<PAGE>

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



                                    UNITED STATES
                          SECURITIES AND EXCHANGE COMMISSION
                                WASHINGTON D. C. 20549

                                     -----------

                                     FORM 10-KSB

 (x)  15, ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
                        EXCHANGE ACT OF 1934
                                    [Fee Required]
                       For the fiscal year ended March 31, 1997
 ( )  15, TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
                        EXCHANGE ACT OF 1934 
                                    [No Fee Required]
                            Commission File Number 0-27048
                                     -----------
                                     MECON, INC.
                    (Name of small business issuer in its charter)

                    DELAWARE                          94-2702762
          (State or other jurisdiction of         (I.R.S.  Employer
          incorporation of organization)          Identification No.)

               200 PORTER DRIVE
            SAN RAMON, CALIFORNIA                        94583
   (Address of principal executive offices)            (Zip Code)
                                    (510) 838-1700
                    Issuer's telephone number, including area code
                                     -----------

       SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE EXCHANGE ACT: None
         SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE EXCHANGE ACT:

    COMMON STOCK, PAR VALUE $.001                      NASDAQ
   SERIES A PARTICIPATING PREFERRED                    NASDAQ
       STOCK,  PAR VALUE $.001        Name of each exchange on which registered)
        (Title of each class)

    Check whether the registrant (1)has filed all reports required to be 
filed by Section 13 or 15(d) of the Exchange Act 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 ( )

    Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-KSB.( )

 State issuer's revenues for its most recent fiscal year:....   $13,565,000
 State the aggregate market value of the voting stock held      
    by non-affiliates computed using the closing price on
    June 17, 1997 of $3.50 (Shares of Common Stock held by
    each executive officer and director and by each person
    who owns 5% or more of the outstanding Common Stock
    have been excluded in that such persons may under
    certain circumstances be deemed to be affiliates. This
    determination of executive officer or affiliate status
    is not necessarily a conclusive determination for other
    purposes):...............................................   $13,200,142
 The number of shares outstanding of each of the registrant's
    classes of common stock, as of March 31, 1997:...........     6,000,297
 Transitional Small Business Disclosure Format (check one):
    Yes ( )  No (x)

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

<PAGE>

                                        PART I

ITEM 1.  BUSINESS

GENERAL

    MECON,Inc. ("MECON" or the "Company") is a leading provider of benchmarking
solutions to the healthcare industry. The benchmarking solution offered by MECON
comprises data/information products, decision support software and value-added
services. The principal focus of the Company's products is to reduce costs and
improve efficiency and effectiveness of healthcare delivery systems. The
Company's main product line is based upon a proprietary operations benchmarking
database containing cost and key performance information from hospitals
nationwide. In addition to statistical data, the database incorporates
qualitative data derived from operational profiles provided by hospitals that
utilize the Company's database-related products. The Company's customers use the
information provided by the operations benchmarking database to quantify,
develop and implement strategies to reduce costs and to periodically measure
actual performance to maintain the cost reductions achieved.

    The need to manage costs more effectively in today's healthcare environment
is leading hospitals to seek information which enables them to more accurately
measure and evaluate operating and clinical efficiency. Historically, such
efforts have been hampered by a lack of adequate benchmark information to
identify cost inefficiencies, as well as a lack of sufficient decision support
tools to implement and maintain cost reductions. Accordingly, there is a need
for data and information systems which support long-term cost management
strategies through operating efficiencies, labor cost control, supply and
materials management, re-engineered care delivery processes, improved facilities
infrastructure and capital equipment utilization, and general administrative
efficiencies.

RECENT DEVELOPMENTS

    The Company recently restructured its organization to re-focus the business
on historical strengths. Using the MECON operations benchmarking database as its
foundation, the Company offers information products, decision support software
and consulting services that bridge the information gap faced by hospitals and
other healthcare providers seeking to reduce costs and improve operating
efficiency. The Company's database/information products allow hospital
executives, clinicians, and department managers to compare their practices
against their peers and best demonstrated practices.  This ability, when
combined with the Company's consulting services, enables hospitals to become
more cost-competitive by quantifying opportunities for immediate cost reduction,
developing and implementing short-term and long-term strategies for achieving
cost reduction opportunities, adjusting ongoing operating costs consistent with
changes in utilization, developing annual resource plans compatible with profit
requirements, and measuring actual performance on a regular basis to maintain
the gains achieved.

PRODUCTS

    The Company's principal products and services include MECON-PEERx-TM-, 
MECON-PEERVIEW-TM-, MECON-OPTIMIS-TM-, MECON-Action-Point-SM-, 
MECON-Advisory-SM-, and other related analytical products.  The foundation of 
the Company's product line is the MECON operations benchmarking database.

MECON-PEERx-TM- - THE OPERATIONS BENCHMARKING DATABASE

    The Company maintains a proprietary database containing information on 
labor productivity, costs, resource utilization and practice profiles from 
several hundred hospitals nationwide. The database contains 281 hospital 
department types, such as nursing, pharmacy, radiology, clinical laboratories 
and medical records. Typically, between 15,000 and 36,000 elements of 
information are collected from each subscribing healthcare organization. The 
combination of statistical and practice profile data in the database allows 
hospitals to not only measure cost reduction opportunities, but also to 
identify processes that enable such reductions. The Company believes that the 
MECON operations benchmarking database is the only commercially available 
healthcare operations database that contains both statistical and qualitative 
data.

    Developed over the last decade, the database does not depend upon public
domain data. Instead, all of the data is provided by healthcare organizations
that subscribe to the Company's MECON-PEERx-TM- product described below. The
subscriber typically submits data annually at the close of its fiscal year;
however, a subscriber may choose to submit data on a more frequent basis. The
Company tests and analyzes the data submitted by subscribers to ensure
comparability with other information contained in the database.

    The database runs on an Oracle RDBMS 7.1platform. The database resides on a
Hewlett-Packard G40 server (mini-computer) that runs the HP-UX (UNIX) operating
system.


<PAGE>

    MECON-PEERx-TM- is a subscription-based information product that enables
hospitals to compare operational practices against those of the industry's most
efficient providers or the members of a customer-defined peer group. The Company
believes that the breadth and depth of the information contained in the
database, together with the Company's ability to present a wide variety of data
types in standard formats that are useful to the customer, make MECON-PEERx-TM-
a valuable resource for use in comparative performance analysis or benchmarking.
Through operations benchmarking, hospitals and other healthcare providers can
compare their operational practices against those of their peers. Benchmarking
allows hospitals to identify the "best practices" employed in the industry,
facilitates peer networking to learn practices that lead to lower costs, and
assists hospitals in restructuring their operations to reduce costs. The Company
has developed MECON-PEERx-TM- and its other products and services with the goal
of maximizing the value of benchmarking analysis.

    Using a specially prepared report comparing subscriber cost and key
performance data against benchmark data from the Company's operations
benchmarking database, senior executives and departmental managers can evaluate
staffing and skill mix configurations, potential opportunities for reducing
labor expenses, alternative strategies and methods of operations, and
implications of new technologies. The information and analysis provided by the
MECON-PEERx-TM- report, together with a variety of standard and optional support
services, facilitate benchmarking initiatives to improve operational practices
and efficiencies. Typical applications of the MECON-PEERx-TM- analysis include
short-term cost reduction initiatives, annual budgeting, resource planning,
long-term tracking of resource utilization, consolidation planning and
cost/benefit evaluation of new technologies or operating processes.

    Hospitals generally subscribe to MECON-PEERx-TM- for a renewable three-year
period. Each subscriber to MECON-PEERx-TM- receives the following:

MECON-PEERx-TM- REPORTS.  The Company prepares a report for each subscriber
analyzing the operating cost data collected by the subscriber in light of the
peer group and best practice information contained in the MECON database. The
following table summarizes the typical types of information provided in the
report:

                                          MECON-PEERx-TM-
<TABLE>
<CAPTION>
                        CATEGORIES OF OUTPUT                         SPECIFIC EXAMPLES
                        --------------------                         -----------------
         <S>          <C>                             <C>
         HOSPITAL     Cost Ratios                     Cost per Adjusted Discharge, Cost per Adjusted Patient
          LEVEL                                       Day
                      Productivity Ratios             Full Time Equivalent per Occupied Beds
                      Financial Ratios                Gross Margin, Net Margin, Balance Sheet Ratios
                      Characteristics & Profiles      Location, Type, Services Offered
         DEPARTMENT   Cost Ratios                     Cost per Unit of Measure, Labor Costs, Other Direct
           LEVEL                                      Expenses
                      Productivity Ratios             Labor Hours per Unit of Measure, Skill Mix
                      Service Intensity Ratios        Department Utilization per Patient Day or Discharge
                      Practices                       Organizational Characteristics, Operational Practices


</TABLE>
 
MECON-PEERVIEW-TM- - A TOOL FOR DATA COLLECTION AND INFORMATION DELIVERY

    In December 1996, MECON-PEERVIEW-TM-, a tool designed to automate data
collection and information delivery, was introduced. This product was built
using client server technology and a relational database approach. As a
complementary product to the MECON-PEERx-TM- product, MECON-PEERVIEW-TM- enables
more efficient data collection at the customer location through links with
internal information systems and MECON's national benchmark database.
Electronic delivery of reports to customers is another key feature of
MECON-PEERVIEW-TM-.

IMPLEMENTATION, CUSTOMER SUPPORT AND OTHER SERVICES

    The Company provides implementation services at the inception of a
subscription, including management orientation in the use of benchmark data,
assistance with initial statistical data collection, development of operational
profiles and auditing of subscriber data. The Company conducts post-report
workshops with hospital management to analyze cost reduction opportunities.
First year subscription fees include charges for implementation services,
including post-report workshops. To the extent requested by customers, these
services are provided by the Company for an additional fee during subsequent
years. After a customer has subscribed to MECON-PEERx-TM-, the Company provides,
for an additional fee, quarterly status checks, advanced management development
and training, data auditing and software technical support.  The company also
offers an optional EXECUTIVE SUMMARY - a condensed analysis based on the
benchmarking database that provides hospital executives with an overall
indication of opportunities for short-term and long-term cost reduction, and the
specific areas in which such opportunities are most prominent.


<PAGE>

MECON-OPTIMIS-TM- -  AN INTERNAL PERFORMANCE MONITORING SYSTEM

    As a complement to MECON-PEERx-TM-, the Company has developed
MECON-OPTIMIS-TM-, an internal performance measuring system for hospitals.
MECON-OPTIMIS-TM- is a PC software product designed to allow hospitals to
measure their internal performance by tracking their performance against
specified targets. This allows hospitals to adjust resource levels consistent
with utilization changes and, thereby, move from a fixed cost operating model to
a variable cost operating model. MECON-OPTIMIS-TM- measures labor hours and
costs, non-labor expenses, skill mix, productivity, quality and service
intensity on a bi-weekly or monthly basis. The application contains the
following three modules: performance (labor productivity and quality);
budgeting; and daily staffing simulation. The performance module retrospectively
reports key performance indicators. The budgeting module provides baseline
information to plan long-term resource requirements more accurately. The daily
staffing module forecasts resource requirements based on utilization forecasts.
These modules assist institutions in achieving labor resource utilization
targets, in measuring the progress of quality improvement initiatives, in
facilitating labor budget development and in determining department staffing
needs by shift. MECON-OPTIMIS-TM- runs on an Oracle RDBMS platform and is
configured for operation on local area networks.

    MECON-OPTIMIS-TM- relies on payroll, time and attendance and other
financial information systems at the host facility. The customer collects and
reports data continually, usually on a per payperiod basis. Customers that
purchase both MECON-PEERx-TM- and MECON-OPTIMIS-TM- can incorporate benchmark
data from MECON-PEERx-TM- into MECON-OPTIMIS-TM-, thus increasing the value of
the Company's overall product mix.

MECON-Action-Point-SM- - CLINICAL UTILIZATION ANALYSIS SYSTEM

    On March 29, 1996, MECON acquired Managed Care Information Systems, Inc. 
(MCIS) in a pooling of interest transaction.  MCIS's principal product was 
Action-Point, a decision support product designed for clinicians and senior 
level decision makers in the healthcare delivery system.  Information 
provided by MECON-Action-Point-SM- enables physician managers and healthcare 
administrators to identify, analyze, and improve physician practice patterns 
using a PC-based Windows (TM) software.  The system allows physicians to 
identify cost, profitability, payor mix, resource utilization, and 
productivity for each physician. Tracking treatment patterns enables 
physicians to review how their peers are using hospital resources to meet the 
needs of their patients. By helping physicians avoid overuse or underuse of 
resources, it enhances patient satisfaction and safety. It also enables 
administrators to fine tune the alignment between the mix of services offered 
and the needs of the population they serve, making operations more efficient 
and facilitating managed care contracting.

MECON-Advisory-SM-  - CONSULTING AND VALUE-ADDED SERVICES

    The Company's principal objective is to produce value to customers from its
database and software products through a series of value-added services. Such
services include consulting, custom analysis of data, training programs, and
benchmarking facilitation services. MECON offers a highly structured approach to
consulting services that is designed to improve operations efficiencies and to
enable sustainable cost reduction. As a front-end to consulting services, MECON
performs an overview assessment using the database in conjunction with
additional qualitative information collected through on-site work at the
healthcare organization. This provides a detailed assessment of facility- and
function-specific cost reduction strategies and tactics. The Company also offers
a training product known as "Benchmarking-in-Action" ("BIA") that is typically
sold to current MECON-PEERx-TM- clients.

CUSTOMERS

    Historically, MECON has marketed its products and services to the acute
care segment of the hospital market, primarily to individual hospitals over
100 beds.  Typically, a customer purchases the three-year subscription to
MECON-PEERx-TM- as a first step in its effort to control, manage and reduce
costs. The Company believes that the implementation of all of the above products
has frequently resulted in substantial cost benefits to customers.

    MECON's customer base is geographically diverse, including urban and rural
healthcare organizations throughout the United States. The Company's customers
include for-profit, academic/teaching and non-profit hospitals as well as
multi-hospital systems. The Company has recently expanded its product offerings
to long-term care facilities and small hospitals with fewer than 100 beds.
Revenue from certain member facilities of the University HealthSystem Consortium
Services Corporation, the Company's largest customer, accounted for 11% of net
revenue for fiscal 1997.


<PAGE>

SALES AND MARKETING

    MECON employs a direct sales and marketing organization which it augments
through the efforts of its strategic partner, HBOC. MECON participates in
several national and regional trade shows including the Healthcare Information
and Management Systems Society annual conference. The Company also advertises in
major trade publications and uses direct mail, primarily in regionally focused
campaigns. Additionally, national healthcare related journals routinely publish
case studies and data trends from the MECON database. Furthermore, MECON
sponsors client conferences providing case studies, publications, new product
introductions and a forum for client networking. The Company also generates a
substantial number of leads directly through customer referrals.

STRATEGIC PARTNER

    The Company intends to develop strategic relationships with leading 
providers of healthcare products and services in order to increase the 
Company's presence, expand distribution channels and broaden its product 
line.  In September 1995, MECON signed an agreement with HBOC, pursuant to 
which HBOC will integrate MECON-PEERx-TM- with its Trendstar Decision Support 
System, a healthcare information software designed to provide a common source 
of information to executives, medical staff, department managers and others 
in acute care hospitals, and market the integrated solution to current and 
potential Trendstar customers. The agreement is effective for a period of 
three years and will automatically renew thereafter for additional one year 
periods, provided that either party may terminate the agreement without cause 
upon 90 days written notice. HBOC has agreed, during the term of the 
agreement, not to develop or implement any operations benchmarking system 
similar to MECON-PEERx-TM-. The Company has agreed not to market 
MECON-PEERx-TM-independently to HBOC's Trendstar customers who were not 
MECON-PEERx-TM-customers on the date of the agreement. Further, the agreement 
provides that the Company is the owner of any database compiled from data 
received by joint customers, including any related data incorporated into the 
Trendstar system.

PRODUCT DEVELOPMENT

    The Company's product development strategy is directed toward creating new
products that leverage the MECON database, enhancing data content in the
database, and increasing the functionality of its current products and
leveraging technology to automate data collection and information delivery.  As
part of this strategy, the Company is currently expanding the depth of the data
collected from subscribers.

COMPETITION

    The market for healthcare information systems and services is highly
competitive and rapidly changing. The Company believes that the principal
competitive factors in the healthcare information market are the breadth and
quality of product offerings, access to proprietary data, the proprietary nature
of methodologies and technical resources, price, and the effectiveness of
marketing and sales efforts. In addition, the Company believes that the speed
with which information companies can anticipate and respond to the evolving
healthcare industry structure and identify information needs is an important
competitive factor. Although the Company believes that it competes favorably
with respect to each of these factors, the Company may be at a competitive
disadvantage with respect to certain competitors and potential competitors that
have greater financial, product development, technical and marketing resources
than the Company, and that have substantial installed customer bases in the
healthcare industry.

    The Company's competitors include other providers of operations and
financial benchmarking data and products, providers of decision support software
systems and management and healthcare consulting firms. As the market for
healthcare cost management solutions develops, additional competitors, including
other major healthcare information companies not presently offering cost
management solutions, may enter the market and competition may intensify. The
Company also faces significant competition from internal information services
departments at large hospital alliances or for-profit hospital chains, many of
which have developed or may develop benchmarking information or other cost
control solutions.

PROPRIETARY RIGHTS

    The Company depends upon a combination of trade secret, copyright and
trademark laws, nondisclosure and other contractual provisions to protect its
proprietary rights in its products. Subscribers to MECON-PEERx-TM- enter into
agreements restricting the disclosure and use of the comparative information
contained in the database. The Company distributes its MECON-OPTIMIS-TM- product
under software license agreements which grant customers a nonexclusive,
nontransferable license to the product and contain terms and conditions
prohibiting the unauthorized reproduction or transfer of the product. In
addition, the Company attempts to protect its trade secrets and other
proprietary information through agreements with employees and consultants. The
Company also seeks to protect the source code of its products as a trade secret
and as an unpublished copyright work. The Company has not filed any patent
applications or copyrights covering its software or database technology. There
can be no assurance that these protections will be adequate or that the
Company's competitors will not independently develop products and services that
are substantially equivalent or superior to the Company's products and services.
The Company believes that, due to the rapid pace of innovation within the
software industry, factors


<PAGE>

such as the technological and creative skills of its personnel and its ongoing
reliable product maintenance and support are more important in establishing and
maintaining a leadership position within the industry than are the various legal
protections of its technology. In addition, although the Company believes that
its products, trademarks and other proprietary rights do not infringe upon the
proprietary rights of third parties, there can be no assurance that third
parties will not assert infringement claims against the Company in the future.

EMPLOYEES

    As of March 31, 1997, the Company employed a total of 119 full-time 
employees, of which 57 were in customer service, 25 in marketing and sales, 
22 in research and development and 15 in administration. None of the 
Company's employees is represented by a labor union. The Company has 
experienced no work stoppages and believes that its employee relations are 
good.

ITEM 2.  PROPERTIES

    The Company occupies approximately 11,500 square feet of space at its 
headquarters in San Ramon, California under a lease expiring in January 2000. 
The Company also occupies approximately 3,100 square feet in Chicago, 
Illinois and approximately 3,560 square feet near Washington DC for its 
regional client service organizations. In addition, the Company's subsidiary, 
MCIS, occupies 3,400 square feet in Calabasas, California. The Company 
believes that its existing facilities will be adequate to meet its currently 
anticipated requirements and that suitable additional or substitute space 
will be available as needed.

ITEM 3.  LEGAL PROCEEDINGS

    The Company is not a party to any material legal proceedings.

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

    No matters were brought to a vote of the Company's stockholders in the
quarter ended March 31, 1997.

                                       PART II

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

    The Company consummated its initial public offering of 2,000,000 common 
shares on December 6, 1995 at a price of $13.00 per share. The Company's 
Common Stock is quoted on the NASDAQ National Market under the symbol "MECN." 
The following table sets forth the high and low prices of the Company's 
Common Stock for the periods indicated as reported on the NASDAQ market.

   PERIOD                                                  HIGH      LOW
   ------                                                  ----      ---

   1996   Third quarter (commencing December 7, 1995)....  $17.38    $14.25
          Fourth quarter.................................  $20.25    $14.25

   1997   First quarter..................................  $30.25    $19.62
          Second quarter.................................  $25.00    $14.62
          Third quarter..................................  $25.00     $6.31
          Fourth quarter.................................   $7.12     $3.62

    On March 31, 1997 the last reported sale price for the Company's Common 
Stock on the NASDAQ National Market was $3.62 per share. At March 31, 1997, 
there were approximately 59 record holders of the Company's Common Stock.

    The Company has never declared or paid any cash dividends on its Common
Stock and does not anticipate paying any cash dividends in the foreseeable
future. The Company intends to retain all available funds and any future
earnings for use in the operation of its business.


<PAGE>

ITEM 6.  SELECTED FINANCIAL DATA AND MANAGEMENT'S DISCUSSION AND ANALYSIS OR
         PLAN OF OPERATIONS

SELECTED FINANCIAL DATA

<TABLE>
<CAPTION>
 
                                                                                          YEAR ENDED MARCH 31,
                                                                                          --------------------
                                                                         1993        1994         1995       1996         1997
                                                                         ----        ----         ----       ----         ----
                                                                                  (IN THOUSANDS, EXCEPT PER SHARE DATE)

  <S>                                                                  <C>         <C>         <C>         <C>         <C>
  STATEMENT OF OPERATIONS:
  Revenue:
    Subscription and license . . . . . . . . . . . . . . . . . . .     $  1,038    $  2,041    $  4,821    $  8,037    $  9,934
    Services . . . . . . . . . . . . . . . . . . . . . . . . . . .       2 ,804       2,979       4,047       3,966       3,661
                                                                    --------------------------------------------------------------
         Net revenue . . . . . . . . . . . . . . . . . . . . . . .        3,842       5,020       8,868      12,003      13,595
  Cost of revenue. . . . . . . . . . . . . . . . . . . . . . . . .        2,017       2,704       4,129       4,679       5,959
                                                                    --------------------------------------------------------------
    Gross profit . . . . . . . . . . . . . . . . . . . . . . . . .        1,825       2,316       4,739       7,324       7,636
  Operating costs:
    Research and development . . . . . . . . . . . . . . . . . . .          526         870       1,647       1,855       2,336
    Sales and marketing. . . . . . . . . . . . . . . . . . . . . .          438       1,236       2,588       3,349       3,651
    General and administrative . . . . . . . . . . . . . . . . . .          940       1,254       1,686       2,273       3,172
    Reorganization and other special charges . . . . . . . . . . .          -          -           -            908       1,706
                                                                    --------------------------------------------------------------
         Total operating costs . . . . . . . . . . . . . . . . . .        1,904       3,360       5,921       8,385      10,865
                                                                    --------------------------------------------------------------
    Operating income (loss). . . . . . . . . . . . . . . . . . . .          (79)     (1,044)     (1,182)     (1,061)     (3,229)
  Interest expense . . . . . . . . . . . . . . . . . . . . . . . .          (29)        (25)       (224)       (274)       -
  Interest and other income, net . . . . . . . . . . . . . . . . .           10          53          26         368         808
  Loss on investment . . . . . . . . . . . . . . . . . . . . . . .         (133)       (180)       -           -           -
                                                                    --------------------------------------------------------------
    Loss before provision for income taxes . . . . . . . . . . . .         (231)     (1,196)     (1,380)       (967)     (2,421)
  Provision for income tax expense . . . . . . . . . . . . . . . .          (13)        (48)       -           -             40
                                                                    --------------------------------------------------------------
    Loss before cumulative effect of accounting change . . . . . .
                                                                            (244)    (1,244)     (1,380)       (967)     (2,461)
  Cumulative effect for change in accounting for income taxes. . .
                                                                              -          (7)       -           -           -
                                                                    --------------------------------------------------------------
    Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . .         (244)     (1,251)     (1,380)       (967)     (2,461)
                                                                    --------------------------------------------------------------

  Accretion of redeemable preferred stock. . . . . . . . . . . . .          (23)       (110)       (173)       (110)       -
                                                                    --------------------------------------------------------------
    Net Loss attributable to common stockholders . . . . . . . . .         (267)     (1,361)     (1,553)     (1,077)     (2,461)
                                                                    --------------------------------------------------------------

  Net loss per share . . . . . . . . . . . . . . . . . . . . . . .        (0.07)      (0.32)      (0.35)      (0.22)      (0.41)
                                                                    --------------------------------------------------------------

  Shares used in computing net loss per share. . . . . . . . . . .        3,829       4,213       4,464       4,966       5,936
                                                                    --------------------------------------------------------------

</TABLE>

<TABLE>
<CAPTION>

                                                                                                  MARCH 31,
                                                                                                  ---------
                                                                            1993      1994       1995        1996       1997
                                                                            ----      ----       ----        ----       ----
                                                                                               (IN THOUSANDS)
  <S>                                                                     <C>         <C>         <C>        <C>         <C>
  BALANCE SHEET DATA:
  Cash, cash equivalents and securities available-for-sale . . . .          347         513       1,190      19,980      13,678
  Total assets . . . . . . . . . . . . . . . . . . . . . . . . . .        1,774       1,936       4,949      25,581      20,631
  Redeemable common and preferred stock. . . . . . . . . . . . . .          888         917       3,069        -           -
  Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . .          -         1,936       4,949        -           -
  Stockholders' (deficit) equity . . . . . . . . . . . . . . . . .         (310)     (1,609)     (3,223)     19,901      17,962

</TABLE>
 
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS

    THE DISCUSSION AND ANALYSIS BELOW CONTAINS TREND ANALYSIS AND OTHER
FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES
ACT OF 1993 AND SECTION 21E OF THE SECURITIES ACT OF 1934. ACTUAL RESULTS COULD
DIFFER MATERIALLY FROM THOSE PROJECTED IN THE FORWARD-LOOKING STATEMENTS AS A
RESULT OF THE RISK FACTORS SET FORTH BELOW AND IN THE COMPANY'S PROSPECTUS DATED
DECEMBER 6, 1995 AND OTHER REPORTS FILED BY THE COMPANY.


<PAGE>

OVERVIEW

    MECON is a leading healthcare benchmarking solutions company.  The
Company's proprietary data, family of premium quality easy-to-use software
products and consulting services combine to produce and sustain optimum
performance in healthcare delivery systems.  From its incorporation until 1989,
MECON's revenue was primarily derived from consulting services for acute care
hospitals. Since 1990, the Company has transitioned into providing a variety of
products and services that employ its proprietary database comprised of acute
care hospitals' operational cost and key performance information. For fiscal
1997, approximately 73% of the Company's revenues were derived from database
subscriptions and software licenses. Within the acute care segment of the
hospital market, MECON has marketed its product and services primarily to
individual hospitals with over 100 beds.

    On March 29, 1996, the Company merged with Managed Care Information 
Systems,Inc. ("MCIS") in a pooling of interests transaction. In connection 
with the merger, the Company exchanged 338,155 shares of its common stock for 
all of the outstanding shares of MCIS, assumed 33,052 common stock options, 
and assumed a note payable and accrued interest to a third party in the 
amount of $2.5 million. In addition, the Company recorded special charges 
totaling $908,000 for merger-related costs. Accordingly, all prior period 
financial information has been restated.

    MCIS' Action-Point product line is a PC-based Windows product for senior
level health care executives.  MECON- Action-Point Clinical Utilization Analysis
System supports effective planning and organizational management through
immediate access to information on revenue/profitability, payor mix, resource
utilization, occupancy, and physician practice patterns enabling the facility to
monitor data by physician, payor and DRG.

    The following factors contributed to the Company's performance in fiscal
1997.  On November 25, 1996, the Company announced plans to complete the
integration of MCIS, centralize management of its product development, sales and
product support organizations, increase its investment in the development of new
products and relocate its headquarters to larger facilities to accommodate these
changes.  These actions were intended to position the Company on a strong
footing for long-term growth.  In connection with the implementation of this new
corporate structure, the Company recorded a special pretax charge totaling $1.5
million that consisted of a $1.3 million charge for costs associated with the
reorganization, and a $122,000 charge for an aborted acquisition during the
third quarter of fiscal 1997.  Included in the costs associated with the
reorganization were provisions for shutting down two of the Company's satellite
offices in Chicago and Calabasas, California, employee reassignment and
reallocations, severance and related benefits, asset writedowns and a provision
for doubtful accounts which was established as a reserve for returns,
concessions and uncollectible accounts.   This reserve was established because
the Company believed its commitment to the development of new products would
change the strategic direction of  its product lines.

    Total cash payments made through March 31, 1997 in connection with the
reorganization were $1.1 million, and total non-cash expenses, including fixed
asset writedowns and the provision for doubtful accounts, were $518,000.  The
company estimates that no future cash payments will be made to complete the
reorganization.

    Consistent with the product development plans, the Company began to
increase its investment in new product development which included a greater
focus on clinical, outcomes and patient satisfaction applications.  The Company
believed that the planned new products and enhancements would solidify the
Company's new long-term strategy of providing premium-quality benchmark-based
solutions to the healthcare industry.

    As a result of these integration, reorganization and product transition
efforts, revenue and expenses for the third and fourth quarter of fiscal 1997
were adversely affected.  Revenue for the third quarter of fiscal 1997 was
impacted by declined productivity in the sales force while the newly centralized
sales management was implemented.  This declined productivity led to contract
signing delays.  Although the Company signed contracts with three year values
totaling approximately $4.8 million in the third quarter of fiscal 1997, the
contracts were signed late in the quarter, and accordingly, the Company had not
yet performed work necessary to recognize a material portion of this contract
revenue.   Revenue for the fourth quarter of fiscal 1997 was impacted by
continued reduced productivity in the sales force, and although the sales force
remained relatively intact, the Company signed contracts with three year values
totaling only $2.6 million compared to $3.0 million in the comparable period in
the prior fiscal year.  The effect of such reduced contract signings was a
shortfall in revenue recognized both sequentially and compared to the fourth
quarter of the prior fiscal year.  This shortfall resulted in an imbalance
between revenue and expenses, and accordingly, the Company announced that it
would take immediate corrective measures to reduce expenses to anticipated
revenue levels.


<PAGE>

    On April 17, 1997, the Company announced a number of strategic and
operational changes intended to improve the Company's financial performance.  As
a first step, the Company renewed its strategic emphasis on its historical
strengths in benchmarking-based cost management solutions and refocused its
activities on the core markets served by the Company's PEERVIEW, OPTIMIS,
Action-Point and consulting services.  Although the Company believed that
additional healthcare market sectors targeted by the Company's increased
investments in developing clinical, outcomes and patient satisfaction products
did represent growth opportunities for the Company in the future, the Company
believed that continued efforts in these areas compromised both its leadership
position in benchmark-based cost management solutions and its profitability.

    Accordingly, the Company took action to reduce its ongoing quarterly
operating expense base.  As a part of the expense reduction effort, the Company
decreased its workforce by 38 employees on April 17, 1997.  This reduction was
made in an effort to reduce the Company's overall quarterly expenses to
anticipated revenue levels, and along with the Company's renewed focus on the
core markets, return the Company to profitability and growth.  As a part of this
expense reduction effort, the Company expects to incur a special charge of
approximately $750,000 during the first quarter of fiscal 1998. This charge is
primarily comprised of employee outplacement, severance and related benefits as
well as employee reassignment, relocation and additional costs associated with
facility shutdowns.

    At March 31, 1997, the Company's backlog, which is defined as the total 
value of all contracts signed but not yet recognized as revenue, remained 
relatively constant at $10.7 million compared to $10.0 million at March 31, 
1996. The Company's financial position is further strengthened as the Company 
continues to sell its subscription-based and software products which generate 
recurring revenue from 3 year subscription and annual software maintenance 
contracts.

    The Company's Subscription and license revenue consists primarily of
MECON-PEERx subscription revenue and MECON-OPTIMIS and Action-Point software
licenses. The Company recognizes subscription revenue ratably over the estimated
time to complete each respective year's implementation of the MECON-PEERx
product. The Company recognizes the associated costs of implementation as
incurred. Software license revenue primarily includes a one-time license fee.
The Company recognizes MECON-OPTIMIS license revenue upon shipment of the
software and Action-Point license revenue upon completion of the training period
and customer acceptance.

    The Company's services revenue consists primarily of implementation, annual
maintenance and technical support fees for MECON-OPTIMIS and Action-Point, other
optional products and services related to MECON-PEERx, MECON-OPTIMIS, and
Action-Point, and consulting services. The Company recognizes implementation
revenue when earned and annual maintenance and technical support fees ratably
over a typical twelve month agreement term. The Company recognizes other
optional products and services when the reports have been delivered or the
services performed. The Company recognizes consulting revenue as services are
performed.

    The Company's revenue has increased primarily due to greater market
penetration of its database and software products, product enhancements, price
increases, and increased support and data analysis fees related to the Company's
expanded software customer base. The Company's revenue is primarily derived from
direct sales to end users.


    In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128 "Earnings Per Share" (SFAS No. 128),
which requires the presentation of basic earnings per share (EPS) and, for
companies with complex capital structures, diluted EPS. SFAS No. 128 is
effective for annual and interim periods ending after December 15, 1997; earlier
application is not permitted.  The Company expects that adoption of this
statement will not have a material impact on earnings per share as presented in
the accompanying consolidated financial statements, as the company incurred
losses for all periods presented.


<PAGE>

RESULTS OF OPERATIONS

    The following table sets forth certain operating data as a percentage of
net revenue for the period indicated:


                                                    FISCAL YEAR ENDED MARCH 31,
                                                     1995      1996       1997
                                                     ----      ----       ----
 Statements of Operations
 Revenue:
  Subscription and license . . . . . . . . . . . .    54%       67%       73%
  Services . . . . . . . . . . . . . . . . . . . .    46%       33%       27%
                                                     --------------------------
    Net revenue. . . . . . . . . . . . . . . . . .   100%      100%      100%
 Cost of revenue . . . . . . . . . . . . . . . . .    47%       39%       44%
                                                     --------------------------
 Gross margin. . . . . . . . . . . . . . . . . . .    53%       61%       56%
 Operating costs:
  Research and development . . . . . . . . . . . .    19%       15%       17%
  Sales and marketing. . . . . . . . . . . . . . .    29%       28%       27%
  General and administrative . . . . . . . . . . .    19%       19%       23%
  Reorganization and other special charges . . . .     -         8%       13%
                                                     --------------------------
    Total operating costs. . . . . . . . . . . . .    67%       70%       80%
                                                     --------------------------
 Operating loss. . . . . . . . . . . . . . . . . .   (14)%      (9)%     (24)%
 Interest expense. . . . . . . . . . . . . . . . .   ( 3)%      (2)%      -
 Interest and other income, net. . . . . . . . . .     -          3%       6 %
                                                     --------------------------
 Loss before provision for income taxes. . . . . .   (17)%      (8)%     (18)%
 Provision for income tax expense. . . . . . . . .     -         -        -
                                                     --------------------------
 Net loss. . . . . . . . . . . . . . . . . . . . .   (17)%      (8)%     (18)%
                                                     --------------------------

 Accretion of redeemable preferred stock . . . . .    (2)%      (1)%       -
                                                     --------------------------
 Net loss attributable to common stockholders. . .   (19)%      (9)%     (18)%
                                                     --------------------------


FISCAL 1997 COMPARED TO FISCAL 1996

REVENUE

    Revenue for fiscal 1997 increased 13% to $13.6 compared to $12.0 million 
for fiscal 1996. Subscription and license revenue for fiscal 1997 increased 
24% to $9.9 compared to $8.0 million for fiscal 1996 and accounted for 
essentially all of the revenue growth. This increase was primarily due to 
increased revenue from new MECON-PEERx subscription contracts and 
Action*Point license fees. Service revenue for fiscal 1997 decreased 8% to 
$3.7 million compared to $4.0 million for fiscal 1996.  This decrease was 
primarily due to a decrease in consulting revenue reflective of the Company's 
continued shift in focus to product sales from consulting services.

COST OF REVENUE

    Cost of revenue for fiscal 1997 increased 28% to $6.0 million compared to 
$4.7 million for fiscal 1996, primarily due to additional staffing to support 
the Company's anticipated growth and increased amortization expense of 
capitalized software development costs. Cost of revenue for fiscal 1997 
included $227,000 in amortization expense from the capitalization of software 
development expenses compared to $89,000 for fiscal 1996. Cost of revenue for 
fiscal 1997 increased to 44% of total revenue compared to 39% for fiscal 
1996, primarily due to an increase in staffing to support the higher level of 
contracts signed in fiscal 1997 compared to fiscal 1996 as well as increase 
amortization expense from the capitalization of software development costs.

RESEARCH AND DEVELOPMENT

    Research and development expenses for fiscal 1997 increased 21% to $2.3 
million compared to $1.9 million for fiscal 1996, primarily due to the 
addition of technical and programming personnel related to new product 
development. During fiscal 1997 approximately $754,000 was capitalized for 
internally developed software related to product development compared to 
$569,000 for fiscal 1996. Research and development expenses for fiscal 1997 
increased to 17% of revenue compared to 15% for the comparable period in the 
prior year, primarily due to a commitment to new product development in 
advance of related revenues.

<PAGE>

SALES AND MARKETING

    Sales and marketing expenses for fiscal 1997 increased 12% to $3.7 
million compared to $3.3 million for fiscal 1996, primarily due to increased 
commissions associated with higher levels of contract signings for fiscal 
1997 compared to fiscal 1996, the hiring of a Vice President of Marketing, 
and investment in certain promotional activities, including trade shows, 
seminars and advertising. Sales and marketing expenses for fiscal 1997 
decreased to 27% of revenue compared to 28% for fiscal 1996, primarily due to 
increased utilization of sales and marketing capacity developed in prior 
fiscal years.

GENERAL AND ADMINISTRATIVE

    General and administrative expenses for fiscal 1997 increased 39% to $3.2 
million compared to $2.3 million for fiscal  1996, primarily due to increased 
management staffing, expansion of facilities, and general expenses related to 
being a public company. General and administrative expenses for fiscal 1997 
increased to 23% of revenue compared to 19% of revenue for fiscal 1996, 
primarily due to the establishment of a larger infrastructure, including 
information systems personnel, a new Chief Executive Officer and larger 
facilities, to support increased revenue.

REORGANIZATION AND OTHER SPECIAL COSTS

    Reorganization and other special costs for fiscal 1997 increased 88% to 
$1.7 million compared to $908,000 for fiscal  1996, primarily due to the 
Company's reorganization plan announced in the third quarter of fiscal 1997. 
The reorganization plan called for centralizing the management of product 
development, sales and product support organizations.  In connection with 
this reorganization, the Company recorded a special pretax charge totaling 
$1.5 million that primarily included a $1.3 million charge for costs 
associated with the reorganization, and a $122,000 charge for an aborted 
acquisition.  Included in the costs associated with the reorganization were 
provisions for shutting down two of the Company's satellite offices in 
Chicago and Calabasas, California,  employee reassignment and relocation, 
severance and related benefits, asset writedowns and a provision for accounts 
receivable that management believes may not be collectible. Reorganization 
and other special costs of $908,000 for fiscal 1996 primarily included costs 
of the MCIS merger. Included in the merger cost were closing costs, 
professional fees, and other direct costs related to the merger.

INTEREST AND OTHER INCOME, NET

    Interest and other income, net for fiscal 1997 increased 120% to $808,000
compared to $368,000 for fiscal 1996, primarily due larger cash balances during
fiscal 1997 from the continued investment of the net proceeds received from an
initial public offering of the Company's common stock in December, 1995.


FISCAL 1996 COMPARED TO FISCAL 1995

 REVENUE

    Revenue for fiscal 1996 increased 35% to $12.0 million compared to $8.9 
million for fiscal 1995. Subscription and license revenue for fiscal 1996 
increased 67% to $8.0 million compared to $4.8 million for fiscal 1995 and 
accounted for essentially all of the revenue growth. This increase was 
primarily due to increased revenue from new MECON-PEERx subscription 
contracts and Action*Point license fees. Service revenue remained constant at 
$4.0 million for both fiscal 1996 and 1995. While overall service revenue 
remained unchanged, it was impacted by a 9% decrease in OPTIMIS 
implementation fees as the market waited for the Windows based version that 
was completed in the third fiscal quarter of 1996, a 14% decrease in 
consulting revenue reflective of the Company's continued shift in focus to 
product sales from consulting services and an offsetting increase of 23% in 
value-added products and services sold to the Company's PEERx subscriber base.

COST OF REVENUE

    Cost of revenue for fiscal 1996 increased 15% to $4.7 million compared to 
$4.1 million for fiscal 1995, primarily due to additional staffing to support 
the Company's growth. Cost of revenue for fiscal 1996 included $89,000 in 
amortization expense from the capitalization of software development expenses 
compared to $157,000 for fiscal 1995. Cost of revenue for fiscal 1996 
decreased to 39% of total revenue compared to 47% for fiscal 1995, primarily 
due to improved utilization of customer support staff and lower travel 
expenses attributable to establishing regional offices in Chicago and 
Washington D.C.

<PAGE>

RESEARCH AND DEVELOPMENT

    Research and development expenses for fiscal 1996 increased 19% to $1.9 
million compared to $1.6 million for fiscal 1995, primarily due to the 
addition of technical and programming personnel related to new product 
development. During fiscal 1996 approximately $569,000 was capitalized for 
internally developed software related to product development. Research and 
development expenses for fiscal 1996 decreased to 15% of revenue compared to 
19% for the comparable period in the prior year, primarily due to the 
completion of the Optimis windows based product development in the third 
quarter of fiscal 1996.

SALES AND MARKETING

    Sales and marketing expenses for fiscal 1996 increased 27% to $3.3 
million compared to $2.6 million for fiscal 1995, primarily due to sales 
force expansion and investment in certain promotional activities, including 
trade shows, seminars and advertising. Sales and marketing expenses for 
fiscal 1996 decreased to 28% of revenue compared to 29% for fiscal 1995, 
primarily due to utilization of sales and marketing capacity developed during 
the second half of fiscal 1995.

GENERAL AND ADMINISTRATIVE

    General and administrative expenses for fiscal 1996 increased 35% to $2.3 
million compared to $1.7 million for fiscal 1995, primarily due to increased 
management staffing, facilities expenses and general expenses related to an 
increase in business activity. General and administrative expenses for fiscal 
1996 remained constant at 19% of revenue for both fiscal 1996 and 1995.

INTEREST AND OTHER INCOME, NET

    Interest and other income for fiscal 1996 increased to $368,000 compared 
to $26,000 for fiscal 1995, primarily due to the investment of $23.1 million 
of net proceeds from an initial public offering of the Company's common stock 
in December, 1995.

QUARTERLY RESULTS

    The following table sets forth certain unaudited quarterly financial data
for fiscal 1996 and fiscal 1997. In the opinion of the Company's management,
this unaudited information has been prepared on the same basis as the audited
information included elsewhere in this annual report and includes all
adjustments necessary to present fairly the information set forth therein. The
operating results for any quarter are not necessarily indicative of results for
any future period:

<TABLE>
<CAPTION>
 
                                                              FISCAL YEAR 1996                            FISCAL YEAR 1997
                                                              ----------------                            ----------------
                                                        Q1        Q2        Q3        Q4        Q1        Q2        Q3       Q4
                                                        --        --        --        --        --        --        --       --
                                                                                     (IN THOUSANDS)
<S>                                                  <C>       <C>       <C>       <C>       <C>       <C>       <C>      <C>
Revenue:
Subscription and license . . . . . . . . . . . . .    1,369     2,173     2,360     2,135     2,502     3,472     2,163    1,797
Services . . . . . . . . . . . . . . . . . . . . .      891       840       984     1,251       973     1,138       889      661
                                                      -----------------------------------------------------------------------------
  Net revenue. . . . . . . . . . . . . . . . . . .    2,260     3,013     3,344     3,386     3,475     4,610     3,052    2,458
Cost of revenue. . . . . . . . . . . . . . . . . .    1,136     1,126     1,237     1,180     1,211     1,500     1,483    1,765
                                                      -----------------------------------------------------------------------------
Gross profit . . . . . . . . . . . . . . . . . . .    1,124     1,887     2,107     2,206     2,264     3,110     1,569      693
                                                      -----------------------------------------------------------------------------
Total operating costs. . . . . . . . . . . . . . .    1,815     1,897     1,994     2,679*    2,004     2,173     3,867**  2,821
Operating income (loss). . . . . . . . . . . . . .     (691)      (10)      113      (473)      260       937    (2,298)  (2,128)
Net income (loss). . . . . . . . . . . . . . . . .     (745)      (78)       78      (222)      313       746    (1,581)  (1,939)
                                                      -----------------------------------------------------------------------------
Net income (loss) attributable to common stockholders  (800)     (133)       78      (222)      313       746    (1,581)  (1,939)

-----------

</TABLE>
 
 *Includes $908,000 in expenses for the merger of MCIS.
**Includes $1.5 million in reorganization and aborted acquisition costs.


<PAGE>

<TABLE>
<CAPTION>
 
                                                                  FISCAL YEAR 1996                         FISCAL YEAR 1997
                                                                  ----------------                         ----------------
                                                          Q1        Q2        Q3        Q4        Q1         Q2       Q3       Q4
                                                          --        --        --        --        --         --       --       --
<S>                                                    <C>       <C>       <C>       <C>       <C>       <C>       <C>      <C>
Revenue:
Subscription and license . . . . . . . . . . . . . . .   61%       72%       71%       63%       72%       75%       71%      73%
Services . . . . . . . . . . . . . . . . . . . . . . .   39%       28%       29%       37%       28%       25%       29%      27%
                                                        ----      ----      ----      ----      ----      ----      ----     ----
  Net revenue. . . . . . . . . . . . . . . . . . . . .  100%      100%      100%      100%      100%      100%      100%     100%
Cost of revenue. . . . . . . . . . . . . . . . . . . .   50%       37%       37%       35%       35%       33%       49%      72%
                                                        ----      ----      ----      ----      ----      ----      ----     ----
Gross margin . . . . . . . . . . . . . . . . . . . . .   50%       63%       63%       65%       65%       67%       51%      28%
                                                        ----      ----      ----      ----      ----      ----      ----     ----
Total operating costs. . . . . . . . . . . . . . . . .   80%       63%       60%       79%       57%       47%      127%     115%
Operating income (loss). . . . . . . . . . . . . . . .  (30)%      -          3%      (14)%       8%       20%      (75%)    (87%)
Net income (loss). . . . . . . . . . . . . . . . . . .  (33)%      (3)%       2%      (7)%        9%       16%      (52%)    (79%)
                                                        ----      ----      ----      ----      ----      ----      ----     ----
Net income (loss) attributable to common stockholders.  (35)%      (4)%       2%      (7)%        9%       16%      (52%)    (79%)

</TABLE>
 

    The Company's quarterly revenues and operating results have varied
significantly in the past and may continue to fluctuate as a result of a variety
of factors, including: the Company's sales cycle and demand for its products and
services, changes in distribution channels, changes in the Company's product
mix, the termination of, or a reduction in, subscriptions to the Company's
MECON-PEERx product, the loss of customers due to consolidation in the health
care industry, customer delays in providing information needed by the Company to
complete implementation of, and revenue recognition from, sales of the Company's
products, changes in customer budgets, investments by the Company in marketing,
sales, research and development and administrative personnel necessary to
support the Company's growth, the timing of new product introductions and
enhancements by the Company and its competitors, marketing and sales promotional
activities and trade shows, the unpredictability of revenues from consulting
services and general economic conditions.

    The Company's operating expense levels are relatively fixed and, to a 
large degree, are based on anticipated revenue levels. Consequently, if 
anticipated revenues in any given quarter do not occur as expected, expense 
levels could be disproportionate in relation to revenues. In addition, the 
Company's quarterly results have been, and may continue to be, affected by 
hospital budgeting practices that cause many discretionary purchase decisions 
to be made by hospitals shortly before their budgetary year end, which 
generally falls on June 30 or December 31. Consequently, the Company's 
operating results have been seasonal.

LIQUIDITY AND CAPITAL RESOURCES

    Over the past three years, the Company financed its operations primarily 
through sales of preferred and common stock. On December 7, 1995, the Company 
completed an initial public offering of 2,000,000 shares of its common stock. 
The offering yielded $23 million in net proceeds to the Company.  In fiscal 
1996, the Company redeemed all outstanding shares of the Company's Series A 
and Series B Preferred Stock and amounts outstanding under its revolving 
credit line.  The remaining funds have been used for the merger of MCIS, 
acquisition of property and equipment, a corporate reorganization in the 
third quarter of fiscal 1997 and other general corporate purposes.  At March 
31, 1997, the Company's cash, cash equivalents and securities 
available-for-sale decreased by $6.3 million, or 32%, to $13.7 million 
compared to $20.0 million at March 31, 1996 primarily as a result of the 
Company's corporate reorganization, acquisition of property and equipment and 
repayment of bank borrowings. During fiscal 1997, the Company used cash of 
$2.8 in operating activities. Purchases of property and equipment of $1.3 
million primarily included $1.1 million in computers.  On March 29, 1996, the 
Company completed a merger with Managed Care Information Systems, Inc. 
("MCIS"). In connection with the merger, the Company assumed a note payable 
and accrued interest to a third party in the amount of $2.5 million which was 
repaid during the first fiscal quarter of 1997.

    As of March 31, 1997, the Company had net working capital of $14.9 million,
including cash, cash equivalents and securities available-for-sale of $13.7
million.  Given the Company's strong cash position, as of March 31, 1997, the
Company has no outstanding debt facilities.  The Company currently has no
material commitments for capital expenditures.

    The Company believes that with its access to financing sources, strong cash
position, and lack of debt, it will be able to adequately fund its cash
requirements for at least the next twelve months.


<PAGE>

CERTAIN FACTORS BEARING ON FUTURE RESULTS

    CERTAIN OF THE STATEMENTS ABOVE ARE FORWARD-LOOKING STATEMENTS. IN
ADDITION, THE COMPANY MAY FROM TIME TO TIME MAKE ORAL FORWARD-LOOKING
STATEMENTS. THE FOLLOWING ARE IMPORTANT FACTORS THAT COULD CAUSE ACTUAL RESULTS
TO DIFFER MATERIALLY FROM THOSE PROJECTED IN ANY SUCH FORWARD-LOOKING
STATEMENTS.

VARIABILITY OF QUARTERLY RESULTS; SEASONALITY

    The Company's quarterly revenues and operating results have varied
significantly in the past and are likely to vary substantially from quarter to
quarter in the future.  Quarterly revenues and operating results may fluctuate
as a result of a variety of factors, including: the Company's sales cycle and
demand for its products and services; changes in distribution channels; changes
in the Company's product mix; the termination of, or a reduction in,
subscriptions to the Company's MECON-PEERx product; the loss of customers due to
consolidation in the health care industry; customer delays in providing
information needed by the Company to complete implementation of, and revenue
recognition from, sales of the MECON-PEERx product; changes in customer budgets;
investments by the Company in marketing, sales, research and development and
administrative personnel necessary to support the Company's growth; the timing
of new product introductions and enhancements by the Company and its
competitors; marketing and sales promotional activities and trade shows; the
unpredictability of revenues from consulting services; and general economic
conditions.  Accordingly, the Company's operating results for any particular
quarterly period may not be indicative of results for future periods.  Moreover,
the Company's operating expense levels are relatively fixed and, to a large
degree, are based on anticipated revenue levels.  Consequently, if anticipated
revenues in any given quarter do not occur as expected, expense levels could be
disproportionately high and may result in losses.

    The Company's quarterly results have been, and may continue to be, affected
by hospital budgeting practices that cause many discretionary purchase decisions
to be made shortly before the budgetary year end, which generally occurs on June
30 or December 31.  Consequently, the Company's operating results have been
somewhat seasonal.

DEPENDENCE ON PRINCIPAL PRODUCT

    For the fiscal year ended March 31, 1997, approximately 73% of the
Company's revenues were derived from subscriptions and licenses to its
MECON-PEERx, MECON-OPTIMIS and MECON-Action*Point products.  Accordingly, any
significant reduction in subscriptions to such product would have a material
adverse effect on the Company's business and operating results.  Although
subscriptions to the MECON-PEERx database generally have three-year terms, there
can be no assurance that customers will not cancel their subscriptions prior to
the end of the subscription period.  In addition, although the Company has
experienced a high customer renewal rate, there can be no assurance that the
Company's customers will renew their subscriptions or that any renewal terms
will be as favorable to the Company as existing terms.

INTEGRITY AND RELIABILITY OF DATABASE

    The Company's success depends significantly on the integrity of its
database.  Although the Company tests data for completeness and consistency, it
does not conduct independent audits of the information provided by its
customers.  Moreover, while the Company believes that the benchmarking
information contained in its database is representative of the operational
aspects of various types of hospitals, there can be no assurance that such
information is appropriate for comparative analysis in all cases or that the
database accurately reflects general or specific trends in the hospital market.
If the information contained in the database were found, or were perceived, to
be inaccurate, or if such information were generally perceived to be unreliable,
the Company's business and operating results could be materially and adversely
affected.

COMPETITION

    The market for health care information systems and services is intensely
competitive and rapidly changing.  The Company's competitors include other
providers of operations and financial benchmarking data and services, providers
of decision support software systems and management and health care consulting
firms.  Furthermore, other major health care information companies not presently
offering cost management solutions may enter the markets in which the Company
competes.  Many of the Company's competitors and potential competitors have
significantly greater financial, technical, product development and marketing
resources than the Company, and currently have, or may develop or acquire,
substantial installed customer bases in the health care industry.  The Company
also faces significant competition from internal management information services
departments of large hospital alliances or for-profit hospital chains, many of
which have developed or may develop benchmarking information and other cost
control solutions.   In addition, increased competitive pressures, among other
factors, could lead to lower prices for the Company's products and services,
thereby materially adversely affecting the Company's operating results.
Accordingly, there can be no assurance that the Company will be able to compete
successfully in the future.


<PAGE>

MANAGEMENT OF GROWTH

    The Company is currently experiencing a period of growth and expansion
which has placed a significant strain on its personnel and resources.  The
Company's growth has resulted in a increase in the level of responsibility for
the Company's key personnel, several of whom were only recently hired.  Failure
to manage growth effectively, or to develop, maintain or upgrade management
information and other systems and controls, could have a material adverse effect
on the Company.  In addition, through the merger of MCIS in March 1996, the
Company increased the scope of its product lines and operations.  This expansion
in scope has resulted in an increased need for infrastructure and systems.
Furthermore, this requirement is relatively more substantial due to the limited
systems investment made by the Company prior to fiscal 1997.  This requirement
includes, without limitation, securing adequate financial resources to
successfully integrate and manage MCIS, retention of key employees, integration
of management information, control and telecommunications systems, consolidation
of geographically dispersed facilities, and integration of various functions and
groups of employees, each of which could pose significant challenges.  Moreover,
MCIS historically has not been profitable, and the Company must make significant
and rapid improvements at MCIS for the merged operation to achieve profit
margins comparable to the Company's historical results.  The Company's future
operating results will depend in large measure on its success in implementing
operating and financial procedures and controls, improving communication and
coordination among different operating functions, integrating certain functions
such as sales and implementation, strengthening management information and
telecommunications systems, and continuing to hire additional qualified
personnel in all areas.  There can be no assurance that the Company will be able
to manage these activities and implement these additional systems and controls
successfully, and any failure to do so could have a material adverse effect upon
the Company's operating results.

DEPENDENCE ON STRATEGIC RELATIONSHIPS

    A key element of the Company's business strategy is to develop
relationships with leading industry organizations in order to increase the
Company's market presence, expand distribution channels and broaden the
Company's product line.  The Company has recently entered into strategic
relationships with The MEDSTAT Group, Inc. and HBOC.  The Company believes that
its success in penetrating new markets for its products and services depends in
large part on its ability to maintain these relationships and cultivate
additional relationships.  There can be no assurance that the Company's existing
or future strategic partners will not develop and market products in competition
with the Company or otherwise discontinue their relationships with the Company,
or that the Company will be able to successfully develop additional strategic
relationships.

CONSOLIDATION AND UNCERTAINTY IN THE HEALTH CARE INDUSTRY

    Many health care providers are consolidating to create larger health care
delivery enterprises with greater regional market power.  Such consolidation
could erode the Company's existing customer base and reduce the size of the
Company's target market.  In addition, the resulting enterprises could have
greater bargaining power, which may lead to price erosion of the Company's
products and services.  The reduction in the size of the Company's target market
or the failure of the Company to maintain adequate price levels could have a
material adverse effect on the Company.

    The health care industry is subject to changing political, economic and
regulatory influences that may effect the procurement practices and operation of
health care industry participants.  During the past several years, the US health
care industry has been subject to an increase in governmental regulation of,
among other things, reimbursement rates and certain capital expenditures.
Several lawmakers have announced that they intend to propose programs to reform
the US health care system.  These programs may contain proposals to increase
governmental involvement in health care, lower reimbursement rates and otherwise
change the operating environment for the Company's customers.  Health care
industry participants may react to these proposals and the uncertainly
surrounding such proposals by curtailing or deferring investments, including
those for the Company's products and services.  The Company cannot predict what
impact, if any, such factors might have on its business, financial condition and
results of operations.

UNCERTAINTY OF ENTRANCE INTO NEW MARKETS

    A substantial majority of the Company's revenues to date have been derived
from sales to large hospitals in urban areas.  The Company's future success
depends in part upon the Company's ability to market its products and services
to other health care providers, including small and rural hospitals, long-term
care facilities, large group medical practices, rehabilitation hospitals and
surgical centers.  In order to develop the subscriber base necessary for the
accumulation of meaningful operations benchmarking data for such new markets,
the Company may be required to offer significant price discounts to prospective
customers in such markets.  In addition, because such providers typically have
smaller budgets than the Company's existing customers, entry into new markets
may require the Company to offer lower priced versions of its products.   Sales
of such new products may result in lower gross margins than sales to the
Company's existing customer base.  Moreover, the entry into such new markets may
require the Company to increase substantially its product development, marketing
and other expenses.  There can be no assurance that the Company will be
successful in entering new markets.


<PAGE>

NEW PRODUCT DEVELOPMENT

    The Company's future success and financial performance will depend in large
part on the Company's ability to continue to meet the increasingly sophisticated
needs of its customers through the timely development and successful
introduction of new and enhanced versions of its database and other
complementary products and services.  Product development has been focused on
enhancing existing products or introducing new products and has inherent risks,
and there can be no assurance that the Company will be successful in its product
development efforts or that the market will continue to accept the Company's
existing or new products and services.  The Company believes that significant
continuing product enhancement and development efforts will be required to
sustain the Company's growth.  There can be no assurance that the Company will
successfully develop, introduce and market new products or product enhancements,
or that products or product enhancements developed by the company will meet
requirements of health care providers and achieve market acceptance.

POTENTIAL ACQUISITIONS

    The Company may expand its product line through the acquisition of
complementary businesses, products and technologies.  Acquisitions involve
numerous risks, including difficulties in the assimilation of operations and
products, the ability to manage geographically remote units, the diversion of
management's attention from other business concerns, the risks of entering
markets in which the Company has limited or no direct expertise and the
potential loss of key employees of the acquired companies.  In addition,
acquisitions may involve the expenditure of significant funds.  The Company's
management has no prior experience in managing acquisitions.  There can be no
assurance that any acquisition will result in long-term benefits to the Company
or that management will be able to manage effectively the resulting business.
In addition, such an acquisition may involve the issuance of additional equity
securities, which may be dilutive to stockholders.

DEPENDENCE ON KEY PERSONNEL

    The success of the Company and of its business strategy is dependent in
large part on its key management and operating personnel.  The Company believes
that its future success will also depend upon its ability to attract and retain
highly-skilled technical, managerial and marketing personnel.  Such individuals
are in high demand and often attract competing offers.  In particular, the
Company's success will depend on its ability to retain the services of its
executive officers.  The Company will also have an ongoing need to expand its
management  personnel and support staff.  The loss of the services of one or
more members of management of key employees or the inability to hire additional
personnel as needed may have a material adverse effect on the Company.


<PAGE>

ITEM 7.  FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
 
                                                                 MECON, INC.
                                                         CONSOLIDATED BALANCE SHEETS
                                                           MARCH 31, 1997 AND 1996
                                               (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)



                                                             ASSETS

                                                                                                 1997            1996
                                                                                                 ----            ----
    <S>                                                                                         <C>            <C>
    Current assets:
      Cash and cash equivalents. . . . . . . . . . . . . . . . . . . . . . . . . . . . .          $9,211         15,205
      Securities available-for-sale, at market . . . . . . . . . . . . . . . . . . . . .           4,467          4,775
      Accounts receivable, net of allowances of $555 and $245, respectively. . . . . . .           2,542          2,769
      Unbilled accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . .             886            526
      Prepaid expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .             362            211
      Other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .              52            126
                                                                                                 ---------       --------
           Total current assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . .          17,520         23,612
    Property and equipment, net. . . . . . . . . . . . . . . . . . . . . . . . . . . . .           1,588          1,009
    Software development costs, net. . . . . . . . . . . . . . . . . . . . . . . . . . .           1,510            924
    Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .              13             36
                                                                                                 ---------       --------
                                                                                                 $20,631         25,581
                                                                                                 ---------       --------
                                         LIABILITIES AND STOCKHOLDERS' EQUITY
    Current liabilities:
      Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .            $978            557
      Accrued salaries and benefits. . . . . . . . . . . . . . . . . . . . . . . . . . .             452            640
      Note payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .            -             1,936
      Accrued interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .            -               519
      Deferred revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .           1,058          1,333
      Other accrued liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . .             156            666
                                                                                                 ---------       --------
           Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . .           2,644          5,651
    Long-term obligations, less current portion. . . . . . . . . . . . . . . . . . . . .              25             29
                                                                                                 ---------       --------
           Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .           2,669          5,680
                                                                                                 ---------       --------
    Stockholders' equity:
      Preferred stock, $.001 par value; 5,000,000 authorized; none issued and outstanding           -              -
         . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
      Common stock, $.001 par value; 50,000,000 shares authorized; 6,000,297 and                       6              6
         5,876,947 issued and outstanding in 1997 and 1996, respectively . . . . . . . .
      Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . .          25,033         24,511
      Accumulated deficit. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .          (7,077)        (4,616)
                                                                                                 ---------       --------
           Total stockholders' equity. . . . . . . . . . . . . . . . . . . . . . . . . .          17,962         19,901
                                                                                                 ---------       --------
                                                                                                 $20,631         25,581
                                                                                                 ---------       --------
</TABLE>

              See accompanying notes to consolidated financial statements.

<PAGE>

<TABLE>
<CAPTION>
 
                                                                 MECON, INC.
                                                    CONSOLIDATED STATEMENTS OF OPERATIONS
                                                  YEARS ENDED MARCH 31, 1997, 1996 AND 1995
                                                    (IN THOUSANDS, EXCEPT PER SHARE DATA)



                                                                              1997       1996      1995
                                                                              ----       ----      ----
<S>                                                                         <C>       <C>       <C>
Revenue:
 Subscription and license. . . . . . . . . . . . . . . . . . . . . .          $9,934     8,037     4,821
 Services. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .           3,661     3,966     4,047
                                                                            --------   -------   -------
      Net revenue. . . . . . . . . . . . . . . . . . . . . . . . . .          13,595    12,003     8,868
Cost of revenue. . . . . . . . . . . . . . . . . . . . . . . . . . .           5,959     4,679     4,129
                                                                            --------   -------   -------
      Gross profit . . . . . . . . . . . . . . . . . . . . . . . . .           7,636     7,324     4,739
                                                                            --------   -------   -------
Operating costs:
 Research and development. . . . . . . . . . . . . . . . . . . . . .           2,336     1,855     1,647
 Sales and marketing . . . . . . . . . . . . . . . . . . . . . . . .           3,651     3,349     2,588
 General and administrative. . . . . . . . . . . . . . . . . . . . .           3,172     2,273     1,686
 Reorganization and other special charges. . . . . . . . . . . . . .           1,706       908     -
                                                                            --------   -------   -------
      Total operating costs. . . . . . . . . . . . . . . . . . . . .          10,865     8,385     5,921
                                                                            --------   -------   -------
Operating loss . . . . . . . . . . . . . . . . . . . . . . . . . . .          (3,229)   (1,061)   (1,182)
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . .           -          (274)     (224)
Interest and other income, net . . . . . . . . . . . . . . . . . . .             808       368        26
                                                                            --------   -------   -------
Loss before provision for taxes. . . . . . . . . . . . . . . . . . .          (2,421)     (967)   (1,380)
Provision for income taxes . . . . . . . . . . . . . . . . . . . . .              40       -       -
                                                                            --------   -------   -------
      Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . .          (2,461)     (967)   (1,380)
Accretion of redeemable preferred stock. . . . . . . . . . . . . . .            -         (110)     (173)
                                                                            --------   -------   -------
      Net loss attributable to common stockholders . . . . . . . . .         $(2,461)   (1,077)   (1,553)
                                                                            --------   -------   -------
Net loss per share . . . . . . . . . . . . . . . . . . . . . . . . .          $(0.41)    (0.22)    (0.35)
                                                                            --------   -------   -------
Shares used to compute net loss per share. . . . . . . . . . . . . .           5,936     4,966     4,464
                                                                            --------   -------   -------

</TABLE>

              See accompanying notes to consolidated financial statements.
<PAGE>

<TABLE>
<CAPTION>
 
                                                                 MECON, INC.
                                               CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                                                        MARCH 31, 1997, 1996 AND 1995
                                                    (IN THOUSANDS, EXCEPT SHARE AMOUNTS)



                                                                       ADDITIONAL   STOCKHOLDERS'                    TOTAL
                                                                        PAID-IN         NOTE        ACCUMULATED   STOCKHOLDERS'
                                         SHARES            AMOUNT       CAPITAL      RECEIVABLE       DEFICIT        EQUITY
                                         ------            ------       -------      ----------       -------        ------
                                               COMMON STOCK
                                               ------------
<S>                                    <C>                 <C>          <C>           <C>           <C>              <C>
Balances as of March 31, 1994....       3,389,549             $3            411           (38)      (1,985)           (1,609)
Compensatory stock option grant..          50,413           -                23         -              -                  23
Issuance of common stock with put         211,416           -               (10)        -              -                 (10)
  option........................
Issuance of redeemable preferred           -                -                92         -              -                  92
  stock, Series B...............
Issuance of convertible preferred          -                -               (45)        -              -                 (45)
  stock, Series C...............
Accretion of redeemable preferred          -                -              (173)        -              -                (173)
  stock.........................
Repurchase of common stock               (213,530)          -              (121)        -              -                (121)
Net loss........................            -               -              -                        (1,380)           (1,380)
                                        ---------        ---------      ---------    ---------     ---------         --------
Balances as of March 31, 1995...        3,437,848              3            177            (38)     (3,365)           (3,223)
Compensatory stock option grant           191,993           -                90         -              -                  90
Accretion of redeemable preferred          -                -               (76)        -              (34)             (110)
 stock..........................
Repurchase of common stock......         (296,269)          -               (34)        -             (250)             (284)
Conversion of preferred stock into        479,634              1            999                        -               1,000
  common stock, Series C........
Exercise of common stock warrants          57,013           -              -            -              -                 -
Exercise of common stock options.           6,728           -                 4         -              -                   4
Repayment of stockholder notes             -                -              -                38         -                  38
Public offering proceeds, net of        2,000,000              2         23,126         -              -              23,128
  expenses of $2,872............
Termination of redemption                 -                 -               225         -              -                 225
  obligation for common stock...
Net loss........................          -                 -              -            -             (967)             (967)
                                        ---------        ---------      ---------    ---------     ---------         --------
Balances as of March 31, 1996...        5,876,947              6         24,511         -           (4,616)           19,901
Exercise of common stock options          102,968           -               398         -              -                 398
Employee stock purchase plan               20,382           -               144         -              -                 144
  purchases.....................
Other...........................           -                -               (20)        -              -                 (20)
Net loss........................           -                -              -            -           (2,461)           (2,461)
                                        ---------        ---------      ---------    ---------     ---------         --------
Balances as of March 31, 1997...        6,000,297             $6         25,033         -           (7,077)           17,962
                                        ---------        ---------      ---------    ---------     ---------         --------

</TABLE>

              See accompanying notes to consolidated financial statements.

<PAGE>

<TABLE>
<CAPTION>
 
                                                                 MECON, INC.
                                                    CONSOLIDATED STATEMENTS OF CASH FLOWS
                                                  YEARS ENDED MARCH 31, 1997, 1996 AND 1995
                                                               (IN THOUSANDS)



                                                                                          1997            1996           1995
                                                                                          ----            ----           ----
<S>                                                                                     <C>             <C>            <C>
Cash flows from operating activities:
  Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .     $(2,461)          (967)        (1,380)
  Adjustments to reconcile loss to net cash used in operating activities:
    Depreciation and amortization. . . . . . . . . . . . . . . . . . . . . . . . . .         622            333            328
    Loss on write off of fixed assets. . . . . . . . . . . . . . . . . . . . . . . .         328          -              -
    Bad debt and sales discount provisions . . . . . . . . . . . . . . . . . . . . .         472            223             72
    Compensation expense related to issuances of common stock and stock option grants      -                 90             23
  Changes in operating assets and liabilities:
    Accounts receivable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .        (245)        (1,125)        (1,297)
    Unbilled accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . .        (360)          (106)          (218)
    Other current and noncurrent assets. . . . . . . . . . . . . . . . . . . . . . .         (54)            30           (288)
    Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .         421             86            281
    Accrued interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .        (519)           259            242
    Deferred revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .        (275)          (264)           704
    Accrued liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .        (698)           496            408
                                                                                         -------        -------        -------
      Net cash used in operating activities. . . . . . . . . . . . . . . . . . . . .      (2,769)          (945)        (1,125)
                                                                                         -------        -------        -------
Cash flows from investing activities:
  Purchase of securities available-for-sale. . . . . . . . . . . . . . . . . . . . .      (8,117)        (4,775)         -
  Proceeds from sale or maturities of securities available-for-sale. . . . . . . . .       8,425          -              -
  Acquisition of property and equipment. . . . . . . . . . . . . . . . . . . . . . .      (1,301)          (628)          (541)
  Computer software development costs. . . . . . . . . . . . . . . . . . . . . . . .        (814)          (569)          (388)
                                                                                         -------        -------        -------
      Net cash used in investing activities. . . . . . . . . . . . . . . . . . . . .      (1,807)        (5,972)          (929)
                                                                                         -------        -------        -------
Cash flows from financing activities:
  Bank borrowings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .       -                850            836
  Repayment of bank borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . .      (1,940)          (850)         -
  Proceeds from issuance of redeemable preferred stock, net of issuance costs. . . .       -              -              1,911
  Proceeds from issuance of common stock, net of issuance costs. . . . . . . . . . .       -             23,132          -
  Proceeds from exercise of stock options and employee stock purchases . . . . . . .         542          -                215
  Repayment of stockholder note. . . . . . . . . . . . . . . . . . . . . . . . . . .       -                 38          -
  Repurchase of common stock . . . . . . . . . . . . . . . . . . . . . . . . . . . .       -               (284)          (121)
  Redemption of preferred stock. . . . . . . . . . . . . . . . . . . . . . . . . . .       -             (1,954)          (110)
  Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .         (20)         -               -
                                                                                         -------        -------        -------
      Net cash (used in) provided by financing activities. . . . . . . . . . . . . .      (1,418)        20,932          2,731
                                                                                         -------        -------        -------
Net (decrease) increase in cash and cash equivalents . . . . . . . . . . . . . . . .      (5,994)        14,015            677
Cash and cash equivalents at beginning of year . . . . . . . . . . . . . . . . . . .      15,205          1,190            513
                                                                                         -------        -------        -------
Cash and cash equivalents at end of year . . . . . . . . . . . . . . . . . . . . . .      $9,211         15,205          1,190
                                                                                         -------        -------        -------

Supplemental information:
  Cash paid for interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .      $  -               33              7
                                                                                         -------        -------        -------

</TABLE>

              See accompanying notes to consolidated financial statements.

<PAGE>
                                     MECON, INC.
                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                            MARCH 31, 1997, 1996 AND 1995

(1) BUSINESS OF THE COMPANY

    MECON, Inc. (the Company) provides subscriptions to an information
database, licenses to software products, and consulting services to the health
care industry. These products and services improve the performance and reduce
costs for health care organizations through the use of benchmark information,
processes, and tools.

(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

PRINCIPLES OF CONSOLIDATION

    The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiary Managed Care Information Systems, Inc. All
intercompany balances and transactions have been eliminated.

CASH EQUIVALENTS

    All highly liquid investments with a maturity of three months or less at
the date of purchase are considered to be cash equivalents. Cash equivalents
consist principally of money market instruments which include: corporate notes,
corporate bonds, certificates of deposits, commercial paper and government
agency securities.

PROPERTY AND EQUIPMENT

    Property and equipment are stated at cost. Depreciation is calculated using
the straight-line method over the estimated useful lives of the respective
assets which are generally three to five years.

SOFTWARE DEVELOPMENT COSTS

    The Company capitalizes internally generated software development costs in
accordance with Statement of Financial Accounting Standards (SFAS) No. 86.
Capitalization of software development costs begins upon the establishment of
technological feasibility for the product.

    The Company amortizes such capitalized amounts upon commencement of product
introduction at the greater of the straight-line basis using estimated economic
lives of two to three years or the ratio of actual revenues achieved to total
anticipated revenues over the lives of the products. The realizability of
unamortized capitalized costs is periodically reviewed relative to the estimated
future revenues of the related products.

RESEARCH AND DEVELOPMENT

    Research and development expenditures are charged to expense in the period
incurred.

ADVERTISING COSTS

    All costs associated with advertising and promoting products are expensed
in the period incurred.

REVENUE RECOGNITION

    Revenue generated from the initial year of a PEERx subscription contract is
recognized ratably from the date of contract signing over the estimated time to
deliver a customer's PEERx report, which is generally four to five months in
duration. Revenue generated from a subsequent year subscription contract is
recognized ratably over the estimated time to deliver a customer's subsequent
year report which generally takes four to five months beginning in the second or
third year of the contract. Costs to deliver the PEERx products are estimated to
be incurred evenly throughout the period beginning with the signing of a
contract and ending with the delivery of a report. Revenue earned and unbilled
is recorded as unbilled accounts receivable and amounts billed and unearned are
recorded as deferred revenue.

    Revenue from the licensing of the Company's OPTIMIS software product is
recognized upon delivery of the software to the customer. Revenue from OPTIMIS
implementation services, including amounts bundled with the initial license fee,
is recorded as deferred revenue and recognized as the service is performed,
generally over four to five months.
<PAGE>

    Although the Company's Action*Point software is installed by the customer,
the Company provides customer service support during the installation as well as
technical training to customer personnel during the initial period subsequent to
installation. Revenue is recognized upon completion of the training period and
final customer acceptance, whereupon no further material obligations exist,
generally four to five months.

    The Company offers post-contract customer support and implementation
services to its OPTIMIS and Action*Point customers. Revenue from maintenance and
technical support services, including amounts bundled with the initial license
fee, is recorded as deferred revenue and recognized ratably over the period the
post-contract customer support services are provided.

    Consulting revenue, as well as revenue from certain other optional products
and services, is recognized as the services are performed or as the customer's
specific project is completed.

INCOME TAXES

    The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS
No. 109). Under SFAS No. 109 deferred tax assets and liabilities are recognized
for the future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and liabilities and
their respective tax bases. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or settled. The
effect on deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment date.

NET LOSS PER SHARE

    Except as noted below, net loss per share is computed using the weighted
average number of common shares outstanding during the period. Common equivalent
shares from stock options, warrants and convertible preferred shares are
excluded from the computation as their effect is anti-dilutive, except that
pursuant to Securities and Exchange Commission Staff Accounting Bulletins and
staff policy, net loss per share includes all common and common equivalent
shares granted or issued within 12 months proceeding the Company's initial
public offering date as if they were outstanding for all periods that began
prior to the Company's initial public stock offering, even if antidilutive,
using the treasury stock method.

    For the purposes of the 1996 and 1995 net loss per share computations, net
loss has been increased by the amount of the periodic accretion for redeemable
preferred shares. Upon the completion of the Company's initial public stock
offering, the Series A and B preferred shares were redeemed.

    In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128 "Earnings Per Share" (SFAS No. 128),
which requires the presentation of basic earnings per share (EPS) and, for
companies with complex capital structures, diluted EPS. SFAS No. 128 is
effective for annual and interim periods ending after December 15, 1997; earlier
application is not permitted. The Company expects that adoption of this
statement will not have a material impact on net loss per share as presented in
the accompanying consolidated financial statements, as the Company has incurred
losses for all periods presented.

CONCENTRATION OF CREDIT RISK

    Financial instruments, which potentially subject the Company to
concentrations of credit risk, consist principally of cash and cash equivalents,
securities available-for-sale and trade receivables. The Company has investment
policies that limit investments to short-term low risk investments. The Company
markets and sells its products primarily to hospitals. The Company performs
ongoing credit evaluations of its customers' financial condition and generally
does not require collateral. The Company maintains an allowance for doubtful
accounts to cover any credit losses.

USE OF ESTIMATES

    The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.

<PAGE>

RECOVERABILITY OF LONG-LIVED ASSETS

    The Financial Accounting Standards Board recently issued SFAS No. 121,
ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO
BE DISPOSED OF. This statement requires long-lived assets to be evaluated for
impairment whenever events or changes in circumstances indicate the carrying
amount of an asset may not be recoverable. The Company adopted SFAS No. 121 as
of April 1, 1996. The adoption of SFAS No. 121 did not have a material effect on
the Company's results of operations.

    Pursuant to SFAS No. 121, the Company assesses the recoverability of the
carrying amount of its long-lived assets whenever events or changes in
circumstances indicate that the carrying amount of an asset may be impaired. If
the estimated future undiscounted operating cash flows over the remaining useful
life of the long-lived asset is in excess of the carrying amount of the asset, a
charge to income would be recognized for the excess carrying amount of the asset
over its fair value.

STOCK-BASED COMPENSATION

    The Company accounts for its stock-based compensation arrangements in
accordance with the provisions of Accounting Principles Board (APB) Opinion No.
25, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES, and related interpretations. As
such, compensation expense would be recorded on the date of grant only if the
fair value of the underlying stock exceeded the exercise price. On April 1,
1996, the Company adopted the disclosure provisions of SFAS No. 123, ACCOUNTING
FOR STOCK-BASED COMPENSATION, which requires entities to provide pro forma net
loss and pro forma net loss per share disclosures for employee stock option
grants made in fiscal year 1996 and future years as if the fair-value method
defined in SFAS No. 123 had been applied.

RECLASSIFICATIONS

    Certain reclassifications have been made to the 1996 and 1995 consolidated
financial statements to conform to the 1997 presentation. Such reclassifications
had no effect on previously reported results of operations.

(3) REORGANIZATION AND OTHER SPECIAL CHARGES

    During fiscal 1997, the Company implemented a plan to reorganize its
operations by centralizing the management of its product development, sales and
product support organizations to better achieve its strategic growth objectives.
In connection with the implementation of this new corporate structure, the
Company recorded a pretax charge of $1,337,000 for costs associated with the
reorganization. Included in the costs associated with the reorganization were
provisions for shutting down two of the Company's satellite offices in Chicago
and Calabasas, California; employee reassignment and relocation; severance and
related benefits; asset writedowns; expansion of the corporate headquarters; and
a provision for accounts receivable that management believes may not be
collectible. The following table sets forth a description of the type and amount
of reorganization costs recognized as expense for the year ended March 31, 1997:
 
<TABLE>
<CAPTION>
                                                                     USED       ACCRUAL
                                             TOTAL     NON-CASH       OR           AT
    REORGANIZATION COST                     EXPENSE     EXPENSE      PAID       3/31/97
    -------------------                    --------    --------    -------      -------
<S>                                       <C>         <C>         <C>         <C>
Salaries and termination benefits. . .      $529,000           -     529,000           -
Relocation and facilities shutdown . .       285,000           -     285,000           -
Professional fees. . . . . . . . . . .         5,000           -       5,000           -
Asset writedowns . . . . . . . . . . .       218,000     218,000     218,000           -
Provision for doubtful accounts. . . .       300,000     300,000      51,325     248,675
                                          ----------  ----------  ----------  ----------
   TOTAL . . . . . . . . . . . . . . .    $1,337,000     518,000   1,088,325     248,675
                                          ----------  ----------  ----------  ----------
</TABLE>

    Other special costs of $369,000 were incurred during the year related to
additional acquisition costs from the prior year merger and costs associated
with aborted acquisitions.

    On March 29, 1996, the Company merged with Managed Care Information
Systems, Inc. (MCIS) in a pooling of interests transaction. In connection with
the merger, the Company exchanged 338,155 shares of its common stock for all of
the outstanding shares of MCIS, assumed 33,052 common stock options, and assumed
a note payable and accrued interest to a third party in the amount of $2.5
million which was repaid during the first fiscal quarter of 1997. Accordingly,
all prior year financial information has been restated. In addition, the Company
recorded charges totaling $908,000 for merger-related costs for the year ended
March 31, 1996.

<PAGE>

(4)  FAIR VALUE OF FINANCIAL INSTRUMENTS

    In accordance with the requirements of Statement of Financial Accounting 
Standards No. 115, "Accounting for Certain Investments in Debt and Equity 
Securities" (SFAS No. 115), the Company has classified its investments in 
certain debt securities as "available-for-sale." Such investments are 
recorded at fair value based on quoted market prices, with unrealized gains 
and losses, deemed by the Company as temporary in nature, reported as a 
separate component of stockholders' equity. At March 31, 1997 and 1996, cost 
of available-for-sale securities approximated fair value of such securities.

    At March 31, 1997 and 1996, available-for-sale securities consisted of the
following (in thousands):

                                                           1997      1996
                                                           ----      ----
    Government securities. . . . . . . . . . . .            $778    12,994
    Mortgage-backed securities . . . . . . . . .               -     2,044
    Corporate debt securities. . . . . . . . . .          11,143     4,732
    Foreign debt securities. . . . . . . . . . .             532         -
                                                         -------   -------
                                                         $12,453    19,770
                                                         -------   -------

    At March 31, 1997 and 1996, these securities were classified in the
Consolidated Balance Sheet as follows (in thousands):

                                                           1997      1996
                                                           ----      ----
    Cash equivalents . . . . . . . . . . . . . .          $7,986    14,995
    Securities available-for-sale. . . . . . . .           4,467     4,775
                                                         -------   -------
                                                         $12,453    19,770
                                                         -------   -------

    The contractual maturity of all available-for-sale securities as of
March 31, 1997 was one year or less.

    During 1997 and 1996, there were no gross realized gains or losses on sales
of securities held as available-for-sale.

    The carrying amounts of all other financial instruments approximate fair
value because of their short maturity.

(5)  PROPERTY AND EQUIPMENT AND SOFTWARE DEVELOPMENT COSTS

    The following is a summary of property and equipment at March 31, 1997 and
1996 (in thousands):

                                                            1997      1996
                                                            ----      ----
    Office furniture and equipment . . . . . . .            $458       491
    Computers. . . . . . . . . . . . . . . . . .           1,994     1,422
    Leasehold improvements . . . . . . . . . . .               7        31
                                                          ------    ------
                                                           2,459     1,944
    Less accumulated depreciation. . . . . . . .            (871)     (935)
                                                          ------    ------
                                                          $1,588     1,009
                                                          ------    ------

    Depreciation expense was $395,000, $244,000 and $171,000 for the years
ended March 31, 1997, 1996 and 1995, respectively.

    The following is a summary of software development costs at March 31, 1997
and 1996 (in thousands):

                                                           1997      1996
                                                          ------    ------
    Purchased software . . . . . . . . . . . . .            $158        99
    Internally developed software. . . . . . . .           2,331     1,577
                                                          ------    ------
                                                           2,489     1,676
    Less accumulated amortization. . . . . . . .            (979)     (752)
                                                          ------    ------
                                                          $1,510       924
                                                          ------    ------

    Amortization expense was $227,000, $89,000 and $157,000 for the years ended
March 31, 1997, 1996 and 1995, respectively.

<PAGE>

(6) CREDIT FACILITIES

    At March 31, 1996, the Company had a $1.5 million bank line of credit
available bearing interest at prime plus 0.75%. There were no borrowings
outstanding under the line of credit at March 31, 1996. The line of credit
expired August 6, 1996 in accordance with its terms.

    At March 31, 1996, the Company had a $2 million line of credit with a third
party which was a result of assuming certain liabilities of MCIS during the
merger. The line of credit provided for borrowings in the form of individual
notes bearing interest rates ranging from 9.15% to 12.45%. The Company had
outstanding borrowings totaling $1,936,000 at March 31, 1996. The Company
accrued all interest and penalties due, totaling $519,000 and $260,000 at
March 31, 1996 and 1995, respectively, resulting from default by MCIS on the
line of credit. The note payable, as well as the accrued interest and penalties,
were fully satisfied by the Company on April 1, 1996.

(7) COMMITMENTS

    The Company leases office space in California, Illinois and Virginia under
operating leases with terms of 60 months. Certain office equipment is leased
under operating leases with terms of approximately 36 months.

    The leases on the California and Illinois office space included free rent
at their inception as well as scheduled base rent increases over their terms.
Rent payments are being charged to expense using the straight-line method over
the terms of the leases. The Company has recorded deferred rent to reflect the
excess of rent expense over cash payments since inception of the leases.

    Future minimum lease commitments under operating leases are as follows (in
thousands):

    YEAR ENDING MARCH 31,
    ---------------------
    1998 . . . . . . . . . . . . . . . . . . . .            $420
    1999 . . . . . . . . . . . . . . . . . . . .             321
    2000 . . . . . . . . . . . . . . . . . . . .             248
    2001 . . . . . . . . . . . . . . . . . . . .               2
    2002 and thereafter. . . . . . . . . . . . .               -
                                                        --------
       Total . . . . . . . . . . . . . . . . . .            $991
                                                        --------

    Rent expense under operating leases for the years ended March 31, 1997,
1996 and 1995 was $520,000, $363,000 and $264,000, respectively.

(8)  RELATED PARTY TRANSACTIONS

    IT Solutions, Inc. (ITS) is partially owned by certain stockholders of the
Company. Prior to April 1, 1996, ITS subleased office space from the Company and
purchased office and administrative services from the Company totaling
approximately $27,000 and $82,000, which is included as a reduction of general
and administrative expenses, during the years ended March 31, 1996 and 1995,
respectively. The Company purchased contract software programming services from
ITS totaling approximately $500,000, $338,000 and $515,000, capitalized as
software development costs or expensed as research and development costs, during
the years ended March 31, 1997, 1996 and 1995, respectively. As of March 31,
1997, 1996 and 1995, receivables from ITS were insignificant. There were no
payables to ITS at March 31, 1997 and 1996 and payables to ITS at March 31,
1995, which is included in accounts payable, were $193,000.

<PAGE>

(9) INCOME TAXES

    Income tax (benefit) expense for the years ended March 31, 1997, 1996 and
1995 consists of the following (in thousands):

                                                  1997      1996      1995
                                                  ----      ----      ----
    Current:
      Federal. . . . . . . . . . . . .              $3         -         3
      State. . . . . . . . . . . . . .              16         -         4
                                                  ----      ----      ----
                                                    19         -         7
    Deferred:
      Federal. . . . . . . . . . . . .              16         -        10
      State. . . . . . . . . . . . . .               5         -       (17)
                                                  ----      ----      ----
                                                    21         -        (7)
                                                  ----      ----      ----
      Total tax expense. . . . . . . .             $40         -         -
                                                  ----      ----      ----

    Income tax expense for the years ended March 31, 1997, 1996 and 1995
differed from the amounts computed by applying the U.S. Federal income tax rate
of 34% of pretax losses as a result of the following (in thousands):
 
<TABLE>
<CAPTION>
                                                                                          1997      1996      1995
                                                                                          ----      ----      ----
<S>                                                                                      <C>       <C>       <C>
    Computed expected tax benefit. . . . . . . . . . . . . . . . . . . . . . .           $(823)     (328)     (469)
    Nondeductible expenses and merger cost . . . . . . . . . . . . . . . . . .              87       293        10
    Research credits . . . . . . . . . . . . . . . . . . . . . . . . . . . . .            (196)        -       (82)
    State taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .              15         -        (9)
    Change in beginning of year valuation allowance. . . . . . . . . . . . . .               -      (114)       57
    Expected tax benefit due to acquisition not includible for tax purposes. .               -       223       369
    Change in valuation allowance due to acquisition . . . . . . . . . . . . .               -       (72)        -
    Losses and credits for which no benefit is taken . . . . . . . . . . . . .             953         -        81
      Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .               4        (2)       43
                                                                                          ----      ----      ----
    Total Tax Expense. . . . . . . . . . . . . . . . . . . . . . . . . . . . .             $40         -         -
                                                                                          ----      ----      ----

</TABLE>
 
    The tax effects of temporary differences that gave rise to significant
portions of the deferred income tax assets and deferred tax liabilities as of
March 31, 1997 and 1996 are as follows (in thousands):

                                                            1997      1996
                                                          ------      -----
     Deferred tax assets:
       Net operating loss. . . . . . . . . . . . . . .    $1,434        88
       Compensated absences. . . . . . . . . . . . . .       105        84
       Research credit carryforwards . . . . . . . . .       401       198
       Capital loss carryforward . . . . . . . . . . .       259       259
       Allowance for bad debts . . . . . . . . . . . .       220        99
       Depreciation. . . . . . . . . . . . . . . . . .        48         -
       MCIS tax accounting method change . . . . . . .       305         -
       Other . . . . . . . . . . . . . . . . . . . . .        16         -
                                                          ------    ------
         Total gross deferred tax assets . . . . . . .     2,788       728
     Less valuation allowance. . . . . . . . . . . . .    (2,076)     (343)
                                                          ------    ------
         Net deferred tax assets . . . . . . . . . . .       712       385
     Deferred tax liabilities:
       Depreciation. . . . . . . . . . . . . . . . . .         -       (69)
       Software costs. . . . . . . . . . . . . . . . .      (712)     (274)
       Unbilled accounts receivable. . . . . . . . . .         -       (42)
                                                          ------    ------
         Total gross deferred tax liabilities. . . . .      (712)     (385)
                                                          ------    ------
         Net deferred tax asset. . . . . . . . . . . .      $  -         -
                                                          ------    ------

     The increase (decrease) in the valuation allowance of approximately
$1,733,000, ($123,000) and $57,000 for the years ended March 31, 1997, 1996 and
1995, respectively, was primarily due to the uncertainty regarding the ultimate
realization of the gross deferred asset arising from capital losses that are
only deductible for tax purposes to the extent of future capital gains and the
utilization of net operating losses and research credit carryforwards.

<PAGE>

     At March 31, 1997 the Company has federal and state net operating loss
carryforwards of approximately $3,800,000 and $1,900,000, respectively. The
federal net operating losses expire in 2012 and the state operating losses
expire in 2002.

     At March 31, 1997, the Company has research credit carryforwards for
federal and California income tax purposes of approximately $227,000 and
$174,000, respectively, which are available to offset future taxable income, if
any, from 1998 through 2002 for federal and unlimited for California.

     A portion of the operating loss carryforward is attributable to the
exercise of nonqualified and disqualified stock options which when realized,
will result in approximately $589,000 of deferred tax assets being credited to
additional paid in capital.

(10) EMPLOYEE RETIREMENT AND SAVINGS PLAN

     The Company has a qualified 401(k) savings plan. All full time employees
with one year of service may defer a portion of their salary. At the discretion
of the Board of Directors, the Company may also make a matching contribution for
all eligible employees. Contributions by the Company to the plan were
approximately $26,000, zero and $17,000 for the years ended March 31, 1997, 1996
and 1995, respectively.

(11) PREFERRED SHARE PURCHASE RIGHTS PLAN

     Pursuant to the Preferred Shares Rights Agreement (the Rights Agreement)
dated April 9, 1997, the Company's Board of Directors declared a dividend of one
right (the Rights) on each outstanding share of the Company's common stock
payable to stockholders of record as of March 14, 1997 and payable in the same
ratio as each future common share is issued. The exercise price of the Right
shall be $55 per right, and the redemption price shall be $0.01 per right.  The
Rights are exercisable upon certain events as defined in the Rights Agreement
and expire on the earlier of (i) February 26, 2007 or (ii) exchange or
redemption of the Rights.

     Series A Preferred purchasable upon exercise of the Rights will not be
redeemable. Each share of Series A Preferred will be entitled to an aggregate
dividend of 1,000 times the dividend declared per common share. In the event of
liquidation, the holders of the Series A Preferred will be entitled to a minimum
preferential liquidation payment equal to 1,000 times the aggregate amount to be
distributed per share to holders of common shares plus an amount equal to any
accrued and unpaid dividends on the Series A Preferred. Each share of Series A
Preferred will have 1,000 votes, and will vote together with the common shares.
In the event of any merger, consolidation or other transaction in which the
common shares are changed or exchanged, each share of Series A Preferred will be
entitled to receive 1,000 times the amount received per common share. These
rights are protected by certain anti-dilution provisions.

(12)  REDEEMABLE COMMON AND PREFERRED STOCK

     Redeemable securities were comprised of the following (in thousands):
 
<TABLE>
<CAPTION>
                                                                                             COMMON
                                                             SERIES A  SERIES B  SERIES C     STOCK     TOTAL
                                                             --------  --------  --------    ------     -----
                                                                 PREFERRED STOCK
                                                                 ---------------
<S>                                                          <C>       <C>       <C>        <C>        <C>
 Balance as of March 31, 1995. . . . . . . . . . . . . . .       $922       922     1,000       225     3,069
 Accretion of redeemable preferred stock . . . . . . . . .         32        78         -         -       110
 Redemption. . . . . . . . . . . . . . . . . . . . . . . .       (954)   (1,000)        -         -    (1,954)
 Conversion of Series C preferred stock to common. . . . .          -         -    (1,000)        -    (1,000)
 Termination of redemption obligation on common stock. . .          -         -         -      (225)     (225)
                                                                -----     -----     -----     -----     -----
 Balance as of March 31, 1996 and 1997 . . . . . . . . . .       $  -         -         -         -         -
                                                                -----     -----     -----     -----     -----

</TABLE>
 
    REDEEMABLE PREFERRED STOCK
    SERIES A

    Under a redemption provision, the Company was required to redeem all of the
preferred stock based on a formula relating to the Company's gross revenue at
prices ranging from $5.00 per share to $6.40 per share, periodically between
1993 and 1996, at which time the balance of the shares of preferred stock, if
any, would have been redeemed in full. With the proceeds from the Company's
initial public offering, the Company redeemed the remaining outstanding shares.

    SERIES B

    Under a redemption provision, the Company was required to redeem all of the
Series B preferred stock at $1.00 per share

<PAGE>

periodically between 1999 and 2001 or earlier in the event of certain
transactions. With the proceeds from the Company's initial public offering the
Company redeemed the remaining outstanding shares.

    SERIES C

    Concurrent with the Company's initial public offering, the 680,600 shares
of Series C convertible preferred stock were automatically converted into
479,634 shares of the Company's common stock.

(13) STOCKHOLDERS' EQUITY

(a) Common Stock

    In October 1995, the Board of Directors approved the reincorporation of the
Company as a Delaware corporation. The reincorporation resulted in a change in
the authorized number of preferred shares from 10,000,000 to 5,000,000 and
common shares from 30,000,000 to 50,000,000. The par value for both preferred
and common shares changed from no par value to $.001 par value. In addition, the
Company's Board of Directors authorized a 1 for 1.419 reverse split of its
common stock. All applicable share and per share amounts in the accompanying
consolidated financial statements have been retroactively adjusted to reflect
this reincorporation and reverse stock split.

    In December 1995, the Company sold 2,000,000 shares of its common stock in
an initial public offering which generated net proceeds of approximately
$23 million. A portion of the proceeds were used to redeem the outstanding
Series A and Series B preferred stock.

(b) Stock-Based Compensation Plans

    1994 INCENTIVE STOCK OPTION PLAN

    The Company's 1994 Incentive Stock Option Plan (the "1994 Plan") provides
for the grant of incentive stock options to employees of the Company. The Board
of Directors has determined that no further options will be granted under the
1994 Plan. Outstanding options granted under the 1994 Plan generally become
exercisable at a rate of 1/5 of the shares subject to the option at a specified
date after the date of grant and an additional 1/5 of the shares at the end of
each subsequent anniversary of the initial vesting date, subject to continued
service as an employee, consultant or director. The term of each outstanding
stock option is seven years. The exercise price of all options granted under the
1994 Plan was at least equal to the fair market value of the common stock of the
Company on the date of grant. Payment of the exercise price may be made in cash,
promissory notes or other shares of the Company's common stock.

    1995 STOCK PLAN

    The Company's 1995 Stock Plan (the "1995 Plan") was adopted in October 1995
and became effective in December 1995. The 1995 Plan provides for the grant of
incentive stock options to employees, officers, consultants and directors and
for the grant of nonstatutory stock options and stock purchase rights ("Rights")
to employees and consultants of the Company. A total of 1,200,000 shares of
common stock has been reserved for future issuance under the 1995 Plan. The
exercise price of all nonstatutory stock options granted under the 1995 Plan
shall be determined by the Administrator. The exercise price of options granted
under the 1995 Plan is generally at least equal to the fair market value of the
common stock of the Company on the date of grant. However, with respect to any
participant who owns stock possessing more than 10% of the voting power of all
classes of stock of the Company, the exercise price of any incentive stock
option granted must equal at least 110% of fair market value on the grant date
and the maximum term of the option must not exceed five years. The term of all
other options granted under the 1995 Plan may not exceed ten years. Generally,
options vest 20% on the date of grant, and 20% each year thereafter for four
years. As of March 31, 1997, there were 293,070 shares available for future
grant under the 1995 Plan.

    In conjunction with the MCIS merger, the Company assumed the MCIS stock
option plan. Information with respect to this plan has been included in the
stock option table below. MCIS's stock option plan was terminated upon
consummation of the merger.

    1995 DIRECTOR OPTION PLAN

    The Company's 1995 Director Option Plan (the "Director Plan") was adopted
in October 1995 and became effective in December 1995. A total of 50,000 shares
of common stock has been reserved for issuance under the Director Plan. The
Director Plan, as amended in January 1997, provides for the grant of
nonstatutory stock options to certain non-employee directors of the Company
("Outside Directors") pursuant to an automatic, nondiscretionary grant
mechanism. The Director Plan provides that each new Outside Director shall be
granted a nonstatutory stock option to purchase 15,000 shares of common stock
(10,000 shares prior to the January

<PAGE>

1997 amendment) upon the date which such person first becomes an Outside
Director. Thereafter, each Outside Director shall be automatically granted an
option to purchase 5,000 shares of common stock on January 16 of each year (a
"Subsequent Option"), if on such date, such Outside Director shall have served
on the Company's Board of Directors for at least six (6) months. The Director
Plan provides that each initial grant to new Directors will be exercisable three
years from the date of grant and the subsequent options will vest immediately.
The exercise price per share of all options granted under the Director Plan
shall be equal to the fair market value of a share of the Company's common stock
on the date of grant. Options granted to Outside Directors under the Director
Plan have a ten year term, but will expire unless exercised within three months
following the termination of an Outside Director's status as a director. If not
terminated earlier, the Director Plan will have a term of ten years. As of
March 31, 1997, there were 20,000 shares available for future grant under the
Director Plan. In addition, the Director Plan was amended in January 1997 to
include an annual retainer of $10,000 for Outside Directors, a per meeting fee
of $1,000 for Board meetings, and $750 for separately held committee meetings.

    1995 EMPLOYEE STOCK PURCHASE PLAN

    The Company's 1995 Employee Stock Purchase Plan (the "Purchase Plan") was
adopted in October 1995 and became effective in December 1995. A total of
150,000 shares of common stock has been reserved for issuance under the Purchase
Plan.

    The Purchase Plan permits eligible employees to purchase common stock
through payroll deductions, which may not exceed 7 1/2% of an employee's base
compensation, including commissions, bonuses and overtime, at a price equal to
85% of the fair market value of the common stock at the beginning of each
offering period or the end of a six month purchase period, whichever is lower.
Unless terminated sooner, the Purchase Plan will terminate ten years after its
effective date. The Board of Directors has authority to amend or terminate the
Purchase Plan provided no such action may adversely affect the rights of any
participant. The Company sold 20,382 shares to employees under the Purchase Plan
for the year ended March 31, 1997. No shares were sold under the Purchase Plan
in prior years. There were 129,618 shares available for future grant under the
Purchase Plan at March 31, 1997.

<PAGE>

    OPTION PLAN ACTIVITY

    The following table summarizes option activity for the years ended
March 31, 1997 and 1996 in the format consistent with SFAS No. 123:
 
<TABLE>
<CAPTION>
                                                               INCENTIVE STOCK     WEIGHTED
                                                                   OPTIONS         AVERAGE
                                                                  OUTSTANDING   EXERCISE PRICE
                                                               ---------------  ---------------
<S>                                                            <C>              <C>
    Shares reserved at July 25, 1994 (inception) . . .                   -            $    -
    Options granted. . . . . . . . . . . . . . . . . .             250,176                 .57
    Options canceled . . . . . . . . . . . . . . . . .             (17,618)                .57
                                                                ----------            --------
    Balance at March 31, 1995. . . . . . . . . . . . .             232,558                 .57
    Options granted. . . . . . . . . . . . . . . . . .             508,517               10.01
    Options canceled . . . . . . . . . . . . . . . . .             (35,689)               2.22
    Options exercised. . . . . . . . . . . . . . . . .              (6,728)                .68
                                                                ----------            --------
    Balance at March 31, 1996. . . . . . . . . . . . .             698,658                7.36
    Options granted. . . . . . . . . . . . . . . . . .           1,003,204               11.05
    Options canceled . . . . . . . . . . . . . . . . .            (455,999)              15.78
    Options exercised. . . . . . . . . . . . . . . . .            (102,968)               3.85
                                                                ----------            --------
    Balance at March 31, 1997. . . . . . . . . . . . .           1,142,895                7.55
                                                                ----------            --------

</TABLE>

    The weighted average fair value of options granted was $7.98 and $6.04 per
share for the years ended March 31, 1997 and 1996.

    The following table summarizes information about fixed stock options
outstanding at March 31, 1997:

                           OPTIONS OUTSTANDING           OPTIONS EXERCISABLE
                           -------------------           -------------------
                              WEIGHTED-
                               AVERAGE       WEIGHTED-                WEIGHTED-
   RANGE OF      NUMBER       REMAINING       AVERAGE      NUMBER      AVERAGE
   EXERCISE   OUTSTANDING    CONTRACTUAL      EXERCISE  OUTSTANDING    EXERCISE
    PRICES      3/31/97          LIFE          PRICE       3/31/97      PRICE
   --------    -----------  -------------    ---------  -----------    --------
  $0.57 - 0.68    202,972            4.6         $0.59       37,652       $0.58
   0.90 - 1.24     25,773            7.9          1.16       12,213        1.07
   4.81 - 6.87    556,426            9.7          5.61       53,335        5.47
   8.00 - 8.00     96,324            5.4          8.00       30,897        8.00
 13.00 - 19.25    185,100            9.0         15.34       70,385       14.70
 19.63 - 23.78     76,300            9.4         22.84       13,240       23.20
                ---------            ---         -----      -------       -----
                1,142,895            8.3          7.55      217,722        8.80
                ---------            ---         -----      -------       -----

    PRO FORMA INFORMATION

    The Company continues to apply APB No. 25 in accounting for its stock-based
compensation plans. Accordingly, no compensation has been recognized in the
accompanying consolidated statements of operations for its fixed stock option
plans and its stock purchase plan. Had compensation cost for the Company's
stock-based compensation plans been determined in accordance with the fair value
method prescribed in SFAS No. 123, the Company's net loss and net loss per share
would have been changed to the pro forma amounts indicated below:

                                                           YEAR ENDED MARCH 31,
                                                           --------------------
                                                             1997        1996
                                                             ----        ----
    Net loss (IN THOUSANDS). . . . . .      As reported    $(2,461)     (1,077)
                                            Pro forma      $(4,082)     (1,253)
    Net loss per share . . . . . . . .      As reported     $(0.41)      (0.22)
                                            Pro forma       $(0.69)      (0.25)

    The above pro forma amounts include compensation expense for options and
purchase rights granted since April 1, 1995, and may not be representative of
that to be expected in future years.

<PAGE>

    The fair value of each option granted under the option plans and purchase
rights granted under the Purchase Plan is estimated on the date of grant using
the Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants in fiscal 1997 and 1996:
 
<TABLE>
<CAPTION>
                                                 STOCK OPTION PLANS       EMPLOYEE STOCK PURCHASE PLAN
                                                 ------------------       ----------------------------
                                                 1997           1996           1997           1996
                                                 ----           ----           ----           ----
<S>                                          <C>            <C>             <C>            <C>
    Expected volatility. . . . . . . .             95%            95%            95%            95%
    Expected life. . . . . . . . . . .       4.5 years      4.5 years       6 months       6 months
    Risk-free interest rate. . . . . .           6.32%          5.84%          5.05%          5.18%

</TABLE>
 
    A dividend yield of zero was used for each year. The weighted-average fair
value of purchase rights granted under the Purchase Plan in fiscal 1997 and 1996
was $2.57 and $8.44 per share, respectively.

(c) Warrants

    In September 1994, the Company issued warrants to purchase up to $350,000
of the Company's common stock. The warrant exercise prices ranged from $2.99 to
$5.27 per share based on the future financial performance of the Company subject
to certain anti-dilution adjustments upon conversion of Series C preferred stock
into common stock. In conjunction with the Company's initial public offering,
holders of the warrants completed a cashless exercise of the warrants into
57,013 shares of common stock.

(d) Option Repricing

    On January 16, 1997, the Company offered certain key employees holding
options with exercise prices in excess of $12.00 per share, the opportunity to
exchange such options for options with an exercise price of $5.625 per share,
the fair market value of the Company's stock on that date, provided that such
options be subject to a revised four-year vesting schedule beginning on the new
grant date. Options to purchase 412,176 shares were so exchanged and are
included in fiscal 1997 options granted and canceled.

(14) MAJOR CUSTOMERS

    As of March 31, 1997 and 1996, the Company had a significant contract which
covered approximately 50 academic hospitals. This contract, totaling 11% of 1997
and 1996 revenues, was renewed in January 1995 for services to be rendered
through March 1998.

    As of March 31, 1995, the Company had three significant contracts; one
which covered approximately 50 academic hospitals; the second covered a health
system with 13 hospitals; and the third was a consulting engagement. The
contract which covered 50 academic hospitals represented 12% of 1995 revenues.

<PAGE>

                             INDEPENDENT AUDITORS' REPORT

The Board of Directors
MECON, Inc.:

    We have audited the accompanying consolidated balance sheets of MECON, Inc.
and subsidiary as of March 31, 1997 and 1996, and the related consolidated
statements of operations, stockholders' equity and cash flows for each of the
years in the three-year period ended March 31, 1997. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our 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 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of MECON, Inc.
and subsidiary as of March 31, 1997 and 1996, and the results of their
operations and their cash flows for each of the years in the three-year period
ended March 31, 1997, in conformity with generally accepted accounting
principles.

                                       KPMG Peat Marwick LLP

San Francisco, California
May 19, 1997

<PAGE>

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

    There were no changes in nor were there any disagreements with the
Company's accountants on accounting or financial disclosure matters during the
two years ended March 31, 1997.


                                       PART III

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

    Information required to be set forth hereunder has been omitted and will be
incorporated by reference, when filed, to the Company's Proxy Statement for its
1997 annual meeting of stockholders.


ITEM 10. EXECUTIVE COMPENSATION

    Information required to be set forth hereunder has been omitted and will be
incorporated by reference, when filed, to the Company's Proxy Statement for its
1997 annual meeting of stockholders.


ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

    Information required to be set forth hereunder has been omitted and will be
incorporated by reference, when filed, to the Company's Proxy Statement for its
1997 annual meeting of stockholders.


ITEM 12.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

    Information required to be set forth hereunder has been omitted and will be
incorporated by reference, when filed, to the Company's Proxy Statement for its
1997 annual meeting of stockholders.


ITEM 13.  EXHIBITS AND REPORTS ON FORM 8-K

(a)  Exhibits

 EXHIBIT NUMBER                   EXHIBIT
 --------------                   -------

  2.1(1)           Agreement and Plan of Reorganization dated as of March 26,
                   1996 by and among Registrant, Managed Care Information
                   Systems, Inc. ("MCIS"), MECON Acquisition Corp. and certain
                   shareholders of MCIS
  3.1(2)           Certificate of Incorporation of Registrant
  3.2(2)           Form of Restated Certificate of Incorporation of Registrant
  3.3(2)           Bylaws of Registrant
  4.1(2)           Specimen Common Stock Certificate of Registrant
  4.2(2)           Warrants, dated September 9, 1994, issued by Registrant to
                   Summit Ventures III, L.P. and Summit Investors II, L.P.
 10.1(2)           Property Lease covering Registrant's facilities in San
                   Ramon, California
 10.2(2)           Stock and Warrant Purchase Agreement dated September 9, 1994
                   among Registrant and certain investors
 10.3*(2)          1994 Incentive Stock Option Plan of Registrant
 10.4*(2)          1995 Stock Plan and Form of Stock Option Agreement
 10.5*(2)          1995 Director Option Plan and Form of Director Option
                   Agreement
 10.6*(2)          1995 Employee Stock Purchase Plan and Form of Subscription
                   Agreement
 10.7(2)           Investor Rights Agreement dated as of September 9, 1994
                   among the Registrant and certain stockholders of the
                   Registrant
 10.8**(2)         Business Partner Marketing Agreement dated September 27,
                   1995, between the Registrant and HBO & Company
 10.9**(2)         Letter Agreement dated April 8, 1995 between the Registrant
                   and Arthur Andersen LLC
 10.10(2)          Business Loan Agreement and Commercial Security Agreement
                   dated August 7, 1995, between the Registrant and Silicon
                   Valley Bank

<PAGE>

 10.11(2)          Form of Indemnification Agreement
 10.12*(2)         Employment Agreement between the Registrant and Raju
                   Rajagopal dated September 9, 1994
 10.13*(2)         Employment Agreement between the Registrant and Vasu R.
                   Devan dated September 9, 1994
 10.14(2)          Independent Contractor Services Agreement between the
                   Registrant and IT Solutions, Inc.
 10.15(2)          Equity Purchase Agreement among Registrant, ICI Partnership
                   and Thomas Alexander dated May 17, 1995
 10.16(2)          Series A Preferred Stock and Common Stock Exchange and
                   Repurchase Agreement between Registrant and Lutheran Health
                   Services dated January 11, 1993, as amended
 10.17**(2)        Agreement to provide MECON-PEERx Operations Benchmarking
                   Database Services to University Hospital Consortium Service
                   Corporation members revised February 24, 1995
 10.18(2)          Form of MECON-PEERx subscription agreement
 10.19(2)          Form of MECON-OPTIMIS software agreement
 11.1(3)           Computation of per share earnings
 23.1(3)           Consent of KPMG Peat Marwick LLP
 24.1(3)           Power of Attorney
 27.1(3)           Financial Data Schedules

___________

(*)  Management contract or compensation plan or arrangement required to be
     filed as an exhibit to this report on Form 10-KSB

(**) Confidential treatment requested.

(1)  Incorporated by reference from the Registrant's Form 8-K filed on April 12,
     1996.

(2)  Incorporated by reference from the Registrant's Registration Statement on
     Form SB-2 (file No. 33-98206-LA), as amended, filed on December 6, 1996.

(3)  Previously filed.

<PAGE>

(b)  REPORTS ON FORM 8-K

    On April 12, 1996, the Company filed a report on Form 8-K dated March 29,
1996 which announced the acquisition of Managed Care Information Systems, Inc.
by the Company. The Company filed financial statements for this Form 8-K on
June 12, 1996.

    On April 14, 1997, the Company filed a report on form 8-A12G dated April
14, 1997 which announced the registration of certain classes of securities
pursuant to section 12(b) or (g) of the Securities Exchange Act of 1934.

    On May 9, 1997, the Company filed a report on form 8-K dated April 17, 1997
which announced certain management changes and a renewed focus on the Company's
historical strengths.

<PAGE>

                                      SIGNATURES

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

Date:  June 27, 1997

                                  MECON, Inc.

                                  By:    /s/ DAVID J. ALLINSON



                                      Mr. David J. Allinson

        VICE PRESIDENT, FINANCE AND ADMINISTRATION AND CHIEF FINANCIAL OFFICER
                     (PRINCIPAL FINANCIAL AND ACCOUNTING OFFICER)

    Pursuant to the requirements of the Securities Exchange Act of 1934, this
Amendment to Form 10-KSB has been signed by the following persons in the
capacities and on the dates indicated:
 
<TABLE>
<CAPTION>
        NAME                                          TITLE                                             DATE
        ----                                          -----                                             ----
<S>                          <C>                                                                  <C>
  /s/ VASU R. DEVAN          Chairman of the Board, President and Chief Executive Officer          June 27, 1997
  -----------------          (Principal Executive Officer)
   (Vasu R. Devan)

 /s/ DAVID J. ALLINSON       Vice President, Finance and Administration and Chief Financial
 ---------------------       Officer (Principal Financial and Accounting Officer)                  June 27, 1997
  (David J. Allinson)

  /s/ RAJU  RAJAGOPAL        Senior Vice President, Western Region and Director                    June 27, 1997
  -------------------
   (Raju Rajagopal)

                             Director
  --------------------
  (William H. Kimball)

 /s/ WALTER G. KORTSCHAK     Director                                                              June 27, 1997
 -----------------------
  (Walter G. Kortschak)

 /s/ ROBERT MONTGOMERY       Director                                                              June 27, 1997
 ---------------------
  (Robert Montgomery)

   /s/ RICH MCCANN           Director                                                              June 27, 1997
   ---------------
    (Rich McCann)

                             Director                                                              
   -------------
   (David Lowe)

</TABLE>