10-K405

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

                                    FORM 10-K
(Mark one)
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 (x) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
     ACT OF 1934 (Fee Required) For the Fiscal Year Ended December 31, 1996
                                                          -----------------
                                       or
 ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
                     EXCHANGE ACT OF 1934 (No Fee required)
                         For the Transition Period From
     _______________________to_________________________

Commission file number 0-27260
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                            COMPLETE MANAGEMENT, INC.
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             (Exact name of registrant as specified in its charter)

           New York                                       11-3149119
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(State or other jurisdiction of                        (I.R.S. Employer
 incorporation or organization)                        Identification No.)

254 West 31st Street, New York, NY                          10001-2813
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(Address of principal executive offices)                    (Zip Code)

Registrant's telephone number including area code (212) 868-1188
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Securities registered under Section 12(b) of the Exchange Act:

                                      None
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Securities registered under Section 12(g) of the Exchange Act:

                     Common Stock, par value $.001 per share
                     ---------------------------------------
                                (Title of class)

   Indicate by check mark whether the registrant (1) filed all reports required
to be filed by Section 13 of 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes _X_ No___

   Indicate by check mark if disclosure of delinquent files in response to Item
405 of Regulation S-K is not contained herein, and will not 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-K. [X]

   For the year ended December 31, 1996, the revenues of the registrant were
$33,158,000

   The aggregate market value of the Common Stock of the registrant held by
non-affiliates of the registrant, based on the average bid and asked prices on
March 21, 1997 was approximately $99,777,000.

   As of March 19, 1997, the registrant has a total of 10,049,227 shares of
Common Stock outstanding. There was no Preferred Stock outstanding.

                       Documents Incorporated By Reference
                                      None
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                            Complete Management, Inc.

                      For the Year Ended December 31, 1996

                             Form 10-K Annual Report

                                      Index



                                                                                               Page
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Part I
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 Item 1. Business.                                                                               2

 Item 2. Properties.                                                                            13

 Item 3. Legal Proceedings.                                                                     13

 Item 4. Submission of Matters to a Vote of Security Holders.                                   13

Part II
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 Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.                 14

 Item 6. Selected Financial Data.                                                               15

 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. 16

 Item 8. Financial Statements and Supplementary Data.                                           21

 Item 9. Changes In and Disagreements With Accountants on Accounting and Financial Disclosure.  21

Part III
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 Item 10. Directors and Executive Officers of the Registrant.                                   22

 Item 11. Executive Compensation.                                                               25

 Item 12. Security Ownership of Certain Beneficial Owners and Management.                       27

 Item 13. Certain Relationships and Related Transactions.                                       28

Part IV
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 Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.                      29






                                     PART I

Item 1. Business

         Complete Management, Inc. ("CMI") acquired Medical Management, Inc.
("MMI") and Advanced Alliance Management Corp. ("AAMC"), on January 3, 1996 and
October 2, 1996, respectively. Prior to being acquired by CMI, MMI provided and
administratively managed diagnostic imaging equipment in physicians' offices and
hospitals and AAMC provided physician practice management services. Unless
otherwise indicated, all references to the Company herein include CMI, MMI, AAMC
and any of their respective subsidiaries. References to "MMI" and to "AAMC"
refer to those entities before they were acquired by CMI.

Forward Looking Statements

         Certain statements made in this Annual Report on Form 10-K are
"forward-looking statements" (within the meaning of the Private Securities
Litigation Reform Act of 1995) regarding the plans and objectives of management
for future operations. Such statements involve known and unknown risks,
uncertainties and other factors that may cause actual results, performance or
achievements of the Company to be materially different from any future results,
performance or achievements expressed or implied by such forward-looking
statements. The forward-looking statements included herein are based on current
expectations that involve numerous risks and uncertainties. The Company's plans
and objectives are based, in part, on assumptions involving the continued
expansion of business. Assumptions relating to the foregoing involve judgments
with respect to, among other things, future economic, competitive and market
conditions and future business decisions, all of which are difficult or
impossible to predict accurately and many of which are beyond the control of the
Company. Although the Company believes that its assumptions underlying the
forward-looking statements are reasonable, any of the assumptions could prove
inaccurate and, therefore, there can be no assurance that the forward-looking
statements included in this Report will prove to be accurate. In light of the
significant uncertainties inherent in the forward-looking statements included
herein, the inclusion of such information should not be regarded as a
representation by the Company or any other person that the objectives and plans
of the Company will be achieved.

General

         The Company is a physician practice management company. It provides a
full range of management services to physicians and hospitals located primarily
in the most densely populated areas of New York State, including New York City,
Long Island and the Hudson Valley region. The Company offers virtually all the
business, financial and marketing support required by medical practices. The
Company's sophisticated management systems and its high level of professionalism
enable its clients to handle the non-medical aspects of their practices
effectively. It provides its clients with office space, equipment and supplies
and non-medical personnel. It also bills patients and third-party payors,
collects receivables and assists in record keeping and compliance with reporting
requirements. The Company also advises clients regarding regulatory compliance,
consults on marketing and business strategies, and provides financing for
expansion. In addition, the Company provides and administratively manages
diagnostic imaging equipment used by doctors in their own practices and by
hospitals. The Company does not, however, perform any type of medical diagnostic
or treatment services. By focusing on the complex, time-consuming and expensive
non-medical aspects of medical practices, the Company can offer its clients
operating efficiencies that they could not attain on their own.

         Since its acquisition of MMI in January, 1996, the Company has made
significant progress towards becoming a fully diversified and integrated company
serving both primary care and specialty practices. The Company's services are
designed to work effectively both in today's fee-for-service environment and the
managed care capitated fee environment of the future. Pursuant to the Company's
expansion program, it has acquired two medical billing and collection companies,
one primarily serving hospitals and one primarily serving medical practices. The
Company has also acquired three physician practice management companies serving
primary care, neurology, radiology, and community and industrial medicine
practices in New York City, Westchester, Orange, Putnam and Dutchess counties of
New York State and in February, 1997 acquired a physician practice management
company serving primary care and neurology patients in New Jersey. It has also
assisted Greater Metropolitan Medical Services ("GMMS"), its first and largest
client, in acquiring a neurology practice with three offices in the Bronx and in
Queens. With these acquisitions and GMMS' continued growth, the number of
physicians to whom the Company provides a full range of services has increased
from 16 at December 31, 1995 to 110 at March 15, 1997. More limited services,
such as transcribing, billing, collecting and temporary staffing, are provided
by the Company to 50 medical practices with more than 820 doctors and to 32
hospitals.

         The Company believes the practices that it provides with a broad range
of services will serve as the nucleus of a network offering both primary care
and multi-specialty services throughout New York state. Although managed care
has evolved more slowly in New York than in many other states, the penetration
rate of managed care is presently increasing




                                       2


rapidly in New York. The Company believes that its network will enable its
clients to enter into managed care and capitated fee arrangements with insurance
companies and employers.

         The Company's management is experienced in hospital administration and
trains staff to operate with full efficiency. The Company, by standardizing many
of its procedures and automating large portions of the business aspects of its
clients' practices, offers significant management efficiencies. For example,
standardized and automated systems are used to produce and administer the
records used to support clients' claims for payment. In addition, the Company
has centralized its purchasing and collection functions, and its standard office
format permits medical and non-medical personnel and equipment to be shifted
among offices as required.

         Historically, almost all of the Company's revenues have come from GMMS,
a single medical practice group. However, if the various mergers and
acquisitions consummated during 1996 had been consummated at January 1, 1996
then, on a pro forma combined basis, 53% of 1996 revenues would have been
received from GMMS. Lawrence Shields, M.D., holds 95% of the stock of GMMS and
is a founder of the Company. GMMS focuses on the evaluation and treatment of
injury-related conditions. Since becoming a client of CMI in early 1993, GMMS
has expanded from a neurological practice occupying a single office to a
multi-specialty practice with nine offices. Its twenty-eight doctors currently
perform or supervise procedures at a rate in excess of 200,000 a year. The
injury-related conditions treated by GMMS are principally covered by automobile
no-fault and workers' compensation insurance. Such insurance policies,
associated governmental regulations, and the threat of litigation require that
GMMS keep complex records and produce comprehensive reports. In addition, GMMS
faces dispute resolution processes that change rapidly and unpredictably, and
successfully handling them requires highly specialized non-medical knowledge.
The Company offers management and staff with high levels of training and
experience in these matters.

         The Company's objective is to become the dominant provider of medical
management services in the greater New York metropolitan area and elsewhere in
New York State by implementing an aggressive growth strategy. See "Business --
Growth Strategy."

         CMI was incorporated in New York on December 30, 1992 and commenced
operations on April 1, 1993. On January 3, 1996, CMI consummated its initial
public offering (the "IPO") of 2,000,000 Common Shares at a price of $9.00 per
share and received proceeds net of registration costs and repayment of certain
obligations of $13,480,000. In June 1996, it consummated a public offering (the
"First Series Debenture Offering") of $40,250,000 aggregate principal amount of
8% Convertible Subordinated Debentures due August 15, 2003, (the "First Series
Debentures") and received net proceeds of $36,144,000. In March and July 1996,
the Company borrowed an aggregate of $5,000,000 due March 20, 2001 evidenced by
8% convertible subordinated notes (the "Convertible Subordinated Notes"). In
December 1996, the Company consummated a third public offering ("Second Series
Debenture and Common Shares Offering") in which it issued $28,750,000 aggregate
principal amount of 8% Convertible Subordinated Debentures due December 15, 2003
(the "Second Series Debentures") and 2,000,000 Common Shares at a price of
$13.75 per share and received net proceeds of $51,332,337. The Company's
principal executive offices are located at 254 West 31st Street, New York, New
York 10001 and its telephone number is (212) 868-1188.

Background

         Healthcare expenditures in the United States totaled approximately $1
trillion in 1994, of which approximately 9.6% was in New York State. Fees paid
to private practice physicians in the United States totaled approximately $220
billion in 1994, of which approximately $20 billion was paid to the 67,000
private practice physicians in New York State. Healthcare expenditures have been
rising rapidly over the past two decades, in significant part as a result of the
aging of the population. The average age of the population is expected to
continue to increase for at least the next decade.

         Increasing concern over the rising cost of healthcare in the United
States has led to the development of managed care organizations and programs.
Under such programs, managed care payors seek to ensure delivery of quality care
in a cost-effective manner. The traditional fee-for-service method of
compensating healthcare providers is generally believed to contribute to
healthcare cost increases at rates significantly higher than inflation.
Consequently, fee-for-service reimbursement is rapidly being replaced by
alternative reimbursement models, including capitated and other fixed-fee
arrangements. The number of private insurance beneficiaries who are enrolled in
health maintenance organizations ("HMOs"), which generally use these new
reimbursement systems, increased by approximately 45% from 1991 to 1995, with
approximately 58 million beneficiaries enrolled in HMOs in 1995. The growth in
enrollment in these new reimbursement models is shifting the financial risk of
delivering healthcare from payors to providers.

         As a result of this changing healthcare environment, healthcare cost
containment pressures have increased physician management responsibilities while
lowering reimbursement rates to physicians. Consequently, physician compensation
has declined; the average net income for physicians decreased by approximately
4% from 1993 to 1994. All but large group



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practices have limited ability to negotiate with payors and also tend to have
limited administrative capacity, restricted ability to coordinate care across a
variety of specialties, limited capital to invest in new clinical equipment and
technologies and limited negotiating leverage with vendors of medical supplies.
In addition, these group practices typically lack the information systems
necessary to enter into and manage risk-sharing contracts with payors and to
implement disease management programs efficiently.

         In response to the foregoing factors, individual physicians and small
group practices are affiliating with independent practice associations ("IPAs"),
larger group practices and physician practice management companies ("PPMs").
Until recently, New York State has lagged significantly behind national trends.
One of the factors that has influenced this is that New York Prospective Health
Reimbursement Methodology ("NYPHRM"), which regulated the rates that hospitals
could charge. This regulation expired on December 31, 1996. In addition, prior
to 1996, IPAs could negotiate only with one HMO while now they have the ability
to negotiate with multiple HMOs. This factor alone will likely have a tremendous
impact on the future consolidation of physician practices in New York State.
From 1991 to 1995, the number of physicians in group practice in the U.S.
increased by approximately 14% to 185,000 physicians, with approximately 5% of
these physicians managed by PPMs. By acquiring or managing physician practices,
PPMs seek to provide physicians with the following benefits: lower
administrative costs, leverage with vendors and payors and economies of scale
necessary to attract capital resources.

         The Company believes that significant opportunities exist in the
consolidating healthcare industry to assist physicians in managing the
administrative aspects of group practices and networks and in bidding for
service contracts with managed care providers. The Company believes its
integrated physician practice and network management services will enable
physicians to more effectively control both the quality and cost of healthcare.

         Injury-related medicine is an important segment of the healthcare
market, in which the Company's largest client has particular skill and
expertise. Injury-related medicine involves the process of evaluating and
diagnosing the nature and extent of a patient's injury, treating the injury and,
where appropriate, providing rehabilitation therapy.

         Annual medical expenses in the United States related to accidents
exceeded $75 billion in 1992, with the largest categories as follows:
work-related - $22 billion; motor vehicle - $20.7 billion; and home - $21.6
billion.1 Workers' compensation medical claims, including medical benefits paid
by private insurance carriers and self insurers, grew from $1.4 billion in 1970
to $17.9 billion in 19912. The medical costs for claims covered by workers'
compensation have been growing at a faster rate than the cost for all medical
claims3. Neurologists and orthopedic surgeons, the medical specialists most
often involved in the evaluation and treatment of injury-related healthcare
problems, have grown in number from 7,776 and 17,166 doctors, respectively, in
1986 to 11,294 doctors and 22,740 doctors, respectively in 19954.

         Historically, the medical evaluation, diagnosis and treatment of
injury-related cases covered by no-fault and workers' compensation has been a
highly fragmented and an inefficiently practiced area of medicine. This has been
due, in part, to the burdensome regulatory requirements, lengthy reimbursement
cycles and reimbursement rates associated with such services which, until
recently, have been lower than average. Since the majority of reimbursement
claims for these medical services must be submitted to no-fault insurers and
state workers' compensation boards, physicians have had to cope with the
bureaucratic procedures associated with the processing of such claims. In
addition, the high costs of healthcare in general has created pressure on
medical providers from third-party payors and others to lower their rates.
Traditional medical practices, including injury-related practices, face high
operating costs, little or no ability to secure volume discounts on supplies or
effectively negotiate contracts, insufficient capital to purchase new medical
technologies and inexperience regarding the complexity of laws and regulations
affecting their practice. They also generally lack sophisticated administrative
and financial systems needed to process such claims. The Company believes these
and other factors have increased the need for professional management to assist
medical practices in lowering costs, increasing efficiencies, and marketing
their services to managed care plans. The Company also believes physicians often
require additional financial resources to invest in equipment and facilities or
to acquire other physician practices to build market share.



         The Company believes the practice of injury-related medicine is
experiencing significant growth primarily as a result of governmentally mandated
and regulated payment programs that require either third-party insurers (in the
case of no-fault automobile claims) or employers (in the case of work-related
injuries) to bear the costs of medical services, lost wages and other expenses.
However, the programs have given rise to an abundance of complex and overlapping
regulations, caused the medical treatment and payment therefore to become
adversarial in nature and created a paperwork jungle of complicated

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1    Accident Facts 1993 edition, utilizing data from the National Safety
     Council.
2    United States Healthcare Finance Administration, "Healthcare Financing
     Review," Winter 1992 edition
3    "Workers Compensation Medical price Index: 1987-1994" by N. Mike Helvacian,
     Ph.D. and Christopher K. Fred, published by National Council on
     Compensation Insurance, Inc.
4    American Medical Association, unpublished data.

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forms. The untimely or improper preparation of these forms has substantially
contributed to long collection cycles for medical practices.

Growth Strategy

         The Company's objective is to become the dominant provider of medical
management services in the greater New York metropolitan area and elsewhere in
New York State by implementing an aggressive growth strategy. The key elements
of the company's strategy to achieve this objective are:

         o Increase Number of Primary Care Clients. The Company, pursuant to its
         acquisition program, has secured management contracts with primary care
         medical practices and intends to aggressively seek additional contracts
         with other primary care practices, as well as specialists to whom
         primary care doctors typically refer patients. As a part of this
         process, the Company will typically purchase fixed assets, leasehold
         interests and/or accounts receivable from the medical practice and will
         enter into a service contract to provide medical management services.
         The Company believes that there are numerous existing medical practices
         that could benefit from improved management techniques which would
         allow the physicians to spend more time treating patients (thereby
         increasing their revenue) and less time being concerned with the day to
         day tasks of managing the business.

         o Expand the Scope of Services Provided by Client Medical Practices.
         The Company's expansion program includes a strong emphasis on capturing
         for medical practices as much of the revenue for services rendered to
         each patient as is feasible. This program includes having diagnostic
         tests performed by the practice and bringing within the practice, on
         either a full time or per diem basis, physicians in other practice
         specialties. The Company would provide the capital to acquire the
         diagnostic equipment and conduct the searches to satisfy physician
         staffing needs. The Company would also advise its clients on methods
         for marketing their services to potential patients and to managed
         healthcare companies.

         o Expand the Reach of all Medical Practices Under Management. In
         addition, the Company will present to each practice under management a
         business plan for the expansion of its practice through opening more
         offices or expanding existing offices so as to be able to treat more
         patients more efficiently. This aspect of the program also includes
         improved interior design and decoration of the clients' offices to
         improve patient flow and doctor efficiency and to provide amenities
         making patient waiting time more pleasant.

         o Create a Network of Physicians to Participate in Managed Care. The
         advent of managed care arrangements has imposed on physicians
         marketing, regulatory, record-keeping, billing, collection and other
         administrative burdens similar to those encountered by GMMS. The
         Company believes that it can assist clients and potential clients by
         establishing a network of physicians to compete for managed care,
         injury-related and other medical care contracts by offering a broad
         range of medical services and a high level of administrative support.
         The Company believes that the successful implementation of this aspect
         of its strategy will be particularly helpful to its clients when
         capitated fee agreements are negotiated with certain insurers as its
         clients will be able to offer more services from more locations and
         thereby obtain a higher capitation rate than they might otherwise have
         been able to obtain.

         o Assist Clients in Maintaining High Credibility with Third Party
         Payors and other Referral Sources. The Company believes that its
         clients' success is dependent to a great extent on the perceived
         accuracy and integrity both of the medical diagnoses and evaluations
         performed by the Company's clients and the records supporting such
         diagnoses and evaluations. The Company seeks to associate itself with
         medical practices comprised of highly qualified physicians (such as
         those with board certifications) having a reputation for an unbiased
         approach to medical evaluations and diagnoses. As a result of these
         factors, GMMS has, to an increasing extent, been retained to provide
         medical evaluations on behalf of third party payors that have come to
         respect the quality of GMMS' work as a definer of injuries. The Company
         believes that the credibility of these processes is a critical factor
         in increasing patient referrals.




         o Maintain Industry Leadership in Medical Management Systems. The
         Company seeks to develop and maintain state-of-the-art record keeping,
         billing and collections software and to hire and retain a staff of
         highly trained administrative support personnel. The Company believes
         that a highly automated and standardized support system supports a
         higher level of efficiency for its clients' medical personnel and also
         leads to faster and more complete collection of fees.

         The Company's growth strategy is intended to enable its medical
practice clients to offer patients cost-effective medical care within an
integrated practice offering a broad range of evaluation, testing, diagnostic,
treatment and therapeutic services. The Company believes that such a strategy
could, in turn, enhance its clients' revenue opportunities in a competitive
environment affected by shrinking profit margins. In the longer term, as the
network of offices to which it provides its




                                       5


management services grows, the Company believes that it will be in an excellent
position to attract managed care contracts for its clients from employers and
insurance carriers. The Company's ability to grow is, however, dependent upon
its ability to identify suitable candidates for its services, as to which there
is no assurance. In addition, the Company believes that it has significant
growth potential in the high volume injury-related medical market served by
GMMS. The Company believes it has competitive advantages in this market because
of its skills in managing these practices and its experience in operating in the
New York regulatory environment.

         The Company regularly explores new opportunities and negotiates
arrangements with medical practices for the provision of general medical
management services or limited medical management services related to diagnostic
imaging. However, at present, the Company has no commitments or agreements with
respect to any new service contracts with medical practices nor has the state of
negotiations with any medical practice reached a level where the Company
believes that it is reasonably likely that a new commitment or agreement will be
reached.

Medical Practice and Hospital Management Services

         The Company provides a broad range of medical practice and hospital
management services, importantly those necessary for the efficient and
profitable operation of medical practices. These services encompass
substantially all the non-medical aspects of its clients' operations and are
designed to increase client revenue levels through a combination of strategies,
which include revenue enhancing marketing methods, integration of
multi-specialty practices to reduce patient referrals, maximized use of
diagnostic and treatment equipment and offices and improved receivable
collection efforts. The principal areas of the Company's services include:

         Offices; Equipment. The Company develops, administers and leases office
space and equipment to its medical practice clients. The Company also oversees,
manages and finances construction, decorating and other improvements to
leaseholds or other real estate and assists its clients in site selection. Where
appropriate, the Company advises its clients on improving, updating, expanding
or adapting to new technology.

         Personnel. The Company staffs all the non-medical positions of its
clients with its own employees, eliminating the client's need to interview and
train non-medical employees, as well as process the tax, insurance and other
regulatory documentation associated with an employment relationship.

         Administrative. The Company assists in the scheduling of patient
appointments, the purchasing of medical supplies and equipment and the handling
of reporting, accounting, processing and filing systems. It reviews the
completeness of the physician portions of complex forms to ensure full and
timely regulatory compliance and appropriate cost reimbursement under no-fault
insurance and workers' compensation guidelines. Among other things, the Company
provides its clients with timely management reports which include activity data,
collection status and other management information necessary for the operation
of their respective medical practices.

         Receivable Collections. The Company has experience in the collection of
revenues from third-party payors including those governed by no-fault and
workers' compensation statutes, a process which is generally burdensome and
adversarial. The Company aggressively pursues all appropriate legally available
avenues for the collection of such medical receivables by, among other things,
effectively using various legally prescribed arbitration dispute methodologies.
The Company has also worked with third-party payors to establish cooperative
approaches to the collection process designed to reduce costs to both the
Company and to such payors. With the acquisition of the billing and collection
companies, the Company offers the following services: fee schedule review and
development, regulatory compliance reviews, review of physician documentation,
and general reimbursement consulting as well as the opportunity for improved
collections through the application of systematic billing and collection
procedures. In concert with its comprehensive practice management services, the
Company thereby works to enhance the revenues of its physician practice clients.

         Regulatory Compliance. The Company develops a compliance program
applicable to each client's medical practice area designed to ensure that such
client is notified of regulatory changes and operates in compliance with
applicable laws and regulations.

         Cost Saving Programs. Based on available volume discounts, the Company
seeks to obtain favorable pricing for medical supplies, equipment,
pharmaceuticals and other inventory for its clients.

         Operational Efficiency. Through its training of employees, management
of the operations of expensive technological equipment and centralization and
standardization of various administrative procedures, the Company is able to
improve the productivity of both the professional and non-professional staff and
client equipment and facilities.



                                       6


         Diagnostic Imaging Services. With the merger with MMI, the Company
offers practice broadening opportunities, such as in-office diagnostic imaging
equipment, by providing a "turnkey" service to appropriate medical and hospital
clients allowing them to broaden their practices or services to include
diagnostic imaging services. The Company processes all applications required for
filing with regulatory authorities, finances the acquisition of capital
intensive equipment, oversees its installation and then manages its operations
to assure efficient use.

         Marketing Strategies. The Company, in conjunction with its clients,
develops plans to enable such clients to increase the size and revenues of their
medical practices. Strategies developed by the Company for implementation by its
clients include: (a) increasing the range of evaluation, diagnostic and
treatment services offered by its clients; (b) integrating other specialties
into its clients' medical practices; (c) for its clients focused on injury
related conditions, expanding patient referral sources by helping them to
establish relationships with both attorneys for injury claimants and insurance
companies; (d) assisting its clients in the acquisition of other medical
practices; and (e) assisting clients in developing multi-office practices which
can use a fully-integrated network computer system that will provide necessary
practice information to its clients and coordinate the activities of multi-site,
multi-specialty medical practices. While the Company advises its clients with
respect to these marketing issues, it does not engage in sales or marketing
activities on behalf of its clients.

         Financing Opportunities. The Company, either directly through loans to
its clients or through assistance in presenting to sources of financing, intends
to provide its medical clients with greater access to the capital necessary to
develop, equip and expand their medical practices and to acquire other medical
practices.

         Capital Support. In connection with the implementation of its growth
strategy below, the Company believes that it may increase its loans to GMMS and
other clients to enable them to further expand by acquiring medical practices,
opening additional offices and adding medical specialties and sophisticated
diagnostic equipment to their existing practices. At December 31, 1996, such
loans aggregated $1,987,000. The Company may also make loans to, or purchase
receivables from, new medical practice clients or other healthcare providers to
enable them to carry long-term receivables.

         The Company provides its services pursuant to negotiated contracts with
its clients. While the Company believes it can provide the greatest value to its
clients by furnishing the full range of services appropriate to that client, the
Company is also willing to enter into contracts providing for a more limited
spectrum of selected services.

Client Information

         The Company's clients include its initial and principal client, GMMS,
as well as additional multi-specialty medical practices, principally in New York
State and which include Northern Metropolitan Radiological Associates, Northern
Metropolitan Medical Associates and Tenbroeck Medical Services. GMMS is a
multi-specialty medical practice that focuses on the diagnosis and treatment of
injured patients. Originally a one-office neurological practice, GMMS has now
grown to twenty-eight physicians (consisting of seven neurologists, two
chiropractors, nine physiatrists, three orthopedists, one general surgeon, one
family practitioner, one specialist in internal medicine, two psychologists, and
two radiologists) operating a total of nine offices in New York City, Long
Island and New Windsor, New York. In 1996, GMMS saw patients at an annual rate
of more than 32,000 new patients for treatment, 5,000 new patient Independent
Medical Evaluations ("IME") on behalf of insurance carriers and employers,
18,000 evaluation visits, 91,000 physical therapy visits, and performed more
than 60,000 medical tests and 9,000 diagnostic imaging scans.




         All of the Company's revenues in 1994, 1995 and a material portion for
1996 were generated under a management contract with GMMS. A substantial part of
the growth in the Company's business is a direct result of comparable growth of
GMMS' medical practice. The Company expects that its relationship with GMMS will
be a substantial factor in its business for the foreseeable future. Reference is
made to "Management's Discussion and Analysis of Financial Condition and Results
of Operations", which describes economic activities relating to the facilities
under management. The continued vitality of GMMS' medical practice is subject to
numerous risks, including it's continued ability to retain its key medical
personnel, malpractice claims and regulatory compliance. There is no assurance
that GMMS will continue to operate successfully. Moreover, although the term of
the Practice Management Services Agreement (the "PMSA") and the Management
Services Agreement for Magnetic Imaging Practice (the "MSA") between the Company
and GMMS, which covers all management services provided to GMMS expire June,
2025 and July, 2001 (with a provision for the automatic extension of the MSA in
five year intervals at the option of MMI), there is no assurance that the
Company and GMMS will continue to maintain a productive working relationship.
The founder of GMMS and his son, Dennis Shields, are principal shareholders of
the Company.

         GMMS has advised the Company that it intends to continue its strategy
of: (a) integrating, through both internal growth and the acquisition of the
other medical practices, as many of the services rendered to patients (e.g.,
diagnostic tests and other non-neurological specialties such as orthopedics and
physical therapy) as possible; and (b) broadening its patient referral base by
continuing to provide diagnosis and treatment of patients referred by attorneys
handling their injury-related




                                       7


legal claims, as well as IME's of injury claims required by insurance companies
and employers. It is the intent of the Company to obtain management agreements
with other medical practices throughout key markets in New York State and
neighboring states as well as to assist GMMS in providing services at additional
locations throughout the State. The Company believes that if it can provide
services to a sufficient number and variety of medical practices, it can form a
network of these physicians. The Company would attempt to assist network members
in obtaining new sources of patients by negotiating with managed care payors for
a fixed reimbursement schedule that would be advantageous to the network and
managed care payors. The Company may also be able to assist network members in
achieving efficiencies from centralized billing, purchasing and marketing
activities.

         Under the PMSA and MSA, the Company furnishes GMMS with a comprehensive
range of management and related financial services encompassing all non-medical
aspects of the GMMS medical practice, including: (a) renting furnished
"built-out" medical offices; (b) leasing equipment, including diagnostic
equipment; (c) purchasing supplies; (d) providing non-medical personnel; (e)
providing managerial, administrative, marketing and fiscal management services;
(f) providing various consulting services in connection with the acquisition by
GMMS of medical practices; (g) billing and collection services; and (h)
inclusion of GMMS in a network of medical practices which the Company may
ultimately form. The Company's fees are related to services provided and include
specified flat fees, hourly charges and network fees. All such fees are subject
to periodic upward readjustment starting in the third year, based on specified
formulae or methods for calculating the revised amounts. The Company has also
agreed to consider making working capital advances in unspecified amounts. Each
month the Company takes ownership on a full recourse basis of GMMS receivables
with a net collectible value equal to the amount of the management fee then
currently owed by GMMS and also takes a security interest in the balance of
GMMS' receivable as security for the payment of any uncollected fees. All of
these receivables may, however, be insufficient to secure all amounts due to the
Company by GMMS. The PMSA also gives the Company a right of first refusal to
purchase the medical practice of GMMS at its then fair market value in the event
that New York State permits the public corporate practice of medicine without
the need to apply for a certificate of need ("CON"). The transfer of ownership
of a majority of GMMS shares to anyone other than Dr. Lawrence Shields or Dr.
Irving Friedman (95% and 5% owners, respectively, of GMMS) constitutes an
assignment under such agreement and may not be made without the consent of the
Company. The term of the PMSA is thirty (30) years, expiring on June 2025 unless
terminated earlier for reasons such as material breach. The initial term and any
subsequent renewal term can be extended in five (5) year increments.

Marketing

         The Company's marketing strategy is to increase the size, number and
locations of medical practices to which it provides its services both in its
current market, other areas in New York State and selected other markets
including New Jersey. The Company's strategy is also to broaden the types of
medical practices which it services, to develop a client base of primary care
and specialty practices and to implement growth strategies for its existing and
new clients. The Company expects to promote growth of the patient and revenue
bases by assisting its clients in the development of multi-specialty medical
practices to eliminate the need for patient referrals, opening of additional
offices and implementing an aggressive program of acquiring other medical
practices. A major focus of the Company's near term marketing efforts will be
the identification of high volume medical practices in New York State, including
those that specialize in orthopedics and neurology, which could either be
acquired by GMMS or make effective use of the Company's management services. The
Company may make working capital advances and/or acquisition loans to its
present and future clients to enable them to implement such growth strategies.




         The Company's marketing efforts to establish relationships with new
clients, both for its full range of management services and for management
services related to diagnostic imaging, are conducted by employees under the
direction of the Executive Vice President of Practice Development and Managed
Care. Marketing activities consist of locating medical practices which meet the
size, quality and operating parameters set by the Company. The Company's
marketing staff also helps existing clients analyze opportunities for expanding
the services they offer and expanding into new geographic areas either through
opening new offices or acquiring existing medical practices. Strategies are also
developed for increasing the patient volume of existing clients, including
identifying to clients attorneys handling workers' compensation and no-fault
insurance claims and arranging meetings with such attorneys to make them aware
of the medical capabilities of the Company's clients. Additionally, one senior
executive of the Company focuses on advising insurance carriers and large
employers on GMMS' skills as a definer of injuries and as a preparer of IME
reports. The marketing staff also oversees and facilitates the exchange of
information with attorneys and insurance companies that are sources of new
patients for the Company's clients.

         The Company believes it can increase its market share in the medical
management services industry by providing its clients with significant
competitive advantages and by relieving them of the complex, burdensome and
time-consuming non-medical aspects of their businesses. The Company believes
that relieving medical personnel of these obligations may enhance the
productivity, efficiency and profitability of such personnel and the growth
potential of the client and thus also



                                       8


enhance the ability of such clients to serve their patients. The Company also
believes that a fully integrated medical office for the diagnosis and treatment
of injuries, as well as the medical evaluation of injury claims for insurance
carriers, provides significant advantages to patients and third-party payors. By
providing a full array of medical and testing services in one facility, a
medical practice will serve the patient more effectively and efficiently and
also alleviate the injured patient's burden of traveling from one location to
another. The centralization of comprehensive medical services also facilitates
administrative and regulatory reporting to third-party payors.

Third-Party Reimbursement

         The Company's management fees (including lease payments for office
space and equipment) are payable to the Company by its clients, as required by
applicable legal requirements, without regard to (i) the fees which the client
charges its patients for its medical services or (ii) whether the client
actually receives payment for its services. The Company's ability to collect its
management fees in a timely manner, or at all, is affected by such factors as
whether its client is reimbursed for its medical services, the timing of such
reimbursement and the amount of reimbursement. The Company's own cash flow is
adversely affected by its clients' long collection cycle from various
third-party payors, which typically range from nine months to 40 months for
workers' compensation insurers, six months to 32 months for no-fault insurance
carriers of the no-fault payment pool, two months to six months for Medicare and
other commercial insurers and three months to 24 months for medical malpractice
injuries. The historical, aggregate collection cycle of the Company's clients
was based on the Company's approximate 4 years of experience and GMMS'
historical collection experience. As a result of this slow payment pattern, the
Company requires more capital to finance its receivables than other businesses
with a shorter receivable payment cycle. Further, third-party payors may reject
the clients' medical claims if, in their judgment, the procedures performed were
not medically necessary or if the charges exceeded such payors' allowable fee
standards. It is common practice for third-party payors to initially deny/reject
the first submission of a medical claim. This does not mean that the claim will
not be ultimately paid. The Company normally will re-submit the claim with such
revised information as requested and/or forms and documentation. Outstanding
claims that continue to be disputed after one year or more are then submitted to
an arbitration process. Normally, when final arbitration decisions are about to
be rendered, the third-party payor will agree to pay the claim or a portion
thereof. In many instances the Company is entitled to collect the settlement
amount, filing fees and interest on the agreed-upon payment on behalf of its
clients. Finally, the reimbursement forms required by third- party payors for
payment of medical claims are long, detailed and complex and payments may be
delayed or refused unless these forms are properly completed in a timely manner.
Although the Company takes all legally available steps, including legally
prescribed arbitration, to collect the receivables generated by its clients,
there is a significant risk that some client receivables may not be collected
due to the determination by third-party payors that certain procedures performed
by the clients were not medically necessary or were performed at excessive fees
or because of omission or errors in timely completion of the required claim. The
inability of its clients to collect their receivables could adversely affect
their ability to pay in full all amounts owed by them to the Company.

         The healthcare industry is undergoing significant change as third-party
payors increase their efforts to control the cost, use and delivery of
healthcare services. Several states have taken measures to reduce the
reimbursement rates paid to healthcare providers in their states. The Company
believes that additional reductions will be implemented from time to time.
Reductions in Medicare rates often lead to reductions in the reimbursement rates
of other third-party payors as well and the Company believes that such further
reductions are probable. Further changes in Medicare reimbursement rates whether
pursuant to legislation presently under active consideration or otherwise, or
other changes in reimbursements by third-party payors to clients of the Company
could have a material adverse affect on the Company's operations and
profitability.




Government Regulation

         The Company's provision of management and administrative services to
medical practices, its plans to finance its clients' acquisitions of medical
practices and its purchase of certain medical practice assets incidental to
obtaining new practice management service agreements are subject to extensive
and increasing regulation of numerous laws, rules, approvals and licensing
requirements by federal, state and local governmental agencies. The Company is
also subject to laws and regulations relating to business corporations in
general.

         Many of the laws and regulations that affect the Company's operations
and relationships with its clients have not been definitively interpreted by
courts or regulatory authorities. Regulatory authorities have broad discretion
concerning how these laws and regulations are interpreted and how they are
enforced. The Company may, therefore, be subject to lengthy and expensive
investigations of its business operations, or prosecutions which may have
uncertain merit, by various state or federal governmental authorities. If the
Company or any of its medical practice or hospital clients were found by an
agency or judicial authority to be in violation of these laws and regulations,
the Company could be subject to criminal and/or civil penalties, including
substantial fines, injunctions and disqualification from participation in
Medicare, Medicaid and other payor programs, which could limit or terminate the
Company's ability to provide its services to medical practices and hospital
clients.



                                       9


         The Company believes that its current operations are in material
compliance with applicable laws and regulations and the structure of the
Company's relationships with its medical practice and hospital clients
(including GMMS, the Company's principal medical practice client, whose 95%
shareholder, Dr. Lawrence Shields, is a founder and principal shareholder of the
Company) is similar in material respects to that of many firms in the physician
practice management industry. Nevertheless the laws and regulations in this area
are extremely complex and subject to changing interpretations and many aspects
of the Company's business and business opportunities have not been the subject
of federal or state regulatory review or interpretation. The Company has neither
obtained nor applied for any opinion of any regulatory or judicial authority
that its business operations are in compliance with applicable laws and
regulations. Therefore, there is no assurance that the Company's operations have
been in compliance at all times with all such laws and regulations. Nor is there
assurance that scrutiny of the Company's business or its relationships with its
medical practice or hospital clients by court or regulatory authorities will not
result in determinations adverse to the Company. If the Company's interpretation
of the relevant laws is inaccurate, or if laws and regulations change or are
interpreted so as to restrict the Company's or its clients' operations or
expansion plans, the Company's business and its prospects could be materially
and adversely affected.

         The following are among the laws and regulations that affect the
Company's operations and development activities:

         Corporate Practice of Medicine: The laws of New York State and various
other states prohibit business corporations such as the Company from practicing
medicine and employing or engaging physicians to practice medicine. The Company
leases space and equipment to medical practices and hospital clients and
provides these clients with a range of non- medical administrative and
managerial services. The Company also plans to provide financing for its
clients' acquisitions of physician practices. The Company does not, however,
employ or supervise physicians or other licensed healthcare professionals who
practice medicine, does not represent to the public or to the patients of its
clients that it offers or arranges for medical services, and does not exercise
influence or control over the practice of medicine by its clients. The Company
does not initiate direct contact with its clients' patients except as an agent
and at the specific request of its clients, and then does so only for the
purpose of rendering non-medical services such as insurance verification,
appointment scheduling and collection. The Company does not direct patient
referrals or assign patients to particular physicians. The Company is not
responsible for patient care services, medical charts or patient records and
does not provide any ancillary medical services to patients or determine when
patients will be admitted to or discharged from care. The Company does not
establish standards of medical practice or policies for its clients, nor ensure
adherence to such standards or policies. Moreover, the Company does not
determine what charges are to be made to its clients' patients or to the
third-party payors, nor are patient care bills payable to the Company, but only
to the Company's clients. The Company does not determine how its clients' income
will be distributed or the scope of patient care services that its clients will
provide. Accordingly, the Company believes that it is not in violation of New
York State laws prohibiting the corporate practice of medicine. If the Company
were determined to be engaged in the corporate practice of medicine, the
Company's contractual relationships with its clients could be jeopardized and it
could be found guilty of criminal offenses and be subject to substantial civil
penalties, including fines and an injunction preventing continuation of its
business.

         Fee Splitting: New York and various other states prohibit a physician
from sharing or "splitting" fees with persons or entities not authorized to
practice medicine. In New York, this prohibition precludes the Company from
receiving fees based upon a percentage of its clients' gross income or net
revenue. Accordingly, the fee structure set forth in the Company's practice
management service agreements with its New York clients, including the Company's
agreement for the use and management of diagnostic imaging equipment based on a
fixed fee per use charge, provides for fixed remuneration based upon the
estimated fair market value of the services and equipment provided to such
clients by the Company. Although the Company's charges to its clients are
payable to the Company without regard to the amount of the fees charged by its
clients to their patients or whether such clients actually receive payment of
their fees, there is a risk that the inability of its clients to collect their
receivables will result in their being unable to make payments to the Company on
a timely basis, if at all. The Company believes that its charges to its clients
are not based upon their professional fees or level of income and, accordingly,
do not violate fee splitting prohibitions. If this belief is incorrect and the
Company is determined to be engaged in fee splitting arrangements with its
physician clients, such clients could be subject to charges of professional
misconduct and penalties ranging from censure and reprimand to revocation of
medical license. In addition, the Company could be unable to judicially enforce
its fee arrangements with its physician clients, thereby materially and
adversely affecting the Company's revenues and prospects.




         Self-Referral Laws: Under New York Law (and similar laws in a number of
other states) and the federal Self-Referral Law (the "Stark Law") (which is
presently only applicable to Medicare and Medicaid patients), certain health
practitioners (including physicians, dentist, chiropractors and podiatrists) are
prohibited from referring their patients for the provision of designated health
services (including clinical lab, diagnostic imaging and physical therapy
services) to any entity with which they or their immediate family members have a
financial relationship, unless the referral fits within one of the specific
exceptions in the statutes or regulations. The penalties for violating the Stark
Law include, among others, denial of payment for the designated health services
performed, civil fines of up to $15,000 for each service provided pursuant to a
prohibited



                                       10


referral, a fine of up to $100,000 for participation in a circumvention scheme
and possible exclusion from Medicare and Medicaid programs. Additional penalties
of up to $2,000 for each improperly billed service may also be imposed under the
Federal Civil Monetary Penalties Law. Statutory exceptions under the Stark Law
include, among others, direct physician services, in-office ancillary services
rendered within a group practice, space and equipment rental, and services
rendered to enrollees of certain prepaid health plans. Some of these exceptions
are also available under the New York self referral law. The Company believes
that its financial relationships with its health practitioner clients and
physicians affiliated with such clients do not fall within the Stark Law or
state self-referral laws, do not involve the provision of designated health
services by the Company or fit within one of the exceptions in such laws, as the
Company is neither a healthcare practitioner in a position to refer patients nor
an entity that provides prohibited designated health services. Rather, the
Company only furnishes management, administrative and financial services to its
healthcare practitioner clients who may perform such designated health services.
Similarly, although the Company offers stock in the Company to certain
physicians associated with the Company's clients, which physicians or clients
may be in a position to refer patients for designated health services to other
entities which receive management and related services from the Company, the
Company believes that such investment interests offered to such physicians
either do not fall under the New York or Stark self referral laws or fit within
one of the exceptions to the laws. Nevertheless, the interpretation of both the
New York and Stark self referral laws is subject to broad discretion by state
and federal regulators and an adverse determination by such regulators could
affect the Company's continued ability to offer investment interests to
physicians or the ability of such physician investors and/or the medical
practices with which such physicians are associated to refer patients to
entities that receive management and related services from the Company. In
general, moreover, there can be no assurance that future interpretations or
changes to the Stark Law (including its extension to all third-party payors) or
the regulations promulgated thereunder, (or to similar New York and other state
anti-referral laws or regulations), will not prohibit or otherwise affect the
Company's arrangements with its clients and physician shareholders in ways that
could materially and adversely affect the Company's business.

         Anti-Kickback Laws: The Social Security Act imposes criminal penalties
for paying or receiving remuneration (which is deemed a kickback, bribe or
rebate) in connection with any federal healthcare program, including Medicare or
Medicaid. Violation of this law is a felony, punishable by fines of up to
$25,000 per violation and imprisonment for up to five (5) years. This law and
related regulations have been broadly interpreted to prohibit the payment,
solicitation, offering or receipt of any form of reimbursement in return for the
referral of program patients or any item or service that is covered by any
federal healthcare program reimbursement. Similar state law prohibitions, not
limited to particular payor programs, exist under the laws of New York and other
states. Because the breadth of these prohibitions, when read literally, may
place many legitimate business relationships into question, the U.S. Department
of Health and Human Services ("HHS") promulgated "Safe Harbor" regulations in
1991 specifying certain relationships and activities that do not violate the
federal law and regulations. The Company does not believe that all of its
business practices satisfy the conditions of the "Safe Harbor" regulations.
Moreover, certain arrangements involving payment of management fees that vary
based upon the volume of services provided may be subject to increased scrutiny
with respect to remuneration for referral. However, failure of an activity to
fall within a "Safe Harbor" provision, or the fact that an arrangement may be
subject to scrutiny, does not mean that such activity constitutes a violation of
the law, rather the arrangement will be analyzed on the basis of its specific
facts and circumstances. The Company believes that its medical practice and
hospital client agreements under which it is currently providing management
services do not put it in a position to make or induce the referral of patients
or services by its clients and that, in any event, the compensation payable to
the Company by its clients is unrelated to referrals and is based upon the
estimated fair market value of the services and equipment provided to such
clients by the Company. Accordingly, the Company believes that these agreements
do not violate the federal anti-kickback law or statute or similar state laws.
If, however, the Company's management arrangements were found to violate these
federal or state laws, the Company and its medical clients could be subject to
substantial civil monetary fines and/or criminal sanctions, including a minimum
mandatory five (5) year exclusion from participation in any federal healthcare
programs which would adversely affect the Company's future results, operations
and profitability.




         Certificate of Need and Facility Licenses: In the case of the Company's
magnetic resonance imaging units, New York and several other states have laws
and regulations that require hospitals to obtain a CON to establish an imaging
center or to purchase magnetic resonance imaging or other major medical
equipment. Under CON laws, a hospital is required to substantiate the need and
financial feasibility for the establishment of new facilities, commencement of
new services or the purchase of major medical equipment in excess of statutory
thresholds. The Company's ability to manage imaging equipment for hospitals
could be adversely affected by the existence of state CON laws. Under current
New York law, a CON is not required for the acquisition or lease of a magnetic
resonance imaging unit by a physician engaged in the private practice of
medicine. Thus, GMMS and other medical practices which have contracted with the
Company have not obtained a CON with respect to any magnetic resonance imaging
units leased from the Company. However, the adoption of legislation extending
CON requirements to private medical practices would make it more difficult for
physicians to lease diagnostic imaging equipment and could adversely affect the
Company's expansion plans. New York also prohibits the operation of a diagnostic
and treatment center without obtaining a CON and license and such a license is
not currently available in New York to a public company such as the Company. The
Company believes that its relationships with its medical clients do not
constitute the operation of a diagnostic and treatment center. See, "Business --
Government Regulation -- Corporate Practice



                                       11


of Medicine". However, if the Company were determined to be operating a
diagnostic and treatment center, the Company's contractual relationships with
its clients could be jeopardized and it could be found guilty of criminal
offenses and be subject to substantial penalties, including fines and an
injunction preventing continuation of its business.

         Regulation Diagnostic Imaging Facilities: The operation by the
Company's clients of diagnostic imaging equipment administratively managed by
the Company is subject to federal and state regulations relating to licensing,
standards of testing, accreditation of certain personnel, and compliance with
governmental reimbursement programs. The Company believes that its clients are
in compliance with these federal and state requirements, however, failure of the
Company's clients to comply with the federal and state requirements applicable
to the clients' medical practices could adversely affect the Company's continued
ability to provide management and related services to its clients.

         No-Fault Insurance: The Company's initial client, GMMS, generates
significant revenue from patients covered by no-fault insurance carriers and the
no-fault insurance payment pool. In the event that changes in the no-fault
insurance law create greater or lesser demand for physician services or impose
additional or different administrative requirements, the Company could be
required to modify its business practices and its administrative services in
ways that could be more costly or more burdensome to the Company or in ways that
limit or otherwise decrease the revenues which the Company receives from its
present and potential future clients for its services.

         Workers' Compensation: The Company's initial client, GMMS, generates
significant revenue from patients covered by the New York Workers' Compensation
Program. In the event that changes in the Workers' Compensation Law create
greater or lesser demand for physician services or impose additional or
different administrative requirements, the Company could be required to modify
its business practices and its administrative services in ways that could be
more costly or more burdensome to the Company or in ways that limit or otherwise
decrease the revenues which the Company receives from its present and potential
future clients for its services. See "Business -- Government Regulation --
Proposed HealthCare Reform Legislation."

         Factors Affecting the Ability of Clients to Make Payments to the
Company: In order to comply with applicable federal and state laws, the
Company's management fees (including lease payments for office space and
equipment) are payable to the Company by its clients without regard to (i) the
fees which the client charges its patients for its medical services or (ii)
whether the client actually receives payment for such services. The Company's
ability to collect the management fees it earns from its clients in a timely
manner, or at all, is affected by such factors as whether its client is
reimbursed for its medical services, the timing of such reimbursement and the
amount of reimbursement. In this regard, a substantial portion of the revenues
of the Company's clients are derived from payments by government sponsored or
regulated programs (i.e., no-fault insurance, workers' compensation and
Medicare), private insurers and managed care companies. All of these third-party
payors are engaged in cost reduction programs that may adversely affect the
ability of the Company's clients to meet their contractual obligations to the
Company which, in turn, could cause the Company to experience significant
losses.

         Anti-Trust: It is possible as the Company provides network, management
and administrative services to several clients in a particular market, these
medical practices may be deemed competitors subject to a range of antitrust laws
which prohibit anti-competitive conduct, including price fixing, concerted
refusals to deal and division of markets. The Company intends to comply with
such federal and state laws, but there is no assurance that a review of the
Company's business by courts or regulatory authorities would not result in a
determination that could adversely affect the operation of the Company and its
clients.




         Anti-Fraud: There are also federal and state civil and criminal
statutes imposing substantial penalties, including substantial civil and
criminal fines and imprisonment, on healthcare providers and those who provide
services to such providers (including management businesses such as the Company)
which fraudulently or wrongfully bill governmental or other third-party payors
for healthcare services. In addition, the federal law prohibiting false
Medicare/Medicaid billings allows a private person to bring a civil action in
the name of the United States government for violations of its provisions and
obtain a portion of the false claims recovery if the action is successful. The
Company believes that it and its clients are in material compliance with such
laws, but there is no assurance that the Company's (and its clients') activities
will not be challenged or scrutinized by governmental authorities or private
parties asserting a false claim action in the name of the United States
government.

         Proposed HealthCare Reform Legislation: In addition to current laws and
regulations, the federal government and New York State are considering new laws
and regulations that, if enacted, could result in comprehensive changes
affecting the healthcare industry and the payment for, and availability of, the
type of healthcare services furnished by the Company's clients. Specifically,
New York State has adopted a pilot managed care workers' compensation program
that seeks to more closely regulate expenditures for workers' compensation
cases. It is not possible at this time to predict if this New York project will
be expanded or to assess its full impact on the Company. In addition, it is
anticipated that Congress and the President will be forced to agree on some form
of Medicare spending cuts that may result in future reductions in Medicare




                                       12


payments to physicians for physician services. Nevertheless, it is not certain
which, if any, reforms will be adopted by Congress or state legislatures, or
when such reforms will be adopted or implemented. New federal and state
healthcare legislation and changes in the current regulatory environment may
require the Company's business strategies, operations and agreements to be
modified and there can be no assurance that such restructuring will be possible
without adversely affecting the Company's profitability.

Liability Insurance

         The Company carries insurance providing coverage for general liability,
comprehensive property damage and workers' compensation. While the Company
believes its insurance policies are adequate in amount and coverage for
protection of its assets and operations as currently conducted, there is no
assurance that the coverage limits of such policies will be adequate. A
successful claim against the Company in excess of its insurance coverage could
have a material adverse effect on the Company and its financial condition.
Claims against the Company, regardless of their merit or outcome, could also
have an adverse effect on the Company's reputation and business. In addition,
there is no assurance that the Company's coverage will, in fact, be or continue
to be available in sufficient amounts and on reasonable terms, or at all.

Competition

         The medical practice management field is highly competitive, although
with regard to GMMS, the Company is not aware of any significant competition in
New York State which focuses on medical practices significantly involved in the
evaluation, diagnosis and treatment of injury-related cases. A number of large
hospitals in New York State and elsewhere have acquired medical practices and
this trend is expected to continue. The Company expects that more competition
will develop, in part as a result of its demonstration that management companies
can operate in the highly regulated New York environment. Potential competitors
include large hospitals and a number of public corporations operating through a
regional or national network of offices that have greater financial and other
resources than the Company. The Company's experience in providing medical
practice management services in the highly regulated New York State environment
is believed to be an important competitive factor. The Company provides a full
range of management and administrative services in a manner which it believes
does not violate the state's laws prohibiting the corporate practice of medicine
and an expertise with respect to the administration of receivable processing and
collections.

Employees

         At March 15, 1997, the Company had 508 full time employees and 264 part
time employees. The Company believes that employees suitable for its needs are
available in its current and expected areas of activity. None of the Company's
employees are represented by a labor union and the Company is not aware of any
activities seeking such organization. The Company considers its relationships
with its employees to be good.

Item 2. Properties.

         The Company's principal executive offices are located in approximately
8,500 square feet on the fifth and seventh floors of 254 West 31st Street, New
York, New York 10001. The floors are leased, pursuant to separate leases, for
terms expiring in March, 2006. The Company also leases at this location
approximately 9,540 square feet on the ground floor, mezzanine and second floor
which it subleases to GMMS for medical offices. The ground floor and mezzanine
are leased for a term expiring in February 2003. The second floor is leased for
a term expiring in August, 2002.

         The Company leases an aggregate of approximately 13,500 square feet of
leased space in a multi-story office building at 26 Court Street, Brooklyn, New
York 11242. The leases, which expire in November, 1998 and April, 2001.

         In addition, the Company leases for sublease to certain of its clients
medical office facilities, containing an aggregate of approximately 37,000
square feet in the greater New York metropolitan area. The leases expire on
various dates from August, 1997 through February, 2007.

Item 3. Legal Proceedings.

         None.


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

         None.


                                       13


                                     Part II

Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.

         (a) Market information:
                  The Company's common stock is listed and principally traded
                  on American Stock Exchange ("Amex") (symbol: CMI). The
                  following table sets forth on a per share basis the high and
                  low sale prices for the Company's common stock for the last
                  quarter in 1995 (from the commencement of trading following
                  the Company's IPO), 1996 and the first quarter in 1997
                  (through March 27, 1997).



                                                                              Common Stock
                                                                              ------------

                      1995                                         High                       Low
                      ----                                         ----                       ---

                                                                                      
                      Fourth Quarter (from December 28)               9                     8 3/8

                      1996
                      ----
                      First Quarter                               9 1/4                     7 3/4
                      Second Quarter                             13 7/8                     7 1/2
                      Third Quarter                              17 1/8                    11 5/8
                      Fourth Quarter                             16 1/2                    10 7/8

                      1997
                      ----
                      First Quarter (through March 27)           13 5/8                    11 1/8



                  The Company's First and Second Series Debentures are listed on
                  the Amex under the symbols CMI.A and CMI.B, respectively.

         (b)   Holders:
                  The approximate number of holders of record of the Company's
                  common stock as of March 24, 1997 were 109.

         (c )   Dividends:
                  The holders of common stock are entitled to receive such
                  dividends as may be declared by the Company's Board of
                  Directors. The Company has not paid and does not expect to
                  declare or pay any dividends in the foreseeable future.


                                       14






Item 6. Selected Financial Data

         The following data have been derived from the Company's audited
Consolidated Financial Statements and Notes thereto, and should be read in
conjunction with those statements, which are included elsewhere in this Annual
Report.

                      (in thousands, except per share data)

Selected Income Data:

                                                    Year Ended December 31,
                                                    -----------------------
                                                 1994         1995       1996
                                               --------    --------    --------

Revenue                                        $ 10,654    $ 12,294    $ 33,158
Interest discount (1)                            (1,744)     (2,017)     (2,166)
                                               --------    --------    --------
Net revenue                                       8,910      10,277      30,992
Cost of revenue                                   1,949       2,771      12,308
General and administrative expenses               2,571       2,974       9,143
                                               --------    --------    --------
Operating income                                  4,390       4,532       9,541
Accretion of interest discount (2)                  922       1,585       2,452
Interest expense                                   --            46       2,740
Interest, dividends and other income                 55          17       1,040
                                               --------    --------    -------- 
Income before provision for income taxes          5,367       6,088      10,293
Provision for income taxes                        2,522       2,861       4,879
                                               --------    --------    --------
Net income                                     $  2,845    $  3,227    $  5,414
                                               ========    ========    ========
Net income per share                           $   0.95    $   1.08    $   0.68
                                               ========    ========    ========
Weighted average number of shares
  outstanding                                     2,981       2,981       8,008
                                               ========    ========    ========
- ----------
(1)  Represents an interest discount taken to reflect the presumed collection of
     revenues over a period in excess of one year. See "Notes to Consolidated
     Financial Statement."
(2)  Represents interest income earned as a result of the amortization over a
     three year period of the interest discount of revenue.


Selected Balance Sheet Data:

                                                           As of December 31,
                                                   -----------------------------
                                                      1994      1995       1996
                                                      ----      ----       ----

Cash and marketable securities                      $  --     $  --    $ 72,605
Accounts receivable, net (1)                          7,679    14,884    52,509
Total assets                                          8,009    17,860   166,349
Current liabilities                                   2,461     5,749    10,432
Long-term debt, less current portion                   --         229       255
Convertible subordinated debentures                    --        --      74,000
Stockholders' equity                                  3,854     7,330    70,504
Working capital                                       1,615       (63)   93,127

- ----------
(1)  Includes both the current and long-term portions of accounts receivable.



                                       15


Item 7. Management's Discussion and Analysis of Financial Condition and Results
        of Operations

         The following discussion of the results of the operations and financial
condition of the Company should be read in conjunction with the Company's
Audited Consolidated Financial Statements and Notes thereto included elsewhere
in this Annual Report.

Overview

         On April 1, 1993, the Company commenced operations servicing GMMS, its
initial client, a multi-site neurological medical practice in the New York
metropolitan area. For the period from commencement to December 31, 1993, and
the years ended December 31, 1994 and 1995, all of the Company's fee revenue was
derived from the management of GMMS.

         On January 3, 1996, the Company completed the merger of MMI (the "MMI
Merger"), into a wholly-owned subsidiary of the Company. The Company issued
2,457,730 common shares to effect the merger, including shares issued in
satisfaction of outstanding options and warrants to purchase MMI shares. The
excess of purchase price over net assets acquired (goodwill) of approximately
$8,680,000 as a result of the acquisition of MMI will be amortized on a
straight-line basis over a period of twenty years.

         In July, October and November, 1996, the Company completed the mergers
of two medical billing companies and four physician practice management
companies into wholly-owned subsidiaries of the Company. The Company issued
525,637 common shares to effect these mergers, together with cash payments of
approximately $7,454,000.

         The Company's revenues are derived primarily from fees for management
services. The Company's charges are intended to reflect the varying costs
associated with its provision of services to clients including rental costs,
compensation of personnel supplied by the Company, costs of third-party payor
documentation, costs of billing and collections, and financing provided by the
Company to its clients for the acquisition of high cost diagnostic imaging
equipment and other medical practices.

         GMMS pays the management fees it owes the Company by assigning
ownership, on a recourse basis, of its receivables with a net collectible value
equal to the then current management fee owed to the Company.

         GMMS, the Company's largest client, is a multi-specialty medical
practice group which evaluates, diagnoses and treats patients in the New York
metropolitan area. Currently, GMMS' primary medical focus is the treatment of
patients with injury-related conditions under workers' compensation and no-fault
programs. GMMS currently employs twenty-eight (28) physicians (seven
neurologists, two chiropractors, nine physiatrists, three orthopedists, one
general surgeon, one family practitioner, one specialist in internal medicine,
two psychologists and two radiologists) operating in nine offices in New York
City, Long Island and Orange County.

         The following unaudited tabulation sets forth the operating results of
GMMS for the years ended December 31, 1994, 1995 and includes results for GMMS
and other client practices for the year ended December 31, 1996. GMMS and the
other client practices are entities separate from the Company and the amounts
reflected below are not included in the results of operations of the Company or
its subsidiaries except for the management fees related to general medical
services and diagnostic imaging.



                                       16





                                                     Year Ended December 31,
                                                    -----------------------
Unaudited:                                        1994        1995        1996
- ----------                                        ----        ----        ----

Services rendered                              $ 22,236    $ 24,010    $ 48,167
Contractual allowances                           (2,746)     (2,340)     (2,676)
                                               --------    --------    --------
Net medical service fee                          19,490      21,670      45,491
Less expenses:
   Medical personnel payroll                      2,085       2,340       8,562
   Other                                            476         520       9,675
                                               --------    --------    --------
        Total expenses                            2,561       2,865      18,237
Owner physician payroll and entity income         1,082         522       1,889
                                               --------    --------    --------
Managements fee                                  15,847      18,283      25,365
                                               ========    ========    ========
Fee to related party                             10,654      12,294      21,464
Fees to non-related parties                       5,193       5,989       3,902
                                               --------    --------    --------
        Total management fees                  $ 15,847    $ 18,283    $ 25,365
                                               ========    ========    ========

General

The practices' operations are limited to the following activities:

1)   Rendering services to patients;
2)   Payment of compensation to both owner physician and other medical
     personnel; and
3)   Payment of miscellaneous expenses incidental to the rendering of the
     medical service.

         As more fully discussed below, as well as elsewhere in this document,
the Company's operations as they relate to the practices include the following
activities:

1)   Patient scheduling, record transcription, non-clinical intake examination,
     and insurance verification;
2)   Billing and collection for all patient medical services rendered;
3)   Any other business activity necessary to ensure the proper business
     operations of the practices; and
4)   Marketing and expansion of the medical practice.

Economics

         Because the activities of the practices are limited to the rendering of
medical services, their principal asset is the accounts receivable due from
third party payors and/or patients (minimal services are paid for by the patient
at the time service is rendered). Further, substantially all of the non-clinical
activities, as defined by the management agreement, of the practices are
performed by the Company (which activities are discussed above and elsewhere in
this document) and their principal liability is the amount due owner physicians
and other medical personnel for services and the fee due under the management
agreements.

         Revenue generated by GMMS in the amount of approximately $22,236,000,
$24,010,000 for the years ended December 31, 1994 and 1995 and by both GMMS and
the additional practices in the amount of approximately $48,167,000 for the year
ended December 31, 1996, have been allocated to the owner physicians, medical
personnel, other medical related expenses and the management fees.

         Finally, due to the fact that the management fees from GMMS is paid
through recourse assignment of the accounts receivable and the doctors'
compensation is paid currently, GMMS's cash flows are principally used for
payment of remaining GMMS expenses and doctor compensation.



                                       17


Financial Statements of the physician practices

         Audited financial statements of the physician practices have not been
presented because they would not provide any additional information that would
be meaningful in the evaluation of the Company's financial position, results of
operation, and cash flow. The physician practices' balance sheets prepared on an
accrual basis would generally include a very limited amount of accounts
receivable, and immaterial liabilities for miscellaneous costs not paid due to
timing of cash flow. Further, their statements of operations would reflect three
components: revenues, compensation to owner physicians and medical personnel and
management fees which information is presented in substantially that form in the
above tabulation as well as elsewhere in this annual report, and finally, the
practices as entities are merely a vehicle for physicians to achieve cash
compensation from the practice of their medical profession.

         To ensure that all billings result in bonafide accounts receivable of
the practices, the Company, in performing its duties, completes an interview of
each patient and reviews patient insurance documentation prior to rendering of
the medical service. If based on this interview and review of documentation, the
Company deems the ensuing billing to be doubtful, such amounts are categorized
and are not considered part of the accounts receivable for payment of its fee or
available under the recourse rights.

         The process of determining the probability of collection and the
related timing of the third party accounts receivable is an integral part of the
activities of the Company and commences prior to the rendering of the medical
service to the patient. Accordingly, the Company is cognizant of the
collectibility of the accounts receivable as well as the timing of such
collection. This information (as well as the provisions of the PMSA between the
Company and the practices) is used by the Company to determine which receivables
are to be assigned as payment of management fees and retained ("residual
receivable") to pay the compensation of the owner physician and medical
personnel.

         The Company believes that because of this process, the amount of
accounts receivable that would revert back to the practices as a result of the
recourse right described herein would not be material. To date, the Company has
not had to exercise this right with respect to any accounts receivable assigned
to it.

Results of Operations for the Years Ended December 31, 1996 and 1995

         Revenues in 1996 were $33,158,000 as compared to $12,294,000 in 1995,
an increase of $20,864,000 or 170%. The primary reason for the increase is the
acquisition of (1) MMI in January, 1996, (2) the medical billing companies in
July, 1996 and (3) the physician practice management companies in October, 1996.
In addition, management services rendered by the Company to GMMS increased by
$2,097,000 as a result of an increase in the number of patients treated and
evaluated by GMMS. The acquisition of two medical practices in the third quarter
of 1996 by GMMS increased its medical practice offices located in the New York
metropolitan area by three additional locations. Additionally, the three new
GMMS offices (Garden City, Staten Island and New Windsor, New York) which opened
during the fourth quarter of 1995 were fully integrated in 1996.

         Cost of Revenues increased to $12,307,000 from $2,771,000 in 1995 an
increase of $9,536,000 or 344%. Cost of revenues include personnel who directly
support the medical practice in rendering patient care and who directly support
its billing and collection process. The support services include patient
scheduling and assisting patients in producing background and medical coverage
information necessary for physicians to properly diagnose, test and bill for
services rendered by the medical practice. The Company charges fees to its
clients for the services rendered by these individuals under the terms of its
PMSA with the medical practice. The fees are predicated upon the costs
associated with rendering this service. The major component of the increase,
$5,758,000, was as a result of the acquisition of (1) MMI in January, 1996, (2)
the medical billing companies in July, 1996 and (3) the physician practice
management companies in October, 1996. Additionally, the Company continued to
hire management and support personnel such as patient schedulers and medical
record maintainers in order to properly service the expanding medical practices.




         General and Administrative Expenses (including fees paid to related
parties) increased by $6,625,000 or 223% from $2,974,000 in 1995 to $9,599,000
in 1996. General and administrative costs represent overhead and administrative
expenses excluding costs directly related to operations and generation of
revenues such as space costs, office supplies and general and administrative
costs of the Company including corporate management and professional fees. The
major component of the increase, $3,084,000, was as a result of the acquisition
of (1) MMI in January, 1996, (2) the medical billing companies in July, 1996 and
(3) the physician practice management companies in October. These expenses also
increased due to the hiring of highly qualified management personnel in order to
prepare for the Company's anticipated growth through such acquisitions and the
amortization of goodwill related to the acquisitions completed in 1996. The
Company's philosophy has been to significantly upgrade and increase its
infrastructure to ensure its ability to adequately service additional clients
and anticipated acquisitions while continuing to provide a comprehensive range
of management services to GMMS.

         Interest Expense increased from $46,000 in 1995 to $2,740,000 in 1996
due mainly to interest on the (1) $2,000,000 principal amount of Convertible
Subordinated Notes issued on March 20, 1996, (2) First Series Debentures issued
on June 5, 1996, (3)




                                       18


$3,000,000 principal amount of Convertible Subordinated Notes issued on July 5,
1996 and (4) Second Series Debentures issued on December 5, 1996.

Results of Operations for the Years Ended December 31, 1995 and 1994

         Revenues in 1994 were $10,654,000 as compared to $12,294,000 in 1995,
an increase of 15%. The increase in revenues resulted from an increase in
services rendered by the Company to GMMS due to its growth in the number of
patients evaluated and treated. GMMS' procedures performed increased from
128,500 in 1994 to 157,000 in 1995.

         Cost of Revenues increased $822,000, from $1,949,000 (18% of net
revenue) to $2,771,000 (23% of net revenue) in 1995. A significant portion of
this increase ($694,000) was due to the hiring of additional (23) practice
management and other support personnel such as appointment schedulers, record
transcribers and intake examiners in order to properly administer the Company's
client's expanding medical practice and to prepare a base for future clients and
projected acquisitions. Transcription costs increased $129,000 due to the
greater number of patients evaluated, treated and the related procedures
performed by the medical practice.

         General and Administrative Expenses (including fees paid to related
parties) increased by $403,000 from $2,571,000 in 1994 or a 16% increase to
$2,974,000 in 1995. The increase is primarily attributable to an increase in
space rental costs ($126,000) due to the opening of three additional GMMS
offices and annual escalations in the remaining six offices, related incremental
depreciation and amortization ($38,000), upgrading of the billing system
($68,000) and increased marketing efforts ($57,000). Additionally, the Company
incurred one time costs ($33,000) associated with its fourth quarter financing
and incremental insurance costs ($23,000) in conjunction with its IPO.

         Depreciation and Amortization Expense increased by $47,000 from $55,000
in 1994 to $102,000 in 1995. This increase was directly related to the purchase
of property and equipment, primarily leasehold replacement expenditures, by the
Company totaling $193,000 in 1994 to $178,000 in 1995.

Liquidity and Capital Resources

         In January, 1996, the Company completed its IPO in which it issued
2,000,000 common shares at $9.00 per share and received net proceeds of
$13,480,000. Costs incurred with respect to the registration of the common
shares in addition to the underwriter's commission and expenses including
repayment of the Secured Notes (defined below) were $3,520,000. In addition, the
Company sold to the Representatives in the IPO, or their designee, at a price of
$.001 per warrant, 200,000 warrants (the "IPO Representatives' Warrants")
entitling the holders thereof to purchase 200,000 common shares of the Company
at a purchase price of $10.80 per share for a period of four years commencing
one year from the date of the IPO.

         In September and October 1995, the Company borrowed an aggregate of
$1,000,000 secured by all assets from three lenders (the "Secured Lenders"):
$400,000 from InterEquity Capital Partners ("IECP") and $300,000 each from Astro
Communications, Inc. and William Harris & Company Employee Profit Sharing Trust.
The borrowings were due on the earlier of the consummation of the IPO or five
years following their issuance and bore interest at rates ranging from 12% to
14%. The Company issued 27,778 common shares in connection with these
borrowings, with an aggregate value of $258,000 and paid $52,000 of processing
fees. Substantially all of such amounts were charged to operations and the loans
were repaid in January, 1996, the date of the Company's IPO.

         In March 1996, the Company sold $2,000,000 of Convertible Subordinated
Notes and in July, 1996 a further $3,000,000 of such notes to accredited
investors. The notes bear interest at 8%, payable quarterly. The entire
principal is due five years from the date of issuance. Holders of the
Convertible Subordinated Notes may convert all or any portion into common shares
of the Company at $9.00 per share, subject to adjustment for stock splits,
dividends, re-capitalization, etc. Under certain circumstances, such as a change
in control, holders of the Convertible Subordinated Notes may require the
Company to redeem the Convertible Subordinated Notes at 125% of the original
principal amount. The Convertible Subordinated Notes are subordinate in right of
payment to certain future indebtedness which may be incurred by the Company.




         On June 5, 1996, the Company issued $40,250,000 face amount of First
Series Convertible Subordinated Debentures ("First Series Debentures"). The
First Series Debentures bear interest at the rate of 8% per annum payable on
August 15 and February 15 of each year until the First Series Debentures are
paid in full. Holders of the First Series Debentures may convert all or any
portion of the principal amount thereof into Common Shares of the Company at an
initial conversion price of $14.00 per share, subject to adjustment for stock
splits, dividends, re-capitalization and certain other capital changes. The
First Series Debentures are not redeemable prior to June 5, 1999. Thereafter,
the First Series Debentures are redeemable in whole or in part, from time to
time, at the option of the Company, at a redemption price equal to 100% of the
principal amount thereof plus accrued interest, provided that the First Series
Debentures may not be redeemed prior to maturity unless for the 20 consecutive
trading days prior to the date of notice of such redemption, the Closing Price
(as defined) has equaled or exceeded $19.125, subject to adjustment in certain
events. In the event that a Repurchase Event (as defined) occurs, subject to
certain conditions, each holder of a First Series Debenture




                                       19


shall have the right to require the Company to purchase all or any part of such
holder's First Series Debentures at 100% of the principal amount thereof plus
accrued interest.

         On December 5, 1996, the Company issued 2,000,000 common shares at
$13.75 per share and received net proceeds of $23,864,000. In connection with
this offering, the Company has agreed to sell to the Representatives, for
nominal consideration, warrants (the "Representatives' Warrants") to purchase up
to 356,250 Common Shares at a price of $23.30625 per share. The Representatives'
Warrants are exercisable for a period of four years commencing December 5, 1997.
The Representatives' Warrants provide for reductions, which in certain
circumstances could be material, in the exercise price of the Representatives'
Warrants upon the occurrence of certain events, including the issuance by the
Company of Common Shares for a price below the market price of the Common
Shares, and corresponding potentially significant increases in the number of
shares purchasable upon exercise of the Representatives' Warrants. The
Representatives' Warrants also provide for adjustment of the type of securities
issuable upon exercise of the Representatives' Warrants to reflect changes in
the Common Shares. The Representatives' Warrants grant to the holders thereof
certain rights with respect to the registration under the Securities Act of the
securities issuable upon exercise of the Representatives' Warrants.

         On December 5, 1996, the Company issued $28,750,000 face amount of
Second Series Convertible Subordinated Debentures ("Second Series Debentures").
The Second Series Debentures bear interest at the rate of 8% per annum payable
on June 15 and December 15 of each year until the Second Series Debentures are
paid in full. Holders of the Second Series Debentures may convert all or any
portion of the principal amount thereof into common shares of the Company at an
initial conversion price of $16.00 per share, subject to adjustment for stock
splits, dividends, re-capitalization and certain other capital changes. The
Second Series Debentures are not redeemable prior to December 5, 1999.
Thereafter, the Second Series Convertible are redeemable in whole or in part,
from time to time, at the option of the Company, at a redemption price equal to
100% of the principal amount thereof plus accrued interest, provided that the
Second Series Debentures may not be redeemed prior to maturity unless for the 20
consecutive trading days prior to the date of notice of such redemption, the
Closing Price (as defined) has equaled or exceeded $21.1875, subject to
adjustment in certain events. In the event that a Repurchase Event (as defined)
occurs, subject to certain conditions, each holder of a Second Series Debenture
shall have the right to require the Company to purchase all or any part of such
holder's Second Series Debentures at 100% of the principal amount thereof plus
accrued interest.

         On January 3, 1996, the Company completed the merger of MMI (the "MMI
Merger"), into a wholly-owned subsidiary of CMI. The terms of the MMI Merger
provided that MMI shareholders receive .778 CMI common shares for each MMI
common share which they held based upon an IPO price of $9.00 per common share.
The holders of outstanding options to purchase MMI common shares received 93,281
CMI common shares based upon the difference between their aggregate option
exercise prices and the value thereof at $7.00 per share divided by the IPO
price. In January 1996, the Company issued 2,457,725 common shares to effect the
merger, including shares issued in satisfaction of outstanding options and
warrants to purchase MMI shares. The excess of purchase price over net assets
acquired (goodwill) of $8,680,000 as a result of the acquisition of MMI will be
amortized on a straight-line basis over a period of twenty years.

         In July, October and November, 1996, the Company completed the mergers
of two medical billing companies and four physician practice management
companies into wholly-owned subsidiaries of CMI. The Company issued 525,637
common shares to effect these mergers, together with cash payments of
approximately $7,454,000. The excess of purchase price over net assets acquired
(goodwill) of $10,871,000 as a result of the acquisition will be amortized on a
straight-line basis over a period of twenty years.

         On January 31, 1997, the Company paid $910,000 to acquire certain
accounts receivable and $75,000 for certain equipment and inventory from
Emergimed P.C. ("Emergimed"), and loaned $6,925,000 to the Kenneth S. Schwarz,
P.C. (the "PC") which has a practice management services agreement with the
Company. The loan was for the purpose of the PC acquiring the goodwill and
medical practice of Emergimed, a seven physician multi-specialty medical
practice in Cliffside Park, New Jersey.




         To date, the Company has primarily used its cash to support operating
activities, including higher levels of receivables generated by increased
management fees, to fund acquisitions and for capital expenditures. Net cash
used for operating activities in 1996 was $18,547,000. In January 1996, the
Company loaned GMMS for working capital needs approximately $1,590,000 due on
demand at interest of 9% per annum. The Company's primary sources of cash has
been cash flow from operations, the proceeds from the IPO, the First Series
Debenture Offering, the Second Series Debenture and common shares offering. At
December 31, 1996 the Company had working capital of $92,764,000.

         The ability of GMMS, one of the Company's major customers, to pay the
management fees which it owes to the Company is dependent upon GMMS' ability to
collect its accounts receivable from insurance carriers, primarily no-fault and
workers' compensation carriers, though GMMS is obligated to pay such fees
regardless of its collections. Receipts from these sources generally have long
collection cycles. These claims can be subjected to dispute and are often
referred to arbitration. Many third-party payors, particularly insurance
carriers covering automobile no-fault and workers' compensation claims refuse,
as 




                                       20


matter of business practice, to pay claims unless submitted to arbitration. It
is the Company's experience that the insurance carriers from which it seeks
reimbursement for its clients delay payment of claims until just prior to the
arbitration hearing. Management has determined, based on actual results,
industry factors, and GMMS' historical collection experience prior to its
association with the Company, that this entire collection process generally
spans a period averaging approximately 3 years. The Company believes that its
experience to date is a good indication of the timing of the collection process
in the future. Therefore, CMI requires more capital to finance its receivables
than businesses with a shorter receivable collection cycle. In the event that
the laws and regulations establishing these third-party payors are amended,
rescinded or overturned with the effect of eliminating this system of payment
reimbursement for injured parties, the ability of the Company to market its
management services could be affected. The Company takes ownership on a recourse
basis of GMMS' receivables with a net collectible value equal to the then
current management fee owed to the Company. The collection cycle for these
receivables are generally in excess of one year and as a result of such delayed
payment the financial statements include an imputed interest discount against
gross revenues. This discount is recaptured over the anticipated collection
cycle and is accounted for as reversal of interest discount in the financial
statements.

         For the three years ended December 31, 1994, 1995 and 1996,
respectively, net cash provided (used) by operating activities was $111,000,
$1,088,000 and $(18,547,000). Although the Company provided cash through its
operating activities, substantially all of the cash generated from operations
was used to support higher levels of accounts receivable. The cash used was
$6,536,000, $7,636,000 and $27,276,000 for 1994, 1995 and 1996, respectively.

         Cash was provided (used) by an increase (decrease) in accounts payable
of $403,000, $1,946,000 and $(1,903,000) for 1994, 1995 and 1996, respectively.
The increases were caused by the deferred registration costs incurred in the IPO
and by the increase in services rendered and costs incurred by the Company as
the result of the rapid expansion of the client's practice. The Company's
estimate of its cash needs include, in part, an estimate of the timing of its
collections.

         During the years ended December 31, 1994, 1995 and 1996, the Company
made capital expenditures totaling $193,000, $178,000 and $1,952,000,
respectively. These expenditures were for office furniture, computer
hardware/software, telephone and medical equipment.

Item 8. Financial Statements and Supplementary Data.

         The financial statements of the Company required by this item are set
forth at the pages indicated in Item 14 (a) and (d).

Item 9. Changes In and Disagreements with Accountants on Accounting and
        Financial Disclosure.

         None



                                       21


                                    PART III

Item 10. Directors and Executive Officers of the Registrant.

         The directors and executive officers of the Company are as follows:




Name                   Age       Position
- ----                   ---       --------
                       
Steven Rabinovici      44     Chairman of the Board and Chief Executive Officer

David Jacaruso         52     Vice Chairman of the Board and President

Arthur L. Goldberg     58     Senior Executive Vice President and Chief Operating Officer

Joseph M. Scotti       53     Executive Vice President, Treasurer, Secretary and Director

Dennis Shields         30     Executive Vice President and Director

Dennis W. Simmons      46     Executive Vice President of Practice Development and Managed Care

Robert Keating         55     Senior Executive Vice President, Director of Operations - Medical Legal Services

Manus O'Donnell        53     Vice President Finance, Chief Financial Officer

Richard DeMaio         39     Vice President and Director

John T. Dooley         54     Vice President and Chief Information Officer

Claire Cardone         51     Vice President

Kenneth Theobalds      38     Vice President - Workers' Compensation

Steven Cohn            48     Director

Steven A. Hirsh        57     Director


         All directors hold office until the next annual meeting of shareholders
and until their successors are duly elected and qualified. Directors, other than
officers or employees of the Company or holders of 10% or more of its shares,
receive an option upon taking office to purchase 20,000 Common Shares
exercisable at the fair market share on the date of grant. Officers are elected
to serve, subject to the discretion of the Board of Directors, until their
successors are appointed.

         Steven Rabinovici has been Chairman of the Board and Chief Executive
Officer of CMI since December 28, 1995. From December 31, 1992 through December
27, 1995 he was the President, Chief Executive Officer and a director of MMI. He
is a founder of CMI and has also provided certain consulting services to the
Company during 1994 and 1995. From July 1990 through December 31, 1992, he was
an independent healthcare and business consultant. On July 21, 1992, MEBE
Enterprises, Inc., the owner and operator of a single Roy Rogers fast food
restaurant, filed for protection under Chapter 11 of the Bankruptcy Code.
Messrs. Rabinovici and Jacaruso were founders and principals of MEBE
Enterprises, Inc. Earlier in his career, Mr. Rabinovici had more than 10 years
experience in hospital administration, including approximately two years as
associate administrator of Brookdale Hospital Medical Center, a 1,000 bed
teaching hospital, and two years as the administrator of the Division of
Psychiatry, Cornell University New York Hospital. Mr. Rabinovici has a Bachelors
degree from City University of New York, Brooklyn College, a Masters degree in
Public Health from Columbia University School of Public Health and a Juris
Doctorate degree from New York Law School.




         David Jacaruso has been Vice Chairman of the Board of the Company since
December 28, 1995, as well as President, a founder and a director of the Company
since April 1993. From April 1993 through December 27, 1995 he was Chairman of
the Board of the Company. From July 1990 to April 1993 he was an independent
healthcare and business consultant. On July 21, 1992, MEBE Enterprises, Inc.,
the owner and operator of a single Roy Rogers fast food restaurant, filed for
protection under Chapter 11 of the Bankruptcy Code. Messrs. Rabinovici and
Jacaruso were founders and principals of MEBE Enterprises, Inc. Earlier in his
career, Mr. Jacaruso was associated with Brookdale Hospital for ten years and
with Mt. Sinai Medical Center, holding various administrative positions
including Senior Associate Administrator for Operations. Mr. Jacaruso has a
Bachelors degree in Urban Health, a Masters degree in Quantitative Analysis from
St. John's University, and he completed a one-year residency at Columbia
University School of Public Health for Hospital Administration.

         Arthur L. Goldberg has been Senior Executive Vice President and Chief
Operating Officer of the Company since April 2, 1996. From August 1993 through
March 1996 he was an independent management consultant. Prior thereto he was the
Chief Financial Officer of Elek-Tek, Inc., a reseller of computer and related
equipment since December 1990. Mr. Goldberg has a Bachelor's degree in Business
Administration from City University of New York, Juris Doctor and Masters of Law
degrees from New York University School of Law and a Masters of Business
Administration degree from the University of Chicago. He is also a Certified
Public Accountant. 




                                       22


         Joseph M. Scotti has been Vice President, Chief Financial Officer,
Treasurer, Secretary and Director of the Company from December 28, 1995 until
January 1997. Since then has been Executive Vice President - Acquisition
Analysis, Treasurer and Director of the Company. Prior thereto he held similar
positions with MMI since January 1993. From February 1992 to January 1993, Mr.
Scotti was a consultant to Burke & Burke, a food store chain and from November
1986 to February 1992 he was controller of Rols Capital Co., a mortgage lender.
He has a Bachelors degree in Accounting from Hofstra University.

         Dennis Shields has been Executive Vice President and director of CMI
since December 28, 1995. Prior thereto he had been Vice President, Chief
Operating Officer and a director of MMI since 1992. He is a founder of CMI. His
father, Dr. Lawrence Shields, also a founder of MMI and CMI, is the 95% owner of
GMMS, the largest client of the Company. Mr. Shields has a Bachelor of Arts
degree from New York University School of Liberal Arts.

         Dennis Simmons has been Executive Vice President of Practice
Development and Managed Care of the Company since April 2, 1996. Mr. Simmons has
over twenty years of healthcare experience. Most recently he had been the Senior
Vice President for Coastal Physician Group, Inc., from November 1992 to March
1996. From October 1986 to October 1992 he worked for Medical Care Development,
Inc. as a consultant to the Saudi Arabian government and United Healthcare Corp.
in Central Texas. Mr. Simmons, also developed the Emergency Medical Services
Program and STAR Flight medical helicopter service in Austin, Texas. He has a
Bachelors degree in environmental design from Texas A & M and an Master of
Business Administration degree from St. Edwards University.

         Robert Keating has been Senior Executive Vice President, Director of
Operations - Medical Legal Services of the Company since April 8, 1996. From
January 1995 to April 7, 1996, Mr. Keating was the Administrative Judge, Second
Judicial District, Supreme Court, State of New York responsible for the day to
day management of the Supreme Court district that encompasses Brooklyn and
Staten Island, New York and has general jurisdiction over both civil litigation
and criminal matters. Prior thereto he was the Administrative Judge, Criminal
Court of the City of New York since April 1985. Mr. Keating managed the daily
judicial and non-judicial operations of the court, which has general
jurisdiction over all violations, infractions, misdemeanors and pre-indictment
processing of felony matters in New York City. Concurrently, from 1992 to
present he has supervised and developed the Midtown Community Court. The court
opened in October 1993 and focuses on "quality of life" crimes or crimes that
erode the public's sense of pride in its neighborhood. Mr. Keating has a
Bachelors degree from Georgetown University and a Bachelor of Law degree from
Duke University.

         Manus O'Donnell has been a Vice President and Chief Financial Officer
of the Company since January, 1997. From March 1995 to December 1996, Mr.
O'Donnell was Chief Financial Officer for Lynton Group, Inc., an aviation
company operating in Britain and the US. From January, 1993 to March, 1995, he
was a principal in The Index Group, which provides consulting services in the
biotechnology and general healthcare markets. From January 1991 to February
1993, he was Chief Financial Officer of Clinical Homecare, Ltd., a company
providing infusion services to patients in the home. Mr. O'Donnell is a
Certified Public Accountant and has an MBA degree from Columbia University
Graduate Business School.

         John T. Dooley has been a Vice President and Chief Information Officer
of the Company since September 1996. From May 1996 to September 1996, Mr. Dooley
was the Chief Information Officer for three corporations affiliated with Long
Island Jewish Medical Center: CHP: The Medical Group, Managed Health Inc. and
LIJ-MS. From January 1995 to May 1996 Mr. Dooley served as the Chief Information
Officer of New Hanover Regional Medical Center, a 628 bed tertiary care medical
center and teaching hospital in Wilmington, NC. From March 1994 to December
1995, Mr. Dooley was a Senior Manager of Implementation Specialists for
Healthcare, a management consulting firm specializing in healthcare systems.
Prior thereto, from December 1992 to February 1994, Mr. Dooley served as the
Chief Information Officer of North Shore University Hospitals, a series of
tertiary care teaching and community hospitals comprising 1,250 beds. From May
1988 to December 1992, Mr. Dooley served as the Assistant Vice President,
Information Services of St. Vincent's Hospital and Medical Center, an 813 bed
tertiary care teaching hospital located in New York City. He has a B.S. degree
from St. Peter's College, New Jersey.

         Richard DeMaio has been Vice President of Operations of CMI since March
1994. From March 1989 through February 1994, he was assistant administrator at
the Long Island Jewish Medical Center with administrative responsibilities for
various clinical and support services. Mr. DeMaio is a member of the American
College of Healthcare Executives and has also served on the Executive Committee
of the Metropolitan Health Administrators Association. He has a Bachelors degree
in Urban Health Management from St. John's University and a Masters degree in
Health Care Administration from Long Island University.

         Claire A. Cardone has been Vice President of Operations for diagnostic
imaging of CMI since December 28, 1995. Prior thereto, she had been the Vice
President of Operations of MMI since 1993. From 1985 until 1993, Ms. Cardone was
Senior Associate Administrator at St. John's Episcopal Hospital, a 300 bed
community teaching hospital in Queens, New York. She has a Master in Business
Administration degree from Adelphi University and a Bachelor of Arts degree, cum
laude, from St. John's University.



                                       23


         Kenneth Theobalds has been Vice President of Workers' Compensation of
CMI since July 1995. Prior thereto, Mr. Theobalds had been Executive Director of
The State Insurance Fund of New York State since September 1992. From 1989 to
September 1992 he served as an Assistant Secretary for Human Resources to New
York State Governor Mario M. Cuomo. Mr. Theobalds holds a Bachelor of Science
degree from Cornell University.

         Steven Cohn has been a member of the law firm of Goldberg and Cohn
(which has its offices in Brooklyn, New York) and a State Assemblyman for the
50th Assembly District for more than the past five years. He has a Doctor of
Jurisprudence degree from Brooklyn Law School, a Masters of Law from New York
University School of Law and a Bachelor of Arts degree from New York University.

         Steven A. Hirsh has been a portfolio manager for William Harris & Co.,
a financial services company, for more than five years. Since 1994 he has also
been Chairman, Chief Executive Officer and President of Astro Communications,
Inc., a manufacturer of strobe lights. He holds a Bachelor of Science degree
from the University of Colorado and Masters of Business Administration from the
University of Chicago.

         Steven Rabinovici, David Jacaruso, Marie Graziosi, Dennis Shields and
Dr. Lawrence Shields, founders of the Company, are parties to a shareholders'
agreement (the "Shareholders' Agreement") pursuant to which they have agreed to
vote (and subsequently voted) all of their shares of the Company, for a period
of 10 years, in favor of election to the Board of Directors of the Company and
for such other or additional nominees as may be designated from time to time and
approved by the Board and to vote on all other matters in accordance with the
recommendations of the Board. Mr. Rabinovici is the Chairman of the Board and
Chief Executive Officer of the Company, Mr. Jacaruso is the Vice Chairman of the
Board and President of the Company and Dennis Shields, the son of Dr. Shields,
is the Executive Vice President and a Director of the Company. Marie Graziosi is
the wife of David Jacaruso. Dr. Shields is a founder of CMI and MMI, the
Company's largest shareholder and the founder and a 95% shareholder of GMMS, a
client which accounts for almost all of the Company's revenues in 1995. Messrs.
Rabinovici, Jacaruso, Dennis Shields, Ms. Graziosi and Dr. Lawrence Shields
beneficially own an aggregate of approximately 2,219,581 shares or 22.1% of the
Company's outstanding Common Shares and, accordingly, as long as they vote as
required by the Shareholders' Agreement, may be in a position to elect all of
the persons nominated by the Board of Directors. Furthermore, such control may
adversely affect the market price of the Common Shares by precluding any
unsolicited acquisition of the Company.

         The Company's Board of Directors has established Compensation and Audit
Committees, whose members are Messrs. Cohn and Hirsh. The Compensation Committee
reviews and recommends to the Board of Directors the compensation and benefits
of all officers of the Company, reviews general policy matters relating to
compensation and benefits of employees of the Company and administers the
issuance of stock options to the Company's officers, employees, directors and
consultants. The Audit Committee meets with management and the Company's
independent auditors to determine the adequacy of internal controls and other
financial reporting matters. The Compensation Committee has not met since Mr.
Hirsh became one of its members and has advised the Board that it will convene
its next meeting only after the appointment of a third committee member. It is
the intention of the Company to appoint only independent directors to the Audit
and Compensation Committees.



                                       24


Item 11. Executive Compensation

         Executive compensation consists of the following:



                                                                                                Long term compensation
                                                                                                ----------------------
                                        Annual compensation                       Awards                    Payouts
                                        -------------------                       ------                    -------
                                                                  Other annual     Reg is tered   Options     LTIP      All other
                                           Salary           Bonus compensation stock awards        /SAR     payouts   compensation
Name and principal position         Year     ($)                 ($)       ($)        ($)          (#)        ($)          ($) 
- -----------------------------------------------------------------------------------------------------------------------------------
                                                                                                 

Steve Rabinovici
   Chairman & CEO                  1996      250,000              -         -         -            -           -         24.672
                                   1995      109,842(1)           -         -         -            -           -         21,124
David Jacaruso                                                                                                  
   Vice Chaimnan, President        1996      250,000              -         -         -            -           -         17,389
                                   1995      165,063(2)           -         -         -            -           -          6,334
Arthur Goldberg                                                                                                 
   Sr. Exec. Vice Pres. & CEO      1996      140,978              -         -         -            -           -
                                   1995       -                   -         -         -            -           -
Dennis Shields                                                                                                  
   Executive Vice President        1996      250,000              -         -         -            -           -         32,498     
                                   1995      136,920(3)           -         -         -            -           -         19,870 
Joseph M. Scotti                                                                                                         
   Executive Vice President        1996      171,771              -         -         -            -           -         12,981
                                   1995      117,225              -         -         -            -           -         10,004
                                                                                                               

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

(1)  Consists of fees of $30,650 from CMI for consultation and advice to senior
     management and salary from MMI of $79,192.
(2)  Includes consulting fees of $63,075 paid by CMI to Marie Graziosi, Mr.
     Jacaruso's wife.
(3)  Consists of fees of $57,728 from CMI for consultation and advice to senior
     management and salary from MMI of $79,192.

Employment Contracts

         In October 1995, the Company entered into an employment agreement with
Steven Rabinovici providing for his employment, effective upon the closing of
both the IPO and the Merger, as Chairman of the Board and Chief Executive
Officer for an initial term expiring on December 31, 1999. On December 31 of
each year, the term is automatically extended for an additional year unless on
or before such date either party elects to terminate the agreement at the
expiration of the term. The agreement provides for an annual base salary of
$250,000 and for participation in all executive benefit plans. The agreement
also provides, among other things, that, if Mr. Rabinovici's employment is
terminated without cause (as defined in the agreement), the Company will pay him
an amount equal to the salary which would have been payable to him over the
unexpired term of his employment agreement. Prior to the closing of the IPO, Mr.
Rabinovici was President, Chief Executive Officer and a director of MMI.

         In October 1995, the Company entered into an employment agreement with
David Jacaruso, providing for his employment, effective upon the closing of both
the IPO and the Merger, as Vice Chairman of the Board and President, for an
initial term expiring on December 31, 1999. On December 31 of each year, the
term is automatically extended for an additional year unless on or before such
date either party elects to terminate the agreement at the expiration of the
term. The agreement provides for an annual base salary of $250,000 and for
participation in all executive benefit plans. The agreement also provides, among
other things, that, if Mr. Jacaruso's employment is terminated without cause (as
defined in the agreement), the Company will pay him an amount equal to the
salary which would have been payable to him over the unexpired term of his
employment agreement.

         In October 1995, the Company entered into an employment agreement with
Dennis Shields, providing for his employment, effective upon the closing of both
the IPO and the Merger, as Executive Vice President, for an initial term
expiring on December 31, 1999. On December 31 of each year, the term is
automatically extended for an additional year unless on or before such date
either party elects to terminate the agreement at the expiration of the term.
The agreement provides for an annual base salary of $250,000 and for
participation in all executive benefit plans. The agreement also provides, among
other things, that, if his employment is terminated without cause (as defined in
the agreement), the Company will pay Mr.




                                       25


Shields an amount equal to the salary which would have been payable to him over
the unexpired term of his employment agreement. Prior to the closing of the IPO,
Mr. Shields was Vice President, Chief Operating Officer and a director of MMI.

         In January 1996, the Company entered into an employment agreement with
Joseph M. Scotti, providing for his employment upon the closing of both the IPO
and the Merger, as Vice President and Chief Financial Officer for an initial
term expiring on December 31, 1999. The agreement provides for an annual base
salary of $175,000 and for participation in all executive benefit plans. The
agreement also provides, among other things, that, if Mr. Scotti's employment is
terminated without cause (as defined in the agreement), the Company will pay him
an amount equal to the salary which would have been payable to him over the
unexpired term of his employment agreement. Prior to the closing of the IPO, Mr.
Scotti was Vice President and Chief Financial Officer and a director of MMI. In
April 1996, an option to purchase 50,000 shares exercisable at $9.00 per share
during a ten year period was granted to Mr. Scotti. The options are exercisable
for one-third of the shares covered thereby as of the date of the grant and for
an additional one-third of the shares covered thereby each year thereafter.

         In March 1996, the Company entered into an employment agreement with
Arthur L. Goldberg as Senior Executive Vice President and Chief Operating
Officer expiring on March 10, 1999. The Agreement, as amended, provides for an
annual base salary of $200,000, for participation in all executive benefit plans
and for the grant of an option for 100,000 shares exercisable for a ten year
period. The option will be exercisable for 50,000 shares beginning April 1997
and 50,000 shares in April 1998.

Stock Options

         In May 1995, in order to attract and retain persons necessary for the
success of the Company, the Company adopted its 1995 Stock Option Plan (the
"Option Plan") covering up to 700,000 of its Common Shares, pursuant to which
officers, directors and key employees of the Company and consultants to the
Company are eligible to receive incentive and/or non-incentive stock options.
The Option Plan, which expires in May 2005, will be administered by the Board of
Directors or a committee designated by the Board of Directors. The selection of
participants, allotment of shares, determination of price and other conditions
relating to the purchase of options will be determined by the Board of
Directors, or a committee thereof, in its sole discretion. Incentive stock
options granted under the Option Plan are exercisable for a period of up to 10
years from the date of grant at an exercise price which is not less than the
fair market value of the Common Stock on the date of the grant, except that the
term of an incentive stock option granted under the Option Plan to a shareholder
owning more than 10% of the outstanding Common Stock may not exceed five years
and its exercise price may not be less than 110% of the fair market value of the
Common Stock on the date of the grant.

         In the year ended December 31, 1996, the Company granted options for an
aggregate of 941,000 shares under the Option Plan as follows: 625,000 shares to
ten officers or former officers; 40,000 to two outside directors and 276,000
shares to 20 key employees (including officers of acquired companies). In
addition, options for 225,000 shares were granted to consultants. All options
were granted at exercise prices ranging from $8.375 to $15.75. In 1997, options
for a further 170,000 shares have been issued, which are not included in the
foregoing grants. Currently a total of 379,000 shares are subject to shareholder
approval of an amendment to the Option Plan increasing the number of shares
authorized for issuance thereunder. These options will have an exercise price
per share equal to the fair market value of a common share on the date of such
approval.

         Outside directors are granted options for 20,000 shares, exercisable
for 50% of the shares covered immediately upon grant and for the remainder of
the shares following one year's service, as soon as practicable after taking
office. Mr. Hirsh has waived this grant.

         Options are for either five or ten year terms and, generally, vest to
the extent of one-third of the shares received on the date of grant or the first
anniversary thereof and on each of the next two anniversaries. Certain options
are exercisable only if specific performance criteria are met.






                                       26


Comparative Performance by the Company

         The following graph shows a comparison of cumulative total returns for
the Company, the American Stock Exchange Market Index ("Amex") and a peer group
index.

        Compare Cumulative total return among Complete Management, Inc.,
                     AMEX market index and peer group index



     200|----------------------------------------------------------| 
        |                                       *                  | 
  D     |                                                          | 
  O  150|--------------------------*-------------------------*-----|  
  L     |                                                          | 
  L     |               &          &            &                  | 
  A  100|---*&#---------*#---------#------------#------------&#----| 
  R     |                                                          | 
  S     |                                                          | 
      50|----------------------------------------------------------| 
        |                                                          | 
        |                                                          | 
       0|----|----------|----------|-----------|-----------|-------| 
          Dec-95      Mar-96     Jun-96      Sep-96      Dec-96       

                                                                             
*=Complete Management, Inc.   &=Peer Group Index    #=AMEX Market Index

                   Assumes $100 invested on December 28, 1995
                          Assumes dividends reinvested
                      Fiscal year ending December 31, 1996

o    Source: Media General Financial Services, Inc.



Item 12. Security Ownership of Certain Beneficial Owners and Management

         The following table sets forth certain information as of March 27, 1996
with respect to the beneficial ownership of the Company's Common Shares by each
shareholder known by the Company to be the beneficial owner of more than 5% of
its outstanding shares, by each director of the Company, by the executive
officers named in the table below and by the directors and executive officers as
a group.




                                                                 Common Shares Beneficially Owned
                                                                 --------------------------------
                                                          Number of Shares        Percentage of Class
                                                          ----------------        -------------------
              Name and Address (1)                               Actual                    Actual
              --------------------                               ------                    ------

                                                                                        
                Steven Rabinovici (2)                           476,813                     4.75%
                David Jacaruso (3)                              424,640                     4.23%
                Dennis Shields (4)                              567,837                     5.66%
                Joseph M. Scotti                                 71,690                     0.71%
                Steven Cohn                                      14,921                     0.15%
                Richard DeMaio                                   19,843                     0.20%
                Steven A. Hirsh                                 212,054                     2.11%
                Lawrence Shields, MD (5)                      1,125,291                    11.20%
                All officers and directors as a group
                             (8 persons)                      1,735,021                    17.30%
  


                                       27


- ------------------
(1)  The addresses of the persons named in this table are as follows: Steven
     Rabinovici, David Jacaruso, Dennis Shields, Joseph M. Scotti, and Richard
     DeMaio, c/o Complete Management, Inc., 254 West 31st Street, New York, New
     York 10001-2813; Steven Cohn c/o Goldberg and Cohn, 16 Court Street, Suite
     2304, Brooklyn, New York 11241,Lawrence Shields, MD, 26 Court Street,
     Brooklyn, New York 11242 and Steven A. Hirsh, c/o William Harris & Co.., 2
     N. LaSalle Street, Suite 505, Chicago, IL 60602.
(2)  Includes 351,813 shares held as custodian for benefit of his minor son,
     Jeffrey.
(3)  Includes shares held by his wife, Marie Graziosi and as custodian for his
     minor children, Cara Elizabeth and David Francis.
(4)  Dennis Shields is the son of Dr. Lawrence Shields.
(5)  Dr. Lawrence Shields is the father of Dennis Shields.


Item 13. Certain Relationships and Related Transactions

         The Company received all of its revenue during 1994 and 1995 from its
initial client, GMMS, pursuant to an agreement dated as of April 1, 1993. On
July 1, 1995, CMI and GMMS entered into the PMSA effective April 1, 1995 which
provides for the furnishing by the Company of comprehensive management services,
related financial services and the inclusion of GMMS in a medical practices
network expected to be formed by the Company. The 95% shareholder of GMMS, Dr.
Lawrence Shields, is a founder of the Company. The agreement is for a term of
thirty years, expiring in June 2025, and can be extended in five (5) year
intervals. The various practice management fees set forth in the agreement are
subject to upward adjustment every two (2) years depending on cost of living and
other factors.

         Immediately following the closing of the IPO on January 3, 1996, the
Company acquired the assets and business of MMI through its merger into a
wholly-owned subsidiary. In the Merger, the MMI shareholders received .778 CMI
common shares for each MMI common share which they held. The holders of
outstanding options to purchase MMI common shares received a number of CMI
common shares equal to the difference between their aggregate option exercise
prices and the value thereof at $7.00 per share. An aggregate of 2,364,444 and
93,281 CMI Common Shares were issued in the Merger to MMI shareholders and
option holders, respectively.

         The Company is the beneficiary of key-man life insurance policies
aggregating $10,000,000 covering the life of Dr. Lawrence Shields, the 95%
shareholder of GMMS, the Company's principal client.

         As of December 8, 1995 an Omnibus Settlement Agreement (the "Settlement
Agreement") was entered into among the Company, MMI, Steven Rabinovici, David
Jacaruso, Dennis Shields, Dr. Lawrence Shields and Gail Shields ("Ms. Shields"),
the former wife of Dr. Lawrence Shields. Under the terms of the Settlement
Agreement, as revised on December 21, 1995, the Company arranged for the sale of
117,187 MMI common shares owned by Ms. Shields at a net price to Ms. Shields of
$5.50 per share and obtained Ms. Shields' release as the maker of a promissory
note for a bank loan whose proceeds were used by GMMS (which had previously been
satisfied by GMMS) and as lessee of certain premises occupied by GMMS, which
lease has been assigned to the Company. There was no material impact on the
financial statements of the Company or MMI as a result of the foregoing
settlement.



                                       28


                                     PART IV

Item 14. Exhibits, Financial Statement Schedules and Reports on Form 10-K.

Financial statements and schedules.

                  The report of independent public accountants, consolidated
                  financial statements, notes to consolidated financial
                  statement and schedules required by this item are submitted
                  as part of this Annual Report beginning on page F-1.




                           Financial Statements of Complete Management, Inc.                          Page
                           -------------------------------------------------                          ----
                                                                                                      
                           Report of Independent Accountants                                           F-1

                           Consolidated Balance Sheets as of December 31, 1995 and 1996                F-2

                           Consolidated Statements of Income for the years
                           ended December 31, 1994, 1995 and 1996                                      F-3

                           Consolidated Statements of Stockholders' Equity for the years
                           ended December 31, 1994, 1995 and 1996                                      F-4

                           Consolidated Statements of Cash Flows for the years ended
                            December 31, 1994, 1995 and 1996                                           F-5

                           Notes to Consolidated Financial Statements - for the years
                            ended December 31, 1994, 1995 and 1996                             F-6 to F-18


         All other schedules for which provision is made in the applicable
accounting regulation of the Securities and Exchange Commission are not
applicable or not required under the related instructions or because the
required information is presented in the consolidated financial statements or
notes thereto and therefore, have been omitted.



                                       29


                   Exhibits.



Exhibit
  No.      Description
  ---      -----------
     
2.1      Revised Agreement and Plan of Merger (incorporated by reference to Exhibit A to the Proxy Statement/Prospectus included in
         Registration Statement on Form S-4, File No 33-98714).

2.2      Agreement and Plan of Merger dated as of September 19, 1996 among Advanced Alliance Management Corp., (the "Seller") and
         the shareholders of the Seller set forth on Exhibit A thereto, and AAMC Acquisition Corp. and Complete Management, Inc.(6)

3.1      Certificate of Incorporation of CMI.(1)

3.2      Certificate of Amendment to the Certificate of Incorporation of CMI as filed on December 1, 1995.(1)

3.3      By-Laws of CMI.(1)

4.1      Specimen Stock Certificate.(1)

4.3      Indenture dated as of December 11, 1996 between Complete Management, Inc. and The Chase Manhattan Bank covering $28,750,000
         aggregate amount Convertible Subordinated Debentures due December 15, 2003.(8)

4.5      Indenture, dated as of June 11, 1996 between Complete Management, Inc. and Chemical Bank covering $40,250,000 aggregate
         amount Convertible Subordinated Debentures Due 2003.(8)

10.1     Practice Management Services Agreement as of July 1, 1995 between Greater Metropolitan Neurology Services, P.C. and
         Complete Management, Inc. and Agreement Addendum as of such date.(1)

10.2     Shareholders Agreement among Steven Rabinovici, Lawrence W. Shields, Marie Graziosi, David Jacaruso and Dennis Shields.(1)

10.3     Revised Form of Employment Agreement between the Company and Steven Rabinovici.(1)

10.4     Revised Form of Employment Agreement between the Company and David Jacaruso.(1)

10.5     Revised Form of Employment Agreement between the Company and Dennis Shields.(1)

10.6     1995 Stock Option Plan of the Company.(1)

10.14    Lease Agreement between Whitehall Terrace Associates and Complete Management of Queens, Inc. for 118-21 Queens Boulevard,
         Forest Hills, New York.(1)

10.15    Lease Agreement dated December 1, 1992 between 865 Realty Corp. and Physicians Administration Services, Inc. for 865 Walton
         Avenue.(1)

10.18    Lease Agreement dated March 12, 1993 between Thirty-One, Co. and Complete Management, Inc. for 254 West 31st Street.(1)

10.19    Form of Lease Agreement between Park South Tower Associates and Urban Associates for 425 West 59th Street.(1)

10.20    Lease Agreement dated August 31st between Thirty-One, Co. and MRI Management Associates, Inc. for 254 West 31st Street.(1)

10.21    Lease Agreement between Lawrence W. Shields, Irving Friedman and Steven J. Schwartz party of the first part and Complete
         Management, Inc., party of the second part for 736 East Park Avenue.(1)

10.22    Lease Agreement dated August 31, 1992 between MMI and Brause Realty, Inc. for office space at 254 West 31st Street.(2)


10.23    Agreement of 865 Walton Avenue lease by Physicians Administration Services, Inc. to Complete Management, Inc. which in turn
         sublet the Premises to Greater Metropolitan Neurology Services, P.C.(1)



                                       30


10.24    Assignment of 118-21 Queen Boulevard Lease by Complete Management of Queens, Inc. to Complete Management, Inc. which in
         turn sublet the Premises to Greater Metropolitan urology Services, P.C.(1)

10.26    Assignment of 26 Court Street by Physicians Administration Services to Complete Management, Inc., which in turn sublet the
         Premises to Greater Metropolitan Neurology Services, P.C.(1)

10.27    Sublease of 254 West 34th Street by Complete Management, Inc. to Greater Metropolitan Neurology Services, P.C.(1)

10.28    Consulting Agreement between MMI and Dr. Lawrence W. Shields, Physician, P.C. (now known as Greater Metropolitan Neurology
         Services, P.C.) dated March 11, 1992.(3)

10.29    Employment Agreement between the Company and Arthur Goldberg.(4)

10.30    Employment Agreement between the Company and Dennis W. Simmons.(4)

10.31    Employment Agreement between the Company and Robert Keating.(4)

10.33    Lease Agreement dated September 19, 1995 between CMI and Parp Center, Inc. for 230 Hilton Ave, Hempstead, NY.(4)

10.34    Lease Agreement dated September 1, 1995 between CMI and KABB, Inc. for 180 North Plank Road, Newburgh, NY.(4)

10.35    Note Agreement dated as of March 20, 1996 and Form of 8% Convertible Subordinated Note (included as exhibit thereto).(5)

10.36    Management Services Agreement for Magnetic Resonance Imaging Practice, 1-Phase Agreement by and Between Greater
         Metropolitan Neurology Services, P.C. d/b/a Greater Metropolitan Medical Services and Medical Management, Inc.(5)

10.37    Practice Management Services Agreement dated as of September 17, 1996 By and Between Northern Metropolitan Radiology
         Associates, P.C., Northern Metropolitan Radiology Associates, P.A., Personal Breast Services and Ultrasound of Northern
         Westchester, P.C., NMRA of Connecticut, P.C. and Northern Westchester Diagnostic Partners, P.C. and Advanced Alliance
         Management Corp.(8)

10.40    Employment Agreement between the Company and Dr. Kenneth Schwartz.(8)

10.43    Form of IPO Representative's Warrant Agreement(7)

10.44    First Series Debenture Offering Representative's Warrant Agreement (including form of Warrant)(8)

10.45    Form of Representatives' Warrant Agreement, including Form of Warrant(8)

10.46    Employment Agreement between the Company and Joseph M. Scotti

12.      Statement re Computation of Ratios.

18.      Preferability Letter.(5)

21.      Subsidiaries of the Registrant.

23.1     Consent of Arthur Andersen LLP.
- --------------------
(1)      Previously filed as a similarly numbered Exhibit to CMI S-1 Registration Statement No. 33-97894.
(2)      Previously filed as Exhibit 10.4 to MMI S-1 Registration Statement No. 33-68458.
(3)      Previously filed as Exhibit 10.11 to MMI S-1 Registration Statement No. 33-68458.
(4)      Previously  filed as a similarly  numbered  Exhibit to CMI 10-K for the Fiscal Year Ended December 31, 1995,  Commission
         File No. 0-27260.
(5)      Previously filed as a similarly numbered Exhibit to CMI S-1 Registration Statement No. 333-4262.
(6)      Previously filed as a similarly numbered Exhibit to CMI 8-K dated October 1, 1996.
(7)      Previously filed as Exhibit 4.2 to CMI Registration Statement No. 33-97894.
(8)      Previously filed as an Exhibit to CMI Registration Statement No. 333-15531.




                                       31



                                   SIGNATURES

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

COMPLETE MANAGEMENT, INC.


             
         By:  /s/ Steven Rabinovici                       Date: March 31, 1997
              ------------------------------------
              Steven Rabinovici
              Chairman and Chief Executive Officer

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



         Signature                                                                  Date
         ---------                                                                  ----
                                                                             

                /s/ Steven Rabinovici                                          March 31, 1997 
         ---------------------------------------                               
         Steven Rabinovici
         Chairman and Chief Executive Officer

                /s/ David Jacaruso                                             March 31, 1997
         ---------------------------------------
         David Jacaruso
         Vice Chairman and President

                /s/ Joseph M. Scotti                                           March 31, 1997
         ---------------------------------------
         Joseph M. Scotti
         Vice President, Secretary, Treasurer and Director

                  /s/ Dennis Shields                                           March 31, 1997
         ---------------------------------------
         Dennis Shields
         Executive Vice President and Director

                  /s/ Manus O'Donnell                                          March 31, 1997
         ---------------------------------------
         Manus O'Donnell
         Vice President, Chief Financial and Accounting
         Officer

                  /s/ Richard DeMaio                                           March 31, 1997
         ---------------------------------------
         Richard DeMaio
         Vice President and Director

                  /s/ Steven Cohn                                              March 31, 1997
         ---------------------------------------
         Steven Cohn
         Director

                  /s/ Steven A. Hirsh                                          March 31, 1997
         ---------------------------------------
         Steven A. Hirsh
         Director





                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To Complete Management, Inc.:

We have audited the accompanying consolidated balance sheets of Complete
Management, Inc. (a New York corporation) and subsidiaries as of December 31,
1995 and 1996, and the related consolidated statements of income, stockholders'
equity and cash flows for the years ended December 31, 1994, 1995 and 1996.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.

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

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Complete Management, Inc. and subsidiaries as of December 31, 1995 and 1996, and
the consolidated results of their operations and their cash flows for the years
ended December 31, 1994, 1995 and 1996, in conformity with generally accepted
accounting principles.


ARTHUR ANDERSEN LLP
New York, New York
March 6, 1997







                                      F-1


                            COMPLETE MANAGEMENT, INC.
                           Consolidated Balance Sheets
                        (In thousands, except share data)


                                                                                    December 31,
                                                                                    ------------
     Assets                                                                       1995       1996
     -------                                                                       ----       ----
                                                                                        
 Current assets:
    Cash                                                                      $    --     $  40,138   
    Marketable securities                                                          --        32,467
    Notes receivable from a related party                                          --         1,987
    Accounts receivable, net of unamortized discount of $1,307
     and $489, respectively                                                       5,325      26,182
    Short-term investments                                                         --         1,811
    Prepaid expenses and other current assets                                       356         974
                                                                              ---------   ---------
     Total current assets                                                         5,681     103,559
Long-term portion of notes receivable from a related party                         --           171
Long-term portion of accounts receivable, net of unamortized
    discount of $694 and $1,605, respectively                                     9,560      26,327
Property and equipment, less accumulated depreciation and
    amortization of $173 and $2,936                                                 400       7,093
Intangible assets                                                                  --        21,610
Debt issuance cost                                                                 --         7,219
Other assets                                                                      2,220         370
                                                                              ---------   ---------
           Total assets                                                       $  17,861   $ 166,349
                                                                              =========   =========
   Liabilities and stockholders' equity
Current liabilities:
    Notes payable                                                             $   1,000   $    --
    Accounts payable and accrued expenses                                         2,816       4,256
    Income taxes payable                                                             39       3,804
    Deferred income taxes - current                                               1,800       1,165
    Current portion of capital lease obligations                                   --           672
    Current portion of long-term debt                                                89         535
                                                                              ---------   ---------
     Total current liabilities                                                     5,744     10,432
                                                                              ---------   ---------
Deferred income taxes - non-current                                               4,436       9,292
Capital leases - non-current                                                       --         1,717
Deferred rent                                                                       122         149
Long-term debt (Note 10)                                                            229         255
                                                                              
Convertible subordinated debentures (Note 10)                                      --        74,000
                                                                              
Commitments and contingencies (Note 15)

Stockholders' equity:
    Preferred stock, $.001 par value:
     Authorized, 2,000,000 shares, issued and outstanding, none                    --          --
    Common stock, $.001 par value:
     Authorized, 20,000,000 shares, issued and outstanding, 2,980,573 shares
      at December 31, 1995 and 10,031,471 shares at December 31,                     3          10
    Paid-in capital                                                                 250      58,270
    Retained eamings                                                              7,077      12,491
    Unrealized loss on marketable securities available-for-sale                    --          (267)
                                                                              ---------   ---------
     Total stockholders' equity                                                   7,330      70,504
                                                                              ---------   ---------
             Total liabilities and stockholders'equity                        $  17,861   $ 166,349
                                                                              =========   =========





               The accompanying notes are an integral part of the
                       consolidated financial statements.
 

                                      F-2


                             COMPLETE MANAGEMENT, INC.
                        Consolidated Statements of Income
                      (In thousands, except per share data)



                                                              Years ended December 3l,
                                                              -----------------------
                                                            1994      1995       1996
                                                            ----      ----       ----
                                   
                                                                          
Revenues 
  From a related party                                    10,654      12,294      21,463
  Other revenue                                             --          --        11,695
  Interest discount                                       (1,744)     (2,016)     (2,166)
                                                        --------    --------    --------
Net revenues                                               8,910      10,278      30,992

Cost of revenues                                           1,949       2,771      12,308
General and administration expenses                        2,572       2,974       9,143
                                                        --------    --------    --------
                                                           4,521       5,745      21,451

Income from operations                                     4,390       4,533       9,541
Reversal of interest discount                                922       1,585       2,452
Interest expense                                            --           (46)     (2,740)
Interest, dividends and other income                          55          16       1,040
                                                        --------    --------    --------
Income before provision for income tax                     5,367       6,088      10,293
Provision for income taxes                                 2,522       2,862       4,879
                                                        --------    --------    --------
Net income                                              $  2,845    $  3,226    $  5,414
                                                        ========    ========    ========

Primary net income per share                            $   0.95    $   1.08    $   0.68
                                                        ========    ========    ========

Weighted average number of shares outstanding              2,981       2,981       8,008
                                                        ========    ========    ========

Fully diluted net income per share                           N/A         N/A      $ 0.66
                                                        ========    ========    ========
Fully diluted weighted average
 number of shares outstanding                                N/A         N/A      10,087
                                                        ========    ========    ========




               The accompanying notes are an integral part of the
                       consolidated financial statements.


                                      F-3





                            COMPLETE MANAGEMENT, INC.
                 Consolidated Statements of Stockholders' Equity
                        (In thousands, except share data)



                                                                                     Unrealized (loss)
                                                                                      on marketable
                                                    Preferred    Common    Paid-in   securities avail-   Retained
                                                      Stock      Stock      Capital    able for sale     Earnings      Total
                                                      -----      -----      -------    -------------     --------      -----
                                                                                                     

Balance at December 31, 1993                          $ --      $      3   $    --       $   --        $ 1,006     $ 1,009

Net income for the year ended December 31, 1994         --          --          --           --          2,845       2,845
                                                      ------    --------   ---------     --------     --------    -------- 

Balance at December 31, 1994                            --             3        --           --          3,851       3,854

Issuance of 27,778 shares of common stock at
   $.001 par value to secured lenders                   --          --           250         --           --           250

Net income for the year ended December 31, 1995          --          --          --           --          3,226       3,226
                                                      ------    --------   ---------     --------     --------    -------- 

Balance at December 31, 1995                            --             3         250         --          7,077       7,330

Issuance of 2,000,000 shares of common stock
   at $.001 par value, net of registration cost         --             2      14,392         --           --        14,394

Issuance of 2,457,725 shares of common stock
   at $.001 par value, for MMI Merger                   --             2      14,784         --           --        14,786

Issuancc of 525,637 shares of common stock at
   $.001 par value for various acquisitions             --             1       4,875         --           --         4,876

Issuance of 2,000,000 shares of common stock
   at $.001 par value, net of registration cost         --             2      23,864         --           --        23,866

Unrealized loss on marketable securities                --          --          --           (267)        --          (267)

Cost of options associated with issuance of             --          --           105         --           --           105

Net income for the year ended December 31, 1996         --          --          --           --          5,414       5,414
                                                      ------    --------   ---------     --------     --------    -------- 
Balance at December 31, 1996                          $ --      $     10    $ 58,270     $   (267)    $ 12,491    $ 70,504
                                                      ======    ========    ========     ========     ========    ========

     
               The accompanying notes are an integral part of the
                       consolidated financial statements.


                                      F-4



                           COMPLETE MANAGEMENT, INC.
                     Consolidated Statements of Cash Flows
                                 (In thousands)



                                                                                             Years ended December 31,   
                                                                                             ------------------------  
                                                                                         1994         1995          1996
                                                                                         ----         ----          ----
                                                                                                            
Operating activities
Net income                                                                           $   2,845    $   3,227    $   5,414
Adjustments to reconcile net income to net cash provided by operating activities:
      Depreciation and amortization                                                         55          102        2,388
      Discount of accounts receivable net of amortization                                  822          431          286
      Recovery of reserve for uncollectible accounts receivable                             --           --         (486)
      Provision for deferred income taxes                                                2,523        2,862          277
      Amortization of prepaid insurance                                                     --           24           --
      Amortization of original issue discount                                               --           13          238
      Changes in operating assets and liabilities:
           Notes receivable from a related party                                            --           --       (1,488)
           Accounts receivable                                                          (6,536)      (7,636)     (27,099)
           Prepaid expenses and other current assets                                         1           --         (790)
           Accounts payable and accrued expenses                                           403        1,946       (1,889)
           Income taxes payable                                                             (1)          (1)       4,820
           Other assets                                                                     (1)          (1)         (45)
           Deferred rent                                                                    --          121           68
                                                                                          ----         ----      -------
Net cash provided by operating activities                                                  111        1,088      (18,307)

Investing activities
Purchase of property and equipment                                                        (193)        (178)      (1,953)
Businesses acquired, net of cash received                                                   --           --       (5,528)
Purchase of marketable securities                                                           --           --     (102,903)
Proceeds from sales and maturities of marketable securities                                 --           --       70,666
Purchase of short-term investments                                                          --           --       (1,811)
                                                                                          ----         ----      -------
Net cash used in investing activities                                                     (193)        (178)     (41,529)
                                                                                          ----         ----      ------- 

Financing activities
Proceeds from issuance of common stock, net of
      underwriters' commission and expenses                                                 --           --       41,543
Payment of registration costs of common stock                                               --       (1,985)      (3,521)
Proceeds from issuance of subordinated debentures and
      notes, net of underwriters' commission and expenses                                   --        1,000       67,450
Deferred note issuance cost                                                                 --           --       (3,428)           
Repayment of notes payable                                                                  --           --       (1,444)
Repayment of long-term debt                                                                 --           --          (76)
Repayment of capital lease obligations                                                      --           --         (550)
Bank overdraft                                                                              82           75          --
                                                                                          ----         ----      ------- 
Net cash provided by (used in) financing activities                                         82         (910)      99,974
                                                                                          ----         ----      ------- 

Net increase (decrease) in cash                                                             --           --       40,138
Cash at the beginning of the period                                                         --           --          --
                                                                                          ----         ----      ------- 
Cash at the end of the period                                                            $  --        $  --      $40,138
                                                                                         =====         ====      ======= 

Supplemental disclosures of cash flow information
Cash paid during the year for:
      Interest                                                                           $  --        $  21       $1,406
      Taxes                                                                                 --           --          232

Non-cash financing activities:
      Capital stock issued for acquisitions                                              $  --        $ 250      $19,843
      Issuance of stock in cxchange for management agreement                                --           --        2,025




               The accompanying notes are an integral part of the
                       consolidated financial statements.



                                      F-5



                            COMPLETE MANAGEMENT, INC.
                   Notes to Consolidated Financial Statements
              For the years ended December 31, 1994, 1995 and 1996

1. DESCRIPTION OF BUSINESS

         Complete Management, Inc. (the "Company" or "CMI"), a New York
corporation, was incorporated on December 30, 1992, and commenced operations on
April 1, 1993. The Company had no operations from the time of its incorporation
through March 31, 1993. The Company provides comprehensive management services
primarily to high volume medical practices in New York State. The Company's
services include development, administration and leasing of medical offices and
equipment, staffing and supervision of non-medical personnel, accounting,
billing and collection, and development and implementation of practice growth
and marketing strategies.

         In April 1993, the Company commenced servicing its initial client,
Greater Metropolitan Medical Services, a multi-site medical practice in the New
York metropolitan area ( "GMMS"). GMMS is 95% owned by a physician stockholder
who is a neurologist and also founder and principal stockholder of the Company.
All of the Company's net revenues in 1994 and 1995 and approximately 65% in
1996, were earned under a management contract with GMMS and a substantial part
of the growth in the Company's business has been a direct result of comparable
growth of GMMS. With the acquisition of other physician management companies in
1996, together with additional similar acquisitions anticipated in the future,
the Company will continue to broaden its base of revenue generation.
Nevertheless, the Company expects that its relationship with GMMS will be a
dominant factor in its business for the foreseeable future. There is no
assurance however, that future relationships will produce similar results of
operations as currently experienced by the Company under this arrangement with
GMMS. The continued vitality of GMMS is subject to numerous risks, including its
continued ability to retain its key medical personnel, malpractice claims and
regulatory compliance (see Note 16 for additional related party information).

2. SIGNIFICANT ACCOUNTING POLICIES

         Principles of Consolidation and Preparation of Financial Statements

         The consolidated financial statements include the accounts of the
Company and its subsidiaries. All significant inter-company balances and
transactions have been eliminated in consolidation.

         The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

         Revenue Recognition

         Fee revenue is recognized based upon a contractual agreement for
management services rendered by the Company under various long-term agreements
with both GMMS and its other client medical practices (the "PC's"), with terms
ranging from 20 to 35 years. The Company's agreements with the PC's stipulate
fees for services rendered, are primarily calculated on a cost-plus basis,
including an allocation for Company-wide overhead, as in the case of personnel,
space, supplies, collections, etc., and/or activity based efforts at
pre-determined rates per unit of activity such as consulting. All fees are
re-negotiable at the second anniversary of the agreements and each year
thereafter and may be renewed for additional six-five year periods at the option
of either party (see Note 13).

         Due to the long-term collection cycle associated with assigned
receivables from GMMS (as described in Note 4), these receivables are discounted
using the Company's incremental borrowing rate and management's estimate of the
collection cycle.

         The following unaudited tabulation sets forth the operating results of
GMMS for the years ended December 31, 1994, 1995 and includes results for both
GMMS and other client practices for the year ended December 31, 1996. GMMS and
the other client practices are entities separate from the Company and the
amounts reflected below are not included in the results of operations of the
Company, or its subsidiaries except for the management fees related to general
medical services and diagnostic imaging.

                                      F-6

                            COMPLETE MANAGEMENT, INC.
                   Notes to Consolidated Financial Statements
              For the years ended December 31, 1994, 1995 and 1996


Unudited                                           Year Ended December 31,
- --------                                           -----------------------
(in thousands)                                  1994       1995        1996
                                                ----       ----        ----

Services rendered                            $ 22,236    $ 24,010    $ 48,167
Contractual allowances                         (2,746)     (2,340)     (2,676)
                                             --------    --------    --------
Net medical service fee                        19,490      21,670      45,491
Less expenses:
  Medical personnel payroll                     2,085       2,340       8,562
  Other                                           476         525       9,675
                                             --------    --------    --------
       Total expenses                           2,561       2,865      18,237
Owner physician payroll and entity income       1,082         522       1,889
                                             --------    --------    --------
Management fees                              $ 15,847    $ 18,283    $ 25,365
                                             ========    ========    ========
Fees to related party                          l0,654      12,294      21,463
Fees to non-related parties                     5,193       5,989       3,902
                                             --------    --------    --------
Total management fees                        $ 15,847    $ 18,283    $ 25,365
                                             ========    ========    ========

Relationship between the Company and the client medical practices (the
"practices"), (Unaudited)

         General

         The practices operations are limited to the following activities:
          1)   Rendering services to patients;
          2)   Payment of compensation to both the owner physician and other
               medical personnel; and
          3)   Payment of miscellaneous expenses incidental to the rendering of
               the medical service.

         As more fully discussed below, the Company's operations as they relate
to the practices include the following activities:

          1)   Patient scheduling, record transcription, non-clinical
               intake examination, and insurance verification;
          2)   Billing and collection for all patient medical services
               rendered;
          3)   Any other activity necessary to ensure the proper delivery
               of medical services; and
          4)   Marketing and expansion of the medical practice

         Economics

         Because the activities of the practices are limited to the rendering of
medical services, their principal asset is the accounts receivable due from
third party payors and/or patients (minimal services are paid for by the patient
at the time service is rendered). Further, substantially all of the non-clinical
activities of the practices, as defined by the management agreements, are
performed by the Company (whose activities are fully discussed above and
elsewhere in this annual report) and their principle liability is the amount due
to the owner physicians and other medical personnel for services and the fee due
under the management agreements.

         The above tabulation reflects those dynamics in that revenue generated
by GMMS in the amount of $22,236 and $24,010 for the years ended December 31,
1994 and 1995 and $48,167 which includes the additional practices for the year
ended December 31, 1996, have been allocated to the owner physicians, medical
personnel, other medical expenses and the management fee.

         Finally, due to the fact that the management fee is paid through an
assignment of the accounts receivable and the doctors' compensation is paid
currently, the practices cash flow is principally a pass through of cash
received for the delivery of services rendered and cost of those services.

         Financial Statements of the practices

         Audited financial statements have not been presented because management
believes that audited financial statements of the practices would not provide
any additional information that would be meaningful in the evaluation of the
Company's financial position, results of operations, and cash flows, because the
practices' balance sheets prepared on the accrual basis which include a 



                                      F-7

                            COMPLETE MANAGEMENT, INC.
                   Notes to Consolidated Financial Statements
              For the years ended December 31, 1994, 1995 and 1996

very limited amount of accounts receivable, and immaterial liabilities for
miscellaneous costs not paid due to the timing of cash flows. Further, their
statements of operations would reflect three components: revenues, compensation
to owner physicians and medical personnel and management fee which information
is presented in substantially that form in the above tabulation, and finally,
the practices as entities are merely conduits which distribute all cash for
compensation of the medical professionals.

         Depreciation and Amortization

         Medical equipment, office furniture and computer and telephone
equipment are depreciated on the straight-line basis over the estimated useful
lives of the assets (5 to 7 years). Leasehold improvements are amortized over
the shorter of the term of the lease or the life of the asset.

         Accounting for Impairments in Long-Lived Assets

         The Financial Accounting Standards Board ("FASB") has issued SFAS No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets Being Disposed Of," which the Company has adopted on January 1, 1996.
This statement requires that long-lived assets and identifiable intangibles be
reviewed for impairment whenever events or changes in circumstances indicate the
carrying amounts of the assets may not be recoverable. In evaluating
recoverability, the Company estimates the future cash flows expected to result
from the asset and its eventual disposition. If the sum of future undiscounted
cash flows is less than the carrying amount of the asset, an impairment loss is
recognized. No such loss was recognized in the December 31, 1996 financial
statements. The Company reviews its long-lived assets for impairment whenever
events or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable. In performing this review the Company estimates the
future cash flows expected to result from the use of the asset and its eventual
disposition.

         Excess of Purchase Price Over Net Assets of Business Acquired

         The excess of purchase price over net assets of business acquired
("goodwill") is amortized on a straight-line basis over a period of twenty
years. In accordance with SFAS No. 121 the carrying value of goodwill is
evaluated for impairment whenever events or changes in circumstances indicate
that the carrying amount may not be recoverable. The Company believes that no
material impairment of goodwill exists at December 31, 1996.

         Marketable Securities

         The Company accounts for marketable securities in accordance with the
provisions of Statement of Financial Accounting Standards No. 115, "Accounting
For Certain Investments in Debt and Equity Securities". Management determines
the appropriate classification of debt securities at the time of purchase and
reevaluates such designation as of each balance sheet date. Debt securities are
classified as held-to-maturity when the Company has the positive intent and
ability to hold the securities to maturity.

         Debt securities not classified as held-to-maturity are classified as
available-for-sale. Available-for-sale securities are stated at fair value, with
the unrealized gains and losses, net of tax effect, reported as a separate
component of stockholders' equity.

         The amortized cost of debt securities classified as held-to-maturity or
available-for-sale is adjusted for amortization of premiums and accretion of
discounts to maturity, or in the case of mortgage-backed securities, over the
estimated life of the security. Such amortization is included in interest income
from investments. Realized gains and losses, and declines in value judged to be
other-than-temporary are included in interest, dividends and other income. The 
cost of securities sold is based on the specific identification method

         Income Taxes

         Income taxes are determined under the liability method as required by
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes" ("SFAS 109"). Under SFAS 109, deferred tax assets and liabilities are
determined based upon differences between the financial reporting and the tax
basis of assets and liabilities.

         Stock Options

         In October 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("FAS No. 123"). This new standard defines a fair value based
method of accounting for an employee stock option or similar equity instrument.
This statement gives entities a choice of recognizing related compensation
expense by adopting the new fair value method or to continue to measure
compensation using the intrinsic value approach under Accounting Principles
Board Opinion No. 25 ("APB Opinion No. 25"), the former standard. If the former
standard for measurement is elected, SFAS No. 123 requires supplemental
disclosure to show the effects of using the new measurement criteria. This

                                      F-8


                            COMPLETE MANAGEMENT, INC.
                   Notes to Consolidated Financial Statements
              For the years ended December 31, 1994, 1995 and 1996

statement is effective for company's 1996 fiscal year. As a result of the
Company's intention to continue using the measurement prescribed by APB Opinion
No. 25, and provide the disclosure required by FAS No. 123, this pronouncement
will not affect the Company's financial position or results of operations.


         Earnings Per Share

         Net income per common share has been computed by dividing net income by
the weighted average number of shares of common stock and common stock
equivalents outstanding during the periods, retroactively adjusted to reflect
the stock split (see Note 5), and the issuance of shares in connection with the
secured notes (see Note 9). Such shares have been outstanding for all periods
presented.

         Reclassifications

         Certain amounts in the 1995 consolidated financial statements have been
reclassified to conform with the 1996 presentation.

         Management agreement

         Directly prior to the acquisition of Advanced Alliance Management Corp.
("AAMC"), in September 1996, the Company issued 3.5 shares to each of four
shareholders of Northern Metropolitan Radiology Associates ("NMRA") for a
nominal amount, and, entered into a formal 30 year management agreement with
NRMA. As a result of these series of transactions, approximately $2.0 million
has been assigned to the management agreement and will be amortized over a
period not to exceed 20 years. The value assigned to the management agreement is
based upon the fair value per share of the Company's outstanding common stock
based upon the acquisition price.


3. MARKETABLE SECURITIES AVAILABLE-FOR-SALE


Marketable securities available-for-sale at December 31, 1995 were $0 and at
December 31, 1996 were as follows:





                                                          Gross unrealized  
                                                          ----------------   Estimated
(in Thousands)                               Cost        Gains       Losses  fair value
- --------------                               ----        -----       ------  ----------

                                                                      
 Equity securities                         $  2,556         44    $   (234)   $ 2,366
 U.S. Treasury securities and obligations
     of U.S. Government agencies              7,203         32          (4)     7,231
 U.S. corporate debt securities               6,161          1         (86)     6,076
 Municipal debt securities                   16,813         --         (20)    16,793
                                           --------   --------    --------    -------
          Total                            $ 32,733   $     77    $   (344)   $32,466
                                           ========   ========    ========    =======

  

     The net effect of the unrealized gains and losses in the above table are
reflected in the balance sheet net of income tax.

     During the year ended December 31, 1996, the proceeds from the sale of
available-for-sale-securities was approximately $145,839,000. Gross realized
gains totaled $675,000 and gross realized losses totaled $1,131,000.

4. ACCOUNTS RECEIVABLES

         The Company takes ownership on a recourse basis of client receivables
generated by the PC medical practice from third-party payors with a net
collectible value equal to the then current management fee owed to the Company.
These third-party payors are billed at negotiated rates and are principally
insurance carriers. Payment from these sources generally have long collection
cycles. To the extent any receivables assigned to the Company are disputed
and/or referred to arbitration proceedings, such receivables are immediately
substituted under the recourse arrangements between the PC and the Company. In
the event that the laws and regulations establishing these third-party payors
are amended, rescinded or overturned with the effect of eliminating this system
of payment reimbursement for injured parties, the ability of the Company to
market its management services could be affected.

         Collection by the Company of its accounts receivable may be impaired by
the uncollectibility of medical fees from third-party payors. The PC is liable
to the Company for payment of its fees regardless of whether payment is received
for medical services. The Company has historically experienced delays in
collecting from third-party payors.




         Many third-party payors, particularly insurance carriers covering
automobile no-fault and workers' compensation claims refuse, as a matter of
business practice, to pay claims unless submitted to arbitration, and then
further defer payment until or near the date of a scheduled arbitration hearing,
generally not to exceed three years after the submission of a fully documented
medical claim. As a result of such delayed payment, the Company requires more
capital to finance its receivables than businesses with a shorter receivable
payment cycle. Further, third-party payors may reject medical claims if, in
their judgment, the procedures performed were not medically necessary or if the
charges exceed such payors allowable fee standards. Finally, the application
forms required by third-party payors for payment of claims are long, detailed
and complex and payments may be delayed or refused unless such forms are
properly completed. Nevertheless, although the Company takes all legally
available steps, including legally prescribed arbitration to collect the
receivables generated by the PC, there is a risk that some of those receivables
may not be collected which may impede the ability of the PC to pay in full all
amounts owed by them to the Company. Accordingly, the




                                      F-9

                            COMPLETE MANAGEMENT, INC.
                   Notes to Consolidated Financial Statements
              For the years ended December 31, 1994, 1995 and 1996

collection cycle tends to be long-term in nature. The Company assesses the
recoverability of its accounts receivable at a minimum, but no less than,
quarterly, and may, on a calendar quarter basis, exchange receivables, at its
sole discretion, without limitations or conditions which it deems uncollectible
within a period of time, for newly generated receivables. The Company has not
had to exercise such option with respect to any receivables assigned to it for
periods ended December 31, 1994, 1995 and 1996.

         Periodically, the Company reviews all third-party payor receivables
prior to acceptance for payment of its fee in order to determine those amounts
that are potentially impaired as a result of disputes, billing differences and
length of time outstanding. Those amounts deemed to be impaired are subtracted
from the total third-party payor receivables that are available for payment to
the Company. This factor along with the fact that the PC assigns its receivables
to the Company on a full recourse basis in payment of its fees indicates that
recognition for bad debts are not required.

         Management has determined, based on actual results and industry factors
that these receivables have a collection cycle of approximately three to four
years, and accordingly, have been reflected in the accompanying financial
statements on a discounted basis (7.25% per annum, which is management's
estimate of its incremental borrowing rate for the year ended December 31,
1996). Management believes that its experience and that of the Company is a good
indication of the timing of the collection process. Because numerous factors
affect the timing and the manner in which these receivables are collected (i.e.,
government regulations, etc.) it is the Company's policy to periodically assess
the collection of its receivables. As a result, the Company's estimate of its
incremental borrowing rate and collection period may change.

5. INTANGIBLE ASSETS



                                                                          December 31,
                                                                   ---------------------------
                                                                         (in thousands)
                                                                       1995            1996
                                                                   -----------      ----------
                                                                                    
          Excess of purchase price over net assets acquired              -          $ 19,451
          Management agreement                                           -             2,655
                                                                   -----------      ----------
                                                                         -            22,106
          Less: accumulated amortization                                 -               567
                                                                   ===========      ==========
                                                                         -          $ 21,539
                                                                   ===========      ==========


6. STOCKHOLDERS' EQUITY

         Re-capitalization

         In January 1996, the Company completed an initial public offering of
2,000,000 common shares at $9.00 per share and received net proceeds of
$13,480,000. Costs incurred with respect to the registration of the common
shares in addition to the underwriter's commission and expenses including
repayment of the Notes were $3,520,000. In addition, the Company sold to the IPO
Representatives, or their designee,, at a price of $.001 per Warrant, 200,000
IPO Representatives' Warrants entitling the holders thereof to purchase 200,000
common shares of the Company at a purchase price of $10.80 per share for a
period of four years commencing one year from the date of the IPO.

         On January 3, 1996, the Company completed the merger of MMI into a
wholly-owned subsidiary of CMI. The terms of the MMI Merger provided that MMI
shareholders receive .778 CMI Common Shares for each MMI common share which they
held based upon an IPO price of $9.00 per Common Share. The holders of
outstanding options to purchase MMI common shares received 93,281 CMI Common
Shares based upon the difference between their aggregate option exercise prices
and the value thereof at $7.00 per share divided by the IPO price. In January
1996, the Company issued 2,457,725 Common Shares to effect the merger, including
shares issued in satisfaction of outstanding options and warrants to purchase
MMI shares. The excess of purchase price over net assets acquired (goodwill) of
$8,580,000 as a result of the acquisition of MMI will be amortized on a
straight-line basis over a period of twenty years.




         In July, October and November, 1996, the Company completed the mergers
of two medical billing companies and four physician practice management
companies into wholly-owned subsidiaries of CMI. The Company issued 525,637
Common Shares to effect these mergers.

         On December 5, 1996, the Company issued 2,000,000 common shares at
$13.75 per share and received net proceeds of $23,864,000. In connection with
this offering, the Company has agreed to sell to the Representatives, for
nominal consideration, warrants (the "Representatives' Warrants") to purchase up
to 356,250 Common Shares at a price of $23.30625 per share. The Representatives'
Warrants are exercisable for a period of four years commencing December 5, 1997.
The Representatives' Warrants provide for reductions, which in certain
circumstances could be material, in the exercise price of the Representatives'
Warrants upon the occurrence of certain events, including the issuance by the
Company of Common Shares for a price below the market price of the Common
Shares, and corresponding potentially significant increases in the number of
shares purchasable upon exercise of the Representatives' 



                                      F-10


                            COMPLETE MANAGEMENT, INC.
                   Notes to Consolidated Financial Statements
              For the years ended December 31, 1994, 1995 and 1996

Warrants. The Representatives' Warrants also provide for adjustment of the type
of securities issuable upon exercise of the Representatives' Warrants to reflect
changes in the Common Shares. The Representatives' Warrants grant to the holders
thereof certain `rights with respect to the registration under the Securities
Act of the securities issuable upon exercise of the Representatives' Warrants.

         Stock Option Plan

         In May 1995, the Company adopted the 1995 Stock Option Plan (the
"Plan") covering up to 700,000 shares of the Company's common stock, pursuant to
which, officers, directors and key employees of the Company and consultants to
the Company are eligible to receive incentive and/or non-incentive stock
options. The Plan, which expires on May 14, 2005, will be administered by the
Board of Directors of the Company or a committee designated by them. Incentive
stock options granted under the Plan are exercisable for a period of up to ten
years from the date of the grant, at an exercise price not less than the fair
market value at the date of the grant, except that the term of the incentive
options granted under the Plan to a stockholder owning more than 10% of the
outstanding common stock of the Company may not exceed five years. The Company
accounts for these plans under APB Opinion No. 25, under which no compensation
cost has been recognized. Had compensation cost for these plans been determined
consistent with FASB Statement No. 123, the Company's net income and earnings
per share would have been reduced to the following pro forma amounts:


                                                                                       1996
                                                                                  ----------------
                                                                                        
                    Net income:                        As Reported                   $ 5,414
                                                       Pro Forma                       3,397
                    Primary EPS:                       As Reported                      0.68
                                                       Pro Forma                        0.42
                    Fully diluted EPS:                 As Reported                      0.66
                                                       Pro Forma                       $0.46


         No options have been issued or granted for periods prior to 1996 and as
a result the Statement 123 method of accounting has not been applied for those
periods. The resulting pro forma compensation cost may not be representative of
that to be expected in future years.

         A summary of the status of the Company's stock option plan at December
31, 1996 and changes during the year then ended is presented in the table and
narrative below:



                                                                                          Weighted average
                                                                     000's options         exercise price
                                                                   ----------------     --------------------
                                                                                                  
                  Outstanding at beginning of year                               -                        -
                  Granted                                                    1,166                  $9.7171
                  Exercised                                                     (4)                   8.375
                  Cancelled                                                    (28)                   8.375
                  Expired                                                        -                        -
                                                                   ----------------     --------------------
                  Outstanding at end of year                                 1,134                    9.755
                  Exercisable at end of year                                   381                    9.743

                  Weighted average fair value of options granted       $ 3,808,000



         At December 31, 1996, all of the 1,134,000 options outstanding have an
exercise price between $8.375 and $15.75 and a weighted average remaining
contractual life of 7.5 years. 

         The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option pricing model with the following weighted-average
assumptions used for grants in 1996: risk-free interest rates of 6.4 percent;
expected dividend yields of 3.65 percent; expected lives of 6.1 years; expected
stock price volatility of 34 percent.



                                      F-11


                            COMPLETE MANAGEMENT, INC.
                   Notes to Consolidated Financial Statements
              For the years ended December 31, 1994, 1995 and 1996


7. PROPERTY AND EQUIPMENT

         Property and equipment consist of the following:


                                          December 31,
                                     --------------------
                                         1995        1996
                                         ----        ----
Medical equipment                    $     84    $  5,032
Leasehold improvements                    169       2,484
Office furniture                          140       1,140
Computer and telephone equipment          157       1,349
Motor vehicle                              23          23
                                     --------    --------
                                          573      10,028
Less: accumulated depreciation and
amortization                             (173)     (2,936)
                                     --------    --------
Net property and equipment           $    400    $  7,092
                                     ========    ========



8. ACCOUNTS PAYABLE AND ACCRUED EXPENSES

         Accounts payable and accrued expenses consist of the following:



                                                                 December 31,
                                                              -----------------
                                                               1995        1996
                                                               ----        ----

Accounts payable                                              $  933      $1,601
Accruals and other current liabilities                         1,532       2,641
Due to affiliate                                                 131        --
Bank overdraft                                                   220        --
                                                              ------      ------
   Total accounts payable and accrued expense $                2,816      $4,242
                                                              ======      ======

9. NOTES PAYABLE

         In September and October 1995, the Company borrowed an aggregate of
$1,000,000 secured by all assets of the Company from three lenders (the "Secured
Lenders"). The Borrowings were due on the earlier of the consummation of the
Initial Public Offering ("IPO") or five years following their issuance and bore
interest at rates ranging from 12% to 14% per annum. The Company issued 27,778
common shares with an aggregate value of $250,000 and paid $52,000 of other fees
in connection with these borrowings. The unamortized portion of the discount of
approximately $238,000 at December 31, 1995 is classified as prepaid and other
current assets on the accompanying balance sheet. The loans were paid in full in
January 1996 from the proceeds of the IPO.

         In March 1996, the Company sold $2,000,000 of Convertible Subordinated
Notes (the "Notes") and in July, 1996 a further $3,000,000 of such Notes to
accredited investors. The Notes bear interest at 8%, payable quarterly. The
entire principal is due five years from the date of issuance. Holders of the
Notes may convert all or any portion into common shares of the Company at $9.00
per share, subject to adjustment for stock splits, dividends, re-capitalization,
etc. Under certain circumstances, such as a change in control, holders of the
Notes may require the Company to redeem the Notes at 125% of the original
principal amount. The Notes are subordinate in right of payment to certain
future indebtedness which may be incurred by the Company.




                                      F-12

                            COMPLETE MANAGEMENT, INC.
                   Notes to Consolidated Financial Statements
              For the years ended December 31, 1994, 1995 and 1996


10. LONG-TERM DEBT AND CONVERTIBLE SUBORDINATED DEBENTURES

         On June 5, 1996, the Company issued $40,250,000 face amount of First
Series Convertible Subordinated Debentures ("First Series Debentures"). The
First Series Debentures bear interest at the rate of 8% per annum payable on
August 15 and February 15 of each year until the First Series Debentures are
paid in full. Holders of the First Series Debentures may convert all or any
portion of the principal amount thereof into Common Shares of the Company at an
initial conversion price of $14.00 per share, subject to adjustment for stock
splits, dividends, re-capitalization and certain other capital changes. The
First Series Debentures are not redeemable prior to June 5, 1999. Thereafter,
the First Series Debentures are redeemable in whole or in part, from time to
time, at the option of the Company, at a redemption price equal to 100% of the
principal amount thereof plus accrued interest, provided that the First Series
Debentures may not be redeemed prior to maturity unless for the 20 consecutive
trading days prior to the date of notice of such redemption, the Closing Price
(as defined) has equaled or exceeded $19.125, subject to adjustment in certain
events. In the event that a Repurchase Event (as defined) occurs, subject to
certain conditions, each holder of a First Series Debenture shall have the right
to require the Company to purchase all or any part of such holder's First Series
Debentures at 100% of the principal amount thereof plus accrued interest.

         On December 5, 1996, the Company issued $28,750,000 face amount of
Second Series Convertible Subordinated Debentures ("Second Series Debentures").
The Second Series Debentures bear interest at the rate of 8% per annum payable
on June 15 and December 15 of each year until the Second Series Debentures are
paid in full. Holders of the Second Series Debentures may convert all or any
portion of the principal amount thereof into common shares of the Company at an
initial conversion price of $16.00 per share, subject to adjustment for stock
splits, dividends, re-capitalization and certain other capital changes. The
Second Series Debentures are not redeemable prior to December 5, 1999.
Thereafter, the Second Series Convertible are redeemable in whole or in part,
from time to time, at the option of the Company, at a redemption price equal to
100% of the principal amount thereof plus accrued interest, provided that the
Second Series Debentures may not be redeemed prior to maturity unless for the 20
consecutive trading days prior to the date of notice of such redemption, the
Closing Price (as defined) has equaled or exceeded $21.1875, subject to
adjustment in certain events. In the event that a Repurchase Event (as defined)
occurs, subject to certain conditions, each holder of a Second Series Debenture
shall have the right to require the Company to purchase all or any part of such
holder's Second Series Debentures at 100% of the principal amount thereof plus
accrued interest.




                                      F-13

                            COMPLETE MANAGEMENT, INC.
                   Notes to Consolidated Financial Statements
              For the years ended December 31, 1994, 1995 and 1996




Long-term debt consists of the following:



                                                                     1995       1996
                                                                     ----       ----

                                                                            
First Series 8% Convertible Subordinated Debentures, due  
 August 15, 2003                                                    $  --     $40,250

Second Series 8% Convertible Subordinated Debentures, due   
 December 15, 2003                                                     --      28,750                                               

8% Convertible Subordinated Notes, due March 20, 2001                  --       5,000

Interest-free note payable to a PC on the acquisition of Advanced
 Alliance Management Company, repaid in full in January, 1997          --         325

Various notes payable with interest rates ranging from 5.45% to
 9.75% and due dates ranging from September, 1997 through
 July, 2001                                                             318       473
                                                                    -------   -------
                                                                        318    74,798
Less: current portion                                                    89       543
                                                                    -------   -------
  Total Long-term debt and Convertible Subordinated Debentures      $   229   $74,255
                                                                    =======   =======

At December 31, 1996, future payments for Iong-term debt were    
       approximately as follows for the years ended December 31:
                 1997                                                         $   543
                 1998                                                             147
                 1999                                                              43
                 2000                                                              42
                 2001                                                           5,023
                 Thereafter                                                    69,000
                                                                             --------
                                                                             $ 74,798
                                                                             ========

11. REVENUES

         Revenue consists of the following:



                                                          Year ended December 31
                                                   ------------------------------------
                                                       1994         1995          1996
                                                   ---------    ---------    ----------
                                                                          
           From related parties                      10,654       12,294        21,463
           Other revenue                                  -            -        11,695
                                                   =========    =========    ==========
              Total                                  10,654       12,294        33,158
                                                   =========    =========    ==========




12. COST OF REVENUES

         Cost of revenue consists of the following:

                                                     Years ended December 31,
                                                     ------------------------
                                                 1994         1995         1996
                                                 ----         ----         ----

Compensation/temporary help                    $ 1,397      $ 1,954        6,463
Equipment                                          180          135          650
Medical supplies                                   111           85          412
Rent                                              --           --            831
Depreciation                                        11           13        1,110
Other                                              250          584        2,842
                                               -------      -------      -------
    Total cost of revenue                      $ 1,949      $ 2,771      $12,308
                                               =======      =======      =======




                                      F-14


                            COMPLETE MANAGEMENT, INC.
                   Notes to Consolidated Financial Statements
              For the years ended December 31, 1994, 1995 and 1996


13. FEES PAID TO RELATED PARTIES

         Fees paid to related parties are included in General and administrative
         expenses and for the years ended December 31, 1994, 1995 and 1996 were
         $197,000, $110,000 and $0, respectively.

14. INTEREST, DIVIDEND AND OTHER INCOME

Interest, dividends and other income consists of the following:

                                                       Year ended December 31,
                                                       ----------------------
                                                    1994         1995      1996
                                                    ----         ----      ----
Interest and dividend income                         --          --       1,453
Realized loss on marketable securities                                     (456)
Other income                                           55          16        43
                                                    -----       -----        --
   Total                                               55          16     1,040
                                                    =====       =====      =====


15. INCOME TAXES

         The provision for income taxes on income for the years ended December
31, 1994, 1995 and 1996, differs from the amount computed by applying the
federal statutory rate due to the following:



                                                     Years ended December 31,
                                                     -----------------------
(in percentages)                                      1994     1995     1996
- ----------------                                      ----     ----     ----

Statutory federal incorne tax rate                     34.0     34.0     34.0
State and local taxes, net of federal benefit          12.9     12.9     10.5
Other                                                   0.1      0.1      2.9
                                                     ------    -----    -----
        Total                                          47.0     47.0     47.4
                                                     ------    -----    -----

                                                     
                                                  Years ended December 31,
                                                  ------------------------
                                            1994           1995          1996
                                            ----           ----          ----
Current:
       Federal                            $    (7)       $   (70)       $(2,365)
       State and local                          6             13         (1,969)
                                          -------        -------        -------
                                                1            (57)        (4,334)
                                          -------        -------        -------
Deferred:
       Federal                              1,544          1,780          5,513
       State and local                        979          1,139          3,700
                                          -------        -------        -------
                                            2,523          2,919          9,213
                                          -------        -------        -------
              Total                       $ 2,522        $ 2,862        $ 4,879
                                          -------        -------        -------


                                      F-15


                            COMPLETE MANAGEMENT, INC.
                   Notes to Consolidated Financial Statements
              For the years ended December 31, 1994, 1995 and 1996

         Deferred income taxes are the result of temporary differences between
the carrying amounts of assets and liabilities on the accrual basis used for
financial statement reporting purposes and the cash basis used for income tax
reporting, primarily accounts receivable at December 31, 1995 and 1996. The
classification of deferred income taxes has been determined based upon the
collection cycle of accounts receivable estimated to be approximately three to
four years. Accordingly, deferred income tax liabilities have been accrued at
the effective tax rate of 47.4%. The Company has cumulative net operating loss
carryforwards of approximately $9.5 million which will begin to expire in 2011,
unless utilized or limited. The following sets forth the components of
deferred tax liabilities.

                                                        Years Ended December 31,
                                                       ------------------------
        (In thousands)                                    1995          19966
        --------------                                    ----          -----

Current:
    Accounts receivable                                $  3,118    $  7,983
    Less: Discount                                         (614)       (721)
    Prepaid and others                                       --         242
    Accounts payable                                       (642)     (1,360)
    Original issue discount                                  (6)         --
    Net operating loss carry forward                        (56)     (4,928)
                                                       --------    --------
                                                          1,800       1,216
    Less: conversion to accrual reporting for 
     tax purpose                                             --         (51)
                                                       --------    --------
        Total current liability                           1,800       1,165
                                                       --------    --------

Non-current:
    Accounts receivable                                   4,777      12,520
    Less: Discount                                         (284)       (278)
    Deferred rent                                           (57)        156
                                                       --------    --------
                                                          4,436      12,398
    Less: conversion to accrual reporting for 
      tax purpose                                          --        (3,014)
                                                       --------    --------
         Total non-current liability                      4,436       9,292
                                                       --------    --------

         The Complete Management, Inc. ("CMI") and one of its subsidiaries
Medical Management, Inc. ("MMI") currently utilize the cash basis method of
accounting for tax reporting purposes. This method allows CMI and MMI to defer
recognition on income for tax purposes until the actual collection of cash.
Beginning with calendar year 1997, the Company will be required to change to the
accrual method of accounting for tax purposes. As a result of this change CMI
and MMI will be unable to defer payment of taxes on reported income earned in
1997 and beyond. The tax relating to untaxed accrual basis income at December
31, 1996 will be payable over a four year period beginning in 1997.

15. COMMITMENTS AND CONTINGENCIES

         The Company leases various medical and office equipment ranging in
terms from one to five years, the last to expire in May, 2001. Equipment rental
expense amounted to approximately $141,000, $126,000 and $1,167,000
respectively, for the years ended December 31, 1994, 1995 and 1996.

         The Company leases twenty three offices in the New York metropolitan
area with remaining terms ranging from two months to approximately ten years,
the last to expire in February, 2007. The leases generally require the Company
to pay for increases in real estate taxes and operating costs in addition to
minimum rentals. Rent expense recorded on a straight-line basis is over the full
terms of the leases, and was approximately $356,000, $603,000 and $864,000
respectively, for the years ended December 31, 1994, 1995 and 1996.

         Future minimum lease payments under the above leases, excluding real
estate taxes and operating cost escalations, are as follows:

                 Years ending December 31,
                 In thousands
                 ------------

                  1997                                           $1,472
                  1998                                            1,242
                  1999                                              965
                  2000                                              957
                  2001                                              805
                  Thereafter                                      2,841
                                                              ----------
                  Total future minimum lease payments             $8,282
                                                              ==========

                                      F-16

                            COMPLETE MANAGEMENT, INC.
                   Notes to Consolidated Financial Statements
              For the years ended December 31, 1994, 1995 and 1996


         During the latter part of 1995 and early 1996 the Company entered into
a series of employment agreements with its Chief Executive Officer and certain
other officers and key employees. The agreements have a term of approximately 3
years expiring in 1999 with an aggregate annual compensation of approximately
$1,500,000. In addition and in connection with the execution of these
agreements, the Company granted approximately 325,000 options to purchase
515,000 shares at the then fair market value, certain of which are subject to
shareholder approval.

         As of December 8, 1995 an Omnibus Settlement Agreement (the "Settlement
Agreement") was entered into among CMI, MMI, Steven Rabinovici, David Jacaruso,
Dennis Shields, Dr. Lawrence Shields, (the "Interested Shareholders") and Gail
Shields ("Ms. Shields"), the former wife of Dr. Lawrence Shields. Under the
terms of the Settlement Agreement, as revised on December 21, 1995, CMI arranged
for the sale of 117,187 MMI common shares owned by Ms. Shields at a net price to
Ms. Shields of $5.50 per share and obtained Ms. Shields' release as the maker of
a promissory note for a bank loan whose proceeds were used by GMMS (which has
previously been satisfied by GMMS) and as lessee of certain premises occupied by
GMMS, which lease has been assigned to CMI. There was no material impact on the
financial statements of CMI or MMI as a result of the foregoing settlement.

16. RELATED PARTY TRANSACTIONS

         Since the commencement of operations all of the Company's revenue was
received from GMMS, a medical practice which is 95% owned by a neurologist who
is also a founder and principal stockholder in the Company. The loss of this
customer or the curtailment of its practice as a result of the death or
disability of its principal stockholder, could have a material adverse effect on
the Company's results of operations. The Company is the beneficiary of key-man
life insurance policies aggregating $10,000,000 insuring the life of the
principal stockholder of GMMS.

         Amounts due to an affiliate of approximately $88,000 and $131,000 at
December 31, 1994 and 1995 respectively, consist primarily of cash advances made
by the affiliate to the Company and are included in accounts payable and accrued
expenses as they are due on demand.

         During 1994, 1995 and 1996 the Company paid, to a related party, all
real estate and other costs for an office occupied by GMMS. These costs were
approximately $9,000 per year.

         In connection with management services provided to GMMS, the Company
has informal arrangements with three stockholders and an unrelated third party
under which they act as general financial advisors on matters pertaining to the
business and operations of the Company. Consulting fees for the years ended
December 31, 1994, 1995 and 1996 amounted to approximately $313,000 ($200,000 to
the related parties), $193,000 ($110,000 to the related parties), and $0
respectively.

17. GOVERNMENT REGULATION

         The health-care industry is highly regulated by numerous laws,
regulations, approvals and licensing requirements at the federal, state and
local levels. Regulatory authorities have very broad discretion to interpret and
enforce these laws and promulgate corresponding regulation. The Company believes
that its operations under agreements pursuant to which it is currently providing
services are in material compliance with these laws and regulations. However,
there can be no assurance that a court or regulatory authority will not
determine that the Company's operations (including arrangements with new or
existing clients) violate applicable laws or regulations. If the Company's
interpretation of the relevant laws and regulations is inaccurate, the Company's
business and its prospects could be materially and adversely affected. The
following are among the laws and regulations that affect the Company's
operations and development activities: corporate practice of medicine; fee
splitting; anti-referral laws; anti-kickback laws; certificates of need;
regulation of diagnostic imaging; no-fault insurance; worker's compensation; and
proposed healthcare reform legislation

                                      F-17

                            COMPLETE MANAGEMENT, INC.
                   Notes to Consolidated Financial Statements
              For the years ended December 31, 1994, 1995 and 1996


18.   ACQUISITIONS

     On January 3, 1996, the Company completed the merger of MMI (the "MMI
Merger"), into a wholly-owned subsidiary of CMI. The Company issued 2,457,725
common shares to effect the merger, including shares issued in satisfaction of
outstanding options and warrants to purchase MMI shares. The excess of purchase
price over net assets acquired (goodwill) of approximately $8,580,000 as a
result of the acquisition of MMI will be amortized on a straight-line basis over
a period of twenty years.

     In July, 1996, the Company completed the mergers of two medical billing
companies into a wholly-owned subsidiary of CMI. The Company issued 88,888
common shares to effect these mergers, together with cash payments of
$1,200,000. The excess of purchase price over net assets acquired (goodwill) of
approximately $1,460,000 as a result of the acquisition will be amortized on a
straight-line basis over a period of twenty years.

     In August and November, 1996, the Company completed the mergers of three
physician practice management companies into wholly-owned subsidiaries of CMI.
The Company issued 98,500 common shares to effect these mergers, together with
cash payments of approximately $1,356,000. The excess of purchase price over net
assets acquired (goodwill) of $2,395,000 as a result of the acquisitions will be
amortized on a straight-line basis over a period of twenty years.

     In October, 1996, the Company completed the merger of a physician practice
management company into a wholly-owned subsidiary of CMI. The Company issued
338,249 common shares to effect these mergers, together with cash payments of
approximately $4,898,000. The excess of purchase price over net assets acquired
(goodwill) of $7,016,000 as a result of the acquisition will be amortized on a
straight-line basis over a period of twenty years.

     The issues of common shares referred to above (except those issued in
conjunction with the acquisition of MMI) were valued at their then fair market
value, which was determined by independent appraisal to be approximately 65% of
the average market price during the five days immediately prior to the related
acquisitions.

     The following table summarizes selected unaudited pro forma financial data
for the year ended December 31, 1995. The amounts shown have been prepared to
illustrate the effect of the consummation of the acquisitions as if the
transactions had taken place on January 1, 1995.



         Statement of income                                        
         (in thousands, except per share data)                      Unaudited Pro Forma Combined 
                                                                   -------------------------------
                                                                            1995             1996
                                                                   --------------    -------------
                                                                                        
         Revenues                                                         29,335           40,869
         Net income                                                        3,404            4,349
         Primary net income per share                                      $0.43            $0.54



19. SUBSEQUENT EVENTS

         On January 31, 1997, the Company paid $910,000 to acquire certain
accounts receivable and $75,000 for certain equipment and inventory from
Emergimed P.C. ("Emergimed"), and loaned $6,925,000 to the Kenneth S. Schwarz,
P.C. ("the PC") which has a practice management services agreement with the
Company. The loan was for the purpose of the PC acquiring the goodwill and
medical practice of Emergimed, a seven physician multi-specialty medical
practice in Cliffside Park, New Jersey.


                                      F-18

EX-10

                                                                   


         Employment agreement between the Company and Joseph M. Scotti


                              EMPLOYMENT AGREEMENT

         EMPLOYMENT AGREEMENT, dated as of January 3, 1996 between JOSEPH M.
SCOTTI (the "Executive") and COMPLETE MANAGEMENT, INC., a New York corporation
(the "Company").

         WHEREAS, the Executive is presently employed by the Company and/or by
MEDICAL MANAGEMENT, INC. ("MMI"); and

         WHEREAS, the Company, MMI, and CMI Acquisition Corporation, a wholly
owned subsidiary of the Company, have merged under which MMI is a wholly owned
subsidiary of CMI (the "Merger"); and

         WHEREAS, the Executive is willing to enter into an agreement with the
Company upon the terms and conditions herein set forth.

         NOW, THEREFORE, in consideration of the premises and covenants herein
contained, the parties hereto agree as follows:

         1. Term of Agreement. Subject to the terms and conditions hereof, the
term of employment of the Executive under this Employment Agreement shall be for
the period commencing on the effective date of the Merger (the "Commencement
Date") and terminating on December 31, 1999, unless sooner terminated as
provided in accordance with the provisions of Section 6 hereof or extended in
accordance with the provisions of Section 6 hereof. (Such term of employment is
herein sometimes called the "Employment Term".)        

         2. Employment. As of the Commencement Date, the Company hereby agrees
to employ the Executive as Vice President and Chief Financial Officer and the
Executive hereby accepts such employment and agrees to perform his duties and
responsibilities hereunder in accordance with the terms and conditions
hereinafter set forth.  

         3. Duties and Responsibilities. Executive shall be Vice President and
Chief Financial Officer of the Company during the Employment Term. Executive
shall report to and be subject to the direction of the Chief Executive Officer
and shall perform such duties consistent with his title and position as may be
assigned to him from time to time by the Chief Executive Officer. During the
Employment Term, Executive shall devote his full time, skill, energy and
attention to the business of the Company and shall perform his duties in a
diligent, trustworthy, loyal and businesslike manner.          

         4. Compensation. The Company shall pay to Executive a salary at the
rate of $175,000 per year payable in such manner as it shall determine, but in
no event any less often than monthly, less withholding required by law and other
deductions agreed to by Executive.
   
         5. Expenses and Benefits.

               (a) The Company shall, consistent with its policy of reporting
and reimbursement of business expenses, reimburse Executive for such ordinary
and necessary business related expenses as shall be incurred by Executive in the
course of the performance of his duties under this Agreement.







               (b) Executive shall be eligible to participate to the extent that
he qualifies in all benefit plans, including without limitation, pension, term
life insurance, hospitalization, medical insurance and disability plans as are
made available from time to time to executives of the Company.

               (c) Executive shall be entitled to three weeks of paid vacation
annually, which shall be taken in accordance with the procedures of the Company
in effect from time-to-time.

      6.  Termination.

               (a) The Company shall have the right to terminate the employment
of the Executive under this Agreement for disability in the event Executive
suffers an injury, illness or incapacity of such character as to substantially
disable him form performing his duties hereunder for a period of more one
hundred eighty (180) consecutive days upon the Company giving at least thirty
(30) days written notice of termination; provided, however, that if the
Executive is eligible to receive disability payments pursuant to a disability
insurance policy paid for by the Company, the Executive shall assign such
benefits to the Company for all periods as to which he is receiving full payment
under this Agreement.

               (b) This Agreement shall terminate upon the death of the
Executive.

               (c) The Company may terminate this Agreement at any time
because of (i) Executive's material breach of any term of this Agreement or (ii)
the willful engaging by the Executive in misconduct which is materially
injurious to the Company, monetarily or otherwise; provided, in each case,
however, that the Company shall not terminate this Agreement pursuant to this
Section 6(c) unless the Company shall first have delivered to the Executive a
notice which specifically identifies such breach or misconduct and the Executive
shall not have cured the same within fifteen (15) days after receipt of such
notice.

               (d) The Executive may terminate his employment for "Good
Reason" if:

                  (i) he is assigned, without his express written consent, any
duties inconsistent with his positions, duties, responsibilities, authority and
status with the Company as of the date hereof, or a change in his reporting
responsibilities or titles as in effect as of the date hereof, except in
connection with the termination of his employment by him without Good Reason; or

                  (ii) his compensation is reduced.

         7. Liquidated Damages. It is understood that if (i) the Executive shall
elect to terminate his employment for a Good Reason (as defined above) or (ii)
his employment is terminated by the Company otherwise than as provided in
Section 6, the Executive will suffer damages which will be difficult to
calculate. Consequently, in the event of a termination of Executive's employment
for either of these reasons, Executive shall be entitled by way of liquidated
damages and not as a penalty to receive a single lump sum payment in an amount
equal to the amount of the compensation payments that, but for his termination
of employment under this Section 7, would have been payable to the Executive for
the remainder of the Employment Term.

         Such payment shall be made by the Company to the Executive within
fifteen (15) days following his termination of employment for the reason set
forth in this Section 7. The Executive shall not be required to mitigate the



amount of any payment provided in this Section 7 nor shall the amount payable
under this Section be reduced by any compensation earned by the Executive after
the date of his termination of employment.

         8. Revealing of Trade Secrets, etc. Executive acknowledges the interest
of the Company in maintaining the confidentiality of information related to its
business and shall not at any time during the Employment Term or thereafter,
directly or indirectly, reveal or cause to be revealed to any person or entity
the supplier lists, customer lists or other confidential business information of
the Company; provided, however, that the parties acknowledge that it is not the
intention of this paragraph to include within its subject matter (a) information
not proprietary to the Company, (b) information which is then in the public
domain, or (c) information required to be disclosed by law.

         9. Covenants Not to Compete. During the Employment Term and for a
period of one year thereafter, the Executive shall not, directly or indirectly:
(i) in any manner, engage in any business which competes with any business
conducted by the Company and will not directly or indirectly own, manage,
operate, join, control or participate in the ownership, management, operation or
control of, or be employed by or connected in any manner with any corporation,
firm or business that is so engaged, (provided, however, that nothing herein
shall prohibit the Executive from owning not more than three (3%) percent of the
outstanding stock of any publicly held corporation), (ii) persuade or attempt to
persuade any current client or former client with, or to reduce the amount of
business it does or intends or anticipated doing with the Company.

         10. Opportunities. During his employment with the Company, and for one
year thereafter, Executive shall not take any action which might divert from the
Company any opportunity learned about by him during his employment with the
Company (including without limitation during the Employment Term) which would be
within the scope of any of the businesses then engaged in or planned to be
engaged in by the Company.

         11. Survival. In the event that this Agreement shall be terminated,
then notwithstanding such termination, the obligations of Executive pursuant to
Section 8 and 9 of this Agreement shall survive such termination.

         12. Contents of Agreement, Parties in Interest, Assignment, etc. This
Agreement sets forth the entire understanding of the parties hereto with respect
to the subject matter hereof. All of the terms and provisions of this Agreement
shall be binding upon and inure to the benefit of and be enforceable by the
respective heirs, representatives, successors and assigns of the parties hereto,
except that the duties and responsibilities of Executive hereunder which are of
a personal nature shall neither be assigned nor transferred in whole or in party
by Executive. This Agreement shall not be amended except by a written instrument
duly executed by the parties.

         13. Severability. If any term or provision of this Agreement shall be
held to be invalid or unenforceable for any reason, such term or provision shall
be ineffective to the extent of such invalidity or unenforceability without





invalidating the remaining terms and provisions hereof, and this Agreement shall
be construed as if such invalid or unenforceable term or provision had not been
contained herein.

          14. Notices. Any notice, request, instruction or other document to be
given hereunder by any party to the other party shall be in writing and shall be
deemed to have been duly given when delivered personally or five (5) days after
dispatch by registered or certified mail, postage prepaid, return receipt
requested, to the party to whom the same is so given or made:

         If to the Company addressed to:    Complete Management, Inc.
                                                     254 West 31st Street
                                                      New York, New York 10001

         with a copy to:                    Morse, Zelnick, Rose & Lander, LLP
                                                     450 Park Avenue
                                                     New York, New York 10022

         If to Executive addressed to:               Joseph M. Scotti
                                                     322 President Street
                                                     Brooklyn, New York 11231

or to such other address as the one party shall specify to the other party in
writing.

         15. Counterparts and Headings. This Agreement may be executed in one or
more counterparts, each of which shall be deemed an original and all which
together shall constitute one and the same instrument. All headings are inserted
for convenience of reference only and shall not affect the meaning or
interpretation of this Agreement.

         IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered as of the day and year first above written.

                                            COMPLETE MANAGEMENT, INC.


                                       By:____________________________
                                           STEVEN M. RABINOVICI
                                           Chief Executive Officer


                                           ___________________________
                                                     JOSEPH M. SCOTTI

EX-21

                                                                      


          Exhibit 21 Subsidiaries of Complete Management, Inc.
                   
         Medical Management, Inc.
         Incorporated under the laws of the state of New York.
         Doing business under the name Medical Management, Inc.

         Intertech/Penta Group, Inc.
         Incorporated under the laws of the State of New York.
         Doing business under the name Intertech/Penta Group, Inc.

         Northern Metropolitan Management Corp.
         Incorporated under the laws of the State of Delaware.
         Doing business under the name Northern Metropolitan Management Corp.

         CMI Capital Corporation
         Incorporated under the laws of the State of New York.
         Doing Business under the name Hobbes Capital.

         Advanced Alliance Management Corp.
         Incorporated under the laws of the State of New York.
         Doing business under the name Advanced Alliance Management Corp.

         Tenbroeck Management Corp.
         Incorporated under the laws of the State of New York.
         Doing Business under the name Tenbroeck  Management Corp.

         Molecular Radiation Management, Inc.
         Incorporated under the laws of the State of New York.
         Doing business under the name Molecular Radiation Management, Inc.

EX-10.47

                        AMENDMENT TO EMPLOYMENT AGREEMENT

The undersigned hereby agree to amend the Employment Agreement dated as of the
1st day of March 1996 between Complete Management, Inc. and Arthur L. Goldberg
(the "Employment Agreement") as follows:

         The first sentence of paragraph 3(a) of the employment agreement shall
read:

         "(a) Goldberg's base compensation shall be at the rate of $200,000.00
         per year, payable in regular installments with the Company's practice
         for its executives, less applicable withholding for income and
         employment taxes as required by law and other deductions as to which
         Goldberg shall agree."

         The caption and the first sentence of subparagraph (a) of paragraph 7
         of the Employment Agreement shall read:

         "7.   Termination by the Company.

The Company may terminate Goldberg's employment, for any reason, at any time
prior to June 25, 1996 by giving written notice of such termination under this
paragraph 7."



                                     COMPLETE MANAGEMENT, INC.



                                     By: /s/ Steven M. Rabinovici
                                        ----------------------------------
                                        Steven M. Rabinovici,
                                        Chief Executive Officer

Accepted July 1, 1996


/s/ Arthur L. Goldberg
- --------------------------
Arthur L. Goldberg

EX-27

 


<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated balance sheet and statement of income found on pages F-2 & F-3 of
the company's Form 10-K for the year ending December 31, 1996 and is qualified
in its entirety by reference to such consolidated financial statements.

       
                             
<PERIOD-TYPE>                   12-MOS
<FISCAL-YEAR-END>                          DEC-31-1996
<PERIOD-END>                               DEC-31-1996
<CASH>                                          40,138
<SECURITIES>                                    32,467
<RECEIVABLES>                                   55,421
<ALLOWANCES>                                     2,912
<INVENTORY>                                          0
<CURRENT-ASSETS>                               103,559
<PP&E>                                           7,093
<DEPRECIATION>                                   2,388
<TOTAL-ASSETS>                                 166,349
<CURRENT-LIABILITIES>                           10,432
<BONDS>                                         74,000
<PREFERRED-MANDATORY>                                0
<PREFERRED>                                          0
<COMMON>                                            10
<OTHER-SE>                                      70,494
<TOTAL-LIABILITY-AND-EQUITY>                   166,349
<SALES>                                         33,158
<TOTAL-REVENUES>                                33,158
<CGS>                                           12,308
<TOTAL-COSTS>                                    9,143
<OTHER-EXPENSES>                               (3,492)
<LOSS-PROVISION>                                     0
<INTEREST-EXPENSE>                               2,740
<INCOME-PRETAX>                                 10,293
<INCOME-TAX>                                     4,879
<INCOME-CONTINUING>                              5,414
<DISCONTINUED>                                       0
<EXTRAORDINARY>                                      0
<CHANGES>                                            0
<NET-INCOME>                                     5,414
<EPS-PRIMARY>                                      .68
<EPS-DILUTED>                                      .54