U.S. SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                                   Form 10-KSB
(Mark One)
[X] ANNUAL  REPORT UNDER SECTION 13 OR 15(d) OF THE  SECURITIES  EXCHANGE ACT OF
1934 - [Fee Required]
For the fiscal year ended June 30,  1996,  due on September  28, 1996,  actually
filed on October 15, 1996.

[ ] TRANSITION  REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES  EXCHANGE ACT
OF 1934 [No Fee Required]
                         For the transition period from

                       Commission file number 33-80944-LA

                        NATIONAL SPECIALTY NETWORKS, INC.
                 (Name of small business issuer in its charter)

           California                                           33-0403505
(State or other jurisdiction of                            (IRS Employer ID No.)
 incorporation or organization)                             

                          451 W. Lambert Rd., Suite 216
                           Brea, California 92821-3920
                    (Address of principal executive offices)

Issuer's telephone number (714) 256 9654

Securities registered under Section 12(b) of the Exchange Act:
       Title of each class             Name of each exchange on which registered
              None                                        None

Securities registered under Section 12(g) of the Exchange Act:
                           Common Stock, no par value
                                (Title of class)

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

Check if disclosure  of delinquent  filers in response to Item 405 od Regulation
S-B is not contained in this form, and no disclosure  will be contained,  to the
best  of  the  registrant's   knowledge,  in  definitive  proxy  or  information
statements  incorporated  by  reference  in Part III of this Form  10-KSB or any
amendment to this Form 10-KSB. [X]

State issuers' revenues for its most recent fiscal year: $0.00

State the aggregate  market value of the voting stock held by  nonaffiliates  of
the registrant. The aggregate market value shall be computed by reference to the
price at which the stock was sold,  or the average bid and asked  prices of such
stock,  as of a specified  date within the past 60 days. As of August 15, 1996 -
$0

State the number of shares outstanding of each of the issuer's classes of common
equity,  as of the latest  practicable  date:  As of August 15, 1996 - 1,225,534
shares of common stock.

                       DOCUMENTS INCORPORATED BY REFERENCE
                                      None
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                                     PART I
Item 1. Description of Business.

     National Specialty Networks,  Inc., ("NSN"),  received an order from the US
Securities and Exchange  Commission for its registration  statement on Form SB-2
granting effectiveness on August 16, 1996.

     NSN is a healthcare  management  company  organized in July 1989 to develop
Specialty Preferred Provider Organizations (SPPOs) throughout the United States.
NSN's SPPOs will be networks of healthcare providers (hospitals), referred to by
NSN as Centers of Excellence  or "COEs".  These  hospitals  will be selected for
membership  in a  SPPO  because  of  demonstrated  excellence  in a  particular,
high-cost medical specialty (e.g., cardiac surgery,  lithotripsy,  neurosurgery,
etc.),  and will be able to provide such  services at lower  prices  through the
adoption  of  cost-control  techniques  known as  Standard  Treatment  Protocols
(STPs).

     The business  concept for NSN was developed by Ronald D. Osborne and Philip
L. Ronning in 1988 in response to what they perceived were major inadequacies of
preferred provider  organizations  (PPOs) and health  maintenance  organizations
(HMOs) for reducing or containing healthcare costs. SPPOs can be integrated with
existing HMO, PPO and other  employer-sponsored  managed care programs to enable
them to more effectively manage higher cost services,  like open-heart  surgery,
neurosurgery,  oncology,  etc., where the greatest  potential for cost reduction
exists.

     A Specialty  Preferred  Provider  Organization  (SPPO) is a single  service
network of hospitals  selected for excellence in that  particular  service.  The
selection of hospitals or Centers of Excellence  (COEs) is more  stringent  than
for current HMOs and PPOs and involves  reviewing  quality  outcome data for all
hospitals  within each geographic  region of a state to select the one which has
consistently  produced the best results. NSN will contract with that hospital at
a rate lower than that hospital offers to conventional  managed care programs in
return for assurance  that the COE will have  exclusivity  for patients of NSN's
customers  for that  region.  Of course,  hospitals  which are  selected  as NSN
Centers  of  Excellence  for  one  or  more  specialty  services  can  still  be
full-service  hospitals for non-SPPO  patients,  so that participation in a SPPO
should represent a net gain in business for each Center of Excellence.

     A Standard Treatment Protocol (STP) consists of consensus-based conventions
of the medical staff,  nurses and clinical  departments of a hospital associated
with a single  clinical  service (e.g.,  open-heart  surgery,  gastroenterology,
neurosurgery,  oncology,  organ  transplantation,  etc.) as to the best means of
providing the service to a "typical  patient" at a higher level of quality for a
lower price.

     "Typical  patients"  are those  patients  under the age of 65 who are being
treated for a single  disease or specific  problem,  and who have no significant
co-morbidities  (i.e., no additional  complicating  diseases or disease states).
This  allows  the course of  treatment  for a typical  patient to be  relatively
predictable,  standard and similar in resource  consumption (as reflected in the
number and the type of diagnostic tests, days of stay, drug therapies, etc.).

     "Atypical  patients"  are patients who are over 65 years of age or who have
co-morbidities  (e.g.,  a  patient  requiring  open-heart  surgery  who is  also
diabetic or who has had the same surgery  previously) and are at higher risk due
to  well-documented  risk factors (e.g.,  morbid obesity,  age, smoking history,
etc.).

     It is the goal of hospitals using STPs to have as many patients as possible
treated using Standard Treatment  Protocols.  STPs are typically written for the
average  patient in a category.  Although  atypical  patients do not necessarily
completely  follow the STPs developed to standardize the healthcare  provided to
typical patients,  they are subject to the protocol to the extent reasonable for
each such  atypical  patient,  and can often follow much of the protocol  before
"falling out" due to co-morbidities.

     Therefore,  just because a patient is not  "typical"  does not  necessarily
mean that he or she will not be a "protocol  patient" or that the protocol  will
not have an impact on his or her  clinical  course.  Of  course,  there are some
patients who, due to their clinical condition,  will never be able to conform to
the protocol, although this number is usually a very
                                        2
<PAGE>
small  percentage of the total.  Additionally,  many  diagnostic  categories are
subdivided into natural  subcategories,  and specific  protocols are written for
each  subdivided  category  instead  of using a single  protocol  for the entire
category.  Subdivision  of patients  makes  protocols  more  specific as well as
increasing the percentage of typical patients in each category.

     Every  category of patient  that has STPs  developed  for it will feature a
different  percentage of "typical or average" patients,  based upon the relative
homogeneity of the patients,  the surgical procedure involved (if any), and many
other  factors.  This is no  different  from  the  mix of  patients  treated  in
hospitals  today. The goal of the STP is to cover as many patients in a category
that  makes  clinical  "sense".   Based  on  its  experience  in  designing  and
implementing  STPs,  Ronning Management Group, Inc. has found that approximately
75% of each category of patients can be classified as "typical" or "average."

     STPs have been  developed  to improve  productivity  while  preserving  the
better aspects of physician independence. At the same time, STPs are designed to
reduce  variations and deviations in medical  treatments,  and to  significantly
reduce unnecessary resource expenditures.  The STP development process creates a
hospital-sponsored,   physician-centered   forum  for  scrutinizing   prevailing
practice patterns,  eliminating wasteful resource consumption, and formulating a
"blueprint"  for the  optimum  means of  treating  typical  patients.  NSN's STP
process  also  includes  developing  monitoring  systems to assure  adherence to
standardized protocols adopted by each hospital.

     As NSN has not commenced  operations,  Ronning Management Group, Inc. (RMG)
has assisted NSN with the  research and  development  of its STP program and has
performed beta-site testing of NSN's STPs using RMG personnel and resources. RMG
has entered into an agreement with NSN which provides that after NSN receives at
least  the  minimum  proceeds  from this  Offering,  RMG will  transfer  its STP
technology and contracts to NSN, and NSN will extend  employment offers to RMG's
STP staff.

     In addition to providing  NSN's customers with cost  containment  services,
SPPOs are designed to address three major problems in the  healthcare  industry.
First,  many  healthcare  professionals,  and a large  percentage of the public,
believe that the healthcare  system in the United States is in a cost crisis and
current cost containment efforts are not working.  For example,  the annual cost
for health  coverage for each employed  person in the United States is currently
$4,000, and according to a study by A. Foster Higgins & Co., could be $20,000 or
more by the year 2000. SPPOs are designed to reduce and contain healthcare costs
to employers and hospitals.

     The second major  healthcare  problem that SPPOs are designed to address is
the substantial duplication of high- cost tertiary care hospital services at the
community  level.  In order to compete  for  patients in the  healthcare  market
today,  hospitals attract  physicians,  and the resulting patient referrals,  by
duplicating and attempting to surpass competing  hospitals in terms of depth and
breadth  of  state-of-the-art   medical  equipment,   technology  and  services.
Therefore,  scarce  and  expensive  medical  resources  are being  wasted due to
duplication  of expensive  equipment  and  services  (such as CAT scans) at each
hospital in a community.  Competition  among  hospitals,  fueled by conventional
managed care programs which seek full-service hospitals and  "one-stop-shopping"
for their clients, drives hospitals deeper into costly duplication.

     Management  believes that SPPOs can have a  significant  impact in reducing
healthcare costs because of the potential of SPPOs for significantly reducing or
eliminating  the  duplication  of  high-cost  tertiary  care  services  which is
currently prevalent in virtually every population center in the United States.

     The third  major  healthcare  problem,  in  management's  opinion,  is that
current  private sector managed care programs,  such as HMOs, PPOs and Medicare,
target and manage  hospitals' prices for healthcare rather than hospitals' costs
of  providing  healthcare.  HMOs,  PPO-related  insurance  programs and Medicare
reimburse  hospitals for inpatient care at rates which, in most cases, are lower
than what it costs the hospitals to deliver care.  Accordingly,  most  hospitals
try to recover these losses by raising prices to non-managed care inpatients and
to outpatients.  This practice,  called "cost shifting",  resulted in almost $35
billion in additional  costs in 1992 for  non-managed  care  inpatients  and all
outpatients (including managed care outpatients), according to Richard L. Clark,
President of the Healthcare Financial Management Association.
                                        3
<PAGE>
The Healthcare Industry

     For many employers,  the cost of providing  employee  medical care is their
single fastest growing operating  expense.  To cope with ever increasing medical
costs,  many large  employers  have  altered  employee  benefit  plans,  thereby
effectively  reducing  both the  quantity and quality of  employer-paid  medical
care. Many payers and providers  currently believe that the healthcare  delivery
system in the United States is in a crisis, and that new and radically different
solutions to this crisis must be found.

     Hospitals are experiencing  declining revenues as the result of the federal
government's  system  of  Medicare  reimbursements,  state  government  policies
regarding Medicaid payments,  and private sector managed healthcare programs. As
a result,  most  hospitals  are  trying to recover  these  losses  through  cost
shifting,  which  is  raising  prices  to  non-managed  care  inpatients  and to
outpatients.

     As a  direct  result  of cost  shifting,  much  of the  effort  to  contain
healthcare  costs made by  private  sector  payers  during the past ten years by
enrolling in HMOs and PPOs has proven  fruitless in reducing the overall cost of
healthcare. In spite of cost shifting, hospital costs have continued to escalate
and hospital profits have continued to decline. Additionally, many hospitals now
find  that  the   majority  of  their   business   is  subject  to   fixed-price
reimbursements  and that  they are less  able to cost  shift to make up  revenue
shortfalls than they were in the past.

     Hospitals  are also finding  revenues  and  profitability  reduced  because
health  benefits  providers  are shopping  for the best package  prices they can
negotiate for high-tech,  complex medical procedures such as open heart surgery,
coronary  angioplasty and organ  transplantation,  among others.  Consumers have
also become  increasingly  sophisticated  about  quality-of-care  issues and are
demanding superior services in their communities.

     There are  several  divergent  viewpoints  held by members  of the  medical
industry and politicians regarding various types of managed healthcare plans and
healthcare in general.  Currently there is considerable attention being given to
some form of national  health  insurance by the healthcare  industry,  including
physicians,  hospitals and insurance  companies,  and by certain politicians who
have introduced  legislation  designed to implement  various types of healthcare
reform and national health insurance.

     The current disagreement concerns which reforms, methods and systems should
be introduced to "fix" the American healthcare system.  Among the concerns being
discussed  in  attempting  to  implement  a  workable  and  affordable  American
healthcare system are maintaining a high quality of healthcare for all patients,
the escalating costs of healthcare coupled with the desire to contain healthcare
costs to an affordable and reasonable level,  patient convenience and promptness
of treatment,  the possible  rationing of expensive  healthcare  procedures  and
tests,   disincentives   towards  the  development  of  new,  high-cost  medical
technologies  and tests,  issues regarding  liability and  malpractice,  and the
continued  ability of individual  physicians to determine modes of treatment for
their respective patients.

     Oregon and Hawaii have adopted  comprehensive  healthcare systems which are
being examined by both federal and state  politicians,  regulators and others in
the healthcare  industry.  The Canadian healthcare system has also been cited as
an example of the direction in which the American healthcare system should move,
although there remain serious  concerns  regarding the rationing and time delays
involved  in  obtaining  certain  expensive  healthcare  procedures,  which have
resulted in certain  wealthier  Canadians  travelling  to the United  States for
prompt treatment of certain medical  conditions for which they would have had to
wait to be treated for in Canada.

     While  these and other  possible  healthcare  systems are  currently  being
examined  and  discussed,  no unified  approach to  resolving  the  concerns and
problems facing the American  healthcare  system has been adopted or implemented
as of the date of this Prospectus.  Accordingly, there can be no assurance as to
which of the numerous competing  healthcare plans will be adopted in the future,
if any. Management believes that regardless of the level of healthcare reform or
national healthcare  coverage adopted,  the healthcare industry will continue to
need a method for  controlling  healthcare  costs and the quality of  healthcare
service.
                                        4
<PAGE>
     The current  situation  regarding  increasing  hospital costs and declining
profits is being exacerbated because hospitals rely principally on physicians to
make the majority of resource  expenditure  decisions.  Approximately 80% of the
variable costs experienced by a hospital are controlled by physicians,  yet most
of these  physicians  are not  employed by the  hospitals  and are not under the
direct control of hospital management. Due to divergent education,  training and
experience,  physicians bring widely  disparate  approaches to the diagnosis and
treatment of patients, even within the same clinical specialty.

     Physicians are obligated to practice  medicine to the best of their ability
and to exercise  their best judgment in all aspects of patient care.  While this
has   contributed   in   large   measure   to  the   evolution   of   the   most
technically-capable  healthcare system in the world, an undesirable  outcome has
been the  uncontrolled  consumption  of expensive  resources.  Physicians  often
demand high-tech equipment and devices to perform state-of-the-art diagnosis and
treatment,  which requires a sizable  investment by hospitals,  and as hospitals
are increasingly in competition for high-quality  physicians  around whom strong
clinical  programs can be built,  hospitals must provide these  physicians  with
state-of-the-art,  costly  medical  equipment if they wish to attract and retain
their services.

     In order to continue to do business, hospitals must provide a product which
is priced affordably  enough to attract patient  business,  is of a sufficiently
high quality and technical currency to attract both patients and physicians, and
yet is  produced  at a cost which  yields a profit  sufficient  to  operate  the
institution profitably and fund future growth requirements. Cost containment and
operating  procedures must be implemented so that hospitals realize a reasonable
profit from each service  performed.  Management  believes that this goal can be
met through  structuring  a managed care program  which  rewards  excellence  in
medical care and cost control efforts by guaranteeing  substantial  referrals to
selected hospitals.

Competition

     NSN is new and  unseasoned,  and thus it will  have  inherent  difficulties
seeking  to enter  its  field.  There are  numerous  firms,  such as  commercial
insurance companies, which have not yet chosen to offer centers of excellence or
SPPO services to their insureds, but which could if they made the decision to do
so. For instance,  Travelers Insurance Company is presently experimenting with a
center of excellence (COE) program for cardiovascular services, and has issued a
request-for-proposal (RFP) to a number of hospitals and some selected COEs.

     There are other companies with greater financial,  management and marketing
resources  than NSN which may  choose to engage in the  Company's  business  and
compete  directly  with  the  Company  in  the  future.   One  such  competitive
organization is Health Star, a large national PPO which claims to provide health
coverage  for over one  million  people.  Another  such  company  is  Healthcare
Networks of America,  Inc. (HNA). HNA has issued an RFP to an undisclosed number
of hospitals and their  medical  staffs  requesting  bids to join one or more of
what is planned  to be 26  different  specialty  networks.  None of the  planned
networks  actually exists  presently;  all are still in the planning stage.  The
management of NSN is unaware of other potential  competition which has a service
comparable to, or competitive with NSN's proposed services,  although others may
exist.

     The principal  competitive  factors in the SPPO or COE market are: price of
each tertiary  service offered by each COE,  management and data systems offered
by each COE, the extent to which each COE has streamlined and  standardized  its
service,  and the extent to which each COE understands  and convinces  payers it
can offer a higher level of customer group service.

     NSN is unaware of any company,  other that Ronning  Management  Group, Inc.
(RMG), an affiliate of NSN, which is currently offering a healthcare  management
service  comparable to, or competitive with, the scope of the Standard Treatment
Protocols  (STPs)  which NSN plans to  provide.  However,  there may be  current
competitors of whom NSN is unaware.

     The American Hospital Association (AHA), in response to growing interest on
the part of  hospitals,  recently  conducted  two  seminars  on the  subject  of
tertiary  centers  of  excellence.  NSN was  requested  by the AHA to  assist in
identifying  employers  and insurers  which may be planning to offer COE or SPPO
networks to their beneficiaries. NSN
                                        5
<PAGE>
was able to  secure  representatives  from five of these  companies  to serve as
speakers at the AHA seminars.

     To date,  there have been  attempts by groups of  non-competing  hospitals,
spread over large  geographic  regions,  to develop  cardiovascular  SPPO or COE
networks.  One such network has recently  been  developed in  California  and is
currently  being  marketed to payers  within the State.  Another  cardiovascular
network has been developed nationwide by a group of non-competing  cardiologists
which has selected hospitals for participation  based on their existing clinical
reputations.  To NSN's  knowledge,  these  networks have not employed  stringent
selection  standards  such as low  cost  (without  cost-shifting),  demonstrated
quality  outcomes,  or  enhanced  customers  servicing  capabilities  to qualify
participating  hospitals  as COEs.  NSN  intends to require  these  features  of
hospitals desiring to be in NSN's COE networks.

     The American  Hospital  Association (AHA) recently endorsed the development
of standard  treatment  protocols to reduce  hospital costs and enhance  quality
outcomes.  This is a generic  endorsement and does not apply specifically to the
Company's STPs which encompass a more comprehensive approach to standardization.
However, management believes this endorsement will encourage competition.

Standardization of Healthcare

     Individual  hospitals  that  wish to  participate  in a SPPO  network  must
concentrate on providing those medical  services which they are best equipped to
provide on a  high-quality,  low-cost  basis.  NSN has developed what management
believes is an  innovative  methodology  for  hospitals  to  accomplish  this by
managing   high-cost   healthcare   services  while  rewarding   hospitals  with
significantly  greater volumes of patients for their selected clinical services.
However,  to date, no hospital has yet executed an agreement with the Company as
an SPPO member and that the lower rates to SPPO members can not yet be assured.

     Standard  Treatment  Protocols  (STPs) are developed for major surgical and
medical services.  STPs produce high-quality,  controlled-cost  medical services
for  hospitals,  and have the  additional  advantage of being  developed in each
participating   hospital  by  the  professionals  who  are  actually   providing
healthcare services (i.e., the physicians, nurses and healthcare staff).

     STPs are developed in each hospital by using  Clinical  Paths (CPs),  which
outline the entire course of care provided to a typical patient.  Clinical Paths
standardize  tests,  procedures,  therapies,  etc.  given to a patient during an
entire hospital stay. The goal of the CP is to improve productivity by providing
a "blueprint" for resource  consumption and allocation and a treatment  protocol
for the  care of the  patient.  The CP is  designed  to  document  the  specific
practices that are the most resource  efficient and clinically  appropriate  and
which result in the shortest  appropriate  length of stay. NSN  facilitates  the
development of CPs through the involvement of appropriate hospital personnel.

     Cost  models are  constructed  for each STP  category  to reflect the total
costs of the resources  typically  consumed by the patients in this category.  A
sample  of  discharged  patients'  bills is used to  construct  a model  that is
chargeable  line-item  specific as a baseline starting point or average prior to
implementing the STP. Through  financial  modeling,  it is possible to calculate
the  typical  amount  of  resources  used in a  specific  STP  category  and the
appropriate  cost of each item charged to the patient.  Most hospitals have this
information available on a per-patient basis.

     The cost model  aggregates  those  patients'  bills and,  through  computer
modeling,  creates a typical  patient's bill. If  fully-allocated  costs (direct
costs plus  indirect/overhead  allocations) are available through an information
system,  they  are  used.  If  no  cost  accounting  system  is  present,  these
calculations are performed through research.  Once completed and validated,  the
baseline model had four  repetitions of a diagnostic test, but the STP specifies
only two  repetitions  of the same test.  Thus it is possible to  calculate  the
resource  consumption  and total cost to be  expected  for a patient  treated in
accordance with Standard Treatment Protocols.

     The key to the development of STPs is the designation of multi-disciplinary
teams of  selected  physicians,  nurses  and other  caregivers  who are  brought
together  in a process  designed  to create  the  protocols  (standards)  and to
identify  system problems and  opportunities.  It is important to recognize that
for physicians to act to decrease costs and
                                        6
<PAGE>
enhance quality,  they, not consultants,  must be responsible for developing the
standards.

     NSN will  coordinate the process and will provide the  methodology  for the
analysis  and  discussion  of clinical and  economic  issues.  NSN will not make
recommendations  for change;  rather,  the participants in the process will make
the  recommendations  for  change.  Based  on  RMG's  experience,  adoption  and
implementation of STPs requires  approximately 180 days or less,  depending upon
the  surgical or medical  specialty  and the  particular  circumstances  in each
hospital.

     There are two primary benefits to a hospital that develops a STP. The first
is  reduction  in costs.  Costs are  reduced  by  reducing  the  consumption  of
resources,   attaining  enhanced  medical  quality  through  standardization  of
hundreds of individual tasks, a decreased average length of hospital confinement
for patients, and enhanced communications between caregivers.

     The NSN  healthcare  model is designed to work by enabling a payer (a large
or  medium-sized  self-insured  employer,  HMO,  PPO or  insurance  company)  to
unbundle its healthcare benefit program by NSN developing a Specialty  Preferred
Provider  Organization  (SPPO)  network  for each of the  highest-cost  tertiary
medical  services.  Depending  on the extent to which the payer needs to cut its
costs and is willing to risk  alienating  employees  by  limiting  the choice of
hospitals,  the employer may carve out anywhere from one to fifteen services for
which employees are directed to the SPPO network for medical care.

     Possible healthcare services to be included in SPPO networks are open heart
surgery, neurosurgery, orthopedic surgery, oncology, head and spinal cord injury
rehabilitation,    gastroenterology,   lithotripsy,   ophthalmology,   high-risk
obstetrics, mental health, organ transplantation,  and four other services to be
selected by NSN from payer data. The SPPO network member  hospitals will pay NSN
to perform  Standard  Treatment  Protocols for each of these services which they
provide to a SPPO network.

The payer then contracts with NSN to do the following on its behalf:

     Identify,  through a rigorous  screening  process,  the  highest-quality
     hospital in the payer's  geographic area for each selected medical service.
In this  regard,  NSN has  developed  a  Request  for  Proposal  (RFP)  which is
submitted to each tertiary care hospital in a designated  community or area, and
which includes quality measurement  criteria for each clinical service provided.
Hospitals  interested in participating  then submit  performance data,  proposed
rates,  and letters  agreeing to reduce the  hospitals'  costs for the  selected
services  below the proposed  contract  rate within  twelve  months  through the
implementation  of Standard  Treatment  Protocols  (STPs) for each such  service
provided.

     Select the COE for each  service,  negotiate a contract  with each COE, and
initiate STP development consulting services with the contracted hospitals.

     Assist the payer in  modifying  its benefit  plan to assure  that  patients
exclusively use only NSN's COEs.

     Assist the payer in renegotiating all previously held hospital contracts to
carve out the tertiary  care  services to be handled by NSN's COEs.  NSN expects
the residual  rates from these  hospitals will go down  considerably  due to the
removal of catastrophic  risk normally  associated with the carved-out  tertiary
care services.

     The outcome of these  steps,  if they work as  described,  should be higher
quality  of  tertiary  care  (due  to the  rigorous  process  for  selection  of
providers),  overall significant cost reduction (due to hospital  implementation
of STPs),  elimination  of the need for NSN's  contract  hospitals to cost shift
(due to STP  implementation  and the hospitals'  agreement to reduce costs below
contract rates), and significant  reduction of duplication of high-cost tertiary
services within each community (due to  significantly-reduced  tertiary  patient
volume in hospitals that cannot produce  performance  outcome data sufficient to
be selected as a COE).

NSN expects hospitals to be motivated to participate and to propose their lowest
rates (1) because of the stature 
                                       7
<PAGE>
associated with being a center of excellence  (COE) for one or more services and
(2) because  they stand to receive an  increased  volume of  patients.  NSN will
require  each payer to modify its benefit  plan to assure that all its  patients
for the  contract  services  use only  NSN's  centers of  excellence,  and NSN's
hospital  agreement  requires the hospital each COE to give NSN's SPPO members a
rate that is at least 10% lower than is provided to any other payer.  As NSN has
not yet  executed  participation  agreements  with  hospitals,  there  can be no
guarantee that hospitals will provide the lower rates that NSN stipulates in its
standard hospital participation agreement.

     The Company's  pricing  strategies  for both one-time and ongoing fees have
been designed not to exceed the resistance points of either payers or providers.
Management believes that NSN's fee structure is such that providers  (hospitals)
will rapidly recover the cost of implementing STPs, taking into account the fees
paid to NSN as well as other direct and indirect  costs incurred by the hospital
in the implementation process.

     Management  believes that some of the benefits of using the CP/STP approach
to patient care  management  include the reduced  consumption of resources,  the
attainment of enhanced medical quality through the  standardization  of hundreds
of individual tasks performed in major medical  procedures,  a decreased average
length of hospital confinement for patients, and enhanced communications between
all caregivers.

     To date,  RMG has  completed  the  development  of twenty  one STPs and has
commenced  the  development  of  seven  more  STPs.  RMG is also  marketing  STP
implementation nationwide, and has a list of over eighteen hospitals considering
implementation  of STPs (i.e., each hospital has either received an STP proposal
which it has requested and which it is evaluating, or has requested and received
an STP presentation, or has requested and been sent STP evaluation information).
RMG has  agreed  that if this  Offering  is  successful,  RMG  will  immediately
transfer all STP rights and technology to NSN and will not compete with NSN, and
NSN will extend offers of employment to RMG's STP staff.

     Due to the recent  endorsement  of the American  Hospital  Association  for
standardizing care as an effective means of achieving cost reduction and quality
improvement,  the response rate to limited mailings of STP marketing literature,
and approximately  eighteen  hospitals  currently  discussing STP contracts with
NSN's affiliate,  Ronning Management Group, management believes that in the next
five years,  many hospitals will seriously  consider  developing STPs, for which
they  will  need a  consultant  or STP  vendor.  (note:  The  American  Hospital
Association has not endorsed the Company's STPs.)

     Each  hospital  offers unique  problems and  opportunities  for change.  An
example  of the  changes  that  resulted  from RMG's STP  implementation  in one
hospital's  cardiovascular  department include:  modified  requirements for pre-
admission  testing;  revision of  physician  standing  orders for pre- and post-
catheterization  and PTCA;  decreases in the average number of diagnostic  tests
such as ECG,  chest x-ray,  arterial  blood gases,  etc.;  establishment  of new
laboratory test panels to delete  excessive and  unnecessary  tests and decrease
costs;  changes in procedures for cardiovascular  surgery and catheterization to
increase efficiency and control costs; establishment of appropriateness criteria
to screen  candidates  for surgery and other  procedures;  creation of means for
surgeon/cardiologist  collaboration to determine the  appropriateness of surgery
versus non-surgical  alternatives;  and length-of-stay  decreases through system
efficiencies and changes in clinical practices.

     These  are  examples  of  positive,  cost-effective  changes  which  can be
achieved  through  the  protocol  development  process.   Increased  efficiency,
enhanced quality and decreased case cost allow hospitals to price their services
competitively while maintaining a reasonable profit margin.  Importantly,  costs
are not "cost shifted", but truly reduced.

     Whether a provider  operates in an  environment  which is heavily  weighted
towards  managed  healthcare  or  in a  traditional  fee-for-service  structure,
management  believes  that NSN will offer a process  which  yields  high-quality
healthcare  services at a reduced cost to the  hospital,  and which  enables the
hospital to obtain better  financial  results from existing  market share and to
compete successfully for new business.

     NSN's payer and provider network participants will meet regularly to review
issues of cost,  quality and volume.  Providers are expected to provide cost and
quality data so that adherence to STPs can be audited by NSN. NSN
                                        8
<PAGE>
manages the process  and retains the right to expel any  provider  that fails to
remedy deficiencies in expected levels of medical care or which has attempted to
cost shift from the SPPO network.

     Ronning Management Group, Inc., an affiliate of the Company, guarantees its
STP clients that RMG will identify cost reduction opportunities which will equal
or exceed  RMG's STP fee  payable  by the STP  clients  to RMG.  NSN  intends to
continue this practice once the Company acquires RMG's STP business.

Item 2. Description of Property.

The Company does not own any real property.

Item 3. Legal Proceedings.

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

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

The Company did not submit any matters to a vote of security  holders during the
fourth quarter.

                                     PART II

Item 5. Market for Common Equity and Related Stockholder Matters.

There is currently no public trading market for the Company's common stock.

Item 6. Management's Discussion and Analysis or Plan of Operation.

     After the  completion of its Offering,  management  intends to begin hiring
employees  necessary  to  establish  a STP  consulting  division,  and  to  hire
qualified personnel for marketing, provider development, accounting, and systems
and administration. NSN does not currently employ any paid staff. In addition to
the current non-paid employees receiving  appropriate  salaries once the Company
is funded, management intends to initially hire approximately ten or fifteen new
employees to fill the required positions.

     NSN has already  developed  systems for the operations of the Company,  and
after the  closing of its  Offering,  NSN plans to promptly  complete  the final
development of the financial systems and administrative procedures which will be
needed to operate the Company on the scale envisioned.

     Management  believes that should NSN realize at least the minimum  proceeds
from its Offering, the Company will not need to seek any further funding for the
twelve-month period following the completion of its Offering.  NSN believes that
the  Company  will meet  future  financial  requirements  through  revenue  from
operations.

     NSN  does  not  anticipate  the need  for any  immediate  further  research
regarding of the basic STP program or SPPO  networks.  Management  believes that
the STP program is sufficiently developed to commence STP operations immediately
without  any  further  development.  Once  the  Company  is  funded,  one of its
principal objectives is the development of its initial SPPO networks,  which are
not yet developed.

     NSN does not  intend to  purchase  any  operating  facilities  for at least
twelve months after the  completion of its Offering.  NSN currently  uses office
space free of charge pursuant to an informal  month-to-month  lease  arrangement
with Medworth Futures, Inc., an affiliate of the Company. The Company intends to
lease new, larger  facilities  once full  operations  have  commenced.  NSN also
intends to purchase or lease a computer system and other office equipment should
the Company receive the maximum proceeds from its Offering.
                                        9
<PAGE>
     Once the required  personnel  are hired and other  initial  objectives  are
attained, management intends to notify the California hospitals which previously
responded to NSN's Request for Proposal program, and which indicated an interest
in becoming Centers of Excellence,  that NSN has completed its Offering and will
be contacting  them soon  regarding the  development  of NSN's  California  SPPO
network.

     NSN then intends to notify the HMOs,  PPOs,  insurance  companies and large
self-insured  employers which have  previously  expressed an interest in the NSN
model  that  NSN  will  contact  them  in the  near  future  regarding  possible
participation  in NSN's  California  SPPO network.  NSN intends to  concurrently
contact similar West Michigan organizations  regarding the future development of
a West Michigan SPPO network.

     Management  anticipates  that the Company will then  complete the selection
process for the Centers of Excellence in California.  Once Centers of Excellence
have been contracted,  NSN will begin STP development at those COE hospitals and
will commence  negotiations  between COEs, payers and NSN to form the California
SPPO network. NSN also anticipates  beginning similar activities with respect to
the establishment and development of the West Michigan SPPO network.

     Using a carefully designed and rigorous  selection process,  NSN intends to
identify  the highest  quality  hospital in each  community  for each of fifteen
high-cost services experienced by employers and insurers, to designate each such
hospital as a Center of Excellence  (COE),  and to require each COE to implement
at least one STP in order to cut costs and avoid  cost  shifting.  NSN will then
contract with each hospital at rates lower than the hospital currently offers in
conventional  HMOs and PPOs,  enabled by the hospital's  improved  profit margin
afforded by its STP development and implementation.

     Providers  will  pay a  $120,000  fee  for  assistance  in  developing  and
implementing  STPs  for a major  medical  specialty  (such  as  coronary  bypass
surgery) and a $1,500 monthly fee for ongoing network support.  NSN will receive
a  one-time  fee  of  $75,000  from  payers  (such  as  HMOs,  PPOs,  and  large
self-insured  companies) for membership  in, and the  development  of, each SPPO
network,  and the Company will also receive a monthly  access fee  calculated on
either a per-employee-per-month basis or a twenty-five-percent-of-savings basis.
For example, using the per-employee-  per-month basis, at a per-employee cost of
$2.20, a payer with 10,000 employees would pay NSN a total monthly access fee of
$22,000.

     Management  estimates  that there are at least 15,000  companies  and other
payers which are  suitable  prospects  for joining  NSN's SPPOs in the next four
years.  This  estimate  is based on the  number of  employers  with  over  1,000
employees,  as reported in Ward's Business  Directory of U.S. Private and Public
Companies 1993 and in the Statistical Abstract of the United States 1992.

     Management  based these estimated fees on the actual  experience of certain
Officers of NSN with respect to SPPOs,  and also from actual  statistics and the
results of the performance of contracted  services by Ronning  Management Group,
Inc.  (RMG),  an affiliate of NSN, which will fully transfer its STP business to
NSN once the Company commences operations.

     NSN's plan of operation for the next several years includes the development
of SPPO networks for selected  population  centers  throughout the United States
for fifteen high-cost tertiary healthcare services,  and to sell access to these
SPPO  networks to HMOs,  PPOs and  employer-sponsored  managed care programs for
integration  with their existing  networks.  However,  only four entities (and a
benefits  consulting  company) have  expressed any interest in membership in the
Company's  SPPO  networks  since  the  Company  was  found in  1989.  One of the
Company's  priorities  in the  future  will most  certainly  be its need to sell
access to its SPPOs to payers.

     Management  projects that NSN's potential for market acceptance and success
will be based  on the  Company's  ability  to  convince  its  target  customers,
employers  who self insure or purchase  healthcare  benefits that are managed by
HMOs or PPOs that : (1) the  conventional  HMO/PPO  approach to encouraging  all
hospital  networks to  generalize  and provide  the full  spectrum of  services,
including high-cost tertiary services,  breeds wasteful duplication,  mediocrity
of performance in the services which are most difficult to perform,  and minimal
opportunity to generate constructive
                                       10
<PAGE>
competition on a  service-by-service  basis; (2) its SPPOs, when integrated with
conventional HMO/PPO networks,  will reduce duplication and unnecessary capacity
by using fewer hospitals to perform each specialty  service;  (3) its SPPOs will
improve the quality of specialty care by selecting  Centers of Excellence  based
on demonstrated  excellence;  (4) its SPPOs will improve  specialty service cost
performance beyond the reduction of duplication noted above through implementing
STPs in each COE hospital;  and (5) its SPPOs, when integrated with conventional
HMO/PPO networks,  will provide lower prices,  less  cost-shifting,  and overall
reduced healthcare costs.

     Management  projects that the key capabilities NSN will need to develop and
sell SPPOs are (1) an experienced managed care and provider relations staff; (2)
an experienced  managed care  marketing/sales  staff; (3) an efficacious process
for selecting  COEs which is respected by both  employers and  providers;  (4) a
process  for  developing  STPS that is proven  to reduce  costs;  (5) a means of
providing  assistance  to  employers,  HMOs and PPOs in  conveniently  directing
patients to COEs and in modifying their existing networks to accommodate  SPPOs;
(6) a means of  providing  assistance  to COE  hospitals in  developing  patient
friendly  administrative  and clinical  service so that patients learn to accept
some travel  inconvenience;  (7) management  information systems that enable the
effective  collection  of payer  and  provider  data and (8) the  administrative
support of staff in the field and in main office;  and an  effective  management
team.

     The  following  chart  describes  the  extent  to which  the  above  listed
capabilities have been developed as of the date of this Prospectus:
<TABLE>
<CAPTION>
<S>        <C>                           <C>                                    <C>   
              Capability                           Extent Developed                         Comments/Basis
1.       Managed care and               Partial.  Remainder to be recruited     CEO, Senior Vice President are
         provider relations staff       after receipt of proceeds.              experienced (see "Management").
2.       Managed care                   Need to be recruited.                   Will commence hiring upon receipt
         marketing/sales staff                                                  of proceeds.
3.       COE selection process          RFP document with selection             RFP was generally well received
                                        criteria have been developed.           by hospitals.  Process will be
                                        Selection process initiated in          continued upon receipt of proceeds.
                                        California and terminated
                                        (midway) in 1991 due to lack of
                                        funding.
4.       STP process                    Fully developed and tested in 21        Initial cost reduction results
                                        hospital programs.                      indicate that STP are successful in
                                                                                reducing costs.
5.       Assistance to employers        Fully developed.                        Available for review upon request.
6.       Assistance to providers        Fully Developed                         Available for review upon request.
7.       Information systems            Not developed.                          Will be acquired after receipt of
                                                                                proceeds.
8.       Management team                Partially hired.                        Remainder to be recruited after
                                                                                receipt of proceeds.
</TABLE>

Item 7. Financial Statements.

Attached as Exhibit 1.
                                       11
<PAGE>
Item  8.  Changes  In and  Disagreements  With  Accountants  on  Accounting  and
Financial Disclosure.

None.

                                    PART III

Item 9. Directors and Executive Officers of the Registrant.

Ronald D. Osborne - President, CEO and Chairman of the Board of Directors
Douglas E. Wells - Senior Vice President, Chief Financial Officer and Director
Thomas J Gannon - Senior Vice President - Provider Relations
Kenia Casarreal, PhD. - Vice President - Organization Development
Phillip L. Ronning - Director

Item 10. Management Remuneration and Transactions.

No remuneration for any management members was paid during the preceeding fiscal
year.

Item 11. Security Ownership of Certain Beneficial Owners and Management.

Ronald D. Osborne - owns 379,817 shares
Douglas E. Wells - owns 122,521 shares
Thomas J Gannon - owns 102,622 shares
Kenia Casarreal, PhD. - owns 24,505 shares
Phillip L. Ronning - owns 238,880 shares
John W. Meyer - owns 122,521 shares
Charles W. Frac - owns 122,521 shares

Item 12. Management Transactions.

There were no management transactions to report during the last fiscal year.

                                     PART IV

Item 13. Exhibits and Reports on Form 8-K and 8-K/A.
During the last fiscal year the Company did not file any reports on Form 8-K.

                                       12
<PAGE>
                                   SIGNATURES

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

Date: October 10, 1996

                                   NATIONAL SPECIALTY NETWORKS, INC.
                                        a California Corporation



                                   By:  /s/ Ronald D. Osborne
                                        Ronald D. Osborne
                                        President, CEO and Chairman of the Board



                                   By:  /s/ Douglas E. Wells
                                        Douglas E. Wells
                                        Senior Vice President and Chief
                                        Financial Officer



                                   By:  /s/ Thomas J. Gannon
                                        Thomas J. Gannon
                                        Senior Vice President



                                   By:  /s/ Phillip L. Ronning
                                        Phillip L. Ronning
                                        Director


                                       13
<PAGE>
EXHIBIT 1



                          INDEX TO FINANCIAL STATEMENTS

 

                                                                            Page

Report of Independent Auditors...............................................F-2

Balance Sheets...............................................................F-3

Statements of Operations.....................................................F-4

Statements of Stockholders' Equity...........................................F-5

Statements of Cash Flows.....................................................F-6

Notes to Financial Statements................................................F-7







                                       F-1
<PAGE>




                         REPORT OF INDEPENDENT AUDITORS




To:      The Board of Directors
         National Specialty Networks, Inc.
         (A Development Stage Enterprise)
         Brea, California

We have audited the accompanying  balance sheets of National Specialty Networks,
Inc., (a development stage enterprise),  (the "Company") as of June 30, 1995 and
1996, and the related  statements of operations,  stockholders'  equity and cash
flows for each of the two years then ended.  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 audit.

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

In our opinion,  the financial  statements  referred to above present fairly, in
all material respects, the financial position of the Company as of June 30, 1995
and 1996 and the  results of its  operations  and its cash flows for each of the
two  years  then  ended  in  conformity  with  generally   accepted   accounting
principles.




                                                   Durland & Company, CPAs, P.A.

Palm Beach, Florida
September 17, 1996



                                       F-2
<PAGE>
                        NATIONAL SPECIALTY NETWORKS, INC.
                        (A Development Stage Enterprise)
                                 Balance Sheets
<TABLE>
<CAPTION>
<S>                                                                     <C>                         <C>
                                                                            June 30, 1995             June 30, 1996
                                                                          ------------------        ------------------
                            ASSETS
CURRENT ASSETS
  Cash                                                                 $                 143                     2,043
                                                                          ------------------        ------------------
    Total current assets                                                                 143                     2,043
                                                                          ------------------        ------------------
OTHER ASSETS
  Deferred income tax asset (note 3)                                                       0                         0
                                                                          ------------------        ------------------
    Total other assets                                                                     0                         0
                                                                          ------------------        ------------------
Total Assets                                                           $                 143                     2,043
                                                                          ==================        ==================
 
             LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
  Notes payable (notes 4, 6)                                           $              42,285                    50,215
 Accrued interest                                                                      3,748                     7,336
                                                                          ------------------        ------------------
    Total liabilities                                                                 46,033                    57,551
                                                                          ------------------        ------------------

STOCKHOLDERS' EQUITY
  Common stock, no par value, authorized 15,000,000
    shares; 1,225,534 issued and outstanding. (note 5)                                23,693                    23,693
  Preferred stock, Series A, no par value ($1 stated value);
    authorized 2,000,000 shares; 915,714 shares issued and
    outstanding. (note 4)                                                            915,714                   915,714
  Treasury stock (note 6)                                                            (1,633)                   (1,633)
  Deficit accumulated during the development stage                                 (983,664)                 (993,282)
                                                                          ------------------        ------------------
Total Stockholders' Equity                                                          (45,890)                  (55,508)
                                                                          ------------------        ------------------
Total Liabilities and Stockholders' Equity                             $                 143                     2,043
                                                                          ==================        ==================
</TABLE>
    The accompanying notes are an integral part of the financial statements.
                                       F-3
<PAGE>
                        NATIONAL SPECIALTY NETWORKS, INC.
                        (A Development Stage Enterprise)
                            Statements of Operations
<TABLE>
<CAPTION>
<S>                                 <C>                 <C>                   <C>
                                                                                Period from
                                                                              July 14, 1989
                                           Years ended June 30,              (Inception) to
                                        1995                  1996            June 30, 1996   
                       REVENUE
Expense re-imbursement             $            0                   0                    848
Interest                                        0                   0                  1,315
                                   ---------------      --------------      -----------------
  Total revenue                                 0                   0                  2,163
                                   ---------------      --------------      -----------------

                      EXPENSES
Human resources:
     NSN officers (note 5)                      0                   0                340,178
     RMG employees                              0                   0                 97,014
     Others                                     0                   0                 40,550
Consultants:                                                   
     NSN officers                               0                   0                109,167
     Others                                     0               1,000                 19,638
Professional fees                          13,956                 195                 66,690
Bad debt                                        0                   0                    454
Bank charges                                   23                  48                     71
Communications                                  0                   0                 17,485
Office rent and overhead                        0                   0                120,089
Office expenses                               115               2,603                 18,202
Public offering expense                         0               2,185                  2,185
Travel                                          0                   0                133,952
Interest                                    2,930               3,587                 23,709
Miscellaneous                                  52                   0                  6,061
                                   ---------------      --------------      -----------------
  Total expenses                           17,076               9,618                995,445
                                   ---------------      --------------      -----------------
Net loss before tax benefit               (17,076)             (9,618)              (993,282)
                                   ---------------      --------------      -----------------
Income tax benefit (note 3)                     0                   0                      0
                                   ---------------      --------------      -----------------
Net loss                           $      (17,076)             (9,618)              (993,282)
                                   ===============      ==============      =================
Weighted avg # of shares
  outstanding                           1,225,534           1,225,534              1,225,534
                                   ===============      ==============      =================
Net loss per share                 $        (0.01)              (0.01)                 (0.81)
                                   ===============      ==============      =================
</TABLE>
    The accompanying notes are an integral part of the financial statements.

                                       F-4
<PAGE>
                        NATIONAL SPECIALTY NETWORKS, INC.
                        (A Development Stage Enterprise)
                       Statements of Stockholder's Equity
<TABLE>
<CAPTION>
<S>                                <C>                 <C>                <C>                  <C>                   <C> 
                                                                                                                        Total
                                    Common            Preferred          Treasury             Accumulated           Stockholders'
                                     Stock              Stock              Stock                Deficit                Equity

BALANCE, June 30, 1992           $       9,900                  0                  0              (920,511)             (910,611)

Capital investment:                          0            915,714                  0                     0               915,714
                                         9,600                  0                  0                     0                 9,600

Net loss                                     0                  0                  0               (21,272)              (21,272)
                                 --------------      -------------      -------------       ---------------      ----------------

BALANCE, June 30, 1993                  19,500            915,714                  0              (941,783)               (6,569)

Capital transaction:                         0                  0             (1,633)                    0                (1,633)
                                         4,193                  0                  0                     0                 4,193

Net loss                                     0                  0                  0               (24,805)              (24,805)
                                 --------------      -------------      -------------       ---------------      ----------------

BALANCE, June 30, 1994                  23,693            915,714             (1,633)             (966,588)              (28,814)

Net loss                                     0                  0                  0               (17,076)              (17,076)
                                 --------------      -------------      -------------       ---------------      ----------------

BALANCE, June 30, 1995                  23,693            915,714             (1,633)             (983,664)              (45,890)

Net loss                                     0                  0                  0                (9,618)               (9,618)
                                 --------------      -------------      -------------       ---------------      ----------------

BALANCE, June 30, 1996           $      23,693            915,714             (1,633)             (993,282)              (55,508)

                                 ==============      =============      =============       ===============      ================
</TABLE>
    The accompanying notes are an integral part of the financial statements.


                                       F-5
<PAGE>
                        NATIONAL SPECIALTY NETWORKS, INC.
                        (A Development Stage Enterprise)
                            Statements of Cash Flows
<TABLE>
<CAPTION>
<S>                                                                    <C>                                          <C>
                                                                                                                     Period from
                                                                                                                   July 14, 1989
                                                                                 Years ended June 30,              (Inception) to
                                                                             1995                    1996           June 30, 1996
CASH FLOWS FROM DEVELOPMENT ACTIVITIES:
Net loss                                                            $          (17,076)             (9,618)            (993,282)
Adjustments to reconcile net loss to net cash used for
development activities:
    Stock issued for services rendered                                                0                   0              23,000
    Increase in interest payable                                                  2,930               3,588               7,336
    (Increase) decrease in interest receivable                                        0                   0                   0
                                                                         --------------      --------------        --------------
Net cash used for development activities                                       (14,146)             (6,030)            (962,946)
                                                                         --------------      --------------        --------------

CASH FLOWS FROM INVESTING ACTIVITIES:
Sale of fixed assets                                                                  0                   0               6,000
                                                                         --------------      --------------        --------------
Net cash provided by investing activities                                             0                   0               6,000
                                                                         --------------      --------------        --------------

CASH FLOWS FROM FINANCING ACTIVITIES:
Common stock issued for cash                                                          0                   0                 693
Notes payable under third-party development agreements                    
 (note 2)                                                                             0                   0             899,315
Cash received for notes payable                                                  16,034               7,930              62,728
Cash used to reduce notes payable                                               (1,860)                   0              (3,747)
                                                                         --------------      --------------        --------------
Net cash provided by financing activities                                        14,174               7,930             958,989
                                                                         --------------      --------------        --------------

(Decrease) increase in cash                                                          28               1,900               2,043
                                                                         --------------      --------------        --------------
CASH, beginning of period                                                           115                 143                   0
                                                                         --------------      --------------        --------------
CASH, end of period                                                 $               143               2,043               2,043
                                                                         ==============      ==============        ==============

SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Interest paid in cash                                               $                 0                   0                 837
                                                                         ==============      ==============        ==============
Preferred stock issued for notes payable                            $                 0                   0             915,714
                                                                         ==============      ==============        ==============
</TABLE>
    The accompanying notes are an integral part of the financial statements.


                                       F-6
<PAGE>
                        NATIONAL SPECIALTY NETWORKS, INC.
                        (A Development Stage Enterprise)
                          Notes to Financial Statements
 
     (1) Summary of Significant Accounting Policies
     The Company.  National Specialty Networks,  Inc. is a California  chartered
development  stage  corporation which conducts business from its headquarters in
Brea, California and was incorporated on July 14, 1989.

     The financial  statements  have been prepared in conformity  with generally
accepted  accounting   principles.   In  preparing  the  financial   statements,
management  is  required  to make  estimates  and  assumptions  that  affect the
reported  amounts of assets and liabilities as of the dates of the statements of
financial  condition and revenues and expenses for the years then ended.  Actual
results could differ significantly from those estimates. Material estimates that
are  particularly  susceptible to significant  change in the near-term relate to
the book-tax  difference of accounting for the development  expenses.  (see note
(3)).

     The  following  summarize  the more  significant  accounting  and reporting
policies and practices of the Company:

     a) Furniture  and  equipment  Furniture  and  equipment was carried at cost
during the development  process. In March 1992 NSN sold all of its furniture and
equipment. At that time the cost was removed from the accounts and the resulting
loss reflected in the development expenses.

     The Company  expects that future  expenditures  for furniture and equipment
will be  capitalized,  and  depreciated  over the  estimated  useful life of the
assets.  Expenditures  for maintenance and repairs will be charged to operations
as incurred.

     b) Notes  payable  The  Company  issued  notes  payable to various  parties
pursuant to third-party development agreements (note (2)). Interest on the notes
was capitalized  into the principal  balance of the notes during the development
process pursuant to the third-party development agreements.

     c) Net loss per share Net loss per share is computed  by  dividing  the net
loss by the number of shares outstanding during the period.

     (2) Development  expenses The Company entered into  third-party  agreements
with two companies and two  individuals  in January 1990 for the  development of
its Standard Treatment Protocols (STP) concept, the Specialty Preferred Provider
Organization  (SPPO) concept and the search for funding from  independent  third
parties.

     The  two   contracted   companies   (whose   principals  are  founders  and
stockholders of NSN) are independent health care consulting  companies which are
currently  expected  to remain in their  primary  businesses  subsequent  to the
initial  public  offering.  The  principals  of one of  the  companies,  Ronning
Management  Group,  Inc.  (RMG),  will be involved in the operations of NSN on a
part-time basis. The principal of the other company, Medworth Futures, Inc., and
the two  individuals  will be involved in the  operations of NSN full-time  upon
funding of the company.

     Financial   Accounting   Standards  Board  (FASB)  Statement  of  Financial
Accounting   Standards  2  (SFAS  2)  requires  that  all  internally  generated
development  costs be charged to expense when incurred.  SFAS 68 requires that a
company  which is  obligated  to repay  another  for  development  costs under a
funding  agreement  must record a liability to the extent of its  obligation and
charge  the  costs  to  expense  as  incurred.   Accordingly,  NSN  charged  its
development  costs to expense as incurred,  and recorded the liability  incurred
under the third- party  agreements.  100% of the  cumulative  total  development
expenses  relate to the  development of the STP concept,  the development of the
SPPO  concept and NSN's  search for funding from  independent  third  parties to
allow NSN to begin marketing both the STP and SPPO concepts.
                                       F-7
<PAGE>
                        NATIONAL SPECIALTY NETWORKS, INC.
                        (A Development Stage Enterprise)
                    Notes to Financial Statements, continued

     (3) Income taxes The Company recorded the development  costs as expenses in
the period when incurred for  financial  statement  purposes,  per note 2 above.
However,  for state income tax purposes,  the development costs were recorded as
an intangible  asset to be amortized over future years.  The primary purpose for
this treatment for tax purposes is to retain the tax benefit of the  development
costs.  California tax law does not recognize  operating loss  carry-forwards as
the Federal tax code does.  Therefore,  by  capitalizing  and  amortizing  these
costs,  the tax  benefit  of the  development  costs is  retained  for state tax
purposes  rather  than being lost  forever,  (which  immediate  expensing  would
cause).  This treatment will require a longer time before the tax benefit of the
costs is realized, but will increase the tax benefit realized over time.

     California  tax law was changed for tax years  beginning  after  January 1,
1994.  California tax law now recognizes net operating loss carryforwards on the
same basis as the federal tax code. The amounts  recorded as deferred income tax
assets at June 30, 1995 and 1996, $293,100 and $291,032 respectively,  represent
the amount of tax benefit of loss carry-forwards.  The Company has established a
$291,032  valuation  allowance  against this asset,  as currently it is not more
likely  than not to be realized  through the  generation  of  sufficient  future
taxable income within the carry-forward period.

     (4) Exchange of notes  payable for  preferred  stock On September 30, 1992,
the board of directors of the Company  authorized the Company to issue 2,000,000
shares of no par  value  preferred  stock.  The  Company  then  entered  into an
agreement with the parties  holding the notes payable to exchange the balance of
the notes for an equal amount of preferred  stock of the Company.  This issuance
of preferred is referred to as Series A, carries a $1 per share stated value and
a cumulative  dividend rate of 6%,  payable from earnings on or after January 1,
1995,  to the extent cash is available  and the board of directors  declare such
payment.  The remaining  balance of preferred  shares are to remain unissued for
possible future use.

     (5) Stockholders'  equity The Company has authorized 1,666,666 shares of no
par value common stock.  In December  1990,  the Company issued 11,000 shares to
the founders in exchange  for $198 in cash.  In April 1991,  the Company  issued
27,500  shares to the founders in exchange for $495 in cash.  In June 1991,  the
Company issued 511,500 shares to the founders in exchange for services valued at
$9,207.  These  services  were  valued at 50% of  current  full-time  employment
consideration.

     On September  30, 1992,  the board of directors  authorized  an increase of
authorized  shares from 100,000  shares to  1,666,666 by splitting  the existing
shares 1 share for 16.66666  shares.  On October 2, 1992, the board of directors
authorized  the issuance of 533,333  additional  shares of the Company's  common
stock to the founding  shareholders  in  consideration  of past  services to the
corporation  with the same basis as their  previously held shares,  or 1.8 cents
per share. On December 20, 1993, the board of directors and  stockholders of the
Company voted to increase the authorized number of shares of common stock of the
Company to 2,000,000 shares.

     On December 31, 1993,  the board of  directors  authorized  the issuance of
130,000  additional  shares  of the  Company's  common  stock  to  the  founding
shareholders in  consideration of past services to the corporation with the same
basis as their previously held shares, or 1.8 cents per share. In February 1994,
the Company  sold  102,939  shares of the  Company's  common stock for $1,853 in
services  rendered to the Company.  These shares were valued by the board at 1.8
cents per share. On May 31, 1994, the board of directors and stockholders of the
Company  increased the authorized  number of shares of the Company to 15,000,000
shares.

     (6)  Repurchase of a founders  stock for a note payable In August 1993, the
Company entered into an agreement to repurchase all the common stock held by one
of the founders pursuant to the Company's Founders  Shareholder  Agreement.  The
90,738 shares were repurchased as treasury stock at a price of $0.018 per share,
for a total of $1,633.28.  The Company issued a note payable to the  stockholder
for this sum. This note carries a stated interest rate of 5.23%.
                                       F-8
<PAGE>
                        NATIONAL SPECIALTY NETWORKS, INC.
                        (A Development Stage Enterprise)
                    Notes to Financial Statements, continued

     (7) Common stock public  offering  The board of  directors  authorized  the
Company  to sell  up to  500,000  shares  of the  Company's  common  stock  in a
"self-underwritten" public offering pursuant to a Registration Statement on Form
SB-2 under the Securities Act of 1933. This offering is being made with a 90,000
share  minimum,  and is effective  for one year from the  effective  date of the
registration, August 16, 1996. On December 31, 1993 the board of directors voted
to  increase  the  number of shares to be sold to the  public  from  500,000  to
675,000.

     On  October  13,  1995,  the  Department  of  Corporations  of the State of
California issued an effective order for the sale of the Company's securities in
the State of California.  This order imposes certain financial qualifications on
California resident purchasers of the Company's securities.

     (8) Completion of Concept Development The Company completed the development
stages of the STP and SPPO  concepts and RMG  completed the beta site testing of
the STP concept as of September 30, 1992.  The Company is still  classified as a
development  stage enterprise as it is still in the process of raising the funds
to begin operations, and it has not yet begun its intended operations.

     The Company has entered into an agreement  with Ronning  Management  Group,
Inc. (RMG) whereby RMG has begun the marketing of STPs. RMG has entered into and
completed  several  contracts for STP development  for third parties.  The major
provisions of this agreement are:

     a) As soon as NSN receives at least the minimum  proceeds  under the common
stock public offering (see note (7)) RMG will transfer the STP technology (i.e.,
methodologies,  processes, data base, charge cost model, etc.) and the rights to
develop STPs to NSN. NSN expects to extend  employment offers to those RMG staff
members currently working on STPs.

     b) RMG will also  assign any  existing  STP  contracts  in progress to NSN.
Should any third party to an existing STP contract refuse to allow RMG to assign
such  contract to NSN, RMG will  subcontract  the  completion of the contract to
NSN, and remit 80% of the remaining contract revenue to NSN.

     c) NSN will pay RMG a marketing royalty of 20% of NSN's receipts on any STP
contract assigned under b) above, as well as on the first 7 contracts NSN enters
into.

     d) The three principals of RMG will become part-time consultants to NSN for
a period of 5 years. RMG will bill NSN for the hours worked by these individuals
for NSN at approximately  80% of RMG's normal billing rates.  Annual billings by
RMG to NSN for these  services  are  limited to the lesser of $420,000 or 33% of
NSN's STP contract revenues.

     e) RMG and its principals agree not to compete with NSN in the provision of
consulting services to develop STPs for third parties.

     f) The Company and RMG have developed cross-referral fee schedules, as well
as cross  right of first  refusal  agreements  pursuant  to  medical  consulting
services requested by third parties during other engagements.  The minimum cross
referral fees are set at 10% of revenues received by the other company.

     g) NSN expects to develop a sales commission schedule for employees as well
as a separate  schedule for third party  brokers for the sale of STP  contracts.
RMG and its employees will be covered by the schedule  developed for third party
brokers.
                                       F-9
<PAGE>
                        NATIONAL SPECIALTY NETWORKS, INC.
                        (A Development Stage Enterprise)
                    Notes to Financial Statements, continued

     (8)  Completion  of Concept  Development,  continued  The  Company has also
entered  into an  agreement  with  Medworth  Futures,  Inc.  which  provides the
following:

     a) MFI and its  principal  agree  not to  compete  with NSN in  either  the
provision of specialty managed care or consulting services to develop STPs.

     b) NSN expects to develop a sales commission schedule for employees as well
as a separate  schedule for third party  brokers for the sale of STP  contracts.
NSN and its employees will be covered by the schedule  developed for third party
brokers.

     (9) Related party  transactions The Company currently occupies office space
in MFI's offices on a rent-free basis. MFI allows this because the President and
sole  stockholder  of MFI is a  stockholder  in the Company,  and the  Company's
current  principal  activities at this stage are primarily related to its common
stock public offering.
























                                      F-10