<PAGE>
 
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                      SECURITIES AND EXCHANGE COMMISSION
                            WASHINGTON, D.C. 20549
 
                               ----------------
 
                                   FORM 10-K
 
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
    ACT OF 1934
 
                 FOR THE FISCAL YEAR ENDED: DECEMBER 31, 1996
 
                                      OR
 
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
    EXCHANGE ACT OF 1934
 
                 FOR THE TRANSITION PERIOD FROM       TO
 
                        COMMISSION FILE NUMBER: 0-8615
 
                              BRC HOLDINGS, INC.
            (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
 
              DELAWARE                               75-1533071
                                        (I.R.S. EMPLOYER IDENTIFICATION NO.)
   (STATE OR OTHER JURISDICTION OF
   INCORPORATION OR ORGANIZATION)
 
  1111 WEST MOCKINGBIRD LANE SUITE
         1400 DALLAS, TEXAS
 
   (ADDRESS OF PRINCIPAL EXECUTIVE                      75247
              OFFICES)                               (ZIP CODE)
 
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (214) 688-1800
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: COMMON STOCK,
$0.10 PAR VALUE
 
  Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter periods that the
registrant was required to file such report) and (2) has been subject to such
filing requirements for the past 90 days.  Yes [X]  No [_]
 
  Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K [_]
 
  As of March 26, 1997, the aggregate market value of the voting stock held by
nonaffiliates of the registrant was $191,742,624. As of March 26, 1997, the
number of shares outstanding of common stock of the registrant was 7,092,125.
 
                               ----------------
 
  THE FOLLOWING DOCUMENT IS INCORPORATED BY REFERENCE INTO THE INDICATED PARTS
OF THIS ANNUAL REPORT TO THE EXTENT SPECIFIED IN SUCH PARTS:
 
  PART III OF THIS ANNUAL REPORT INCORPORATES BY REFERENCE INFORMATION IN THE
PROXY STATEMENT FOR THE ANNUAL MEETING OF STOCKHOLDERS OF BRC HOLDINGS, INC.
TO BE HELD ON MAY 15, 1997.
 
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<PAGE>
 
                                    PART I
 
ITEM 1. BUSINESS.
 
                             HISTORICAL BACKGROUND
 
  BRC Holdings, Inc., a Delaware corporation (the "Company"), provides a
variety of information management, management consulting, and data processing
products and services to local governments and healthcare institutions
principally through three wholly-owned subsidiaries: Business Records
Corporation, Inc. ("BRC"), BRC Health Care, Inc. ("BRC Health Care"), and The
Pace Group, Inc. ("The Pace Group").
 
  The Company was originally organized as Cronus Industries, Inc. in September
1976. In the years following its inception, the Company acquired and operated
several divisions in a diverse number of industries. In 1983, the Company
acquired BRC.
 
  In the 1980's, the Company's BRC subsidiary expanded its operations through
numerous acquisitions of small, privately-held corporations which provided
information systems and services to county and local governments. The
corporations acquired by BRC generally provided products associated with land
records indexing and micrographic reproduction, election systems and supplies,
and governmental software. During this time, the Company divested all other
operating subsidiaries other than BRC and changed its name to Business Records
Corporation Holding Company.
 
  In recent years, the Company has expanded its strategic focus from providing
information management services to providing a broader range of specialized
information products and services. In particular, BRC began developing
marketing programs, methodologies and personnel to provide information systems
outsourcing and related data processing services to local governments and
health care providers.
 
  As a part of its efforts to enter the information systems outsourcing
market, the Company consummated the acquisition of CMSI, a privately-held
Oregon corporation, on May 14, 1993. CMSI, formed in 1970, provided
information systems outsourcing services, consulting services and other
management services to local governments and health care institutions. In
August 1995, CMSI's name was changed to BRC Health Care, Inc. In May 1996, the
Company changed its name from Business Records Corporation Holding Company to
BRC Holdings, Inc.
 
  In September 1996, in an effort to expand its health care business into the
managed care area, the Company consummated a merger with The Pace Group, a
Dallas-based management consulting firm.
 
  On November 21, 1996, the Company entered into a definitive agreement which
provided for the divestiture of its election products and services operations.
For financial reporting purposes, this line of business has been classified as
a discontinued operation. Please refer to Notes 1 and 12 to the Consolidated
Financial Statements.
 
                             PRODUCTS AND SERVICES
 
  The Company's products and services can be classified into five major
categories: Technology Outsourcing Services, Election Products and Services,
Government Records Management, Consulting Services and Other Products and
Services. The majority of these products and services are distributed on a
direct basis using several regional marketing organizations. In addition to
these direct sales organizations, the Company also sells certain binders and
local government office supplies through a distributor network and a
telemarketing organization.
 
TECHNOLOGY OUTSOURCING SERVICES
 
  The Company provides a variety of technology outsourcing services and
related products to the local government and health care industries. These
services include on-site information technology management, strategic
planning, remote data processing, system implementation and consulting
services. In addition to these services, the Company also provides its
customers with a variety of related proprietary software.
 
                                       2
<PAGE>
 
  When providing on-site information technology management, the Company
typically enters multi-year contracts with customers to provide direct
management of their information systems department. Under these contracts, the
Company usually employs the customer's information systems personnel and
assumes responsibility for the customer's ongoing information systems
operations. In some cases, the Company will also acquire the customer's
computer equipment.
 
  Under on-site information technology management contracts, the Company
assumes the role of a customer's information systems department during the
term of the contract. Among other services, the Company will operate and
maintain information management systems, including centralized data processing
systems, local area networks and personal computers. In such an arrangement,
the Company's employees will work within a customer's facility, providing
essentially the same function as the customer's former in-house information
management personnel. In addition, the Company's personnel typically work,
through a strategic planning process, with the customer's senior management
team to determine the objectives and requirements which the institution has
for its information systems department. Then, pursuant to this plan, the
Company will execute a number of tasks to fulfill the customer's objectives.
These tasks may involve assistance in the selection of new hardware and
software, implementing changes to existing software, increasing productivity
and management effectiveness and undertaking other related activities which
affect the performance of the information systems department.
 
  The Company's on-site information technology management contracts are
typically negotiated multi-year, fixed fee arrangements with provisions for
annual inflation adjustments. In addition, the Company often undertakes
special projects on the client's behalf on a time and materials, or project
fee basis.
 
  The Company provides remote data processing services from data centers it
owns and operates to certain of its customers. In most cases, these data
centers provide processing capacity for non-proprietary applications which are
specific to the customer's industry. However, the Company is currently
undertaking an effort to market remote processing of its proprietary software
to local governments.
 
  The Company also offers for license, or relies upon, specialized proprietary
software packages. The Company provides claims processing software and
services to HMO third party administrators, indemnity insurance carriers and
prepaid dental health plans. The Company relies on one of two proprietary
claims management systems in providing these services. The Company has
developed and provides health care customers with an automated emergency
department system. This system assists emergency departments in the triage,
clinical order processing, charting, and billing activities of the emergency
room. Additionally, the Company provides specialized software to assist
eyewear manufacturers and retailers. The Company also provides a variety of
specialized software to assist local and county governments in automating
financial, public protection, tax assessment and tax collection information
systems processing functions.
 
  Technology outsourcing services constituted 66% of the Company's revenues
from continuing operations during 1996 as compared to 63% and 61% during 1995
and 1994, respectively. When including the Company's revenues from election
products and services, technology outsourcing services constituted 45%, 49%
and 43% of the Company's historical revenues during 1996, 1995 and 1994,
respectively.
 
ELECTION PRODUCTS AND SERVICES
 
  On November 21, 1996, the Company entered into a definitive agreement which
provides for the divestiture of its election business. Refer to Note 12 to the
Consolidated Financial Statements.
 
  The Company provides a variety of election products and services including
integrated election systems, ballots, election supplies, election coding
services and election night support services to governmental jurisdictions for
use in conducting elections for public office. In addition, voter registration
systems and other related software are provided to the Company's governmental
customers.
 
                                       3
<PAGE>
 
  The Company offers hardware systems which record and tabulate votes at
precinct and central count locations. Optical scan and punch card systems
comprise the primary election systems offered by the Company. Optical scan
systems allow voters to use a pencil to mark their choices directly on their
ballot card. Punch card systems require voters to indicate choices by using a
specialized stylus to punch their choices onto a ballot. More advanced punch
card and optical scan systems involve the integration of a microcomputer
tabulation system to coordinate and report summaries of various precinct
results. Improved voter ease, security and speed of tabulation are major
advantages offered by the Company's voting equipment.
 
  To assist in the administrative and management functions of the election
process, the Company provides certain voter registration, election reporting
and other election management systems. The Company's voter registration
systems have been designed to address the requirements of the National Voter
Registration Act of 1993 as well as to provide other specialized functions and
features necessary for the voter registration process.
 
  As a part of its election products and services, the Company currently
provides printing services for county governments and election jurisdictions.
These printing services include ballot printing, legal form printing and an
all-inclusive "precinct kit" which contains all supplies and forms necessary
for conducting an election. The Company also provides a variety of election
coding (programming) services and equipment rental options. Training for poll
workers, voting judges and election night support is provided by the Company's
technicians and backup equipment and telephone support is also available to
customers.
 
  In the ordinary course of business, the Company holds patents and trademarks
on the significant election products which it manufactures. None of these
patents and trademarks are material to the Company's business as a whole.
 
  Election products and services accounted for approximately 32%, 23% and 30%
of the Company's combined revenues from continuing and discontinued operations
for 1996, 1995, and 1994, respectively.
 
GOVERNMENT RECORDS MANAGEMENT
 
  County and municipal governments are responsible for recording and indexing
real property transactions. Typically, these government entities have relied
upon manual methods to record deeds and other title documents and to maintain
alphabetical indexes of transactions. The Company provides microfilm, optical
recording and computer indexing services to counties and municipal governments
to organize and automate the recording and indexing of deeds, real property
liens and other legal documents.
 
  The Company provides two types of computerized indexing services: data entry
performed by customers using the Company's microcomputers in the customers'
offices and data entry performed by Company personnel at centers operated by
the Company. With each type of indexing service, the Company provides periodic
updates for each customer using mainframe computers located in Dallas, Texas
and Syracuse, New York.
 
  The Company also provides record re-creation services to a number of
customers. These services provide archival-quality reprints of old records
with microfilm backup copies, thereby reducing required storage space and
improving security in case of fire or other loss. As part of its current
recording and records re-creation services, the Company provides custom record
binders imprinted to the specifications of each customer.
 
  Government records management constituted 19%, 21% and 25% of the Company's
revenues from continuing operations during 1996, 1995 and 1994, respectively.
When including the Company's revenues from election products and services,
government records management revenues represented 13%, 16% and 17% of the
Company's historical revenues for 1996, 1995 and 1994, respectively.
 
CONSULTING SERVICES
 
  In September 1996, a wholly-owned subsidiary of the Company merged with The
Pace Group, as further described in Note 14 to the Consolidated Financial
Statements. The Pace Group provides consulting,
 
                                       4
<PAGE>
 
development and management services to providers of health care services,
including information systems implementation, operational assessment, managed
care strategies and HMO feasibility analysis.
 
  During 1996, the Company also entered the Millennium Services ("Year 2000")
market. As a result of the use of a two-digit convention for the designation of
the year in many computer programs, once the date passes the year 1999, these
programs may incorrectly interpret the date "00" as "1900" in mathematical
computations. Due to the significant number of computer programs which have
relied upon this type of date convention, and the interdependency of these
programs on one another, the Company believes that significant planning,
analysis and conversion activities are necessary to prevent these errors. As
such, the Company has begun to market consulting services and to re-market
certain computer code conversion services to its clients to assist them in
addressing their Year 2000 computer issues. The Company's services currently
involve the use of its own dedicated staff as well as the reselling of code
conversion services offered by MatriDigm Corporation. See Note 13 to the
Consolidated Financial Statements for additional discussion on MatriDigm.
 
  Consulting services constituted 3% of the Company's revenues from continuing
operations during 1996 and did not constitute a meaningful percentage in years
prior to 1996. Revenues during 1996 reflect only those of The Pace Group as the
Company received no revenues from its Year 2000 services. When including the
Company's revenues from its election products and services, consulting services
constituted 2% of historical revenues during 1996.
 
OTHER PRODUCTS AND SERVICES
 
  The other products and services provided by the Company include binders and
title services.
 
  The Company provides binders to governmental and commercial customers through
its Enduro Binders business unit ("Enduro"). Enduro markets high-quality,
custom leather records and business binders through a nationwide distributor
market. These binders are typically used by counties for the long-term storage
of county records, however, Enduro markets several styles of commercial binders
as well.
 
  The Company provides certain title companies in North Central Texas with a
variety of title plant update services. Title companies in Texas are required
to maintain extensive files of real property data called "title plants". Title
plants contain the information needed to perform title searches and to
underwrite title insurance policies. The Company provides its customers with
daily updates of their title plants. These updates are offered in various
formats including copies of each deed (or other document) and installation in
the customer's office of microcomputer-based title plant storage products. The
Company also sells title plants of certain Texas counties to firms that need
title search capabilities.
 
  Other products and services accounted for 12%, 16% and 14% of the Company's
revenues during 1996, 1995 and 1994, respectively. When including the revenues
of the discontinued operation, other products and services represented 8%, 12%
and 10% of historical revenues of the Company during 1996, 1995 and 1994,
respectively.
 
                                   CUSTOMERS
 
  The majority of the Company's products and services are provided to county
and local governments throughout the United States. In addition to government
organizations, the Company also provides services to hospitals, managed care
institutions, third party administrators, indemnity insurance carriers, prepaid
dental health plans, vision care specialists and other organizations providing
healthcare related services. The Company also provides services to title
companies in North Central Texas.
 
  The Company typically enters into long-term contracts with customers for whom
it provides technology outsourcing services. The Company has normally been able
to manage its activities and costs under these long-term contracts such that it
has been able to fulfill contract requirements in a profitable manner; however,
due to their long-term nature and the inherent risks associated with changes in
operating conditions, there can be no
 
                                       5
<PAGE>
 
assurance that such contracts will continue to be profitable on a prospective
basis. Certain long-term contracts with the Company's local government
customers contain clauses which enable the customer to cancel or reduce its
contractual commitment in the event that funding is not available in a given
year. While the Company has not experienced such a termination or reduction,
there can be no assurance that such events will not occur in future periods.
For consulting services and other products and services, the Company has not
historically entered into long-term contracts with its customers. The Company
typically establishes payment terms and time and billing arrangements on a
contract-by-contract basis. During 1996, 1995 and 1994, no customer accounted
for more than 10% of the Company's combined revenues from continuing and
discontinued operations. However, Memorial Health Services, a technology
outsourcing customer, accounted for 12%, 13% and 12% of the Company's revenues
from continuing operations for the years 1996, 1995 and 1994, respectively.
 
                                    BACKLOG
 
  As of December 31, 1996, the Company had a backlog of approximately
$158,486,000 associated with long-term service contracts excluding backlog
related to the discontinued operation of its election business. This compares
to a backlog of approximately $181,658,000 as of December 31, 1995. This
backlog primarily relates to the Company's technology outsourcing services
provided to health care institutions and local governments. The decline in the
backlog can be attributed to limited new sales of such services. The Company
expects that $59,268,000 of this backlog will be provided during the year ended
December 31, 1997. The Company is unable to predict the impact, if any, on its
future revenues that may result from reductions in the budgets of government
jurisdictions.
 
                               INDUSTRY SEGMENTS
 
  The Company considers its current operating units to operate in one industry
segment: specialized information technology management, consulting and related
products and services.
 
                                  COMPETITION
 
  The Company's major competitors for its technology outsourcing services are
other providers of information systems outsourcing services and certain
providers of health care software. Some of these competitors are substantially
larger and have greater resources than the Company. The Company's major
competitors for its other products and services are typically small, regional
providers of software products and services which may compete intensely in
certain market areas based on price. The Company is routinely subject to
competitive bidding. Management believes that the Company's competitiveness is
directly related to its ability to maintain effective pricing and service.
 
                                   EMPLOYEES
 
  At December 31, 1996, the Company had approximately 1,100 employees, none of
which are covered by a collective bargaining agreement. Of these employees,
approximately 220 are associated with the discontinued operation of the
election business. See Note 12 to the Consolidated Financial Statements. The
Company generally has enjoyed satisfactory relations with its employees.
 
                                     OTHER
 
  Due to the nature of its business, the Company has been subject to natural
cycles in two major product and service areas. The activity associated with the
election business, which has been classified as a discontinued operation, is
higher in "even-numbered" years due to congressional and presidential
elections. This significantly affects the volume of election products and
services (see Item 7, Management's Discussion and Analysis of Financial
Condition.) Additionally, because the volume of real estate transactions tends
to be higher from February through October than in the months of November
through January, the revenues generated by government records management
products and services are somewhat seasonal. To the extent economic and other
 
                                       6
<PAGE>
 
factors affect real estate sales nationwide, the Company's revenues associated
with government records management products and services may be affected in a
similar fashion.
 
  Since the Company's manufactured products are limited, the Company has not
been, and does not currently anticipate being, subject to materially adverse
financial effects from price inflation associated with its raw materials and
supplies purchases.
 
  Raw materials used in the Company's manufacturing and other processes are
readily available. With the exception of inventory requirements associated
with election services and products during election years, the Company is not
required to maintain extensive investment in working capital.
 
  During recent years, numerous legislative proposals have been introduced or
proposed in Congress and in some state legislatures that would effect major
changes in the U.S. health care system nationally or at the state level. Among
the proposals under consideration are cost controls on hospitals, insurance
market reforms to increase the availability of group health insurance to small
businesses, requirements that all businesses offer health insurance coverage
to their employees and the creation of a single government health insurance
plan that would cover all citizens. It is not clear at this time what
proposals will be adopted, if any, or, if adopted, what effect, if any, such
proposals would have on the Company's business. There can be no assurance that
currently proposed or future health care legislation or other changes in the
administration or interpretation of governmental health care programs will not
have an adverse effect on the financial results or operations of the Company.
In addition, rapid changes are occurring in the health care industry as a
result of technological, economic and demographic change. In general,
consolidation is occurring among health care providers, including hospitals,
health maintenance organizations and professional practices while health care
cost payors, including employers and insurance companies, are placing
increasing pressure upon health care providers to maintain costs. It is not
clear what effect, if any, these changes in the health care industry will have
on the Company's business. There can be no assurance, however, that such
changes will not have an adverse effect on the financial results or operations
of the Company.
 
  During 1996, 1995 and 1994, research and development expenses did not
constitute a material portion of the Company's expenses.
 
                                       7
<PAGE>
 
ITEM 2. PROPERTIES
 
  As of March 1, 1997, the principal offices, plants, warehouses and shops used
by the Company, all of which are leased except as otherwise indicated in the
column captioned "Expiration Date of Lease," are listed below. Properties
indicated with an asterisk (*) conduct activities associated with the Company's
discontinued operation. For further discussion of the Company's discontinued
operation, please refer to Note 12 to the Consolidated Financial Statements.
 
<TABLE>
<CAPTION>
                           APPROXIMATE
                          SQUARE FEET OF  EXPIRATION DATE
        LOCATION           FLOOR SPACE        OF LEASE           PRIMARY USE
------------------------  -------------- ------------------ ----------------------
<S>                       <C>            <C>                <C>
Washington, Missouri....      65,000     Owned              Office and
Birmingham, Alabama(*)
 .......................      56,520     April 30, 2002     processing facilities
Addison, Texas(*).......      41,000     May 31, 1998
 
Dallas, Texas...........      35,082     July 31, 2001      Corporate Headquarters
Dallas, Texas...........      30,906     Owned
Dallas, Texas...........      30,000     December 31, 1998
Dewitt, New York........      24,280     July 14, 1998
Berkeley,
 California(*)..........      20,000     December 31, 2000
Long Beach, California..      18,600     January 31, 2000
Chicago, Illinois(*)....      15,832     December 31, 2000
Waite Park, Minnesota ..      14,000     February 28, 2004
Waite Park,
 Minnesota(*)...........      10,500     August 31, 2000
Portland, Oregon........       8,458     September 24, 2000
Dallas, Texas...........       8,407     March 31, 2000
Austin, Texas ..........       6,526     June 28, 1998
Greensboro, North
 Carolina...............       6,500     April 30, 1998
Berkeley,
 California(*)..........       6,440     Monthly            Office and
Rockford, Illinois(*)...       5,960     April 30, 2000     processing facilities
Washington, Missouri....       5,400     Monthly
Colorado Springs,
 Colorado...............       4,000     January 31, 2000
Milpitas, California....       3,811     September 30, 2000
Sarasota, Florida.......       3,671     September 30,1998
West Palm Beach,
 Florida(*).............       3,553     August 31, 1998
Austin, Texas...........       3,458     January 31, 1998
Laguna Hills,
 California.............       2,932     January 31, 2000
Stockton, California....       2,750     August 1, 1998
Parsippany, New Jersey..       2,692     December 31, 1999
Sacramento, California..       2,127     April 30, 1999
Glen Burnie,
 Maryland(*)............       1,862     November 30, 1998
Boyers, Pennsylvania....       1,500     February 28, 1998
</TABLE>
 
  The Company also occupies various facilities provided by its clients pursuant
to its technology outsourcing contracts, but is not subject to lease payments
or related obligations associated with such locations.
 
  The Company believes that the machinery, equipment, buildings and facilities
owned and leased by the Company are well maintained and are suitable and
adequate for the Company's operations for the foreseeable future.
 
                                       8
<PAGE>
 
ITEM 3. LEGAL PROCEEDINGS.
 
  The Company is party to various lawsuits arising in the ordinary course of
its business and does not believe that the outcome of these lawsuits will have
a material effect on the Company's financial position or results from
operations. However, due to the unpredictability of the legal environment, the
Company can make no assurances that any threatened or pending legal claim or
action could not ultimately have a material adverse effect on the Company's
financial position or results from operations.
 
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
 
  Not applicable.
 
                                    PART II
 
ITEM 5. MARKET FOR REGISTRANT'S EQUITY STOCK AND RELATED STOCKHOLDER MATTERS.
 
  The Company's common stock, $.10 par value per share (the "Common Stock"),
is the only class of common equity of the Company and represents the only
issued and outstanding voting securities of the Company. As of March 26, 1997,
there were approximately 1,972 stockholders of record of the Common Stock. The
Company's Common Stock trades on the NASDAQ Stock Market ("NASDAQ") under the
symbol BRCP.
 
  The following table provides the high and low sales quotations as reported
by NASDAQ for the Common Stock for each quarter during the two most recent
fiscal years:
 
<TABLE>
<CAPTION>
                                                                   PRICE
                                                                   RANGE
                                                                 ------------
                                                                 HIGH    LOW
                                                                 ----    ----
   <S>                                                           <C>     <C>
   1996:
     First Quarter.............................................. $39 1/2 $35 1/2
     Second Quarter.............................................   39      33
     Third Quarter..............................................   37     29 1/2
     Fourth Quarter.............................................  53 3/4   34
   1995:
     First Quarter.............................................. $ 37    $32 1/2
     Second Quarter.............................................  37 1/4   32
     Third Quarter..............................................   43      36
     Fourth Quarter.............................................   40     35 3/4
</TABLE>
 
  The prices indicated herein reflect inter-dealer prices, without retail
markup, markdown or commission and may not necessarily represent actual
transactions. The Company has not paid cash dividends on the Common Stock
since its inception. The Company has no present plans to pay cash dividends on
the Common Stock.
 
ITEM 6. SELECTED FINANCIAL DATA
 
  The following selected financial data presents results of the Company for
each of the previous five years ending with the year ended December 31, 1996.
These results were affected by the following activities:
 
  The Company has classified its elections business as a discontinued
operation pursuant to a definitive agreement executed in November of 1996 to
divest of such operations. Accordingly, revenues and expenses associated with
this business have been reflected in "income (loss) from discontinued
operations".  See Note 12 to the Consolidated Financial Statements for further
discussion of the financial position and results of operations of the
discontinued operation for the period ended December 31, 1996.
 
  In the third quarter of 1996, the Company recognized an unusual charge
against earnings of $15,266,000 primarily associated with the termination of
certain health care technology outsourcing contracts. See Note 21 to the
Consolidated FInancial Statements.
 
                                       9
<PAGE>
 
  The results of the Company were affected by the Company's acquisition of
CMSI in May of 1993 and have been restated to reflect the merger transaction
with Clinical Resource Systems, Inc. ("CRS") as a pooling of interests. See
Note 14 to the Consolidated Financial Statements.
 
<TABLE>
<CAPTION>
                                          YEARS ENDED DECEMBER 31,
                                 ----------------------------------------------
                                   1996      1995      1994     1993     1992
                                 --------  --------  --------  -------  -------
                                   (DOLLARS IN THOUSANDS EXCEPT PER SHARE
                                                   DATA)
<S>                              <C>       <C>       <C>       <C>      <C>
Revenues.......................  $100,248  $103,567  $101,541  $78,921  $46,098
Cost of products and services..    74,434    75,529    72,006   54,203   30,010
Selling, general and
 administrative................    16,245    13,979    16,217   15,630   10,428
Unusual charges ...............    15,266       --        --     6,548    3,083
                                 --------  --------  --------  -------  -------
 Operating profit (loss).......    (5,697)   14,059    13,318    2,540    2,577
Other income...................       --      1,283        15      110       85
Interest income, net...........     3,522     3,052       665       43      997
                                 --------  --------  --------  -------  -------
Income (loss) from continuing
 operations before income
 taxes, extraordinary item and
 cumulative effect of
 accounting change.............    (2,175)   18,394    13,998    2,693    3,659
Income taxes...................    (3,437)   (7,362)   (5,381)  (1,078)  (1,321)
                                 --------  --------  --------  -------  -------
Income (loss) from continuing
 operations before
 extraordinary item and
 cumulative effect of
 accounting change.............    (5,612)   11,032     8,617    1,615    2,338
Income (loss) from discontinued
 operations, net...............     4,246      (337)    4,772      790    4,264
Extraordinary item--utilization
 of net operating loss carry-
 forwards .....................       --        --        --       --        75
Cumulative effect of accounting
 change........................       --        --        --     4,352      --
                                 --------  --------  --------  -------  -------
  Net income (loss) ...........  $ (1,366) $ 10,695  $ 13,389  $ 6,757  $ 6,677
                                 ========  ========  ========  =======  =======
</TABLE>
 
  Income (loss) from discontinued operations are shown net of income taxes.
Income taxes (benefit) related to discontinued operations were $2,831,000,
$(224,000), $3,181,000, $526,000 and $2,843,000 for 1996, 1995, 1994, 1993 and
1992, respectively.
 
                                      10
<PAGE>
 
<TABLE>
<CAPTION>
                                           YEARS ENDED DECEMBER 31,
                                  ---------------------------------------------
                                    1996      1995      1994     1993    1992
                                  --------  --------  -------- -------- -------
                                    (DOLLARS IN THOUSANDS EXCEPT PER SHARE
                                                     DATA)
<S>                               <C>       <C>       <C>      <C>      <C>
Earnings per share:
  Common and common equivalent
   shares:
    Income (loss) before
     discontinued operations,
     extraordinary item and
     cumulative effect of
     accounting change........... $   (.85) $   1.69  $   1.42 $    .35 $   .47
    Discontinued operation.......      .64      (.05)      .78      .14     .86
    Extraordinary item...........      --        --        --       --      .01
    Cumulative effect of
     accounting change...........      --        --        --       .75     --
                                  --------  --------  -------- -------- -------
    Net (loss) income............ $   (.21) $   1.64  $   2.20 $   1.24 $  1.34
                                  ========  ========  ======== ======== =======
  Assuming full dilution:
    Income (loss) before
     discontinued operations,
     extraordinary item and
     cumulative effect of
     accounting change........... $   (.85) $   1.66  $   1.39 $    .38 $   .52
    Discontinued operation.......      .64      (.05)      .75      .12     .74
    Extraordinary item...........      --        --        --       --      .02
    Cumulative effect of
     accounting change...........      --        --        --       .68     --
                                  --------  --------  -------- -------- -------
    Net (loss) income............ $   (.21) $   1.61  $   2.14 $   1.18 $  1.28
                                  ========  ========  ======== ======== =======
Total assets..................... $178,244  $156,673  $129,419 $121,415 $90,301
Long-term obligations............ $     14  $    579  $  1,361 $  3,102 $    81
</TABLE>
 
  The Company has declared no cash dividends since its inception.
 
  See Notes to Consolidated Financial Statements and Management's Discussion
and Analysis of Financial Condition.
 
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION.
 
                            GENERAL CONSIDERATIONS
 
  Except for the historical information contained herein, the matters
discussed may include forward-looking statements which involve risks and
uncertainties. The Company's actual results may differ materially from those
discussed in the forward-looking statements. Potential risks and uncertainties
include market responses to pricing, continued competitive factors and pricing
pressures, changes in product and service mix, results from regulatory review
of pending transactions, results from litigation, the timely development and
acceptance of new products and services, changes in customer preferences and
inventory risks due to shifts in market demand. Consequently, the actual
results realized by the Company could differ materially from the statements
made herein.
 
  On November 21, 1996, the Company signed a definitive agreement which
provides for the sale of its election business to American Information
Systems, Inc. ("AIS"). Accordingly, the revenues and expenses of this business
have been classified as a discontinued operation and excluded from total
revenues and expenses from continuing operations presented on the face of the
Statements of Income to the Consolidated Financial Statements. See Note 12 to
the Consolidated Financial Statements for historical revenues and expenses of
the Company and those associated with the election business. The sale of the
election business is currently being reviewed by the United States Department
of Justice, Antitrust Division ("DOJ") and the outcome of the review cannot be
predicted at this time. However, the Company is committed to the divestiture
of its election business and currently believes the ultimate result will not
preclude consummation of the transaction.
 
                                      11
<PAGE>
 
  Revenues from the sale of election products and services to election
jurisdictions for use in conducting public elections constituted approximately
32% of the Company's combined revenues from continuing and discontinued
operations during 1996, as compared to 23% of such revenues during 1995. This
increase is due primarily to the cyclical increase in revenues from election
products and services experienced during even-numbered, or "election" years.
In addition to the normal discussion of the Company's financial performance, a
specific discussion of the effects of this cycle is provided in this item.
 
  On September 5, 1996, the Company consummated the merger of The Pace Group
with a wholly-owned subsidiary of the Company. The Pace Group provides
consulting, development and management services to providers of health care
services including information systems implementation, operational assessment,
managed care strategies and HMO feasibility analysis. The transaction was
accounted for as a purchase for accounting purposes. See Note 14 to the
Consolidated Financial Statements.
 
  On August 17, 1995, a wholly-owned subsidiary of the Company merged with
CRS, a provider of computer software and services to hospital emergency care
departments. This merger was treated as a pooling of interests for accounting
purposes. As such, the financial statements for all years have been restated
to reflect the combined results of the Company and CRS. Please refer to Note
14 to the Consolidated Financial Statements.
 
                             1996 COMPARED TO 1995
 
OVERVIEW
 
  Revenues from continuing operations for 1996 were $3.3 million, or 3%, less
than those reported for 1995. Including the revenues of the discontinued
election operation, the Company would have reported an increase in 1996
revenues of $13.1 million, or 10%, over 1995 due primarily to 1996 being a
presidential election year. As indicated by these trends, the effects of the
two-year business cycle of the election business are apparent. The Company
believes that the divestiture of its election business will contribute to a
less cyclical, and stabilizing effect on revenues and operating profits of the
Company. In addition to a discussion of the results from the Company's
continuing operations, the financial results of the election business are
discussed in detail below.
 
REVENUES
 
  Revenues from technology outsourcing services remained consistent at $65.8
million for 1996 and 1995. While revenues of $3.1 million associated with the
sale of specialized software to hospital emergency care departments
represented an increase of $2.0 million, or 183%, in 1996 over 1995, revenues
of the insurance and vision care units, totaling $8.9 million, had a combined
decrease of $1.1 million, or 11%. Increases in revenues associated with
hospital emergency care department software relate to the Company's increased
marketing of its "EmSTAT" computer system. Decreases in revenues from the
insurance and vision care units relate to reduced sales of packaged software.
 
  Health care technology outsourcing service revenues decreased $1.2 million,
or 4%, during 1996. During the third quarter of 1996, certain technology
outsourcing contracts with the Sisters of Providence Health System were
canceled. Total revenues derived from these contracts in 1996 were $11.9
million. The Company's business is dependent upon obtaining new customers to
replace contracts which terminate or are not renewed in the ordinary course of
business. The Company anticipates, from time to time, that existing customers
will not renew their contracts upon the expiration thereof. As a result of the
cancellation of the contracts, the Company took a $15.3 million pre-tax charge
against earnings in the third quarter of 1996. This charge related primarily
to the write-off of goodwill and other intangible assets of the Company's
"HealthSource" business unit pursuant to Statement of Financial Accounting
Standards No. 121. ("SFAS No. 121"). See Note 21 to the Consolidated Financial
Statements.
 
  Government records management revenues decreased $2.5 million, or 12%, as
compared to the previous year. This decrease relates primarily to the
discontinuance of government records management services provided
 
                                      12
<PAGE>
 
to Office of the Recorder, Cook County, Illinois ("Cook County") during the
fourth quarter of 1995. Cook County accounted for $2.0 million in revenues
during 1995. The Company also sold other government records management accounts
during the third quarter of 1995.
 
  The Company launched its consulting business with the consummation of the
merger of The Pace Group with a wholly-owned subsidiary of the Company in
September, 1996. The merger was treated as a purchase for accounting purposes.
See Note 14 to the Consolidated Financial Statements for further details on
this transaction. Consulting service revenues reported for the four months
ended December 31, 1996 were $3.4 million. The Pace Group's revenues for the
annual period ended December 31, 1996 were $9.8 million.
 
  Revenues from other products and services reflected a net decrease of $4.1
million, or 25%, as compared to 1995. A decrease in revenues of $5.5 million
relates to the sale of a business unit involved in reselling a variety of
public records data to nationwide credit bureaus and other providers of
information retrieval services and the discontinuance of a tape media sale and
repair business in 1995. These transactions were offset by a $1.3 million
increase in binder sales, title services and other products and services.
 
  Revenues from election products and services increased $16.5 million, or 53%,
in 1996 when compared to 1995. Due to increased public election activity in
even-numbered or "election" years, the Company experienced significant
increases in ballots, booths and supplies sales, which grew to $16.3 million
during 1996, an increase of $7.7 million or 90%, over 1995. In addition, full
service election contract revenues were $2.9 million in 1996 compared to $1.4
million in 1995. Full-service election contracts include all election
equipment, support, and supplies necessary to conduct an election. Software
sales and coding and support service revenues for 1996 increased $1.8 million
over 1995 to $5.8 million. Sales of election systems in 1996 of $10.7 million
included a $4.2 million sale to Maricopa County, Arizona. The Company normally
expects corresponding decreases in total election revenues during odd-numbered
years, such as 1997. Due to this cyclical decrease in revenues, and reduced
sales due to the pending consummation of the Company's sale of this business to
AIS, the Company believes sales of election products and services will be lower
than those experienced in 1996 through the date of consummation of the planned
transaction.
 
EXPENSES AND NET INCOME
 
  The Company's gross margin from continuing operations decreased slightly from
27% during 1995 to 26% during 1996. Had the definitive agreement with AIS
resulting in the discontinued operation of the election business not occurred,
the Company's gross margin would have increased from 27% in 1995 to 29% in
1996.
 
  Gross contribution from product sales of continuing operations decreased
slightly from $3.4 million during 1995 to $3.2 million during 1996. Although
gross contribution decreased, gross margin on product sales showed a slight
increase from 25% of revenues in 1995 to 26% of revenues in 1996.
 
  The Company's gross contribution from services decreased from $24.6 million,
or 27% of revenues to $22.6 million, or 26% of revenues when compared to 1995.
This decrease can be primarily attributed to the health care technology
outsourcing unit where gross margins fell from 18% in 1995 to 11% in 1996. As
previously discussed, certain of the Company's health care technology
outsourcing contracts were canceled during 1996. Decreased revenues associated
with these contract cancellations were not immediately offset by corresponding
decreases in expenses. In addition, decreased service revenues associated with
government records management were only partially offset by decreased
production expenses.
 
  The Company's selling, general and administrative expenses from continuing
operations increased by $2.3 million, or 16%, as compared to the previous year.
The primary causes of this increase can be attributed to additional expenses
associated with the Company's employee benefit plans, increased contract labor
costs and additional selling, general and administrative costs related to
consulting services.
 
  The Company's operating profit from continuing operations decreased from
earnings of $14.1 million in 1995 to a loss of $5.7 million in 1996. This can
be attributed to a $15.3 million unusual charge against earnings
 
                                       13
<PAGE>
 
recorded in the third quarter of 1996 and to the changes in gross margin and
selling, general administrative expenses set forth immediately above. Also,
please refer to Note 21 to the Consolidated Financial Statements for a
discussion of the Company's third quarter unusual charge.
 
INVESTMENTS
 
  Total cash and cash equivalents, short-term marketable securities and long-
term marketable securities increased by $18.0 million. This can partially be
attributed to employee stock option exercises during 1996 totalling $7.4
million. Additional factors are outlined below under "Working Capital and
Liquidity".
 
  Currently, the Company holds the majority of its investments in a variety of
U.S. Government treasury issues, low-risk money market instruments and tax-
exempt municipal bonds (see also Note 2 to the Consolidated Financial
Statements). These cash and investment balances are currently being held for
use in funding working capital, acquisitions and internal expansion. Due to
continuing increases in cash and investment balances, absent an acquisition,
dividend, or other use of the Company's retained capital, the Company
anticipates an increase in net interest income during 1997.
 
SUBSEQUENT EVENTS
 
  In March 1997, the Company repurchased 95,000 shares of its common stock in
open market transactions at an average price of $34.45 per share for total
consideration of $3.3 million.
 
WORKING CAPITAL AND LIQUIDITY
 
  During 1996, the Company's net working capital increased by $9.5 million over
1995. This change is due primarily to a net increase of $2.2 million in cash,
cash equivalents and short-term investments, a $7.0 million increase in net
accounts receivables and a $2.5 million increase in other current assets,
offset by an increase of $3.3 million in accrued liabilities. As of December
31, 1996, the Company's total current assets were 3.6 times total current
liabilities.
 
  The Company's cash flows from continuing operating activities were $12.5
million during 1996, a decrease of $3.8 million, or 23%, as compared to the
previous year and a decrease of $16.8 million when compared to 1994. The
primary cause for the change in 1996 when compared to 1995 can be attributed to
the changes in the working capital accounts outlined above and a $1.4 million
decrease in net income from continuing operations, after adding back the
unusual charge of $15.3 million. Specifically, increases in accounts receivable
primarily related to the Company's Health Care division where collection delays
have been experienced on terminated customer accounts. In addition, other
assets increased in 1996 due to the addition of $1.0 million of non-compete
agreements associated with the merger of The Pace Group, and an income tax
receivable of $3.2 million.
 
  Net cash flows used in investing activities of continuing operations
increased by $6.4 million as compared to 1995. This increase relates primarily
to a net increase in marketable securities purchased over those sold of $6.6
million.
 
  During 1996, net cash provided by financing activities of continuing
operations increased by $3.4 million over 1995. This relates to a $1.7 million
increase in common stock issued in connection with the Company's stock option
plans and a $1.0 million decrease in repurchases by the Company of its own
stock. Principal payments on capital leases decreased $0.7 million in 1996 when
compared to 1995.
 
  Due to continuing positive cash flow from existing operations and anticipated
continuing exercises of employee stock options, the Company generally foresees
continuing positive cash flows provided by operating and financing activities
during the upcoming year.
 
  During the upcoming year, the Company may seek acquisitions or mergers to
further its strategic and financial objectives. To the extent the Company
identifies an appropriate acquisition candidate and consummates
 
                                       14
<PAGE>
 
a transaction, the Company's cash flows and financial position could be
materially affected. Additionally, the Company's short-term cash flows could
be affected in a materially adverse manner in the event of an unforeseen
change in business conditions, material loss associated with legal
proceedings, internal expansion of operations, or other such events.
 
  The Company is not currently subject to any material indebtedness or aware
of any liabilities which would cause it to believe that it will be subject to
a materially adverse long-term liquidity position. However, the Company's
long-term operating cash flows and liquidity may be subject to materially
adverse change based on the factors discussed above.
 
  Due to the foregoing, and its working capital position, the Company does not
maintain any active lines of credit.
 
                             1995 COMPARED TO 1994
 
OVERVIEW
 
  Compared to 1994, the Company's 1995 revenues from continuing operations
increased by $2.0 million, or 2% while operating profit from continuing
operations increased by $0.7 million, or 6%. As discussed above, the Company's
election business has been classified as a discontinued operation for all
years presented. If the election business was included in continuing
operations of the Company, revenues and operating profit would have reflected
a decrease of $10.6 million, or 7%, and $7.8 million, or 37%, respectively,
when compared to 1994.
 
REVENUES
 
  The Company's revenues from continuing operations of $103.6 million were
$2.0 million, or 2% higher than those of the previous year. The Company
reported increased revenues associated with its technology outsourcing
services and other products and services. These increases were partially
offset by decreased revenues associated with the government records management
business.
 
  Revenues from technology outsourcing services increased $3.7 million, or 6%,
as compared to 1994. Revenues from the Company's health care business were
$41.7 million during 1995. This represents an increase of $1.7 million, or 4%,
as compared to the previous year. Revenues associated with the Company's on-
site information technology management services were the primary contributor
to this increase. Specifically, management services to local governments were
$14.9 million during 1995, an increase of $2.2 million, or 18%, over 1994. The
remainder of the Company's technology outsourcing revenues related to the
sales and maintenance of general purpose governmental software packages. These
revenues decreased by $0.3 million, or 3%, as compared to 1994.
 
  The Company's revenues from government records management products and
services decreased by $3.4 million, or 14%, when compared to 1994. This
decrease relates primarily to a reduced number of nationwide real estate
transactions as compared to the previous year. Since the company relies upon a
unit pricing structure for many of its government records management services,
changes in national interest rates, to the extent they affect nationwide real
estate transactions, have a corresponding effect on the Company's revenues
associated with these services. At the conclusion of 1995, the Company also
discontinued its government records services to Cook County. This customer
accounted for $2.0 million of the Company's government records management
revenues during 1995.
 
  Revenues from other products and services increased by $1.8 million, or 12%,
during 1995. Increases in revenues associated with the sales of tape media,
employment information, and specialized records binders contributed to the
majority of this increase. Due to low contribution margins and lack of
consistency with other product and service offerings by the Company, the
Company discontinued its sales of tape media and employment information during
December of 1995. These businesses accounted for a combined total of $5.5
 
                                      15
<PAGE>
 
million of the Company's revenues from other products and services during
1995. The discontinuance of these businesses did not have a material effect on
the Company's operating results or financial condition during the fourth
quarter of 1995.
 
  During 1995, the Company experienced a $12.6 million, or 29%, decrease in
revenues from the discontinued line of business of election products and
services as compared to the previous year. The greatest contributing factor to
this decrease related to a $10.7 million, or 48%, reduction in revenues
associated with election ballots and supplies. The Company also experienced
reduced revenues associated with election "coding" services, full service
elections, election support and maintenance. The Company's sales of election
systems increased slightly when compared to 1994. Sales of election systems
were $12.0 million, an increase of $0.3 million over those of 1994. As
discussed below, the Company's revenues from election products and services
are subject to substantial variation from even-numbered "election" years to
odd-numbered "non-election" years. During 1995, the Company's revenues were
significantly affected from a natural decrease in the number of elections held
for public office as compared to those which occurred during the previous
year.
 
EXPENSES AND NET INCOME
 
  The Company's gross margin from continuing operations decreased from 29%
during 1994 to 27% during 1995. This decline relates primarily to a reduction
in the Company's revenues from government records management services during
1995 as compared to the previous year, without a commensurate reduction in
fixed and overhead expenses.
 
  The Company's gross contribution from product sales decreased slightly from
$3.6 million, or 28%, of revenues during 1994 to $3.4 million, or 25%, of
revenues during 1995.
 
  The Company's gross contribution from services decreased from $26.0 million,
or 29% of revenues to $24.6 million or 27%, of revenues when compared to 1994.
Reductions in service revenues were not met with corresponding reductions in
personnel and overhead expenses associated with providing these services. As
mentioned above, the Company's reduction in gross service contribution can
also be attributed to decreased revenues from its government records
management services.
 
  The Company's selling, general & administrative expenses related to
continuing operations decreased by $2.2 million, or 14%, as compared to the
previous year. This decrease relates primarily to charges to earnings of
$950,000 associated with several software licenses and proprietary software
packages taken during 1994 and other reductions in general and administrative
expenses. As a result of these decreased expense levels, selling, general and
administrative expenses as a percent of revenues decreased slightly from 16%
during 1994 to 14% during 1995.
 
  As a result of the foregoing factors, the Company's operating profits from
continuing operations increased marginally by $0.7 million, or 6%, as compared
to the previous year.
 
  During 1995, the Company benefited from the resolution of several litigation
matters which contributed $1.3 million to other non-operating income during
the year. (See Note 22 to the Consolidated Financial Statements).
 
                         EFFECTS OF THE ELECTION CYCLE
 
  Before accounting for discontinued operations, approximately 32% and 23% of
the Company's historical revenues for 1996 and 1995, respectively, were
generated from election products and services to governmental bodies for use
in conducting elections. The Company operates in a unique and somewhat
predictable two-year business cycle associated with its election products and
services. Throughout the United States, a substantially larger number of
elections for public office are held in even-numbered years than in odd-
numbered years. As a result, revenues and underlying production and support
activities for a majority of the Company's election products and services
increase dramatically in election years and correspondingly decrease in non-
election years. As such, the reader is encouraged to review the Company's
financial statements on a two-year basis and to take
 
                                      16
<PAGE>
 
into consideration the effects of this two-year business cycle on the
comparability of results presented for sequential years.
 
  During 1996, 1995 and 1994, revenues from election products and services were
$47.5 million, $31.1 million and $43.7 million, respectively.
 
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
 
  See Item 14(a).
 
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
 
  Not applicable.
 
                                    PART III
 
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
 
  Information with respect to directors and executive officers of the Company
is incorporated herein by reference to the information under the captions
"DIRECTORS AND EXECUTIVE OFFICERS" contained in the Proxy Statement for the
Annual Meeting of Stockholders of the Company to be held on May 15, 1997 (the
"Proxy Statement").
 
ITEM 11. EXECUTIVE COMPENSATION.
 
  Information with respect to compensation of directors and executive officers
of the Company is incorporated herein by reference to the information under the
captions "MANAGEMENT COMPENSATION"--Summary Compensation Table; Option Grants
During 1996 Fiscal Year; Option Exercises During 1996 Fiscal Year and Fiscal
Year-End Option Values; Report of the Compensation Committee of the Board of
Directors on Executive Compensation; and Compensation of Directors contained in
the Proxy Statement.
 
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
 
  Information with respect to security ownership by persons known to the
Company to beneficially own more than five percent of the Common Stock, by each
director of the Company and by all directors and executive officers as a group
is incorporated herein by reference to the information under the captions
"PRINCIPAL STOCKHOLDERS" and "PROPOSAL ONE: ELECTION OF DIRECTORS" contained in
the Proxy Statement.
 
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
 
  Information with respect to certain relationships and related transactions is
incorporated herein by reference to the information under the caption
"MANAGEMENT COMPENSATION--Certain Transactions" contained in the Proxy
Statement.
 
                                    PART IV
 
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K.
 
  (a)1. Financial statements
 
      Reference is made to the listing on page 21 of all financial
    statements filed as a part of this report.
 
2. Financial statement schedule
 
      Reference is made to the listing on page 21 of the schedule filed as
    a part of this report.
 
                                       17
<PAGE>
 
3. Exhibits
 
      Reference is made to the Index to Exhibits beginning on page 52 for a
    list of all exhibits filed as part of this report.
 
  (b) During the period from October 1, 1996 through December 31, 1996, the
Company filed the following Current Reports on Form 8-K.
 
<TABLE>
<CAPTION>
  DATE OF REPORT   ITEM(S) REPORTED
  --------------   ----------------
 <C>               <S>
 November 20, 1996 Combined results of BRC Holdings, Inc. and The Pace Group,
                   Inc. for the ten months ended October 31, 1996.
                   (Subsequently amended by Current Report on Form 8-K/A filed
                   February 24, 1997).
 December 15, 1996 Press Release: "BRC Announces Sale of Election Business".
</TABLE>
 
                                       18
<PAGE>
 
                                  SIGNATURES
 
  PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934, THE COMPANY HAS DULY CAUSED THIS REPORT TO BE SIGNED ON
ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
 
                                          BRC Holdings, Inc.
 
                                                    /s/ Perry E. Esping
                                          By: _________________________________
                                               PERRY E. ESPING, CHAIRMAN AND
                                                  CHIEF EXECUTIVE OFFICER
 
  Date: March 28, 1997
 
  PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE COMPANY
IN THE CAPACITIES AND ON THE DATE INDICATED.
 
              SIGNATURE                        TITLE                 DATE
 
         /s/ Perry E. Esping           Chairman, Chief
-------------------------------------   Executive Officer
           PERRY E. ESPING              and Director
                                        (Principal
                                        Executive Officer)
 
         /s/ J. L. Morrison            President and Chief
-------------------------------------   Operating Officer
           J. L. MORRISON
 
 
                                                                March 28, 1997
 
        /s/ Thomas E. Kiraly           Chief Financial
-------------------------------------   Officer (Principal
          THOMAS E. KIRALY              Financial Officer
                                        and Principal
                                        Accounting Officer)
 
         /s/ L. D. Brinkman            Director
-------------------------------------
           L. D. BRINKMAN
 
         /s/ David H. Monich           Director and Member
-------------------------------------   of the Audit
           DAVID H. MONICH              Committee
 
         /s/ Paul T. Stoffel           Director and Member
-------------------------------------   of the Audit
           PAUL T. STOFFEL              Committee
 
       /s/ Robert E. Masterson         Director
-------------------------------------
         ROBERT E. MASTERSON
 
                                      19
<PAGE>
 
 
 
                      BRC HOLDINGS, INC. AND SUBSIDIARIES
 
                       CONSOLIDATED FINANCIAL STATEMENTS
 
    FOR INCLUSION IN ANNUAL REPORT ON FORM 10-K YEAR ENDED DECEMBER 31, 1996
 
 
 
                                       20
<PAGE>
 
                      BRC HOLDINGS, INC. AND SUBSIDIARIES
 
  INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE
                                 [ITEM 14(A)]
 
<TABLE>
<CAPTION>
                                                                          PAGE
                                                                          ----
<S>                                                                       <C>
Consolidated Statements of Income for each of the three years ended
 December 31, 1996.......................................................  22
Consolidated Balance Sheets as of December 31, 1996 and 1995.............  23
Consolidated Statements of Changes in Shareholders' Equity for each of
 the three years ended December 31, 1996.................................  24
Consolidated Statements of Cash Flows for each of the three years ended
 December 31, 1996.......................................................  25
Notes to Consolidated Financial Statements...............................  26
Report of Independent Accountants--Price Waterhouse LLP..................  50
Financial Statement Schedule II--Valuation and Qualifying Accounts for
 the three years ended December 31, 1996.................................  51
</TABLE>
 
  All other schedules are omitted since the required information is not
present, is not present in amounts sufficient to require submission of the
schedule, or because the information required is included in the financial
statements and notes thereto.
 
                                      21
<PAGE>
 
                      BRC HOLDINGS, INC. AND SUBSIDIARIES
 
                       CONSOLIDATED STATEMENTS OF INCOME
 
<TABLE>
<CAPTION>
                                             YEARS ENDED DECEMBER 31,
                                      ----------------------------------------
                                          1996          1995          1994
                                      ------------  ------------  ------------
<S>                                   <C>           <C>           <C>
Revenues
  Products........................... $ 12,111,000  $ 13,486,000  $ 12,895,000
  Services...........................   88,137,000    90,081,000    88,646,000
                                      ------------  ------------  ------------
                                       100,248,000   103,567,000   101,541,000
Costs and expenses
  Cost of products...................    8,905,000    10,082,000     9,342,000
  Cost of services...................   65,529,000    65,447,000    62,664,000
  Selling, general and
   administrative....................   16,245,000    13,979,000    16,217,000
  Unusual charges (Note 21)..........   15,266,000           --            --
                                      ------------  ------------  ------------
                                       105,945,000    89,508,000    88,223,000
                                      ------------  ------------  ------------
Operating profit (loss)..............   (5,697,000)   14,059,000    13,318,000
Other income (Note 22)...............          --      1,283,000        15,000
Interest income......................    3,807,000     3,480,000     1,718,000
Interest expense (Including $33,000
 in 1995 and $436,000 in 1994 to a
 related party)......................     (285,000)     (428,000)   (1,053,000)
                                      ------------  ------------  ------------
Income (loss) from continuing
 operations before income taxes......   (2,175,000)   18,394,000    13,998,000
Income taxes (Note 19)...............   (3,437,000)   (7,362,000)   (5,381,000)
                                      ------------  ------------  ------------
Income (loss) from continuing
 operations..........................   (5,612,000)   11,032,000     8,617,000
Income (loss) from discontinued
 operations (Note 12) (net of income
 taxes (benefit) of $2,831,000 in
 1996, $(224,000) in 1995 and
 $3,181,000 in 1994).................    4,246,000      (337,000)    4,772,000
                                      ------------  ------------  ------------
Net income (loss).................... $ (1,366,000) $ 10,695,000  $ 13,389,000
                                      ============  ============  ============
Earnings per share (Note 20)
  Common and common equivalent share:
    Income (loss) from continuing
     operations...................... $       (.85) $       1.69  $       1.42
    Income (loss) from discontinued
     operations......................          .64          (.05)          .78
                                      ------------  ------------  ------------
                                      $       (.21) $       1.64  $       2.20
                                      ============  ============  ============
  Assuming full dilution:
    Income (loss) from continuing
     operations...................... $       (.85) $       1.66  $       1.39
    Income (loss) from discontinued
     operations......................          .64          (.05)          .75
                                      ------------  ------------  ------------
                                      $       (.21) $       1.61  $       2.14
                                      ============  ============  ============
</TABLE>
 
                See Notes to Consolidated Financial Statements.
 
                                       22
<PAGE>
 
                      BRC HOLDINGS, INC. AND SUBSIDIARIES
 
                          CONSOLIDATED BALANCE SHEETS
 
<TABLE>
<CAPTION>
                                                          DECEMBER 31,
                                                    --------------------------
                                                        1996          1995
                                                    ------------  ------------
<S>                                                 <C>           <C>
                      ASSETS
                      ------
Current assets
  Cash and cash equivalents........................ $  7,089,000  $ 10,044,000
  Short-term investments (Note 2)..................   33,440,000    28,299,000
  Accounts receivable, net of allowance for doubt-
   ful accounts of $539,000 in 1996 and $660,000 in
   1995............................................   21,417,000    14,436,000
  Current portion of installment and notes receiv-
   able (Note 3)...................................    7,950,000     5,884,000
  Inventories (Note 4).............................    1,462,000     1,390,000
  Deferred tax asset (Note 19).....................    3,099,000     3,936,000
  Other current assets.............................    5,573,000     3,104,000
                                                    ------------  ------------
    Total current assets...........................   80,030,000    67,093,000
Property, plant and equipment, at cost (Note 5)....   40,033,000    33,604,000
  Less accumulated depreciation....................  (29,017,000)  (22,590,000)
                                                    ------------  ------------
                                                      11,016,000    11,014,000
Long-term investments (Note 2).....................   24,211,000     8,405,000
Long-term installment receivables (Note 6).........   13,958,000    10,194,000
Purchased software and databases, net (Note 7).....    2,238,000     2,403,000
Goodwill and related intangibles, net (Note 8).....   26,833,000    32,720,000
Other assets, net (Note 9).........................    1,817,000     1,435,000
Net assets of discontinued operations (Note 12)....   18,141,000    23,409,000
                                                    ------------  ------------
                                                    $178,244,000  $156,673,000
                                                    ============  ============
       LIABILITIES AND SHAREHOLDERS' EQUITY
       ------------------------------------
Current liabilities
  Accounts payable................................. $  2,522,000  $  2,057,000
  Accrued liabilities (Note 10)....................   18,987,000    15,697,000
  Current portion of capital lease obligations
   (Note 11).......................................      525,000       793,000
                                                    ------------  ------------
    Total current liabilities......................   22,034,000    18,547,000
Long-term capital lease obligations (Note 11)......       14,000       579,000
Deferred tax liability (Note 19)...................    2,000,000     3,729,000
Commitments and contingencies (Note 13)............          --            --
Shareholders' equity (Note 17)
  Preferred stock, $10.00 par value; 2,000,000
   shares authorized, none issued..................          --            --
  Common stock, $.10 par value; 20,000,000 shares
   authorized, 7,157,224 and 6,449,870 shares is-
   sued and outstanding in 1996 and 1995, respec-
   tively..........................................      716,000       645,000
  Additional paid-in capital.......................   79,375,000    57,702,000
  Retained earnings................................   74,105,000    75,471,000
                                                    ------------  ------------
    Total shareholders' equity.....................  154,196,000   133,818,000
                                                    ------------  ------------
                                                    $178,244,000  $156,673,000
                                                    ============  ============
</TABLE>
 
                See Notes to Consolidated Financial Statements.
 
                                       23
<PAGE>
 
                      BRC HOLDINGS, INC. AND SUBSIDIARIES
 
           CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
 
<TABLE>
<CAPTION>
                                 COMMON
                                 STOCK   ADDITIONAL
                                $.10 PAR   PAID-IN    RETAINED      TREASURY
                                 VALUE     CAPITAL    EARNINGS       STOCK
                                -------- ----------- -----------  ------------
<S>                             <C>      <C>         <C>          <C>
Balance at January 1, 1994..... $520,000 $38,088,000 $51,387,000  $    (80,000)
  Net income...................      --          --   13,389,000           --
  Exercise of stock options....   43,000   1,758,000         --      7,450,000
  Stock option tax benefits....      --    5,154,000         --            --
  Convertible exchangeable
   notes converted.............   55,000   7,612,000         --            --
  Purchase of common stock for
   treasury
   (Note 17)...................      --          --          --    (10,250,000)
                                -------- ----------- -----------  ------------
Balance at December 31, 1994...  618,000  52,612,000  64,776,000    (2,880,000)
  Net income...................      --          --   10,695,000           --
  Exercise of stock options....   17,000   1,960,000         --      3,858,000
  Stock option tax benefits....      --    1,807,000         --            --
  Convertible exchangeable
   notes converted.............   10,000   1,323,000         --            --
  Purchase of common stock for
   treasury
   (Note 17)...................      --          --          --       (978,000)
                                -------- ----------- -----------  ------------
Balance at December 31, 1995...  645,000  57,702,000  75,471,000           --
  Net loss.....................      --          --   (1,366,000)          --
  Exercise of stock options....   28,000   7,326,000         --            --
  Stock option tax benefits....      --    1,622,000         --            --
  Stock issued for acquisition
   (Note 14)...................   43,000  12,725,000         --            --
                                -------- ----------- -----------  ------------
Balance at December 31, 1996... $716,000 $79,375,000 $74,105,000  $        --
                                ======== =========== ===========  ============
</TABLE>
 
 
                See Notes to Consolidated Financial Statements.
 
                                       24
<PAGE>
 
                      BRC HOLDINGS, INC. AND SUBSIDIARIES
 
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
 
<TABLE>
<CAPTION>
                                              YEARS ENDED DECEMBER 31,
                                       ----------------------------------------
                                           1996          1995          1994
                                       ------------  ------------  ------------
<S>                                    <C>           <C>           <C>
Cash flows from operating activities:
  Net income (loss)..................  $ (1,366,000) $ 10,695,000  $ 13,389,000
  Adjustments to reconcile net income
   (loss) to net cash provided by
   continuing operations:
    (Income) loss from discontinued
     operations......................    (4,246,000)      337,000    (4,772,000)
    Depreciation and amortization....     9,575,000     8,983,000     9,419,000
    (Gain) loss on sale of
     assets/other....................       168,000      (468,000)      (19,000)
    Unusual charges..................    15,266,000           --            --
  Deferred income tax................    (1,498,000)          --            --
  Changes in assets and liabilities:
    (Increase) decrease in accounts
     receivable......................    (4,730,000)   (1,128,000)    4,632,000
    (Increase) decrease in invento-
     ries............................       (71,000)       78,000       445,000
    (Increase) decrease in other as-
     sets............................    (2,574,000)    1,796,000     1,580,000
    Increase (decrease) in accounts
     payable.........................        81,000      (224,000)     (188,000)
    Increase (decrease) in other lia-
     bilities........................     1,886,000    (3,779,000)    4,829,000
                                       ------------  ------------  ------------
    Net cash provided by continuing
     operations......................    12,491,000    16,290,000    29,315,000
Net cash provided by (used in) dis-
 continued operations................     9,643,000    (3,810,000)    2,231,000
                                       ------------  ------------  ------------
Net cash provided by operating activ-
 ities...............................    22,134,000    12,480,000    31,546,000
                                       ------------  ------------  ------------
Cash flows from investing activities:
  Capital expenditures...............    (6,304,000)   (6,982,000)   (5,400,000)
  Capital expenditures of discontin-
   ued operations....................      (322,000)   (2,630,000)   (1,520,000)
  Purchase of investments............   (51,847,000)  (37,782,000)  (28,237,000)
  Redemption of investments..........    30,833,000    23,364,000    12,970,000
  Proceeds from sale of business
   units.............................           --        200,000        40,000
  Cash received from business acqui-
   sition (Note 14)..................       774,000           --            --
  Proceeds from sale of assets.......        98,000           --        340,000
  Additions to installment receiv-
   ables.............................    (8,641,000)   (7,389,000)   (4,754,000)
  Proceeds from installment receiv-
   ables.............................     3,668,000     3,554,000     1,586,000
                                       ------------  ------------  ------------
Net cash used in investing activi-
 ties................................   (31,741,000)  (27,665,000)  (24,975,000)
                                       ------------  ------------  ------------
Cash flows from financing activities:
  Principal payments on notes and
   capital leases....................      (832,000)   (1,512,000)   (1,595,000)
  Principal payments on notes of dis-
   continued operations..............       (47,000)      (47,000)      (47,000)
  Issuance of common stock...........     7,531,000     5,835,000     9,251,000
  Purchases of treasury stock........           --       (978,000)  (10,250,000)
                                       ------------  ------------  ------------
Net cash provided by (used in) fi-
 nancing activities..................     6,652,000     3,298,000    (2,641,000)
                                       ------------  ------------  ------------
Increase (decrease) in cash and cash
 equivalents.........................    (2,955,000)  (11,887,000)    3,930,000
Cash and cash equivalents at begin-
 ning of year........................    10,044,000    21,931,000    18,001,000
                                       ------------  ------------  ------------
Cash and cash equivalents at end of
 year................................  $  7,089,000  $ 10,044,000  $ 21,931,000
                                       ============  ============  ============
</TABLE>
 
  Supplemental disclosures--Cash payments for income taxes in 1996, 1995 and
1994 were $7,961,000, $6,900,000 and $1,556,000, respectively. Cash payments
for interest in 1996, 1995 and 1994 were $285,000, $428,000 and $1,000,000,
respectively. See additional noncash activities disclosed in Notes 14 and 17.
 
                See Notes to Consolidated Financial Statements.
 
                                      25
<PAGE>
 
                      BRC HOLDINGS, INC. AND SUBSIDIARIES
 
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
  Principles of consolidation--The accompanying financial statements include
the accounts of BRC Holdings, Inc. ("BRC") and subsidiaries, hereafter
referred to as the "Company." BRC operates primarily through its wholly-owned
subsidiaries, Business Records Corporation, BRC Health Care, and The Pace
Group. All significant intercompany transactions and balances have been
eliminated.
 
  As discussed in Note 12 to the Consolidated Financial Statements, the
Company has entered into a definitive agreement to divest its major line of
business related to election products and services. Accordingly, for financial
reporting purposes, this major line of business is reflected as a discontinued
operation in the Consolidated Financial Statements in accordance with
Accounting Principles Board Opinion No. 30, "Reporting the Results of
Operations--Reporting the Effects of Disposals of a Segment of a Business, and
Extraordinary, Unusual and Infrequently Occurring Events and Transactions."
 
  Use of estimates--The preparation of financial statements in conformity with
generally accepted accounting principles requires the Company to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent liabilities at the date of the
financial statements and reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
 
  Cash and cash equivalents--For purposes of the statements of cash flows,
cash and cash equivalents include short-term liquid investments purchased with
remaining maturities of three months or less.
 
  Marketable securities--Pursuant to Statement of Financial Accounting
Standards No. 115, "Accounting for Certain Investments in Debt and Equity
Securities," the Company's short- and long-term marketable debt securities are
classified as held to maturity and are carried at amortized portfolio cost.
 
  Inventories--Inventories are carried at the lower of cost (first-in, first-
out method) or market.
 
  Property, plant and equipment--Depreciation and amortization of property,
plant and equipment, owned or leased, for financial statement purposes are
recognized using the straight-line method over estimated useful lives ranging
from 5 to 25 years for buildings and leasehold improvements, 3 to 15 years for
machinery and equipment, 3 to 4 years for microcomputer equipment and from 3
to 5 years for mainframe computer equipment.
 
  Purchased software and databases--Purchased software and databases reflect
the cost of acquired software, software licenses and databases. Purchased
software is amortized using the straight-line method over estimated useful
lives ranging from 5 to 7 years. Capitalized costs of databases and title
plants are amortized using the straight-line method over their estimated lives
of 20 years.
 
  Goodwill and related intangibles--Goodwill and related intangibles reflect
the acquired cost of goodwill, customer lists and other items typically
resulting from acquisitions accounted for using the purchase method. These
intangible assets are amortized using the straight-line method over the
estimated period to be benefited by the acquisition in related intangibles
ranging from five to twenty-five years. The Company has adopted Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of" ("SFAS No.
121"), effective January 1, 1995. The carrying value of long-lived assets,
including goodwill, is evaluated whenever changes in circumstances indicate
the carrying amount of such assets may not be recoverable. In performing such
review for recoverability, the Company compares the expected future cash flows
to the carrying value of long-lived assets and identifiable intangibles. If
the anticipated undiscounted future cash flows are less than the carrying
amount of such assets, the Company recognizes an impairment loss for the
difference between the carrying amount of the assets and their estimated fair
value. The fair value of an intangible asset is determined through the use of
a discounted cash flow analysis.
 
                                      26
<PAGE>
 
                      BRC HOLDINGS, INC. AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
In 1996, the Company recognized such an impairment and recorded a charge
against earnings of $15,266,000 primarily related to the goodwill and other
intangible assets associated with the health care division of the Company. See
Note 21.
 
  Revenue recognition--It is the Company's policy to recognize revenues when
its products are shipped or services are performed. In the event that a
particular contract requires a right of return, the Company does not recognize
revenue until such right lapses. Depending on the nature of the Company's
contracts, certain long-term contracts are recognized on a percentage-of-
completion basis. Under such contracts, earned revenue is based on the
percentage that incurred costs to date bear to total estimated costs after
giving effect to the most recent estimates of total costs. Losses expected to
be incurred on contracts in process are recognized as soon as such losses are
known. Percentage-of-completion contracts have not constituted a material
portion of the Company's revenues for the periods presented.
 
  Deferred revenues--Advance billings for services are deferred and recorded
as revenue in the period in which the related services are rendered.
 
  Income taxes--Income taxes are presented pursuant to Statement of Financial
Accounting Standard No. 109, "Accounting for Income Taxes".
 
  Accounting for stock-based compensation--In October 1995, Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("SFAS No. 123") was issued. This statement requires the fair
value of stock options and other stock-based compensation issued to employees
to either be included as compensation expense in the income statement or the
pro forma effect on net income and earnings per share of such compensation
expense to be disclosed in the footnotes to the Company's financial statements
commencing with the Company's 1996 fiscal year. The Company adopted SFAS No.
123 on a disclosure basis only. As such, implementation of SFAS No. 123 has
not impacted the Company's consolidated balance sheets or statements of
income. See Note 16 for the additional disclosure required pursuant to SFAS
No. 123.
 
2. INVESTMENTS
 
  Marketable securities are classified as held to maturity and are carried at
amortized portfolio cost. The cost of these securities is adjusted for
amortization of premiums and accretion of discounts over the estimated life of
the underlying security. Such amortization and accretion are included in
interest income. The Company invests primarily in government fixed income
securities. Realized gains and losses on the sale of investments are
determined on a specific identification basis and are included in the
Consolidated Statements of Income.
 
<TABLE>
<CAPTION>
                                                   DECEMBER 31, 1996
                                        ---------------------------------------
                                                    GROSS      GROSS
                                        AMORTIZED UNREALIZED UNREALIZED  FAIR
                                          COST      GAINS      LOSSES    VALUE
                                        --------- ---------- ---------- -------
                                                    (IN THOUSANDS)
   <S>                                  <C>       <C>        <C>        <C>
   State and municipal bonds...........  $34,580     $159       $49     $34,690
   U.S. Government Treasury Notes......   20,235       30         2      20,263
   Other investments...................    2,836        1        14       2,823
                                         -------     ----       ---     -------
                                         $57,651     $190       $65     $57,776
                                         =======     ====       ===     =======
</TABLE>
 
  At December 31, 1996, other investments primarily consist of a $2.5 million
investment in MatriDigm. See Note 13.
 
                                      27
<PAGE>
 
                      BRC HOLDINGS, INC. AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
<TABLE>
<CAPTION>
                                                   DECEMBER 31, 1995
                                        ---------------------------------------
                                                    GROSS      GROSS
                                        AMORTIZED UNREALIZED UNREALIZED  FAIR
                                          COST      GAINS      LOSSES    VALUE
                                        --------- ---------- ---------- -------
                                                    (IN THOUSANDS)
   <S>                                  <C>       <C>        <C>        <C>
   State and municipal bonds...........  $22,991     $144       $495    $22,640
   U.S. Government Treasury Notes......   13,445       71        --      13,516
   Other investments...................      268      --         --         268
                                         -------     ----       ----    -------
                                         $36,704     $215       $495    $36,424
                                         =======     ====       ====    =======
</TABLE>
 
  The contractual maturities of debt securities at December 31, 1996 are as
follows:
 
<TABLE>
<CAPTION>
                                                              AMORTIZED  FAIR
                                                                COST     VALUE
                                                              --------- -------
                                                               (IN THOUSANDS)
   <S>                                                        <C>       <C>
   Due within one year.......................................  $33,487  $33,559
   Due after one year through five years.....................   21,142   21,202
   Due after five years......................................      385      387
                                                               -------  -------
                                                               $55,014  $55,148
                                                               =======  =======
</TABLE>
 
3. NOTES RECEIVABLE
 
  Notes receivable include employee receivables of $1,138,000 and $1,076,000
at December 31, 1996 and 1995, respectively.
 
4. INVENTORIES
 
<TABLE>
<CAPTION>
                                                           1996        1995
                                                        ----------- -----------
   <S>                                                  <C>         <C>
   Finished goods...................................... $   243,000 $   164,000
   Raw materials and supplies..........................   1,219,000   1,226,000
                                                        ----------- -----------
                                                        $ 1,462,000 $ 1,390,000
                                                        =========== ===========
 
 
5. PROPERTY, PLANT AND EQUIPMENT
 
<CAPTION>
                                                           1996        1995
                                                        ----------- -----------
   <S>                                                  <C>         <C>
   Land................................................ $   294,000 $   294,000
   Buildings and leasehold improvements................   5,437,000   5,025,000
   Machinery and equipment.............................  34,302,000  28,285,000
                                                        ----------- -----------
                                                        $40,033,000 $33,604,000
                                                        =========== ===========
</TABLE>
 
  For 1996, 1995 and 1994, the Company recorded depreciation expense of
$6,211,000, $5,853,000, and $5,998,000, respectively.
 
6. LONG-TERM INSTALLMENT RECEIVABLES
 
  Long-term installment receivables generally relate to the sale of certain
assets, products and services in the normal course of business. These
receivables range in length from 3 to 6 years and bear interest at rates
ranging
 
                                      28
<PAGE>
 
                      BRC HOLDINGS, INC. AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
from 4 to 11 percent. The carrying value of these receivables approximates the
market value at December 31, 1996.
 
7. PURCHASED SOFTWARE AND DATABASES
 
<TABLE>
<CAPTION>
                                                           1996        1995
                                                        ----------- -----------
   <S>                                                  <C>         <C>
   Software, net of accumulated amortization of
    $5,271,000 in 1996 and $4,651,000 in 1995.......... $   610,000 $   284,000
   Software licenses, net of accumulated amortization
    of $588,000 in 1996 and $322,000 in 1995...........     260,000     548,000
   Databases, net of accumulated amortization of
    $2,685,000 in 1996 and $2,482,000 in 1995..........   1,368,000   1,571,000
                                                        ----------- -----------
                                                        $ 2,238,000 $ 2,403,000
                                                        =========== ===========
 
8. GOODWILL AND RELATED INTANGIBLES
 
<CAPTION>
                                                           1996        1995
                                                        ----------- -----------
   <S>                                                  <C>         <C>
   Goodwill, net of accumulated amortization of
    $3,828,000 in 1996 and $4,265,000 in 1995.......... $21,160,000 $23,057,000
   Customer lists, net of accumulated amortization of
    $2,661,000 in 1996 and $2,093,000 in 1995..........   4,942,000   8,669,000
   Other items, net of accumulated amortization of
    $1,006,000 in 1996 and $845,000 in 1995............     731,000     994,000
                                                        ----------- -----------
                                                        $26,833,000 $32,720,000
                                                        =========== ===========
 
9 OTHER ASSETS
 
<CAPTION>
                                                           1996        1995
                                                        ----------- -----------
   <S>                                                  <C>         <C>
   Noncompetition agreements, net of accumulated
    amortization of $1,990,000 in 1996 and $1,477,000
    in 1995............................................ $ 1,568,000 $ 1,111,000
   Other, net of accumulated amortization of $285,000
    in 1996 and $281,000 in 1995.......................     249,000     324,000
                                                        ----------- -----------
                                                        $ 1,817,000 $ 1,435,000
                                                        =========== ===========
 
  Noncompetition agreements are amortized using the straight-line method over
the term of the underlying agreements which range from one to five years.
 
10. ACCRUED LIABILITIES
 
<CAPTION>
                                                           1996        1995
                                                        ----------- -----------
   <S>                                                  <C>         <C>
   Deferred revenues................................... $10,301,000 $ 8,479,000
   Salaries and benefits...............................   4,249,000   2,954,000
   Other accrued liabilities...........................   4,437,000   4,264,000
                                                        ----------- -----------
                                                        $18,987,000 $15,697,000
                                                        =========== ===========
</TABLE>
 
                                       29
<PAGE>
 
                      BRC HOLDINGS, INC. AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
 
11. CAPITAL LEASE OBLIGATIONS
 
<TABLE>
<CAPTION>
                                                             1996      1995
                                                          ---------- ---------
   <S>                                                    <C>        <C>
   7% lease payable to a customer related to acquisition
    of computer equipment and related contract conces-
    sion, maturing through 1997.........................  $   90,000 $ 462,000
   7% lease payable to a vendor providing certain soft-
    ware licenses, maturing through 1997................     309,000   598,000
   Miscellaneous capital leases related to equipment
    with rates of 5% to 10%, maturing through 1998......     140,000   312,000
                                                          ---------- ---------
     Total capital leases...............................     539,000 1,372,000
   Less current portion of capital lease obligations....     525,000   793,000
                                                          ---------- ---------
   Long-term capital lease obligations..................  $   14,000 $ 579,000
                                                          ========== =========
 
  As of December 31, 1996, lease payments due under capital leases are as
follows:
 
   Year Ending December 31:
     1997...............................................  $  539,000
     1998...............................................      14,000
                                                          ----------
                                                             553,000
     Less Interest......................................      14,000
                                                          ----------
       Principal amount of net lease payments...........  $  539,000
                                                          ==========
 
  Assets and liabilities resulting from capital lease obligations are included
in the balance sheet at December 31, 1996 as follows:
 
   Assets:
     Property, plant and equipment......................  $2,086,000
     Purchased software and databases...................     265,000
     Goodwill and related intangibles...................   1,467,000
                                                          ----------
                                                           3,818,000
     Less accumulated depreciation and amortization.....   2,613,000
                                                          ----------
                                                          $1,205,000
                                                          ==========
   Liabilities:
     Current portion of capital lease obligations.......  $  525,000
     Long-term capital lease obligations................      14,000
                                                          ----------
                                                          $  539,000
                                                          ==========
</TABLE>
 
12. DISCONTINUED OPERATIONS
 
  On November 21, 1996, the Company entered into a definitive agreement to
sell its election business to American Information Systems, Inc., ("AIS") a
privately-held information systems company headquartered in Omaha, Nebraska.
Accordingly, this business is reported as a discontinued operation for
accounting purposes and has been presented in the Consolidated Balance Sheets
as "net assets of discontinued operations" and as "discontinued operations" in
the Consolidated Statements of Income.
 
                                      30
<PAGE>
 
                      BRC HOLDINGS, INC. AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
 
  Closing of the transaction is subject to the satisfactory conclusion of a
review currently being conducted by the United States Department of Justice,
Antitrust Division ("DOJ"). The DOJ review is a result of the Company's
required submission of the transaction to the DOJ pursuant to the Hart Scott
Rodino Act. While the outcome of this review cannot be determined at this
time, the Company currently believes the ultimate result will not preclude
consummation of the planned transaction.
 
  Subject to changes in the net book value of the election business through
the date of closing, the agreement provides for the consideration by AIS of
$35 million in cash, $17.5 million in a subordinated note and 19.9% of the
resulting equity of AIS. The Company anticipates recording a pre-tax gain
associated with transaction of approximately $30 million.
 
  The unaudited pro forma information presented below is for informational
purposes only and may not necessarily reflect the results of operations which
would have occurred had the divestiture of the election business been
consummated at the beginning of the financial periods presented, nor is the
pro forma information intended to be indicative of the future results of
operations or financial position of the Company or the election business. The
pro forma adjustments presented represent the balance sheets and results of
operations of specific business units of the Company which have been accounted
for separately. Expense allocations associated with payroll taxes, benefits
and related personnel costs and corporate expenses were made based on
headcount and a percentage of revenues, respectively.
 
                                      31
<PAGE>
 
                      BRC HOLDINGS, INC. AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
  The unaudited pro forma balance sheets as of December 31, 1996 and 1995 are
presented below.
 
<TABLE>
<CAPTION>
                                                           1996
                                           ------------------------------------
                                                        PRO FORMA
                                                       ADJUSTMENTS   PRO FORMA
                                                      (DISCONTINUED (CONTINUING
                                           HISTORICAL  OPERATIONS)  OPERATIONS)
                                           ---------- ------------- -----------
                                                         (000'S)
<S>                                        <C>        <C>           <C>
                  ASSETS
                  ------
Current assets
  Cash and cash equivalents...............  $  7,104    $     15     $  7,089
  Short-term investments..................    33,440         --        33,440
  Accounts receivable, net................    30,182       8,765       21,417
  Current portion of installment and notes
   receivable.............................     7,950         --         7,950
  Inventories.............................     8,457       6,995        1,462
  Deferred tax asset......................     4,200       1,101        3,099
  Other current assets....................     5,726         153        5,573
                                            --------    --------     --------
    Total current assets..................    97,059      17,029       80,030
Property, plant and equipment, at cost....    54,695      14,662       40,033
  Less accumulated depreciation...........   (39,141)    (10,124)     (29,017)
                                            --------    --------     --------
                                              15,554       4,538       11,016
Long-term investments.....................    24,211         --        24,211
Long-term installment receivables.........    13,958         --        13,958
Purchased software and databases, net.....     3,643       1,405        2,238
Goodwill and related intangibles, net.....    27,424         591       26,833
Other assets, net.........................     2,008         191        1,817
                                            --------    --------     --------
                                            $183,857    $ 23,754     $160,103
                                            ========    ========     ========
   LIABILITIES AND SHAREHOLDERS' EQUITY
   ------------------------------------
Current liabilities
  Accounts payable........................  $  3,230    $    708     $  2,522
  Accrued liabilities.....................    23,262       4,275       18,987
  Current portion of capital lease obliga-
   tions..................................       525         --           525
                                            --------    --------     --------
    Total current liabilities.............    27,017       4,983       22,034
Long-term capital lease obligations.......       458         444           14
Deferred tax liability....................     2,186         186        2,000
Shareholders' equity
  Common stock............................       716         --           716
  Additional paid-in capital..............    79,375         --        79,375
  Retained earnings.......................    74,105      18,141       55,964
                                            --------    --------     --------
    Total shareholders' equity............   154,196      18,141      136,055
                                            --------    --------     --------
                                            $183,857    $ 23,754     $160,103
                                            ========    ========     ========
</TABLE>
 
                                       32
<PAGE>
 
                      BRC HOLDINGS, INC. AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
<TABLE>
<CAPTION>
                                                           1995
                                           ------------------------------------
                                                        PRO FORMA
                                                       ADJUSTMENTS   PRO FORMA
                                                      (DISCONTINUED (CONTINUING
                                           HISTORICAL  OPERATIONS)  OPERATIONS)
                                           ---------- ------------- -----------
                                                         (000'S)
<S>                                        <C>        <C>           <C>
                  ASSETS
                  ------
Current assets
  Cash and cash equivalents...............  $ 10,059    $     15     $ 10,044
  Short-term investments..................    28,299         --        28,299
  Accounts receivable, net................    23,698       9,262       14,436
  Current portion of installment and notes
   receivable.............................     5,884         --         5,884
  Inventories.............................    11,750      10,360        1,390
  Deferred tax asset......................     4,980       1,044        3,936
  Other current assets....................     3,195          91        3,104
                                            --------    --------     --------
    Total current assets..................    87,865      20,772       67,093
Property, plant and equipment, at cost....    59,022      25,418       33,604
  Less accumulated depreciation...........   (42,141)    (19,551)     (22,590)
                                            --------    --------     --------
                                              16,881       5,867       11,014
Long-term investments.....................     8,405         --         8,405
Long-term installment receivables.........    10,194         --        10,194
Purchased software and databases, net.....     4,049       1,646        2,403
Goodwill and related intangibles, net.....    33,414         694       32,720
Other assets, net.........................     1,685         250        1,435
                                            --------    --------     --------
                                            $162,493    $ 29,229     $133,264
                                            ========    ========     ========
   LIABILITIES AND SHAREHOLDERS' EQUITY
   ------------------------------------
Current liabilities
  Accounts payable........................  $  3,326    $  1,269     $  2,057
  Accrued liabilities.....................    19,543       3,846       15,697
  Current portion of capital lease obliga-
   tions..................................       886          93          793
                                            --------    --------     --------
    Total current liabilities.............    23,755       5,208       18,547
Long-term capital lease obligations.......     1,001         422          579
Deferred tax liability....................     3,919         190        3,729
Shareholders' equity
  Common stock............................       645         --           645
  Additional paid-in capital..............    57,702         --        57,702
  Retained earnings.......................    75,471      23,409       52,062
                                            --------    --------     --------
    Total shareholders' equity............   133,818      23,409      110,409
                                            --------    --------     --------
                                            $162,493    $ 29,229     $133,264
                                            ========    ========     ========
</TABLE>
 
                                       33
<PAGE>
 
                      BRC HOLDINGS, INC. AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
  The net assets of discontinued operations are summarized as follows (000's):
 
<TABLE>
<CAPTION>
                                                                1996     1995
                                                               -------  -------
   <S>                                                         <C>      <C>
   As of December 31,
     Current assets........................................... $17,029  $20,772
     Plant and equipment, net.................................   4,538    5,867
     Other assets.............................................   2,187    2,590
     Current liabilities......................................  (4,983)  (5,208)
     Other liabilities........................................    (630)    (612)
                                                               -------  -------
     Net assets of discontinued operations.................... $18,141  $23,409
                                                               =======  =======
</TABLE>
 
  The unaudited pro forma statements of income for the years ended December 31,
1996, 1995 and 1994 are presented below.
 
<TABLE>
<CAPTION>
                                                           1996
                                           ------------------------------------
                                                        PRO FORMA    PRO FORMA
                                                       ADJUSTMENTS    RESULTS
                                           HISTORICAL (DISCONTINUED (CONTINUING
                                            RESULTS    OPERATIONS)  OPERATIONS)
                                           ---------- ------------- -----------
                                                         (000'S)
   <S>                                     <C>        <C>           <C>
   Net Sales..............................  $147,794     $47,546     $100,248
   Costs and expenses:
     Costs of products and service........   104,431      29,997       74,434
     Sales, general and administration....    26,717      10,472       16,245
     Unusual charges......................    15,266         --        15,266
                                            --------     -------     --------
   Total costs and expenses...............   146,414      40,469      105,945
                                            --------     -------     --------
   Operating profit (loss)................     1,380       7,077       (5,697)
   Interest income, net...................     3,522         --         3,522
                                            --------     -------     --------
     Income (loss) before tax.............     4,902       7,077       (2,175)
     Income tax provision.................     6,268       2,831        3,437
                                            --------     -------     --------
   Net income (loss)......................  $ (1,366)    $ 4,246     $ (5,612)
                                            ========     =======     ========
</TABLE>
 
 
                                       34
<PAGE>
 
                      BRC HOLDINGS, INC. AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
<TABLE>
<CAPTION>
                                                           1995
                                           ------------------------------------
                                                        PRO FORMA    PRO FORMA
                                                       ADJUSTMENTS    RESULTS
                                           HISTORICAL (DISCONTINUED (CONTINUING
                                            RESULTS    OPERATIONS)  OPERATIONS)
                                           ---------- ------------- -----------
                                                         (000'S)
   <S>                                     <C>        <C>           <C>
   Net Sales..............................  $134,654     $31,087     $103,567
   Costs and expenses:
     Costs of products and services.......    97,887      22,358       75,529
     Sales, general and administration....    23,269       9,290       13,979
                                            --------     -------     --------
   Total costs and expenses...............   121,156      31,648       89,508
                                            --------     -------     --------
   Operating profit (loss)................    13,498        (561)      14,059
   Other income...........................     1,283         --         1,283
   Interest income, net...................     3,052         --         3,052
                                            --------     -------     --------
     Income (loss) before tax.............    17,833        (561)      18,394
     Income tax provision.................     7,138        (224)       7,362
                                            --------     -------     --------
   Net income (loss)......................  $ 10,695     $  (337)    $ 11,032
                                            ========     =======     ========
</TABLE>
 
<TABLE>
<CAPTION>
                                                           1994
                                           ------------------------------------
                                                        PRO FORMA    PRO FORMA
                                                       ADJUSTMENTS    RESULTS
                                           HISTORICAL (DISCONTINUED (CONTINUING
                                            RESULTS    OPERATIONS)  OPERATIONS)
                                           ---------- ------------- -----------
                                                         (000'S)
   <S>                                     <C>        <C>           <C>
   Net sales..............................  $145,260     $43,719     $101,541
   Costs and expenses:
     Costs of products and services.......    97,557      25,551       72,006
     Sales, general and administration....    26,432      10,215       16,217
                                            --------     -------     --------
   Total costs and expenses...............   123,989      35,766       88,223
                                            --------     -------     --------
   Operating profit.......................    21,271       7,953       13,318
   Other income...........................        15         --            15
   Interest income, net...................       665         --           665
                                            --------     -------     --------
     Income before tax....................    21,951       7,953       13,998
     Income tax provision.................     8,562       3,181        5,381
                                            --------     -------     --------
   Net income.............................  $ 13,389     $ 4,772     $  8,617
                                            ========     =======     ========
</TABLE>
 
13. COMMITMENTS AND CONTINGENCIES
 
  On October 23, 1996, the Company executed a consulting agreement and stock
purchase agreement with MatriDigm Corporation ("MatriDigm"), a privately-held
corporation headquartered in Fremont, California. MatriDigm is researching,
developing and testing an automated technology solution to the Year 2000
computer date problem affecting computer systems. Under the consulting
agreement with MatriDigm, the Company will provide the assistance of its
Chairman and Chief Executive Officer, and certain other management services,
to assist MatriDigm in the development and growth of its business operations.
In consideration for these efforts, the Company will receive a percentage of
the pre-tax operating income of MatriDigm. Additionally, the Company purchased
$1,500,000 of MatriDigm common stock. See Note 15. The consulting agreement
terminates in December 1999, and may be terminated earlier based on a number
of events, including failing to achieve
 
                                      35
<PAGE>
 
                      BRC HOLDINGS, INC. AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
performance goals subsequent to September 30, 1997. In the event of a
termination of the consulting contract, MatriDigm has certain share repurchase
rights with respect to a portion of the shares purchased by the Company in
connection with the consulting agreement. On December 2, 1996, the Company
executed a Preferred Stock Purchase and Put Option Agreement with MatriDigm.
Under the terms of the agreement, the Company is obligated to purchase
$1,000,000 in preferred stock initially, and up to $4,000,000 of preferred
stock upon MatriDigm's execution of the put option exercise, and certification
that certain Performance Criteria have been satisfied, as defined in the
agreement. As of March 1, 1997, $2,000,000 has been invested under this
agreement and the Company's total investment of $3,500,000 constitutes
approximately 9% of the outstanding capital stock of MatriDigm. The Company's
investment in MatriDigm is being accounted for under the cost method.
 
  Minimum future rental payments for leased office space and property, plant
and equipment, including those of discontinued operations, acquired under
operating leases with initial or remaining noncancelable lease terms in excess
of one year are: 1997--$3,203,000; 1998--$2,744,000; 1999--$2,234,000; 2000--
$1,357,000; 2001-- $727,000; later years--$639,000; total--$10,904,000.
Minimum future rental payments related to office space of discontinued
operations with terms in excess of one year are: 1997--$633,000; 1998--
$552,000; 1999--$466,000; 2000--$412,000; 2001--$188,000; later years--
$63,000; total--$2,314,000. See Note 12.
 
  Total rent expense for operating leases including discontinued operations
was $3,264,000 in 1996, $2,998,000 in 1995 and $2,866,000 in 1994. Rent
expense associated with discontinued operations was $644,000, $460,000,
$417,000 in 1996, 1995 and 1994, respectively.
 
  In November 1996, the Company executed several agreements with The Health
Information Network Connection ("THINC"), a New York limited liability
corporation. Pursuant to the terms of a subscription agreement, the Company
agreed to purchase a 20% interest in THINC for $750,000, to be invested in
varying amounts over a twenty-one month period through August 1998. In
addition, the Company has guaranteed a THINC software license fee obligation
up to $400,000 plus accrued interest. The Company's investment in THINC is
accounted for under the equity method.
 
  The Company is party to various lawsuits arising in the ordinary course of
its business and does not believe that the outcome of these lawsuits will have
a material effect on the Company's financial position or results of
operations.
 
14. ACQUISITIONS
 
  On September 5, 1996, the Company consummated the merger of The Pace Group,
Inc. ("The Pace Group"), with a wholly-owned subsidiary of the Company. Under
the terms of the agreement, the Company issued 432,835 shares of its common
stock in a tax-free exchange for all of the record and beneficial interests
held by The Pace Group security holders. In connection with this noncash
transaction, which was accounted for as a purchase, assets acquired,
liabilities assumed and purchase price were approximately $4,100,000,
$1,153,000 and $12,769,000, respectively. As a result, the Company recorded
goodwill of $9,822,000 equal to the excess of the purchase price over the fair
value of the net assets of The Pace Group. The goodwill will be amortized
using the straight-line method over a period of 15 years. The Pace Group,
headquartered in Dallas, Texas, provides consulting, development and
management services to purchasers and providers of health care services.
 
  The following summarized unaudited pro forma consolidated results of
continuing operations for the years ended December 31, 1996, 1995 and 1994 are
presented assuming the acquisition occurred as of January 1, 1994. These pro
forma results have been prepared for comparative purposes only and do not
propose to be indicative of the results of operations which actually would
have resulted had the acquisition been in effect at the dates indicated, or
which may occur in the future. Furthermore, The Pace Group operations are
unrelated to the Company's discontinued election business operations.
 
                                      36
<PAGE>
 
                      BRC HOLDINGS, INC. AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
 
 
<TABLE>
<CAPTION>
                                                    YEAR ENDED DECEMBER 31,
                                                   ---------------------------
                                                     1996      1995     1994
                                                   --------  -------- --------
                                                    (000'S, EXCEPT PER SHARE
                                                             DATA)
                                                          (PRO FORMA)
   <S>                                             <C>       <C>      <C>
   Revenues....................................... $106,605  $110,219 $106,545
   Net (loss) income from continuing operations... $ (5,266) $ 11,434 $  8,546
   Net (loss) income from continuing operations
    per common share.............................. $   (.79) $   1.75 $   1.41
</TABLE>
 
  On August 17, 1995, the Company consummated the merger of Clinical Resource
Systems, Inc. ("CRS"), with a wholly-owned subsidiary of the Company. Under
the terms of the agreement, the Company issued 121,112 shares of its common
stock, subject to certain escrow arrangements with regard to 12,111 shares, in
exchange for all of the record and beneficial interest held by CRS security
holders. Additionally, outstanding options to acquire CRS common stock were
converted to options to acquire 14,381 shares of the Company's common stock.
CRS, headquartered in Austin, Texas, provides specialized software to hospital
emergency rooms.
 
  The Company treated the CRS merger as a tax-free reorganization. This
transaction was accounted for as a pooling of interests. Accordingly, the
Company's financial statements have been restated to include the results of
CRS for all periods presented.
 
  Combined and separate results of BRC and CRS during the periods preceding
the merger were as follows:
 
<TABLE>
<CAPTION>
                                              TWELVE MONTHS ENDED DECEMBER 31,
                                              ----------------------------------
                                                    1995              1994
                                              ----------------  ----------------
   <S>                                        <C>               <C>
   Revenue:
     BRC..................................... $    133,573,000  $    144,204,000
     CRS.....................................        1,081,000         1,056,000
                                              ----------------  ----------------
       Total................................. $    134,654,000  $    145,260,000
                                              ================  ================
   Net Income (Loss):
     BRC..................................... $     11,093,000  $     13,388,000
     CRS.....................................         (398,000)            1,000
                                              ----------------  ----------------
       Total................................. $     10,695,000  $     13,389,000
                                              ================  ================
</TABLE>
 
  The combined financial results presented above include adjustments and
reclassifications made to conform the accounting policies of the two
companies. There were no material income adjustments or intercompany
transactions between the two companies for the periods presented.
 
  On November 1, 1995, the Company acquired all of the assets and assumed
certain liabilities of Megalink, Inc. ("Megalink"), a Florida corporation.
Megalink develops and markets voter registration software for use in
conducting public elections. Megalink's primary operations are located in West
Palm Beach, Florida. In addition to other terms and conditions, the Asset
Purchase Agreement provided that the Company would pay $2,000,000 in cash in
consideration for the net assets of Megalink. Megalink is included in the
discontinued operations of the Company.
 
  On September 13, 1995, the Company acquired the assets of Computer Election
Systems, Inc., a Florida-based provider of specialized punch card ballots and
certain of the government records management accounts of
 
                                      37
<PAGE>
 
                      BRC HOLDINGS, INC. AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
Government Records Services, Inc. ("GRS"), located in the Southeastern United
States. Both companies were under common ownership. The Company acquired these
assets in exchange for the sale of certain of its Texas government records
management accounts and the receipt of notes payable in the aggregate amount
of $1,730,000 issued by GRS and secured by the underlying computer equipment
sold to GRS.
 
15. OTHER RELATED PARTY TRANSACTIONS
 
  The Company has a minority investment in, and has certain consulting and
sales representative agreements with, MatriDigm. MatriDigm is a privately-held
company located in Denver, Colorado, which specializes in the development and
use of computer technologies designed to correct the "Year 2000" date problem
which may cause many computer systems to incorrectly identify two digit
numbers representing years occurring after 1999 (i.e., "00," "01," etc.) as
years occurring during the early part of the twentieth century (1900, 1901,
etc.). Pursuant to an agreement between the Company and MatriDigm, a
director/officer serves as Chairman of the Board of MatriDigm. Although this
director/officer receives no compensation from MatriDigm for his services, an
investment trust whose beneficiaries include members of this
director/officer's immediate family owns less than ten percent of the
outstanding equity securities of that company and may be deemed to benefit
indirectly from business relationships with the Company. As of March 1, 1997,
the Company owns 2,000,000 common shares and 1,000,000 preferred shares,
representing approximately 9% of the outstanding common stock of MatriDigm.
The Company paid $3,500,000 for such shares and they bear certain
restrictions, including repurchase rights with respect to a portion of the
common shares. The Company, pursuant to a consulting agreement, receives 5% of
the cumulative pre-tax operating profits of MatriDigm in exchange for the
services of this director/officer and certain other assistance by the Company.
The Company received no payments during fiscal year 1996 with regard to this
obligation. Additionally, through a sales representative agreement, the
Company serves as a commissioned distributor of MatriDigm services. No
commissions were received by the Company during fiscal year 1996 with respect
to MatriDigm's services.
 
  The Company leases real property owned by a partnership that includes as a
partner, an officer of the Company. The lease agreement covering this parcel
has a term expiring in February 2004. Annual rental and related payments paid
by the Company in 1996, 1995 and 1994 were $229,000, $217,000 and $211,000,
respectively. Management believes that the terms of the lease are at least as
favorable to the Company as those that could have been obtained in an arm's-
length transaction with unaffiliated parties.
 
  A business, partly owned by a family member of a current officer/director,
leased real property from the Company through September, 1996. The lease
agreement covered approximately 5,600 square feet of production and warehouse
space which was otherwise unused by the Company. The Company collected
approximately $21,000 in 1996 under the lease. The lease rate negotiated was
based upon what the Company believes were existing market conditions at the
inception of the lease.
 
  The Company subleases office space to a current officer/director for
personal use. The lease agreement covers 1,357 square feet of office space on
which the Company collects approximately $16,000 annually in rent. The lease
rate negotiated was based upon what the Company believes were existing market
conditions at the inception of the lease.
 
  During 1995, the Company funded and recorded as an employee receivable
$595,000 as a relocation loan to a current officer of the Company. This loan
was subject to an interest rate which was comparable to existing market rates
for home mortgages issued at the time of the inception of the loan. The loan
plus accrued interest of $38,000 was paid in full in August 1996.
 
                                      38
<PAGE>
 
                      BRC HOLDINGS, INC. AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
 
16. INCENTIVE COMPENSATION PLANS
 
  The Company provides options to purchase its common stock to officers,
directors and employees of the Company through several stock option plans.
Although it is not required to do so under each of the plans, the Company's
practice is to grant options to purchase its common stock at prices equal to
the fair market value of the underlying shares of such common stock on the
date of grant. The Company applies Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees", and related Interpretations, to
account for its stock option plans. Accordingly, no compensation expense has
been recognized in connection with the grants of options during the periods
presented. However, the pro forma net income and earnings per share from
continuing operations presented below reflects the results of the Company as
if the fair value based accounting method prescribed in SFAS No. 123 had been
used to account for stock-based compensation costs, net of taxes.
 
<TABLE>
<CAPTION>
                                                       TWELVE MONTHS
                                                    ENDED DECEMBER 31,
                                              --------------------------------
                                                   1996             1995
                                              ---------------  ---------------
                                              (000'S, EXCEPT PER SHARE DATA)
                                                        (PRO FORMA)
   <S>                                        <C>              <C>
   Net (loss) income from continuing opera-
    tions.................................... $        (5,612) $        11,032
   SFAS No. 123 compensation cost, net of
    taxes....................................           1,757              842
                                              ---------------  ---------------
   Pro forma net (loss) income from continu-
    ing operations........................... $        (7,369) $        10,190
                                              ===============  ===============
   Pro forma (loss) earnings per share from
    continuing operations.................... $         (1.11) $          1.56
                                              ===============  ===============
</TABLE>
 
  The results of discontinued operations are not affected by the SFAS No. 123
disclosure requirements as all stock option plans will continue to be the
responsibility of the Company.
 
  The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants during the years ended December 31, 1996 and 1995:
 
<TABLE>
<CAPTION>
                                                              1996       1995
                                                           ---------- ----------
   <S>                                                     <C>        <C>
   Dividend yield.........................................     --         --
   Expected volatility.................................... 17.4%      18.1%
   Risk-free rate of return...............................  5.9%       6.0%
   Expected life..........................................  3.6 years  3.6 years
</TABLE>
 
  As set forth in the following discussion concerning the Company's equity
participation plans, the Company may issue purchase plan and bonus plan shares
to officers and employees. However, since no such shares have been issued
pursuant to such plans since August of 1989, these plans have had no effect on
the foregoing computations.
 
 1993 STOCK OPTION PLAN
 
  The Company's 1993 stock option plan, adopted in April 1993, and further
modified by shareholders at their annual meeting on May 17, 1995, provides for
the grant of options to key employees, who are selected by the Stock Option
Committee of the board of directors, to purchase up to 2,100,000 shares of
common stock. The Stock Option Committee determines the number of shares to be
granted to such individuals, the term of vesting and such conditions as to the
manner of exercise of such options as it may deem necessary. Generally, the
options are exercisable within the option period in periodic installments and
all installments that become exercisable are cumulative and may be exercised
after they become exercisable with the expiration of the option. At the
discretion of the Company, either common stock or cash may be paid by the
option holder upon exercise of the option. Options that have expired or that
have been canceled are available for future grants under the plan.
 
                                      39
<PAGE>
 
                      BRC HOLDINGS, INC. AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
 
  The following tables summarize activity for the years ended December 31,
1996, 1995 and 1994:
 
<TABLE>
<CAPTION>
                                  1996             1995             1994
                            ---------------- ---------------- ----------------
                                    WEIGHTED         WEIGHTED
                                    AVERAGE          AVERAGE          WEIGHTED
                                    EXERCISE         EXERCISE         EXERCISE
                            SHARES   PRICE   SHARES   PRICE   SHARES   PRICE
                            ------- -------- ------- -------- ------- --------
                            (000'S)          (000'S)          (000'S)
   <S>                      <C>     <C>      <C>     <C>      <C>     <C>
   Options outstanding at
    January 1..............  1,247   $30.81   1,136   $26.69   1,034   $22.98
   Granted.................    430    34.20     514    37.79     411    32.79
   Exercised...............   (206)   28.08    (172)   22.84     (91)   22.83
   Canceled................    (53)   36.51    (231)   32.21    (218)   22.23
                             -----   ------   -----   ------   -----   ------
   Options outstanding at
    December 31............  1,418   $32.02   1,247   $30.81   1,136   $26.69
                             =====   ======   =====   ======   =====   ======
   Options exercisable at
    December 31............    617   $27.29     599   $25.08     371   $22.93
                             =====   ======   =====   ======   =====   ======
   Weighted-average fair
    value of options
    granted................          $ 7.89           $ 8.58
                                     ======           ======
</TABLE>
 
<TABLE>
<CAPTION>
                          OPTIONS OUTSTANDING           OPTIONS EXERCISABLE
                   ------------------------------------ --------------------
                      NUMBER     WEIGHTED                 NUMBER
                   OUTSTANDING    AVERAGE      WEIGHTED EXERCISABLE
      RANGE OF          AT       REMAINING     AVERAGE      AT      WEIGHTED
      EXERCISE     DECEMBER 31, CONTRACTUAL    EXERCISE  EXERCISE   AVERAGE
       PRICES          1996        LIFE         PRICE      1996      PRICE
   --------------  ------------ -----------    -------- ----------- --------
                     (000'S)                              (000'S)
   <S>             <C>          <C>            <C>      <C>         <C>
   $22.50--$29.00       401        6.39 years   $22.91      401      $22.91
   $31.75--$41.00     1,017        8.44          35.62      216       35.40
   --------------     -----        ----         ------      ---      ------
   $22.50--$41.00     1,418        7.86 years   $32.02      617      $27.29
   ==============     =====        ====         ======      ===      ======
</TABLE>
 
 EQUITY PARTICIPATION PLANS
 
  Effective January 1989, the Company adopted equity participation plans (the
"Equity Plans") pursuant to which key management employees of the Company (who
were selected by the board of directors) were granted rights and options to
acquire shares of common stock. The Equity Plans consist of three parts: (i) a
Company purchase plan, (ii) a bonus stock plan and (iii) a stock option plan.
Under the Company purchase plan, participants can be granted rights to
purchase up to an aggregate of 500,000 shares of common stock made available
from the Company's treasury or other authorized but unissued common stock at a
purchase price of $10.00 per share.
 
  Under the related bonus stock plan, for each share of common stock purchased
by a participant under the Company purchase plan, the Company may grant to
such participant the right to purchase an additional one-half share of common
stock at a purchase price of $.10 per share up to a maximum of 250,000 shares
in the aggregate for all participants. The shares issued under the bonus stock
plan are typically subject to vesting and forfeiture provisions based on a
participant's continued employment with the Company. No shares have been
issued under the purchase plan or bonus stock plan since August 1989.
 
  Under the stock option plan, the Company authorized the granting of up to
1,200,000 nonqualified options exercisable at the market price at the date of
grant. The Stock Option Committee determines the number of shares to be
granted to such individuals, the term of vesting and such conditions as to the
manner of exercise of such
 
                                      40
<PAGE>
 
                      BRC HOLDINGS, INC. AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
options as it may deem necessary. Generally, the options are exercisable
within the option period in periodic installments and all installments that
become exercisable are cumulative and may be exercised after they become
exercisable with the expiration of the option. At the discretion of the
Company, either common stock or cash may be paid by the option holder upon
exercise of the option. Options that have expired or been canceled are
available for future grants under the plan.
 
  The following tables summarize activity for the years ended December 31,
1996, 1995 and 1994:
 
<TABLE>
<CAPTION>
                                  1996             1995             1994
                            ---------------- ---------------- ----------------
                                    WEIGHTED         WEIGHTED         WEIGHTED
                                    AVERAGE          AVERAGE          AVERAGE
                                    EXERCISE         EXERCISE         EXERCISE
                            SHARES   PRICE   SHARES   PRICE   SHARES   PRICE
                            ------- -------- ------- -------- ------- --------
                            (000'S)          (000'S)          (000'S)
   <S>                      <C>     <C>      <C>     <C>      <C>     <C>
   Options outstanding at
    January 1..............    83    $34.48     25    $32.58    515    $12.25
   Granted.................   --        --      70     34.75     24     33.00
   Exercised...............    (2)    33.25     (1)    20.64   (514)    12.25
   Canceled................    (1)    32.54    (11)    32.98    --        --
                              ---    ------    ---    ------   ----    ------
   Options outstanding at
    December 31............    80    $34.54     83    $34.48     25    $32.58
                              ===    ======    ===    ======   ====    ======
   Options exercisable at
    December 31............    30    $34.37      4    $33.02      1    $12.25
                              ===    ======    ===    ======   ====    ======
   Weighted-average fair
    value of options
    granted................          $  --            $ 9.51
                                     ======           ======
</TABLE>
 
  Exercise prices ranged from $32.25 to $34.75 with a weighted-average
remaining contractual life for outstanding options at December 31, 1996 of
7.97 years.
 
 1977 STOCK OPTION PLAN
 
  The Company's stock option plan adopted in February 1977 and modified in
January 1991 provides for the granting of nonqualified options to certain of
its key employees to purchase up to 400,000 shares of common stock at prices
which represent fair market value at date of grant. The Stock Option Committee
determines the number of shares to be granted to such individuals, the term of
vesting and such conditions as to the manner of exercise of such options as it
may deem necessary. Generally, the options are exercisable within the option
period in periodic installments and all installments that become exercisable
are cumulative and may be exercised after they become exercisable with the
expiration of the option. At the discretion of the Company, either common
stock or cash may be paid by the option holder upon exercise of the option.
Options that have expired or been canceled are available for future grants
under the plan.
 
                                      41
<PAGE>
 
                      BRC HOLDINGS, INC. AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
 
  The following tables summarize activity for the years ended December 31,
1996, 1995 and 1994:
 
<TABLE>
<CAPTION>
                                  1996             1995             1994
                            ---------------- ---------------- ----------------
                                    WEIGHTED         WEIGHTED         WEIGHTED
                                    AVERAGE          AVERAGE          AVERAGE
                                    EXERCISE         EXERCISE         EXERCISE
                            SHARES   PRICE   SHARES   PRICE   SHARES   PRICE
                            ------- -------- ------- -------- ------- --------
                            (000'S)          (000'S)          (000'S)
   <S>                      <C>     <C>      <C>     <C>      <C>     <C>
   Options outstanding at
    January 1..............    80    $23.92    131    $20.40    193    $19.38
   Granted.................   --        --      14     34.75     13     33.25
   Exercised...............   (63)    21.36    (65)    19.06    (47)    18.02
   Canceled................    (1)    33.73    --        --     (28)    23.35
                              ---    ------    ---    ------    ---    ------
   Options outstanding at
    December 31............    16    $33.20     80    $23.92    131    $20.40
                              ===    ======    ===    ======    ===    ======
   Options exercisable at
    December 31............     7    $31.11     63    $21.01    125    $19.77
                              ===    ======    ===    ======    ===    ======
   Weighted-average fair
    value of options
    granted................          $  --            $ 9.51
                                     ======           ======
</TABLE>
 
<TABLE>
<CAPTION>
                         OPTIONS OUTSTANDING            OPTIONS EXERCISABLE
                  ------------------------------------ ---------------------
                     NUMBER     WEIGHTED                  NUMBER
                  OUTSTANDING    AVERAGE      WEIGHTED EXERCISABLE  WEIGHTED
     RANGE OF          AT       REMAINING     AVERAGE       AT      AVERAGE
     EXERCISE     DECEMBER 31, CONTRACTUAL    EXERCISE DECEMBER 31, EXERCISE
      PRICES          1996        LIFE         PRICE       1996      PRICE
   -------------  ------------ -----------    -------- ------------ --------
                    (000'S)                              (000'S)
   <S>            <C>          <C>            <C>      <C>          <C>
   $17.50-$24.50        1          .41 years   $19.48        1       $19.48
   $29.13-$34.75       15         8.01          34.57        6        34.23
   -------------      ---         ----         ------      ---       ------
   $17.50-$34.75       16         7.32 years   $33.20        7       $31.11
   =============      ===         ====         ======      ===       ======
</TABLE>
 
 1990 DIRECTOR STOCK OPTION PLAN
 
  The Company's director stock option plan, adopted in March 1990, provides
for the granting of nonqualified options to certain nonemployee members of the
board of directors of the Company to purchase up to a total of 100,000 shares
of common stock at market price at the date of grant. The options are
exercisable in 33 1/3% cumulative annual installments beginning one year from
the date of grant and are subject to certain forfeiture provisions if the
director ceases to serve as a director of the Company during the term of the
options.
 
  These options expire five years from the date granted. No transactions were
made in connection with the 1990 Director Stock Option Plan in 1996.
 
                                      42
<PAGE>
 
                      BRC HOLDINGS, INC. AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
 
  The following table summarizes activity for the years ended December 31,
1995 and 1994:
 
<TABLE>
<CAPTION>
                                                     1995             1994
                                               ---------------- ----------------
                                                       WEIGHTED         WEIGHTED
                                                       AVERAGE          AVERAGE
                                                       EXERCISE         EXERCISE
                                               SHARES   PRICE   SHARES   PRICE
                                               ------- -------- ------- --------
                                               (000'S)          (000'S)
   <S>                                         <C>     <C>      <C>     <C>
   Options outstanding at January 1...........    50    $12.25     50    $12.25
   Granted....................................   --        --     --        --
   Exercised..................................   (50)    12.25    --        --
   Canceled...................................   --        --     --        --
                                                 ---    ------    ---    ------
   Options outstanding at
    December 31...............................   --     $  --      50    $12.25
                                                 ===    ======    ===    ======
   Options exercisable at
    December 31...............................   --     $  --      50    $12.25
                                                 ===    ======    ===    ======
</TABLE>
 
  No shares were granted in 1996 or 1995, or were outstanding at December 31,
1996, under this plan, therefore disclosure of weighted-average grant-date
fair value as well as other related computations are not presented.
 
 1995 DIRECTORS STOCK OPTION PLAN
 
  On August 1, 1995, the Board of Directors adopted and the shareholders
subsequently approved the Company's 1995 Option Plan for Non-Employee
Directors ("1995 Directors Plan") which provides for the granting of stock
options to qualified individuals to purchase up to an aggregate of 120,000
shares of common stock. The 1995 Directors Plan provides that non-employee
directors will be granted 10,000 shares of common stock on August 1st of each
year up to a maximum of 30,000 shares for each non-employee director. Options
become exercisable in equal 20% cumulative annual installments commencing with
the first anniversary of the date of grant and remain exercisable for a period
of up to ten years from the date of grant and are subject to certain
cancellation provisions if the individual ceases to serve as a director of the
Company during the term of the options.
 
                                      43
<PAGE>
 
                      BRC HOLDINGS, INC. AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
 
  The following table summarizes activity for the years ended December 31, 1996
and 1995:
 
<TABLE>
<CAPTION>
                                                     1996             1995
                                               ---------------- ----------------
                                                       WEIGHTED         WEIGHTED
                                                       AVERAGE          AVERAGE
                                                       EXERCISE         EXERCISE
                                               SHARES   PRICE   SHARES   PRICE
                                               ------- -------- ------- --------
                                               (000'S)          (000'S)
   <S>                                         <C>     <C>      <C>     <C>
   Options Outstanding at January 1...........    40    $37.50    --     $  --
   Granted....................................    40     34.50     40     37.50
   Exercised..................................   --        --     --        --
   Canceled...................................   --        --     --        --
                                                 ---    ------    ---    ------
   Options outstanding at
    December 31...............................    80    $36.00     40    $37.50
                                                 ===    ======    ===    ======
   Options Exercisable at
    December 31...............................     8    $37.50    --     $  --
                                                 ===    ======    ===    ======
   Weighted-average fair value of
    options granted...........................          $ 8.51           $ 8.72
                                                        ======           ======
</TABLE>
 
  Exercise prices ranged from $34.50 to $37.50 with a weighted-average
remaining contractual life for outstanding options at December 31, 1996 of 9.09
years.
 
 CLINICAL RESOURCE SYSTEMS, INC. STOCK OPTION PLAN
 
  In connection with the merger of a wholly-owned subsidiary of the Company
with CRS on August 17, 1995, the Company assumed responsibility for existing
employee stock options of CRS. See Note 14. Such employee stock options were
converted into options to purchase common shares of the Company using the
conversion ratio defined in the merger agreement. No further options are
available for grant in connection with the former stock option plans of CRS.
 
  The following tables summarize activity for the years ended December 31, 1996
and 1995:
 
<TABLE>
<CAPTION>
                                                     1996             1995
                                               ---------------- ----------------
                                                       WEIGHTED         WEIGHTED
                                                       AVERAGE          AVERAGE
                                                       EXERCISE         EXERCISE
                                               SHARES   PRICE   SHARES   PRICE
                                               ------- -------- ------- --------
                                               (000'S)          (000'S)
   <S>                                         <C>     <C>      <C>     <C>
   Options Outstanding at January 1...........    11    $37.41    --     $  --
   Granted....................................   --        --      11     37.41
   Exercised..................................    (6)    29.71    --        --
   Canceled...................................    (1)    43.53    --        --
                                                 ---    ------    ---    ------
   Options Outstanding at
    December 31...............................     4    $46.56     11    $37.41
                                                 ===    ======    ===    ======
   Options exercisable at
    December 31...............................     2    $35.88      9    $31.20
                                                 ===    ======    ===    ======
</TABLE>
 
                                       44
<PAGE>
 
                      BRC HOLDINGS, INC. AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
 
<TABLE>
<CAPTION>
                          OPTIONS OUTSTANDING         OPTIONS EXERCISABLE
                   --------------------------------- ---------------------
                      NUMBER     WEIGHTED               NUMBER
                   OUTSTANDING    AVERAGE   WEIGHTED EXERCISABLE  WEIGHTED
      RANGE OF          AT       REMAINING  AVERAGE       AT      AVERAGE
      EXERCISE     DECEMBER 31, CONTRACTUAL EXERCISE DECEMBER 31, EXERCISE
       PRICES          1996        LIFE      PRICE       1996      PRICE
   --------------  ------------ ----------- -------- ------------ --------
                     (000'S)                           (000'S)
   <S>             <C>          <C>         <C>      <C>          <C>
       $29.71            2      2.45 years   $29.71        2       $29.71
       $59.42            2      8.07          59.42        0        59.42
   --------------      ---      ----------   ------      ---       ------
   $29.71--$59.42        4      5.64 years   $46.56        2       $29.71
   ==============      ===      ==========   ======      ===       ======
</TABLE>
 
  Weighted-average grant-date fair value is not provided since the shares were
granted in connection with the purchase of CRS. The CRS purchase was accounted
for as a pooling of interest. Accordingly, a new measurement date was not
created as a result of the merger.
 
17. SHAREHOLDERS' EQUITY
 
  As of December 31, 1996 and 1995, the Company had 2,000,000 shares of
preferred stock, par value $10.00 per share, authorized. The preferred stock,
if issued, will have such rights and preferences as may be designated by the
Company's board of directors. Of the 2,000,000 authorized shares of preferred
stock, 100,000 shares have been designated as Series A Junior Participating
Preferred Stock and 714,285 shares have been designated as 7% Series B
Cumulative Exchangeable Preferred Stock. No shares of preferred stock have
been issued.
 
  During 1996, the Company re-acquired a total of 1,761 shares of common stock
pursuant to a share escrow arrangement entered into in conjunction with the
CRS merger. All treasury shares re-acquired during 1996 were re-issued
pursuant to stock option exercises during the year. At December 31, 1996, the
Company did not hold shares of treasury stock. During 1995, the Company
repurchased a total of 25,834 shares of common stock for $978,000. These
shares were re-issued pursuant to stock option exercises during 1995.
Consequently, none were held as treasury stock at December 31, 1995. During
1994, the Company repurchased a total of 303,371 shares of common stock for
$10,250,000, of which 90,000 shares were held as treasury stock at December
31, 1994.
 
  In 1995 and 1994, 95,238 and 547,618 shares, respectively, were issued to a
related party upon the conversion of the Company's 10% convertible
exchangeable notes totaling $9 million.
 
18. EMPLOYEE BENEFIT PLANS
 
  Substantially all employees of the Company and its subsidiaries are eligible
to participate in defined contribution plans. The costs associated with
Company contributions and administrative expenses were $596,000 in 1996,
$660,000 in 1995 and $502,000 in 1994.
 
                                      45
<PAGE>
 
                      BRC HOLDINGS, INC. AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
 
19. INCOME TAXES
 
  The components of the provision (benefit) for federal and state income taxes
are as follows:
 
<TABLE>
<CAPTION>
                                            1996         1995         1994
                                         -----------  -----------  -----------
   <S>                                   <C>          <C>          <C>
   Current:
     Federal income tax................. $ 5,132,000  $ 3,519,000  $ 3,125,000
     State income tax...................   1,000,000      740,000      750,000
                                         -----------  -----------  -----------
       Total current provision..........   6,132,000    4,259,000    3,875,000
   Deferred:
     Federal income tax.................    (960,000)   1,155,000     (349,000)
     State income tax...................    (526,000)     (83,000)    (118,000)
                                         -----------  -----------  -----------
       Total deferred...................  (1,486,000)   1,072,000     (467,000)
                                         -----------  -----------  -----------
   Total income tax provision........... $ 4,646,000  $ 5,331,000  $ 3,408,000
                                         ===========  ===========  ===========
 
  The income tax provision (benefit) is included in the financial statements as
follows:
 
<CAPTION>
                                            1996         1995         1994
                                         -----------  -----------  -----------
   <S>                                   <C>          <C>          <C>
   Continuing operations................ $ 3,437,000  $ 7,362,000  $ 5,381,000
   Discontinued operations..............   2,831,000     (224,000)   3,181,000
                                         -----------  -----------  -----------
                                           6,268,000    7,138,000    8,562,000
   Direct credits to equity--
     Compensation expense for tax
      purposes in excess of amounts
      recognized for financial reporting
      purposes..........................  (1,622,000)  (1,807,000)  (5,154,000)
                                         -----------  -----------  -----------
       Total............................ $ 4,646,000  $ 5,331,000  $ 3,408,000
                                         ===========  ===========  ===========
</TABLE>
 
  The following summarizes the difference between the federal statutory income
tax rate and the effective income tax rate for continuing operations:
 
<TABLE>
<CAPTION>
                                                               1996  1995  1994
                                                               ----  ----  ----
   <S>                                                         <C>   <C>   <C>
   Federal income tax rate....................................  35%  35%   35%
   State income tax, net of federal benefit...................  16%   4%    4%
   Amortization of intangibles................................   9%   3%    2%
   Write-off of non-deductible goodwill.......................  75%  --    --
   Tax exempt interest income and other.......................  (7%) (2%)  (2%)
                                                               ----  ---   ---
   Effective income tax rate.................................. 128%  40%   39%
                                                               ====  ===   ===
</TABLE>
 
                                       46
<PAGE>
 
                      BRC HOLDINGS, INC. AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
 
  The tax effects of temporary differences that give rise to significant
portions of the deferred tax asset and deferred tax liability at December 31,
are presented below:
 
<TABLE>
<CAPTION>
                                                         1996         1995
                                                      -----------  -----------
   <S>                                                <C>          <C>
   Deferred tax asset:
     Deferred revenue................................ $   728,000  $ 1,411,000
     Inventories.....................................      12,000      128,000
     Accrued compensation............................     563,000      412,000
     Bad debt reserves...............................     277,000      277,000
     Net operating loss carryforwards................     757,000      850,000
     Other accrued expenses..........................      50,000      445,000
     Assets of discontinued operations...............   1,101,000    1,044,000
     Other liabilities...............................     712,000      413,000
                                                      -----------  -----------
       Total deferred tax asset...................... $ 4,200,000  $ 4,980,000
                                                      ===========  ===========
   Deferred tax liability:
     Liabilities of discontinued operations.......... $  (186,000) $  (190,000)
     Intangibles, net................................  (2,408,000)  (3,610,000)
     Fixed assets and other, net.....................     408,000     (119,000)
                                                      -----------  -----------
       Total deferred tax liability.................. $(2,186,000) $(3,919,000)
                                                      ===========  ===========
</TABLE>
 
20. EARNINGS PER SHARE
 
  For 1996, the earnings per common and common equivalent shares and earnings
per share assuming full dilution were based on the weighted-average shares
outstanding (6,645,000). Equivalent shares were not considered due to the
anti-dilutive effect in a net loss position. For 1995 and 1994, earnings per
common and common equivalent shares were computed based on the weighted
average number of common and common equivalent shares outstanding (6,532,000
in 1995 and 6,074,000 in 1994). Shares issuable upon exercise of dilutive
stock options are included in the weighted-average number of shares
outstanding.
 
  Earnings per share assuming full dilution, unless antidilutive, are computed
based on shares issuable upon exercise of dilutive stock options and
conversion of exchangeable, convertible notes. The weighted-average number of
common and common equivalent shares outstanding, assuming full dilution, was
6,644,000 in 1995 and 6,392,000 in 1994.
 
21. UNUSUAL CHARGES
 
  During the third quarter of 1996, the Company recognized a $15,266,000 pre-
tax charge to earnings, primarily associated with the write-off of goodwill
and other intangible assets of the Company's "HealthSource" technology
outsourcing business unit within its Health Care division. The charge was
determined in accordance with SFAS No. 121. The charge was a result of the
cancellation of certain customer contracts with the Sisters of Providence
Health System. Total revenues derived from these contracts were approximately
$11.9 million for the twelve month period ended December 31, 1996. In
determining the amount of the impairment charge, the Company compared expected
undiscounted future cash flows of the "HealthSource" business unit with the
carrying value of the related goodwill and other identifiable intangible
assets. Expected undiscounted future cash flows were not sufficient to recover
the carrying value of such assets and as such, the Company recognized an
impairment loss equal to the difference between the carrying amount and their
estimated fair value. The Company relied upon a discounted cash flow analysis
to determine the fair value of such assets. The charge also includes certain
other contract re-negotiation and termination costs.
 
                                      47
<PAGE>
 
                      BRC HOLDINGS, INC. AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
 
22. OTHER INCOME
 
  During the second quarter of 1995, the Company settled a lawsuit for which it
had previously established a reserve approximating the original judgement
awarded and associated legal expenses. As a result of the settlement, the
Company recorded, as other income, $823,000 during the second quarter of 1995.
In addition, during the fourth quarter of 1995, the statute of limitations
expired on a dispute in which the Company had previously established a reserve.
An amount equal to approximately $460,000 associated with this case was
recorded as other income.
 
23. SUBSEQUENT EVENTS
 
  In March 1997, the Company repurchased 95,000 shares of its common stock, in
open market transactions at an average price of $34.45 per share for a total of
$3.3 million.
 
24. QUARTERLY FINANCIAL DATA (UNAUDITED)
 
  Summarized quarterly financial data for 1996 and 1995 are as follows (in
thousands, except share data):
 
<TABLE>
<CAPTION>
                                               THREE MONTHS ENDED (1996)
                                          ------------------------------------
                                          MARCH 31 JUNE 30  SEPT. 30  DEC. 31
                                          -------- -------- --------  --------
   <S>                                    <C>      <C>      <C>       <C>
   Revenue............................... $ 24,385 $ 24,596 $ 26,266  $ 25,001
   Gross profit..........................    6,464    6,713    7,807     4,830
   Income (loss) from:
     Continuing operations...............    2,200    1,885  (11,236)    1,539
     Discontinued operations, net........      908    2,108      119     1,111
                                          -------- -------- --------  --------
       Net income (loss)................. $  3,108 $  3,993 $(11,117) $  2,650
                                          ======== ======== ========  ========
   Primary earnings (loss) per share on
    net income:
     Continuing operations............... $    .33 $    .29 $  (1.70) $    .21
     Discontinued operations.............      .14      .31      .02       .15
                                          -------- -------- --------  --------
       Total............................. $    .47 $    .60 $  (1.68) $    .36
                                          ======== ======== ========  ========
   Fully diluted earnings (loss) per
    share on
    net income:
     Continuing operations............... $    .33 $    .29 $  (1.70) $    .21
     Discontinued operations.............      .14      .31      .02       .15
                                          -------- -------- --------  --------
       Total............................. $    .47 $    .60 $  (1.68) $    .36
                                          ======== ======== ========  ========
</TABLE>
 
  An unusual charge of $15,266,000 was reflected in the third quarter 1996
results. See Note 21.
 
                                       48
<PAGE>
 
                      BRC HOLDINGS, INC. AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
                      BRC HOLDINGS, INC. AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
 
<TABLE>
<CAPTION>
                                                THREE MONTHS ENDED (1995)
                                            -----------------------------------
                                            MARCH 31 JUNE 30  SEPT. 30  DEC. 31
                                            -------- -------  --------  -------
   <S>                                      <C>      <C>      <C>       <C>
   Revenue................................  $26,242  $24,811  $27,677   $24,837
   Gross profit...........................    7,287    5,904    8,368     6,479
   Income (loss) from:
     Continuing operations................    2,640    2,627    3,196     2,569
     Discontinued operations, net.........       54     (269)    (448)      326
                                            -------  -------  -------   -------
       Total..............................  $ 2,694  $ 2,358  $ 2,748   $ 2,895
                                            =======  =======  =======   =======
   Primary earnings (loss) per share on
    net income:
     Continuing operations................  $   .41  $   .40  $   .48   $   .39
     Discontinued operations..............      .01     (.04)    (.07)      .05
                                            -------  -------  -------   -------
       Total..............................  $   .42  $   .36  $   .41   $   .44
                                            =======  =======  =======   =======
   Fully diluted earnings (loss) per share
    on
    net income:
     Continuing operations................  $   .41  $   .40  $   .48   $   .39
     Discontinued operations..............      .01     (.04)    (.07)      .05
                                            -------  -------  -------   -------
       Total..............................  $   .42  $   .36  $   .41   $   .44
                                            =======  =======  =======   =======
</TABLE>
 
  Revenues and gross profit for all quarters presented for 1996 and 1995
exclude discontinued operations activity. See Note 12 for unaudited pro forma
adjustments made to historical results related to discontinued operations.
 
                                       49
<PAGE>
 
                       REPORT OF INDEPENDENT ACCOUNTANTS
 
To the Board of Directors and Shareholders of BRC Holdings, Inc.
 
  In our opinion, the consolidated financial statements listed in the index
appearing under Item 14(a) on page 21 present fairly, in all material
respects, the financial position of BRC Holdings, Inc. and its subsidiaries at
December 31, 1996 and 1995, and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 1996, in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which 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, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for the
opinion expressed above.
 
Price Waterhouse LLP
 
Dallas, Texas
March 7, 1997
 
                                      50
<PAGE>
 
                                  SCHEDULE II
 
                       VALUATION AND QUALIFYING ACCOUNTS
 
                  YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
 
<TABLE>
<CAPTION>
                                                 ADDITIONS
                         BALANCE AT ------------------------------------
                         BEGINNING      CHARGED TO        CHARGED TO                 BALANCE AT
      DESCRIPTION        OF PERIOD  COSTS AND EXPENSES OTHER ACCOUNTS(A) DEDUCTIONS END OF PERIOD
------------------------ ---------- ------------------ ----------------- ---------- -------------
<S>                      <C>        <C>                <C>               <C>        <C>
1996:
  Reserve for bad
   debts--accounts and
   notes receivables....  $810,000      $ (40,000)         $ (81,000)       --        $689,000
  Inventory reserves....    57,000         20,000                --         --          77,000
                          --------      ---------          ---------                  --------
    Total...............  $867,000      $ (20,000)         $ (81,000)       --        $766,000
                          ========      =========          =========                  ========
1995:
  Reserve for bad
   debts--accounts and
   notes receivables....  $417,000      $ 761,000          $(368,000)       --        $810,000
  Inventory reserves....   134,000        (55,000)           (22,000)       --          57,000
                          --------      ---------          ---------                  --------
    Total...............  $551,000      $ 706,000          $(390,000)       --        $867,000
                          ========      =========          =========                  ========
1994:
  Reserve for bad
   debts--accounts and
   notes receivables....  $671,000      $(141,000)         $(113,000)       --        $417,000
  Inventory reserves....    70,000         69,000             (5,000)       --         134,000
                          --------      ---------          ---------                  --------
    Total...............  $741,000      $ (72,000)         $(118,000)       --        $551,000
                          ========      =========          =========                  ========
</TABLE>
 
  The valuation and qualifying accounts information above has been reflected
net of discontinued operations. See Note 12 to the Consolidated Financial
Statements.
 
--------
 
(a) Such amounts relate to the utilization of the valuation and qualifying
    accounts to specific items for which they were established in the accounts
    receivables and inventory reserve accounts.
 
  Note: Certain amounts have been reclassified from prior year to conform to
current year presentation.
 
                                       51
<PAGE>
 
                               INDEX TO EXHIBITS
 
  (3) Articles of Incorporation and By-Laws:
 
     a. By-Laws, as amended, of Cronus Industries, Inc. (filed as Exhibit
        3.2 to the Company's Registration Statement No. 2-94283 on Form S-2
        and incorporated herein by reference).
 
    *b.  Restated Certificate of Incorporation, as amended, of SWECO, Inc.
 
    *c.  Certificate of Amendment to the Restated Certificate of
         Incorporation of Cronus Industries, Inc.
 
    *d.  Certificate of Amendment of Certificate of Incorporation of Cronus
         Industries, Inc.
 
     e. Certificate of Amendment to the Restated Certificate of
        Incorporation of Cronus Industries, Inc. (filed as Exhibit (3)d. to
        the Company's Annual Report on Form 10-K for the year ended
        December 31, 1993, and incorporated herein by reference).
 
     f. Certificate of Correction of the Certificate of Amendment to the
        Restated Certificate of Incorporation of Cronus Industries, Inc.
        (filed as Exhibit (3)e. to the Company's Annual Report on Form 10-K
        for the year ended December 31, 1993, and incorporated herein by
        reference).
 
     g. Certificate of Designation of Series A Junior Participating
        Preferred Stock of the Company (filed as Exhibit (3)f. to the
        Company's Annual Report on Form 10-K for the year ended December
        31, 1991, and incorporated herein by reference).
 
     h. Certificate of Designation, Preferences, Rights and Limitations of
        7% Series B Cumulative Convertible Exchangeable Preferred Stock of
        the Company (filed as Exhibit (3)g. to the Company's Annual Report
        on Form 10-K for the year ended December 31, 1993, and incorporated
        herein by reference).
 
    *i.  Certificate of Amendment to the Restated Certificate of
         Incorporation of Cronus Industries, Inc.
 
    *j.  Certificate of Amendment to the Restated Certificate of
         Incorporation of Business Records Corporation Holding Company.
 
  (10) Material Contracts:
 
     a. the Company's Stock Option Plan:
 
      1. Amended and Restated Business Records Corporation Stock Option
         Plan (filed as Exhibit 4.1 to the Company's Registration
         Statement No. 33-40503 on Form S-8 and incorporated herein by
         reference).
 
      2. Form of Nonqualified Stock Option Agreement (filed as Exhibit 4.2
         to the Company's Registration Statement No. 33-40503 on Form S-8
         and incorporated herein by reference).
 
    *b.  Purchase and Subscription Agreement entered into as of November
         21, 1996 by and among American Information Systems, Inc., AIS
         Investors, Inc., Business Records Corporation and the Registrant.
 
     c. Amended and Restated Equity Participation Plans dated July 9, 1990
        (filed as Exhibit 10(c) to the Company's Annual Report on Form 10-K
        for the year ended December 31, 1995, and incorporated herein by
        reference).
 
     d. The Company's Management Equity Participation Stock Option Plan:
 
      1. Business Records Corporation Holding Company Management Equity
         Participation Stock Option Plan (filed as Exhibit 4.1 to the
         Company's Registration Statement No. 33-47368 on Form S-8 and
         incorporated herein by reference).
 
      2. Form of Stock Option Agreement (filed as Exhibit 4.2 to the
         Company's Registration Statement No. 33-47368 on Form S-8 and
         incorporated herein by reference).
 
                                      52
<PAGE>
 
     e. The Company's 1990 Director Stock Option Plan:
 
      1. Business Records Corporation Holding Company Nonqualified
         Director Stock Option Plan (filed as Exhibit 4.1 to the Company's
         Registration Statement No. 33-47369 on Form S-8 and incorporated
         herein by reference).
 
      2. Form of Nonqualified Stock Option Agreement (filed as Exhibit 4.2
         to the Company's Registration Statement No. 33-47369 on Form S-8
         and incorporated herein by reference).
 
     f. The Company's Nonqualified Performance Stock Option Plan for Key
        Employees:
 
      1. Nonqualified Performance Stock Option Plan for Key Employees of
         Business Records Corporation Holding Company (filed as Exhibit
         4.1 to the Company's Registration Statement No. 33-65410 on Form
         S-8 and incorporated herein by reference).
 
      2. Form of Nonqualified Stock Option Agreement (filed as Exhibit 4.1
         to the Company's Registration Statement No. 33-65410 on Form S-8
         and incorporated herein by reference).
 
  *(11) Statement regarding computation of earnings per share.
 
  *(21) Subsidiaries of the Registrant.
 
  (23) Consent of Certified Public Accountants.
 
    *a. Consent of Price Waterhouse LLP
 
  *(27) Financial Data Schedule for the Year Ended December 31, 1996.
 
    Pursuant to Item 601(c)(iv) of Regulation S-X, the Financial Data
    Schedule is not deemed to be "filed" for purpose of Section 11 of the
    Securities Act of 1933, as amended, or Section 18 of the Securities
    Exchange Act of 1934, as amended.
--------
* Filed herewith
 
                                      53