<PAGE>   1

                                                                    EXHIBIT 13.1


-------------------------------------------------------------1996 ANNUAL REPORT 

                                 [PHOTOGRAPH
                              ABR COMMONS BUILDING]

                                   [ABR LOGO]
<PAGE>   2


ABR INFORMATION SERVICES, INC.--------------------------------------------------

A Brief History

        ABR has undergone a dramatic evolution since beginning 1987. Having 
proven itself in the most difficult area of benefits administration, ABR has
leveraged its reputation, systems and procedures to provide a complete
outsourcing solution for many health and welfare benefits.

         Initially, ABR defined itself as a COBRA compliance company through
the operations of what is now ABR CobraServ (COBRA is a portable healthcare
benefit mandated by a federal regulation known as COBRA -- the Consolidat-ed
Omnibus Budget Reconciliation Act of 1985.) CobraServ has grown since then to
become the nation's largest COBRA compliance administrator.  

         ABR developed a long term strategy to add services and leverage its 
systems expertise in benefits and its large customer base. Coincidentally, our
growing list of large clients began requesting our help in other areas of
benefits administration. We introduced services related to healthcare benefits
for inactive employees, retirees and open enrollment administration.

         In 1993, ABR began to explore the larger universe of services related
to active employees. While COBRA participants represent 2% of the work force,
active employees represent the other 98%, a significantly larger market. We
found an extremely strong trend on the part of employers seeking to "outsource"
such active employee administration functions. We also found that our systems
and methodologies were ideal for performing such tasks. Much stronger, in fact,
than other capabilities available in the marketplace. In May of 1994, ABR
completed its Initial Public Offering (IPO) and raised $11 million to further
expand its systems and capabilities.

         Through internal development and the acquisition of specialized
benefits administrators, ABR has significantly expanded its capabilities to
include a full range of services focusing on active and retired employees as
well as COBRA services. In 1996 we completed a secondary offering raising over
$151 million that significantly strengthens our financial position. We have
successfully implemented "Total Benefits Outsourcing" services for active
employees with one of the nation's most prestigious companies--and have taken
on broad-based administration for other companies, including one with more than
200,000 employees.

         Today, ABR is the nation's leading administrator of employee health
and welfare benefits. Over 21,000 companies, encompassing more than 10 million
employees, dependents and retirees, rely on ABR's specialized services to
administer their benefit programs. With the most enviable client list and
service offerings in the industry, ABR is the leader in this unique but large
emerging market.

                            [GRAPHIC IMAGE OF ABR'S
                           SERVICES AND CLIENTS TYPES]

CONTENTS------------------------------------------------------------------------

1   Financial Highlights
2   Letter to Shareholders
4   Company Overview
10  Selected Financial Data
11  Management's Discussion/Analysis
14  Statements of Income
15  Balance Sheets
16  Statements of Shareholders' Equity
17  Statements of Cash Flows
18  Notes to Financial Statements
27  Report of Independent CPA
28  Corporate and Shareholder Information
29  Directors and Officers


<PAGE>   3


-----------------------------------------------------------*FINANCIAL HIGHLIGHTS
                                            (In Thousands Except Per Share Data)




<TABLE>
<CAPTION>
---------------------------------------------------------------------------------
RESULTS OF OPERATIONS- YEAR ENDED JULY 31,     1995             1996     CHANGE 
---------------------------------------------------------------------------------
<S>                                             <C>           <C>           <C>
Revenue                                         $ 18,835      $ 31,162       66%
Net income                                      $  2,794      $  5,674      103%
Net income per share                            $    .28      $    .49       75%
Weighted average shares outstanding, primary      10,001        11,534       15%

<CAPTION>
---------------------------------------------------------------------------------
FINANCIAL POSITION - JULY 31,                    1995           1996      CHANGE
---------------------------------------------------------------------------------
<S>                                             <C>           <C>           <C>
Cash and investments                            $ 24,377     $  161,199      561%
Total assets                                    $ 33,191     $  202,574      510%
Working capital                                 $ 14,192     $  145,825      928%
Long term debt                                  $     --     $       --      $--
Total shareholders' equity                      $ 19,213     $  181,150      843%
</TABLE>





      Revenues         Net Income        Net Income             Total         
                                         Per Share       Shareholders' Equity 
   (in millions)     (in millions)      (in dollars)        (in millions)     
                                                                               
                                               
                                               
        [GRAPH            [GRAPH           [GRAPH             [GRAPH    
      1993 - 1996]      1993 - 1996]     1993 - 1996]       1993 - 1996]
                                                 
                                                 
                                              

  *Restated for the three-for-two stock splits completed on July 13, 1995 and
        February 19, 1996 and an acquisition by a pooling of interest.


                                                                            1
<PAGE>   4
                                  [PHOTOGRAPH]

                             James E. MacDougald
                            Chairman of the Board
                    President and Chief Executive Officer
                                  

TO OUR SHAREHOLDERS-------------------------------------------------------------

         ABR's second full year as a public company was a truly remarkable one,
as we exceeded all of our goals. For the year ended July 31, 1996, revenues
increased 66% to $31.2 million compared with $18.8 million last year. Net
income increased 103% to $5.7 million compared to $2.8 million last year. Net
income per share increased to $.49 compared to $.28, despite an increase in the
weighted average number of shares outstanding due to the Company's secondary
offering in March, 1996. In that offer-ing, ABR attracted some of America's
best-known growth investors, raising over $151 million (net). Our balance sheet
continues to strengthen, with assets increasing six-fold to over $200 million.
With cash and investments of over $160 million and no debt, we have the
flexibility and resources to fuel our continued growth -- both internal and
through acquisition opportunities.

         During the year, ABR continued to expand its infrastructure, client
base and service offerings. We added more than 3,000 clients, boosting our
client base to over 21,000, including many "Fortune/Forbes 500" employers
across all industries. Even as our core business grew tremendously, we began
transforming ABR into a multi-dimensional company through internal development
and acquisitions. ABR broadened its reach in benefits administration
outsourcing during the year, increasing its non-COBRA revenue from 8% of the
total to 36%. We added a number of services including FSA (Flexible Spending
Account) administration, QDRO (Qualified Domestic Relations Order)
administration, Educational Benefits administration, and Total Benefits
administration.

         Through the acquisitions of Bullock Associates (renamed ABR Benefits
Services, Inc.) and Total Cobra Services, Inc., we added several new service
offerings, increased our COBRA and Retiree Service market share, and
established a presence on the West Coast. The acquisition of The L.P. Baier
Company gave us an immediate entry into the fast-growing area of FSA
administration.

         Late in fiscal 1996, ABR implemented "Total Benefits Outsourcing"
services for a "Fortune/Forbes 100" company, performing central eligibility
administration functions for all of their health and welfare benefit plans. To
capitalize on these capabilities, which we believe are unmatched in the nation,
we are marketing them to other large prospects through broad-based advertising
and direct marketing efforts.

         Subsequent to year end ABR added Vincent Addonisio, Executive  Vice
President and Chief Financial Officer, to the Board of Directors to replace the
retiring Stephen R. Hood. Steve, who has served ABR in various capacities
during the last ten years, continues to be a friend to ABR, and we wish him
continued good health and future success.  

         With all of this year's accomplishments, we firmly believe that ABR's 
best is yet to come and look forward to another great year in '97. Thank you
for your continued support. Cordially,

           [SIGNATURE]


                                  [PHOTOGRAPH
                                    OVERHEAD
                                   CONFERENCE]

2                                  
<PAGE>   5



1996: A YEAR OF ACCOMPLISHMENTS-------------------------------------------------

-        Twelve consecutive record quarters of over 30% growth in revenues 
         and earnings reported.

-        Stock price up 263%.

-        Stock split three-for-two on February 19, 1996.

-        Completed a secondary public offering, raising over $151 million.

-        Customer base increased from 18,000 to 21,000, involving more than 10 
         million covered employees, retirees and dependents.

-        Acquired Bullock Associates, Inc. of Princeton, NJ (now called ABR 
         Benefits Services, Inc.) to broaden our service offerings.

-        Acquired Total Cobra Services, Inc. of Irvine, CA to increase COBRA 
         and Retiree Services market share while establishing a geographic 
         presence on the West Coast.

-        Implemented "Total Benefits Outsourcing" operations for a high-profile
         Fortune 100 company.

-        Extensive computer system upgrade and expansion
         proceeded on schedule.

-        Cutting edge technologies implemented, including OCR (Optical 
         Character Recognition), IVR (Interactive Voice Response) and EDI 
         (Electronic Data Interchange).

-        Acquired The L.P. Baier Company of Fairfax, VA and gained immediate 
         entrance into the FSA administration market.

-        Forbes Magazine named ABR one of the "200 Best Small Companies in 
         America" for the second year in a row.

                                  TOTAL ASSETS

                                    [GRAPH
                                  1992 - 1996]

                              BOOK VALUE PER SHARE

                                    [GRAPH
                                  1992 - 1996]

                                   MARKET CAP

                                    [GRAPH
                                  1994 - 1996]

                                  [PHOTOGRAPH
                                 MAN AT CAPITAL
                                    BUILDING]

                                                                        3
<PAGE>   6


ABR INFORMATION SERVICES, INC.
COMPANY PROFILE-----------------------------------------------------------------

         Created as a holding company in 1994, ABR Information Services, Inc.
is recognized as the leader in the employee benefits administration field. The
company provides benefits administration services on an "outsourcing" basis to
employers of all sizes--offering them an "a la carte" menu of services from
which to choose. They may also have ABR provide a "Total Benefits Outsourcing"
solution. The company derives its revenue in 3 main areas of operation:


                                  [PRO FORMA
                                     WITH
                                  ACQUISITIONS
                                   PIE CHART]
                                   



COBRA SERVICES--PORTABLE HEALTHCARE---------------------------------------------

         ABR delivers employee health benefits "portability" administration
services primarily through its ABR CobraServ subsidiary, the nation's largest
independent "COBRA" compliance service bureau, as well as through other
subsidiaries.  With more than 21,000 clients, ABR helps employers adhere to
strict and complex federal mandates that require employers to offer continuing
healthcare coverage to employees and dependents who would otherwise lose their
group health coverage due to termination of employment or other factors. 2

-        21,000+ customers

-        Prospective universe of more than 650,000 employers plus public sector

-        ABR leads market with 3%
         market share

-        Most employers, approximately 94%, administer
         in-house
       
RETIREE AND INACTIVE EMPLOYEE SERVICES------------------------------------------

         A natural extension of its COBRA operations, Retiree and Inactive
Employee benefits administration assists employers with ex-employees and their
dependents. This is a special subset of the employers' benefits administration
activities. Employers desire to fulfill their promises and obligations to these
individuals, but realize that their primary focus must be on their active
operations -- and their active employees. ABR provides services such as retiree
billing, vestee servicing, retiree services, open enrollment administration,
FMLA (Family Medical Leave Act) services and general billing services for
non-employees.

-        60 large clients

-        Prospective universe of 12,000 employers

-        Opportunity to cross-market to existing COBRA client base

-        Government and accounting regulations make employer administration for
         retirees more difficult
         
ACTIVE EMPLOYEE ADMINISTRATION--------------------------------------------------

         Benefits administration for Active Employees and their dependents
represents the most recent--and by far the largest--market opportunity for ABR.
With the significant development and expansion of services such as "Total
Benefits Outsourcing," and with our recent acquisitions of companies 
specializing in various aspects of active employee administration. ABR has
something to offer virtually every employer-with services ranging from
educational benefits administration to FSA administration, group health
insurance plan open enrollments and maintaining, updating and servicing
clients' central benefits eligibility data bases.


-        1000+ customers, including some of the nation's largest outsourcing 
         arrangements

-        Opportunity to cross-sell

-        State of the art technology in place provides competitive advantage

-        ABR positioned at the forefront of major outsourcing trend
         

4


<PAGE>   7


                                  [PHOTOGRAPH
                                  ABR COMMONS
                                    BUILDING]






                                  ABRCommons
                             Current Headquarters

                                 [PHOTOGRAPH]

                         ABRPlaza Available mid 1999

                                 [PHOTOGRAPHIC
                                   RENDERING]

                                  ABRCenter
                              Available mid 1997

                                 [PHOTOGRAPHIC
                                   RENDERING]


THE EXPANDING SCOPE OF
ABR INFORMATION SERVICES, INC.

ABR takes pride in its growth to date, both in terms of its business activities
and its infrastructure. We continue to pave the way for future growth -- in a
literal sense. In addition to our facilities in California, New Jersey,
Virginia and Florida, we are developing expanded facilities (shown above) to
supplement our headquarters location, and have secured land for our future
expansion. Such planning is necessary to accommodate our projected rate of
expansion over the coming five-year period, and illustrates the depth of our
industry commitment.

                                  [PHOTOGRAPH
                                  ABR COMMONS
                                    BUILDING]

                                                                          5
                                                                        

<PAGE>   8

BENEFITS ADMINISTRATION OUTSOURCING -- AN EXPLODING TREND-----------------------

   Downsizing, streamlining and refocusing on core competencies are key
elements of today's business trends. Such efforts promise to strengthen and
continue into the foreseeable future. As a result, companies from the largest
to the smallest are striving to outsource activities that are not crucial to
their core business.

         The growing trend toward the outsourcing of employee benefits
administration is a direct result of this overall business climate.

         It is estimated that the current market opportunity for benefits
administration exceeds $10 billion annually.  This figure is expected to grow
as larger companies implement outsourcing arrangements and pave the way for
others to follow. It has been our experience that the level of interest in
outsourcing benefits administration services expressed by employers has
increased over the past year.

         The explosive growth of the outsourcing trend creates tremendous
opportunities for companies able to service outsourcing needs in a professional
way. Only a limited number of companies can be considered potential providers
of such services.  Many of those who are attempting to provide such services 
are doing so in a "catch-up" or "follow the leader" mode--developing systems to
match administrative needs they have not encountered in their previous business
relationships. We feel that this is a significant handicap to such companies.
ABR has been dedicated to benefits administration for 10 years. Our experience
tells us that the systems required to deal with full-range benefits
administration services are extremely complex, and would be very difficult to
develop on an ad hoc basis.

         ABR's systems have undergone evolutionary development over many years
of live application. As a result, they can anticipate and accommodate all of
the permutations that comprehensive benefits administration entails--because
such situations have already been encountered and dealt with.

         A full service benefits administrator must make significant capital
investments, as well. In addition to being systems-intensive, benefits
administration is also labor-intensive. A major commitment to staffing,
rigorous training and proper facilities are prerequisites to being able to
provide comprehensive, efficient services. ABR has made these commitments.

ABR'S UNIQUE ROLE
WITHIN THE
OUTSOURCING INDUSTRY-----------------------------------------------------------

         ABR brings a number of unique characteristics to the benefits
outsourcing industry and, in so doing, places itself in a position of
considerable strength.

         As a service bureau, we are able to offer our clients the greatest
possible return on their investment. We provide economies of scale, 

                                 [PHOTOGRAPHIC
                                    COLLAGE
                                   OPERATORS/
                                    CUSTOMER
                                    SERVICE]

                                  [PHOTOGRAPH
                                   MEETING IN
                                     OFFICE]

 6
<PAGE>   9

location and technology that cannot be found elsewhere. The size of our
benefits administration client list establishes us as the true industry leader,
by a wide margin. With more than 21,000 clients, we are able to invest in
systems and technologies that are absolute state-of-the-art--and then spread
out the cost and benefit across our entire client base. The result is an
unparalleled level of service to our clients at minimum cost.

         With more than 600 employees dedicated entirely to benefits
administration, we provide a level of expertise through specialization that is
second to none. At this staffing level, we also reinforce our status as the
industry leader. No other provider of benefits outsourcing services has an
equivalent level of staff dedicated to this purpose.

         Benefits administration is our core business. It is not a sideline or
a value-added service subjugated to other interests. This level of
specialization and commitment is a tremendous client benefit not to be found
elsewhere in our industry.

                                                                   OUR INDUSTRY
-----------------------------------------------------------------------APPROACH

         Armed with the advantage of a public company and resources of more
than $160 million in cash, ABR is in the process of consolidating its position
within the benefits outsourcing industry. We have invested in, and continue to
invest in, cutting-edge technologies such as IVR (Interactive Voice Response),
OCR (Optical Character Recognition), EDI (Electronic Data Interchange) and
automated FAX technologies. We have also invested in computer systems which
offer greater processing power and practically unlimited expandability.
Investing in such capabilities enhances the level of service we can offer our
clients and their employees and dependents. This distances us from our
competition and creates significant barriers to entry into the industry.

         We have identified more than 30 categories of benefits outsourcing
services that comprise the mix of benefits administration services that our
customers require, and we are systematically expanding our capabilities in key
areas.  Among these areas are Central Eligibility Maintenance, Open Enrollment
administration, FSA (Flexible Spending Account) administration, HMO
administration, Tuition Reimbursement administration, QDRO administration, and
others.

         We have expanded our capabilities in some of these areas through
internal development and through acquisitions of specialized companies such as
The L.P. Baier Company and Bullock Associates, Inc. We continue to evaluate
acquisition opportunities which would enhance the depth of our service
offerings and expand our market position. Being the best- capitalized company
in our industry segment aids us in consolidating our industry position and
provides the flexibility to fuel our growth.

                                 [PHOTOGRAPHIC
                                    COLLAGE
                                    COMPUTER
                                   EQUIPMENT]

                                  [PHOTOGRAPH
                                  PRESENTATION
                                    MEETING]

                                                                             7
<PAGE>   10

ABR'S BUSINESS
STRATEGY------------------------------------------------------------------------

         We are very conscious of the benefits of obtaining business that
generates recurring revenue, and such an approach has played a critical role in
ABR's growth to date. Our typical service, whether it is COBRA compliance
administration, retiree benefits administration or general benefits
administration, becomes an essential, ongoing element of our clients'
day-to-day operations. We don't sell one-time solutions, but price our services
based upon events that occur frequently and are common to all employers. The
result is an ongoing revenue stream after the initial sales effort. We intend
to structure our future new business efforts in a similar manner.

         We are also conscious of the benefits of expanding our capabilities
through continued internal development and the acquisition of complementary
businesses. We have the resources and expertise to develop additional services
internally, as well. By acquiring complementary businesses, we are able to
immediately expand our service offerings and our level of expertise in key
benefits administration areas. At the same time, we expand our administrative
capacity and our client base. It is our intent to continue with this dual
approach in the future, as well.  

         Our strategy for continued healthy growth is to aggressively 
capitalize on our financial strength, our capabilities and our role as an
industry leader to maximize our share of the benefits administration
outsourcing business while the trend is in its initial rapid growth phase. We
will accomplish this objective by increasing market share in three key areas of
operation--COBRAservices, Retiree and Inactive Employee benefits
administration, and Active Employee benefits administration.

COBRA SERVICES------------------------------------------------------------------

         PROFILE: Although ABR possesses a share of the COBRA administration 
market equal to that of all of our competitors combined, we still have just
over 3% of the total potential market of 650,000 employers who are required to
comply with COBRA regulations. Our intention is to increase market share
through intensified direct marketing efforts, an expanded sales force and 
increased sales through allied third parties such as insurance agents and 
brokers.  

       SERVICES: The most comprehensive turnkey COBRA compliance service 
available.  

       KEY ACCOMPLISHMENTS 1996: 
                           
    -  Attained level of 21,000 clients; 

    -  Processed 600,000+ COBRA events;

    -  Collected over $150,000,000 in COBRA premiums;

    -  Acquired COBRA business of Bullock Associates, Total Cobra Services and


                                  [PHOTOGRAPH
                                    OVERHEAD
                                      DESK]

                                  [PHOTOGRAPH
                                   EXECUTIVE
                                    MEETING]

 8
<PAGE>   11
       The L.P. Baier Company.  

       GROWTH OPPORTUNITIES: From a current client base of 21,000 to a 
prospective universe of 650,000 employers required to comply with COBRA
regulations, as well as public sector organizations.

                                                           RETIREE AND INACTIVE 
                                                              EMPLOYEE BENEFITS
-----------------------------------------------------------------ADMINISTRATION 

        PROFILE: Provider of benefits administration services for retirees,
dependents, and others who are not considered "active" employees. ABR has most
often been selected by existing  clients to perform such services as an
extension of services currently provided through other operations. Our
intention is to increase market share by aggressively marketing inactive
employee-related services to our existing client base and by targeting large
non-client prospects.  

        SERVICES: Retiree billing services, dependent billing,
FMLA and other non-employee administration services.  

       KEY ACCOMPLISHMENTS 1996:

    -  Increased client base from 38 to 60;

    -  Converted operations to new computer hardware/software platform to
       facilitate rapid growth;

    -  Acquired retiree business of Bullock Associates and Total Cobra
       Services.  

        GROWTH OPPORTUNITIES: More than 12,000 employers with over 1,000
employees are considered prime prospects for Retiree/Inactive Employee
administration.

                                                                 ACTIVE EMPLOYEE
                                                                        BENEFITS
------------------------------------------------------------------ADMINISTRATION

        PROFILE: Provider of wide-ranging general employee benefits
administration services encompassing all aspects of Active Employee benefits.
ABR offers such services either "a la carte" or on a "Total Benefits
Outsourcing" basis. ABR's intention is to aggressively market its services to
its largest clients and to Fortune 1000 level employers through direct and
indirect marketing channels.

        SERVICES: Ranging from central eligibility maintenance to open
enrollment administration, FSA (Flexible Spending Account) administration,
HMOadministration, Educational Benefits administration, QDRO (Qualified
Domestic Relations Order) administration, and others.  

        KEY ACCOMPLISHMENTS 1996:

    -  Increased client base from 1 to 1,000;

    -  Developed "Total Benefits Outsourcing" services internally and expanded
       services such as QDRO and FSA through acquisition of Bullock Associates
       and The L.P. Baier Company;

    -  "Total Benefits Outsourcing" services for a 100,000-employee client were
       fully implemented.  

         GROWTH OPPORTUNITIES: More than 650,000 employers are
considered prospects for various Active Employee benefits administration
services. "Total Benefits Administration" is primarily targeted at employers
with more than 5,000 employees.


                                  [PHOTOGRAPH
                                    OVERHEAD
                                      DESK]

                                                                        9

<PAGE>   12

SELECTED FINANCIAL DATA---------------------------------------------------------


<TABLE>
<CAPTION>
                                                                              Years ended July 31,
                                                       ----------------------------------------------------------------------
                                                        1992            1993           1994           1995             1996
                                                       ------          ------         ------         ------          --------
<S>                                                    <C>               <C>          <C>           <C>              <C>
                                                                       (in thousands except per share data)
Statement of Income Data (1):
  Revenue                                              $7,334            $ 9,028      $13,465       $18,835          $ 31,162    
  Cost of services                                      4,348              5,232        7,320        10,035            17,645    
  Selling, general and administrative expenses          1,520              1,878        3,250         4,448             6,575    
  Other operating expenses                                270                400          369           375               219    
  Acquisition costs                                        --                 --           --            --               361    
                                                       ------            -------      -------       -------          --------
  Operating income                                      1,196              1,518        2,526         3,977             6,362    
  Interest income (expense), net                          (18)                 4           65           572             2,872    
                                                       ------            -------      -------       -------          --------
  Income before extraordinary item and                                                                                           
    income taxes                                        1,178              1,522        2,591         4,549             9,234    
  Income taxes                                            435                570          981         1,755             3,560    
                                                       ------            -------      -------       -------          --------
  Income before extraordinary item                        743                952        1,610         2,794             5,674    
  Extraordinary item (2)                                  273                 --           --            --                --    
                                                       ------            -------      -------       -------          --------
  Net income                                           $1,016            $   952      $ 1,610       $ 2,794          $  5,674    
                                                       ======            =======      =======       =======          ========
  Per share data: (3)                                                                                                         
  Income before extraordinary item                     $  .11            $   .14      $   .22       $   .28          $    .49    
  Extraordinary item                                      .04                 --           --            --                --    
                                                       ------            -------      -------       -------          --------
  Net income                                           $  .15            $   .14      $   .22       $   .28          $    .49    
                                                       ======            =======      =======       =======          ========
  Weighted average shares outstanding (4)               6,614              6,701        7,482        10,001            11,534    
                                                                                                                                 
                                                                                                                                 
<CAPTION>
                                                                                  July 31,                           
                                                       ----------------------------------------------------------------------
                                                        1992               1993           1994         1995            1996    
                                                       ------            --------       --------     --------       ---------
<S>                                                    <C>               <C>            <C>          <C>            <C>
                                                                                  (in thousands)
Balance Sheet Data (1):
  Working capital                                       1,238            $ 1,781         $13,676       $14,192  $    145,825
  Total assets                                          8,925             11,947          27,186        33,191       202,574
  Total long term debt, excluding current portion         230                476              --            --            --
  Redeemable preferred stock, excluding current portion   237                127              --            --            --
  Total shareholders' equity                            1,819              2,753          16,113        19,213       181,150
</TABLE>


 (1)  Restated for an acquisition by a pooling of interest.
 (2)  Tax benefit attributable to the utilization of the Company's net operating
      loss carryforwards.
 (3)  Restated for the three-for-two stock splits completed on July 13, 1995
      and February 19, 1996.
 (4)  Includes Common Stock and Common Stock equivalents.




10

<PAGE>   13


----------------------------------------------MANAGEMENT'S DISCUSSION & ANALYSIS
                                 OF FINANCIAL CONDITION AND RESULTS OF OPERATION

OVERVIEW
     The Company's revenues are currently generated from three sources. First,
the Company generates revenues through its COBRA compliance services. Second,
the Company generates revenue from providing administration services with
respect to benefits provided to retirees and inactive employees. Third, the
Company generates revenue from providing administration services with respect
to benefits provided to active employees.

     The first source of revenue for the Company, COBRA compliance services, is
generated primarily from its qualifying event agreements with employers and
through capitation agreements with insurance companies. Through qualifying
event agreements, the Company receives a fixed, per occurrence fee from its
customers for each qualifying event. A qualifying event occurs when an employee
or his or her dependents experience a loss of coverage under a group healthcare
plan. The amount of the fixed fee varies depending on the method of the
qualifying event notification mailing, which is selected by the customer.
Through capitation agreements, insurance companies designate the Company as the
administrator of COBRA compliance for their group insurance clients that are
subject to COBRA. The Company is paid a monthly fee for each employee covered
by the group plan. The revenue generated under a capitation agreement is not
dependent on the triggering of a qualifying event, but is determined based on
the number of employees covered by the group plan at the beginning of each
month. The Company also receives an administrative fee typically equal to 2%
of the monthly health insurance premium that is paid by or on behalf of each
continuant. In addition, the Company generates revenues from customers for
additional COBRA compliance and healthcare administration services, both on a
one-time and continuous basis.  These additional revenues include new account
fees paid to the Company when it is retained by a new customer. During fiscal
1995 and fiscal 1996, 83.8% and 69.9%, respectively, of the Company's revenues
were attributable to the Company's COBRA compliance services.

     The second source of the Company's revenue is administration services with
respect to benefits provided to retirees and inactive employees, including
retiree healthcare, disability, surviving dependent, family leave and severance
benefits. During fiscal 1995 and fiscal 1996, 7.2% and 15.7%, respectively, of 
the Company's revenues were attributable to the Company's administration 
services for retirees and inactive employees.

     The third source of the Company's revenue is administration services with
respect to benefits provided to active employees. Through this service, the
Company provides benefits administration services for active employees, such as
enrollment, eligibility verification, QDRO administration, Flexible Spending
Account administration and pension services. During fiscal 1995 and fiscal
1996, 9.0% and 14.4%, respectively, of the Company's revenues were attributable
to benefits administration services for active employees.

     The Company has experienced significant growth in recent years, with 
revenues increasing from $9.0 million in fiscal 1993 to $31.2 million in fiscal
1996, and net income increasing from $952,000 in fiscal 1993 to $5.7 million
in fiscal 1996.

     Cost of services includes direct personnel, occupancy and other costs
associated with providing services to customers, such as mailing and printing
costs. Selling, general and administrative expenses include administrative,
marketing and certain other indirect costs. Other operating expenses primarily
consist of certain software development costs.

RESULTS OF OPERATIONS
     The following table sets forth, for the periods indicated, the percentage
of revenue represented by certain items reflected in the Company's statements
of income as restated to reflect the acquisition by a pooling of interest.

-----------------------------------------------------------------------------
<TABLE>
<CAPTION>
                                   1994       1995       1996                 
                                   ----       ----       ----                 
<S>                               <C>        <C>         <C>                  
Revenue                           100.0%     100.0%      100.0%               
Cost of services                   54.4       53.3        56.6                
Selling,                                                                     
 general &                                                                   
 administrative                                                              
 expenses                          24.1       23.6        21.1                
Other operating                                                              
 expenses                           2.7        2.0          .7                
Acquisition costs                    --         --         1.2                
                                  -----      -----       -----
Operating                                                                    
 income                            18.8       21.1        20.4                
Interest                                                                     
 income (net)                     100.5      103.0       109.2                
Income taxes                        7.3        9.3        11.4                
                                  -----      -----       -----
Net income                         12.0%      14.8%       18.2%               
                                  =====      =====       =====
-----------------------------------------------------------------------------
</TABLE>


                                                                              11


<PAGE>   14
YEAR ENDED JULY 31, 1996 
COMPARED TO 
YEAR ENDED JULY 31, 1995

     Revenues increased $12.3 million, or 65.5%, to $31.2 million during the
year ended July 31, 1996 from $18.8 million in the year ended July 31, 1995. Of
the $12.3 million increase in revenues, $6.0 million was attributable to
increased revenues from COBRA compliance services, $3.5 million was
attributable to increased revenues from retiree/inactive employee benefits
administration and approximately $2.8 million was due to increased revenues
from active employee benefits administration.

     The COBRA compliance revenues increased primarily as a result of the
addition of new customers and as a result of the acquisitions.

     The increase in revenues from retiree/inactive employee benefits
administration was primarily attributable to the addition of new customers
obtained by the Company and as a result of the acquisitions during the year
ended July 31, 1996.

     The increase in revenues from active employee benefits administration was
primarily attributable to the addition of new customers obtained by the Company
and as a result of an acquisition during the year ended July 31, 1996.

     Cost of services increased 75.8% to $17.6 million during the year ended
July 31, 1996 from $10.0 million during the year ended July 31, 1995. The
increase in cost of services was attributable to the addition of data
processing, information systems and customer service personnel to support
growth as well as the result of the acquisitions. As a percentage of revenues,
cost of services increased to 56.6% from 53.3% for the same period. This
increase as a percentage of revenues resulted from increasing the operating
infrastructure to support the Company's growth.

     Selling, general and administrative expenses increased 47.8% to $6.6
million during the year ended July 31, 1996 from $4.5 million in the year ended
July 31, 1995. The increase in selling, general and administrative expenses was
primarily attributable to the addition of marketing, management and 
administrative personnel to support the Company's growth. As a percentage of 
revenues, selling, general and administrative expenses decreased to 21.1% from 
23.6% for the same periods. The decrease as a percentage of revenues resulted 
primarily from operating efficiencies from the allocation of these expenses 
over a larger revenue base.

     Other operating expenses decreased 41.8% to $218,000 during the year ended
July 31, 1996 from $375,000 in the year ended July 31, 1995.

     Interest income increased $2.4 million, or 426.3%, to $3.0 million during
the year ended July 31, 1996 from $573,000 in the year ended July 31, 1995.
This increase is a result of the investment of the proceeds from the secondary
stock offering completed in March 1996.

     Income taxes increased 102.9% to $3.6 million during the year ended July
31, 1996 from $1.8 million during the year ended July 31, 1995. The Company's
effective tax rate remained the same for both periods at 38.6%.

     As a result of the foregoing, the Company's net income increased 103.1% to
$5.7 million during the year ended July 31, 1996 from $2.8 million in the year
ended July 31, 1995. Net income per share was $.49 for the year ended July 31,
1996 compared to $.28 for the prior year.

YEAR ENDED JULY 31, 1995
COMPARED TO
YEAR ENDED JULY 31, 1994

     Revenues increased $5.4 million, or 39.9%, to $18.8 million for the year 
ended July 31, 1995 from $13.5 million for the year ended July 31, 1994. Of the
$5.4 million increase in revenues, $4.3 million was attributable to additional 
revenues from COBRA compliance services, $386,000 was due to additional 
revenues from retiree/inactive employee benefits administration and $655,000 
was due to increased revenues from active employee benefits administration.

     COBRA compliance revenues increased primarily as a result of the addition
of new customers, a higher rate of employee turnover experienced by the
Company's customers and an increase in the average price for these services.
These revenues also increased due to an increase in revenues from the 2%
administration fee on monthly health insurance premiums collected from
continuants during the year ended July 31, 1995 compared to the year ended July
31, 1994.

     The increases in revenues from retiree/inactive employee benefits
administration and active employee benefits administration were primarily
attributable to the addition of new customers obtained by the Company who were 
not customers of the Company during the year ended July 31, 1994.

     Cost of services increased 37.1% to $10.0 million for the year ended July
31, 1995 from $7.3 million for the year

12

<PAGE>   15
ended July 31, 1994. As a percentage of revenues, however, cost of services
decreased to 53.3% for the year ended July 31, 1995 from 54.4% for the year
ended July 31, 1994. The increase in cost of services was attributable to the
addition of data processing, information systems and customer service personnel
to support growth and an increase in operating expenses to service the
additional revenues. The decrease as a percentage of revenues resulted from
economies of scale associated with spreading certain fixed costs over a larger
revenue base.

     Selling, general and administrative expenses increased 36.9% to $4.5
million for the year ended July 31, 1995 from $3.3 million for the year ended
July 31, 1994 and as a percentage of revenues, remained fairly constant. The
increase in selling, general and administrative expenses was primarily
attributable to the addition of management, marketing and administrative
personnel to support the Company's growth.

     Other operating expenses remained fairly constant for the year ended July
31, 1995 compared to the year ended July 31, 1994 and as a percentage of 
revenues, decreased to 2.0% from 2.7% for the same periods. The decrease as a 
percentage of revenues resulted from operating efficiencies associated with the
allocation of these expenses over a larger revenue base.

     Income taxes increased 79.0% to $1.8 million for the year ended July 31,
1995 from $981,000 for the year ended July 31, 1994. The Company's effective
tax rate remained fairly constant, increasing slightly to 38.6% from 37.8%. In
fiscal 1994, the Company adopted SFAS No. 109, "Accounting for Income Taxes."
The effect on the Company's consolidated financial statements of the adoption
of SFAS No. 109 was insignificant. See Note B of notes to consolidated
financial statements.

     As a result of the foregoing, the Company's net income increased 73.5% to
$2.8 million for the year ended July 31, 1995 from $1.6 million for the year
ended July 31, 1994. Net income per share was $.28 for the year ended July 31,
1995 compared to $.22 for the year ended July 31, 1994.

LIQUIDITY AND CAPITAL RESOURCES

     In March 1996, the Company completed a secondary stock offering which
provided, net cash after offering expenses, $151 million to its operations. Net
cash provided by operating activities was $11.5 million for the year ended July
31, 1996 compared to $5.4 million for the same period of 1995. As of July 31,
1996 and 1995, the Company's working capital and current ratio were $145.8
million and 8.1-to-1 and $14.2 million and 2.1-to-1, respectively. The Company
invests excess cash balances in short-term investment grade securities, such as
money market investments, obligations of the U.S. government and its agencies
and obligations of state and local government agencies.

     During the year ended July 31, 1996, the Company's capital expenditures
were $15.8 million.

     The Company recently purchased a 110,000 square foot facility situated on 
12.7 acres of land in Palm Harbor, Florida. The cost of improvements    to be
made by the Company to such facility has been estimated to be $5.8 million. 
Additionally during the past 12 months, the Company purchased 72 acres of
land  for $2.1 million in Tarpon Springs, Florida to hold for future
expansion of  operating facilities.  Management estimates that as of
July 31, 1996, approximately  $12.0 million will be required in order for
the Company to purchase equipment for and to upgrade the Company's
information processing systems.        

     The Company has a five-year, $15.0 million unsecured credit facility. The
Company has agreed to maintain all of its assets free and clear of all liens,
encumbrances and pledges, except purchase money security interests in specific
equipment in an aggregate amount of less than $500,000 as long as the credit
facility remains outstanding or any indebtedness thereunder remains unpaid.
Interest on the principal balance outstanding under this line of credit accrues
at a floating interest rate equal to the prime rate or, at the Company's
option, to the 30-day London Interbank Offering Rate (LIBOR), plus an
applicable interest rate margin between 1% and 2% based on certain financial
ratios. The credit facility contains certain financial covenants requiring the
maintenance of cash and cash equivalents and investments equal to or greater
than customer account deposits, a funded debt to EBITDA ratio of a maximum of
2.25-to-1, a debt service coverage ratio of not less than 1.35-to-1, as well as
the maintenance of a certain funded debt to tangible net worth ratio. As of
July 31, 1996, the Company was in compliance with all such covenants and there
were no amounts outstanding under the credit facility.

     The Company believes that its cash, investments, its cash flow from
operations and the funds available from its credit facility will be adequate to
meet the Company's expected capital requirements for the foreseeable future.




                                                                              13

<PAGE>   16

ABR INFORMATION SERVICES, INC.
CONSOLIDATED STATEMENTS OF INCOME----------------------------------------------
                                 

<TABLE>
<CAPTION>
                                                       Years ended July 31,                      
                                           -----------------------------------------------       
                                              1994              1995              1996           
                                           -----------       -----------       -----------       
<S>                                        <C>               <C>               <C>               
                                                                                                 
Revenue                                    $13,464,797       $18,834,636       $31,162,181       
                                                                                                 
Operating expenses:                                                                              
  Cost of services                           7,319,671        10,035,168        17,645,269       
  Selling, general and administrative        3,249,890         4,448,319         6,575,390       
  Other operating                              368,873           375,029           218,319       
  Acquisition costs                                 --                --           361,198       
                                           -----------       -----------       -----------                              
                                            10,938,434        14,858,516        24,800,176       
                                           -----------       -----------       -----------                              

Operating income                             2,526,363         3,976,120         6,362,005       
                                                                                                 
Interest income (expense):                                                                       
  Interest income                               98,109           572,573         3,013,551       
  Interest expense                             (33,312)               (4)         (141,406)      
                                           -----------       -----------       -----------                              
                                                64,797           572,569         2,872,145       
                                           -----------       -----------       -----------                              
Income before income taxes                   2,591,160         4,548,689         9,234,150       
                                                                                                 
Income taxes                                   980,665         1,755,011         3,560,366       
                                           -----------       -----------       -----------                              

  Net income                               $ 1,610,495       $ 2,793,678       $ 5,673,784       
                                           ===========       ===========       ===========                              

Net income per share                       $       .22       $       .28       $       .49       
                                           ===========       ===========       ===========                              

Weighted average shares outstanding          7,482,461        10,000,745        11,533,527       
                                           ===========       ===========       ===========                              
</TABLE>                                                                      



        The accompanying notes are an integral part of these statements.

                                                                              
14

<PAGE>   17

                                                  ABR INFORMATION SERVICES, INC.
---------------------------------------------------- CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                     ASSETS
                                                                     July 31,                    
                                                         -------------------------------      
                                                             1995               1996         
                                                         -----------        ------------      
<S>                                                      <C>                <C>               
                                                                                               
CURRENT ASSETS                                                                                 
  Cash and cash equivalents                              $19,403,090        $ 14,088,396       
  Investments                                              4,974,035         147,111,102       
  Accounts receivable, net of allowance for doubtful                                           
    accounts of $26,202 and $38,894, respectively          2,507,956           3,870,539       
  Prepaid expenses and other                                 717,990           1,282,952       
                                                         -----------        ------------
      Total current assets                                27,603,071         166,352,989       
                                                                                               
PROPERTY AND EQUIPMENT, net                                2,447,119          14,539,898       
                                                                                               
SOFTWARE DEVELOPMENT COSTS, net of accumulated                                                 
    amortization of $128,388 and                                                               
    $220,535, respectively                                 2,984,736           6,181,973       
                                                                                               
GOODWILL, INTANGIBLES AND OTHER ASSETS, net                  155,766          15,498,745       
                                                         -----------        ------------

TOTAL ASSETS                                             $33,190,692        $202,573,605       
                                                         ===========        ============
                                                                             
                         LIABILITIES AND SHAREHOLDERS' EQUITY                
                                                                             
 CURRENT LIABILITIES                                                         
   Accounts payable                                      $   278,040        $    615,663      
   Accrued expenses                                          893,110             762,442      
   Customer accounts deposits                             11,783,187          18,019,405      
   Unearned revenue                                          271,375             647,093      
   Income taxes payable                                      184,968             483,663      
                                                         -----------        ------------
       Total current liabilities                          13,410,680          20,528,266      
                                                                                              
 DEFERRED INCOME TAXES                                       567,041             895,555      
                                                                                              
 SHAREHOLDERS' EQUITY                                                                         
   Preferred Stock - authorized 2,000,000 shares of                                           
     $.01 par value; no shares issued                             --                  --      
   Common Stock - authorized 20,250,000                                                       
     shares of $.01 par value; issued and outstanding,                                        
     6,640,814 and 13,588,194 shares, respectively            66,408             135,882      
   Additional paid in capital                             13,686,162         169,879,717         
   Retained earnings                                       5,460,401          11,134,185         
                                                         -----------        ------------
                                                                                                 
 TOTAL SHAREHOLDERS' EQUITY                               19,212,971         181,149,784         
                                                         -----------        ------------
                                                                                                 
 TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY              $33,190,692        $202,573,605         
                                                         ===========        ============
</TABLE>




        The accompanying notes are an integral part of these statements.

 
                                                                              15



<PAGE>   18


ABR INFORMATION SERVICES, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY---------------------------------
YEARS ENDED JULY 31, 1994, 1995 AND 1996

<TABLE>
<CAPTION>
                                                                                                 
                                                           Common Stock               Additional    
                                                    --------------------------          Paid-in      
                                                      Number           Amount           Capital      
                                                    ----------        --------       ------------
<S>                                                 <C>               <C>            <C>     
Balance at July 31, 1993                             2,798,531        $ 27,985       $  1,659,001   
   Exercise of stock options and warrants              438,524           4,385            896,814   
   Redeemable preferred stock dividends                     --              --                 --  
   Purchase and retirement of common stock                (383)             (4)            (3,548) 
   Initial public offering, net of offering costs                                                   
       of $507,977                                   1,199,875          11,999         10,350,891   
   Tax benefit related to exercise of certain                                                       
       stock options                                        --              --            499,193   
   Net income                                               --              --                 --   
                                                    ----------        --------        -----------
Balance at July 31, 1994                             4,436,547          44,365         13,402,351   
   Common stock split                                2,165,931          21,659            (22,364) 
   Exercise of stock options                            38,336             384            231,846   
   Tax benefit related to exercise of certain                                                       
       stock options                                        --              --             74,329   
   Net income                                               --              --                 --   
                                                    ----------        --------        ----------- 
Balance at July 31, 1995                             6,640,814          66,408         13,686,162   
   Common stock split                                3,248,882          32,489            (33,917) 
   Exercise of stock options                           145,911           1,459            666,890   
   Tax benefit related to exercise of certain                                                       
       stock options                                        --              --          1,426,563   
   Shares issued in conjunction with acquisitions      132,712           1,327          3,048,848   
   Secondary stock offering, net of offering costs                                                  
       of $381,092                                   3,419,875          34,199        151,085,171   
   Net income                                               --              --                 --   
                                                    ----------        --------        ----------- 
Balance at July 31, 1996                            13,588,194        $135,882       $169,879,717   
                                                    ==========        ========       ============
</TABLE>


<TABLE>
<CAPTION>
                                                    
                                                     Retained
                                                     Earnings             Total
                                                    -----------       ------------
<S>                                                 <C>               <C>  
Balance at July 31, 1993                            $ 1,066,301       $  2,753,287
   Exercise of stock options and warrants                    --            901,199
   Redeemable preferred stock dividends                 (10,073)           (10,073)
   Purchase and retirement of common stock                   --             (3,552)
   Initial public offering, net of offering costs   
       of $507,977                                           --         10,362,890
   Tax benefit related to exercise of certain       
       stock options                                         --            499,193
   Net income                                         1,610,495          1,610,495
                                                    -----------       ------------
Balance at July 31, 1994                              2,666,723         16,113,439
   Common stock split                                        --               (705)
   Exercise of stock options                                 --            232,230
   Tax benefit related to exercise of certain       
       stock options                                         --             74,329
   Net income                                         2,793,678          2,793,678
                                                    -----------       ------------                                             
Balance at July 31, 1995                              5,460,401         19,212,971
   Common stock split                                        --             (1,428)
   Exercise of stock options                                 --            668,349
   Tax benefit related to exercise of certain       
       stock options                                         --          1,426,563
   Shares issued in conjunction with acquisitions            --          3,050,175
   Secondary stock offering, net of offering costs  
       of $381,092                                           --        151,119,370
   Net income                                         5,673,784          5,673,784
                                                    -----------       ------------       
Balance at July 31, 1996                            $11,134,185       $181,149,784
                                                    ===========       ============
</TABLE>





        The accompanying notes are an integral part of these statements.


                                                                              
16

<PAGE>   19


                                                  ABR INFORMATION SERVICES, INC.
-------------------------------------------CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                                  Years ended July 31,
                                                                     ----------------------------------------------
                                                                       1994              1995               1996
                                                                     ---------        ----------         ----------
<S>                                                                  <C>              <C>                <C>            
Cash flows from operating activities:
  Net income                                                         1,610,495        $2,793,678         $5,673,784
  Adjustments to reconcile net income to 
    net cash provided by operating activities:
      Depreciation and amortization                                    511,444           621,602          1,642,754
      Deferred income taxes                                             76,897           362,379            328,514
      Tax benefit related to exercise of certain stock options         499,193            74,329          1,426,563
      Increase in allowance for doubtful accounts                        6,078             8,649             12,692
  Change in operating assets and liabilities:
      Accounts receivable                                             (494,690)         (918,172)          (771,537)
      Prepaid expenses and other                                      (265,695)         (173,240)          (528,798)
      Income taxes recoverable                                        (176,165)          176,165                 --
      Other assets                                                     (58,531)          (61,942)            (8,953)
      Accounts payable                                                  14,875             8,660           (674,980)
      Accrued expenses                                                 346,147           420,601           (130,668)
      Customer accounts deposits                                     2,392,100         1,704,471          4,228,527
      Unearned revenue                                                      --           271,375             23,931
      Income taxes payable                                             (95,591)          134,573            298,695
                                                                   -----------       -----------       ------------
              Net cash provided by operating activities              4,366,557         5,423,128         11,520,524

Cash flows from investing activities:
  Additions to investments                                         (17,037,187)       (5,445,720)      (314,607,394)
  Maturities of investments                                                 --        17,508,872        172,470,327
  Additions to property and equipment                                 (994,011)       (1,135,622)       (12,537,101)
  Additions to software development costs                             (397,652)       (2,366,075)        (3,292,648)
  Collection of note receivable                                        250,000                --                 --
  Acquisitions, net                                                         --                --        (10,656,020)
                                                                   -----------       -----------       ------------
              Net cash provided by (used in) investing activities  (18,178,850)        8,561,455       (168,622,836)

Cash flows from financing activities:
  Proceeds from bank borrowings                                             --                --          6,000,000
  Principal payments under bank borrowings                            (602,525)               --         (6,000,000)
  Payments of redeemable preferred stock and dividends                (263,561)               --                 --
  Exercise of stock options/warrants                                   901,199           232,230            668,349
  Public offerings, net of cost                                     10,362,890                --        151,119,370
  Other                                                                 (3,552)             (705)              (101)
                                                                   -----------       -----------       ------------
              Net cash provided by financing activities             10,394,451           231,525        151,787,618
                                                                   -----------       -----------       ------------
Net increase (decrease) in cash and cash equivalents                (3,417,842)       14,216,108         (5,314,694)

Cash and cash equivalents at beginning of year                       8,604,824         5,186,982         19,403,090
                                                                   -----------       -----------       ------------
Cash and cash equivalents at end of year                           $ 5,186,982       $19,403,090       $ 14,088,396
                                                                   ===========       ===========       ============
</TABLE>








        The accompanying notes are an integral part of these statements.

                                                                              17
<PAGE>   20

ABR INFORMATION SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-------------------------------------
JULY 31, 1994, 1995 AND 1996



NOTE A - DESCRIPTION OF ORGANIZATION AND BUSINESS

ABR Information Services, Inc. (the "Company") is a leading provider of
comprehensive benefits administration, compliance and information services to
employers seeking to outsource their benefits administration functions. The
Company believes it is the leading provider of COBRA compliance services. COBRA
is a federally mandated law related to the portability of employee group health
insurance. The Company also provides benefits administration services with
respect to benefits provided to retirees and inactive employees, including
retiree healthcare, disability, surviving dependent, family leave and severance
benefits. Additionally, the Company provides benefits administration services
with respect to benefits provided to active employees, including enrollment,
eligibility verification, QDRO administration, HMO consolidation and pension
services. These services are offered on either an "a la carte" basis or a total
outsourcing basis, allowing customers to outsource certain benefits
administration tasks which they find too costly or burdensome to perform
in-house, or to outsource the total benefits administration function.

The financial statements have been restated to reflect the three-for-two stock
splits completed July 1995 and February 1996 and an acquisition (see Note M) by
a pooling of interest completed June 1996.

The Company is headquartered in Palm Harbor, Florida and provides information
and support services to more than 21,000 employers including Fortune 500
companies, insurance companies and other employers. The Company's operations
are in a single business segment, the information services business.


NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

1. Principles of Consolidation

The financial statements include the accounts of ABR Information Services, Inc.
and all of its subsidiaries. All material intercompany balances and
transactions have been eliminated.

2. Revenue Recognition

Revenues are recognized when the related services have been provided. Advance
payments received from customers for services not provided are included in
unearned revenue. Cost of services includes personnel, occupancy and other
costs associated with providing services to customers, such as mailing and
printing costs.

3. Customer Accounts Deposits

As part of the services provided to customers, the Company bills and collects
for its customers and maintains the funds in segregated accounts until the
funds are remitted. For financial statement purposes the segregated funds are
included in cash and investments (as the funds are not restricted) with the
corresponding liability presented as customer accounts deposits.

4. Cash and Cash Equivalents

The Company considers all highly liquid investments, with a maturity of 30 days
or less when purchased, as cash equivalents.

As of July 31, 1995 and 1996, substantially all of the Company's cash is
invested in overnight repurchase agreements of mortgage-backed or government
securities. The Company has a security interest in the specific investment
underlying the repurchase agreements.

5. Investments

Effective August 1, 1994, the Company implemented Statement of Financial
Accounting Standards (SFAS) No. 115 "Accounting for Certain Investments in Debt
and Equity Securities." The Company's investments are classified as
held-to-maturity investment


                                                                             
18

<PAGE>   21
                                                    ----------------------------


NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued

debt securities. These are securities which the Company has the ability and
positive intent to hold to maturity and are stated at cost, adjusted for
amortization of premiums and accretion of discounts which are computed by the
interest method. Gains and losses on the sale of investment securities are
computed on the basis of specific identification of the adjusted cost of each
security.

6. Contract Set-Up Costs

Under certain contractual arrangements with customers, the Company incurs
set-up costs. These costs are capitalized and amortized, over the contract
period but no longer than twelve months, using the straight-line method. As of
July 31, 1995 and 1996 unamortized set-up costs of $300,367 and $370,335,
respectively, are included in prepaid expenses. During 1994, 1995 and 1996,
amortization of set-up costs totalled $301,919, $405,299, and $569,755,
respectively.

7. Property and Equipment

Property and equipment is stated at cost. Depreciation expense is computed
using the straight-line method over the estimated useful lives of the assets.
Leasehold improvements are amortized over the lives of the respective leases or
the service lives of the improvements, whichever is shorter.

8. Software Development Costs

Software development costs consist primarily of purchased software, consulting
services, salaries and certain other expenses related to the development and
modification of software capitalized in accordance with the provisions of SFAS
No. 86 "Accounting for the Costs of Computer Software to be Sold, Leased, or
Otherwise Marketed." Capitalization of such cost begins only upon the
establishment of technological feasibility as defined in SFAS No. 86. Such
capitalized costs are amortized when the software is available to service
customers using the straight-line method over an estimated life of four to five
years or based on the ratio of current gross revenue to the anticipated gross
revenue, whichever is greater, with amortization expense of $48,548, $52,217
and $95,411, for the years ended 1994, 1995 and 1996, respectively.

Software development costs that were expensed and not capitalized under SFAS
No. 86 totalled $967,033, $1,138,639 and $1,312,653, for the years ended 1994,
1995 and 1996, respectively.

The Company estimates the cost to complete the current software projects will
be $1.6 million.

9. Income Taxes

Deferred income taxes principally result from expensing certain software
development costs for income tax return purposes while capitalizing and
amortizing certain of these costs for financial statement purposes. In
addition, accelerated depreciation methods used for income tax return purposes
create deferred taxes.

Effective August 1, 1993, the Company implemented SFAS No. 109 "Accounting for
Income Taxes" which requires an asset and liability method. The amounts
calculated as a result of adopting SFAS No. 109 method had an insignificant
effect on the Company's deferred income taxes and retained earnings,
accordingly, no adjustment was required.

10. Net Income Per Share

Net income per share has been computed using the weighted average of the
outstanding Common Stock plus the dilutive Common Stock equivalents (stock
options and warrants), using the treasury or the modified treasury stock method
(see Note G). Primary and fully diluted calculations result in the same net
income per share.


                                                                              19
<PAGE>   22

ABR INFORMATION SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-------------------------------------
JULY 31, 1994, 1995 AND 1996



NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED

11. Reclassifications

Certain amounts have been reclassified to conform with the July 31, 1996
presentation.

12. Goodwill and Other Intangibles

Amortization is based upon the allocation of the total purchase price (see Note
M) and amortization periods, using the straight-line method, as follows:

<TABLE>
<CAPTION>
                                                        Estimated
                                                         Useful
                                           Allocation     Lives
                                           ----------   ---------
               <S>                         <C>           <C>

               Non-competition agreements  $  600,000     5 years
               Contracts                    2,000,000    10 years
               Goodwill                    13,191,654    25 years
</TABLE>


Amortization expense totalled $482,708 for the year ended July 31, 1996.

The Company measures impairment of the goodwill and other intangibles based
upon the net present value of the cash flows estimated to be generated by those
assets, compared to the assets' carrying value. Based on this measurement, no
impairment exists.

13.  New Accounting Pronouncements

In March 1995, the Financial Accounting Standards Board issued SFASNo. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to be Disposed of." This pronouncement requires impairment losses to be
recorded on long-lived assets used in operations when impairment indicators are
present and the undiscounted cash flows estimated to be generated by those
assets are less than the assets' carrying amount. The Company will adopt
SFASNo. 121 in the first quarter of fiscal 1997 and based on current
circumstances, management does not believe the effect of the adoption will be
material to the financial statements.

SFASNo. 123, "Accounting for Stock Based Compensation" was issued by the
Financial Accounting Standards Board in October 1995. As it relates to stock
options granted to employees, SFAS No. 123 permits companies to continue using
the accounting method promulgated by the Accounting Principles Board Opinion
No. 25 ("APB No. 25") "Accounting for Stock Issued to Employees" to measure
compensation or to adopt the fair value based method prescribed by SFAS No.
123. If APB No. 25's method is continued, pro forma disclosures are required as
if SFAS No. 123 accounting provisions were followed. SFAS No. 123's accounting
recognition method can be adopted subsequent to the issuance of SFAS No. 123,
with a mandatory implementation date of August 1, 1996, and would pertain to
stock option awards granted or modified or settled for cash after August 1,
1995. If the Company elects to continue using the method under APB No. 25, SFAS
No. 123's pro forma disclosures are required after August 1, 1996. Management
has not completely analyzed the provisions of SFAS No. 123; accordingly,
management has not determined whether or not SFAS No. 123's accounting
recognition provisions will be adopted or APB No. 25's method will be
continued. In addition, management has not yet determined the potential effect
that SFAS No. 123's accounting provisions, if adopted, will have on the
Company's financial statements.

14.  Use of Estimates in Financial Statements

In preparing financial statements in conformity with generally accepted
accounting principles, management makes estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosures of contingent
assets and liabilities at the date of the financial statements, as well as the
reported amounts of revenue and expenses during the reporting period. Actual
results could differ from those estimates.


                                                                              
20

<PAGE>   23
                                                    ----------------------------
NOTE C - INVESTMENTS

The amortized cost and estimated market value of held-to-maturity investment
securities were as follows:

<TABLE>
<CAPTION>
                                                                         July 31, 1996
                                                     ------------------------------------------------------------
                                                                        Gross           Gross
                                                      Amortized      Unrealized       Unrealized      Estimated
                                                         Cost           Gains           Losses       Market Value
                                                     ------------    ----------       ---------      ------------
<S>                                                  <C>             <C>              <C>            <C>

Commercial Paper                                     $146,111,102    $       --       ($22,949)      $146,088,153
Obligations of states and local government agencies     1,000,000            --              --         1,000,000
                                                     ------------    ----------       ---------      ------------


    Total investment securities                      $147,111,102    $       --       ($22,949)      $147,088,153
                                                     ============    ==========       =========      ============
</TABLE>

<TABLE>
<CAPTION>
                                                                            July 31, 1995
                                                     ------------------------------------------------------------
                                                                        Gross           Gross
                                                      Amortized      Unrealized       Unrealized      Estimated
                                                         Cost           Gains           Losses       Market Value
                                                     ------------    ----------       ---------      ------------
<S>                                                  <C>             <C>              <C>            <C>

Obligations of states and local government agencies  $4,886,166      $5,343           $      --      $4,891,509
                                                     ----------      ------           ---------      ----------
Accrued interest                                         87,869          --                  --          87,869
                                                     ----------      ------           ---------      ----------

    Total investment securities                      $4,974,035      $5,343           $      --      $4,979,378
                                                     ==========      ======           =========      ==========
</TABLE>
           
As of July 31, 1995 and 1996, the maturities are within a twelve month time
period. Actual maturities may differ from contractual maturities due to
borrowers having the right to call or prepay obligations with or without call
or prepayment penalties.

Interest earned on investment securities and cash and cash equivalents was
$399,942, $1,214,971 and $3,846,102 for the years ended July 31, 1994, 1995 and
1996, respectively. A portion of these amounts is included in revenues and the
remainder is reported separately as interest income in the consolidated
statements of income.


NOTE D - PROPERTY AND EQUIPMENT

<TABLE>
<CAPTION>

                                             July 31,
                                   ------------------------------  
                                                                             Estimated
                                      1995                1996                 Life
                                   ----------         -----------            --------
<S>                                <C>                 <C>                   <C>
Land and building                  $       --         $ 9,687,256            39 Years
Equipment                           2,978,671           6,518,977             5 Years
Furniture and fixtures                512,784             732,394            10 Years
Leasehold improvements                473,245             293,753       Life of Lease
                                   ----------         -----------
                                    3,964,700          17,232,380
Accumulated depreciation           (1,517,581)         (2,692,482)
                                   ----------         -----------  
Total property and equipment, net  $2,447,119         $14,539,898
                                   ==========         ===========

</TABLE>


Depreciation for the years ended 1994, 1995 and 1996, was $462,896, $569,386
and $1,064,635, respectively.

NOTE E - LINES OF CREDIT

Prior to January 30, 1996, the Company had $6.0 million in credit facilities
available to it. Of the total amount, $1.0 million is for working capital
needs, collateralized by a blanket security interest in Company assets other
than accounts receivable, proprietary software and customer accounts deposits.
Interest on the principal balance outstanding under this line of credit accrues
at a floating interest rate equal to the prime rate. This line of credit must
be paid down to a minimum balance of $1,000 for 30 days during its term and is
subject to renewal on November 30, 1995. The remaining $5.0 million provides
the Company with capital equipment lines of credit collateralized by the
equipment purchased with advances against the lines. Interest on $2.0 million
of this credit line accrues at a fixed interest rate at the time of funding
equal to the prime rate. Interest on $3.0 million


                                                                              21
<PAGE>   24

ABR Information Services, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-------------------------------------
July 31, 1994, 1995 and 1996



NOTE E - LINES OF CREDIT - CONTINUED

of this credit line accrues at a fixed rate at the time of funding equal to the
Treasury Note Rate plus 225 basis points. This facility contains financial
covenants consisting of maintaining a debt service coverage ratio of not less
than 1.75 to 1.0 and debt to tangible net worth of no more than .50 to 1.0.

On January 30, 1996, the Company entered into a five year, $15.0 million
unsecured credit facility. The Company has agreed to maintain all of its assets
free and clear of all liens, encumbrances and pledges, except purchase money
security interests in specific equipment in an aggregate amount of less than
$500,000 as long as the credit facility remains outstanding or any indebtedness
thereunder remains unpaid. Interest on the principal balance outstanding under
this line of credit accrues at a floating interest rate equal to the prime rate
or, at the Company's option, to the 30-day London Interbank Offering Rate
(LIBOR), plus an applicable interest rate margin between 1% and 2% based on
certain financial ratios. The credit facility contains certain financial
covenants requiring the maintenance of cash and cash equivalents and
investments equal to or greater than customer account deposits, a funded debt
to EBITDA ratio of a maximum of 2.25-to-1, a debt service coverage ratio of not
less than 1.35-to-1, as well as the maintenance of a certain funded debt to
tangible net worth ratio. As of July 31, 1996, the Company was in compliance
with all such covenants and there were no amounts outstanding under the credit
facility.


NOTE F - SHAREHOLDERS' EQUITY

Common Stock
The authorized Common Stock of the Company consists of 20,000,000 shares of 
voting Common Stock, and 250,000 shares of nonvoting Common Stock. The shares 
of nonvoting Common Stock have the same rights as the shares of voting Common 
Stock, except that the holders of nonvoting Common Stock are not entitled to 
vote on matters submitted to shareholders, except as required by applicable 
law. As of July 31, 1996, there were no shares of nonvoting Common Stock issued
and outstanding. On July 13, 1995 and on February 19, 1996, the Company
completed three-for-two stock splits and on June 28, 1996 the company completed
an acquisition by a pooling of interest. The weighted average shares
outstanding, earnings per share and stock options have been restated to reflect
the stock splits and the acquisition by a pooling of interest.

Preferred Stock
The Board of Directors of the Company has the authority to issue up to
2,000,000 shares of Preferred Stock (par value of $.01 per share) in one or
more series and to fix the number of shares constituting any such series and
the rights and preferences thereof, including dividend rates, terms of
redemption (including sinking fund provision), redemption price or prices,
voting rights, conversion rights and liquidation preferences of the shares
constituting such series. As of July 31, 1996, there were no shares of
Preferred Stock issued and outstanding.


NOTE G - WARRANTS AND STOCK OPTIONS

The Company has established the 1987 and 1993 Stock Option Plans and the 1995
Non-Employee Director Stock Option Plan. Under the 1987 and 1993 Plans, 387,000
and 900,000 shares of Common Stock, respectively, have been authorized for
issuance. Under the 1995 Plan, 75,000 shares of Common Stock have been
authorized for issuance. During the years ended 1994, 1995 and 1996 all option
prices at date of grant equaled or exceeded the estimated fair value of the
Company's Common Stock as determined by the terms of the stock option plans.


<TABLE>
<CAPTION>

                                                                                         
                                                                    Shares                   Range of
                                                            -----------------------            Price 
                                                            Voting        Nonvoting          Per share
                                                            ------        ---------          ---------
 <S>                                                        <C>            <C>               <C> 
 Warrants
 Warrants outstanding at July 31, 1993                       7,139          428,099          $  .81
       Warrants granted                                         --               --          $   --
-----------------------------
       Warrants exercised                                   (7,139)        (252,675)         $  .81
       Warrants cancelled                                       --         (175,424)         $  .81
                                                             -----          -------
   Warrants outstanding at July 31, 1994, 1995 and 1996         --               --          $   --
                                                             =====          =======
</TABLE> 

        
22
<PAGE>   25
                                ------------------------------------------------

NOTE G - WARRANTS AND STOCK OPTIONS - Continued

<TABLE>
<CAPTION>                                                     
                                                          Shares                Range of 
                                                   ---------------------          Price  
                                                   Voting      Nonvoting        Per share      
                                                   -------     ---------      ------------               
<S>                                               <C>          <C>            <C>
Options                                            
  Options outstanding at July 31, 1993             968,337            --      $   .81-3.10         
      Options granted                              136,017            --      $       4.13    
      Options exercised                           (726,865)           --      $   .83-3.10    
      Options cancelled                            (77,427)           --      $   .81-4.13    
                                                   -------     ---------
  Options outstanding at July 31, 1994             300,062            --      $  1.24-4.13    
      Options granted                              272,749            --      $ 8.17-12.97     
      Options exercised                            (86,313)           --      $  1.24-4.13    
      Options cancelled                            (19,697)           --      $  2.07-8.17    
                                                   -------     ---------
  Options outstanding at July 31, 1995             466,801            --      $ 2.07-12.97    
      Options granted                              285,188            --      $13.53-33.25    
      Options exercised                           (145,911)           --      $  2.07-8.17    
      Options cancelled                            (22,224)           --      $ 4.13-13.53    
                                                   -------     ---------
  Options outstanding at July 31, 1996             583,854            --      $ 4.13-33.25    
                                                   =======     =========
</TABLE>
                                                                              
As of July 31, 1996, all outstanding options were exercisable, except for
options to purchase 278,933 shares at prices ranging from $12.97 to $33.25 per
share.

NOTE H - INCOME TAXES

<TABLE>
<CAPTION>

                                                                            Years ended July 31,
                                                                --------------------------------------------
                                                                   1994             1995             1996
                                                                ----------       ----------       ----------
<S>                                                             <C>              <C>              <C>       
   Currently payable:
       Federal                                                  $  344,738       $1,112,399       $1,492,683
       State                                                        59,837          205,904          312,606
                                                                ----------       ----------       ----------
                                                                   404,575        1,318,303        1,805,289

   Deferred                                                         76,897          362,379          328,514
   Tax benefit from the exercise of certain stock options          499,193           74,329        1,426,563
                                                                ----------       ----------       ----------
   Total income tax provision                                   $  980,665       $1,755,011       $3,560,366
                                                                ==========       ==========       ==========
                                                               
</TABLE>

Reconciliation of the federal statutory income tax rate of 34.0% to the
effective income tax rates are as follows:

<TABLE>
<CAPTION>
                                                                                 Years ended July 31,
                                                                       -------------------------------------
                                                                       1994            1995             1996
                                                                       ----            ----             ----
<S>                                                                   <C>              <C>              <C> 
Federal statutory income tax rate                                     34.0%            34.0%            34.0%
State income taxes, net of federal income tax benefit                  3.6%             3.6%             3.6%
Tax-exempt interest                                                     --             (2.2)            (0.4)
Acquisition costs                                                       --               --%             3.4%
Other                                                                  0.2              3.2             (2.0)
                                                                      ----             ----             ---- 
Effective income tax rate                                             37.8%            38.6%            38.6%
                                                                      ====             ====             ====
</TABLE>

 
                                                                              23
<PAGE>   26

ABR INFORMATION SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--------------------------------------
JULY 31, 1994, 1995 AND 1996



NOTE H - INCOME TAXES - Continued

Deferred tax asset and liability components were as follows:
<TABLE>
<CAPTION>

                                                            July 31,
                                                ---------------------------
                                                   1995             1996
                                                ----------       ----------
<S>                                             <C>              <C>       
  Deferred tax assets:
      Net operating loss carryforward (1)       $       --       $  428,000
      Reserve for doubtful accounts                  9,856           35,900
                                                ----------       ----------
                                                     9,856          463,900
  Deferred tax liabilities:
      Depreciation                                  86,366          199,900
      Software development costs                   473,940        1,159,555
      Other                                         16,591             --
                                                ----------       ----------
                                                   576,897        1,359,455
                                                ----------       ----------

  Net deferred tax liability                    $  567,041       $  895,555
                                                ==========       ==========
</TABLE>


 (1)  Relates to approximately $1.1 million of net operating losses of an
      acquired subsidiary, which expire in 2001. This transaction resulted in a
      stock ownership change for purposes of Section 382 of the Internal Revenue
      Code of 1986, as amended. Consequently a portion of the acquired
      subsidiary's net operating loss carryforward is subject to a yearly
      limitation on its utilization which can only be applied against future
      income of the acquired subsidiary. The Company believes that it will
      obtain the future income to fully utilize the net operating loss, thus no
      valuation allowance has been recorded for the net operating loss
      carryforward.


NOTE I - COMMITMENTS AND CONTINGENCIES

The Company leases office space under noncancellable leases which are accounted
for as operating leases. The leases are subject to an escalation clause using a
CPI index. The leases expire between February 1997 through May 2005.

Future minimum lease payments under noncancellable operating leases are as
follows as of July 31, 1996:


<TABLE>
<CAPTION>
                             July 31,
                             ----------
                             <S>         <C>       
                             1997        $1,178,201
                             1998           773,126
                             1999           564,786
                             2000           196,031
                             2001           196,815
                             Thereafter     783,191
</TABLE>


Rent expense for all operating leases for the years ending July 31, 1994, 1995
and 1996 was $613,106, $673,391 and $1,129,738 respectively.

The Company has a commitment totalling $5.8 million for the cost of improvements
to be made to an operating facility.

The Company is engaged in litigation arising from the ordinary course of
business. In the opinion of management, the ultimate outcome of litigation will
not have a material impact on the Company's financial position.


NOTE J - INCENTIVE BONUS PLAN AND SAVINGS PLAN

Effective January 1, 1992, the Company established a defined contribution
savings plan (the "Savings Plan") covering substantially all employees. The
Savings Plan consists of an employee elective contribution and a company
matching contribution for each eligible participant. The Company's matching
contribution is determined by the Board of Directors on a discretionary basis.
The Company's contributions under the Savings Plan in fiscal 1994, 1995 and 1996
were approximately $54,000, $124,500 and $167,969, respectively.

                                                                              
24
<PAGE>   27
                                             -----------------------------------

NOTE J - INCENTIVE BONUS PLAN AND SAVINGS PLAN - Continued

Effective August 1, 1993, the Company adopted an incentive bonus plan (the
"Incentive Bonus Plan"), which provides for the discretionary payment of annual
incentive awards to key employees from a pool equal to 10% of the Company's
pre-tax profits (income before income taxes), adjusted upward or downward based
on the attainment of pre-established goals related to the Company's pre-tax
margin (income before income taxes divided by revenues) and its revenue growth
(based on annual increases in revenues). Payments under the Incentive Bonus Plan
are discretionary, based on the determination of the Board of Directors of the
Company and are subject to certain limitations as provided in the Incentive
Bonus Plan. In fiscal 1994, 1995 and 1996, $462,047, $777,633 and $790,000,
respectively, of incentive bonus was expensed.


NOTE K - MAJOR CUSTOMER

During fiscal 1996, one of the Company's customers accounted for approximately
15% of revenues. This customer became a client of the Company as a result of the
New Jersey acquisition. Assuming the acquisition had occurred on August 1, 1995,
approximately 21% of revenue would have been derived from this customer. In
fiscal 1994 and 1995, no individual customer accounted for 10% or more of
revenues.


NOTE L - QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)

The following is a summary of the quarterly results of operations for the
quarterly periods of fiscal 1994, 1995 and 1996:


<TABLE>
<CAPTION>
      1994                        First             Second           Third           Fourth
      -----------                ----------       ----------       ----------       ----------
<S>                              <C>              <C>              <C>              <C>       
      Revenue                    $2,959,352       $3,240,965       $3,488,320       $3,776,160
      Operating income              534,337          603,701          672,371          715,954
      Net income                    333,013          370,698          416,313          490,471
      Net income per share       $      .05       $      .05       $      .06       $      .06

      1995
      ----------
      Revenue                    $4,321,754       $4,493,809       $4,734,637       $5,284,436
      Operating income              876,305          912,000          985,361        1,202,454
      Net income                    628,655          660,050          696,135          808,838
      Net income per share       $      .06       $      .07       $      .07       $      .08

      1996
      ----------
      Revenue                    $5,614,304       $6,851,136       $9,067,901       $9,628,840
      Operating income            1,138,977        1,597,305        1,768,907        1,856,816
      Net income                    783,436        1,047,632        1,645,273        2,197,443
      Net income per share       $      .08       $      .10       $      .14       $      .16
</TABLE>


NOTE M - ACQUISITIONS

New Jersey Acquisition
On December 15 1995, the Company acquired all of the outstanding capital stock
of Bullock Associates, Inc., which was subsequently renamed ABR Benefits
Services, Inc. ("BSI"), for $12.5 million, with an additional $2.0 million
payable upon the attainment of certain revenue requirements during 1996 and
1997. This acquisition was accounted for as a purchase. BSI is located in
Princeton, New Jersey and provides COBRA administration, retiree insurance
administration, insurance continuation billing and collection, pension benefits
administration services, QDRO (Qualified Domestic Relations Order)
administration and educational benefit administration services as well as
administration for other employee benefits programs such as employee discount
plans, adoption programs, program rebates and emergency loans.


                                                                              25
<PAGE>   28

ABR INFORMATION SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--------------------------------------
JULY 31, 1994, 1995 AND 1996



NOTE M - ACQUISITIONS - Continued

California Acquisition
Effective February 1, 1996, the Company acquired all of the outstanding capital
stock of Total Cobra Services, Inc. ("TCS") for 132,712 shares of restricted
Common Stock. This acquisition was accounted for as a purchase. TCS is located
in Irvine, California and provides COBRA administration and retiree billing
services. For the fiscal year ended December 31, 1995, TCS had revenues of less
than $2 million. Pro forma information is not provided for TCS as it is not a
significant acquisition.

Virginia Acquisition
On June 28, 1996, the Company completed a merger of The L.P. Baier Company
("LPB") where 143,010 shares of the Company's stock was exchanged for all of the
outstanding stock of LPB. LPB is located in Fairfax, Virginia and provides
primarily FSA (Flexible Spending Account) administrative services and COBRA
administration. The merger was accounted for as a pooling of interest, and
accordingly, the accompanying financial statements have been restated to include
the accounts and operations of LPB for all periods prior to the merger,
including restating the retained earnings at July 31, 1993 to reflect the
difference between the par value of the Company stock issued and the total
shareholders' equity of LPB.

Separate results of the combining entities for previously reported periods are
as follows:


<TABLE>
<CAPTION>
                                                                     Years ended July 31              
                                                         ---------------------------------------------
                                                          1994               1995             1996    
                                                         -----------      -----------      -----------
                 <S>                                     <C>              <C>              <C>        
                 Revenue                                                                              
                   ABR Information Services, Inc.        $12,129,233      $16,692,376      $28,449,980
                   The L.P. Baier Company                  1,335,564        2,142,260        2,712,201
                                                         -----------      -----------      -----------
                                                         $13,464,797      $18,834,636      $31,162,181
                                                         ===========      ===========      ===========
                 Net Income                                                                           
                   ABR Information Services, Inc.        $ 1,595,652      $ 2,641,788      $ 5,578,144 
                   The L.P. Baier Company                     14,843          151,890           95,640 
                                                         -----------      -----------      -----------
                                                         $ 1,610,495      $ 2,793,678      $ 5,673,784 
                                                         ===========      ===========      ===========
</TABLE>         

In connection with this merger, $361,198 of acquisition costs were incurred and
have been charged to expense in the fourth quarter.

The following pro forma balances have been derived from the historical financial
statements of the Company and BSI and adjusts such information to give effect to
the acquisition of BSI. The balances for the years ended July 31, 1994, 1995,
and 1996 assume that the acquisition of BSI occurred on August 1, 1993. The
unaudited pro forma financial information is not necessarily indicative of the
results which would actually have occurred had the transaction been in effect on
the dates and for the periods indicated or which may result in the future.


<TABLE>
<CAPTION>
                                          Years ended July 31
                                -------------------------------------
                                  1994           1995          1996
                                -------         -------       -------
                                 (in thousands except per share data)
     <S>                        <C>                  <C>           <C>    
     Revenue                    $20,864         $27,819       $34,740
     Operating income             4,430           5,840         7,245
     Net income                   2,339           3,483         6,015
     Net income per share       $   .31         $   .35       $   .52
</TABLE>

                                                                              
26
<PAGE>   29



                              REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS




Board of Directors
ABR Information Services, Inc.


We have audited the accompanying consolidated balance sheets of ABR Information
Services, Inc. as of July 31, 1995 and 1996 and the related consolidated
statements of income, shareholders' equity and cash flows for each of the three
years in the period ended July 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 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 ABR Information
Services, Inc. as of July 31, 1995 and 1996, and the consolidated results of
their operations and their consolidated cash flows for each of the three years
in the period ended July 31, 1996, in conformity with generally accepted
accounting principles.




                                                GRANT THORNTON LLP
Tampa, Florida
September 13, 1996


                                                        MARKET PRICE INFORMATION




The following table sets forth the high and low sale price of the Company's
Common Stock since its initial public offering on May 26, 1994 as reported by
Nasdaq and restated for the three-for-two stock splits completed on July 13,
1995 and February 19, 1996:


<TABLE>
<CAPTION>
                                 1996                            1995                           1994
                     -------------------------       --------------------------       -------------------------
                        High            Low             High             Low            High             Low
                     ---------       ---------       --------         ---------       --------         --------       
<S>                  <C>             <C>              <C>             <C>             <C>              <C>    
First Quarter        $19 53/64       $      13        $7 7/32         $ 4 57/64       $     --         $    --
Second Quarter        32 53/64        19 21/64        9 35/64            6 7/64             --              --
Third Quarter               63        32 11/64        11 7/32           9 21/64             --              --
Fourth Quarter              65              38       15 43/64          10 25/32        5 53/64         4 35/64
Year                        65              13       15 43/64           4 57/64        5 53/64         4 35/64
</TABLE>


The Company has never declared nor paid any cash dividends on the Common Stock.
The Company currently anticipates that all of its earnings will be retained for
development and expansion of the Company's business and does not anticipate
paying any cash dividends in the foreseeable future.


                                                                              27
<PAGE>   30

CORPORATE AND SHAREHOLDER INFORMATION-------------------------------------------


CORPORATE HEADQUARTERS
ABR Information Services, Inc.
34125 U.S. Highway 19 North
Palm Harbor, FL 34684-2116
813-785-2819

INTERNET ADDRESS
http://www.abr.com

ANNUAL MEETING
The Annual Meeting of ABR Information Services, Inc. will be held at
10:00 a.m. (EST) on December 6, 1996, at the Hyatt Regency Westshore in Tampa,
Florida

FORM 10-K
A copy of the ABR Information Services, Inc. annual report to the Securities and
Exchange Commission on Form 10-K may be obtained without cost by request from
the Corporate Headquarters, Attention: Investor Relations

LISTING
The Company's Common Stock trades on The Nasdaq Stock Market under the
symbol ABRX

TRANSFER AGENT AND REGISTRAR
First Union National Bank
Shareholder Services Group
230 South Tryon Street, 11th Floor
Charlotte, North Carolina 28288-1153
800-829-8432

LEGAL COUNSEL
Foley & Lardner
Tampa, Florida

Proskauer Rose Goetz & Mendelsohn LLP
New York, New York

INDEPENDENT AUDITORS
Grant Thornton LLP
Tampa, Florida

SHAREHOLDER INFORMATION
ABR Information Services, Inc.
34125 U.S. Highway 19 North
Attention: Investor Relations
Palm Harbor, FL 34684-2116
813-785-2819

STOCK PRICE PERFORMANCE*-------------------------------------------------------

                                   [GRAPH]
                              5/26/94 - 7/31/96

*As restated for the three-for-two stock splits completed on July 13, 1995 and
                              February 19, 1996.


                                                                              
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<PAGE>   31

----------------------------------------------------------DIRECTORS AND OFFICERS


BOARD OF DIRECTORS


JAMES E. MACDOUGALD
Chairman of the Board,
President and Chief Executive Officer
ABR  Information Services, Inc.

VINCENT ADDONISIO
Executive Vice President,
Treasurer and Chief Financial Officer
ABR  Information Services, Inc.

THOMAS F. COSTELLO
Chairman and Chief Executive Officer
The  Costello Group

MARK M. GOLDMAN
Vice Chairman
Phone Programs, Inc.

SUZANNE M. MACDOUGALD
Senior Vice President and Secretary
ABR  Information Services, Inc.


OFFICERS OF ABR INFORMATION SERVICES, INC.


JAMES E. MACDOUGALD
Chairman of the Board,
President and Chief Executive Officer

VINCENT ADDONISIO
Executive Vice President,
Treasurer and Chief Financial Officer

SUZANNE M. MACDOUGALD
Senior Vice President and Secretary

ROBERT H. PARISEAU
Vice President

REVA R. MASKEWITZ
Controller


SUBSIDIARY OFFICERS


ABR COBRASERV, INC.

DENNIS A. SWEENEY
President

RANDOLPH C. METCALFE
Executive Vice President

KIMBALL S. ANDERSON
Senior Vice President-Sales and Marketing

LAUREN M. RINGUETTE
Senior Vice President

ANDREW D. SWENSON
Senior Vice President and Chief Information Officer

BRIAN R. ANNIS
Vice President

SHARI N. ARZATE
Vice President-New Major Accounts

DAGMAR S. DE STEFANO
Vice President-New Major Accounts

JOHN DOYLE
Vice President

KARLENE K. DUNKELBERGER
Vice President

DENISE A. ELKO
Vice President-New Major Accounts

PATRICK R. MANDERS
Vice President-Promotion and Communications

REVA R. MASKEWITZ
Vice President-Finance

ABR BENEFITS SERVICES, INC.

W. CARL BULLOCK
President

BARBARA A. BIASOTTI
Vice President-Customer Relations

NANCY L. CLARK
Vice President-Finance

THE L.P. BAIER COMPANY

RICK L. SNYDER
President

TINA A. MCINTOSH
Executive Vice President

ABR NATIONAL SERVICE CENTER, INC.

WILLIAM R. POVILUS
President

TOTAL COBRA SERVICES, INC.

WILLIAM E. EVANS
President

ABR PROPERTIES, INC.

JOSEPH C. LUKASON
President

30