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

                                   FORM 10-KSB

                [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

                 [ ] 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 0-21427

                       INTEGRATED MEDICAL RESOURCES, INC.
                 (Name of Small Business Issuer in its Charter)

KANSAS                                                    48-1096410
(State or other jurisdiction of                           (IRS Employer
of incorporation or organization)                         Identification No.)

11320 WEST 79TH STREET, LENEXA, KANSAS                    66214
(Address of principal executive offices)                  Zip code

                    Issuer's Telephone Number: (913) 962-7201

             Securities registered pursuant to Section 12(b) of the
                                  Exchange Act:
                                      NONE

             Securities registered pursuant to Section 12 (g) of the
                                  Exchange Act:
                                  COMMON STOCK
                                (Title of Class)

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

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

State issuer's revenues for its most recent fiscal year.
$11,006,774

State the  aggregate  market  value of the voting  stock held by  non-affiliates
computed by reference  to the price at which the stock was sold,  or the average
bid and asked  prices of such stock,  as of a specified  date within the past 60
days:  $12,461,676 ON MARCH 10, 1997 BASED ON THE AVERAGE BID AND ASKED PRICE ON
SUCH DATE.

State the number of shares outstanding of each of the issuer's classes of common
equity,  as of the latest  practicable  date:  AS OF MARCH 10, 1997,  THERE WERE
6,715,017 OUTSTANDING SHARES OF COMMON STOCK, PAR VALUE $.001 PER SHARE.

                      DOCUMENTS INCORPORATED BY REFERENCE:

Portions of the  registrant's  definitive  Proxy Statement  relating to its 1997
Annual Meeting of Stockholders,  which will be filed with the Commission  within
120 days after the end of the registrant's 1996 fiscal year, are incorporated by
reference into Part III hereof.

Transitional Small Business Disclosure Format (Check one):  Yes      No  X

<PAGE>

                                     PART I

                         ITEM 1. DESCRIPTION OF BUSINESS

OVERVIEW

Integrated Medical Resources, Inc. (the "Company") was incorporated in Kansas on
March 11, 1991, and its executive offices are located at 11320 West 79th Street,
Lenexa,  Kansas 66214,  telephone (913) 962-7201.  Unless the context  otherwise
requires,  the "Company" refers to Integrated Medical Resources,  Inc., a Kansas
Corporation, and its subsidiaries,  and "Center" refers to The Diagnostic Center
for MenSM. The Diagnostic  Center for Men is a service mark of the Company.  All
other  trademarks  and trade names  referred  to in this  Annual  Report are the
property of their respective owners.

Integrated  Medical  Resources,  Inc. (the "Company") is the leading provider of
disease management services for men suffering from sexual dysfunction,  focusing
primarily on the diagnosis and treatment of erectile dysfunction, commonly known
as impotence.  The Company provides  comprehensive  diagnostic,  educational and
treatment  services  designed to address the medical and emotional  needs of its
patients and their partners  through the largest  network of medical  clinics in
the United States  dedicated to the  diagnosis and treatment of impotence  under
the name of The Diagnostic  Center for MenSM  ("Centers").  The Company believes
that this market is largely  underserved due to misconceptions  about the causes
of  impotence,  the  general  lack of  specialized  knowledge  by  primary  care
physicians  about treatment  alternatives  and the limited focus on impotence by
medical  specialists.  The Company utilizes a direct marketing approach designed
to motivate  impotent men to seek treatment and educate them, their partners and
other physicians about available and affordable  treatment options.  The Company
operated 30 Centers in 18 states at December 31, 1996.

The Company's  patient  volume and  geographic  diversity  make it attractive to
pharmaceutical  companies,   medical  device  companies  and  contract  research
organizations  ("CROs") to perform clinical trials for new impotence treatments,
as well as to participate in joint  marketing  programs and strategic  alliances
with the developers of approved impotence treatments. For example, Caverject(R),
a recently FDA approved injection treatment for impotence, has been supported by
a  nationwide  marketing  program in which the  manufacturer  has  involved  the
Company in physician and patient education and direct  advertising.  MUSE(R),  a
non-invasive transurethral delivery system for alprostadil,  approved by the FDA
in November 1996, was launched with a nationwide  marketing  program,  including
direct mailing to the Company's existing patient database.  The Company is aware
of several new  treatments  currently  being  developed or which are in clinical
trials,  and  believes  that the  development  and  promotion  of new  treatment
alternatives may increase the number of men who seek diagnosis and treatment.

INDUSTRY BACKGROUND

Impotence is the inability to  consistently  achieve or maintain  erections that
are  satisfactory  for sexual  intercourse.  The disease is often  confused with
problems of fertility,  sexual desire, premature ejaculation or the inability to
reach  orgasm,  none of which is  included  within the  clinical  definition  of
impotence.

CAUSES OF IMPOTENCE.  In a substantial majority of cases, impotence is a symptom
of an underlying  physiological cause. The primary causes of impotence fall into
the following general categories: (I) Vascular Diseases such as atherosclerosis,
hypertension and other diseases; (ii) Diabetes; (iii) Psychological; (iv) Pelvic
and Abdominal  Surgeries such as radical  prostatectomies,  cystoprostatectomies
and colectomies;  (v) Traumatic  Injuries  involving the pelvis and spine;  (vi)
Hormonal  Imbalance;  and  (vii)  Other  Causes  such as  neurological  diseases
(multiple  sclerosis,   Parkinson's  disease  and  others),  prescription  drugs
(antihypertensive,  cardiac and other medications),  renal failure and dialysis,
and drug and substance abuse (particularly smoking).

MARKET SIZE. Based on industry  studies,  the Company estimates that over 30% of
males in the United States  between the ages of 40 and 70, or  approximately  14
million men, suffer from moderate to complete  impotence.  The rate of impotence
increases  significantly  with age and the incidence of diabetes.  The impact of
aging suggests that as the "Baby Boom" generation approaches retirement age, the
number of cases of impotence will increase from its current level.

THERAPIES. The causes and effects of sexual dysfunction are numerous and complex
and involve physical, emotional,  relational, social and psychological issues. A
number of effective treatments for impotence are available, whether the cause is
psychological or physiological. These treatments include:

           INJECTION  OF  VASO-DILATOR  MEDICATIONS  - This  form  of  treatment
           involves the  injection of  pharmacologic  agents  directly  into the
           penis  approximately  five to 15 minutes  prior to sexual  relations.
           These agents are generally  vasoactive compounds such as alprostadil,
           phentolamine and papaverine,  which increase blood flow to the penis.
           This form of treatment requires a prescription and instruction from a
           health   care   professional   on   self-injection.   In  July  1995,
           Caverject(R) became the first drug of this type to be approved by the
           FDA for widespread use.

<PAGE>

        TRANSURETHRAL  DELIVERY OF VASO-DILATOR  MEDICATIONS - In November 1996,
           MUSE(R),   a   non-invasive   transurethral   system  that   delivers
           pharmacologic  agents topically to the urethral  lining,  received an
           approval letter from the FDA.

        VACUUM CONSTRICTION DEVICES - This form of treatment involves the use of
           a simple  mechanical  system that creates a vacuum  around the penis,
           causing the erectile  bodies to fill with blood. A constriction  band
           is then placed around the base of the penis to impede blood  drainage
           and maintain the  erection.  Vacuum  constriction  devices  require a
           prescription from a physician and are regulated by the FDA.

        ORAL  MEDICATIONS  -  Yohimbine   hydrochloride   is  the  primary  oral
           medication   currently  prescribed  in  the  United  States  for  the
           treatment of mild cases of impotence. This and other oral medications
           are  effective  in a small  percentage  of  impotent  men.  Doses  of
           sufficient   strength  to  be  effective   are   available   only  by
           prescription.

        PSYCHOLOGICAL  COUNSELING - Counseling  by a certified  sex therapist is
           typically   designed  to  increase   educational   awareness  of  the
           psychogenic  causes of impotence and improve  partner  communication.
           Specific techniques are taught to the patient and his partner,  which
           alleviate  anxiety  and  improve  sexual  performance.  Psychological
           counseling  may  also be  used  to  support  other  therapies  and to
           mitigate the damage to self esteem often attributed to impotence.

        TESTOSTERONE  REPLACEMENT  -  Testosterone  hormone  replacement  is the
           primary  pharmacological  treatment  for the small  percentage of men
           whose impotence is the result of hormone deficiency.  Testosterone is
           most  often  replaced  by  long-acting  intramuscular  injections  or
           patches available by prescription only.

        PENILE IMPLANTS - This therapy  involves the surgical  implantation of a
           semi-rigid  or  inflatable   device  into  the  penile  structure  to
           mechanically  simulate  an  erection.   This  is  the  most  invasive
           treatment  alternative and only  appropriate in a small percentage of
           cases.

TREATMENT.  Traditionally,  psychological  factors  were  considered  to be  the
primary causes of impotence.  More recently,  however,  it has become  generally
accepted  that the majority of impotence  cases can be  attributed to underlying
physiological  causes.  Since  impotence  is a  symptom  of any of a  number  of
possible  underlying  causes,  a thorough  diagnostic  evaluation by a qualified
medical specialist is essential to determine the most appropriate treatment. The
diagnosis and treatment of impotence has historically  been conducted  primarily
by urologists, as well as by general practitioners, internists and other primary
care physicians.  Since these providers have not typically treated a significant
volume  of  impotence  patients,  they  may lack the  experience  and  incentive
necessary to focus on this area. The Company  believes that those  providers who
can offer comprehensive and dedicated diagnostic and treatment services are best
positioned to care for these patients.

THE COMPANY'S APPROACH

The Company's  diagnostic  experience  indicates that  approximately  80% of all
impotence patients suffer from a diagnosable  physiological cause. The Company's
approach  provides for a comprehensive  diagnostic  evaluation and access to all
available and appropriate non-surgical treatment alternatives in a male-oriented
environment. In the relatively few cases when surgical treatment is indicated or
preferred by the patient, the patient is referred to a local urological surgeon.

The Company  provides its services through a network of medical clinics operated
under  the  name  of  The  Diagnostic  Center  for  MenSM.  To  promote  patient
confidentiality,  these Centers have discreet signage and interior  design,  and
directly supply all medications,  devices and supplies  necessary for prescribed
treatments. Most of the clinical staff are men due to the sensitivity of dealing
with the embarrassment often associated with impotence. The full-time, specialty
physician at each Center follows  internally-developed  patient protocols, which
include  comprehensive  physical  examinations  and diagnostic tests designed to
identify the causes of the patient's impotence. Education of the patient and his
partner is provided  during each step of the diagnostic  and treatment  process,
and  all  appropriate  treatment  options  are  presented  to  the  patient  for
consideration.

COMPANY OPERATIONS

Patient   inquiries  come  from  multiple   sources,   including   local  market
direct-to-patient  advertising,  local public  relations  efforts,  responses to
national market education  efforts  sponsored by the Company and  pharmaceutical
and device  companies,  and men who learn of the Centers from their  physicians.
All inquiries are directed to the Company's national call center where specially
trained agents provide  education,  discuss  causes and treatment  options,  and
offer support and information to the patient and his partner, but do not attempt
to diagnose a caller's  condition.  Approximately  ten percent of inquiries  are
received from partners of afflicted men. The  appointment  agent can schedule an
appointment on-line directly with the Center nearest the patient. Each scheduled
appointment is then followed by a written  confirmation,  educational  materials
describing the Center's services, a map to the Center and other information.

<PAGE>

Centers  typically  operate with a staff of three or four  persons,  including a
full-time physician and two or three clinical and administrative individuals who
handle patient education, insurance verification,  patient data entry and assist
the physician with certain routine clinical  duties.  Physicians are paid a base
salary  and  are  eligible   for   incentive   compensation   based  on  patient
satisfaction,  Center  profitability  resulting from services  performed by that
physician and other individual performance criteria.

When a patient arrives at a Center,  he completes a detailed medical history and
responds to questions  specifically  designed to  ascertain  the severity of his
sexual dysfunction.  An extensive physical  examination is then performed by the
attending  physician.  Because of the lack of knowledge  about  impotence in the
general  patient  population,  a  significant  portion of the  initial  clinical
evaluation is designed to improve patient  knowledge of male sexual problems and
often includes the patient's partner.  This office visit typically lasts between
one and two hours.

The Company's  diagnostic  protocols include a number of procedures  intended to
determine the underlying  cause of the patient's  impotence.  Specialized  blood
tests  including the measurement of hormone levels are used in a high percentage
of  cases.  Several  specialized  diagnostic  instruments  are  used to  measure
physiological  functions in certain  patients when  indicated by the  diagnostic
protocol.  These include the Rigiscan,  an in-home monitoring device worn during
the night to measure naturally occurring erections during sleep, and the Doppler
stethoscope,  which is used in an office procedure that compares  arterial blood
pressure  with penile  blood flow.  Biothesiometry  is used as a painless  nerve
function test  measuring the ability of the sensory nerves to detect a vibration
sensation.  In many  cases,  a  Pharmacological  Response  Test (PRT) is used to
evaluate the response to injected medication.

Once the  laboratory  and  monitoring  tests have been reviewed and the clinical
evaluation has been completed, a detailed discussion is held with the patient to
discuss  the  cause or  causes  of the  dysfunction  and the  various  treatment
options.  All  medications,  devices and supplies used in the offered  treatment
programs are  available  at the Center to provide  maximum  patient  service and
confidentiality.  In many cases,  a complete  clinical  evaluation  of a patient
results in the discovery of previously undiagnosed  physiological problems, such
as diabetes, vascular disease or prostate cancer. In these cases, the patient is
referred  to  other  specialty   physicians  for  treatment  of  the  previously
undiagnosed  disease,  while  Center  treatment  continues  to focus  solely  on
impotence.

Patients may  schedule  additional  office  visits to consider  other  treatment
options,  whether or not the initial  therapy is achieving the desired  results.
Over time,  Centers continue to maintain contact with their patients to resupply
therapeutic  products  and to  continue  to educate  patients  about  developing
therapies that may become available.

FACILITIES

The  following  chart  shows the  location  and  opening  date of each of the 31
Centers operating at March 10, 1997:

  LOCATION              DATE OPENED        LOCATION              DATE OPENED
  --------              -----------        --------              -----------
  Kansas City, MO       April 1990         Phoenix, AZ           April 1996
  Dallas, TX            October 1992       Chicago, IL           April 1996
  Pittsburgh, PA        June 1993          Chicago, IL           June 1996
  Philadelphia, PA      January 1994       Norfolk, VA           July 1996
  Cleveland, OH         May 1994           Hartford, CT          July 1996
  Boston, MA            June 1994          Las Vegas, NV         July 1996
  Detroit, MI           September 1994     Laguna Hills, CA      July 1996
  Cincinnati, OH        October 1994       Milwaukee, WI         July 1996
  Westchester Co., NY   January 1995       Tampa, FL             August 1996
  Long Island, NY       February 1995      San Diego, CA         August 1996
  Denver, CO            April 1995         Walnut Creek, CA      August 1996
  Columbus, OH          August 1995        Indianapolis, IN      September 1996
  Houston, TX           November 1995      Jacksonville, FL      September 1996
  New York, NY          January 1996       Oklahoma City, OK     October 1996
  Washington, D.C       April 1996         Campbell, CA          November 1996
                                           Buffalo NY            January 1997

The Company's  principal  executive offices and administrative  support facility
are located in a leased facility in Lenexa, Kansas, a suburb of Kansas City.

<PAGE>

SALES AND MARKETING

The Company markets its services through a marketing and advertising  department
which  supports the  advertising  efforts of  DraftDirect  Worldwide,  Inc., the
world's third largest direct response agency.  The Company maintains a toll-free
telephone  center staffed with trained agents during business hours six days per
week.  Prior to entering a market,  the Company places  advertising  for the new
Center in local and regional  newspapers and on key radio stations.  Over 90% of
new patient  visits  result from the  Company's  direct-to-patient  advertising,
which is in  addition  to public  relations  efforts in the  national  and local
markets  through the placement of articles in magazines and newspapers  relating
to  impotence  and its  treatment.  All such  marketing  efforts are designed to
motivate men to seek treatment at a Center.

The Company  seeks to establish a national  brand  identity  for The  Diagnostic
Center  for MenSM  through  focused  marketing  efforts  to  patients  and their
partners,  payors and  providers.  The Company's  centralized  public  relations
efforts, physician education emphasis and affiliate program combine to raise the
awareness of the general  public,  physicians and other health care providers as
to the  availability  of  effective  treatments  for  impotence  offered  by the
Centers.

PAYMENT SOURCES

For the year ended December 31, 1996, approximately 76% of patient billings were
covered by medical  insurance  plans subject to applicable  deductible and other
co-pay  provisions paid by the patient.  Approximately  27% of patient  billings
were  covered by  Medicare  and 49% were  covered by numerous  other  commercial
insurance plans that offer coverage for impotence treatment services.

To date,  the Company has not  participated  in any managed care  programs.  The
Company  believes  that its  extensive  patient  database and focused  treatment
programs allow it to offer a lower cost, more specialized  treatment alternative
to managed care plans with high enrollee satisfaction. The Company has developed
a patient  service and billing  approach  aimed at  providing  significant  cost
advantages to managed care providers for impotence treatment.

RISK FACTORS

ABILITY TO MANAGE GROWTH. The Company has recently experienced rapid growth that
has resulted in new and increased  responsibilities for management personnel and
has  placed  increased  demands on the  Company's  management,  operational  and
financial  systems and  resources.  To  accommodate  this  recent  growth and to
compete  effectively  and manage future growth,  the Company will be required to
continue to implement  and improve its  operational,  financial  and  management
information systems, and to expand,  train,  motivate and manage its work force.
There can be no assurance that the Company's personnel,  systems, procedures and
controls  will be adequate to support the Company's  operations.  Any failure to
implement  and improve  the  Company's  operational,  financial  and  management
systems or to expand,  train, motivate or manage employees could have a material
adverse effect on the Company's financial condition and results of operations.

The  Company  intends to  establish  Centers in new  markets  where it has never
before provided services. As part of its market selection analysis,  the Company
has invested and will continue to invest  substantial  funds in the  compilation
and  examination of market data.  There can be no assurance that the market data
will be accurate or complete or that the Company will select markets in which it
will achieve profitability.

In addition, the Company may pursue acquisitions of medical clinics or practices
providing male sexual health  services.  There are various risks associated with
the Company's acquisition strategy,  including the risk that the Company will be
unable to identify,  recruit or acquire  suitable  acquisition  candidates or to
integrate  and  manage  the  acquired  clinics  or  practices.  There  can be no
assurance  that clinics and practices  will be available for  acquisition by the
Company on acceptable  terms, or that any liabilities  assumed in an acquisition
will not have a material adverse effect on the Company's financial condition and
results of operations.

SEASONALITY AND  FLUCTUATIONS  IN QUARTERLY  RESULTS.  The Company's  historical
quarterly revenues and financial results have demonstrated a seasonal pattern in
which the first and fourth  quarters are typically  stronger than the second and
third  quarters.  The summer  months of May through  August have shown  seasonal
decreases in patient volume and billings.  The Company expects this  seasonality
to continue and there can be no assurance  that seasonal  fluctuations  will not
produce decreased revenues and poorer financial results. The failure to open new
Centers on anticipated  schedules,  the opening of multiple  Centers in the same
quarter or the timing of acquisitions may also have the effect of increasing the
volatility  of quarterly  results.  Any of these  factors  could have a material
adverse impact on the Company's stock price.

DEPENDENCE ON REIMBURSEMENT  BY THIRD PARTY PAYORS.  For the year ended December
31,  1996,  approximately  76% of  patient  billings  were  covered  by  medical
insurance plans subject to applicable  deductibles  and other co-pay  provisions
paid by the  patient.  Approximately  27% of patient  billings  were  covered by
Medicare and 49% were covered by numerous other commercial insurance

<PAGE>

plans that offer  coverage for  impotence  treatment  services.  The health care
industry  is  undergoing  cost  containment  pressures  as both  government  and
non-government  third  party  payors  seek to  impose  lower  reimbursement  and
utilization  rates and to negotiate  reduced  payment  schedules with providers.
This trend may  result in a  reduction  from  historical  levels of  per-patient
revenue  for such  health  care  providers.  Further  reductions  in third party
payments  to  physicians  or other  changes in  reimbursement  for  health  care
services  could  have a  direct  or  indirect  material  adverse  effect  on the
Company's financial condition and results of operations. In addition, as managed
Medicare  arrangements  continue  to  become  more  prevalent,  there  can be no
assurance that the Centers will qualify as a provider for relevant arrangements,
or that  participation  in such  arrangements  would be profitable.  Any loss of
business due to the increased penetration of managed Medicare arrangements could
have a material adverse effect on the Company's  financial condition and results
of operations.

The  Company's  net income is  affected  by  changes in sources of the  Centers'
revenues.  Rates paid by  commercial  insurers,  including  those which  provide
Medicare  supplemental  insurance,  are generally based on established  provider
charges, and are generally higher than Medicare reimbursement rates. A change in
the payor mix of the  Company's  patients  resulting  in a decrease  in patients
covered by commercial  insurance could adversely affect the Company's  financial
condition and results of operations.

HEALTH  CARE  INDUSTRY  AND  REGULATION.  The  health  care  industry  is highly
regulated at both the state and federal levels.  The Company and the Centers are
subject to a number of laws governing issues as diverse as relationships between
health  care  providers  and  their  referral  sources,  prohibitions  against a
provider referring patients to an entity with which the provider has a financial
relationship, licensure and other regulatory approvals, professional advertising
restrictions,  corporate  practice of medicine,  Medicare  billing  regulations,
dispensing  of  pharmaceuticals  and  regulation  of  unprofessional  conduct of
providers, including fee-splitting arrangements.  Many facets of the contractual
and  operational  structure  of the  Company's  relationships  with  each of the
Centers have not been the subject of judicial or regulatory  interpretation.  An
adverse review or  determination by any one of such  authorities,  or changes in
the regulatory requirements,  or otherwise, could have a material adverse effect
on the operations, financial condition and results of operations of the Company.
In  addition,   expansion  of  the   operations  of  the  Company  into  certain
jurisdictions may require modifications to the Company's  relationships with the
Centers located there. These  modifications could include changes in such states
in the way in which the Company's services and lease fees are determined and the
way in which the  ownership  and  control  of the  Centers is  structured.  Such
modifications  may have a material  adverse  effect on the  Company's  financial
condition and results of operations.

In recent years, numerous legislative proposals have been introduced or proposed
in the United States Congress and in some state  legislatures  that would effect
major  changes in the United  States health care system at both the national and
state  level.  It is not clear at this time  which  proposals,  if any,  will be
adopted or, if adopted,  what effect 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 a material adverse effect on the
Company's financial condition and results of operations.

Furthermore,  there  can be no  assurance  that the  method of  payment  for the
products and services  furnished by the Centers will not be radically altered in
the  future by changes in the  health  care  industry.  Changes in the system of
reimbursement, including Medicare, for the products and services provided by the
Centers that increase the difficulty of obtaining  payment for medical  services
could have a material  adverse effect on the Company's  financial  condition and
results of operations,  as the Company's  income stream depends upon revenues of
the Centers. If revenues of the Centers are diminished, either in quantity or in
continuity, the Company will be adversely affected.

CORPORATE  PRACTICE OF  MEDICINE.  Most states limit the practice of medicine to
licensed  individuals  or  professional   organizations  comprised  of  licensed
individuals.  Many states also limit the scope of business relationships between
business   entities  such  as  the  Company  and  licensed   professionals   and
professional corporations,  particularly with respect to fee-splitting between a
physician and another  person or entity and  non-physicians  exercising  control
over  physicians  engaged in the practice of  medicine.  Most of the Centers are
organized  as   professional   corporations,   entities   authorized  to  employ
physicians, so as to comply with state statutes and state common law prohibiting
the  corporate  practice of medicine.  Because the laws  governing the corporate
practice of medicine vary from state to state and the  application of those laws
is often  ambiguous,  any expansion of the  operations of the Company to a state
with strict  corporate  practice of medicine  laws, or the  application of these
laws in states  with  existing  Centers,  may  require the Company to modify its
operations with respect to one or more Centers,  which could result in increased
financial  risk to the  Company.  Further,  there can be no  assurance  that the
Company's  arrangements will not be successfully  challenged as constituting the
unauthorized  practice of medicine or that  certain  provisions  of its services
agreements  with the Centers (the "Services  Agreements"),  options to designate
ownership  of  the  professional   corporations,   employment   agreements  with
physicians or covenants not to compete will be enforceable.  Alleged  violations
of the corporate  practice of medicine doctrine have also been used successfully
by physicians to declare a contract to be void as against public  policy.

<PAGE>

There can be no assurance  that a state or  professional  regulatory  agency
would not attempt to revoke or suspend a physician's  license or the corporate
charter or license of a professional corporation owning a Center or the
corporate charter of the Company or one of its subsidiaries.

DEPENDENCE ON  RIGISCANS;  POTENTIAL  IMPACT OF  INNOVATIONS.  Rigiscan  patient
monitoring  devices accounted for approximately 25% of the Centers' revenues for
the year ended  December  31,  1996.  As a  consequence,  any  material  adverse
development with respect to the Rigiscan devices, limitation in the availability
of such devices or material  increase in the costs of such devices  could have a
material adverse effect on the financial  condition and results of operations of
the Company. In addition, innovations in diagnostic tools and therapies for male
sexual  dysfunction or changes in reimbursement  practices by third party payors
for such  diagnostic  procedures  could  have a material  adverse  effect on the
financial condition and results of operations of the Company.

COMPETITION.  Competition in the diagnosis and treatment of impotence stems from
a wide variety of sources. The Centers face competition from urologists, general
practitioners,  internists and other primary care  physicians who treat impotent
patients,  as  well  as  hospitals,   physician  practice  management  companies
("PPMs"),  HMOs and  non-physician  providers  of  services  related  to  sexual
dysfunction.  If federal or state  governments  enact  laws that  attract  other
health care  providers to the male sexual  dysfunction  market,  the Company may
encounter increased  competition from other parties which seek to increase their
presence  in the  managed  care  market  and which  have  substantially  greater
resources  than the  Company.  Any of these  providers,  many of which  have far
greater  resources  than the  Company,  could  adversely  affect the  Centers or
preclude the Company from  entering  those markets that can sustain only limited
competition.  There can be no assurance that the Centers will be able to compete
effectively  with their  competitors,  or that additional  competitors  will not
enter the market.

There are also many  companies  that  provide  management  services  to  medical
practices,  and the  management  industry  continues  to evolve in  response  to
pressures to find the most  cost-effective  method of providing  quality  health
care.  There  can be no  assurance  that  the  Company  will be able to  compete
effectively with its competitors, that additional competitors will not enter the
market,  or that such competition will not make it more difficult to acquire the
assets of, and provide  management  services  for,  medical  practices  on terms
beneficial to the Company.

DEVELOPING MARKET;  UNCERTAIN  ACCEPTANCE OF THE COMPANY'S SERVICE.  Over 90% of
new patient visits result from the Company's direct to patient advertising.  The
market for the Company's services has only recently begun to develop,  and there
can be no  assurance  that the public  will accept the  Company's  services on a
widespread  basis. The Company's  future operating  results are highly dependent
upon its ability to continually attract new patients.  There can be no assurance
that demand for the Company's  services will  continue in existing  markets,  or
that it will develop in new markets. The Company makes significant  expenditures
for  advertising,  and there can be no assurance that such  advertising  will be
effective in increasing  market  acceptance  of, or  generating  demand for, the
Company's  services.  Failure to achieve  widespread  market  acceptance  of the
Company's services or to continually  attract new patients could have a material
adverse effect on the Company's financial condition and results of operations.

COMPETITION

The  Company  is not  aware  of any  company  providing  similar  services  on a
nationwide  basis at this time.  Competition  in the  diagnosis and treatment of
male sexual impotence varies from market to market. The Centers face competition
from general practitioners, urologists, internists and other physicians, as well
as hospitals,  PPMs,  HMOs and  non-physician  providers of services  related to
sexual  dysfunction.  Any of these  providers,  including those with far greater
capital than the Company, could preclude the Company from entering markets which
can only sustain limited competition. The Company believes that the programs and
quality of care provided by the Centers, the reputation of Centers and the level
of their charges for services are significant  competitive factors in its favor.
The Centers seek to meet local  competition  through their focus on the needs of
each patient and the low cost for services.

Furthermore,  there are many  companies  that  provide  management  services  to
medical  practices like the Centers,  and the management  industry  continues to
evolve  in  response  to  pressures  to find the most  cost-effective  method of
providing  quality  health  care.  Although  the  Company  focuses on  providing
services to  physician  practices  that treat male  impotence,  it competes  for
management   contracts  with  national  and  regional   providers  of  physician
management  services,  as well as hospitals  and  hospital-sponsored  management
services organizations.

CORPORATE ORGANIZATION AND CENTER MANAGEMENT SERVICES

The Company's  organizational  structure is designed to maximize  managerial and
administrative  efficiency and standardize  clinic  operations while maintaining
physician control of patient  diagnosis and treatment.  Each Center is organized
as a separate corporation and, where required, it is organized as a professional
corporation  licensed to practice  medicine.  In accordance with state laws, the
Centers are operated by  corporations  qualified  to practice  medicine and as a
result,  most Centers are owned by  corporations  controlled by Dr.  Burns.

<PAGE>

Dr.Burns  receives no financial  benefit from his  ownership of the Centers.  In
states in which Dr.  Burns is not a licensed  physician  and an existing  Center
cannot be used, a physician  licensed and  practicing in such states acts as the
owner of the Center.  The Company has a  noncancelable  option to designate  the
holder of the  common  stock of each  Center  through  the  right to force  each
current holder to sell, at any time, the outstanding  shares of the professional
corporations  operating  the  Centers to the  Company's  designee  for a nominal
amount which management believes is deeply discounted from the fair value of the
stock of the corporations. The amount to be paid represents the reimbursement of
the direct expenses of the stockholder in forming the corporation  operating the
Center,  and  normally  ranges  from $100 to $500.  In  general,  the Company is
legally  prohibited  from owning the common stock of the  Centers.  See "Certain
Transactions."

The Company,  directly or indirectly  provides all management services necessary
to operate the Centers under several long-term  agreements  including a Services
Agreement and an Equipment Lease. The revenues  generated at the Centers,  after
payment of physician  salaries,  other operating expenses  including  laboratory
costs,  prescription  drugs,  treatment supplies and devices,  have historically
approximated the fees owed to the Company. In 1996, the Company received fees of
approximately $5.5 million under its agreements with the Centers.

SERVICES  AGREEMENT.  Under the  Services  Agreement,  each Center  appoints the
Company  as its sole  and  exclusive  manager  and  administrator  of all of the
Center's  day-to-day  non-medical  operations.  The  physicians  employed at the
Centers  perform all medical  functions and are responsible for the provision of
medical services provided at the Centers.

The management and administrative  services provided by the Company include: (i)
operation of a national call center for appointment scheduling; (ii) staffing of
all  non-medical  personnel  required to operate the Center;  (iii)  billing and
collection  of all patient  invoices;  (iv)  bookkeeping  and related  financial
services of the Center;  (v) telephone  support  services;  (vi) advertising and
promotional activities;  and (vii) other administrative and management services.
In exchange for these management  services,  the Center pays the Company monthly
fees.  Personnel staffing fees are charged on a fully-burdened  cost-plus basis,
the billing and  collection  services fee is a minimum amount plus a per patient
charge, bookkeeping,  financial and appointment scheduling services are provided
at fixed amounts,  and  advertising  and  promotional  services are charged on a
percentage  of  the  Company's  advertising  purchases.   The  Company  has  the
unilateral  right to increase its fees each year to account for any factors that
may increase the value, the extent or the cost of the services provided.

The initial term of the Services  Agreement is 40 years with  automatic  renewal
for successive 40-year terms. A Center may terminate its Services Agreement only
if the  Center is in  compliance  with the  Agreement's  terms  and the  Company
breaches a material obligation which the Company fails to cure within 60 days of
being  notified of such breach.  The Company may  terminate the Agreement at any
time with or without  cause.  Upon  termination of the Services  Agreement,  the
Center  must,  among  other  things,  cease  using  the  Company's  methods  and
procedures  and must comply with a covenant not to compete.  The covenant not to
compete prohibits Center officers, directors, stockholders, and/or partners from
providing  any of the types of  services  offered by the  Company  for two years
after  termination of the Services  Agreement within any metropolitan area where
the Company operates or manages a medical practice.

The  Services  Agreement  prohibits  the Center from taking  actions  that could
adversely  affect the  Company,  such as  liquidating,  selling  assets,  paying
dividends,  adding new  shareholders,  incurring  indebtedness,  and  increasing
physician  salaries.  The Services  Agreement does not restrict the Company from
developing multiple Diagnostic Centers for Men in the same metropolitan area.

EQUIPMENT  LEASE.  Each  Center  enters into an  Equipment  Lease  covering  all
equipment and other personal  property required for the operation of the Center,
including  Rigiscans.  Although the terms can vary, the typical  Equipment Lease
has a 5-year term. The Center assumes all costs and expenses for repairs, taxes,
and loss or damage of the equipment and is also required to acquire and maintain
personal injury property damage insurance on the equipment. The Equipment Lease,
the equipment, and any interest therein may not be assigned or transferred.  All
equipment remains the sole and exclusive  property of the Company throughout the
term of the lease and thereafter. The fees for the equipment are determined on a
per  Center  basis,  with the  exception  of the fees for the  Rigiscan  medical
diagnostic equipment.  The rental fees for Rigiscans are determined by a monthly
fee that increases based upon monthly usage.

OTHER AGREEMENTS. In addition to the Services Agreement and Equipment Lease, the
Company's   relationship   with  a  Center  typically   involves  several  other
agreements, including physician employment agreements.

The  physician at each Center is not the owner of the  professional  corporation
operating  that Center and enters into two employment  agreements-  one with the
Company  for  non-medical  services  and one with the Center.  Generally,  these
employment  agreements  are for  initial two year  terms.  Under the  employment
agreement  with  the  Center,  the  physician  receives  a base  salary  and the
opportunity  to  receive a  performance  bonus of up to 20% of his base  salary.
Under the employment  agreement with the Company, the physician provides certain
non-medical  advisory and  consulting  services in exchange for a minimal salary
and the opportunity to receive Company stock options.

<PAGE>

EMPLOYEES

As of March 10, 1997, the Company operated  Centers and its headquarters  with a
combined staff of 151 full-time  equivalent  employees,  4 Center physicians who
were part-time, and 25 certified sex therapists who contracted their services as
independent  contractors to the Centers on a part-time  basis.  Of the full-time
employees,  9 were in senior  management,  26 were  Center  physicians,  66 were
Center  staff,  21 were in marketing  and  advertising,  13 were in  accounting,
billing and  collection,  and 16 were involved with  training,  development  and
administration. The Company believes its relations with its employees are good.

GOVERNMENT REGULATION

Various state and federal laws regulate the  relationship  between  providers of
health  care  services  and  physicians,  and as a business  in the health  care
industry, the Company and the Centers are subject to these laws and regulations.
The  Company  is also  subject  to laws and  regulations  relating  to  business
corporations  in  general.  Although  many  aspects  of the  Company's  business
operations   have  not  been  the   subject  of  state  or  federal   regulatory
interpretation,  the  Company  believes  its  operations  will not result in any
material liability under these laws. There can be no assurance,  however, that a
review of the  Company's  or the  Centers'  businesses  by courts or  regulatory
authorities  will not result in a determination  that could adversely affect the
operations  of the  Company or the  Centers or that the health  care  regulatory
environment  will not change so as to  restrict or affect the  Company's  or the
Centers' existing operations or their expansion.  See "Risk  Factors-Health Care
Industry."

LICENSURE.  Every state imposes licensing  requirements on individual physicians
and on certain  types of health  care  providers  and  facilities.  Many  states
require   regulatory   approval,   including  licenses  to  render  care  before
establishing  certain  types of health  care  facilities.  The Centers and their
physicians are subject to licensing  requirements,  including continuing medical
education  and license fees.  While the  performance  of management  services on
behalf of a medical practice does not currently require any regulatory  approval
on the part of the Company,  there can be no assurance that such activities will
not be subject to licensure in the future.

CORPORATE  PRACTICE OF  MEDICINE.  Most states limit the practice of medicine to
licensed  individuals  or  professional   organizations  comprised  of  licensed
individuals.  Many states also limit the scope of business relationships between
business   entities  such  as  the  Company  and  licensed   professionals   and
professional corporations,  particularly with respect to fee-splitting between a
physician and another  person or entity and  non-physicians  exercising  control
over  physicians  engaged in the practice of  medicine.  Most of the Centers are
organized   as   professional   corporations-entities   authorized   to   employ
physicians-so  as to comply with state statutes and state common law prohibiting
the  corporate  practice  of  medicine.  Accordingly,  the  Company  attempts to
structure  all of its  operations  so that they comply with the  relevant  state
statutes  and state  common law and  believes  that its  operations  and planned
activities  do not and will not result in any  material  liability  under  these
laws.  However,  because the laws  governing the corporate  practice of medicine
vary from state to state and the  application of those laws is often  ambiguous,
any expansion of the operations of the Company to a state with strict  corporate
practice  of  medicine  laws,  or the  application  of these laws in states with
existing Centers,  may require the Company to modify its operations with respect
to one or more Centers,  which could result in increased  financial  risk to the
Company. Further, there can be no assurance that the Company's arrangements will
not be successfully  challenged as  constituting  the  unauthorized  practice of
medicine or that  certain  provisions  of the  Services  Agreements,  employment
agreements with physicians,  options to designate  ownership of the professional
corporations,  or  covenants  not  to  compete  will  be  enforceable.   Alleged
violations  of the corporate  practice of medicine  doctrine have also been used
successfully  by physicians  to declare a contract to be void as against  public
policy. There can be no assurance that a state or professional regulatory agency
would not attempt to revoke or suspend a  physician's  license or the  corporate
charter  or  license  of a  professional  corporation  owning  a  Center  or the
corporate charter of the Company or one of its subsidiaries.

FEE-SPLITTING  PROHIBITIONS.  The laws of some states  prohibit  physicians from
splitting  professional  fees. These statutes are sometimes quite broad and as a
result  prohibit  otherwise  legitimate  business  arrangements.  New York,  for
example,  prohibits compensation arrangements under which the amount received in
payment for furnishing space,  facilities,  equipment or personnel services used
by a licensed  physician  constitutes a percentage of or is otherwise  dependent
upon,  the income or  receipts of the  licensed  physician  from such  physician
practice.   Other  states,   such  as  Florida,   only  prohibit   fee-splitting
arrangements  that  are  based  on  referrals.  Penalties  for  violating  these
fee-splitting  statutes or regulations may include  revocation,  suspension,  or
probation of the physician's  license, or other disciplinary  action, as well as
monetary penalties.

Pursuant to the terms of the Services  Agreements with the Centers,  the Company
will receive a monthly management fee from the Centers for most services.  While
the  Company  believes  that its  compensation  arrangements  comply  with state
fee-splitting laws, there can be no assurance that these compensation structures
will not be  construed  by state or  judicial  authorities  as being  proscribed
fee-splitting laws.

<PAGE>

STATE ANTI-KICKBACK AND SELF-REFERRAL LAWS. A number of states have enacted laws
that   prohibit  the  payment  for   referrals   and  other  types  of  kickback
arrangements.  Such state laws  typically  apply to all patients  regardless  of
their  insurance  coverage.  In  addition,  a number of states have enacted laws
which, to varying degrees,  prohibit  physician  self-referrals.  Illinois,  for
example,  has a broad  self-referral law which regulates all health care workers
(including physicians),  regardless of the patient's source of payment.  Subject
to certain limited  exceptions,  the Illinois law prohibits referrals for health
services  provided  by or  through  licensed  health  care  workers to an entity
outside the health care  worker's  office or group  practice in which the health
care worker is an  investor,  unless the health care  worker  directly  provides
health  services  within  the entity and will be  personally  involved  with the
provision of care to the referred patient.  In April-1992,  the State of Florida
enacted a Patient  Self-Referral  Act that severely  restricts patient referrals
for certain  services,  prohibits  mark-ups of certain  procedures  and requires
health care providers to disclose  ownership in businesses to which patients are
referred.  It is possible that more states will adopt similar  legislation.  The
Company believes that its operations comply with current  statutory  provisions,
although there can be no assurance that state  anti-kickback  and  self-referral
laws will not be  interpreted  more  broadly or amended in the future to be more
expansive.  In addition,  expansion of the  operations of the Company to certain
jurisdictions  may  require it to comply  with such  jurisdictions'  regulations
which could lead to structural and organizational modifications of the Company's
form or relationships  with Centers.  Governmental  interpretation of these laws
could limit reimbursements to the Centers, which could have an adverse effect on
the Company.

FEDERAL  MEDICARE  RELATED  REGULATION.  There  are a  number  of  federal  laws
prohibiting  certain  activities and arrangements  relating to services or items
which are  reimbursable by Medicare.  Certain  provisions of the Social Security
Act, commonly referred to as the "Anti-Kickback Amendments," prohibit the offer,
payment,  solicitation or receipt of any form of  remuneration  either in return
for the  referral of Medicare or state health  program  patients or patient care
opportunities, or in return for the recommendation, arrangement, purchase, lease
or order of items or  services  that are  covered by  Medicare  or state  health
programs. The Anti-Kickback  Amendments are broad in scope and have been broadly
interpreted by courts in many jurisdictions.  Read literally, the statute places
at risk many otherwise legitimate business arrangements,  potentially subjecting
such  arrangements  to  lengthy,   expensive   investigations  and  prosecutions
initiated by federal and state governmental officials. In particular, the Office
of the Inspector General of the U.S. Department of Health and Human Services has
expressed  concern that the acquisition of physician  practices by entities in a
position to receive  referrals of business  reimbursable  by Medicare  from such
practices could violate the Anti-Kickback Amendments.

In  July-1991,   in  part  to  address  concerns   regarding  the  Anti-Kickback
Amendments,   the  federal   government   published   regulations  that  provide
exceptions,  or "safe harbors," for certain transactions that will be deemed not
to violate the Anti-Kickback Amendments.  Among the safe harbors included in the
regulations  were  provisions  relating  to the  sale  of  physician  practices,
management  and  personal  Services   Agreements  and  employee   relationships.
Additional  safe harbors were published in September  1993 offering  protections
under the Anti-Kickback Amendments to eight new activities,  including referrals
within group practices  consisting of active investors.  Proposed  amendments to
clarify these safe harbors were published in July 1994 which, if adopted,  would
cause substantive retroactive changes to the 1991 regulations.  Violation of the
Anti-Kickback  Amendments  is a felony,  punishable  by fines up to $25,000  per
violation and imprisonment for up to five years. In addition,  the Department of
Health and Human Services may impose civil  penalties  excluding  violators from
participation  in  Medicare  or state  health  programs.  Although  the  Company
believes that its current  operations are not in violation of the  Anti-Kickback
Amendments,  there can be no  assurance  that  regulatory  authorities  will not
determine that the Company's  operations  are in violation of the  Anti-Kickback
Amendments.

Significant  prohibitions against physician  self-referrals for services covered
by Medicare and Medicaid programs were enacted,  subject to certain  exceptions,
by  Congress  in  the  Omnibus  Budget   Reconciliation   Act  of  1993.   These
prohibitions,   commonly   known  as  "Stark  II,"   amended   prior   physician
self-referral  legislation  known as "Stark I" (which  applied  only to clinical
laboratory  referrals)  by  dramatically  enlarging  the  list of  services  and
investment interests to which the referral prohibitions apply. Effective January
1, 1995 and subject to certain  exceptions,  Stark II prohibits a physician from
billing  Medicare or Medicaid with respect to any Medicare or Medicaid  patients
who are referred to any entity providing  "designated  health services" in which
the physician or a member of his immediate family has an ownership or investment
interest,   or  with  which  the  physician  has  entered  into  a  compensation
arrangement,  including the  physician's own group practice unless such practice
satisfies the "group practice" exception. The designated health services include
the provision of clinical laboratory  services,  radiology  services,  including
magnetic resonance  imaging,  computerized axial tomography scans and ultrasound
services,  radiation  therapy  services and supplies,  physical and occupational
therapy services, durable medical equipment and supplies, parenteral and enteral
nutrients, equipment and supplies, prosthetics, orthotics and prosthetic devices
and supplies,  outpatient prescription drugs, home health services and inpatient
and outpatient hospital services. The penalties for violating Stark II include a
prohibition  on Medicaid and Medicare  reimbursement  and civil  penalties of as
much as $15,000 for each violative  referral and $100,000 for participation in a

<PAGE>

"circumvention   scheme."  The  Company  believes  that  its  and  the  Centers'
operations  currently are not in violation of Stark I or II; however,  the Stark
legislation is broad and ambiguous.  Interpretative  regulations  clarifying the
provisions  of Stark I were issued on August 14,  1995 and Stark II  regulations
have yet to be proposed. While the Company believes it is in compliance with the
Stark  legislation,  governmental  interpretations  or future  regulations could
require the Company to modify the nature of its relationships  with the Centers.
Private parties may institute legal action against healthcare providers alleging
violations  of  Stark  II or of  the  Anti-Kickback  Amendments.  Moreover,  the
violation of Stark I or II or of the Anti- Kickback Amendments by the Company or
by the Centers could result in significant fines and loss of reimbursement which
would  adversely  affect the Company.  There can be no assurance  that claims or
litigation  alleging such  violations will not be brought against the Company or
the Centers.


                         ITEM 2. DESCRIPTION OF PROPERTY

All Centers operate in leased facilities of approximately 2000 square feet. (See
"Facilities" for a list of Center locations.) Rents are payable in equal monthly
installments which average $3,200 per Center.  Length of the leases range from 5
to 10 years, with termination  options at 5 years. Center leases provide options
to renew for periods averaging 5 years.

The  Company's  headquarters  consists of  approximately  15,400  square feet of
leased office space in Lenexa,  Kansas.  The headquarters lease has a term of 10
years at a base rental rate of $13,255 per month  through  August 31, 2001,  and
$14,581 per month  thereafter  through  August 31, 2006. In addition,  the lease
provides  for monthly  payment of estimated  real estate  taxes,  insurance  and
common area  maintenance  in the amount of $2,635,  said estimate to be adjusted
annually.  Upon  expiration of the initial 10 year lease term,  the Company will
have the option to extend the term of the lease for an additional 5 years at the
annual base rental increased by a percentage factor equal to the increase in the
Consumer Price Index for Kansas City, Missouri  established by the United States
of America for the date of February 28, 2006 over February 28, 1996.

The  Company  believes  that the  leased  facilities  of each  Center and of the
Company's  headquarters are in good condition,  adequately  covered by insurance
and  sufficient to meet the needs at that location for the  foreseeable  future.
The Company owns substantially all equipment used in its facilities.


                           ITEM 3. LEGAL PROCEEDINGS.

Not applicable.


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

No  matters  were  submitted  to a vote of  security  holders  during the fourth
quarter ended December 31, 1996.


<PAGE>


                                     PART II


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

The common stock of the Company began trading in November  1996  (subsequent  to
the public offering) on the Nasdaq National Market under the symbol "IMRI".  The
following  table  sets  forth  the high  and low  quotations  from the  National
Association of Securities Dealers Automated Quotation System "NASDAQ".  Prior to
the offering in November 1996, no established public trading market existed.

                               COMMON STOCK PRICE

                                            HIGH          LOW
        Fourth Quarter - 1996               7 7/8           3

The number of record holders of the Company's common stock as of March 10, 1997,
was 96,  including  brokers  holding  shares as nominees or in street name,  but
excluding those for which they hold such shares.

The following table sets forth the Company's  sales of  unregistered  securities
during the fiscal year ended  December 31, 1996. In each  instance,  the Company
claims exemption from registration for these issuances under Section 4(2) of the
Securities Act of 1933. No  underwriters  were involved in any of such sales nor
were any commissions or similar fees paid by the Company with respect thereto.

DATE OF       TITLE OF      AMOUNT OF SECURITIES
 SALE      SECURITIES SOLD    SOLD OR EXCHANGED    IDENTITY OF PURCHASER

3/29/96   Series B Preferred      222,222         Frazier Healthcare II, L.P.(1)
7/17/96   Common                    5,500         Julian M. Parreno (2)

(1) Facts  relied  upon to make the  Section  4(2)  exemption  available  are as
    follows: Series B Preferred Stock was sold exclusively to Frazier Healthcare
    II, L.P., a sophisticated  institutional  investor, in the form of a private
    placement.  The price per share was $4.50. No securities exchanges or public
    distribution  mechanisms were involved.  Total proceeds of the offering, net
    of offering costs of $75,228, amounted to $924,771.
(2) Facts  relied  upon to make the  Section  4(2)  exemption  available  are as
    follows: The sale was a private placement of 5,500 shares of Common Stock at
    $5.50 per share.  Purchaser was an executive officer of the Company and was,
    accordingly, an insider having access to the type of information which would
    be disclosed if the securities had been registered  under the Securities Act
    of 1933.  No securities  exchanges or public  distribution  mechanisms  were
    involved. Total proceeds of the sale amounted to $30,250.

The Company has not paid a dividend  with  respect to its common  stock nor does
the Company anticipate paying dividends in the foreseeable future. The Company's
line of credit with a bank prohibits the payment of dividends without the bank's
prior written approval.


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

The  Company is the  leading  provider of disease  management  services  for men
suffering  from sexual  dysfunction,  focusing  primarily on the  diagnosis  and
treatment of erectile  dysfunction,  commonly  known as  impotence.  The Company
provides comprehensive  diagnostic,  educational and treatment services designed
to address the medical and  emotional  needs of its patients and their  partners
through the largest network of medical clinics in the United States dedicated to
the  diagnosis and treatment of  impotence.  The Company  currently  operates 31
Centers in 18 states.

The cost of opening a new Center includes  capital  expenditures  for diagnostic
and office  equipment,  furniture  and  fixtures  in the  approximate  amount of
$125,000 and pre-opening costs for physician  recruitment,  organizational costs
and advertising  expenses.  Pre-opening costs average  approximately $32,500 per
Center and are  amortized  over a one year  period.  The  Company  finances  new
Centers during the initial months of operations  until patient volume  generates
cash flow sufficient to cover the Center's operating expenses. Total pre-opening
costs, including capital expenditures,  were approximately $2,950,000 in 1996 in
connection with the opening of 17 new Centers.


<PAGE>


For new Centers,  substantially  all patient volume can be  attributable  to the
Company's advertising and public relations efforts. As Centers mature,  patients
from other sources such as other  physicians  and broader  educational  programs
provide additional patient volume, although advertising remains the major source
of new patients.  As a result,  advertising  and  promotional  expenses remain a
large  cost to the  Company.  The  Company  has in the  past  received,  and may
continue in the future to receive,  funds for market development and patient and
physician  education  from  pharmaceutical   companies  that  develop  impotence
treatments.

Centers  typically  operate with a staff of three or four  persons,  including a
full-time  physician.   On  average,  the  physician  at  each  Center  can  see
approximately 100 to 120 new patients per month. The Centers recognize  revenues
at the time services are rendered. These services include physician professional
fees,   diagnostic   tests  conducted  at  the  Centers  and  laboratory   tests
subcontracted to a national reference laboratory,  use of specialized diagnostic
equipment,  including  the  Rigiscan  patient  monitor,  and the  dispensing  of
treatment  devices,  medications  and  supplies.  Approximately  80%  of  Center
billings are related to diagnostic  services,  of which approximately  one-third
are  physician  professional  fees,  and 20% of average  billings are related to
treatments dispensed by the Center.  Historically,  average new patient billings
for  diagnosis  and  initial  treatment  have  remained  relatively  constant at
approximately $800, although the average new patient billings for the year ended
December 31, 1996 was approximately $850.

For the year ended December 31, 1996, approximately 76% of patient billings were
covered by medical  insurance  plans subject to applicable  deductible and other
co-pay  provisions paid by the patient.  Approximately  27% of patient  billings
were  covered by  Medicare  and 49% were  covered by numerous  other  commercial
insurance plans that offer coverage for impotence  treatment  services.  Patient
billings  average less for Medicare  patients due to  restrictions on laboratory
test reimbursement and standard professional fee discounts.

RESULTS OF OPERATIONS

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

                                                   YEAR ENDED DECEMBER 31,

                                                   1995                1996

   Net Center revenues                            100.0%              100.0%
   Center expenses                                 39.9                50.2
                                                   ----                ----
   Net management revenue                          60.1                49.8
   Operating expenses:
      Center staff salaries                        14.8                14.4
      Center facilities rent                        5.6                 7.2
      Advertising                                  22.8                39.2
      Depreciation and amortization                 4.8                12.0
      Selling, general and administrative          25.2                33.7
                                                   ----                ----
        Total operating expenses                   73.2               106.5
                                                   ----               -----
   Operating loss                                 (13.1)             ( 56.7)
   Interest expense, net                          ( 3.5)             (  2.5)
   Other income, net                                0.2                 0.0
                                                    ---                 ---
   Loss before income tax benefit                 (16.4)             ( 59.2)
   Income tax benefit                             ( 0.4)                0.0
                                                  ------             -------
   Net loss                                       (16.0)             ( 59.2)
                                                  =====               =====


YEARS ENDED DECEMBER 31, 1996 AND 1995

NET CENTER REVENUES. Net Center revenues increased 52% from $7.2 million in 1995
to $11.0 million in 1996. This growth was attributable primarily to the increase
in the  number  of  Centers  open at the end of each  period  from 13 to 30.  In
addition,  1996 includes a full year of revenues from Centers open for a partial
year in 1995. Fees related to the use of Rigiscans  accounted for  approximately
25% of revenues in each period.

CENTER EXPENSES.  Center expenses  represent  direct  operating  expenses of the
Centers,  including  physician  salaries,  costs for  laboratory  and outsourced
services,   diagnostic  and  treatment  supplies,   and  treatment  devices  and
medications  dispensed through the Centers.  Center expenses  increased 92% from
$2.9 million in 1995 to $5.5 million in 1996 due to the operation of additional


<PAGE>


Centers in the 1996  period.  As a  percentage  of net Center  revenues,  Center
expenses  increased from 39.9% to 50.2%,  which was primarily  attributable to a
change in the mix of payors and services  provided at certain  existing  Centers
and the fact that  revenues  at new  Centers  generally  increase  with  patient
volumes  over the first six  months of  operations  while  Center  expenses  are
substantially fixed after the first month of operation.

NET MANAGEMENT  REVENUE.  Net management revenue increased 26% from $4.3 million
in 1995 to $5.5 million in 1996.  As a  percentage  of net Center  revenue,  net
management revenue decreased from 60.1% to 49.8%, primarily due to the timing of
opening new Centers.

CENTER STAFF SALARIES.  Center staff salaries increased 48% from $1.1 million in
1995 to $1.6 million in 1996 due the operation of additional Centers in 1996. As
a percentage of net Center revenue,  Center staff salaries  decreased from 14.8%
in 1995 to 14.4% in 1996 due to the  reduction  of  average  staff size from 3-4
employees per clinic in 1995 to 2-3 employees per clinic in 1996. As the Company
continues  to open new  Centers,  the expenses of Center staff may increase as a
percentage  of net Center  revenue in  subsequent  periods  because  new Centers
experience lower initial patient counts and revenue over the first six months of
operations.

CENTER  FACILITIES RENT.  Center  facilities rent increased 96% from $406,000 in
1995 to $797,000 in 1996 due to the operation of additional  Centers  during the
period. As a percentage of net Center revenue,  Center facilities rent increased
from  5.6% to  7.2%.  As the  Company  continues  to open  new  Centers,  Center
facilities rent may increase as a percentage of net Center revenue in subsequent
periods because new Centers  experience lower initial patient counts and revenue
over the first six months of operation.

ADVERTISING.  Advertising  expense  increased  162% from $1.6 million in 1995 to
$4.3 million in 1996 due  primarily  to the  increased  number of Centers.  As a
percentage of net Center revenue,  advertising  expense  increased from 22.8% to
39.2%,  which was  primarily  attributable  to a change in media used from print
advertising  to more  costly  broadcast  media for a portion of the year,  which
generated lower patient  volumes,  and the engagement of an outside  advertising
agency in November 1996.

DEPRECIATION AND AMORTIZATION. Depreciation and amortization increased 280% from
$348,000  in 1995 to  $1.3  million  in 1996  due to  depreciation  charges  for
clinical  and office  equipment  purchased  to support  new  Centers,  increased
staffing at the Company's  headquarters  and  amortization of pre-opening  costs
incurred with respect to the significant growth in new Centers.  As a percentage
of net Center revenues,  depreciation  and  amortization  increased from 4.8% to
12.0%, due primarily to the amortization of pre-opening  costs for 8 new clinics
opened in 1995 and 17 opened in 1996, which pre-opening costs are amortized over
a 12-month period.

SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative expense
increased 104% from $1.8 million in 1995 to $3.7 million in 1996 due principally
to the addition of an  experienced  management  team and staff at the  Company's
corporate  headquarters and expansion of the telephone  appointment center staff
to support additional Centers. As a percentage of net Center revenues,  selling,
general and  administrative  expense increased from 25.2% to 33.7% due primarily
to the increased  staffing needed to support the Company's future growth and the
opening of new Centers.

INTEREST  EXPENSE,  NET.  Interest  expense  increased  from $251,000 in 1995 to
$275,000 in 1996,  resulting from increased  leasing  activity under  agreements
accounted  for as capital  leases and increased  borrowings  under the Company's
credit  facilities to support  equipment  purchases  and working  capital at new
Centers.

INCOME  TAXES.  The Company  recorded a deferred  tax benefit in 1995 of $26,000
related to the write-off of deferred tax liabilities recorded in 1994. No income
tax  provision  or benefit  was  recorded  in 1996 as the  deferred  tax benefit
otherwise provided was offset by valuation reserves on deferred tax assets.

SEASONALITY

The  Company's   historical   quarterly  revenues  and  financial  results  have
demonstrated  a  seasonal  pattern in which the first and  fourth  quarters  are
typically stronger than the second and third quarters.  The summer months of May
through  August,  spanning the second and third  quarters,  have shown  seasonal
decreases  in patient  volume and  billings.  Because  impotence is not an acute
condition,  has typically persisted for some time in most patients,  and usually
does not present immediate health risks, the Company believes that some patients
postpone  scheduling  visits  with the  Centers  during the summer  months.  The
Company believes that this seasonality trend will likely continue.  In addition,
the Company's quarterly results are affected by the timing of the opening of new
Centers.


<PAGE>


LIQUIDITY AND CAPITAL RESOURCES

The Company has financed its  operations and met its capital  requirements  with
cash flows from existing  Centers,  proceeds  from private  placements of equity
securities, an initial public offering of equity securities,  the utilization of
bank lines of credit, bank loans and capital lease obligations. In December 1995
and March 1996, the Company raised $4.0 million and $1.0 million,  respectively,
from the issuance of Series A Preferred Stock and Series B Preferred Stock which
was  converted  to Common  Stock upon the  consummation  of the  initial  public
offering.  The Company  raised $12.6  million in net  proceeds  from its initial
public  offering  completed in November 1996. The Company has a working  capital
line of  credit  with its bank  under  which it may  borrow  up to $2.0  million
through December 31, 1997, based on specified  percentages of eligible  accounts
receivable.  At December 31,  1996,  the Company had no  borrowings  outstanding
under this line of credit,  and $1.1  million was  available  under this line of
credit  based on  eligible  accounts  receivable  balances.  The  interest  rate
applicable  to the line of credit  is 1% above the  bank's  prime  lending  rate
(which prime lending rate was 8.25% at December 31, 1996).

Effective  December 1995, the Company entered into an arrangement  with a vendor
to finance the purchase of equipment to be used in providing  clinical  services
at the Centers,  subsequent to December 31, 1995. The total obligation under the
agreement  was $1.8  million,  of which the Company  was  required to pay 25% in
January  1996,  and  will be  incurred  as the  Company  takes  delivery  of the
diagnostic equipment securing the obligation. At December 31, 1996, $1.1 million
was outstanding under this financing arrangement.  The balance of the obligation
is payable in equal  installments  on a 36 month  straight-line  basis following
equipment  delivery plus interest at 5.75%.  The Company  purchased  $295,000 in
additional  equipment  from this vendor with terms  equivalent  to the  original
agreement. As of December 31, 1996, $235,000 was outstanding for this additional
purchase.

In September  1996, the Company  entered into an additional  agreement with this
vendor to  purchase  equipment.  The total  obligation  under the  agreement  is
$410,000,  of which the Company  was  required  to pay 25% at  execution  of the
agreement,  and will be incurred as the Company takes delivery of the diagnostic
equipment  securing  the  obligation.   At  December  31,  1996,   $308,000  was
outstanding  under this  agreement.  The balance of the obligation is payable in
equal  installments  on a  36  month  straight-line  basis  following  equipment
delivery plus interest at 5.22%.

In December  1996,  the Company  entered into an additional  agreement  with the
vendor to finance  the  purchase of  equipment  to be used in  providing  clinic
services  subsequent  to  December  31,  1996.  The total  obligation  under the
agreement  is  $2,952,000.  Under  the  agreement,  the  Company  will  purchase
specified  quantities of equipment  through 1998, with 25% of the obligation for
each shipment received being due upon delivery. The balance of the obligation is
payable  in equal  installments  on a 36  month  straight-line  basis  following
equipment delivery plus interest at 5.75%.

As of December 31, 1996,  the Company had, for tax purposes,  net operating loss
carryforwards  of  approximately  $8.8  million,  which are  available to offset
future taxable income and expire in varying amounts through 2011, if unused.

Due to the  growth  in the  number  of new  Center  openings,  the  Company  has
experienced  increased and varied operating cash flow deficits from 1994 through
1996.  This  resulted  primarily  from  differences  in working  capital  levels
required to  accommodate  the  increased  Center  operations  and  variances  in
operating results. The variances were principally  attributable to the fact that
revenues at new Centers and, accordingly, net management revenues have generally
increased  with patient  volumes over the first six months of  operations  while
operating  expenses  have  remained  relatively  fixed  from the first  month of
operation.  In addition, the Company had increased corporate staff, expanded the
national  call  center and  increased  advertising  costs to support  new Center
openings, thereby significantly increasing administrative expenses in advance of
expected revenues.

At December 31, 1996, the Company had cash and cash equivalents of $6.7 million.
The Company  believes that existing cash  balances,  funds  available  under the
Company's credit lines and operating cash flows generated by management services
provided to the more mature  Centers,  will be sufficient to fund its operations
and satisfy its capital  expenditures  and working capital  requirements for the
next twelve months. Despite the Company's existing resources,  opportunities may
arise for new Center  openings or acquisitions  that  management  believes would
enhance the value of the Company  which could  require  financing  not
currently provided for.

At December 31, 1996,  total patient  accounts  receivable,  before  allowances,
reflected an average  balance of 77 days of net revenue.  Due to the seasonality
of revenues  discussed above,  the ratio of patient  accounts  receivable to the
most recent quarterly net Center revenue is typically  greater at the end of the
second and third  quarters as compared to the fourth and first  quarters.  As of
December 31, 1996,  patient  accounts  receivable  greater than 180 days totaled
approximately  $1,005,000,  of which there were no material  individual balances
due.


<PAGE>


                          ITEM 7. FINANCIAL STATEMENTS.

For a list of financial  statements  filed as part of this report,  see index to
financial statements at F-1 of this report.


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

Not applicable.


<PAGE>


                                    PART III


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

Incorporated  by reference to the Company's  Proxy Statement for the 1997 Annual
Meeting of Shareholders to be filed with the Securities and Exchange  Commission
within 120 days after the close of the fiscal year ended December 31, 1996.


                        ITEM 10. EXECUTIVE COMPENSATION.

Incorporated  by reference to the Company's  Proxy Statement for the 1997 Annual
Meeting of Shareholders to be filed with the Securities and Exchange  Commission
within 120 days after the close of the fiscal year ended December 31, 1996.


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

Incorporated  by reference to the Company's  Proxy Statement for the 1997 Annual
Meeting of Shareholders to be filed with the Securities and Exchange  Commission
within 120 days after the close of the fiscal year ended December 31, 1996.


             ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Incorporated  by reference to the Company's  Proxy Statement for the 1997 Annual
Meeting of Shareholders to be filed with the Securities and Exchange  Commission
within 120 days after the close of the fiscal year ended December 31, 1996.



<PAGE>


                                ITEM 13. EXHIBITS

(a)     The following exhibits are filed herewith:

 EXHIBIT NUMBER  DESCRIPTION
     *3 (a) (ii) Amended and Restated Articles of Incorporation
     *3 (b) (ii) Restated Bylaws
          *4 (a) Specimen of Common Stock Certificate
      *4 (b) (i) Loan Agreement dated December 29, 1995 by and among the
                 Company,  certain  Centers and Citizens  National  Bank of Fort
                 Scott, Kansas (the "Loan Agreement")
     *4  b) (ii) First  Amendment to the Loan Agreement  dated June 18,
                 1996 by and among the  Company,  certain  Centers and  Citizens
                 National Bank of Fort Scott
         *10 (a) Amended and Restated 1995 Stock Option Plan
         *10 (d) Amended and Restated Investors Rights Agreement dated March
                 29,  1996  by and  among  the  Company,  Institutional  Venture
                 Management VI, Institutional  Venture Partners VI, IVP Founders
                 Fund I, L.P. and Frazier Healthcare II, L.P.
      *10 (e)(i) Form of  Services  Agreement  by and  between a  Subsidiary  of
                 the Company and a Center (Revised)
    *10          (e) (ii)  Form of  Promissory  Note by a  Center  in favor of a
                 Subsidiary  of the  Company  *10 (e)  (iii)  Form  of  Security
                 Agreement by a Center favor of a Subsidiary of the Company
    *10 (e) (iv) Form of Equipment Lease by and between the Centers and a
                 Subsidiary of the Company
     *10 (e) (v) Form of Sublease by and between the Centers and a Subsidiary of
                 the Company *10 (f) Rigiscan Purchase Agreement dated December
                 1, 1995 by and between UROHEALTH Systems, Inc. and the Company
      10 (f) (i) Amendment to the Rigiscan Purchase Agreement dated September 6,
                 1996 by and between UROHEALTH Systems, Inc. and the Company
     10 (f) (ii) Amendment to the Rigiscan Purchase Agreement dated December 19,
                 1996 by and between UROHEALTH Systems, Inc. and the Company
         *10 (g) VCD Purchase Agreement dated December 1, 1995 by and between
                 UROHEALTH Systems, Inc. and the Company
         *10 (i) Service Mark Assignment Agreement dated August 1, 1996 by and
                 between Troy A. Burns and the Company
         *10 (j) Office Building Lease dated December 20, 1993 by and between
                 Troy A. Burns and the Company
         *10 (k) Non-Employee Director Stock Option Plan
         *10 (l) Form of Non-Competition and Non-Solicitation Agreement by and
                 between each of Troy A. Burns, M. D. and T. Scott Jenkins and
                 the Company
         *10 (m) Employment  Agreement  by and  between  William  Raup  and the
                 Company
         *10 (n) Option  Agreement  dated  September  26,  1996 by and between
                 Troy A. Burns, M.D. and the Company
         *10 (o) Employment Agreement dated September 30, 1996 by and between
                 Troy A. Burns, M.D. and the Company
         *10 (p) Employment Agreement dated September 30, 1996 by and between T.
                 Scott Jenkins and the Company
         *10 (q) Agreement dated September 30, 1996 by and among the Company,
                 Institutional Venture Management VI, Institutional Venture
                 Partners VI, IVP Founders Fund I, L.P., Stanford University,
                 Virgil A. Place, Leland Wilson, S.F. Growth Fund, Frazier
                 Healthcare II, L.P., Troy A. Burns, M.D., Troy A. Burns
                 Revocable Trust, Catherine P. Burns Revocable Trust, James
                 Marvine and T. Scott Jenkins
           10(r) Advertising Agency Agreement dated December 4, 1996 by and
                 between DraftDirect Worldwide, Inc. and the Company
              11 Statement regarding computation of per share earnings
              21 List of Subsidiaries of the Company
              27 Financial Data Schedule

-----------
     * Incorporated by reference to the  corresponding  exhibit filed as part of
     Registration  Statement No.  333-5414-D,  as amended,  originally  filed on
     August 12, 1996.



(b)     REPORTS ON FORM 8-K

        The  Company  filed no  reports  on Form 8-K for the  fiscal  year ended
December 31, 1996.


<PAGE>


                                   SIGNATURES


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

                               INTEGRATED MEDICAL RESOURCES, INC.

                               By: /s/ TROY A. BURNS, M.D.


                               -----------------------------------
                               Troy A. Burns, M.D., Chief Executive Officer,
                               Chief Medical Officer,
                               Chairman of the Board and Director


In accordance  with the  Securities  Exchange Act of 1934,  this report has been
signed below by the  following  persons on behalf of the  registrant  and in the
capacities and on the dates indicated.

        SIGNATURE           TITLE

 /s/ TROY A. BURNS, M.D.    Chief Executive Officer,
                            Chief Medical Officer,
 ________________________   Chairman of the Board and Director             ____
   Troy A. Burns, M.D.      (Principal Executive Officer)                  Date

 /s/ BEVERLY O. ELVING      Chief Financial Officer and Vice President,
                            Finance and Administration
 _______________________    (Principal Financial and Accounting Officer)   ____
    Beverly O. Elving                                                      Date

 /s/ T. SCOTT JENKINS       Director, President and Chief Operating
                            Officer
 -----------------------                                                   ----
     T. Scott Jenkins                                                      Date

 /s/ SAMUEL D. COLELLA      Director

 -----------------------                                                   ----
    Samuel D. Colella                                                      Date

 /s/ JOHN K.TILLOTSON, M.D. Director

 -----------------------                                                   ----
 John K. Tillotson, M.D.                                                   Date

 /s/ ALAN D. FRAZIER        Director

 -----------------------                                                   ----
     Alan D. Frazier                                                       Date

  /s/ BRUCE A. HAZUKA       Director

  ----------------------                                                   ----
      Bruce A. Hazuka                                                      Date


<PAGE>


                                  EXHIBIT INDEX

<TABLE>
<CAPTION>
   EXHIBIT                                                                          SEQUENTIAL
   NUMBER    DESCRIPTION                                                           PAGE NUMBER
<S>          <C>                                                                   <C>
 *3 (a) (ii) Amended and Restated Articles of Incorporation
 *3 (b) (ii) Form of Restated Bylaws
      *4 (a) Specimen of Common Stock Certificate
  *4 (b) (i) Loan Agreement dated December 29, 1995 by and among the
             Companpy,  certain  Centers and Citizens  National Bank of Fort
             Scott, Kansas (the "Loan Agreement")
 *4          (b) (ii) First  Amendment to the Loan Agreement dated June 18, 1996
             by and among the Company,  certain  Centers and  Citizens  National
             Bank of Fort Scott
     *10 (a) Amended and Restated 1995 Stock Option Plan
     *10 (d) Amended and Restated Investors Rights Agreement dated March
             29, 1996 by and among the Company, Institutional Venture Management
             VI, Institutional Venture Partners VI, IVP Founders Fund I, L.P.
             and Frazier Healthcare II, L.P.
 *10 (e) (i) Form of Services Agreement by and between a Subsidiary of the
             Company and a Center (Revised)
*10 (e) (ii) Form of Promissory Note by a Center in favor of a Subsidiary of the
             Company
*10 (e)(iii) Form of Security Agreement by a Center in favor of a Subsidiary of
             the Company
 *10 (e)(iv) Form of Equipment Lease by and between the Centers and a Subsidiary
             of the Company
 *10 (e) (v) Form of Sublease by and between the Centers and a Subsidiary of the
             Company *10 (f) Rigiscan Purchase  Agreement dated December 1, 1995
             by and between UROHEALTH Systems, Inc. and the Company
  10 (f) (i) Amendment to the Rigiscan Purchase Agreement dated September 6,
             1996 by and between UROHEALTH Systems, Inc. and the Company
 10 (f) (ii) Amendment to the Rigiscan Purchase Agreement dated December 19,
             1996 by and between UROHEALTH Systems, Inc. and the Company
     *10 (g) VCD Purchase Agreement dated December 1, 1995 by and between
             UROHEALTH Systems, Inc. and the Company
     *10 (i) Service Mark Assignment Agreement dated August 1, 1996 by and
             between Troy A. Burns and the Company
     *10 (j) Office Building Lease dated December 20, 1993 by and between Troy
             A. Burns and the Company
     *10 (k) Non-Employee Director Stock Option Plan
     *10 (l) Form of Non-Competition and Non-Solicitation Agreement by and
             between each of Troy A. Burns, M. D. and T. Scott Jenkins and the
             Company
     *10 (m)  Employment  Agreement by and between  William Raup and the Company
     *10 (n) Option Agreement dated September 26, 1996 by and between Troy A.
             Burns, M.D. and the Company
     *10 (o) Employment Agreement dated September 30, 1996 by and between Troy
             A. Burns, M.D. and the Company
     *10 (p) Employment Agreement dated September 30, 1996 by and between T.
             Scott Jenkins and the Company
     *10 (q) Agreement dated September 30, 1996 by and among the Company,
             Institutional Venture Management VI, Institutional Venture Partners
             VI, IVP Founders Fund I, L.P., Stanford University, Virgil A.
             Place, Leland Wilson, S.F. Growth Fund, Frazier Healthcare II,
             L.P., Troy A. Burns, M.D., Troy A. Burns Revocable Trust, Catherine
             P. Burns Revocable Trust, James Marvine and T.Scott Jenkins
      10 (r) Advertising Agency Agreement dated December 4, 1996 by and between
             DraftDirect Worldwide, Inc. and the Company
          11 Statement re computation of per share earnings
          21 List of Subsidiaries of the Company
          27 Financial Data Schedule


<FN>

-----------

     * Incorporated by reference to the  corresponding  exhibit filed as part of
     Registration  Statement No.  333-5414-D,  as amended,  originally  filed on
     August 12, 1996.


</FN>
</TABLE>

<PAGE>


               INTEGRATED MEDICAL RESOURCES, INC. AND SUBSIDIARIES
                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS



Report of Independent Auditors                                            F-2
Consolidated Financial Statements
Consolidated Balance Sheet as of December 31, 1996                        F-3
Consolidated Statements of Operations for the years
ended December 31, 1996 and 1995                                          F-5
Consolidated Statements of Stockholders' Equity for
the years ended December 31, 1996 and 1995                                F-6
1995
Consolidated Statements of Cash Flows for the years
ended December 31, 1996 and 1995                                          F-7
Notes to Consolidated Financial Statements                                F-9


<PAGE>


                         Report of Independent Auditors

The Board of Directors and Stockholders
Integrated Medical Resources, Inc. and Subsidiaries

We have  audited  the  accompanying  consolidated  balance  sheet of  Integrated
Medical Resources,  Inc. and subsidiaries (the Company) as of December 31, 1996,
and the related consolidated statements of operations,  stockholders' equity and
cash  flows for each of the two years in the period  ended  December  31,  1996.
These financial  statements are the responsibility of the Company's  management.
Our responsibility is to express an opinion on these financial  statements based
on our audits.

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

In our opinion,  the financial  statements  referred to above present fairly, in
all material respects, the consolidated financial position of Integrated Medical
Resources,  Inc. and  subsidiaries  at December 31, 1996,  and the  consolidated
results  of their  operations  and their cash flows for each of the two years in
the period ended  December 31,  1996,  in  conformity  with  generally  accepted
accounting principles.


/s/ Ernst & Young LLP


Kansas City, Missouri
February 14, 1997


<PAGE>


                       Integrated Medical Resources, Inc.
                                and Subsidiaries

                           Consolidated Balance Sheet

                                December 31, 1996


ASSETS (Note 3)
Current assets:
  Cash and cash equivalents                                     $  6,739,697
  Accounts receivable, less allowance of $605,315                  1,382,968
  Receivable from Centers                                            499,083
  Supplies                                                            99,788
  Prepaid expenses                                                   260,619
                                                              ----------------
Total current assets                                               8,982,155



Property and equipment (Note 2):
  Office equipment and software                                    1,624,411
  Furniture, fixtures and equipment                                4,295,722
  Leasehold improvements                                             125,476
                                                              ----------------

                                                                   6,045,609
  Accumulated depreciation                                         1,355,995
                                                              ----------------

                                                                   4,689,614




Intangible assets                                                    504,182
Other assets                                                         335,947
                                                              ----------------
Total assets                                                     $14,511,898
                                                              ================


<PAGE>



LIABILITIES AND STOCKHOLDERS' EQUITY
 Current liabilities:
  Accounts payable                                               $     929,564
  Accrued payroll                                                      289,470
  Accrued advertising                                                  350,725
  Other accrued expenses                                                41,086
  Current portion of long-term debt (Note 3)                           623,603
  Current portion of capital lease obligations (Note 2)                320,586
                                                                ----------------
Total current liabilities                                            2,555,034

Deferred rent                                                          175,932
Long-term debt, less current portion (Note 3)                        1,008,278
Capital lease obligations, less current portion (Note 2)               473,281

Stockholders'  equity  (Notes 3, 5 and 7):
  Preferred  stock,  $.001 par  value:
    Authorized  shares - 1,696,698
    Issued and outstanding  shares - none
  Common stock,  $.001  par  value:
   Authorized  shares  -  10,000,000
   Issued  and  outstanding shares - 6,715,017                           6,715
  Additional paid-in capital                                        17,960,029
  Accumulated deficit                                               (7,667,371)
                                                                ----------------
Total stockholders' equity                                          10,299,373
                                                                ================
Total liabilities and stockholders' equity                         $14,511,898
                                                                ================

See accompanying notes.


<PAGE>


                       Integrated Medical Resources, Inc.
                                and Subsidiaries

                      Consolidated Statements of Operations


                                                   YEAR ENDED DECEMBER 31
                                                    1996             1995
                                              ----------------------------------

Net Center revenues                               $11,006,774     $ 7,219,085
Center expenses:
  Physician salaries                                2,393,556       1,221,677
  Cost of services                                  3,131,855       1,660,922
                                              ----------------------------------
                                                    5,525,411       2,882,599
                                              ----------------------------------
Net management revenue                              5,481,363       4,336,486

Operating expenses:
  Center staff salaries                             1,582,380       1,068,127
  Center facilities rent                              796,658         406,066
  Advertising                                       4,309,419       1,644,759
  Depreciation and amortization                     1,322,353         348,166
  Selling, general and administrative               3,714,119       1,816,769
                                              ----------------------------------
                                                   11,724,929       5,283,887
                                              ----------------------------------
Operating loss                                     (6,243,566)       (947,401)

Other income (expense):
  Interest income                                      81,730           1,547
  Interest expense                                   (356,710)       (253,036)
  Other                                                     -          18,438
                                              ----------------------------------
                                                     (274,980)       (233,051)
                                              ----------------------------------

Loss before income tax benefit                     (6,518,546)     (1,180,452)
Income tax benefit (Note 4)                                 -         (26,121)
                                              ----------------------------------
Net loss                                         $ (6,518,546)    $(1,154,331)
                                              ==================================

Net loss per common and common equivalent
  share
                                                 $      (1.82)   $       (.38)
                                              ==================================
Weighted average common and common equivalent
  shares                                             3,573,910       3,009,435
                                              ==================================
Pro forma:
  Net loss per common and common equivalent
   share assuming conversion of preferred
   stock into common stock at the beginning
   of the period                                $       (1.35)   $       (.35)
                                              ==================================
Weighted average common and common
    equivalent shares                                4,814,129       3,044,977
                                              ==================================

See accompanying notes.


<PAGE>



                       Integrated Medical Resources, Inc.
                                and Subsidiaries

                 Consolidated Statements of Stockholders' Equity

<TABLE>
<CAPTION>
                                                  PREFERRED STOCK
                                            -----------------------------                ADDITIONAL     RETAINED
                                               SERIES A      SERIES B       COMMON        PAID-IN       EARNINGS
                                             CONVERTIBLE   CONVERTIBLE       STOCK        CAPITAL       (DEFICIT)       TOTAL
                                            ---------------------------------------------------------------------------------------
<S>                                          <C>              <C>           <C>         <C>             <C>          <C>

Balance at December 31, 1994                  $       -       $    -        $   580     $     441,449$        5,506  $     447,535
  Fifty-for-one stock split and change
    in par value                                      -            -          2,320            (2,320)           -               -
  Issuance of 1,081,080 shares of Series
    A Convertible preferred stock, net of
    issuance costs of $95,803                     1,081            -              -         3,903,113            -       3,904,194
  Issuance of 6,757 shares of common
    stock for services                                -            -              7            24,993            -          25,000
  Net loss                                            -            -              -                 -   (1,154,331)     (1,154,331)
                                            ---------------------------------------------------------------------------------------
Balance at December 31, 1995                      1,081            -          2,907         4,367,235   (1,148,825)      3,222,398
  Issuance of 222,222 shares of Series B
    Convertible preferred stock, net of
    issuance costs of $75,228                         -          222              -           924,549            -         924,771
  Issuance of 5,500 shares of common
    stock to employee                                 -            -              5            30,244            -          30,249
  Issuance of 2,500,000 shares of common
    stock in initial public offering, net
    of issuance costs of $2,359,499                   -            -          2,500        12,638,001            -      12,640,501
  Conversion of preferred stock to
    common stock                                 (1,081)        (222)         1,303                 -            -               -
  Net loss                                            -            -              -                 -   (6,518,546)     (6,518,546)
                                            ---------------------------------------------------------------------------------------
Balance at December 31, 1996                  $       -       $    -         $6,715       $17,960,029  $(7,667,371)    $10,299,373
                                            =======================================================================================

</TABLE>

See accompanying notes.


<PAGE>


                       Integrated Medical Resources, Inc.
                                and Subsidiaries

                      Consolidated Statements of Cash Flows

<TABLE>
<CAPTION>

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

OPERATING ACTIVITIES
Net loss                                                $ (6,518,546)     $(1,154,331)
Adjustments to reconcile net loss to net
  cash used in operating activities:
    Depreciation                                             779,176          327,502
    Amortization                                             543,177           20,664
    Deferred income tax benefit                                    -          (26,121)
    Deferred rent                                             96,687           48,030
    Pre-opening costs incurred                              (782,108)        (106,968)
    Compensatory common stock issuance                             -           25,000
    Gain on sale of property and equipment                         -           (3,853)
    Changes in operating assets and liabilities:
      Accounts receivable                                   (455,647)        (927,321)
      Receivable from Centers                               (376,934)         691,348
      Supplies                                               (57,151)         (42,637)
      Prepaid expenses                                      (113,912)        (138,702)
      Accounts payable                                       551,111          319,905
      Accrued payroll                                        191,262           34,288
      Accrued advertising                                    266,985         (220,260)
      Other accrued expenses                                   9,168           16,797
                                                      --------------  -----------------
Net cash used in operating activities                     (5,866,732)      (1,136,659)

INVESTING ACTIVITIES
Purchases of property and equipment                       (3,847,441)        (511,653)
Proceeds from the sale of property and equipment                   -           10,706
Acquisition of distribution rights                                 -          (70,161)
Other                                                       (276,000)         (62,442)
                                                      --------------- -----------------
Net cash used in investing activities                     (4,123,441)        (633,550)

</TABLE>


<PAGE>


                       Integrated Medical Resources, Inc.
                                and Subsidiaries

                Consolidated Statements of Cash Flows (continued)

<TABLE>
<CAPTION>

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

FINANCING ACTIVITIES
Borrowings on line of credit                            $  1,100,000     $    439,538
Principal payments on line of credit                      (1,100,000)        (439,538)
Proceeds from issuance of notes payable
  and long-term debt                                       2,468,200          823,200
Principal payments on long-term debt                      (1,143,585)        (647,783)
Debt issuance costs incurred                                 (15,000)         (59,520)
Principal payments on capital lease obligations             (298,060)        (187,095)
Proceeds from issuance of preferred stock                    924,771        3,904,194
Proceeds from issuance of common stock                    12,670,750                -
                                                      ----------------------------------
Net cash provided by financing activities                 14,607,076        3,832,996
                                                      ----------------------------------

Net increase in cash and cash equivalents                  4,616,903        2,062,787
Cash and cash equivalents at beginning of year             2,122,794           60,007
                                                      ----------------------------------

Cash and cash equivalents at end of year                $  6,739,697      $ 2,122,794
                                                      ==================================

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid for interest                                 $     356,710     $    253,036
                                                      ==================================

SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND
FINANCING ACTIVITIES
Additions to property and equipment through
  issuance of capital lease obligations                $     344,416     $    384,956
                                                      ==================================

See accompanying notes.

</TABLE>

<PAGE>


1.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

NATURE OF BUSINESS

Integrated Medical Resources,  Inc. and subsidiaries (the Company) is a provider
of disease  management  services for men suffering from sexual  dysfunction.  At
December 31, 1996, the Company operated 30 diagnostic clinics under the name The
Diagnostic Center for Men in 18 states (collectively the Centers). Each of those
30 clinics is owned directly or  beneficially  by an officer and  stockholder of
the  Company and has  entered  into  long-term  management  contracts  and lease
agreements with the Company.  Pursuant to these  contracts and  agreements,  the
Company  provides a wide array of  business  services to the Centers in exchange
for  management  fees. The Company has a  noncancelable  option to designate the
holder of the  common  stock of each  Center  through  the  right to force  each
current holder to sell, at any time, the outstanding  shares of the professional
corporations  operating  the  Centers to the  Company's  designee  for a nominal
amount which management believes is deeply discounted from the fair value of the
stock of the corporations. The amount to be paid represents the reimbursement of
the direct expenses of the stockholder in forming the corporation  operating the
Center,  and  normally  ranges  from $100 to $500.  In  general,  the Company is
legally prohibited from owning the common stock of the Centers.

BASIS OF PRESENTATION

The consolidated financial statements include the accounts of Integrated Medical
Resources, Inc. and its wholly-owned subsidiaries.  All significant intercompany
accounts and transactions have been eliminated in consolidation.

The Company and the Centers  have entered into  long-term  management  contracts
(Contracts)  with  initial  terms of 40 years,  which  renew  automatically  and
perpetually  for successive 40 year periods and may be terminated only for cause
by the Center.  The Company may  unilaterally  terminate the  agreement  without
cause.

The Company directly or indirectly provides all management services necessary to
operate  the  Centers  under  the  Contracts  and  lease  agreements.  Under the
Contracts,  each Center  appoints the Company as its sole and exclusive  manager
and  administrator  of all  the  Center's  day-to-day  business  functions.  The
management and  administrative  services  provided by the Company  include:  (i)
operation of a national call center for appointment scheduling; (ii) staffing of
all  non-medical  personnel  required to operate the Center,  (iii)  billing and
collection of patient invoices;  (iv) bookkeeping and related financial services
of the Center (v) telephone support  services;  (vi) advertising and promotional
activities;  and (vii) other administrative and management services. In exchange
for these services, the Center pays the Company monthly fees. Personnel staffing


<PAGE>


1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

fees are charged on a fully burdened cost-plus basis, the billing and collection
service  fee  is a  minimum  amount  plus  a per  patient  charge,  bookkeeping,
financial services and appointment

scheduling  services  are  provided  at  fixed  amounts,   and  advertising  and
promotional  services  are  charged on a  cost-plus  basis.  The Company has the
unilateral  right to increase its fees each year to account for any factors that
may increase the value, the extent or the cost of the services provided.

Each Center also enters into an equipment  and  facility  lease with the Company
which  provides for all  equipment  and property  required for  operation of the
Center. The related rental fees are determined on a per Center basis, except for
certain  diagnostic  equipment  for which fees are charged based on the level of
usage at each Center.

Although the Company does not consolidate the Centers, for display purposes, and
in order to appropriately reflect the nature of the Company's operations and its
relationship to the Centers,  the accompanying  statements of operations reflect
"Net  Management  Revenue"  as the gross  billings of the  Centers,  less direct
Center  expenses  which are not provided by the Company  under the  Contracts or
lease agreements and any residual profits of the Centers. Direct Center expenses
include  physician  compensation at a base salary plus  discretionary  incentive
compensation of up to 20% of base salary,  laboratory costs, prescription drugs,
treatment supplies and devices and other miscellaneous costs.  Deferred billings
represent billable management fees in excess of net management revenues.

The "Net  Management  Revenue" for the years ended December 31, 1996 and 1995 is
comprised of the following (in thousands):

                                               YEAR ENDED DECEMBER 31
                                                 1996          1995
                                            -----------------------------

Call center                                     $   650       $   376
Non-medical personnel                             2,386         1,266
Bookkeeping, billing and collection               1,373           788
Advertising and promotions                        4,956         3,089
Facility and equipment leases                     1,851         1,085
Other administrative services                         -            52
Deferred billings                                (5,735)       (2,320)
                                            -----------------------------
Total                                            $5,481        $4,336
                                            =============================


<PAGE>


1.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

USE OF ESTIMATES

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

CASH AND CASH EQUIVALENTS

Cash and cash  equivalents  consist of cash,  money market funds and  short-term
invest-ments with an original maturity of three months or less.

PROPERTY AND EQUIPMENT

Property  and  equipment  are  recorded  at  cost  and  depreciated   using  the
straight-line method over the following estimated useful lives:

                                                      Years
                                                   ------------

Office equipment and software                          3-5
Furniture, fixtures and equipment                      5-7

Leasehold improvements are depreciated over the shorter of the lease term or the
estimated useful life of the asset.

INTANGIBLE ASSETS

Intangible assets consist of the following:

                                                  DECEMBER 31,
                                                      1996
                                                ------------------

Debt issuance costs                               $     74,520
Pre-opening costs                                      861,584
Distribution rights                                     70,161
Other                                                   22,155
                                                ------------------
                                                     1,028,420
Less accumulated amortization                          524,238
                                                ------------------

                                                   $   504,182
                                                ==================


<PAGE>



1.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Debt  issuance  costs  represent  cost  incurred in obtaining the line of credit
facility (see Note 3). Debt issuance costs are being amortized over the two-year
term of the line of credit using the straight-line method.

Pre-opening  costs represent  certain  start-up costs  capitalized  prior to the
opening of each  Center.  Pre-opening  costs are being  amortized  over one year
using the straight-line method.

Distribution  rights  represent  the  costs of  obtaining  exclusive  rights  to
distribute certain products related to the treatment of impotence.  Distribution
rights are being amortized over 15 years using the straight-line method.

FINANCIAL INSTRUMENTS

The carrying value of the Company's  financial  instruments,  including cash and
cash equivalents,  accounts receivable, accounts payable, and long-term debt, as
reported in the accompanying balance sheet, approximates fair value.

INCOME TAXES

The Company  accounts for income taxes using the liability  method in accordance
with Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting for
Income  Taxes." The  liability  method  provides  that  deferred  tax assets and
liabilities are determined based on differences  between financial reporting and
tax bases of assets and liabilities and are measured using the enacted tax rates
and laws that will be in effect when the differences are expected to reverse.

REVENUE RECOGNITION

Center  revenues  are  recorded at  estimated  net  amounts to be received  from
third-party payors and individual patients at the time services are rendered.

ADVERTISING COSTS

Advertising costs are charged to expense as incurred, except for direct-response
advertising  which is  capitalized  and  amortized  over its expected  period of
future benefits.  Direct-response  advertising costs capitalized at December 31,
1996 and 1995 were not  material.  The Company has an  arrangement  with a major
supplier  who has agreed to  underwrite  a portion of costs  incurred to educate
physicians and patients regarding impotence. Advertising expense for the


<PAGE>


1.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

years  ended  December  31,  1996  and  1995 is net of  $450,000  and  $150,000,
respectively, contributed by the major supplier.

STOCK COMPENSATION

The Company has elected to follow  Accounting  Principles  Board  Opinion No. 25
(APB  No.  25),   "Accounting  for  Stock  Issued  to  Employees,"  and  related
Interpretations in accounting for its stock options. The Company has established
the exercise prices of options granted at fair value. Prior to completion of its
initial public offering in 1996 (see Note 5), fair value was determined by sales
of common stock to unrelated  third parties in  arms-length  transactions  at or
about the date of grant.  In  accordance  with APB No.  25, no  compensation  is
recognized in such  circumstances.  The effect of applying the fair value method
required by SFAS No. 123 to the Company's  stock options results in net loss and
net loss per share that are not materially  different  from amounts  reported in
the consolidated statements of operations.

NET INCOME (LOSS) PER SHARE

Net loss per share is computed  using the weighted  average number of common and
common equivalent shares  outstanding  during each period.  Shares issuable upon
exercise of all stock  options,  granted prior to the Company's  initial  public
offering at exercise prices less than the offering price,  still  outstanding at
December 31, 1996 have been considered  outstanding for all periods prior to the
initial public offering, using the treasury stock method.

Pro  forma net loss per  share as  presented  on the  statements  of  operations
reflects the Company's per share  operating  results as if the conversion of all
shares of  preferred  stock into an equal  number of shares of common  stock had
occurred at the date of issuance of the preferred stock.

Supplementary  net loss per share amounts for the years ended  December 31, 1996
and 1995, calculated to give effect to the reduction of interest expense and the
increase in the weighted average number of common and common  equivalent  shares
outstanding  sufficient to retire certain  indebtedness as if the retirement had
occurred at the beginning of the periods affected or the date of issuance of the
related  debt,  whichever  is later,  would  not be  materially  different  than
reported per share amounts.

CONCENTRATION OF CREDIT RISK

The  Centers  grant  credit  to  individual   patients  and  third-party  payors
(including insurers and Medicare) who meet preestablished  credit  requirements.
The Center's net accounts  receivable,  except those related to patient billings
covered by Medicare, have been assumed by the Company


<PAGE>


1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

as provided  under the  Contracts.  At December 31, 1996,  approximately  36% of
patient accounts  receivable were due from individual  patients and 64% were due
form third-party payors.  Generally,  the Centers do not require collateral from
their  patients or third-party  payors.  Reserves for credit losses are provided
for as a direct  expense of the Centers and such losses have  consistently  been
within management's  expectations.  Accounts  receivable  write-offs amounted to
approximately  $263,578 and $71,000 during the years ended December 31, 1996 and
1995, respectively.

All of the Company's net management  revenue is generated from services provided
to the Centers,  and the revenue generated from no individual Center comprises a
significant portion of those revenues.

MAJOR PAYORS

The  Centers  had  revenues  from  Medicare  amounting  to 27% and 30% of  total
revenues during the years ended December 31, 1996 and 1995, respectively.

RECLASSIFICATIONS

Certain  amounts  within the 1995  financial  statements  have been reclassed to
conform with the 1996 presentation.

2.  LEASES

The Company leases certain office  equipment under  agreements  accounted for as
capital leases. Obligations under these capital leases are collateralized by the
leased  equipment,  and certain of the leases are  guaranteed  by an officer and
stockholder.   Amortization  of  assets  under  capital  lease  is  included  in
depreciation  expense.  Assets under capital leases at December 31, 1996 were as
follows:

                                                       DECEMBER 31,
                                                           1996
                                                     -----------------

Office equipment                                        $ 1,408,648
Less accumulated amortization                               648,685
                                                     -----------------
                                                        $   759,963
                                                     =================


<PAGE>


2.  LEASES (CONTINUED)

The  Company  leases  its  office  and  clinic   facilities   under   long-term,
noncancelable operating leases. Rent expense for operating leases with scheduled
rent increases is accounted for on the  straight-line  basis over the respective
lease terms. Rent expense for all operating leases totaled $935,554 and $208,866
for the years ended December 31, 1996 and 1995, respectively.

Future minimum lease payments under capital leases and  noncancelable  operating
leases consisted of the following at December 31, 1996:

             YEAR ENDING                               CAPITAL      OPERATING
             DECEMBER 31                               LEASES         LEASES
 -------------------------------------------------------------------------------

     1997                                            $   442,043   $  1,436,052
     1998                                                329,987      1,410,394
     1999                                                196,007      1,353,828
     2000                                                 41,958      1,257,379
     2001                                                      -      1,279,597
     Thereafter                                                -      5,315,345

                                                   -----------------------------
     Total minimum lease payments                      1,009,995    $12,052,595
                                                                 ===============

     Less amount representing interest                   216,128
                                                   ---------------

     Present value of minimum lease payments             793,867
     Less current portion                                320,586
                                                   ---------------

                                                     $   473,281
                                                   ===============

3.  NOTES PAYABLE AND LONG-TERM DEBT

On December 29, 1995, the Company entered into a line of credit agreement with a
bank providing for borrowings up to $2,000,000 based on specified percentages of
eligible  accounts  receivable,  with interest at 1% above the bank's prime rate
(8.25% at December 31, 1996).  There were no borrowings  outstanding  under this
line of credit agreement at December 31, 1996. The line of credit, which expires
on December 31,  1997,  is  collateralized  by  substantially  all assets of the
Company and is guaranteed by two officers and  stockholders of the Company.  The
line of credit  agreement  requires  the  Company to  maintain  compliance  with
certain  covenants  including  limitations  on  the  payment  of  dividends  and
maintenance of various financial operating ratios. The weighted average interest
rate on all line of credit  borrowings  in 1996 and 1995 was  9.25%  and  9.92%,
respectively.

Effective  December 1995, the Company entered into an agreement with a vendor to
finance the  purchase  of  equipment  to be used in  providing  clinic  services
subsequent to December 31, 1995.


<PAGE>


3.  NOTES PAYABLE AND LONG-TERM DEBT (CONTINUED)

An  officer  of the  vendor  serves  as a  director  of the  Company.  The total
obligation under the agreement is $1,763,000,  $440,000 of which was paid by the
Company at the execution of the agreement in January 1996. The remaining balance
will be paid in  monthly  installments  over  the  three-year  period  following
equipment  delivery plus interest at 5.75%. As of December 31, 1996,  $1,089,403
was outstanding under this agreement. The Company purchased additional equipment
from this vendor for which it owed  $295,200  under a separate note payable with
terms equivalent to the original  agreement.  As of December 31, 1996,  $234,978
was outstanding under this agreement.

Effective September 1996, the Company entered into an additional  agreement with
the vendor to purchase  equipment.  The total  obligation under the agreement is
$410,000,  $102,500  of which was paid by the  Company at the  execution  of the
agreement.  The remaining balance will be paid in monthly  installments over the
three-year period plus interest at 5.22%. As of December 31, 1996,  $307,500 was
outstanding under this agreement.

Principal  maturities  under the  $1,631,881  of long-term  vendor notes payable
outstanding  as of December  31,  1996 for each of the next three  years  ending
December 31 are as follows:

                                 1997 $623,603
                                 1998  659,878
                                 1999  348,400

In December  1996,  the Company  entered into an additional  agreement  with the
vendor to finance  the  purchase of  equipment  to be used in  providing  clinic
services  subsequent  to  December  31,  1996.  The total  obligation  under the
agreement  is  $2,952,000.  Under  the  agreement,  the  Company  will  purchase
specified  quantities of equipment  through 1998, with 25% of the obligation for
each shipment  received being due upon delivery.  The remaining  balance will be
paid in monthly  installments  over the three-year  period  following  equipment
delivery plus interest at 5.75%.


<PAGE>


4.  INCOME TAXES

The Company files cash-basis  income tax returns.  Deferred income taxes reflect
the net tax effects of temporary  differences  between the  carrying  amounts of
assets and liabilities for financial reporting purposes and the amounts used for
income tax purposes. Significant components of the Company's deferred tax assets
and liabilities are as follows:


                                  DECEMBER 31,
                                                               1996
                                                         -----------------
Deferred tax assets:
  Net operating loss carryforwards                           $3,520,126
  Accounts payable                                              371,826
  Accrued expenses                                              272,512
  Other                                                          70,373
                                                         -----------------
                                                              4,234,837

Deferred tax liabilities:
  Accounts receivable                                          (553,187)
  Receivable from Centers                                      (199,633)
  Prepaid expenses                                             (104,248)
  Intangible and other assets                                  (210,439)
  Other                                                        (191,169)
                                                         -----------------
                                                             (1,258,676)
                                                         -----------------

Valuation reserves                                           (2,976,161)
                                                         -----------------

Net deferred taxes                                       $            -
                                                         =================


<PAGE>


4.  INCOME TAXES (CONTINUED)

The income tax provision (benefit) consists of the following:

                                YEAR ENDED DECEMBER 31
                                  1996           1995
                             ------------------------------
Current:
  Federal                         $  -      $          -
  State                              -                 -
                             ------------------------------
                                     -                 -
Deferred:
  Federal                            -           (22,203)
  State                              -            (3,918)
                             ------------------------------
                                     -           (26,121)
                             ------------------------------
                                  $  -          $(26,121)
                             ==============================

A reconciliation  of the income tax provision  (benefit) to the amounts computed
at the federal statutory rate is as follows:

                                        YEAR ENDED DECEMBER 31
                                          1996           1995
                                    ------------------------------
 Federal income tax provision
   (benefit) at statutory rate        $(2,216,306)     $(401,354)
State income taxes, net of federal
   tax benefit                           (391,113)       (70,827)
Change in valuation reserve             2,554,831        421,330
  Other                                    52,588         24,730
                                    ------------------------------
                                    $           -     $  (26,121)
                                    ==============================

At December  31,  1996,  the Company had net  operating  loss  carryforwards  of
approximately $8,800,000 which are available to offset future taxable income and
expire in varying amounts through 2011, if unused.

5.  STOCKHOLDERS' EQUITY

In December  1995,  the  stockholders  of the Company  approved an Amendment and
Restatement  of the Company's  Articles of  Incorporation  which  authorized the
Company to issue 10,000,000 shares of $.001 par value common stock and 1,081,080
shares of $.001 par value Series A Convertible preferred stock. In addition, the
Company effected a stock split and change in par value, in which each issued and
outstanding share of $.01 par value common stock was


<PAGE>


5.  STOCKHOLDERS'  EQUITY (CONTINUED)

converted to 50 shares of $.001 par value common  stock.  All  references in the
consolidated  financial statements to average number of shares outstanding,  per
share amounts and stock option plan data have been restated to reflect the stock
split.

In December 1995, the Company also sold 1,081,080 shares of Series A Convertible
preferred stock to investors at $3.70 per share.  Proceeds of the offering,  net
of offering costs of $95,803, amounted to $3,904,194.

In March 1996,  the  stockholders  of the  Company  approved  an  Amendment  and
Restatement  of the Company's  Articles of  Incorporation  which  authorized the
Company to issue  10,000,000  shares of $.001 par value common stock,  1,000,000
shares of $.001 par value Class A common  stock,  1,081,080  shares of $.001 par
value Series A Convertible  preferred  stock,  222,222 shares of $.001 par value
Series B Convertible  preferred  stock and  1,696,698  shares of $.001 par value
undesignated preferred stock.

The 1,000,000  shares of Class A common stock were  reserved for issuance  under
the  Company's  stock option plan (see NOTES 7 and 9).  These shares  contain no
voting privileges, and dividends on these shares are subordinate and inferior to
all  current  and  future  classes  of stock.  The  Class A common  stock may be
converted  into common stock at the option of the holder upon a public  offering
of any class of Company stock,  or in the event certain  transactions  affecting
the control of the Company are consummated, at a conversion ratio established at
the discretion of the Board of Directors.

In March  1996,  the Company  sold  222,222  shares of the Series B  Convertible
preferred stock to investors at $4.50 per share.  Proceeds of the offering,  net
of  offering  costs of  $75,228,  amounted to  $924,771.  Simultaneous  with the
closing, certain common stock-holders sold 651,621 shares of common stock to the
same investor for $2,410,998.

In November  1996,  the  Company  sold  2,500,000  shares of its $.001 par value
common stock at $6.00 per share in its initial  public  offering.  Proceeds from
the offering,  net of offering  costs of  $2,359,499,  amounted to  $12,640,501.
Simultaneous  with the initial public  offering,  the Series A and B Convertible
preferred  stock was  automatically  converted into  1,303,302  shares of common
stock. The authorized shares of Series A and B Convertible  preferred stock were
then retired,  leaving only 1,696,698  shares of  undesignated  preferred  stock
authorized.


<PAGE>


6.  EMPLOYEE BENEFITS AND COMPENSATION

Effective January 1, 1996, the Company implemented a 401(k) retirement plan. All
employees of the Company over 21 years of age who have  completed  six months of
service are eligible for participation in the plan.  Employees may contribute up
to 15% of their  annual  compensation  subject to annual  Internal  Revenue Code
maximum limitations.  The Company will match 50% of each employee's contribution
up to a  maximum  of 4% of the  employee's  salary.  The  Company  may also make
discretionary  contributions under this plan. Company  contributions to the plan
amounted to $26,542 for the year ended December 31, 1996.

7.  STOCK OPTION PLANS

During  1994,  the Company  approved a stock  incentive  plan (the 1994 Plan) to
provide certain employees with restricted shares of common stock. In March 1995,
29,050  shares of  restricted  common stock were awarded to employees  under the
1994  Plan,  the fair value of which was deemed to be  immaterial.  The  shares,
which  are  unissued  and held by the  Company,  vest at the  completion  of the
employee's  third  year of  employment  with  the  Company  and are  subject  to
forfeiture upon  termination  prior to completion of the vesting period.  During
1996 and 1995,  2,700 shares and 8,750 shares,  respectively,  were forfeited as
the result of employee  terminations.  In June 1996, these awards were converted
to options to purchase an  equivalent  number of shares of common  stock with an
estimated  fair market  option  price of $3.70 per share.  Such  options  become
exercisable  in March 1998.  At December 31, 1996 and 1995,  options to purchase
17,600 and 20,300 shares of common stock, respectively, remain outstanding under
this arrangement.

In December 1995,  the Company  approved an employee stock option plan (the 1995
Plan) and reserved  303,550 shares of $.001 par value common stock,  in addition
to the 20,300 nonvoting common shares  originally  reserved under the 1994 Plan,
for issuance to employees and consultants.  In December 1995, the Company issued
options for 20,000 shares of common stock to a consultant,  which were rescinded
in June 1996 under the revised terms of the 1995 Plan as discussed below.

In March 1996, the Company  amended and restated the 1995 Plan.  Under the terms
of the restated 1995 Plan, the Company  reserved  1,000,000  shares of $.001 par
value Class A common stock in addition to previously  reserved  shares of common
stock, for issuance to employees and consultants of the Company. Options granted
under the restated 1995 Plan are either incentive stock options  qualified under
the Internal Revenue Code or nonqualified,  nonstatutory stock options. Terms of
exercise are determined by the Compensation  Committee of the Board of Directors
(the Compensation Committee).


<PAGE>


7.  STOCK OPTION PLANS (CONTINUED)

Options granted under the restated 1995 Plan expire up to 10 years after date of
grant,  except for those granted to stockholders who own greater than 10% of the
voting stock of the Company,  which expire up to five years after date of grant.
The number of options  granted to individual  employees  cannot  exceed  100,000
shares in any fiscal year,  with the  exception of options  granted upon initial
employment.  The option price for an incentive stock option may not be less than
the fair market value of the related shares on the date of grant, or in the case
of individual  stockholders owning more than 10% of the outstanding voting stock
of the  Company,  the option  price may not be less than 110% of the fair market
value of the  shares on the date of grant.  The  option  price for  nonqualified
stock options is determined by the Compensation Committee at the date of grant.

In June 1996, the Company issued  incentive and  nonqualified  stock options for
the  purchase  of 275,850  shares of common  stock at $3.70 per share.  Prior to
December  31,  1996,  43,150  of those  options  were  forfeited  as a result of
employee terminations.  The exercise schedule of these options provides that 25%
of the options become  exercisable  one year after the date of grant and 1/48 of
the  total  options   granted   become   exercisable   each  month   thereafter.
Additionally,  as discussed  above,  the  optionholders  converted the remaining
17,600  shares  of  restricted  common  stock  awarded  under  the 1994  Plan to
incentive  stock options to purchase  17,600 shares of common stock at $3.70 per
share.  These options become exercisable in March 1998. As of December 31, 1996,
total options to purchase 250,300 shares of common stock at $3.70 per share were
outstanding.

In August  1996,  the Company  amended  and  restated  the 1995 Plan,  including
increasing  the number of shares of common stock reserved for issuance under the
restated  1995 Plan to  700,000  shares  and  eliminating  the shares of Class A
common  stock  previously   reserved.   Additionally,   the  Company  adopted  a
Non-Employee  Directors  Stock  Option  Plan (the  Director  Plan) and  reserved
100,000  shares  of  common  stock  for  issuance  of  options  to  non-employee
directors.

In August through  October 1996,  the Company issued options to purchase  50,000
shares of common stock at $5.50 per share and options to purchase 240,000 shares
of common stock at $7.00 per share under the restated 1995 Plan,  and options to
purchase  40,000  shares of common  stock at $7.00 per share under the  Director
Plan.  During 1996,  8,200  options  issued  under the  restated  1995 Plan were
forfeited.


<PAGE>


7.  STOCK OPTION PLANS (CONTINUED)

In December  1996,  the Board of Directors  authorized  the repricing of certain
$5.50 and $7.00 per share  options  previously  issued to  company  officers  to
$3.875  per  share,  fair value on the date of  repricing.  The total  amount of
options repriced was 160,000  options.  In December 1996, the Board of Directors
also  approved the 1997  Executive  Bonus Plan, an unfunded  bonus  compensation
agreement in which certain members of management are awarded  bonuses  comprised
of both cash and stock  options  based on the  ability of the  employee  and the
Company to achieve certain 1997 goals. Any stock options awarded pursuant to the
1997  Executive  Bonus  Plan are  granted  under  the  restated  1995  Plan.  In
accordance with the Executive  Bonus Plan,  options to purchase 57,909 shares of
common stock at $3.875 and 12,155  shares of common stock at $4.2625 were issued
in 1996,  but do not  become  exercisable  unless the  specified  1997 goals are
achieved.

8.  RELATED-PARTY TRANSACTIONS

The Company leases clinic space from an officer and  stockholder.  Rent payments
to this stockholder totaled $27,300 in each of the years ended December 31, 1996
and 1995.

9.  CONTINGENCIES

The Company is subject to extensive federal and state laws and regulations, many
of which have not been the  subject of judicial  or  regulatory  interpretation.
Management believes the Company's operations are in substantial  compliance with
laws and  regulations.  Although an adverse review or  determination by any such
authority could be significant to the Company,  management  believes the effects
of any such  review or  determination  would not be  material  to the  Company's
financial condition.


<PAGE>


                               EXHIBIT 10 (F) (I)

                          Osbon Medical Systems (logo)

September 6, 1996

Mr. T. Scott Jenkins
President/Chief Operating Officer
Integrated Medical Resources, Inc.
8326 Melrose Drive
Lenexa, Kansas 66214

Dear Scott:

I enjoyed lunch and meeting with you this past  Tuesday.I will call you the week
of  September  9th to schedule an  appointment  prior to the end of the month to
pick up the down payment on the deal we agreed upon, which is as follows:

IMR HAS AGREED TO PURCHASE  ONE HUNDRED  (100)  RIGISCANS  PRIOR TO DECEMBER 31,
1996,  AT A  COST  OF  $8200.00  PER  RIGISCAN,  WITH  A  25%  DOWN  PAYMENT  OF
$205,000.00.  THIS DOWN PAYMENT IS TO BE RECEIVED BY OSBON MEDICAL SYSTEMS, LTD,
A DIVISION OF  UROHEALTH  SYSTEMS  INC.,  NO LATER THAN  SEPTEMBER  23, 1996 THE
INITIAL  SHIPMENT OF FIFTY (50) RIGISCANS WILL BE INVOICED AND SHIPPED TO IMR ON
SEPTEMBER  30,  1996.  FINANCIAL  TERMS:  THE  BALANCE  OF EACH  ORDER  IS TO BE
AMORTIZED  OVER A PERIOD OF THIRTY  SIX (36)  MONTHS AT THE  APPLICABLE  FEDERAL
RATE, DUE THE FIRST OF EACH MONTH AFTER THE UNITS ARE  DELIVERED.  THE REMAINING
BALANCE OF THE FIFTY (50) UNIT  RIGISCAN  ORDER,  TO IMR,  IS TO BE  RECEIVED BY
OSBON MEDICAL SYSTEMS,  LTD. PRIOR TO DECEMBER 31, 1996, WITH THE ABOVE TERMS TO
APPLY.  FOR ADDITIONAL  TERMS,  PLEASE REFER TO THE ATTACHED  RIGISCAN  PURCHASE
AGREEMENT, DATED DECEMBER 1, 1995.

IN TURN, OSBON MEDICAL SYSTEMS,  LTD, A DIVISION OF UROHEATH SYSTEMS, INC., WILL
PROVIDE TO IMR A CREDIT OF $100,000.00,  TO BE USED TOWARD THE PURCHASE OF 1,000
IMPOWER VACUUM DEVICES, WHICH WILL BE ORDERED AS NEEDED BY IMR.

Good luck with your IPO,  and I look  forward  to seeing  you again  during  the
latter part of September. As we discussed, I am planning to spend some time with
you in  October,  during  which  I would  like  to  review  the  possibility  of
establishing the Dura II Penile Prosthesis as IMR's penile implant of choice.

Thank you again for your time and  hospitality.  I look forward to cementing our
mutually beneficial  relationship and working to make it a success.  Please feel
free to contact me at any time.

Sincerely,

/s/ Paul Peterson

Paul Peterson
Sr. Vice President, Sales and Marketing

PEP/mlm

cc:     Julian Parreno
        Randy Condie

<PAGE>



                               EXHIBIT 10 (F) (II)

December 19, 1996

                      RIGISCAN PURCHASE AGREEMENT AND TERMS
                             AMENDMENT TO AGREEMENT
                             DATED DECEMBER 1, 1995

This  Amendment  to the  December  1,1995  Agreement  which is  attached,  is an
Agreement  made and entered into,  effective the 19th day of December,  1996, by
and between  Integrated  Medical  Resources,  Inc. ("IMR") (Buyer) and UROHEALTH
Systems,  Inc,  ("UROHEALTH")  (Seller and Leaseholder) and expiring on December
31, 1998.

WHEREAS,  IMR to insure  availability and delivery of all Rigiscan  requirements
for calendar year 1997 and 1998 which it estimates to be 360 units and UROHEALTH
has  offered  non-recourse  financing  terms  desirous  by  IMR  which  includes
amortizing the purchase price over 36 months at a favorable rate.

NOW, THEREFORE, for good and valuable consideration, receipt and sufficiency of,
which is hereby acknowledged, the parties agree as follows:

1.   The  price and all  price  conditions  in the  December  1, 1995  agreement
     prevail and shall be extended through December 31, 1998.

2.   The payment terms shall be:

     a. 25% of the total purchase  price due payable  according to the following
     schedule:

                                              UNIT        PURCHASE    DEPOSIT
SCHEDULE   DUE DATE             QUANTITY      PRICE       AMOUNT      DUE 25%
--------   --------             --------      -----       ------      -------
I.         March 1, 1997            60        8,200     $ 492,000    $ 123,000
II.        May 15, 1997             60        8,200       492,000      123,000
III.       August 15,1997           60        8,200       492,000      123,000
IV.        November 15,1997         60        8,200       492,000      123,000
V.         March 1, 1998           120        8,200       984,000      246,000

The balance of each  purchase  amount shall be amortized on a 36 month  straight
line  basis  plus  interest  at  rates  consistent  with the  current  Agreement
(December  1,1995  Agreement) and begins 30 days after projected Due Date of the
Schedule above.

3.      Seller will retain  first  position  security  interest in all  Rigiscan
        units until IMR has paid in full its obligations or returned the units.
        UCC filings will occur on these units.

4.      This  Agreement  shall be  binding  on and inure to the  benefit  of the
        successors and assigns of both  UROHEALTH and IMR.

5.      This Agreement shall be interpreted in accordance with the laws of the
        State of California.

IN WITNESS  WHEREOF,  the parties hereto have  executed,  signed and sealed this
Agreement to the effective the day and year first written above.

UROUHEALTH SYSTEMS, INC,

By: /s/ Randall A. Condie
-------------------------
Title: Vice President of National Accounts


INTEGRATED MEDICAL RESOURCES, INC.

By: /s/ T. Scott Jenkins
------------------------
Title: President


<PAGE>


                                 EXHIBIT 10 (R)

                         DRAFTDIRECTWORLDWIDE LETTERHEAD

December 4, 1996


Integrated Medical Resources, Inc.
8326 Melrose Drive
Lenexa, Kansas 66214

Attn: Julian Parreno
      Vice President Marketing and Sales

Dear Mr. Parreno:

This  letter  (this  "Agreement")  sets  forth  the  terms  whereby  DraftDirect
Worldwide,  Inc.  ("DraftDirect")  has agreed to serve,  and Integrated  Medical
Resources,  Inc.  ("Client")  has  agreed to employ  DraftDirect,  as the direct
advertising agency of Client for Client's  Diagnostic Centers for Men ("Product"
or "DCMs"). As used in this Agreement:  (i) "we", "us" and "our" shall be deemed
to mean DraftDirect; and (ii) "you" and "your" shall be deemed to mean Client.

1)   Services and Duties:  As your direct marketing  agency,  we will devote our
     best professional efforts toward conceiving,  developing,  and implementing
     effective direct marketing programs for Client as set forth on the Scope of
     Work attached hereto and made a part hereof as Appendices A1 and A2.

2)   Approvals:   Written estimates  in respect of each  program conceived by us
     hereunder  will be  submitted  by us to you before we incur any  expense in
     respect  of  such  program  and  reimbursable  by  you  hereunder,  and  no
     commitment will be made by us on your behalf unless specifically authorized
     by you in advance;  provided,  however, that in those situations where time
     or circumstances  will not permit giving you a specific written estimate in
     advance,  we may proceed with your verbal  approval of such  estimated cost
     and as soon thereafter as is practical, we will give you a specific written
     estimate  and you shall  give us  written  confirmation  of such  approval.
     Approval of estimates  shall  constitute  approval of the costs and charges
     included therein.  DraftDirect will not distribute,  publish,  broadcast or
     otherwise  disseminate  any material  which has not been approved by you in
     advance, and all modifications, revisions, combinations or reconfigurations
     of  any  previously   approved  materials  shall  require  your  additional
     approval.

3)   Charges: Charges for all services and materials shall be transmitted to you
     in accordance with the  DraftDirect  Statement of Billing Policy (a copy of
     which is  annexed  hereto  and made a part  hereof  as  Appendix  B) and in
     accordance with paragraph 4 of this Agreement.  You will pay those  charges
     as set forth in Appendix B and paragraph 4.

<PAGE>


4)  Billing  Practice:  Media,  radio and television  time and talent will be
    billed to you and will be due as provided in Appendix B, as will publication
    space, should any be placed by DraftDirect  on the Client's behalf and you
    agree to pay such bills within the time specified  on Appendix B. Bills for
    all non-media costs will be rendered to you monthly, as provided in Appendix
    B and, unless otherwise specified, such bills will be due and payable within
    fifteen (15) days from Client's receipt.  Client has the right to audit
    timesheets and billings at any time upon reasonable notice to DraftDirect.

5.  Releases: We will be responsible for securing all rights, releases, licenses
    and authorizations with respect to any proprietary or copyrighted materials,
    artwork, photographs, names, likenesses,  endorsements or any other property
    or rights  belonging  to any third party that may be required in  connection
    with the  advertising  prepared  by us pursuant  to this  Agreement,  unless
    otherwise specified by Client.

6.  Indemnification

    (a) You shall be responsible for the accuracy,  completeness and propriety
        of information  concerning  your  organization,  products,  competitors'
        products and services  which you furnish to  DraftDirect  in  connection
        with the performance of this Agreement. Accordingly, you shall indemnify
        and  hold  DraftDirect  harmless  from and  against  any  loss,  damage,
        liability,   claim,  demand,  suit  and  expense  (including  reasonable
        attorney's  fees)  ("Loss")  which may be incurred by DraftDirect as the
        result  of any  claim,  suit  or  proceeding  made  or  brought  against
        DraftDirect based upon the inaccuracy, incompleteness, or impropriety of
        such information.

        You shall also  similarly  indemnify  and hold  DraftDirect  harmless in
        respect of any Loss which  DraftDirect  may sustain  resulting  from any
        claim, demand, suit or proceeding made or brought against it arising out
        of the nature or use of any of your  products or  services,  as well as
        claims of  infringement  arising out of (i)  DraftDirect's  adherence to
        your   instructions  or  directions   which  do  not  involve  items  of
        DraftDirect's  origin,  design  or  selection,  (ii)  your  use  of  any
        materials  in  violation  of any third  party's  rights  therein when we
        previously  notified you in writing of the existence of such rights,  or
        (iii) material created by DraftDirect which you substantially changed.

    (b) DraftDirect  will  defend and  indemnify  you from any  action,  suit or
        proceeding  (including reasonable attorneys' fees) based upon or arising
        out of any final judgment for money damages resulting from:

          (i)  libel, slander, defamation, or

         (ii)  any infringement of copyright or of title or slogan, or


<PAGE>

       (iii)   piracy,  plagiarism,  or unfair competition or idea
               misappropriation under implied contract, or

        (iv)   any  invasion  of  privacy,  committed  or  alleged  to have been
               committed in any advertisement,  publicity article,  broadcast or
               telecast  and  arising  out  of  DraftDirect's  services  to  you
               hereunder,  except  for  such  claims  which  arise  out  of  the
               circumstances set forth in paragraph 6(a) above.

     (c) Upon the  assertion  of any  claim or the  commencement  of any suit or
     proceeding  against an  indemnitee by any third party that may give rise to
     liability of an indemnitor hereunder,  the indemnitee shall promptly notify
     the indemnitor of the existence of such claim and shall give the indemnitor
     a  reasonable  opportunity  to defend  and/or  settle  the claim at its own
     expense and with counsel of its own selection.  The  indemnitee  shall make
     available to the indemnitor all books and records relating to the claim and
     the parties agree to render to each other such assistance as may reasonably
     be  requested  in  order  to  ensure  a proper  and  adequate  defense.  An
     indemnitee  shall not make any  settlement  of any claims  which might give
     rise to  liability of an  indemnitor  hereunder  without the prior  written
     consent of the indemnitor.

     (d) In the event of any proceeding  against you by any regulatory agency or
     in the event of any court action or self-regulatory  action challenging any
     advertising  prepared  by us  pursuant  to this  Agreement,  which claim or
     action is not  covered by  obligations  to hold  harmless  herein,  we will
     assist you in the  preparation  of the defense of such action or proceeding
     and cooperate  with you and your  attorneys.  You will reimburse us for any
     out-of-pocket  costs we may  incur in  connection  with any such  action or
     proceeding.

     (e) This  paragraph,  insofar as it applies to work  undertaken  while this
     Agreement is in effect, shall survive the termination of this Agreement.

7) Duties on Third Party  Contracts:  DraftDirect's  agreements  with the Screen
Actors  Guild  ("SAG")  and the  American  Federation  of  Television  and Radio
Artists, ("AFTRA") provide for DraftDirect to be ultimately liable to performers
for  payments  that may become due because of use of  commercials  by you or the
DCMs. Therefore, you will indemnify DraftDirect against any Loss DraftDirect may
sustain  resulting from any claim,  suit or proceeding  made or brought  against
DraftDirect for use of any DraftDirect  produced  commercials  used by you, your
employees,  the DCMs,  authorized agents or by anyone who obtained the materials
from you  when  such  claim,  suit or  proceeding  arises  out of  DraftDirect's
obligations under the applicable SAG and AFTRA union codes or contracts relating
to the production of commercials.  The provisions of this paragraph will survive
the termination of this Agreement.

8)  Insurance:  We agree to obtain and maintain in force during the term of this
Agreement, at our sole expense, an Advertising Agency Liability Insurance policy
having a minimum limit of liability of $1,000,000.

9)   Copyright: We will endeavor to obtain for you to the extent you may request
     and  at  your  sole  expense,  copyright  protection  with  respect  to any
     advertising created for you pursuant to this Agreement.

10)     Term of Agreement/Termination:  The initial term of this Agreement shall
        be the period  beginning on October 2, 1996 and ending on  September 30,
        1997.  Notwithstanding the preceding sentence,  either party hereto may
        elect an early termination of this Agreement to be effective on or after
        May 1, 1997 by giving  written  notice to the other party at least sixty
        (60) days prior to the early termination date. Further,  notwithstanding
        anything in this Agreement to the contrary,  should  Pharmacia & Upjohn,
        Inc. ("PUI"), pursuant to the Conflict of Interest Agreement between PUI
        and  DraftDirect,  request that either:  (i) a "firewall" be constructed
        between the DraftDirect teams handling your account and the PUI account;
        or (ii) DraftDirect  move your account to DraftDirect's  Chicago office,
        then you may elect to terminate this Agreement  ("Special  Termination")
        by giving  written notice to DraftDirect at least thirty (30) days


<PAGE>


     prior to such Special  Termination  date. Either party hereto may terminate
     this  Agreement as of the end of the initial term by giving  written notice
     to the other party on or before  August 1 1997.  If this  Agreement  is not
     terminated as of the end of the initial term,  then  thereafter the term of
     this Agreement  shall continue from month to month until such time as it is
     terminated  at the  end of a  month  by one of the  parties  hereto  giving
     written  notice to the other  party at least  sixty  (60) days prior to the
     termination date. Upon termination, the following shall apply:

     (a) Upon the  termination  of this  Agreement,  we shall  cease all work in
     process and return all  property  belonging to and paid for by you which is
     in our possession. Any work in process completed as of the termination date
     and paid for by you shall be turned over to you. We will cooperate with you
     to minimize the  interruption of the flow of work caused by the termination
     and the appointment of another advertising agency.

     (b) Any  non-cancelable  contract  or  commitment  made with  your  written
     authorization,  and still  existing at the  expiration  of this  Agreement,
     shall be carried to  completion by  DraftDirect  and paid for by you unless
     mutually  agreed  in  writing  to the  contrary,  in  accordance  with  the
     provisions of this  Agreement.  Any materials or services  DraftDirect  has
     committed to purchase for you (or any uncompleted work previously  approved
     by you either  specifically  or as part of plan),  shall be paid for by you
     and  DraftDirect  shall  receive  applicable  compensation  as  outlined in
     Appendix B. DraftDirect will not enter into any non-cancelable  contract or
     agreement  extending beyond the initial term of this Agreement  without the
     written authorization of Client.

     (c) We will reasonably  cooperate with you in transferring to you, with the
     approval of the third parties in interest,  all  reservations and contracts
     for time, space,  talent,  direct mail services and other materials entered
     into by us for your  benefit  pursuant  to this  Agreement  upon being duly
     released from the  obligation  thereof.  You will arrange for you to become
     directly  responsible for the timely payment or timely  cancellation of all
     such reservations and contracts, including residuals. To the extent that we
     remain  liable for any payments on such  reservations  and  contracts,  you
     shall  reimburse us for any such  payments made by us regardless of whether
     such payments are made before or after the termination date.

     (d) As between you and us, all  trademarks,  trade names,  slogans,  ideas,
     logotypes and copyrightable  materials created for you or at your direction
     pursuant to this Agreement which are paid for by you shall be your sole and
     exclusive property,  and we will render all reasonable  assistance to serve
     and perfect such rights in you as you may direct.  We agree to turn over to
     you any copy, artwork,  plates or other physical embodiment of the creative
     work relating to such trademarks,  trade names, slogans,  ideas,  logotypes
     and copyrightable materials which may be in our possession on termination.

     (e) We will not be  entitled  to any  payment  from you in  respect  to any
     services  or  facilities  rendered  or used,  or any time,  space,  talent,
     services or materials secured,  purchased,  or contracted for by us for you
     in connection with advertising published, broadcast or printed or otherwise
     presented or displayed after the termination date of this Agreement except:
     when  art,  mechanical  production,  television  or radio  commercials  are
     purchased by us, or  commissionable  list rentals are committed to, in each
     case with your  approval  before  termination,  and are used only after the
     effective  date of  termination,  we shall be  entitled  to payment for the
     original cost of such art, mechanical production, television or


<PAGE>



     radio  commercial  or on the amount of rental with respect to such list, if
     applicable.

11)     Notice:  Notice of termination and any other notice to be given pursuant
        to this Agreement  shall be in writing and sent to the addresses  listed
        above  by  postage  prepaid  mail or  overnight  courier  service  or by
        facsimile  (with a confirming  copy mailed) to a number  provided by the
        other party or to such other  address or facsimile  number as shall last
        have been  specified  in  accordance  herewith.  Any notice sent by mail
        shall be deemed to have been given five (5)  business  days after  being
        mailed.  Any other notice shall be deemed to have been given upon actual
        receipt thereof by the other party hereto.

12)     Equal  Employment  Opportunity.  Our  policy  with  respect  to  equal
        employment  opportunity and  affirmative  action is attached as Appendix
        C, and is hereby incorporated by reference as if fully set forth herein.

13)     Personal Service  Contract:  This is a personal service contract and is
        not assignable without the prior written consent of the non-assigning
        party.

14)     Agent  Status:  All  liabilities,  obligations  and duties  imposed on
        DraftDirect  pursuant to the purchase of services,  materials or media
        on your behalf  hereunder  shall be purchased as agent for a disclosed
        principal.

15)     Confidentiality:  DraftDirect shall take reasonable steps to ensure that
        proprietary  information supplied by you is not disclosed to any person,
        firm or corporation,  and  DraftDirect  agrees that it will not use such
        proprietary  information  other than in connection with its rendering of
        services  hereunder.  DraftDirect may disclose  proprietary  information
        already known to DraftDirect  prior to disclosure by you, or information
        that is in the public  domain,  or  information  which is  independently
        developed by DraftDirect,  or as otherwise required by any government or
        court  order.  In the course of  performing  the  services  required  of
        DraftDirect  under this Agreement  DraftDirect may disclose  proprietary
        information as you shall have approved for disclosure. DraftDirect shall
        inform you of all requests  for such  information  by third  parties and
        shall only provide same when legally compelled to do so.

16)     Protection  of  Client's  Property:  DraftDirect  shall take  reasonable
        precautions  to  safeguard  your  property  entrusted  to  DraftDirect's
        custody or control,  but in the absence of gross negligence on its part,
        DraftDirect will not be responsible for its loss, damage, destruction or
        unauthorized use by others.

17)     Right To Modify Plans: You reserve the right to modify,  reject,  cancel
        or stop any and all plans,  schedules or work in process. In such event,
        DraftDirect  will  immediately  take  proper  steps  to  carry  out your
        instructions.  In turn, you agree to assume DraftDirect's  liability for
        all authorized  commitments;  to reimburse  DraftDirect for all expenses
        incurred;  to pay  DraftDirect any related service charges in accordance
        with the provisions of this Agreement;  and to indemnify DraftDirect for
        all claims and actions by third  parties for damages and  expenses  that
        result from carrying out your instructions.

18)     Failure of Media and  Suppliers:  DraftDirect  shall  endeavor  to guard
        against  any  loss to you as the  result  of the  failure  of  media  or
        suppliers to properly  execute their  commitments,  but DraftDirect will
        not be responsible for their failure, as long as DraftDirect is diligent
        in the oversight and management of such suppliers.


<PAGE>


19)     Service  to Your  Designees:  Should  you  request  DraftDirect  to make
        purchases  or  render  services  to  third  parties  (such  as  dealers,
        distributors or franchisees),  you and such third party shall be jointly
        and severally liable to DraftDirect  even though  DraftDirect may render
        invoices to, or in the name of the third party.

20)     Entire Agreement:  This Agreement  constitutes the entire agreement with
        respect  to the  subject  matter  hereof,  and may only be  modified  or
        amended  in a  writing  signed  by the  party to be  charged  with  such
        modification or amendment.

21)     Waiver:  No waiver of any  provision or of any breach of this  Agreement
        shall  constitute a waiver of all other  provisions or any other breach,
        and no such waiver shall be effective  unless made in writing and signed
        by an  authorized  representative  of such party.  In the event that any
        provision or this Agreement shall be illegal or otherwise unenforceable,
        such provision shall be severed,  and the balance of the Agreement shall
        continue in full force and effect.

22)     Construction:  This  Agreement  shall be deemed  made under and shall be
        governed by the substantive  laws of the State of Kansas,  excluding its
        conflicts of laws rules.

23)     Exclusivity: During the term of this Agreement, except for the companies
        listed on Appendix D, we agree not to render  marketing  or  advertising
        services for  individuals  or entities  (other than Client and the DCM's
        hereunder) in the business of the diagnosis and treatment of male sexual
        dysfunction.

If the foregoing is in accordance  with your  understanding  and is agreeable to
you,  please so indicate by signing and  returning to us the enclosed  duplicate
original  of this  letter,  the Scope of Work  attached  as  Appendix  A and the
Statement of Billing Policy attached as Appendix B.

Sincerely,

DraftDirect Worldwide, Inc.


BY: /s/ Howard Draft
--------------------
TITLE: President
Dated: December 4, 1996

AGREED AND ACCEPTED:

NAME: Integrated Medical Resources, Inc.


BY: /s/ T. Scott Jenkins
------------------------
TITLE: President
Dated: December 16, 1996




<PAGE>


                                  (APPENDIX A1)

                           DRAFTDIRECT WORLDWIDE, INC.
                                  SCOPE OF WORK

DraftDirect will serve as the Direct Marketing  consultant for IMR, dedicated to
the  establishment  of a direct  marketing  management  system and  creation  of
long-term creative and marketing positionings.

In  coordination  with IMR, the Agency will evaluate  existing  creative,  media
strategies,  evaluate performance by area and recommend resting and/or strategic
changes  with the  intent of  maximizing  traffic  into the  centers  as well as
improving the percentage of patients who complete the two-visit process.

With respect to each of the Agency's  individual  disciplines,  DraftDirect will
provide services including:

Account Management
------------------

1.  Strategic development, evaluation and analysis leading to specific marketing
    and creative  recommendations  that establish DCM as the preeminent provider
    of impotence treatments.
2.  Marketing   counsel,   overall   as   detailed   above  and   including
    market-by-market evaluations.
3.  Strategic input leading to recommendations for media and creative driven
    testing.
4.  Strategic input leading to recommendations for promotional offers and/or
    opportunities,
    as deemed appropriate.
5.  Strategic input, in conjunction with Media, on evaluating new markets.
6.  Development of formal creative briefing documents.
7.  Presentation to Client, revisions as appropriate and marshaling same through
    Client approval process.
8.  Sheparding the creative process.

DraftDirect Media Planning
1.   Review all existing media plans, schedules and buys for DCM.
2.   Assess media mix by market. media vehicle, weight levels, broadcast station
     and newspaper.
3.   Recommend strategic and executional revisions for existing markets, with
     the goal of reduced CPL and CPP.
4.   Revise media plans, per above assessment, for all existing markets.
5.   Develop launch and on-going media plans for all new markets.
6.   Design media and non-media (e.g. creative, promotion) tests to ensure
     readable, projectable tests that:
        - isolate variables
        - determine adequate samples
        - assess statistical significance of results

DTG
Will be determined by separate agreement.


<PAGE>


                                  (APPENDIX B)


                           DRAFTDIRECT WORLDWIDE, INC.
                           STATEMENT OF BILLING POLICY


For the  purposes  of this  Statement  of Billing  Policy:  "Client"  shall mean
Integrated  Medical  Resources,  Inc.;  and  "Client's  Product Line" shall mean
Client's Diagnostic Centers For Men.

The term  "net  cost",  as used  herein,  shall  mean  the  gross  rate  charged
DraftDirect Worldwide,  Inc. ("DraftDirect ") by a third party, less any and all
related   discounts   (other  than  cash   discounts),   rebates,   commissions,
differentials,   and  similar  items  paid  or  allowed  by  a  third  party  to
DraftDirect.

All cash discounts  allowed by media are offered to the Client predicated on the
understanding  that the advertiser's  funds are in the hands  DraftDirect at the
time DraftDirect is required to make payment.

                              A. BILLING PROCEDURES
                              ---------------------

1.      Charges for DraftDirect Staff
        -----------------------------

        Client  will pay  DraftDirect  on a fee  basis as its sole  compensation
        under this Agreement as follows:

     a) Client will pay DraftDirect a Direct Marketing  Management System Fee of
     $336,400  for the initial  term of the  Agreement  (as defined in the first
     sentence of Section 10 of the Agreement) to compensate  DraftDirect for the
     services  described  in the Scope of Work  attached  hereto as Appendix A1.
     DraftDirect  will send an invoice at the  beginning of each month to Client
     for $28,033 per month,  commencing effective October 2, 1996. Should either
     party elect early  termination  pursuant to Section 10 of the  Agreement or
     should  you elect a  Special  Termination  pursuant  to  Section  10 of the
     Agreement,  the Direct  Marketing  Management  System Fee shall be equal to
     $28,033 per month  through the  effective  date of such early  termination.
     Should this  Agreement  extend beyond the initial term,  the parties hereto
     will agree in writing to the  Direct  Marketing  Management  System Fee for
     periods subsequent to September 30, 1997.

     b) Client will pay  DraftDirect  an Agency Fee of $800,400  for the initial
     term of the  Agreement  (as defined in the first  sentence of Section 10 of
     the Agreement) to compensate  DraftDirect for the services described in the
     Scope of Work  attached  hereto as Appendix  A2.  DraftDirect  will send an
     invoice at the  beginning  of each month to Client for  $66,700  per month,
     commencing  effective  October 2, 1996.  Should  either  party  elect early
     termination  pursuant to Section 10 of the  Agreement or should you elect a
     Special Termination pursuant to Section 10 of the Agreement, the Agency Fee
     shall be equal to $66,700  per month  through  the  effective  date of such
     early  termination.  Should this Agreement  extend beyond the initial term,
     the  parties  hereto  will agree in  writing to the Agency Fee for  periods
     subsequent to September 30, 1997.

     c)  DraftDirect  will  record  all  time  spent  by  DraftDirect's   people
     performing  the services set forth in the Scope of Work attached  hereto as
     Appendices A1 and A2, at DraftDirect's


<PAGE>


     standard  hourly  rates.  Current  rates are shown on  Schedule  1 attached
     hereto,  but are  subject to change  upon not less than  thirty  days prior
     notice if  DraftDirect  initiates a rate increase for all clients served by
     the same  DraftDirect  office.  If, at the end of the  initial  term of the
     Agreement (as defined in Section 10 of the Agreement) the Direct  Marketing
     Management  System Fee and/or the Agency Fee  exceeds  the amount due under
     DraftDirect's  standard  hourly rates,  DraftDirect  will in either or both
     cases  rebate such excess to Client.  If, at the end of the initial term of
     the  Agreement (as defined in Section 10 of the  Agreement)  the amount due
     under  DraftDirect's  standard  hourly rates  exceeds the Direct  Marketing
     Management System Fee and/or the Agency Fee, no additional  amounts will be
     due DraftDirect by Client.

        d)     Client and  DraftDirect  will  agree in writing on  DraftDirect's
               compensation for any service beyond the services described in the
               Scope of Work attached hereto as Appendix A.

2.      Media Advertising
        -----------------

        All media  advertising  will be billed  to Client at  DraftDirect's  net
        cost.

3.      Charges for Creative and Production Services
        --------------------------------------------

        Any purchased creative and preproduction services, including layout, art
        production  (photography  and  illustration,  photostats,  model  fees,
        keylining, etc.), and engravings or separations for direct mail or other
        print  media  will  be  billed  at  DraftDirect's  net  cost.  Broadcast
        production,  studio time, artwork, audio/visual production materials and
        duplicates of video tapes,  films,  or recordings also will be billed at
        DraftDirect's  net cost.  The  estimate of the charges for  creative and
        production services during the initial term of the Agreement is attached
        hereto as Appendix E. This estimate will not be exceeded unless approved
        in writing by Client.

4.       Charges for DirectMail Advertising
        ----------------------------------

        While Client will handle all printing,  addressing,  and mailing, should
        DraftDirect  be asked to perform these duties,  all printing,  paper and
        lettershop services will be charged at DraftDirect's net cost.

5.      Charges for Our-of-Pocket Expenses
       ----------------------------------

        Expenses for travel must be approved in writing by Client. Messenger and
        overnight   delivery   services,   and  other   approved   out-of-pocket
        expenditures needed for management of Client's account will be billed by
        DraftDirect  and charged at DraftDirect  net cost.  All travel  expenses
        will be estimated in a monthly  travel  budget to be approved in advance
        by Client and billed to Client at DraftDirect  net cost. The estimate of
        the charges for travel and miscellaneous  out-of-pocket  expenses during
        the initial term of the Agreement is attached hereto as Appendix E. This
        estimate will not be exceeded unless approved in writing by Client

6.      Charges for Research and Other Forms of Advertising

        Out-of-pocket  expenses incurred in conducting  research and advertising
        other than media  advertising or direct mail  advertising will be billed
        at DraftDirect's net cost.


<PAGE>


Postage and Office Expense

        DraftDirect  will  pay  all  United  States  postage  incidental  to the
        necessary  routine  conduct  of  business.  This  covers  correspondence
        between DraftDirect and Client, suppliers, publishers, etc. and includes
        postage on mailing of orders, cancellations and revisions, etc.

Should  DraftDirect be required to advance postage for a mailing on the Client's
behalf,  DraftDirect  will bill the Client for the cost of postage  plus a seven
percent (7%) service charge.

                         B. INVOICE AND REPORT SCHEDULE

<TABLE>
<CAPTION>
                                                                                    Payment
                                                       Example                     Schedule
                                                       -------                     --------
<S>                                          <C>                                  <C>

1.   Media Payments Secured By
    a Letter of Credit

    To the extent that DraftDirect's  liability for media payments is secured by
    a Letter of Credit from Client's  Bank,  the Invoicing and Payment  Schedule
    will be as follows:

    a.   DRTV Network                                                               15 days
         ------------                                                               -------

    Prebill invoiced on the 30th of          October broadcast schedule
    the broadcast month                        is invoiced by Oct. 30

    Reconciliation of Prebill invoices          October DRTV Prebills
    during 2nd month following                 reconciled and invoiced
    broadcast month                            or credited by Dec. 31

</TABLE>


<PAGE>


                                   SCHEDULE I

                           DRAFTDIRECT WORLDWIDE, INC.
                          STANDARD HOURLY BILLING RATES
                                      1996


CHICAGO & NEW YORK OFFICES
--------------------------


               JOB FUNCTION                                      BILLING RATE
               ------------                                      ------------
               Chairman                                              $250
               President/General Manager                             $250
               Senior Management                                     $185
               Research Director                                     $185
               Account Management                                    $145
               Account Staff                                          $95
               Creative Management                                   $145
               Copy Supervisor/Art Director                          $105
               Creative Staff                                         $85
               Production Management                                 $145
               Media/Production Director                             $105
               Media Buyer/Planner                                    $75
               Media/Production Staff                                 $55
               Support Management                                     $70
               Support Services                                       $35


DTG GROUP
---------

               JOB FUNCTION                                      BILLING RATE
               ------------                                      ------------
               Director                                              $225
               Senior Management                                     $185
               Practice Management                                   $150
               Project Management                                    $135
               Senior Consultant/Manager                             $100
               Senior Data Analyst                                   $100
               Senior Programmer                                     $100
               Consultant                                             $80
               Programmer                                             $80
               Data Analyst                                           $80
               Associate Consultant                                   $60
               Data Entry                                             $40
               Support Management                                     $70
               Support Services                                       $35


<PAGE>


                                  (APPENDIX D)


1.      Pharmacia & Upjohn Company

        Product - Caverject




<PAGE>


                                         (APPENDIX E)

DRAFTDIRECT WORLDWIDE LETTERHEAD

November 21. 1996

Julian Parreno
V.P. Marketing & Sales
IMR
8326 Melrose Drive
Lenexa Kansas 66214


Dear Julian;

In light of our conversation yesterday, I thought it would be helpful to clarify
our production budget discussion in writing.

Our  original  production  budget  estimate  called  for  $130,000  to cover the
production  of  generic  masters  of  print.  radio and TV which  would  then be
tailored.   Additionally   we  had  $24,000   identified  to  cover  travel  and
miscellaneous  expenses  (see  attached).  As  discussed,  these amounts are not
indicated  in the monthly  agency fee  included  in the  contract.  Instead,  as
outlined in the  contract,  these  expenses  will be  estimated  on a project or
quarterly basis

Now, in light of your budgetary  constraints,  we will seek to confine the total
production.  travel and miscellaneous costs to $154,000, including tailoring. To
accomplish  this,  we have asked  Martha to  provide us with the costs  incurred
modifying  your  current  creative  for  tagging  and we'll need to  continue to
monitor these tailoring expenses.

I hope this is helpful. Please call me with any questions.

Cordially,

/s/ Lawrence M. Kimmel

Lawrence M. Kimmel
Senior Vice President
Group Account Director

cc:      S. Jenkins, B. Elving, M. Welshans, M. Cohen



<PAGE>


                                  (APPENDIX E)


PRELIMINARY OOP ESTIMATES
-------------------------


ADVERTISING PRODUCTION


Newspaper:  10 ads* (6 ongoing, 4 test)                   $50,000
Radio:  4 second (live voice-over*)                        $5,000
DRTV: 1 spot**                                            $75,000
                                                          -------

SUBTOTAL                                                 $130,000


Travel                                                    $20,000
Miscellaneous                                              $4,000

TOTAL                                                    $154,000

        *      Through "generic" ad production
        **     Contingent on availability of stock and/or existing footage

<PAGE>

                                          EXHIBIT 11

                        INTEGRATED MEDICAL RESOURCE'S INC. AND CENTERS

                       NET LOSS PER COMMON AND COMMON EQUIVALENT SHARE
<TABLE>
<CAPTION>

                                                            YEAR ENDED DECEMBER 31
                                                            1996               1995
                                                     --------------------------------------
<S>                                                  <C>                    <C>
NET LOSS PER COMMON AND
   COMMON EQUIVALENT SHARE

   Net loss                                               $  (6,518,546)    $  (1,154,331)
                                                     ======================================

   Weighted average common shares
     outstanding                                               3,481,832         2,899,680
   Shares of common stock issuable upon
     exercise of options  issued with an
     exercise price below the initial public
     offering price (determined using the
     "treasury stock method")                                     92,078           109,755
                                                     --------------------------------------

   Weighted average common and common
     equivalent shares outstanding                             3,573,910         3,009,435
                                                     ======================================

   Net loss per common and
     common equivalent share                           $          (1.82)    $       (0.38)
                                                     ======================================

PRO FORMA NET LOSS PER COMMON
   AND COMMON EQUIVALENT SHARE

   Net loss                                               $  (6,518,546)    $  (1,154,331)
                                                     ======================================

   Weighted average common shares
     outstanding                                               3,481,832         2,899,680
   Shares of common stock issuable upon
     exercise of options  issued with an
     exercise price below the initial public
     offering price (determined using the
     "treasury stock method")                                     92,078           109,755
   Additional shares of common stock
     outstanding as if conversion of all shares
     of preferred stock into common stock had
     occurred at the date of issuance of the
     preferred stock                                           1,240,219            35,542
                                                     --------------------------------------

   Weighted average common and common
     equivalent shares outstanding                             4,814,129         3,044,977
                                                     ======================================

   Net loss per common and
     common equivalent share                           $          (1.35)    $       (0.38)
                                                     ======================================

</TABLE>

<PAGE>


                                   EXHIBIT 21



                 INTEGRATED MEDICAL RESOURCES, INC. SUBSIDIARIES
                                (AS OF 12/31/96)


                                                                 STATE OF
  NAME*                                                        INCORPORATION
  -----                                                        -------------

  IMR Integrated Diagnostics, Inc.                             Texas
  IMR Integrated Diagnostics of Florida, Inc.                  Florida
  IMR Integrated Diagnostics of Oklahoma, Inc.                 Oklahoma
  IMR of Arizona, Inc.                                         Arizona
  IMR of Connecticut, Inc.                                     Connecticut
  IMR of Illinois, Inc.                                        Illinois
  IMR of Indiana, Inc.                                         Indiana
  IMR of Michigan, Inc.                                        Michigan
  IMR of Nevada, Inc.                                          Nevada
  IMR of Ohio, Inc.                                            Ohio
  IMR of Virginia, Inc.                                        Virginia
  IMR of Wisconsin, Inc.                                       Wisconsin
  Integrated Diagnostics, Inc.                                 New York
  Integrated Medical Resources of California, Inc.             California
  Integrated Medical Resources of Colorado, Inc.               Colorado
  Integrated Medical Resources of Massachusetts, Inc.          Massachusetts
  Integrated Medical Resources of Pennsylvania, Inc.           Pennsylvania


  *  None of the subsidiaries are operating or doing business under a fictitious
     name