler in September 1996,
HealthPlan  Reporter in March 1997, and ProMatch in June 1997. The  introduction
of these four products  brings HPR's total  marketable  product count as of June
30, 1997 to ten. The Company released its eleventh product, CRMS Fundamentals in
July 1997 and is currently  developing its twelfth product,  CCMS Core that will
represent the first product the Clinical Care Management System product line.


Industry Background

The United  States  healthcare  industry is undergoing  rapid change.  In recent
years, healthcare expenditures have increased at approximately twice the rate of
inflation.  In 1997, healthcare expenses have increased to over $1 trillion. The
increase in  healthcare  expenditures  has forced payors and providers to change
the way they  operate.  As pressure to manage  healthcare  costs has  increased,
demand has intensified for healthcare information systems for use by the parties
assuming  financial risk.  These parties include  "payors," such as self-insured
employers;  managed care organizations ("HMOs and PPOs");  traditional indemnity
insurers and third party administrators ("TPAs"); and increasingly, "providers,"
such as physicians,  hospitals, and integrated healthcare delivery systems. This
environment  has caused  physicians  to form groups or networks and to affiliate
with hospitals,  and has provided an impetus for  consolidation  among hospitals
and the emergence of integrated healthcare delivery systems.

Increasingly, these parties are under growing pressure to provide greater levels
of  value - more  services  at a lower  price.  Market  factors  -  competition,
regulation - are trimming profit margins ever thinner and forcing  organizations
to seek out the  highest  levels of  efficiency  in order to achieve  every cost
savings possible while improving the delivery of healthcare to their members.

Historically,  cost  containment  efforts  have  been  hampered  by  a  lack  of
integrated  clinical  and  financial  information.  Payors  continue  to require
methods for cost  control to review and correct  healthcare  claims.  As managed
care  techniques are becoming more  sophisticated  and  responsibility  for cost
containment  is shared by payors and providers,  however,  these parties need to
manage risk by linking  information  from  analysis  and  reporting  software to
real-time care  management  tools.  Each of these goals requires the collection,
analysis,  and interpretation of clinical and financial  information  related to
the  delivery  of  healthcare,  intensifying  the  need for  integrated  medical
management solutions.

Today,  employers,  government  purchasers,  and consumers  are  demanding  more
services for less dollars, they are increasingly requiring verification that the
quality of care they are buying is not being compromised, and access to services
is not  diminished.  Reporting  requirements  like  HEDIS 3.0 and  accreditation
standards that demand  demonstrable  quality  management  initiatives are direct
outgrowths of these concerns.
These  factors  have  combined to create a new  emphasis in the market.  Today's
healthcare  environment  has evolved from pure cost  management to an integrated
medical  management  focus.  This  philosophy  is  more  member-focused  with an
objective of improving  the  effectiveness  of the  provider,  and improving the
quality  of care  received  by the  member -  maximizing  the value  that can be
derived from the available  healthcare premium dollars as measured by the health
of the members.


Strategy

    HPR  develops  and  markets  software  and  proprietary   database  products
incorporating  clinical  knowledge  that enable  payors and  providers to better
manage the  financial  risk in the delivery of  healthcare.  Key elements of the
Company's strategy are to:

    - Maintain  clinical  focus.  The Company has  established its reputation by
      focusing on the application of clinical  knowledge.  HPR plans to continue
      to develop and expand its clinical knowledge bases to deliver  information
      solutions  to its  customers.  The  Company  believes  that its ability to
      incorporate clinical expertise into its products is a key strategic asset.

    - Target  parties  assuming  financial  risk.  Historically,  the  Company's
      products have been used primarily by payors who traditionally have assumed
      most of the financial risk associated with the delivery of healthcare.  In
      response to the shifting of risk from payors to providers, the Company has
      developed  products  that  specifically  address the needs of providers as
      well as payors.

    - Expand product offering.  The Company plans to expand its product offering
      through  research and  development  and the  acquisitions of new products,
      technologies   and   businesses.   The  Company  is  currently   marketing
      CodeReview,   Medicare   CodeReview,   ProMatch,   Patterns  Review,  CRMS
      Fundamentals,  Episode  Profiler,  Quality  Profiler,  Referral  Profiler,
      Patterns Profiler, HealthPlan Reporter, Credentialer, and CCMS Core.

    - Leverage existing customer base. Through the introduction of new products,
      the Company can leverage its existing customer base by cross-selling.  The
      modular design of the Company's  products is intended to  accommodate  new
      products as they are introduced.

    - Generate  recurring  revenue.  The Company  generates  recurring  revenues
      through a combination of multi-year licenses and historically high renewal
      rates.  The Company  seeks to maintain  and  increase  recurring  revenues
      through  a  combination  of  regular  product  updates  and  comprehensive
      customer service.


Clinical Knowledge Bases

    HPR believes that providing  clinical  knowledge in usable form is essential
to  meeting  the  needs  of  its  customers.  The  Company  believes  it  can be
distinguished  from its  competitors  through  the  depth and  integrity  of its
"clinical  knowledge bases." Clinical knowledge bases represent the codification
of specific medical treatments,  protocols,  and "best treatment practices" from
within the medical  community.  These  practices are  represented as a series of
software  algorithms  or rules.  The rules  contained in the clinical  knowledge
bases  form  the  foundation  for  the  application  software  in the  Company's
products.  The  clinical  knowledge  bases are updated  continually  and refined
through the combined efforts of the Company's in-house clinical affairs staff of
ten  physicians  and nurses  and of the  board-certified  physicians  serving on
Company-organized  panels,  many of whom have been  associated  with the Company
since its inception.

    The Company's  application software and databases  incorporate diagnoses and
clinical procedures represented by numeric codes selected from industry-standard
coding  systems.   These   classification   systems  include  the  World  Health
Organization's  International  Classification of Diseases, 9th Edition ("ICD-9")
(diagnostic  codes);  the  American  Medical  Association's  Current  Procedural
Terminology,   4th  Edition  ("CPT-4")   (medical  procedure  codes);  and  U.S.
Healthcare  Financing  Administration  ("HCFA") Level I, II, and III HCFA Common
Procedure Coding System ("HCPCS") (codes for procedures or services that are not
incorporated  into  CPT-4).  These  coding  systems are updated each year by the
World  Health  Organization,   the  American  Medical  Association,   and  HCFA,
respectively.

    The Company develops clinical knowledge bases for new products and regularly
updates the  clinical  knowledge  bases for  existing  products.  In addition to
annual updates that incorporate the annual revisions to ICD-9,  HCPCS, and CPT-4
codes, the Company reviews its clinical knowledge bases approximately once every
two years to reflect  changes  in  medical  practice.  Focusing  on one  medical
specialty at a time, the clinical staff revises the rules  incorporated into the
clinical knowledge bases on the basis of clinical experience, changes in medical
practice, and reviews of current medical literature.

    Revisions  are  subjected  to  multiple  levels of review by the  physicians
serving on Company-organized panels. Participation on these panels is based upon
experience  with   utilization   review,   geography,   academic  and  practical
experience,  and  medical  specialty.  As a result  of the  level  of  physician
involvement in the  development of its clinical  knowledge  bases,  HPR believes
that  its  products  have  credibility  among  physicians  who  are  subject  to
reimbursement and payment constraints imposed by cost containment efforts.  This
"clinical  credibility"  allows  customers  using the  Company's  products to be
better able to influence physician practice patterns.

    - Consensus Panels.  The Company has organized sixteen "consensus panels" of
      between eight and 15 physicians.  The consensus panels identify changes in
      medical practice relevant to revising and enhancing the Company's clinical
      knowledge  bases.  Panelists are chosen for their  clinical  knowledge and
      practical  experience  within  a  medical  specialty.  There  are over 200
      board-certified physicians who are available to the Company for service on
      a consensus  panel.  Panel  membership  is rotated  regularly  to maintain
      balanced and diverse clinical  perspectives.  Each panelist is financially
      compensated.  Consensus panels convene approximately eight to 10 times per
      year.

    - Senior  Advisory  Panel.  The  "senior  advisory  panel" is  comprised  of
      approximately  10 physicians who each have at least 10 years of experience
      in  utilization  management  or managed  care and have  participated  in a
      consensus  panel.  The senior advisory panel reviews the work of consensus
      panels  and the  clinical  knowledge  base  updates  that  reflect  annual
      revisions  to  diagnostic  and  procedural  codes.  Members  of the senior
      advisory  panel are  financially  compensated.  The senior  advisory panel
      meets once or twice per year.

    - Specialty  Consultants.  Currently  more than 30 physicians  with clinical
      expertise  and  utilization  management  experience  serve  as  "specialty
      consultants."  The specialty  consultants  are retained by the Company for
      advice on specific clinical issues on an as-needed basis.


Software Development

    In addition to the clinical  knowledge  bases that form the  foundations for
its products,  HPR has developed  application software that enables customers to
access the clinical  knowledge  bases.  HPR's clinical and software  development
staff  collaborate  to develop  products  designed to be  responsive to customer
needs.  In  particular,  the products  generally  are  portable,  scaleable  and
customizable,  and support an open architecture. The Company's software has been
developed using commercially available technology.


Products

    HPR  is  currently  marketing  CodeReview,  Medicare  CodeReview,  ProMatch,
Patterns Review, CRMS Fundamentals, Episode Profiler, Quality Profiler, Referral
Profiler, Patterns Profiler, HealthPlan Reporter,  Credentialer,  and CCMS Core.
Each of these  products  is designed  to be used  individually  or as part of an
integrated  system (with the exception of ProMatch,  which can only be used with
CodeReview).

Current Products

    Clinical Payment Management System (CPMSTM)

    CPMS  includes  clinically  sophisticated  software  products  that  can  be
    integrated  into a user's  claims  processing  system to detect and  correct
    billing errors as well as identify potentially  inappropriate or unnecessary
    care before the  customers  pay for it. HPR's CPMS products are available on
    many industry standard hardware and operating systems.  The Clinical Payment
    Management  System  is  made  up  of  the  following  products:  CodeReview,
    ProMatch,  and Patterns  Review.  A  description  of each of these  products
    follows:



    - CodeReview

        CodeReview reduces healthcare claims costs by detecting, correcting, and
    documenting improper or erroneous numerical coding of physician claims under
    both the CPT-4 and HCPCS coding systems.  CodeReview makes no judgment about
    the necessity, clinical appropriateness,  or price of services rendered, but
    instead  reviews   medical   treatment  and  procedure  codes  submitted  by
    physicians  for  clinical  inconsistencies  and logical  errors.  CodeReview
    allows  payors to subject  physician  claims to a consistent  and  objective
    claims review prior to making payment. CodeReview is also used by payors and
    providers to standardize billing data to permit fair comparisons of practice
    patterns.

        Generally,  physicians  are  paid  by  payors  for  healthcare  services
    performed  according  to a fee  schedule  associated  with  CPT-4  or  HCPCS
    treatment  codes.  The coding systems used by physicians may allow a medical
    claim to be billed in various  ways  through  the  submission  of  different
    combinations of treatment codes. This may result in significantly  different
    reimbursement  for the claim.  For example,  the surgical  removal of a gall
    bladder  typically  involves a series of distinct  procedures to prepare the
    patient,  remove  the  gall  bladder,  complete  the  surgery,  and  monitor
    recovery.  The  surgery  may also  include  exploration  of the  abdomen and
    imaging  services.  However,  while  exploration  of  the  abdomen  and  the
    provision  of imaging  services  each has a unique  treatment  code,  proper
    billing  practice  requires coding the entire series as one procedure -- the
    removal of a gall bladder -- which generally reduces the payment due for the
    procedure.

        CodeReview screens each claim against its clinical knowledge base, which
    incorporates all of the  approximately  7,500 CPT-4 and 2,800 HCPCS Level II
    codes,  and applies  over 80,000  logical  rules for  detecting  improper or
    erroneous  coding to the claims submitted by providers.  If, for example,  a
    physician  files a claim with codes for both the  removal of a gall  bladder
    and the  exploration  of the  abdomen,  CodeReview  "re-bundles"  the claim,
    recoding  it to include  only  removal of a gall  bladder.  CodeReview  also
    detects  other  coding  errors,  such as  "upcoding,"  or billing for a more
    extensive procedure than actually was performed.

        CodeReview  can be customized to include  procedures  for which selected
    coverage policies may vary, or to account for regional variations in payment
    practices.  CodeReview  was  introduced in 1988 and developed  pursuant to a
    product  development  agreement with  Caterpillar,  Inc. There currently are
    more than 240  licensees  of  CodeReview,  each of which has entered  into a
    written  non-cancelable  license  agreement  for a term of  years  with  the
    Company  pursuant to which the  licensee  generally  agrees to pay an annual
    license fee for use of the product, maintain the product's  confidentiality,
    and use the product only for certain purposes.


    - ProMatch

        ProMatch is an add-on module to the CodeReview  claims editing  software
    application.  ProMatch  is  used  to  identify  inappropriate  and  miscoded
    procedure/diagnosis  combinations. The product is designed to share a single
    interface with CodeReview,  making it easy to implement and use. The savings
    realized  using  ProMatch  are in  addition  to those  savings  achieved  by
    CodeReview alone. There are currently 10 licenses of ProMatch.

    - Patterns Review

        Patterns Review evaluates physician practice patterns for both inpatient
    and outpatient services by comparing those patterns (determined on the basis
    of  codes  filed by the  physician)  with  accepted  medical  standards  for
    appropriateness,  frequency,  and  intensity.  A  "pattern"  is a  group  of
    diagnoses for which similar clinical management is appropriate. For example,
    there are separate  diagnostic codes for a wrist sprain and an ankle sprain,
    but the  appropriate  course  of  treatment  for  each is  similar,  so both
    diagnoses fall within the same pattern.

        The  clinical  knowledge  base for Patterns  Review  assigns each of the
    approximately  15,000 ICD-9  diagnostic  codes to one of  approximately  340
    treatment patterns. The clinical knowledge base for Patterns Review includes
    guidelines for clinical  appropriateness,  frequency, and intensity for each
    pattern.  Patterns  Review  matches  the  diagnostic  code of a claim to the
    appropriate  treatment  pattern and then  compares the pattern to the actual
    treatment rendered.

        Patterns  Review can be used by customers  both as a tool for consistent
    and objective  claims review prior to making  payment under a claim and as a
    management tool for post-payment  utilization  analysis.  When used prior to
    making payment, Patterns Review provides the clinical rationale for reducing
    payment. When used as a post-payment  utilization  management tool, Patterns
    Review  profiles  physician  practice  patterns  by  comparing  them  to the
    clinical  guidelines  incorporated  in the  clinical  knowledge  base.  This
    enables customers to identify inefficient or inappropriate practice patterns
    by specific provider.

        There currently are more than 116 licensees of Patterns Review,  each of
    which has entered into a written non-cancelable license agreement for a term
    of years with the Company pursuant to which the licensee generally agrees to
    pay an annual  license fee for use of the product,  maintain  the  product's
    confidentiality and use the product only for certain purposes.  In 1992, the
    Company merged with  Concurrent  Review  Technology,  Inc.  whose  principal
    product,  Patterns of Treatment, was a collection of clinical protocols. HPR
    incorporated  those  protocols  into the  application  software and clinical
    knowledge base for Patterns Review.

        CodeReview  and Patterns  Review are designed to function in conjunction
    with a customer's  claims  processing  system to evaluate claims each time a
    claim is  processed.  The  Company  has  developed  interfaces  that  enable
    CodeReview and Patterns Review to function with most commercially  available
    healthcare claims processing systems.

    Clinical Resource Management System (CRMS(TM))

         CRMS is a fully  integrated line of clinical  analysis  products,  each
    supported  by a  common  data  warehouse  and  a  flexible  Windows(R)-based
    analytic  workstation.  CRMS products enable users to assemble  information,
    access it quickly and  easily,  analyze it, and apply the results to provide
    users with the clinical knowledge to manage cost,  quality,  and outcomes of
    patient  care.  Each  CRMS  product  incorporates  a common  look and  feel,
    minimizing  the user  learning  curve  and  making  it easy to move from one
    application  to  another.  Information  is  presented  in both a numeric and
    graphic format for easy interpretation.

        The Clinical  Resource  Management  Systems is made up of the  following
    products:  Episode Profiler, Quality Profiler,  Referral Profiler,  Patterns
    Profiler,  HealthPlan  Reporter,  and CRMS Fundamentals.  The following is a
    description of the each of these products.

    - Episode Profiler

        Episode Profiler provides  comprehensive clinical and provider profiling
    using  "episode of care"  analysis.  An  "episode"  includes  all aspects of
    treatment,  starting with an initial  diagnosis and incorporates  inpatient,
    outpatient,  hospital,  and physician services.  The clinical knowledge base
    for  Episode  Profiler  assigns  each  of  the  approximately  15,000  ICD-9
    diagnostic  codes  to one of  approximately  560  episode  treatment  groups
    ("ETGs").  Each ETG describes an appropriate episode of care for the natural
    progression and treatment of a specific medical condition.

        Episode  Profiler can compare a provider's  costs on a per episode basis
    with  those of a  specified  comparison  group.  Customers  can use  Episode
    Profiler to create  profiles for an entire health plan, a specific  group of
    providers,  or  an  individual  provider,  adjusting  a  provider's  patient
    population for illness severity and accounting for  complications  and other
    medical conditions.

        The Company introduced Episode Profiler in May 1995. There currently are
    more than 60 licensees of Episode Profiler, each of which has entered into a
    written  non-cancelable  license  agreement  for a term of  years  with  the
    Company  pursuant to which the  licensee  generally  agrees to pay an annual
    license fee for use of the product,  maintain the product's  confidentiality
    and use the product only for certain purposes.  The software for the ETGs is
    licensed by the Company from Symmetry Health Data Systems, Inc.

- Quality Profiler

        Quality  Profiler  evaluates  the quality of  healthcare  delivered  and
    identifies instances of healthcare providers delivering inadequate levels of
    medical care.  Quality Profiler is designed to screen for failure to provide
    preventive  care services and minimum  levels of care for specific acute and
    chronic  illnesses,  as  well  as to  identify  complications  that  may  be
    indicative of poor patient outcome.

        In  screening  for failures to provide  preventive  care  services,  the
    clinical  knowledge  base for Quality  Profiler  incorporates  the  clinical
    components  of the U.S.  Preventive  Task  Force  Guidelines  and the Health
    Employer Data Information Set (HEDIS) guidelines established by the National
    Committee  for Quality  Assurance  (NCQA).  Quality  Profiler is designed to
    compare  patient  data  (such as age and  gender)  to  claims  filed for the
    patient  over a  specific  period  of  time  to  look  for  the  absence  of
    appropriate codes for preventive  treatments that should have been performed
    under the guidelines. For example, for a 55-year old woman, Quality Profiler
    is designed to search over the prior 12 months for the CPT-4 code indicating
    the performance of a mammogram.

        Quality Profiler's  clinical knowledge base also incorporates  protocols
    for medical services associated with favorable outcomes for certain specific
    acute and chronic  illnesses as  identified  by members of the consensus and
    senior advisory  panels.  Quality Profiler is designed to compare the claims
    filed for a patient  diagnosed with one of these  illnesses to the protocols
    developed by HPR's  physician  consulting  network to identify  instances of
    under-utilization.  Quality Profiler tracks complications that indicate poor
    outcomes for specified  illnesses.  Quality Profiler is designed to generate
    both provider-specific and member-specific information.

        The Company  introduced  Quality  Profiler in October 1995 and there are
    currently  more than 48 licensees,  each of which has entered into a written
    non-cancelable  license  agreement  with the  Company  pursuant to which the
    licensee  generally  agrees  to pay an  annual  license  fee  for use of the
    product, maintain the product's confidentiality and use the product only for
    certain   purposes.   The  product  was  developed  with   assistance   from
    Healthsource, Inc., which has received a license to use the product.

- Referral Profiler

        Referral  Profiler is expert  software  designed to analyze primary care
    work-ups  and  referral  patterns  to  specialists  in  relation to clinical
    guidelines.  Referral  Profiler  enables  users to manage  medical care more
    cost-effectively  by  identifying   redundant  testing  and  unnecessary  or
    inappropriate  services  associated  with the referral  management  process.
    Referral  Profiler  guidelines  specify  when  certain  tests and  specialty
    consultations are most effective in the diagnostic work-up.  Users can share
    the diagnosis-specific guideline and cost information with providers as part
    of ongoing educational or payment-related  programs to improve  performance,
    or use the  guidelines  as a reference  tool to provide  information  at the
    point of care for improved medical management.  With Referral Profiler,  end
    users generate clinically-detailed reports on the utilization of specialists
    for use in network management, quality and outcomes management,  utilization
    control, and physician selection.

        The  product  was  developed  with  assistance  from  United  Healthcare
    Corporation,  which has  received  a license  to use the  product.  Referral
    Profiler was released in July 1996 and currently has 17 licensees.


- Patterns Profiler

        Using  clinical and  financial  results from Patterns  Review,  Patterns
    Profiler  is  designed to create  summary  and  detailed  reports for use in
    network management and provider  profiling.  Patterns Profiler provides peer
    comparisons of provider  performance  by specialty,  plan type, or employer,
    helping users to quickly identify  opportunities to reduce  inappropriate or
    unnecessary patient care.

        Patterns  Profiler was released in September  1996 and  currently has 46
licensees.


- HealthPlan Reporter

        HealthPlan Reporter produces annual HEDIS reports. By design, HealthPlan
Reporter incorporates claims,  encounter,  provider and membership data into one
warehouse to produce all of the eight HEDIS domains. It supports random sampling
(hybrid  method) for those  applicable  measures and offers a utility to capture
and  incorporate  the  results  of the  medical  record  review.  Narrative  and
statistical   (provider   &  plan)   information   provided   by  the   plan  is
imported/entered  directly  into the  application,  thus  maintaining  a central
approach to HEDIS processing.

        HealthPlan  Reporter was released in March 1997 and  currently  has more
than 22 licensees.

CRMS Product Under Development

- CRMS Fundamentals

CRMS  Fundamentals  is a  Windows-based,  client server  software that generates
per-member-per  month (PMPM) and  rates-per-1000  reports.  CRMS Fundamentals is
being  designed  to work with all sizes  and types of  healthcare  organizations
managing  financial risk and it will include an efficient user  interface.  CRMS
Fundamentals  will  facilitate  reporting  and  analysis  of  critical  cost and
utilization  trend  information.  Customers  will be able to  "slice  and  dice"
traditional  managed care statistics by more than a dozen  variables  including:
product lines,  employers,  providers,  procedure  groups,  diagnoses,  age, and
gender. With CRMS Fundamentals, users will be able to:

         o compare actual financial  performance to budget 
         o identify variations that impact the  financial  performance 
         o point to clinical  practices where targeted intervention and/or 
           education will improve the efficiency of the user's health care 
           delivery system

CRMS Fundamentals was released in July 1997 and currently has 2 licensees.


HPR's Credentialing Management System

     The   Credentialing   Management   System  supports  the  authorization  of
independently licensed health practitioners to deliver patient care services.




- Credentialer

     Credentialer is a comprehensive provider network management tool. Providing
automated  workflow support to healthcare  organizations,  Credentialer  enables
users to  effectively  manage  credentialing  and  recredentialing  processes in
compliance with the NCQA guidelines for accreditation.  Credentialer provides an
infrastructure to collect, store, and report on a practitioner's credentials, as
well as their status within the network and basic  information  regarding  their
practice.   Additionally,   Credentialer  can  be  used  to  generate   provider
directories,  and to collect and analyze  provider-specific patient satisfaction
and complaints/grievances data.
       Credentialer  was  acquired  as  part  of  The  Integrity   Group,   Inc.
acquisition on April 30, 1996 and currently has over 75 licensees.

HPR's Clinical Care Management System (CCMS(TM))

     CCMS,  currently  under  development  and not  yet  available  for  general
release,  is designed  to be an  integrated  product  line of  clinically  based
workflow  software  applications  that  provides a  comprehensive  solution  for
member-centered  medical  management.   CCMS  provides  access  to  all  of  the
information necessary to effectively manage an individual member's care.


     CCMS  supports the next  generation  of medical  management,  enabling case
managers  to  perform  consistent,   "real  time"  evaluation  and  tracking  of
individual  patients as care is being delivered,  and also allows them to follow
patients with chronic diseases to help prevent acute episodes. CCMS incorporates
case  management  guidelines  based on a  comprehensive  foundation  of clinical
knowledge.  These  guidelines  allow for more effective,  medically  sound,  and
clinically appropriate case and medical management.

     CCMS Core, the first in the suite of CCMS products,  is being  developed in
conjunction with three co-development partners: Tufts Associated Health Plans of
Massachusetts,  Healthsource, Inc. of New Hampshire, and ChoiceCare Health Plans
of Ohio.

     Three  customers,   in  addition  to  Tufts  Associated  Health  Plans  and
Healthsource,  have  signed  license  agreements  to receive the  software  upon
general release, which the Company anticipates in the first half of fiscal 1998.


Product and Customer Support

    The  Company's  products  are  valuable to  customers  only if the  clinical
knowledge  bases embodied  therein are current and each customer can effectively
apply  the  clinical  knowledge  bases to its own  analytical  requirements.  In
addition to updates to incorporate  annual revisions to ICD-9,  HCPCS, and CPT-4
codes, the Company updates its clinical knowledge bases approximately once every
two years on the basis of clinical experience,  changes in medical practice, and
review of current medical literature.

    The Company  provides all its  customers  with toll free  telephone  hotline
support,  available  weekdays during business hours, to supply both clinical and
technical  assistance.  The Company  also works with  customers  on a consulting
basis to facilitate product installation and utilization.

    HPR invites its customers to participate in an annual conference.  The users
conference is a source of ideas and suggestions for current and future products,
as well as a forum on market and industry issues. This conference lasts three to
four days and over 200 people participate in sessions for analytical, technical,
and clinical  personnel.  The users  conference  is a valuable  resource for the
Company as well as its customers,  providing  feedback on products and marketing
opportunities to provide training and new product demonstrations.

    In addition to the annual users  conference,  for the past several years the
Company  has  convened a "medical  directors  forum."  This group  includes  the
medical directors from a number of HPR's clients,  and provides valuable insight
for the Company into its customers' ongoing and future product needs, from which
the Company can make plans for enhancement of existing  products and development
of new products.

Medical Advisory Board

     The Company's Medical Advisory Board, chaired by Dr. Richard H. Egdahl, was
formally  established  in  1995 to  serve  as an  important  resource  to  HPR's
management.  The Medical Advisory Board is composed of prominent  physicians who
first met in December 1995. The Medical Advisory Board meets approximately twice
annually and is otherwise  available to provide advice at the Company's  request
on clinical  issues and matters of overall  policy and direction of the Company.
Members of the Medical  Advisory  Board receive an  honorarium  for each meeting
attended.

Customers

     The Company has  approximately  360 customers.  Based upon discussions with
its customers,  the Company believes that, in the aggregate, its customers cover
approximately 70 million lives. Approximately 55% are managed care organizations
such as HMOs and PPOs, 20% are indemnity plans, 10% are TPAs and employers,  and
15% are providers.  

     The  Company  estimates  based on  industry  data and  surveys by  industry
analysts,  that in the  United  States  there are  currently  approximately  900
payors,  180 groups of  greater  than 50  physicians  and 6,000  hospitals  with
greater than 50 beds,  which are either  customers or potential  customers.  The
Company  believes  these  provider  groups  represent a relatively  unpenetrated
market for its products.  Additionally,  the emergence of integrated  healthcare
delivery systems may represent a significant  potential market opportunity.  The
Company  expects the mix of its  customers  to shift toward  providers  who will
assume more of the  financial  risk in the delivery of  healthcare.  There is no
assurance,  however, that the Company will be able to penetrate these relatively
new market  opportunities  with the same level of success that has been realized
in the payor market.

    Currently, 42% of the Company's customers use more than one of the Company's
products. The Company's customers include:


          Managed Care                        Indemnity
  Foundation Health Corporation       Blue Cross/Blue Shield of Arkansas,Inc.
  Healthsource, Inc.                  Blue Cross/Blue Shield of New Jersey, Inc.
  Kaiser Permanente                   Blue Cross/Blue Shield of Tennessee,Inc. 
  Oxford Health Plans, Inc.           Fortis Benefits Insurance Company  
  United HealthCare Corporation             

            Providers                    TPAs/Employers
  Monarch Health Systems              ACMG, Inc.
  Lovelace Health Systems             First Health Services Corporation
  Allina Health Plans                 Holy Cross Shared Services


Sales and Marketing

    HPR markets its products  through a combination  of a national  direct sales
force and third-party marketing agreements. Currently, the Company's sales force
consists  of  approximately  30 people,  operating  out of four  sales  offices.
Because the  Company's  products  represent a large capital  investment  for its
customers,  and due to the  length of the sales  cycle,  senior  management  and
clinical support staff take an active role in marketing and sales activities.

    Corporate  marketing  activities  conducted by the Company's marketing staff
include press  releases,  customer  testimonials,  the  development of corporate
product  literature,  presentations  at  industry  events  and  trade  shows and
advertising,  as  well as  communications  with  targeted  decision  makers  and
consultants in the healthcare community.

Research and Development

    Nearly  half  of  the   Company's   employees   are  involved  with  product
development.   In  addition,  the  Company's  over  200  physician  consultants,
organized into panels, contribute to product development.

    The  Company's  research  and  development  activities  include  new product
development,  product updates and enhancement of existing products.  Some of the
Company's  product  development  has been  accomplished  with support from third
party users of the products,  allowing the Company more  efficiently  to develop
products that are responsive to customer  needs.  A substantial  majority of the
Company's research and development  expenses are incurred in connection with new
product development.

     The Company's  research and development  expenses for fiscal 1995, 1996 and
1997 were $3,257,000, $3,891,000, and $7,011,000, respectively.

Competition

    The Company's competitors include healthcare information companies and large
data  processing  and  information  companies.  Many of these  competitors  have
substantial  installed customer bases in the healthcare industry and the ability
to fund significant  product  development and acquisition  efforts.  The Company
believes  that the  principal  competitive  factors in its  market are  clinical
credibility  and integrity and product  innovation.  These factors  address both
customer needs for cost containment tools and increasing industry concerns about
quality control.  Other important competitive factors include product reputation
and reliability,  system features,  client service, price, and the effectiveness
of marketing and sales  efforts.  Based on historical  performance,  the Company
believes it competes  favorably with respect to each of these factors.  However,
there can be no assurance that the Company will remain  competitive with respect
to any individual factor or combination thereof.

Governmental Regulations and Healthcare Reform

    The  healthcare  industry is subject to  changing  political,  economic  and
regulatory influences that may affect the procurement practices and operation of
healthcare organizations. The Company's products are designed to function within
the structure of the healthcare  financing and  reimbursement  system  currently
being used in the United States.  During the past several years,  the healthcare
industry has been subject to an increase in  governmental  regulation  of, among
other  things,  reimbursement  rates.  Certain  proposals  to  reform  the  U.S.
healthcare system are currently under consideration by the U.S. Congress.  These
programs  may  contain  proposals  to  increase   governmental   involvement  in
healthcare  and  otherwise  change the operating  environment  for the Company's
customers.  Healthcare  organizations  may  react  to  these  proposals  and the
uncertainty  surrounding such proposals by curtailing or deferring  investments,
including those for the Company's  products.  On the other hand,  changes in the
regulatory  environment  have in the past increased and may continue to increase
the needs of healthcare organizations for cost-effective  information management
and thereby enhance the  marketability  of the Company's  products and services.
The  Company  cannot  predict  with any  certainty  what  impact,  if any,  such
proposals  or  healthcare  reforms  might  have  on  the  Company's  results  of
operations, financial condition and business.



Intellectual Property

    HPR considers its methodologies, computer software and knowledge-bases to be
proprietary.  The Company seeks to protect its proprietary  information  through
nondisclosure  agreements  with its employees.  The Company's  policy is to have
employees enter into nondisclosure  agreements containing provisions prohibiting
the  disclosure  of  confidential  information  to anyone  outside the  Company,
requiring disclosure to the Company of any new ideas, developments,  discoveries
or inventions  conceived  during  employment,  and  requiring  assignment to the
Company of proprietary  rights to such matters that are related to the Company's
business.

    The Company also relies on a  combination  of trade  secrets,  copyright and
trademark  laws,  contractual  provisions and technical  measures to protect its
rights in various  methodologies,  systems  and  products  and  knowledge-bases.
Except as described below, the Company has not filed any patent  applications or
copyrights   covering   its   software    technology.    Any   infringement   or
misappropriation   of  the   Company's   proprietary   software   and   clinical
knowledge-bases  would  disadvantage  the  Company in its  efforts to retain and
attract new customers in a highly competitive market and could cause the Company
to lose revenues or incur substantial litigation expense.

    HPR was awarded a U.S. patent (No. 5,253,164) in October 1993 for the system
and methodology embodied in CodeReview(R).  On January 23, 1995, the Company and
GMIS,  Inc.  ("GMIS")  entered into an  agreement  settling  certain  litigation
initiated by GMIS to declare the  Company's  patent  invalid and responded to by
the Company with a countersuit  for patent  infringement.  Under the  settlement
agreement,  the Company granted GMIS a  non-exclusive  license under the patent,
and GMIS  acknowledged the validity of the patent and made a one-time payment of
$7,200,000 to the Company.

    Due to the nature of its  application  software,  the Company  believes that
patent,  trade secret and copyright  protection  are less  significant  than the
Company's ability to further develop, enhance and modify its current products.

    Although  the Company  believes  that its  products  do not  infringe on the
intellectual  property  rights of others,  there can be no assurance that such a
claim will not be asserted against the Company in the future. If asserted,  such
a claim could cause the Company to lose revenues or incur substantial litigation
expense.

Employees

     As of June 30,  1997,  the Company  employed 179  individuals.  None of the
Company's  employees are represented by a union or other  collective  bargaining
group.  The  Company  believes  its  relationship   with  its  employees  to  be
satisfactory.

Executive Officers of the Registrant

    The executive  officers of the Company,  and their ages as of July 31, 1997,
are as follows:

                Name           Age                    Position
 Marcia J. Radosevich,Ph.D      44   Chairman of the Board, Chief Executive 
                                     Officer, President
 Brian D. Cahill                39   Chief Operating Officer and Chief Financial
                                     Officer
 George A. Abatjoglou           27   Treasurer and Controller
 Paul W. Brient                 29   Vice President, Product Marketing
 Andrew C. Garling, M.D.        52   Vice President, Clinical Affairs
 Joseph K. Jaeger               38   Vice President, Sales
 Matthew Ricketson              39   Vice President, Professional Services
 Steven J. Rosenberg            41   Senior Vice President,Software Development 
                                     and Services
 Thomas L. Saltonstall          49   Vice President, Human Resources and
                                     Corporate Administration
 James B. Stowe                 48   Vice President, Marketing
--------------------------------------------------------------------------------




    Dr.  Radosevich has served as Chief Executive  Officer and a director of the
Company  since 1988 and was elected  Chairman of the Board of  Directors in June
1995.  From  1988  until  1992,  and  since  May 31,  1996 she also has held the
position of President of the Company.  She served as Vice  Chairman of the Board
from 1992 to June 1995.  Dr.  Radosevich is a director of Oxford Health Plans, a
health maintenance organization.

    Mr. Cahill joined the Company as Vice  President,  Finance,  Chief Financial
Officer,  Treasurer  and  Secretary in 1993 and was promoted to Chief  Operating
Officer in 1997.  From 1982 to 1992,  Mr.  Cahill held  various  accounting  and
finance positions at Epsilon Data Management, Inc., a database marketing company
which in 1990 became a subsidiary of American  Express Travel  Related  Services
Company,  Inc. He became Controller,  Treasurer and Secretary of Epsilon Data in
1987 and Vice President, Finance and Chief Financial Officer in 1990.

    Mr.  Abatjoglou,  CPA,  joined HPR in 1995 and was promoted to Treasurer and
Controller in 1997. He is responsible  for managing the daily  operations of the
finance department. Prior to joining HPR, Mr. Abatjoglou served three years as a
senior accountant at the public accounting firm of Coopers & Lybrand L.L.P., the
Company's independent accountants.

    Mr.  Brient,  who  joined  HPR  in  1995  as  the  manager  of  new  product
development,  was  promoted  to Vice  President,  Product  Management  in  1997.
Previously,  he served as a senior consultant at the Boston Consulting Group and
founded a successful practice management software business in Florida.

    Dr. Garling joined the Company as Vice President,  Clinical Affairs in 1997.
Previously  he  served as Vice  President  and  Corporate  Medical  Director  at
Advanced Health  Corporation,  a publicly held company which provides  physician
practice  management  services.  Prior to  Advanced  Health,  he  served as Vice
President of  Prudential  Health Care.  In addition he served eleven years as an
emergency room physician with Kaiser Permanente.

     Mr.  Jaeger joined the Company in 1993 and spent four years as the National
Director of Sales prior to his promotion to Vice President, Sales in 1997. Prior
to working for HPR, Mr. Jaeger held Regional Sales Manager  positions for Mozart
Systems  and On-Line  Software  in Chicago.  He also spent four years as a Sales
Representative for Pansophic  Systems,  Inc. Mr. Ricketson joined HPR in 1996 as
Vice  President,  Professional  Services.  He most  recently  worked  at  Marcam
Corporation, a producer of enterprise-wide software for manufacturers,  where he
oversaw the  Customer  Service  function  during a period when that company grew
from $20 million to $200 million in annual revenues.

    Mr. Rosenberg joined the Company as Vice President, Software Development and
Services  in 1994.  From  1992 to 1994,  he served  as Vice  President  of Sales
Technologies Inc., a sales force automation  company,  and from 1990 to 1992 was
Vice President of AICORP, Inc., a software company.

     Mr.  Saltonstall  joined  the  Company  in 1996 as  Vice  President,  Human
Resources and Corporate  Administration.  He comes to HPR from National  Medical
Care, Inc., an international healthcare company, where he was Vice President for
Human Resources.  

     Mr.  Stowe  joined the Company as Vice  President,  Marketing  and Business
Development in 1995.  From 1989 until joining the Company,  he was a partner and
practice  leader at  Charles  J.  Singer & Co.,  a  managed  care  research  and
consulting firm.

     Each officer serves at the discretion of the Board of Directors.  There are
no family relationships among any of the directors and executive officers of the
Company.

Item 2.   Properties

    The Company's executive and corporate offices comprise 48,000 square feet of
a facility at 245 First Street, Cambridge,  Massachusetts under lease agreements
that expire on August 31, 2003. The Company also  maintains  three sales offices
in Illinois,  Arizona and Nevada.  The Company  believes that its facilities are
adequate for its current operations.



Item 3.   Legal Proceedings

    From time to time, the Company is involved in litigation  relating to claims
arising out of its  operations in the normal course of business.  As of the date
of this  Annual  Report on Form  10-K,  the  Company is not a party to any legal
proceedings which, if decided adversely to the Company, in management's  opinion
would have a material  adverse effect on the Company's  results of operations or
financial position.

Item 4.   Submission of Matters to a Vote of Security Holders

    There were no matters  submitted  to a vote of security  holders  during the
fourth quarter of fiscal 1997.



<PAGE>




                                     Part II

Item 5.   Market for Registrant's Common Equity and Related Stockholder Matters

Market for Common Stock

The Company  effected its initial public  offering on August 10, 1995 at a price
of $8.00 per share  (adjusted to reflect a 2 for 1 stock split for  shareholders
of record as of April 26, 1996 effected in the form of a stock dividend).  Since
that date, the Company's  Common Stock has traded on the Nasdaq  National Market
under the symbol HPRI.  The following  table  represents  the high and low sales
prices for the  Company's  common stock for each quarter of fiscal 1997 and 1996
as reported by Nasdaq  National  Market.  All stock prices have been restated to
reflect a 2 for 1 stock  split to  shareholders  of record as of April 26,  1996
effected in the form of a stock dividend.



                                                             High         Low
                               Fiscal 1997
                  4th quarter ended June 30, 1997         $18.75       $ 10.75
                  3rd quarter ended March 31, 1997        $18.38       $ 10.13
                  2nd quarter ended December 31, 1996     $16.25       $ 11.50
                  1st quarter ended September 30, 1996    $22.00       $ 13.50

                               Fiscal 1996
                  4th quarter ended June 30, 1996         $25.63       $ 18.25
                  3rd quarter ended March 31, 1996        $21.75       $ 15.50
                  2nd quarter ended December 31, 1995     $18.13       $ 11.25
                  1st quarter ended September 30, 1995    $13.25       $  9.00



Holders of Record

    As of August 11,  1997  there  were 84  holders  of record of the  Company's
Common Stock.



Dividends

    The Company  has never  declared  or paid any cash  dividends  on the Common
Stock. The Company currently intends to retain future earnings,  if any, to fund
the  development  and growth of its business and does not anticipate  paying any
cash dividends on the Common Stock in the foreseeable future.


<PAGE>



Item 6.  Selected Financial Data

    The following  table contains  selected  consolidated  financial data of the
Company and is qualified by the more detailed Consolidated  Financial Statements
and Notes thereto  included in Item 8 hereof.  The statement of operations  data
for the fiscal  years ended June 30, 1995,  1996 and 1997 and the balance  sheet
data as of June 30, 1996 and 1997 have been derived from Consolidated  Financial
Statements,  which  statements  have been  audited by Coopers & Lybrand  L.L.P.,
independent  accountants,  and are  included  in Item 8 of this Form  10-K.  The
statement of  operations  data for the fiscal years ended June 30, 1993 and 1994
and the balance sheet data as of June 30, 1993, 1994, and 1995 have been derived
from the Company's Consolidated Financial Statements, which statements have been
audited by Coopers & Lybrand L.L.P. and are not included in this Form 10-K. This
data should be read in conjunction with  Consolidated  Financial  Statements and
Notes  thereto and "Item 7.  Management's  Discussion  and Analysis of Financial
Condition and Results of Operations."

<TABLE>



                                                 Fiscal Year Ended June 30,
                                         (in thousands, except per share data)
<CAPTION>

<S>                                     <C>        <C>        <C>         <C>         <C>    

                                        1993       1994        1995       1996(6)     1997
                                              
Statement of Operations Data:
Revenues.........................      $10,770     $14,065    $18,264     $28,310     $39,101
                                       -------     -------    -------     -------     -------
Expenses:
  Cost of revenues...............        2,277       3,452      4,235       7,348       7,900
  Marketing and sales............        3,529       4,016      4,664       6,328       8,672
  Research and development.......          598       1,499      3,257       3,892       7,011
  General and administrative.....        1,701       2,324      2,037       3,594       4,774
  Cost of acquisition (1) .......           --          --         --         336          --
                                            --          --         --         ---          --
    Total expenses...............        8,105      11,291     14,193      21,498      28,357
                                         -----      ------     ------      ------      ------
Operating income.................        2,665       2,774      4,071       6,812      10,744
Interest income (expense), net...        (105)          17        302         878       1,240
Gain on settlement of litigation(2)         --          --      5,800          --          --
                                            --          --      -----          --          --
Income before taxes..............        2,560       2,791     10,173       7,690      11,984
                                         -----       -----     ------       -----      ------
Provision for income taxes.......        1,059       1,160      4,106       3,168       4,973
                                         -----       -----      -----       -----       -----
Net income(2)....................       $1,501      $1,631     $6,067      $4,522      $7,011
                                        ======      ======     ======      ======      ======
Net income per share.............        $0.11       $0.12      $0.43       $0.29       $0.44
                                                                                   
1995 Pro forma net income(3).....                              $2,608
1995 Pro forma net income per                                   $0.18
share(3).........................
1996 Pro forma net income(4).....                                          $4,719
1996 Pro forma net income per                                               $0.30
share(4).........................
Weighted average common shares and
  equivalents (5)................       13,522      13,966     14,175      15,840      16,103

</TABLE>
<TABLE>
<CAPTION>
                                                            June 30,
                                       ----------------------------------------------------
                                                         (in thousands)
<S>                                     <C>         <C>        <C>         <C>        <C>    
  
                                         1993         1994       1995       1996(6)     1997
                                        -------     -------    -------     --------   -------
                                                          
Balance Sheet Data:
  Working capital...............        $2,192      $3,555     $11,130     $20,465     $31,881
  Total assets..................         7,915      10,805      17,988      34,603      47,531
  Long-term liabilities.........           367         601       1,931         882         559
  Stockholders' equity..........         3,377       5,055      11,282      27,915      38,269
Dividends per share.............             0           0           0           0           0

<FN>

(1)  In April 1996, the Company incurred costs related to the acquisition of The
     Integrity Group, Inc. which resulted in an expense of $336,000.
(2)  In January  1995,  GMIS,  Inc.  made a one-time  payment to the  Company in
     settlement of certain litigation, which payment was recorded as a gain, net
     of certain legal and other costs.
(3)  Reflects the fiscal 1995 net income on a pro forma basis by  excluding  the
     gain on  settlement  of  litigation  and its related  tax  effect.  Gain on
     settlement  of  litigation,  net  of  expenses,  was  $5,800,000,  less  an
     effective  tax rate of 40.4%  ($2,341,000),  which  results in an after tax
     gain of $3,459,000 on settlement of litigation.  Accordingly, net income of
     $6,067,000  less the  $3,459,000  after tax gain  results  in pro forma net
     income of $2,608,000.
(4)  Reflects the fiscal 1996 net income on a pro forma basis by  excluding  the
     costs  related to the  acquisition  of The  Integrity  Group,  Inc. and the
     related  tax  effect.  Costs  of the  acquisition  were  $336,000,  less an
     effective tax rate of 41.2%  ($138,000),  resulting in an after tax loss of
     $198,000 due to acquisition  costs.  Accordingly,  net income of $4,521,000
     plus the $198,000 after tax expenditures results in pro forma net income of
     $4,719,000.
(5)  All share and earnings per share  amounts have been restated to reflect the
     impact  of a stock  split  effected  in the form of a 100%  stock  dividend
     granted on May 6, 1996 to all shareholders of record on April 26, 1996.
(6)  The  acquisition  of The Integrity  Group was accounted for as a pooling of
     interests.  However,  due to the relative  immateriality of TIG's financial
     position with respect to HPR as of the date of  combination,  the merger of
     the equity  interests  was given  retroactive  effect to the  beginning  of
     fiscal 1996.  Accordingly,  TIG's assets,  liabilities,  and  shareholder's
     equity  were  brought  onto  the  Company's  consolidated  books  as of the
     beginning of the period as an adjustment to beginning equity.

</FN>

</TABLE>





Item 7.   Management's Discussion and Analysis of Financial Condition and 
          Results of Operations

Overview

    The  Company  licenses  its  products   primarily   pursuant  to  multi-year
non-cancellable agreements that, in general, provide for payment of equal annual
license fees over their  terms.  This type of  arrangement  provides the Company
with a significant  recurring  component to its revenues each year. Revenue from
software  license  agreements  is  recognized  upon  execution of a contract and
shipment of the software provided that no significant  vendor obligations remain
outstanding  and the related  receivable  is due within one year of the contract
date and  collection is deemed  probable by  management.  For recurring  license
fees,  revenues are  recognized on the contract  anniversary  date.  The Company
accrues  incidental  support costs  associated with these licenses when revenues
are  recognized.  Revenues  from services are  recognized  when the services are
delivered. There can be no assurance that the Company will be able to enter into
new license  agreements  at the current rate or to maintain the current  pricing
for its products.

     Prior to fiscal 1993,  the  Company's  revenues  were derived from a single
product,  CodeReview,  and between  July 1993 and May 1995 from three  products,
CodeReview,  Medicare  CodeReview and Patterns Review.  In May 1995, the Company
introduced its fourth product,  Episode Profiler, and in October 1995 introduced
its fifth product,  Quality  Profiler.  The acquisition of The Integrity  Group,
Inc. in April 1996  provided the Company with its sixth  product,  Credentialer.
During fiscal 1997 the Company introduced four more products to market: Referral
Profiler in July 1996, Patterns Profiler in September 1996,  HealthPlan Reporter
in March  1997,  and  ProMatch  in June  1997.  The  introduction  of these four
products  brings HPR's total  product  count to ten as of June 30, 1997. In July
1997, the Company released its eleventh product to market, CRMS Fundamentals. In
addition,  the Company has expended  significant  development  resources  during
fiscal 1997 towards the production of its twelfth product,  CCMS Core, the first
product  in the  CCMS  line.  The  Company  believes  that  as the  markets  for
CodeReview and Patterns Review mature,  the continued growth of the Company will
require the successful  introduction of new products and further enhancements to
its existing products.  There can be no assurance that the Company will continue
to design, develop, and release successful new product offerings in the future.
    
The Company has  experienced a seasonal  pattern in its  operating  results,
with the fourth and second fiscal quarters typically having the highest revenues
and net income and the first and third fiscal  quarters  typically  having lower
revenues  and net income.  The timing of revenues is  influenced  by a number of
factors,  including  the timing of  individual  orders and  shipments,  seasonal
customer  buying  patterns  and  changes  in product  development  and sales and
marketing expenditures. The Company believes the seasonality of its revenues and
net income for the fourth  fiscal  quarter  can be  attributed  to due dates for
payment  obligations under multi-year license  agreements,  renewals of existing
agreements  and  the  Company's  sales  compensation  program,  which  is  based
significantly on fiscal year sales levels.  Furthermore,  the Company  typically
experiences  long sales cycles for new customers,  which may extend over several
quarters before a sale is consummated.  As a result,  the Company  believes that
quarterly  results of  operations  will  continue  to be subject to  significant
fluctuations  and that its results of operations for any  particular  quarter or
fiscal year may not be indicative of results of operations for future periods.

    The Company  believes that continued  investment in research and development
and  expansion of its  national  direct sales force are critical to its success.
The Company  believes  that the  aggregate  amount of research  and  development
expense will continue to increase,  if revenues increase as expected,  while the
level of research  and  development  expense as a  percentage  of revenues  will
remain relatively constant.

     For each of the last three fiscal years,  the Company has made  significant
investments in the direct sales force in anticipation  of new product  releases.
As the  Company  has  grown  from two  products  in fiscal  1994 to the  current
offering of three distinct product suites  encompassing 12 individual  products,
the  Company  has  continued  to invest in  quality  personnel  within the sales
organization.  The  Company  believes  that  the  national  sales  force is well
positioned to address the shift of financial risk  associated  with the delivery
of  healthcare  from payors to providers and  consequently,  will be prepared to
sell into this new market for the Company.  However,  there is no assurance that
the Company will be able to penetrate these relatively new market  opportunities
with the same level of success that has been realized in the payor market.

    The Company capitalizes  software costs for internally developed software in
accordance with FASB 86,  "Accounting  for the Costs of Computer  Software to be
Sold,  Leased or  Otherwise  Marketed."  These  costs  relate  primarily  to the
development  of new products and the extension of existing  applications  to new
markets or platforms using existing  technologies and programming  methods.  The
capitalized  costs are  amortized on a  straight-line  basis over the  estimated
useful life of the product (typically three years), commencing when each product
is available to the market.

Results of Operations

    The following table sets forth,  for the fiscal periods  indicated,  certain
items from the statement of operations expressed as a percentage of revenues:


                                                   Fiscal Year Ended June 30,

                                                    1995       1996     1997
                                                   --------   -------- ------
                     Revenues......................    100 %     100%     100%
                     Expenses:
                      Cost of revenues............       23       26       20
                      Marketing and sales.........       26       22       22
                      Research and development....       18       14       18
                      General and administrative..       11       13       12
                      Cost of acquisition                --        1        0
                                                         --        -        -
                         Total expenses...........       78       76       72
                                                         --       --       --
                    Operating income..............       22       24       28
                    Interest income (expense),            2        3        3
                    net...........................
                    Gain on settlement of                32       --       --
                    litigation....................       --       --       --
                          
                    Income before taxes...........       56       27       31
                    Provision for income taxes....       23       11       13
                                                         --       --       --
                    Net income....................      33 %      16%      18%
                                                       ====      ===      ===


Fiscal Years Ended June 30, 1995, 1996 and 1997

    Revenues.  Revenues increased 55% from $18,264,000 in 1995 to $28,310,000 in
1996 and 38% to $39,101,000 in 1997. A major  contributor to this steady revenue
growth has been the successful release of new products to market. Over the three
year period from fiscal 1995 to fiscal 1997 the Company's  product  offering has
grown from three  products in fiscal 1995 to ten  products as of June 30,  1997.
The Company's first two products,  CodeReview and Patterns  Review,  continue to
show strong year over year performance both through new licenses and renewals of
existing licenses.

    Fiscal year 1996  revenues  reflect  revenues  from the  acquisition  of The
Integrity  Group,  Inc.  ("TIG") in April  1996,  which was  accounted  for as a
pooling of interests  incorporating  TIG's results of operations  for the entire
fiscal  year.  In  addition,  the  fiscal  1996  results  reflect a full year of
revenues related to the Company's Episode Profiler product,  initially  released
in the fourth  quarter of fiscal 1995,  as well as revenues  from the release of
Quality Profiler in October 1995.

    Fiscal 1997 revenues  include  contributions  from 4 new products:  Referral
Profiler, Patterns Profiler, HealthPlan Reporter, and ProMatch. In addition, the
Company  has  recognized  development  revenues  in  fiscal  1997 from CCMS Core
co-development  contracts with Tufts Associated  Health Plans and  Healthsource,
Inc.

    Cost of Revenues.  Cost of revenues increased 74% from $4,235,000 in 1995 to
$7,348,000  in 1996 and 8% to  $7,900,000  in 1997. As a percentage of revenues,
the cost of revenues  increased from 23% in 1995 to 26% in 1996 and decreased to
20% in 1997. The increase from 1995 to 1996 was primarily due to certain royalty
payments to third parties for software licensed by the Company for incorporation
into the  Company's  products and by increased  investment  in the technical and
clinical customer support  functions.  During fiscal 1997 significant  resources
were  dedicated to the  development  of three new products  released  during the
year, as well as HPR's newest products,  CCMS Core (currently under development)
and CRMS Fundamentals. As a result, there was a shift in personnel resources and
the related  expenses  from  application  maintenance  and other typical cost of
revenue  projects,  to  application  development.   Accordingly,   there  was  a
redistribution  of fiscal 1997  expense  classification  from cost of revenue to
research and development.  As the Company  finishes  development of CCMS Core in
fiscal 1998 it is  expected  that the cost of  revenues  will remain  relatively
constant or increase  slightly as a percentage of revenues as resources focus on
the maintenance of the Company's twelve existing products.

    Marketing and Sales.  Marketing and sales  increased 36% from  $4,664,000 in
1995 to  $6,328,000  in 1996 and 37% to  $8,672,000  in 1997. As a percentage of
revenues,  marketing  and  sales  decreased  from 26% in 1995 to 22% in 1996 and
remained flat in 1997.  The Company  invests in certain  promotional  activities
each  fiscal  year  which  include  trade  shows  and  seminars  as  well as the
development  of  collateral  materials  designed  to increase  awareness  of the
Company and its products.  In addition,  the Company spends significant time and
resources in  recruiting  quality  individuals  to be a part of the direct sales
force.  As the Company has continued to invest in marketing and sales  programs,
the  investment  has  contributed  to higher  revenues in each of the last three
fiscal years causing sales and marketing  expense to decrease as a percentage of
revenues  over that same  period.  The Company  expects  sales and  marketing to
remain relatively constant as a percentage of revenues.

    Research and  Development.  Research and development  efforts by the Company
are focused on developing new products and enhancing existing products. Research
and  development  costs  increased 19% from  $3,257,000 in 1995 to $3,892,000 in
1996 as a result of continued  research efforts on Quality Profiler and Referral
Profiler.  Research and  development  increased  80% from  $3,892,000 in 1996 to
$7,011,000 in 1997 as a result of development in connection  with the release of
four new  products to market in fiscal  1997.  In  addition,  in fiscal 1997 the
Company underwent one of its largest  development  efforts to date in the design
and  production of CCMS Core,  the first in a suite of Clinical Care  Management
System products. As a percentage of revenues, research and development decreased
from 18% in 1995 to 14% in 1996 and then  increased in 1997 to 18%. The decrease
in 1996 is a result of two factors:  the significant increase in revenue dollars
in 1996 over 1995 and the  release of Episode  Profiler in late 1995 and Quality
Profiler in October 1996, both of which were in development  during fiscal 1995.
The increase in fiscal 1997 is a by-product of the development efforts discussed
above. With the increase in development  activities on the Company's new product
lines,  management  expects that  research  and  development  expenditures  will
increase but remain  substantially the same or decrease slightly as a percentage
of revenue for the foreseeable future.

    General and  Administrative.  General and administrative  expenses increased
76% from $2,037,000 in 1995 to $3,594,000 in 1996 and 33% to $4,774,000 in 1997.
As a percentage of revenues,  general and administrative expenses increased from
11% in 1995 to 13% in 1996 and  decreased  slightly to 12% in fiscal  1997.  The
increased expenditures from 1995 to 1996 are due primarily to increased expenses
related to being a publicly-traded company, certain costs incurred in moving the
Company's  headquarters in August 1995, and an increase in the provision for bad
debt expenses in proportion to the increase in revenues.  During fiscal 1997 the
Company made significant  investments in infrastructure,  management information
systems,  and human  resources  to prepare  itself for the future.  Although the
increase in  expenditures  in fiscal 1997 is in line with the  Company's  growth
during the year,  the Company  believes that if revenues  increase,  general and
administrative  expenses  should  decrease  as a  percentage  of revenues in the
future.  However,  there can be no  assurance  that  general and  administrative
expenses will not increase at a rate faster than revenues in the future.

     Costs of  Acquisition.  In April 1996,  the Company  acquired The Integrity
Group, Inc. ("TIG"), an Alabama corporation, in a transaction accounted for as a
pooling  of  interests.  The  Company  incurred  one time  costs  related to the
acquisition  of $336,000  primarily  related to legal,  accounting,  and finders
fees.

    Interest  Income  (Expense),  Net. The Company  realized  interest income of
$302,000 in 1995,  $877,000 in 1996,  and  $1,240,000 in 1997.  Interest  income
represents  interest  earned on the Company's  excess cash  balances,  which are
generally  placed in short term  investments,  money market funds and government
securities.  The increase is due to the interest  earned on cash balances of the
Company  generated from  operations and the proceeds from the Company's  initial
public  offering  of its  common  stock  completed  in August  1995 and from the
follow-on offering completed in February 1996.

    Gain on Settlement of Litigation.  In January 1995, the Company  settled all
of the  outstanding  claims  between the Company and GMIS,  Inc.  related to the
Company's  patent for CodeReview.  Under the settlement  agreement,  the Company
granted GMIS a nonexclusive  license under the patent, and GMIS acknowledged the
validity  of the patent and made a one-time  payment,  net of legal and  certain
other costs, of $5,800,000 to the Company.

    Income Taxes.  The  Company's  effective tax rate was 40.4% in 1995 compared
with 41.2% in 1996 and 41.5% in 1997. The Integrity Group, Inc. was a Subchapter
S corporation  until its acquisition on April 30, 1996. As a result,  the former
shareholders  of TIG are  responsible for all taxes on profits made through that
date. The Company has recorded taxes for the final two months of the 1996 fiscal
year related to TIG's activity. The Company has no federal income tax loss carry
forwards.


Liquidity and Capital Resources

    During the period from  inception  through June 30, 1997, the Company raised
approximately  $15.9  million,  net of expenses,  through the issuance of equity
securities,  of which amount  approximately $7.2 million was raised in the first
quarter of fiscal 1996 in the Company's initial public offering and $4.2 million
was raised in the third  quarter of fiscal 1996 in the  Company's  second public
offering.  The Company  generated cash of $5.3 million from operations in fiscal
1995,  approximately  $4.5 million in fiscal 1996 and approximately $3.8 million
during fiscal 1997. At June 30, 1997, the Company had cash and cash  equivalents
of $13.9 million. The Company regularly invests excess funds in short-term money
market funds, government securities and commercial paper.

    On February 7, 1997, the Company  received an extension and  modification of
its  revolving  bank credit  facility  from  $5,000,000  to  $7,500,000  with an
expiration date of December 30, 1997. No borrowings have been made to date under
the facility.

    The Company believes that available funds and cash generated from operations
will be  sufficient to meet the Company's  operating  requirements,  assuming no
change in the operations of the Company's business, for the foreseeable future.

    To date inflation has not had a material  impact on the Company's  financial
results.  There can be no assurance,  however,  that inflation may not adversely
affect the Company's financial results in the future.

Impact of Recently Issued Accounting Pronouncements

    The FASB issued Statement No. 128 ("SFAS 128"),  "Earnings per Share," which
modifies  the  way in  which  earnings  per  share  ("EPS")  is  calculated  and
disclosed.  Currently,  the Company discloses primary EPS. Upon adoption of this
standard  for the fiscal  period  ending  June 30,  1998,  the  Company  will be
required  to  disclose  either  basic EPS or both basic and  dilutive  EPS.  The
principal difference being that common stock equivalents would not be considered
in the  computation of basic EPS. The impact of adoption of SFAS 128 has not yet
been determined.

    The  FASB  recently  issued  Statement  No.  130  ("SFAS  130"),  "Reporting
Comprehensive  Income".  This statement requires changes in comprehensive income
to be shown in a financial  statement that is displayed with the same prominence
as  other  financial  statements.  While  not  mandating  a  specific  financial
statement  format,  the  Statement  requires that an amount  representing  total
comprehensive  income be  reported.  Comprehensive  income  components  include:
unrealized gains and losses on available-for-sale investments in debt and equity
securities,  foreign  currency  translation  adjustments,  and  minimum  pension
liability  adjustments.  The  Statement  will become  effective for fiscal years
beginning after December 15, 1997.  Reclassification of financial statements for
earlier  periods is required  for  comparative  purposes.  The Company  does not
believe  that this  statement  will have a  material  impact on the  results  of
operations.

    In June 1997, the Financial  Accounting  Standard Board issued  Statement of
Financial  Accounting No. 131,  "Disclosures about Segments of an Enterprise and
Related  Information"  (SFAS No. 131). SFAS No. 131 specifies new guidelines for
determining  a  company's  operating  segments  and  related   requirements  for
disclosure. The Company does not believe that this statement will have an impact
on the presentation of the financial statements and the disclosures therein.

Risk Factors Relating to Forward-Looking Statements

    Statements  in this  report  concerning  the future  results of  operations,
financial condition and business of the Company are "forward-looking" statements
as defined in the  Securities  Act of 1933 and the  Securities  Exchange  Act of
1934.   Investors   are   cautioned   that   information   contained   in  these
forward-looking  statements is inherently uncertain, and that actual performance
and results may differ  materially  due to numerous risk factors,  including but
not limited to the following:

    Seasonality and Variable Operating Results.

    The Company has  experienced a seasonal  pattern in its  operating  results,
with the fourth and second fiscal quarters typically having the highest revenues
and net income and the first and third fiscal  quarters  typically  having lower
revenues  and net income.  The timing of revenues is  influenced  by a number of
factors,  including  the timing of  individual  orders and  shipments,  seasonal
customer  buying  patterns  and  changes  in product  development  and sales and
marketing expenditures. The Company believes the seasonality of its revenues and
net income for the fourth  fiscal  quarter  can be  attributed  to due dates for
payment  obligations under multi-year license  agreements,  renewals of existing
agreements  and  the  Company's  sales  compensation  program,  which  is  based
significantly on fiscal year sales levels.  The Company believes the seasonality
of its revenues and net income in the second fiscal quarter can be attributed to
the seasonal  purchasing  patterns of its  customers.  The Company most recently
reported a net loss in the first and third quarters of fiscal 1994 and there can
be no assurance that the Company will be profitable  during future quarters.  In
addition, although the Company has no present agreements or commitments to enter
into any major contracts, the signing of a major contract could generate a large
increase in revenues and net income for any given quarter or fiscal year,  which
increase may prove anomalous when compared to changes in revenues and net income
in other periods.  Furthermore,  the Company  typically  experiences  long sales
cycles for new customers,  which may extend over several  quarters before a sale
is  consummated.  As a result,  the Company  believes that quarterly  results of
operations will continue to be subject to significant  fluctuations and that its
results of  operations  for any  particular  quarter  or fiscal  year may not be
indicative of results of operations for future periods.

    Dependence Upon New Product Development, Acceptance and Enhancement.

    The  market  for  the   Company's   products  is   characterized   by  rapid
technological progress and changing customer needs. The Company believes that as
the markets for CodeReview and Pattern  Review mature,  the continued  growth of
the  Company  will  require  the  successful   introduction   of  new  products.
Accordingly,  the  Company's  future  success  will  depend  on its  ability  to
successfully develop and introduce new products,  including HealthPlan Reporter,
CCMS  Core,  and the  other  modules  of the  Clinical  Care  Management  System
("CCMS"),  and to enhance its existing products.  There can be no assurance that
the Company will be successful in developing, introducing on a timely basis, and
marketing  such  products or  enhancements  or that they will be accepted by the
market.  Significant  research and development  expenditures will be required in
the future.  There can be no assurance  that the Company's  expected new product
releases and product enhancements will adequately address customer  requirements
for performance and  functionality  or that its software will not contain "bugs"
that would delay product introduction or shipment.

    Dependence on Third Party for Component of Episode Profiler.

    A principal  component of Episode Profiler,  the "Episode  Treatment Groups"
product,  is licensed from a third-party  vendor,  Symmetry Health Data Systems,
Inc.  ("Symmetry"),  under  the  terms of a  63-month  license  which  commenced
November  17, 1994 and has a 24-month  renewal term which is  contingent  on the
Company meeting minimum royalty  requirements.  Symmetry has agreed,  subject to
certain conditions, that it will not license Episode Treatment Groups to certain
other companies which might be considered  competitors of the Company. While the
Company  believes  that the terms of such  license  are  adequate to protect the
Company's  investment in Episode  Profiler,  any factor adversely  affecting the
Company's  ability  to retain  the  benefits  of such  license  or to obtain the
updated  Episode  Treatment  Groups would have a material  adverse effect on the
Company's results of operations, financial condition and business.


    Risk of Inability to Grow Through Acquisitions.

    The Company has grown,  and  intends to  continue to grow,  in part  through
acquisitions of products,  technologies and businesses. The Company's ability to
expand successfully through acquisitions depends on many factors,  including the
successful   identification  and  acquisition  of  products,   technologies  and
businesses and management's ability to effectively integrate and operate the new
products,  technologies  or  businesses.  There is significant  competition  for
acquisition   opportunities  in  the  industry,   which  may  intensify  due  to
consolidation  in the industry,  increasing  the costs of  capitalizing  on such
opportunities.  The Company  competes for acquisition  opportunities  with other
companies that have significantly greater financial and management resources.

    Management of Growth.

    The Company is currently experiencing a period of rapid growth and expansion
which could place a significant strain on the Company's personnel and resources.
The Company's growth has resulted in an increase in the level of  responsibility
for both existing and new management personnel. The Company has sought to manage
its  current  and  anticipated  growth  through the  recruitment  of  additional
management and technical  personnel and the  implementation  of internal systems
and controls.  However, the failure to manage growth effectively could adversely
affect the Company's results of operations, financial condition or business.

     Inability  to  Retain  or  Attract   Customers  Due  to   Competition   and
          Consolidation.

    The market in which HPR's products are licensed is highly competitive.  Most
of the Company's  competitors have significantly  greater financial,  technical,
product  development  and marketing  resources  than the Company.  The Company's
potential competitors for customers include healthcare information companies and
large data  processing  and  information  companies  that may have more  diverse
product offerings covering a broader spectrum of the healthcare  industry.  Many
of these competitors have substantial installed customer bases in the healthcare
industry and the ability to fund significant product development and acquisition
efforts.  In addition,  the Company has noted a trend towards  consolidation  of
customers within its market.  While this consolidation  results in substantially
larger  potential  customers,  the Company also is faced with a risk of existing
customers  being  acquired  by entities  that use a  competitor's  product.  The
Company  continues  to believe  that the  principal  competitive  factors in its
market are clinical  credibility  and  integrity and product  innovation.  These
factors  address both customer needs for cost  containment  tools and increasing
industry  concerns about quality control.  Other important  competitive  factors
include product  reputation and reliability,  system  features,  client service,
price,  and the  effectiveness  of marketing and sales efforts.  There can be no
assurance that future competition will not have a material adverse effect on the
Company's results of operations, financial condition or business.

    Dependence on Proprietary Software and Clinical Knowledge-Bases.

    The Company's success is dependent to a significant extent on its ability to
maintain the proprietary and confidential software and clinical  knowledge-bases
incorporated in CodeReview, ProMatch, Patterns Review, Episode Profiler, Quality
Profiler,  Referral  Profiler,  HealthPlan  Reporter,  Patterns  Profiler,  CRMS
Fundamentals,  CCMS Core and other  products as they are  released.  The Company
relies on a  combination  of patent,  trade secret,  copyright  and  contractual
protections to establish and protect its proprietary rights. There can, however,
be no assurance  that the legal  protections  and the  precautions  taken by the
Company  will  be  adequate  to  prevent   misappropriation   of  the  Company's
technology.  Any infringement or misappropriation  of the Company's  proprietary
software  and clinical  knowledge-bases  would  disadvantage  the Company in its
efforts to retain and attract new customers in a highly competitive  market, and
could  cause  the  Company  to lose  revenues  or incur  substantial  litigation
expense.  In  addition,   these  protections  and  precautions  do  not  prevent
independent  third-party  development  of  competitive  technology  or products.
Further,  the  Company  depends  on  third-party  suppliers  to  license  to HPR
necessary  technology  that  is  incorporated  into  certain  of  the  Company's
products,  including  Episode  Profiler.  The  inability  of the Company for any
reason to continue  using or otherwise  acquire such  technology  could  prevent
distribution of such products, which would have a material adverse effect on the
Company's results of operations, financial condition or business.

    Dependence on Certain Key Personnel.

    The Company depends to a significant extent on key management, technical and
marketing  personnel.  The  Company's  growth and future  success will depend in
large part on its  ability to  attract,  motivate  and retain  highly  qualified
personnel.  The  Company  does not have  employment  agreements  with any of its
officers or key employees  providing for their employment for any specific term.
The Company does not have "key person"  life  insurance on any of its  personnel
other than Marcia J.  Radosevich,  the  Company's  Chairman of the Board,  Chief
Executive Officer, and President.  The loss of key personnel or the inability to
hire or retain  qualified  personnel could have a material adverse effect on the
Company's results of operations, financial condition or business.

    Uncertainty in the Healthcare Industry.

    The  healthcare  industry is subject to  changing  political,  economic  and
regulatory influences that may affect the procurement practices and operation of
healthcare organizations. The Company's products are designed to function within
the structure of the current  national  healthcare  financing and  reimbursement
system currently being used in the United States.  The Company believes that the
commercial  value and appeal of its products  may be adversely  affected if that
system were to be materially changed.  During the past several years, the United
States  healthcare  industry  has been  subject to an increase  in  governmental
regulation of, among other things,  reimbursement rates. Proposals to reform the
United States healthcare system are from time to time under consideration by the
U.S.  Congress.  These  programs may contain  proposals  to increase  government
involvement in healthcare and otherwise change the operating environment for the
Company's customers.  Healthcare  organizations may react to these proposals and
the   uncertainty   surrounding   such  proposals  by  curtailing  or  deferring
investments  in  cost  containment  tools  and  related  technology  such as the
Company's products. The Company cannot predict what impact, if any, such factors
might have on its results of  operations,  financial  condition or business.  In
addition,  many  healthcare  providers are  consolidating  to create  integrated
healthcare  delivery  systems with greater  regional  market power. As a result,
these emerging systems could have greater  bargaining  power,  which may lead to
price erosion of the Company's products.  The failure of the Company to maintain
adequate  price levels  would have a material  adverse  effect on the  Company's
results of operations,  financial  condition or business.  Other  legislative or
market-driven  reforms could have unpredictable effects on the Company's results
of operations, financial condition or business.

    Risk of Product Liability Claims.

    The  Company's  products  provide  information  that  relates  to payment of
healthcare claims and to the  appropriateness of medical treatment in particular
cases and in general.  Any  failure by the  Company's  products to process  such
claims or to review such  treatments  accurately  could result in claims against
the Company by its customers.  Further, successful use of the Company's products
could  influence  the  treatments  rendered by providers and give rise to claims
against the Company by patients or providers. The Company maintains insurance to
protect  against  certain claims  associated  with the use of its products,  but
there can be no assurance that its insurance coverage would adequately cover any
claim  asserted  against the Company.  A successful  claim  brought  against the
Company in excess of, or excluded  from,  its  insurance  coverage  could have a
material  adverse  effect on the  Company's  results  of  operations,  financial
condition or business.  Even  unsuccessful  claims could result in the Company's
expenditure of funds in litigation and management  time and resources.  While to
date the Company has not  experienced any product  liability  claims against it,
the Company is aware of claims made  against  payors by  patients  for  coverage
decisions  which  adversely  influenced  medical  treatment.  There  can  be  no
assurance that the Company will not be subject to product liability claims, that
such claims will not result in  liability in excess of its  insurance  coverage,
that  the  Company's  insurance  will  cover  such  claims  or that  appropriate
insurance  will  continue  to be  available  to the  Company  in the  future  at
commercially  reasonable rates. In addition, if liability of the Company were to
be established, substantial revisions to its products could be required that may
cause the Company to incur  additional  unanticipated  research and  development
expenses.


    Possible Volatility of Stock Price.

     Prior to August 10, 1995,  there was no public market for the Common Stock,
and there can be no assurance that an active trading market will be sustained or
that the market  price of the Common  Stock will not  decline  below its current
price.  The stock  market  historically  has  experienced  volatility  which has
affected  the  market  price of  securities  of many  companies  and  which  has
sometimes been unrelated to the operating  performance  of such  companies.  The
trading  price  of the  Common  Stock  could  also  be  subject  to  significant
fluctuations  in response to  variations  in  quarterly  results of  operations,
announcements of new products or acquisitions by the Company or its competitors,
governmental  regulatory action,  other developments or disputes with respect to
proprietary   rights,   general  trends  in  the  industry  and  overall  market
conditions,  and other  factors.  The market  price of the  Common  Stock may be
significantly  affected by factors such as  announcements of new products by the
Company's  competitors,  as well as variations  in the market  conditions in the
medical cost containment or software industries in general. The market price may
also be affected by movements in prices of equity securities in general.



<PAGE>




Item 8.  Financial Statements and Supplementary Data

                                                     HPR Inc.

                                    INDEX TO CONSOLIDATED FINANCIAL STATEMENTS


                                                                            Page
Report of Independent Accountants............................................29
Consolidated Balance Sheets as of June 30, 1996 and 1997 ....................30
Consolidated Statements of Operations for the fiscal years ended June 30,
1995, 1996 and 1997..........................................................31
Consolidated Statements of Stockholders' Equity for the fiscal years ended
June 30, 1995, 1996 and 1997.................................................32
Consolidated Statements of Cash Flows for the fiscal years ended June 30,
1995, 1996 and 1997..........................................................33
Notes to Consolidated Financial Statements...................................34


<PAGE>




                                         REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Stockholders of HPR Inc:

    We have audited the accompanying  consolidated balance sheets of HPR Inc. as
of  June  30,  1996  and  1997,  and  the  related  consolidated  statements  of
operations,  stockholders'  equity and cash flows for each of the three years in
the  period  ended  June  30,  1997.   These   financial   statements   are  the
responsibility of the Company's management.  Our responsibility is to express an
opinion on these financial statements based on our audits.

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

    In our opinion,  the financial  statements referred to above present fairly,
in all material respects,  the consolidated financial position of HPR Inc. as of
June 30, 1996 and 1997 and the  consolidated  results of its  operations and its
cash flows for each of the three  years in the period  ended June 30,  1997,  in
conformity with generally accepted accounting principles.







                                                        COOPERS & LYBRAND L.L.P.

Boston, Massachusetts
August 1, 1997


<PAGE>




                                    HPR Inc.

                           CONSOLIDATED BALANCE SHEETS

<TABLE>

                                                                      June 30,
                                                             ---------------------------
<CAPTION>

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

ASSETS:
Current Assets:
  Cash and cash equivalents (Note 2) ................   $  8,479,122    $ 13,943,693
  Investments in marketable securities (Note 4) .....      9,016,146      10,842,696
  Accounts receivable, net of allowances for doubtful
    accounts of $603,000 and $651,500 for 1996 and ..      4,491,065       6,952,573
1997
  Contract receivables ..............................      3,142,680       6,890,342
  Deferred income taxes (Note 7) ....................        415,149         698,022
  Prepaid expenses and other current assets .........        727,044       1,257,276
                                                        ------------    ------------
         Total current assets .......................     26,271,206      40,584,602
Investments in marketable securities (Note 4) .......      5,394,340       2,984,465
Property and equipment, net (Note 5) ................      1,964,164       2,509,775
Software development costs, net (Note 2) ............        873,427       1,347,654
Other assets ........................................        100,332         104,570
                                                        ------------    ------------
         Total assets ...............................   $ 34,603,469    $ 47,531,066
                                                        ============    ============
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current Liabilities:
  Accounts payable ..................................   $    607,259    $    749,138
  Accrued royalties .................................        456,521       1,025,979
  Accrued expenses ..................................        581,524       1,181,450
  Accrued support costs .............................      1,425,191       1,792,584
  Accrued employee compensation and benefits ........      1,323,973       2,247,295
  Deferred revenue ..................................        698,029       1,498,147
  Income taxes payable ..............................        438,758            --
  Sales taxes payable ...............................        275,022         209,067
                                                        ------------    ------------
         Total current liabilities ..................      5,806,277       8,703,660
Deferred income taxes (Note 7) ......................        882,173         558,791
                                                        ------------    ------------
         Total liabilities ..........................      6,688,450       9,262,451
                                                        ------------    ------------
Commitments and contingencies (Note 6)
Stockholders' Equity:
  Convertible preferred stock, par value $0.10,
                                                                           3,000,000
    shares authorized; zero shares outstanding at
June 30,
   1996 and 1997 ....................................           --              --
  Common stock, par value $0.01, 35,000,000 shares
    authorized; 17,918,625 and 15,325,303 shares
issued
    and 15,012,375 and 15,325,303 shares outstanding
at
    June 30, 1996 and 1997, respectively ............        179,185         153,253
  Additional paid-in capital ........................     15,972,680      18,335,055
  Less treasury stock, at cost: 2,906,250 and zero
shares at
    June 30,1996 and 1997, respectively .............     (2,843,900)           --
  Retained earnings .................................     14,607,054      19,780,307
                                                        ------------    ------------
         Total stockholders' equity .................     27,915,019      38,268,615
                                                        ------------    ------------
         Total liabilities and stockholders' equity .   $ 34,603,469    $ 47,531,066
                                                        ============    ============
</TABLE>

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





                                                     HPR Inc.
                                       CONSOLIDATED STATEMENTS OF OPERATIONS



                                            Fiscal Year Ended June 30,
                                          1995          1996           1997
                                     ------------- -------------  ---------

Revenues.........................     $18,263,831    $28,310,272   $39,101,380
Expenses:
  Cost of revenues...............       4,234,427      7,348,354     7,900,286
  Marketing and sales............       4,664,362      6,328,282     8,672,199
  Research and development.......       3,257,268      3,891,381     7,010,839
  General and administrative.....       2,036,644      3,594,331     4,774,084
  Cost of acquisition (Note 12) .              --        335,544            --
                                               --        -------            --
Total expenses...................      14,192,701     21,497,892    28,357,408
                                       ----------     ----------    ----------
Operating income.................       4,071,130      6,812,380    10,743,972
Interest income (expense), net...         301,412        877,377     1,240,066
Gain on settlement of litigation
  (Note 11)......................       5,800,223             --            --
                                        ---------             --            --
Income before provision for income
  taxes..........................      10,172,765      7,689,757    11,984,038
Provision for income taxes.......       4,105,277      3,167,894     4,973,385
                                        ---------      ---------     ---------
Net income.......................      $6,067,488     $4,521,863    $7,010,653
                                       ==========     ==========    ==========

Net income per share.............           $0.43          $0.29         $0.44
Weighted average common shares and
  equivalents (1)................      14,175,000     15,840,000    16,103,000


(1)  All share and earnings per share  amounts have been restated to reflect the
     stock split effected in the form of a 100% stock dividend granted on May 6,
     1996 to all shareholders of record on April 26, 1996.





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



<PAGE>




                                    HPR Inc.
                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
             For the Fiscal Year Ended June 30, 1995, 1996 and 1997



<TABLE>


<CAPTION>

                      Preferred                                                                                                  
                          Stock                  Common       Common  Additional                Treasury    Treasury          Total
                         Shares                   Stock        Stock     Paid-in    Retained       Stock       Stock   Stockholders'
                         Issued      Amount      Issued       Amount     Capital    Earnings      Shares      Amount         Equity
                    ----------- ----------- -----------  ----------- ----------- ----------- ----------- -----------    -----------
<S>                   <C>       <C>           <C>        <C>         <C>         <C>          <C>         <C>           <C>

Balance at June 30,   2,762,500 $   276,250   8,835,900  $    88,359 $ 3,606,576 $ 3,928,199  (2,906,250) $(2,843,900)  $ 5,055,484
1994 Issuance of      
common stock             25,000         250      16,000                                                                      16,250
  Options exercised   1,465,000      14,650     127,880                                                                     142,530
  Net income .......                                                               6,067,488                              6,067,488
                    ----------- -----------  -----------  ---------- ----------- ----------- -----------   -----------  -----------

Balance at June 30, 
1995 ..............   2,762,500     276,250   10,325,900     103,259   3,750,456   9,995,687 (2,906,250)   (2,843,900)    11,281,752
                    ----------- -----------  ----------- ----------- ----------- ----------- -----------   -----------   -----------
Pooling of interests 
 with The Integrity       
 Group, Inc. ..                                  260,001       2,600     119,900      89,504                                 212,004
Balance as restated   2,762,500     276,250   10,585,901     105,859   3,870,356  10,085,191 (2,906,250)   (2,843,900)    11,493,756
                    ----------- -----------  ----------- ----------- ----------- ----------- -----------   -----------   -----------
Conversion of     
preferred stock...  (2,762,500)   (276,250)    5,525,000      55,250     221,000                                                  --
  Issuance of common 
   stock in initial      
   public offering                             1,077,052      10,770   8,002,578                                           8,013,348
   
  Expenses related 
    to initial public      
    offering ......                                                    (858,896)                                           (858,896)
  Issuance of common
    stock in second                              288,596       2,886   4,645,545                                           4,648,431
    public offering
  Expenses related to
    second public ....                                                 (424,420)                                           (424,420)
    offering
  Options exercised ..                           442,076       4,420     164,632                                             169,052
  Tax benefits on stock
    options       
    exercised......                                                      351,885                                             351,885
  Net income ......                                                                4,521,863                               4,521,863
                    ----------- -----------  ----------- ----------- ----------- ----------- -----------   -----------   -----------
Conversion of     
Balance at June 30, 
1996 ..............         --           --   17,918,625     179,185  15,972,680  14,607,054 (2,906,250)   (2,843,900)    27,915,019
                    ----------- -----------  ----------- ----------- ----------- ----------- -----------   -----------   -----------
  Options exercised                              325,180       3,252     399,349                                             402,601
  Purchase of 
    Treasury Stock                                                                              (12,252)       (7,922)       (7,922)
  Tax benefits on 
    stock options                                                      2,948,264                                           2,948,264
   exercised
  Retirement of                              (2,918,502)    (29,184)   (985,238   (1,837,400)  2,918,502     2,851,822            --
    Treasury Stock

  Net income                                                                       7,010,653                               7,010,653
                    ----------- -----------  ----------- ----------- ----------- ----------- -----------   -----------   -----------
Balance at June 
  30, 1997 ........          -- $         0   15,325,303 $   153,253 $18,335,055 $19,780,307          --   $         0   $38,268,615
                    =========== ===========  =========== =========== =========== =========== ===========   ===========   ===========
</TABLE>

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



                                                     HPR Inc.

                                       CONSOLIDATED STATEMENTS OF CASH FLOWS

                                              Fiscal Year Ended June 30,
                                           1995          1996          1997
                                       ------------  ------------  --------

Cash flows from operating activities:
  Net income........................     $6,067,488    $4,521,863    $7,010,653
  Adjustments to reconcile net
income to
     cash provided by operating
activities:
     Depreciation and amortization..      1,074,491     1,254,119     1,467,972
     Provision for doubtful accounts        210,000       321,302       425,000
     Loss on disposal of equipment..        124,488            --            --
     Amortization of discount on
       investments..................             --     (114,242)     (203,353)
  Change in operating assets and
     liabilities:
     Accounts receivable............    (1,867,568)   (1,785,004)   (6,634,170)
     Prepaid expenses...............      (970,859)       490,502     (530,232)
     Other assets...................         76,191            --       (4,238)
     Accounts payable and other
accrued
       liabilities..................      1,130,196       322,411     2,601,978
     Sales taxes payable............      (123,944)       128,403      (65,955)
     Deferred revenue...............       (62,258)      (90,895)       800,118
     Deferred income taxes..........        373,364   (1,026,570)     (606,255)
     Income taxes payable...........      (705,401)       438,758     (438,758)
                                          ---------       -------     ---------
       Net cash provided by operating
          activities................      5,326,188     4,460,647     3,822,760
                                          ---------     ---------     ---------
Cash flows for investing activities:
  Capitalized software development
     costs..........................      (591,261)     (366,332)   (1,025,009)
  Capital expenditures..............      (664,330)   (1,732,624)   (1,462,801)
  Sale of marketable securities.....             --    15,276,906    18,763,596
  Purchase of marketable securities.             --  (29,573,130)  (17,976,918)
                                                 --  ------------  ------------
       Net cash used in investing
          activities................    (1,255,591)  (16,395,180)   (1,701,132)
                                        -----------  ------------   -----------
Cash flows from financing
  activities:
  Proceeds from initial public
     offering.......................             --     8,013,348            --
  Expenses related to initial public
     offering.......................             --     (858,896)            --
  Proceeds from second public
     offering.......................             --     4,648,431            --
  Expenses related to second public
     offering.......................             --     (424,420)            --
  Proceeds from sale of common stock         16,250            --            --
  Proceeds from exercise of stock
     options........................        142,530       169,052       402,601
  Payments to acquire treasury stock             --            --       (7,922)
  Payments on long-term debt........       (91,860)            --            --
  Tax benefits from exercise of stock
       options......................             --       351,885     2,948,264
                                                 --       -------     ---------
       Net cash provided by
          financing activities......         66,920    11,899,400     3,342,943
                                             ------    ----------     ---------
Net increase (decrease) in cash and
cash
  equivalents.......................      4,137,517      (35,133)     5,464,571
                                          ---------      --------     ---------
Cash and cash equivalents, beginning
of
  period............................      4,348,545     8,486,062     8,479,122
Cash and cash equivalents provided
by the
  acquisition of The Integrity                   --        28,193            --
Group, Inc. ........................
Adjusted cash and cash equivalents,
  beginning of period...............      4,348,545     8,514,255     8,479,122
                                          ---------     ---------     ---------
Cash and cash equivalents, end of
  period............................     $8,486,062    $8,479,122   $13,943,693
                                         ==========    ==========   ===========

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





                                                     HPR Inc.

                                    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(1) Description of Business

    HPR  develops  and  markets  software  and  proprietary   database  products
incorporating  clinical knowledge that enable payors and providers of healthcare
services to better manage the  financial  risk  associated  with the delivery of
healthcare and the quality of care.  HPR products are used to manage  healthcare
costs  and  quality  of care by  clinically  evaluating  providers'  claims  for
payment;  measuring  efficiency,  quality,  and  medical  outcomes;  determining
appropriate  utilization of medical  services;  influencing  physician  referral
patterns and profiling practice patterns;  assisting in HEDIS(R) reporting;  and
managing and supporting the physician credentialing and accreditation processes.
The Company's  clinical  knowledge  bases are developed and maintained by a full
time medical staff in consultation with  board-certified  physicians  serving on
Company-organized panels.

    The  Company's  products are designed to meet the needs of parties  assuming
financial  risk for the  delivery of  healthcare.  HPR believes  that  providing
clinical  knowledge in usable form is essential  to its  customers.  The Company
believes  it can be  distinguished  from its  competitors  through the depth and
integrity of its  "clinical  knowledge  bases.  HPR is currently  marketing  its
CodeReview(R),  Medicare CodeReview(TM),  ProMatch(TM), Patterns Review(R), CRMS
Fundamentals(TM),   Episode   Profiler(TM),   Quality   Profiler(TM),   Referral
Profiler(TM), Patterns Profiler(TM), HealthPlan Reporter(TM),  Credentialer(TM),
and CCMS Core(TM) products.  HPR markets its products through a combination of a
national direct sales force and third-party marketing agreements.

    The Company was  incorporated on September 28, 1987 in  Massachusetts  under
the name HPR, Inc. The Company re-incorporated in Delaware on December 20, 1991,
under the name Health  Payment  Review,  Inc. On July 24, 1995,  the name of the
Company  was  changed  to  HPR  Inc.  Unless  the  context  otherwise  requires,
references  herein to the  "Company"  and "HPR"  refer to HPR Inc.,  a  Delaware
corporation,  its  wholly-owned  subsidiaries  and HPR, Inc., its  Massachusetts
predecessor.  On June 3, 1992, Concurrent Review Technology,  Inc., a California
corporation,  was merged into the Company's wholly-owned subsidiary,  Concurrent
Review Technology,  Inc., a Delaware corporation. On August 16, 1995 the Company
established a wholly-owned  subsidiary,  HPR Securities  Corp., a  Massachusetts
corporation.  On April 30, 1996, the Company acquired The Integrity Group, Inc.,
an Alabama corporation,  which became a wholly-owned subsidiary of HPR. On April
18, 1997 the Company established a wholly-owned  subsidiary,  HPR International,
Inc., a Barbados corporation.


(2) Summary of Significant Accounting Policies

Principles of Consolidation

    The accompanying  financial  statements  include the accounts of the Company
and its  wholly-owned  subsidiaries,  Concurrent  Review  Technology,  Inc., HPR
Securities  Corp., The Integrity Group,  Inc., and HPR  International,  Inc. All
significant  intercompany  accounts and  transactions  have been  eliminated  in
consolidation.

Financial Statement Presentation

    On July 20, 1995, the stockholders of the Company approved a 2.5-for-1 stock
split of the Company's common stock and preferred stock and approved an increase
of the authorized  number of common shares to 35,000,000 and of preferred shares
to 3,000,000. On April 16, 1996, the Company announced a stock split effected in
the form of a 100% stock  dividend  to all  shareholders  of record on April 26,
1996. The stock dividend was granted on May 6, 1996. Accordingly,  all share and
per share  amounts have been adjusted to reflect the stock splits as though they
had occurred at the beginning of the initial period presented.

    Reclassification

    Certain   reclassifications   have  been  made  to  prior  year's  financial
statements to conform to the fiscal 1997 presentation.

Cash and Cash Equivalents

    The Company considers all highly liquid instruments  purchased with original
maturities  of  three  months  or less at the  time  of  acquisition  to be cash
equivalents.  Cash and cash equivalents include U.S. government  obligations and
U.S.  government  money market mutual funds used for temporary  cash  management
purposes.

Investments in Marketable Securities

    In  accordance  with  FAS  115,  the  Company   determines  the  appropriate
classification  of its investments in debt and equity  securities at the time of
purchase and  reevaluates  such  determination  at each balance sheet date. Debt
securities  which the Company has the intent or ability to hold to maturity  are
classified  as held to  maturity.  The  Company  held no  investments  in equity
securities at June 30, 1996 and 1997. Securities held to maturity are carried at
amortized  cost which  approximates  fair  market  value.  At June 30,  1997 the
Company had no investments  that qualified as trading or available for sale. The
Company  classifies  investments  that  mature  greater  than 12 months from the
balance sheet date as long term investments.

Concentration of Credit Risk

    Financial instruments which potentially expose the Company to concentrations
of credit risk consist primarily of cash, investments, and accounts and contract
receivables.  The  Company  places  its  temporary  cash  investments  in  three
financial  institutions.  The  Company has not  experienced  any losses on these
investments to date. The Company has not experienced  significant losses related
to  receivables  from  individual  customers  or  groups  of  customers  in  the
healthcare industry or by geographic area.

Property and Equipment

    Property and  equipment  are stated at cost.  Depreciation  is computed on a
straight-line  basis  over a two-to  five  year  estimated  useful  life for all
property and equipment with the exception of leasehold  improvements,  which are
amortized over the shorter of the life of the  improvement or the remaining life
of the lease.  Repairs and maintenance costs are charged to expense as incurred.
Upon  retirement  or sale,  the cost of the assets  disposed  of and the related
accumulated depreciation are removed from the accounts and any resulting gain or
loss is included in the determination of net income.

Software Development Costs

    The Company capitalizes  software costs for internally developed software in
accordance with Statement of Financial  Accounting Standards No. 86, "Accounting
for the Costs of Computer  Software to be Sold,  Leased or Otherwise  Marketed."
These costs relate  primarily to the  development  of new products and extending
existing  applications to new markets or platforms  using existing  technologies
and  programming  methods.   All  costs  incurred  to  establish   technological
feasibility are charged to expenses as incurred.  Internally  developed software
costs capitalized were $591,261,  $366,332 and $1,025,009 for fiscal years 1995,
1996,  and  1997,  respectively.  The  capitalized  costs  are  amortized  on  a
straight-line  basis over their estimated  useful lives (typically three years),
commencing  when each product is available to the market.  Amortization of these
software  development  costs is  included  in costs  of  revenues.  Amortization
expense for computer  software was $608,285,  $578,125 and $550,782 during 1995,
1996, and 1997,  respectively.  Accumulated amortization of software development
costs was  $1,438,254,  $2,016,379  and  $2,567,161 at June 30, 1995,  1996, and
1997, respectively.
    The  Company  evaluates,   on  a  quarterly  basis,  the  recoverability  of
capitalized  software  costs on the  basis  of  whether  such  costs  are  fully
recoverable from projected  undiscounted cash flows of individual  products.  In
performing its evaluation, the Company must make estimates of anticipated future
gross  revenues as well as the  remaining  economic  life of the product.  It is
reasonably  possible that those estimates could be reduced in the near term as a
result of items such as competitive pressures.  As a result, the carrying amount
of the capitalized  software costs for a particular  product line may be reduced
materially in the near term.

Revenue Recognition

    The  Company  licenses  its  products   primarily   pursuant  to  multi-year
non-cancellable agreements that provide for payment of equal annual license fees
over their terms. The Company recognizes revenue in accordance with Statement of
Position  No.  91-1,  "Software  Revenue  Recognition,"  issued by the  American
Institute  of  Certified  Public  Accountants.  Revenue  from  software  license
agreements  is  recognized  upon  execution  of a contract  and  shipment of the
software provided that no significant  vendor obligations remain outstanding and
the  related  receivable  is due  within  one  year  of the  contract  date  and
collection  is deemed  probable  by  management.  For  recurring  license  fees,
revenues are  recognized  on the  contract  anniversary  date.  The Company also
accrues  incidental  support costs  associated with these licenses when revenues
are  recognized.  Revenues  from services are  recognized  when the services are
delivered.

    In fiscal 1995, the Company  retroactively changed its method of recognizing
renewal or recurring  revenue from the recognition of the annual contract amount
ratably  over the  renewal  period to the  recognition  of the entire  recurring
amount on the contract  anniversary date. The change was made in accordance with
the Accounting  Principles  Board Opinion No. 20 in  contemplation of an initial
public distribution of the financial  statements.  The financial  statements for
all periods  presented  have been restated to reflect the change in  accounting.
The effect of the  restatement  was an increase to revenue of $1,703,000 for the
year ended June 30, 1995. The effect of the  restatement  was an increase to net
income and net income per share of $987,000 or $0.07.

    Customer payment terms vary. Amounts billed in advance of satisfying revenue
recognition  criteria are  classified  in current and long term  liabilities  as
deferred  revenue  in  the  accompanying  balance  sheets.  Costs  and  earnings
recognized in advance of billing are  classified  in current  assets as contract
receivables.

Research and Development

    Research and development costs are charged to expense as incurred.

Income Taxes

    Under the liability  method  specified by SFAS No. 109, a deferred tax asset
or  liability  is  determined  based on the  difference  between  the  financial
statement  and tax basis of assets and  liabilities,  as measured by the enacted
tax rates expected to apply when these  differences  reverse.  SFAS No. 109 also
requires a valuation  allowance  against net  deferred tax assets if, based upon
the  available  evidence,  it is more  likely  than not that  some or all of the
deferred tax assets will not be realized.

Net Income Per Share

    Net income per share of common  stock is  computed  for each year based upon
the weighted  average number of common shares  outstanding  and dilutive  common
stock  equivalents.  For purposes of this calculation,  outstanding  options are
considered common stock equivalents (using the treasury stock method).  Pursuant
to Securities and Exchange  Commission Staff Accounting  Bulletin No. 83, common
and common equivalent shares issued during the 12 month period prior to the date
of the initial filing of the Company's Registration Statement have been included
in the calculation, using the treasury stock method, as if they were outstanding
for all periods presented. Fair market value for the purpose of this calculation
was assumed to be $6.75,  which is the midpoint of the initial  public  offering
price range.  The number of shares used in this calculation has been adjusted to
reflect a 2.5-for-1  stock split in July 1995 and a 2 for 1 stock split effected
in the form of a 100% stock dividend in May 1996.

Use of Estimates in the Preparation of the Financial Statements

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


(3) Line of Credit

    On February 1, 1997, the Company  received an extension and  modification of
its  revolving  bank credit  facility  from  $5,000,000  to  $7,500,000  with an
expiration   date  of  December  30,  1997.  The  $7,500,000  bank  line  is  an
uncollateralized  borrowing line. The current and prior  agreements  require the
Company to achieve certain levels of tangible net worth and to maintain  certain
financial  ratios.  Borrowings  under the new  agreement  bear interest at prime
rate,  8.50% at June 30,  1997.  During  1996  and 1997 the line of  credit  was
unused; therefore, no interest was paid.

 (5) Property and Equipment

    Property and equipment, at cost, consist of the following:


                                                  June 30,
                                                -------------------------
                                                    1996         1997
                    Computer equipment.........  $1,272,852   $2,112,785
                    Computer software..........     367,643      455,918
                    Furniture and fixtures.....     612,366      646,034
                    Office equipment...........     323,081      436,047
                    Leasehold improvements.....     433,576      811,354
                                                    -------      -------
                                                  3,009,518    4,462,138
                    Less accumulated            (1,045,354)  (1,952,363)
                                                -----------  -----------
                    depreciation...............
                                                 $1,964,164   $2,509,775

Depreciation expense was $332,624, $675,967 and $917,190 in 1995, 1996, and
1997 respectively.


(6) Commitments and Contingencies

The Company has entered into operating leases of office facilities, which expire
at various  dates through  2003.  Certain  leases  include  renewal  options and
escalation  clauses for increases in real estate taxes and  operating  expenses.
Future  minimum rental  payments under the operating  leases as of June 30, 1997
are as follows:

                                                    Minimum Lease
                                                     Payments Due
                             Year
                             1998                     $1,118,004
                             1999                      1,146,399
                             2000                      1,104,375
                             2001                      1,119,829
                             2002                      1,258,375
                             Thereafter                1,500,297

         Total  rent   expense   under   noncancelable   operating   leases  was
approximately  $437,000,  $667,000,  and $868,900  during 1995,  1996, and 1997,
respectively.

     The  Company's  Executive  Separation  Benefits Plan provides for severance
payments  to be made  to  members  of its  senior  management  in the  event  of
termination of the eligible employee's employment. The Plan provides for payment
for up to 24 months of annual base salary  upon  termination  by the Company for
reasons other than disability or "good cause" as defined therein.  The Company's
Non-Executive  Separation Benefits Plan for key contributors and other employees
as defined  therein  provides for payment of up to six months annual base salary
upon  termination  by the  Company for reasons  other than  disability  or "good
cause" as defined.

    The Company has also entered into non-competition agreements with certain of
its executive  officers.  These agreements provide that upon termination of such
officer's  employment by the Company,  he or she will refrain for a period of up
to 24  months,  to be  determined  by  the  Company,  from  certain  competitive
activities with respect to the Company.  If the Company  exercises its option to
restrain any such officer from  competitive  activity,  it will pay such officer
33% of his or her monthly salary as of termination  for each month for which the
executive officer agrees to refrain from competing with the Company.

    The Company has third party royalty and marketing  agreements for certain of
its  products.  The  agreements  call for the payment of  predetermined  royalty
amounts  over  the  life  of the  Company's  software  license  agreements  with
customers.  All amounts due under such  agreements  have been accrued as of June
30, 1997.


(7) Income Taxes

     The Company follows SFAS No. 109, "Accounting for Income Taxes". Under SFAS
109,  deferred tax assets and deferred tax liabilities  are recognized  based on
temporary  differences  between  the  basis  of  assets  and  liabilities  using
statutory rates.

                                                     June 30,    June 30,
                                                       1996        1997
                  Gross deferred tax assets:
                  Reserves and certain accrued     $995,566   $1,197,630
                  expenses....................     --------   ----------
                                 Subtotal......     995,566    1,197,630
                  Gross deferred tax liabilities:
                  Property and equipment           
                    depreciation..............      (13,762)     (20,537)
                  Deferred revenue............   (1,086,813)   (499,609)
                  Capitalized software 
                    amortization..............     (351,729)    (538,253)
                         Other................      (10,286)        -
                                                    --------    --------- 
                                 Subtotal.....   (1,462,590) (1,058,399)
                                                   ---------    ---------
                 Net deferred tax 
                  (liability)/asset.              $(467,024)     $139,231
                                                  ==========     ========



    The provision for income taxes consists of the following:

                                                 Fiscal Year Ended June 30,
                                              1995          1996          1997
                                            ----------  ------------  --------
           Current:
                Federal...............    $2,845,133    $3,276,743    $4,540,134
                State.................       886,780       917,722     1,039,506
                                             -------       -------     ---------
                                           3,731,913     4,194,465     5,579,640
           Deferred
                Federal...............       285,285     (784,396)     (644,925)
                State.................        88,079     (242,175)        38,670
                                              ------     ---------        ------
                                             373,364   (1,026,571)     (606,255)
                                             -------   -----------     ---------
              Provision for income        
               taxes..................    $4,105,277    $3,167,894    $4,973,385
                                           =========    ==========    ==========
                    .


    A reconciliation between the Company's effective rate and the U.S. statutory
rate is as follows:


                                                            Fiscal Year Ended
                                                                 June 30,
                                                         1995     1996    1997
                                                       -------- --------------
                        U.S. statutory rate...........   34.0%   34.0%      35%
                        State taxes, net of federal        6.3     5.9      5.0
                        benefit.......................
                        Goodwill......................     0.5      --       --
                        Other.........................     0.5     2.1      2.3
                        Research and development credits  (0.9)     --       --
                        Federal rate differential.....      --      --     (0.8)
                        Acquisition of The Integrity        --    (0.8)      --
                          Group, Inc.                     -----   -----    -----
                                                          40.4%   41.2%    41.5%
                                                          =====   =====    =====

    Total tax payments  made in the fiscal  years ended June 30, 1995,  1996 and
1997 were $4,708,000,  $3,187,000, and $3,390,000 respectively.  In fiscal years
ended June 30, 1996 and 1997, the Company recognized  $351,900 and $2,948,300 of
tax benefits associated with the exercise of employee stock options.


(8) Stockholders' Equity

Preferred Stock

    Holders  of  the  Company's  outstanding  convertible  preferred  stock  are
entitled  to  convert  each  share  into one share of common  stock,  subject to
certain antidilutive adjustments. In the event of liquidation of the Company the
holders of  preferred  stock are  entitled to receive,  before  distribution  to
common  stockholders,  $1.02 per  share.  There  were no  outstanding  shares of
preferred stock as of June 30, 1997.

Treasury Stock

    During  1997,  the Company  retired  2,918,438  common  stock shares held in
treasury.  The  excess  of cost over par value  was  charged  proportionally  to
Additional Paid in Capital and Retained Earnings.

Stock Option Plans

    1991 Stock  Plan.  The  Company's  1991 Stock Plan (the "1991  Stock  Plan")
provides for the grant of nonqualified  and incentive stock options to employees
and others to purchase up to 1,160,000  shares of the  Company's  common  stock.
Options  granted under the plan are  exercisable at the fair market value of the
stock at the date of grant, are exercisable in full at any time, vest over three
to four years and expire ten years from the date of grant.

     1995 Stock Plan.  The Company's 1995 Stock Plan (the "1995 Stock Plan") was
approved  by the  Board of  Directors  on June 26,  1995,  and by the  Company's
stockholders on July 20, 1995, and amended by the Board of Directors on July 22,
1996 and  approved  (as amended) by the  Company's  stockholders  on November 1,
1996.  The 1995 Stock  Plan  provides  for the grant or award of stock  options,
restricted stock, stock  appreciation  rights and other performance awards which
may or may not be  denominated  in shares of  Common  Stock or other  securities
(collectively,  the "Awards").  Stock options  granted under the 1995 Stock Plan
may be either incentive stock options or non-qualified  options.  The purpose of
the 1995 Stock Plan is to attract and retain  outstanding  employees through the
incentives of stock  ownership and monetary  payments.  Every regular  full-time
employee of the Company,  including officers but excluding directors who are not
officers, is eligible to receive awards.

    The 1995 Stock Plan is  administered  by the  Compensation  Committee of the
Board  of  Directors.  Subject  to the  provisions  of the 1995  Stock  Plan and
approval by the Board of Directors, the Compensation Committee has the authority
to  designate  participants,  determine  the types of Awards to be granted,  the
number of shares to be  covered by each  Award,  the time at which each Award is
exercisable  or may be  settled,  the method of payment  and any other terms and
conditions of the Awards. All Awards are evidenced by an Award Agreement between
the Company and the participant.

    While the Compensation  Committee determines the prices at which options and
other Awards may be exercised  under the 1995 Stock Plan, the exercise price per
share of an  incentive  stock  option  shall be at least 100% of the fair market
value  (as  determined  under the  terms of the 1995  Stock  Plan) of a share of
Common  Stock on the date of  grant.  The  aggregate  number of shares of Common
Stock  available  for awards under the Plan is  2,035,000.  The maximum term for
Awards  under the 1995 Stock Plan is ten years,  and no Awards may be made under
the 1995 Stock Plan after June 25, 2005.

    During 1996 employees of The Integrity  Group,  Inc. were granted options to
purchase  8,254  shares of common  stock at a price per share of $0.49 which was
below the fair market value at the date of the grant.  This  discount  from fair
market value has been recorded as deferred  compensation  and charged to expense
ratably over the four year vesting period of the options.

     1995 Eligible  Directors Stock Plan. The Company's 1995 Eligible  Directors
Stock Plan (the  "Directors  Stock Plan") was approved by the Board of Directors
on June 26,  1995,  and by the  Company's  stockholders  on July 20,  1995,  and
amended by the Board of Directors July 22, 1996 and approved (as amended) by the
Company's  stockholders on November 1, 1996.  Under the Directors Stock Plan and
subject to the approval by the Board of  Directors,  each director who is not an
officer or employee of the Company or any subsidiary of the Company (an "outside
director") will be granted,  upon first being elected to the Board of Directors,
an option to purchase  10,000 shares of Common Stock at an exercise  price equal
to the  fair  market  value  on  the  date  of  the  grant.  In  addition,  upon
re-election,  each outside  director  will be granted an option on the thirtieth
day following the date of each annual meeting of  stockholders to purchase 4,000
shares of Common  Stock at an exercise  price equal to the fair market  value on
the date of grant.  A total of 150,000  shares of Common Stock are available for
awards under the Directors  Stock Plan, as amended July 22, 1996 and approved by
shareholders  on November 1, 1996. The options granted under the Directors Stock
Plan will vest in five equal annual  installments  commencing one year after the
date of grant.  The maximum  term for Awards under the 1995  Eligible  Directors
Stock  Plan is ten  years,  and no Awards  may be made under the 1995 Stock Plan
after June 25, 2005.

     As of June 30, 1997,  the Company has reserved  3,345,000  shares of common
stock for issuance under all of its stock option plans.


<PAGE>



     A summary of the Company's  stock option activity as of June 30, 1995, 1996
and 1997 is presented below.

<TABLE>

                                  1995                          1996                          1997
                       ---------------------------    -------------------------    ---------------------------
 
<CAPTION>
                                          Weighted                     Weighted                        Weighted
                                           Average                      Average                         Average
                            Shares     Exercise Price     Shares     Exercise Price      Shares      Exercise Price
<S>                      <C>                <C>        <C>               <C>           <C>              <C>

Outstanding at
  beginning of year...     2,363,166        $0.13      1,878,366         $2.51         1,502,553        $3.64
Granted                    1,105,700         3.80         68,256         14.17         1,034,400        14.33
Exercised                (1,465,000)         0.10      (441,941)          0.38         (325,180)         1.24
Expired                    (125,500)         0.18        (2,128)          1.07         (234,398)         9.21
                           ---------         ----        -------          ----         ---------         ----
Outstanding at end
  of year................  1,878,366        $2.51      1,502,553         $3.64         1,977,375        $8.95
                           =========        =====      =========         =====         =========        =====

Options exercisable
  at year-end...........     408,630        $0.18        543,469         $1.75           512,328        $3.25
Weighted-average
  fair value of
options
  granted during the
  year...................  1,105,700        $3.80         68,256        $14.17         1,034,400       $14.33

</TABLE>

     The  following  table  summarizes  information  about the  Company's  stock
options plans at June 30, 1997:

<TABLE>

                                    Options Outstanding                              Options Exercisable
                   -------------------------------------------------------    ----------------------------------
<CAPTION>

Range of           Shares            Weighted-Average                         Shares
Exercise           Outstanding at    Remaining           Weighted-Average     Exercisable        Weighted-Average
Prices             June 30, 1997     Contractual Life    Exercise Price       at June 30 , 1997  Exercise Price
------             -------------     ----------------    --------------       -----------------  --------------
<S>                    <C>                  <C>                <C>                 <C>                 <C>  

$0.11 - $4.99          414,975              5.6                 $0.72              269,178             $0.57
$5.00 - $9.99          569,500              8.0                 $5.60              228,750             $5.60
$10.00 - $16.38        992,900              9.4                $16.10               14,400             $14.30

</TABLE>

     In October of 1995,  the FASB issued SFAS No.  123,  "Accounting  for Stock
Based Compensation," which is effective for periods beginning after December 15,
1995. SFAS 123 requires that companies either recognize compensation expense for
grants of stock, stock options and other equity instruments based on fair value,
or provide  pro forma  disclosure  of net income and  earnings  per share in the
notes of the financial statements. The Company adopted the disclosure provisions
of SFAS 123  effective  July 1, 1996 and has  applied APB Opinion 25 and related
interpretations in accounting for its plans.  Accordingly,  no compensation cost
has been  recognized for stock options issued to employees at fair market value.
Had  compensation  cost for the Company's  stock-based  compensation  plans been
determined  based  on the  fair  value  at the  grant  dates  as  calculated  in
accordance  with SFAS 123, the  Company's  net income and earnings per share for
the years ended June 30, 1996 and 1997 would have been adjusted to the pro forma
amounts indicated below:
<TABLE>

                                        1996                                       1997
                       ---------------------------------------    ---------------------------------------
<CAPTION>

                           As Reported           Pro Forma            As Reported            Pro Forma
<S>                        <C>                   <C>                   <C>                  <C>    

Net income                 $4,521,863            $4,494,140            $7,010,653           $6,542,563
Net income per share          $0.29                $0.28                 $0.44                 $0.41

</TABLE>


     The fair value of each stock option is estimated on the date of grant using
the  Black-Scholes  option-pricing  model  with the  following  weighted-average
assumptions for the years ended June 30, 1996 and 1997:


                                    1996                1997
                                    ----                ----
Risk-free interest rate            5.47%                6.36%
Expected life                     5 years              5 years
Expected volatility                 50%                  50%
Dividend yield                       0%                  0%

     The  effects  of  applying  SFAS 123 in this pro forma  disclosure  are not
likely to be  representative  of the effects on  reported  net income for future
years.  Additional  awards in future  years are  anticipated.  SFAS 123 does not
apply to awards prior to 1995.


(10) Employee Benefits

    The Health Payment Review,  Inc. 401(k) Plan is a defined  contribution plan
available  to  substantially  all  of  HPR's  employees.  The  401(k)  Plan  was
established  effective June 1, 1993 under section 401(k) of the Internal Revenue
Code.  Under the Plan,  employees may make  voluntary  contributions  based on a
percentage  of  their  pretax  earnings.  HPR  contributions  to  the  Plan  are
established  each year at the  discretion of the Board of Directors.  No Company
contributions  were made to the Plan in fiscal 1995, 1996, and 1997. The Company
paid administrative costs on behalf of the Plan of $6,500,  $12,500, and $15,000
in fiscal 1995, 1996 and 1997, respectively.


(11) Legal Proceedings

    On January 31,  1994,  a suit was filed in the U.S.  District  Court for the
Eastern  District of Pennsylvania by GMIS,  Inc.  ("GMIS")  against the Company,
alleging  that the  Company's  patent  relating  to its  CodeReview  product was
invalid,  not infringed,  and unenforceable.  GMIS also alleged that the Company
interfered  with the business  relationships  of GMIS and sued for damages of an
unspecified amount.

    The  Company  filed a patent  infringement  counterclaim  on March 25,  1994
alleging, among other things, that GMIS' product, ClaimCheck, infringed upon the
patent.

    On January 23, 1995 the Company settled all of its  outstanding  claims with
GMIS.  Pursuant  to the  settlement,  the terms of which were  undisclosed,  the
Company  granted  GMIS  a  nonexclusive  license  under  the  patent,  and  GMIS
acknowledged  the  validity  of the patent  and made a  one-time  payment to the
Company. The payment was recorded by the Company net of legal and other costs.

(12)      Acquisitions

     On April 30, 1996 the Company acquired The Integrity Group,  Inc.  ("TIG"),
an Alabama corporation, in a transaction accounted for as a pooling of interests
under which all of the capital stock of TIG was exchanged for 260,001  shares of
HPR Inc. common stock. TIG is a vendor of provider credentialing,  accreditation
support,  Healthcare  Employer Data  Information Set (HEDIS)  reporting and data
warehousing  tools and support for effective  provider network  management.  The
accompanying  financial  statements for periods prior to 1996 do not include the
amounts for this  acquisition  as they were deemed to be  immaterial.  Only 1996
financial information has been restated as if the transaction had occurred as of
July 1, 1995.

     TIG was a Subchapter S corporation for income tax purposes and,  therefore,
did not pay U.S.  federal  income taxes.  TIG has been included in the Company's
U.S. federal income tax return effective April 30, 1996.


(12)      Recent Accounting Pronouncements

         The FASB issued  Statement No. 128 ("SFAS 128"),  "Earnings per Share,"
     which  modifies the way in which  earnings per share  ("EPS") is calculated
     and disclosed.  Currently, the Company discloses primary EPS. Upon adoption
     of this standard for the fiscal  period  ending June 30, 1998,  the Company
     will be required to disclose  either  basic EPS or both basic and  dilutive
     EPS. The principal difference being that common stock equivalents would not
     be  considered in the  computation  of basic EPS. The impact of adoption of
     SFAS 128 has not yet been determined.

         The FASB recently  issued  Statement  No. 130 ("SFAS 130"),  "Reporting
     Comprehensive  Income".  This statement  requires  changes in comprehensive
     income to be shown in a financial statement that is displayed with the same
     prominence as other  financial  statements.  While not mandating a specific
     financial   statement  format,   the  Statement  requires  that  an  amount
     representing total comprehensive  income be reported.  Comprehensive income
     components  include:  unrealized  gains and  losses  on  available-for-sale
     investments in debt and equity  securities,  foreign  currency  translation
     adjustments,  and minimum pension liability adjustments. The Statement will
     become  effective  for fiscal  years  beginning  after  December  15, 1997.
     Reclassification  of financial  statements for earlier  periods is required
     for comparative purposes.  The Company does not believe that this will have
     a material impact on the results of operations.

         In June 1997, the Financial  Accounting Standard Board issued Statement
     of  Financial  Accounting  No.  131,  "Disclosures  about  Segments  of  an
     Enterprise and Related  Information" (SFAS No. 131). SFAS No. 131 specifies
     new guidelines for determining a company's  operating  segments and related
     requirements  for  disclosure.  The  Company  does not  believe  that  this
     statement  will  have  an  impact  on the  presentation  of  the  financial
     statements and the disclosures therein.

<PAGE>



Item 9.   Changes in and Disagreements with Accountants on Accounting and 
          Financial Disclosure

None


                                                      PART II

Item 10.   Directors and Executive Officers of the Registrant

     The information  required by this item is incorporated  herein by reference
to the section entitled "Election of Directors"  included in the Company's Proxy
Statement for the Annual Meeting of Stockholders to be held on October 31, 1997,
which will be filed with the Securities and Exchange  Commission within 120 days
after the end of the  Company's  fiscal year to which this Annual Report on Form
10-K relates. Certain information concerning the registrant's executive officers
is included under the caption  "Executive  Officers of the  Registrant" at pages
14-15 following Part I, Item 1 of this report.

Item 11.   Executive Compensation

     The information  required by this item is incorporated  herein by reference
to the section entitled "Executive Compensation" included in the Company's Proxy
Statement for the Annual Meeting of Stockholders to be held on October 31, 1997,
which will be filed with the Securities and Exchange  Commission within 120 days
after the end of the  Company's  fiscal year to which this Annual Report on Form
10-K relates.

Item 12.   Security Ownership of Certain Beneficial Owners and Management

     The information  required by this item is incorporated  herein by reference
to the section  entitled  "Voting  Securities"  included in the Company's  Proxy
Statement for the Annual Meeting of Stockholders to be held on October 31, 1997,
which will be filed with the Securities and Exchange  Commission within 120 days
after the end of the  Company's  fiscal year to which this Annual Report on Form
10-K relates.

Item 13.   Certain Relationships and Related Transactions

    The information required by this item is incorporated herein by reference to
the  section  "Compensation  Committee  Interlocks,  Insider  Participation  and
Certain  Transactions"  included in the Company's Proxy Statement for the Annual
Meeting of Stockholders to be held on October 31, 1997, which will be filed with
the  Securities  and  Exchange  Commission  within 120 days after the end of the
Company's fiscal year to which this Annual Report on Form 10-K relates.




<PAGE>



Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K

    a.   (1)  Financial Statements

                  All financial statements are included in Item 8 hereof.

    a.   (2) Financial Statement Schedules

                  None

    a.   (3) Exhibits
<TABLE>
<CAPTION>

            Exhibit
            Number                             Description of Document
          <S>       <C>    
         
          3.1*      --  Amended and Restated Certificate of Incorporation of the Company
                        approved by the directors of the Company on June 26, 1995, as adopted by the
                        stockholders on July 20, 1995.
          3.2*      --  By-laws of the Company, as amended effective on August 16, 1995.
          4.1*      --  Article Fourth of the Certificate of Incorporation of the Company
                        (included in Exhibit 3.1).
          10.1*     --  Lease dated June 2, 1995, between Riverview Building Combined Limited
                        Partnership and the Company, for premises located at the Riverview
                        Complex, 245 First Street, Cambridge, Massachusetts.
          10.2          -- The Company's  1991 Stock Plan, as amended  effective
                        November  1, 1996,  and  related  forms of stock  option agreements.
          10.3          -- The Company's  1995 Stock Plan, as amended  effective November  1, 1996,  and  related  forms of stock
                        option agreements.
          10.4          -- The Company's 1995 Eligible  Directors Stock Plan, as amended effective  November 1, 1996, and related 
                        form of stock option agreement.
          10.5*     --  Software Development and License Agreement between the Company and
                        Caterpillar, Inc. dated August 15, 1988.
          10.6*+    --  Product License Agreement between the Company and Symmetry Health Data
                        Systems, Inc. dated as of November 17, 1994, as amended.
          10.7*     --  Stock Purchase Agreement for shares of Series A Convertible Preferred
                        Stock purchased by Greylock Limited Partnership dated December 20, 1991, as
                        amended on June 26, 1995.
          10.8*     --  Stock Purchase Agreements for shares of Series A Convertible Preferred
                        Stock purchased by Marcia J. Radosevich dated October 7, 1992 and November 2, 1992. 
          10.9*     --  Registration  Rights  Agreement  dated  as of June 3,  1992.
          10.10*    --  Noncompetition  Agreement between the Company and Dr. Robert D.Hertenstein, dated April 13, 1992,
                        as amended on June 2, 1995.
          10.11*    --  Letter Agreement between the Company and Marcia J. Radosevich dated
                        December 6, 1989, as amended on June 26, 1995.
          10.12*    --  Letter Agreement between the Company and Douglas R. Percy dated April 22, 1992.
          10.13*    --  Letter Agreement between the Company and Thomas M. McNamara dated November 2,1992.
          10.14*    --  Agreement Pertaining to Certain Activities between the Company and Marcia J.Radosevich dated December 20, 
                        1991.
          10.15*    --  Noncompetition agreements with Douglas R. Percy, Brian D. Cahill,Thomas M.
                        McNamara, Lawrence G. Miller, Steven J. Rosenberg and James B. Stowe.
          10.16*    --  Consulting Agreement between the Company and Richard H. Egdahl dated
                        January 1, 1992, as amended on June 26, 1995.
          10.17*    --  Form of Indemnification Agreement between the Company and its directors and executive officers
          10.18     --  Sublease dated April 17, 1997 between Open Market and the  Company,  for  premises  located  at the 
                        Riverview Complex, 245 First Street, Cambridge,Massachusettes.
          10.19     --  Lease dated April 17, 1997 between Beacon Management and the  Company,  for  premises  located  at the  
                        Riverview Complex, 245 First Street, Cambridge, Massachusettes.
          10.20     --  Executive Separation Benefits Plan dated January 1, 1997
          10.21     --  Non-Executive Separation Benefits Plan effective as of January 1, 1997
          10.22     --  Director Termination Benefits Plan effective as of January 1, 1997
          10.23     --  Second Amendment to Product License Agreement with Symmetry Health Data
                        Systems, Inc. dated December 12, 1996.
          11.1      --  Statement re computation of earnings per share.

          21.1      -- Subsidiaries of the Company.
          23.1      -  Consent of Coopers & Lybrand L.L.P., independent accountants
          27.1         Financial Data Schedule

<FN>


+  Confidential treatment has been requested and granted with respect to certain
   portions of this exhibit.  Omitted  portions have been filed  separately with
   the Securities and Exchange Commission.

*  Incorporated by reference from the Company's  registration  statement on Form
   S-1 No.  33-94132 filed with the  Securities and Exchange  Commission on June
   30, 1995, as amended on July 25, August 1 and August 7, 1995.

</FN>
</TABLE>

b.    Reports on Form 8-K

    None.




                                                    SIGNATURES


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



                                                     HPR  INC.


Dated:  August 21, 1997                By:    /s/ Marcia J. Radosevich
                                                ------------------------
                                       Marcia J. Radosevich
                                       Chairman  of the Board,  Chief  Executive
                                       Officer  and  President
                                                            



         Pursuant to the  requirements  of the Securities  Exchange Act of 1934,
this report has been signed by the following persons on behalf of the registrant
and in the capacities indicated below on the 21st day of August, 1997.


                      Signature                                      Title

/s/ Marcia J. Radosevich                Chairman of the Board, Chief Executive
(Marcia J. Radosevich)                  Officer, President and Director
                                        (Principal Executive Officer)


/s/ Brian D. Cahill                     Chief Operating Officer, Chief Financial
(Brian D. Cahill)                       Officer, and Vice President, Corporate
(Principal Financial and Accounting     Finance and Planning
Officer)



/s/ Richard H. Egdahl                   Vice Chairman of the Board and Director
(Richard H. Egdahl)



/s/ Harris A. Berman                                          Director
(Harris A. Berman)



/s/ Howard E. Cox, Jr.                                        Director
(Howard E. Cox, Jr.)



/s/ William G. Nelson                                         Director
(William G. Nelson)