<PAGE>

   AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 16, 1997
 
                                                      REGISTRATION NO. 333-
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
 
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

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

                                    FORM S-1
                             REGISTRATION STATEMENT
                                     UNDER
                           THE SECURITIES ACT OF 1933

                            ------------------------
 
                          BMJ MEDICAL MANAGEMENT, INC.
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

                            ------------------------
 
<TABLE>
<S>                                         <C>                                         <C>
                 DELAWARE                                      8099                                     65-0676079
     (STATE OR OTHER JURISDICTION OF               (PRIMARY STANDARD INDUSTRIAL                      (I.R.S. EMPLOYER
      INCORPORATION OR ORGANIZATION)               CLASSIFICATION CODE NUMBER)                    IDENTIFICATION NUMBER)
</TABLE>
 
                            ------------------------
 
                     4800 NORTH FEDERAL HIGHWAY, SUITE 104D
                           BOCA RATON, FLORIDA 33431
                                 (561) 391-1311
              (ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
       INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)

                            ------------------------
 
                              NARESH NAGPAL, M.D.
                     PRESIDENT AND CHIEF EXECUTIVE OFFICER
                     4800 NORTH FEDERAL HIGHWAY, SUITE 104D
                           BOCA RATON, FLORIDA 33431
                                 (561) 391-1311
           (NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
                   INCLUDING AREA CODE, OF AGENT FOR SERVICE)

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

                                With copies to:
 

<TABLE>
<S>                                                              <C>
                    LAWRENCE G. GRAEV, ESQ.                                           ROBERT ROSENMAN, ESQ.
               O'SULLIVAN GRAEV & KARABELL, LLP                                        JOHN W. WHITE, ESQ.
                     30 ROCKEFELLER PLAZA                                            CRAVATH, SWAINE & MOORE
                   NEW YORK, NEW YORK 10112                                             825 EIGHTH AVENUE
                        (212) 408-2400                                              NEW YORK, NEW YORK 10019
                                                                                         (212) 474-1000
</TABLE>
 
                            ------------------------
 
     APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
 
     If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /
 
     If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
 
     If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
 
     If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /

                            ------------------------
 
                        CALCULATION OF REGISTRATION FEE
 
<TABLE>
<CAPTION>
                                                                     PROPOSED
                                                                 MAXIMUM OFFERING        PROPOSED
              TITLE OF EACH CLASS                 AMOUNT TO BE       PRICE PER      MAXIMUM AGGREGATE       AMOUNT OF
         OF SECURITIES TO BE REGISTERED           REGISTERED(1)      SHARE(2)       OFFERING PRICE(2)   REGISTRATION FEE
<S>                                               <C>            <C>                <C>                 <C>
Common Stock (par value $.001 per share)........         shares     $                 $34,500,000           $10,455
</TABLE>
 
(1) Includes      shares that the Underwriters have the option to purchase to
    cover over-allotments, if any.

(2) Estimated solely for the purpose of calculating the registration fee.

                            ------------------------
 
     THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR

DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON
SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------

<PAGE>

INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION.  THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE.  THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.

               SUBJECT TO COMPLETION, DATED SEPTEMBER 16, 1997
 
PROSPECTUS
 
                                             SHARES
 
                          BMJ MEDICAL MANAGEMENT, INC.
 
                                  COMMON STOCK
 
     All of the             shares of Common Stock offered hereby are being
issued and sold by the Company. Prior to this offering, there has been no public
market for the Common Stock. It is currently estimated that the initial public
offering price will be between $     and $     per share. See 'Underwriting' for
a discussion of the factors considered in determining the initial public
offering price. The Company intends to apply for the Common Stock to be quoted
and traded on the Nasdaq National Market ('Nasdaq') under the symbol BONS.
 
                            ------------------------
 
            THE SHARES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK.
                    SEE 'RISK FACTORS' COMMENCING ON PAGE 6.
 
                            ------------------------
 
 THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
      EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
         SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
           COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS 
                PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
                            IS A CRIMINAL OFFENSE.
 
<TABLE>
<CAPTION>
                                                       PRICE TO           UNDERWRITING          PROCEEDS TO
                                                        PUBLIC             DISCOUNT(1)          COMPANY(2)
<S>                                               <C>                  <C>                  <C>
Per Share.......................................  $                    $                    $
Total(3)........................................  $                    $                    $
</TABLE>
 
(1) See 'Underwriting' for indemnification arrangements with the several
    Underwriters.

 
(2) Before deducting expenses payable by the Company estimated at $            .
 
(3) The Company has granted to the Underwriters a 30-day option to purchase up
    to          additional shares of Common Stock solely to cover 
    over-allotments, if any. If all such shares are purchased, the total Price
    to Public, Underwriting Discount and Proceeds to Company will be $        ,
    $        and $        , respectively. See 'Underwriting.'
 
                            ----------------------------
 
     The shares of Common Stock are offered by the several Underwriters subject
to prior sale, receipt and acceptance by them and subject to the right of the
Underwriters to reject any order in whole or in part and certain other 
conditions. It is expected that certificates for such shares will be available 
for delivery on or about                  , 1997, at the office of the agent 
of Hambrecht & Quist LLC in New York, New York.
 
HAMBRECHT& QUIST
                   RAYMOND JAMES & ASSOCIATES, INC.
                                                    VOLPE BROWN WHELAN & COMPANY
 
                 , 1997


<PAGE>

                             ADDITIONAL INFORMATION
 
     A Registration Statement on Form S-1 under the Securities Act, including
amendments thereto, relating to the Common Stock offered hereby has been filed
by the Company with the Commission. This Prospectus does not contain all of the
information set forth in the Registration Statement and the exhibits and
schedules thereto. For further information with respect to the Company and the
Common Stock offered hereby, reference is made to such Registration Statement
and exhibits and schedules filed as a part thereof. A copy of the Registration
Statement may be inspected by anyone without charge at the Public Reference
Section of the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the regional offices of the Commission located at
7 World Trade Center, Suite 1300, New York, New York 10048 and Northwest Atrium
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of
all or any portion of the Registration Statement may be obtained from the Public
Reference Section of the Commission, 450 Fifth Street, N.W., Washington, D.C.
20549, upon payment of prescribed fees. The Commission maintains a WorldWide Web
site that contains reports, proxy and information statements and other
information regarding registrants that file electronically with the Commission.
Such reports, proxy and information statements and other information may be
found on the Commission's site address, http: //www.sec.gov. Copies of such
material also can be obtained from the Company upon request.
 
     Statements made in this Prospectus as to the contents of any contract,
agreement or other document referred to are not necessarily complete. With
respect to each such contract, agreement or other document filed as an exhibit
to the Registration Statement, reference is made to the exhibit for a more

complete description of the matter involved, and each such statement shall be
deemed qualified in its entirety by such reference.
 
                           ------------------------
 
     Forward-Looking Statements. Certain statements contained in this
Prospectus, including statements regarding the anticipated development and
expansion of the Company's business, the intent, belief or current expectations
of the Company, its directors or its officers, primarily with respect to the
future operating performance of the Company and other statements contained
herein regarding matters that are not historical facts are 'forward-looking'
statements. Because such statements include risks and uncertainties, actual
results may differ materially from those expressed or implied by such
forward-looking statements. Factors that could cause actual results to differ
materially from those expressed or implied by such forward-looking statements
include, but are not limited to, the potential inability to affiliate with
physician practices, the potential termination of contractual relationships,
fluctuations in the volume of procedures performed by the practices' physicians,
changes in the reimbursement rates for those services, uncertainty about the
ability to collect the appropriate fees for services provided or ordered by the
practices' physicians, as well as other risks detailed in 'Risk Factors,'
'Management's Discussion and Analysis of Financial Condition and Results of
Operations' and 'Business.'
 
                           ------------------------
 
     CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING STABILIZING TRANSACTIONS, SYNDICATE COVERING TRANSACTIONS AND PENALTY
BIDS. SEE 'UNDERWRITING.'
 
                                      2

<PAGE>

                              PROSPECTUS SUMMARY
 
     The following summary is qualified in its entirety by the more detailed
information and financial statements including the notes thereto appearing
elsewhere in this Prospectus. Investors should carefully consider the
information set forth under the heading 'Risk Factors.' As used herein, the term
the 'Company' refers to BMJ Medical Management, Inc., a Delaware corporation;
the term 'Existing Practices' refer to the 20 Practices that have affiliated
with the Company as of the date of this Prospectus; and the term 'Practices'
includes the Existing Practices and other practices with which the Company may
affiliate in the future. Unless otherwise indicated, all information in this
Prospectus assumes no exercise of the Underwriters' over-allotment option.
 
                                 THE COMPANY
 
     The Company is a physician practice management company (a 'PPM') that
provides management services to physician practices that focus on
musculoskeletal care, which involves the medical and surgical treatment of
conditions relating to bones, muscles, joints and related connective tissues.

The broad spectrum of musculoskeletal care offered by the physician practices
ranges from acute procedures, such as spine or other complex surgeries, to the
treatment of chronic conditions, such as arthritis and back pain. The management
services provided by the Company include physician practice and network
development, marketing, payor contracting and financial, administrative and
clinical information management. As of the date of this Prospectus, the Company
has affiliated (the 'Affiliation Transactions') by entering into management
services agreements (the 'Management Services Agreements') with 20 Existing
Practices comprising 87 doctors practicing in Arizona, California, Florida,
Pennsylvania and Texas.
 
     The market for musculoskeletal care in the United States is significant and
growing. Total direct costs associated with the delivery of musculoskeletal care
exceeded $60 billion in 1988 and increased to approximately $72 billion in 1992.
The increase in expenditures can be attributed to various factors, including
improvements in medical technology, more active lifestyles which have resulted
in the growth of sports medicine and the overall aging of the population. In
1992, the 65-and-over age group represented approximately 12% of the U.S.
population, but accounted for more than half of all musculoskeletal care
expenditures. Historically, surgical and non-surgical orthopaedic specialists
have maintained separate practices; recently, however, musculoskeletal
physicians have begun to follow the consolidation trend seen elsewhere in the
health care industry.
 
     The Company's goal is to develop the leading musculoskeletal network in
each of its markets by aligning the Company's interests with those of the
Practices' physicians. The Company has divided the United States into three
geographic regions, and selects specific markets based primarily on population
size, which must be large enough to support a viable musculoskeletal physician
network. The Company's strategy consists of (i) expanding into targeted new
markets by affiliating with leading musculoskeletal practices; (ii) continuing
to develop its existing markets by strengthening and expanding the Practices in
order to achieve significant local market presence; (iii) introducing ancillary
services to expand the breadth of care directly offered by the Practices'
physicians; and (iv) developing and implementing a disease management
information system to foster curative and palliative regimens, improve provider
and patient access to resources and technology and deliver cost-effective,
quality care. The Company's long-term strategy includes developing and
implementing a musculoskeletal disease management program.
 
     Under the Management Services Agreements, the Company provides management,
administrative and development services to the Existing Practices, while the
Existing Practices retain, among other things, sole responsibility for all
aspects of the practice of medicine. The Company's revenues under the Management
Services Agreements are typically based on a specified percentage of Practice
revenues, generally 10% to 15%, rather than on a percentage of net operating
income. In addition, the Company typically assumes the Practices' clinic
overhead expenses and charges them back to the Practices at actual cost, and
receives two-thirds of savings realized through the Company's purchasing power.
The Company seeks to develop and maintain long-term relationships with the
Practices by providing physician performance incentives through equity ownership
in the Company, ensuring physician clinical autonomy and participation in
Practice governance and delivering national support services on a regional
basis. The Company believes that its affiliation model, versus other existing

models, provides less financial risk to the Company while enhancing its
relationships with the Practices' physicians.
 
                                      3

<PAGE>

 
                                 THE OFFERING
 
<TABLE>
<S>                                                              <C>
Common Stock offered by the Company............................        shares
 
Common Stock to be outstanding after the offering..............        shares(1)
 
Use of proceeds................................................  Repayment of debt and general corporate
                                                                 purposes, including possible future
                                                                 affiliations. See 'Use of Proceeds.'
 
Proposed Nasdaq National Market symbol.........................  BONS
</TABLE>
 
------------------
(1) Excludes 1,203,000 shares of Common Stock issuable upon exercise of
    outstanding options to purchase Common Stock with a weighted average
    exercise price of $0.39 per share and 254,165 shares of Common Stock
    issuable upon exercise of outstanding warrants to purchase Common Stock with
    a weighted average exercise price of $4.35 per share. See 'Management' and
    'Certain Transactions.'
 
                                      4

<PAGE>

             SUMMARY HISTORICAL AND PRO FORMA FINANCIAL INFORMATION
 
<TABLE>
<CAPTION>
                                                                                                                PRO FORMA
                                              YEAR ENDED         PRO FORMA             SIX MONTHS ENDED             AS
                                             DECEMBER 31,    AS ADJUSTED(1)(2)            JUNE 30,             ADJUSTED(2)(3)
                                             ------------       YEAR ENDED        ------------------------    SIX MONTHS ENDED
                                                 1996        DECEMBER 31, 1996       1996          1997        JUNE 30, 1997
                                             ------------    -----------------    ----------    ----------     -------------
                                                            (IN THOUSANDS, EXCEPT PER SHARE AND OPERATING DATA)
<S>                                          <C>             <C>                  <C>           <C>           <C>
STATEMENT OF INCOME DATA:
  Practice revenue, net...................     $  6,029           $63,748          $      --     $  19,907        $ 34,845
  Less: physician and other provider
    services..............................       (2,912)          (25,626)                --        (9,509)        (13,414)
                                             ------------         -------         ----------    ----------         -------
  Management fee revenue..................        3,117            38,122                 --        10,398          21,441
  Costs and expenses:
    Medical support services..............        2,844            31,136                 --         9,541          17,852
    General and administrative............        1,278             1,278                 51         2,433           2,433
    Depreciation and amortization.........          104               733                  1           300             534
    Interest expense (income), net........           --                                   --            --
                                             ------------         -------         ----------    ----------         -------
      Total costs and expenses............        4,226                                   52        12,274
                                             ------------         -------         ----------    ----------         -------
  Income (loss) before income taxes.......       (1,109)                                 (52)       (1,876)
  Income taxes(4).........................           --                                   --            --
                                             ------------         -------         ----------    ----------         -------
  Net income (loss).......................     $ (1,109)          $                $     (52)    $  (1,876)       $
                                             ------------         -------         ----------    ----------         -------
                                             ------------         -------         ----------    ----------         -------
  Net income (loss) per common share:
    Primary...............................     $  (0.07)          $                $    0.00     $   (0.11)       $
    Diluted...............................     $  (0.07)          $                $    0.00     $   (0.11)       $
  Weighted average common shares
    outstanding:
    Primary...............................       15,811                               15,206        16,469
    Diluted...............................       15,811                               15,206        16,469
OTHER OPERATING DATA:
  Number of Practices (end of period).....            3                20                  0             8              20
  Number of physicians (end of period)....           34                87                  0            57              87
</TABLE>
 
<TABLE>
<CAPTION>
                                                                                          JUNE 30, 1997
                                                                         ------------------------------------------------
                                                                                                           PRO FORMA
                                                                         ACTUAL      PRO FORMA(4)      AS ADJUSTED(4)(5)
                                                                         -------    ---------------    ------------------
                                                                                          (IN THOUSANDS)

<S>                                                                      <C>        <C>                <C>
BALANCE SHEET DATA:
  Cash and cash equivalents...........................................   $ 6,915        $ 9,484             $
  Working capital.....................................................     7,490         14,613
  Total assets........................................................    29,456         44,487
  Long-term debt, less current portion................................     6,540         17,340
  Total stockholders' equity..........................................    11,546         15,659
</TABLE>
 
------------------
 
     The unaudited pro forma financial information presented does not purport to
(i) represent what the results of operations or financial condition of the
Company would actually have been if the transactions reflected therein had in
fact occurred on the assumed dates or (ii) project the future results of
operations or financial condition of the Company.
(1) Gives effect to the Affiliation Transactions as if they had occurred on
    January 1, 1996. See 'The Company,' 'Pro Forma Financial Information' and
    'Management's Discussion and Analysis of Financial Condition and Results of
    Operations.'
(2) Gives effect to this offering (the 'Offering') as if it had occurred at
    January 1, 1996 at an assumed initial public offering price of $      per
    share and the receipt and application of the estimated net proceeds
    therefrom. See 'Use of Proceeds' and 'Capitalization.'
(3) Gives effect to the Affiliation Transactions completed in 1997 (the '1997
    Affiliation Transactions') as if they had occurred on January 1, 1997. See
    'The Company,' 'Pro Forma Financial Information' and 'Management's
    Discussion and Analysis of Financial Condition and Results of Operations.'
(4) Gives effect to the 1997 Affiliation Transactions completed after June 30,
    1997 as if such transactions had occurred on June 30, 1997. See 'The
    Company,' 'Management's Discussion and Analysis of Financial Condition and
    Results of Operations,' 'Pro Forma Financial Information' and
    'Capitalization.'
(5) Gives effect to the completion of this Offering at an assumed initial public
    offering price of $      per share and the receipt and application of the
    estimated net proceeds therefrom as if such transactions had occurred on
    June 30, 1997. See 'Use of Proceeds' and 'Capitalization.'
 
                                      5

<PAGE>

                                  RISK FACTORS
 
     An investment in the Common Stock offered hereby involves a high degree of
risk. Prospective investors should carefully consider the following risk
factors, in addition to the other information contained in this Prospectus,
before purchasing the securities offered hereby. This Prospectus contains
forward-looking statements. Discussions containing such forward-looking
statements may be found in the material set forth below and under 'Management's
Discussion and Analysis of Financial Condition and Results of Operations' and
'Business,' as well as in the Prospectus generally. Prospective investors are
cautioned that any such forward-looking statements are not guarantees of future
performance and involve risks and uncertainties. Actual events or results may

differ materially from those discussed in the forward-looking statements as a
result of various factors, including, without limitation, the risk factors set
forth below and the matters set forth in this Prospectus generally.
 
     Lack of Significant Combined Operating History.  The Company was
incorporated in January 1996 and, prior to its affiliation with the first
Existing Practice in July 1996, had no history of operations or earnings. Before
affiliating with the Company, the Existing Practices operated as independent
entities, and there can be no assurance that the Company will be able to
integrate and manage profitably the assets and personnel of the Existing
Practices or of any other Practices. In addition, there can be no assurance that
the Company's affiliation with any Practice will not result in a loss of
patients or other unanticipated adverse consequences, any of these events could
have a material adverse effect on the Company. The Company's strategy is
predicated on its ability to achieve significant consolidation of Practices and
to sustain and enhance the profitability of such Practices. There can be no
assurance that the Company's personnel, systems and infrastructure will be
sufficient to achieve effective and profitable management of the Practices under
the Management Services Agreements or to implement effectively the Company's
strategies. See 'Business--Strategy' and 'Management.'
 
     Dependence on the Practices and Physicians; Rescission Rights.  The
Company's revenues are dependent on its affiliation through Management Services
Agreements with the Practices and on the success of the Practices. There can be
no assurance that the Practices will maintain successful operations, that they
will not terminate their Management Services Agreements or that key physicians
in a particular Practice will continue to affiliate with such Practice. For a
further description of the Management Services Agreements, including a
description of their termination provisions and non-competition arrangements
with the Practices' physicians, see 'Business--Contractual Agreements with the
Practices.' For a discussion of circumstances under which a Management Services
Agreement may be rendered unenforceable, see '--Government Regulation.'
 
     The Company has entered into a Management Services Agreement with South
Texas Spinal Clinic, P.A. ('STSC') which permits STSC and the individual
physicians to rescind the Affiliation Transaction on (i) November 1, 1998 if the
Company has not affiliated with an aggregate of 16 physicians in San Antonio,
Texas by such date and (ii) November 1, 2003. In addition, the Management
Services Agreements for five other Existing Practices comprising eight
physicians contain provisions that permit such Existing Practices to rescind
their Affiliation Transactions on their respective seventh anniversaries.
 
     Some of the Existing Practices derive a significant portion of their
revenue from a limited number of physicians. There can be no assurance that the
Company or the Existing Practices will maintain cooperative relationships with
key members of any such Practice. In addition, key members of a Practice could
retire, become disabled or otherwise become unable or unwilling to continue
generating revenues at the current level or practicing medicine with such
Practice. The loss by a Practice of one or more key members would have a
material adverse effect on the revenue of such Practice and on the Company. The
Company has the right under the Management Services Agreements to obtain and
maintain life insurance in the amount of $500,000 on the life of each licensed
physician employed by each Practice for the benefit of the Company. Nonetheless,
the loss of revenue by any Practice as a result of a physician's death could

have a material adverse effect on the Company. Additionally, although the
Company has entered into noncompetition agreements with each Practice and its
respective physicians, there can be no assurance as to the enforceability of
such noncompetition agreements.
 
     Risks Related to New Affiliations and Expansion.  The Company is exposed to
significant growth-related risks because an essential element of its strategy is
to affiliate with and/or to merge affiliated musculoskeletal practices and to
expand the business of such practices. The Company's strategy also involves
assisting the Practices in recruiting physicians and, to the extent permitted by
applicable law, contracting with or establishing
 
                                       6

<PAGE>

ancillary musculoskeletal facilities (the 'Ancillary Service Facilities'), such
as ambulatory surgery, physical therapy and magnetic resonance imaging ('MRI')
centers and mobile units, and contracting with associated providers. Identifying
appropriate physician group practices, individual physicians and ancillary
providers and facilities, and proposing, negotiating and implementing
economically attractive affiliations with such practices, physicians and
providers, as well as merging such practices, can be a lengthy, complex and
costly process. The failure of the Company to affiliate with additional
musculoskeletal practices or merge practices would have a material adverse
effect on the Company's ability to execute its expansion strategy. Moreover,
future affiliations or mergers, if any, may not contribute to the Company's
profitability or otherwise facilitate the successful implementation of the
Company's overall strategy. See 'Business--Strategy.'
 
     To date, the Company has not opened any Ancillary Service Facilities. The
Company is unable to predict whether it will be able to obtain the critical mass
in any particular market needed to establish Ancillary Service Facilities and,
if so, whether the Company and/or the Practices will be able to consistently
minimize costs and maintain a sufficient volume of patient visits to the
Ancillary Service Facilities for such facilities to be profitable. Moreover,
such facilities must be structured and operated to comply with various federal
and state laws. Future judicial or regulatory interpretation could adversely
affect such operations. See '--Government Regulation.'
 
     The Company's expansion is also dependent upon factors such as the ability
of the Company and the Practices to (i) adapt the Company's arrangements with
the Practices to comply with current and future legal requirements, including
state prohibitions on fee-splitting and corporate practice of medicine, state
and federal limitations on physicians ordering ancillary services from, or
referring patients to, facilities with which such physicians have a financial
relationship, state and federal anti-kickback provisions and state regulation of
the business of insurance; (ii) obtain regulatory approval and certificates of
need, where necessary; and (iii) comply with licensing requirements applicable
to physicians and to facilities operated, and services offered, by physicians.
No assurance can be given that the application of current laws or changes in
legal requirements would not have a material adverse effect on the Company.
Moreover, the Company and the Practices may not be able to obtain and maintain
all necessary regulatory approvals or comply with all applicable laws,

regulations and licensing requirements. See '--Government Regulation' and
'Business--Government Regulation and Supervision.'
 
     Since its inception, the Company's business has grown rapidly. Continued
rapid growth through affiliation and expansion could impair the Company's
ability to efficiently provide its management services to the Practices to
adequately manage and supervise its employees. There can be no assurance that
the Company will be able to expand its infrastructure and management to achieve
planned growth. In addition, the Company may be unable to retain personnel or
acquire other resources necessary to service growth adequately.
 
     Dependence on Information Systems.  No assurance can be given that the
Company will be able to enhance existing and/or implement new information
systems that can be integrated with the Practices' existing operational,
financial and clinical information gathering systems. In addition to their
integral role in helping the Practices realize operating efficiencies, such new
systems are critical to developing and implementing a disease management
information database. See 'Business--Strategy.' To develop its network, the
Company must continue to invest in and administer sophisticated management
information systems. The Company may experience unanticipated delays,
complications and expenses in implementing, integrating and operating such
systems. Furthermore, such systems may require modifications, improvements or
replacements as the Company expands and as new technologies become available.
Such modifications, improvements or replacements may require substantial
expenditures and may require interruptions in operations during periods of
implementation. Moreover, implementation of such systems is subject to the
availability of information technology and skilled personnel to assist the
Company in creating and implementing the system. The failure to successfully
implement and maintain operational, financial and clinical information systems
would have a material adverse effect on the Company. See 'Business--BMJ
Operations.'
 
     Reductions in Third Party Reimbursements.  The health care industry is
experiencing a trend toward cost containment as third party payors, such as
governmental programs (e.g., Medicare and Medicaid), private insurance plans and
managed care plans, seek to impose lower reimbursement and utilization rates and
to negotiate reduced capitated payment schedules with service providers. Further
reductions in payments to health care providers or other changes in
reimbursement for health care services could have a material adverse effect on
 
                                       7

<PAGE>

the Practices and, as a result, on the Company. These reductions could result
from changes in current reimbursement rates or from a shift in clinical
protocols to non-surgical solutions for orthopaedic conditions. The Company may
not be able to successfully offset any or all of the payment reductions that may
occur.
 
     The federal government has implemented, through the Medicare program, a
resource-based relative value scale ('RBRVS') payment methodology for heath care
provider services. RBRVS is a fee schedule that, except for certain geographical
and other adjustments, pays similarly situated health care providers the same

amount for the same services. The RBRVS is subject to annual increases or
decreases at the discretion of Congress or the federal Health Care Financing
Administration ('HCFA'). To date, the implementation of RBRVS has reduced
payment rates for certain of the procedures historically provided by the
Existing Practices. Furthermore, HCFA is required by law to recalibrate the
practice expense component of the RBRVS over the next four years in a way that
will have positive effects on payments to primary care providers but will
decrease payments for most services provided by specialists, including many
services provided by the Existing Practices. For the six months ended June 30,
1997, the net practice revenue from Medicare constituted approximately 13% of
the aggregate net practice revenue of the Existing Practices. RBRVS types of
payment systems have also been adopted by certain private third party payors and
may become a predominant payment methodology. Wider implementation of such
programs would reduce payments from private third party payors, and could
indirectly reduce revenue to the Company.
 
     Rates paid by private third party payors are based on established health
care provider and hospital charges and are generally higher than Medicare
payment rates. A change in the patient mix of any of the Practices that results
in a decrease in patients covered by private insurance could have a material
adverse effect on the Practices and, as a result, on the Company.
 
     Government Regulation.  Existing and future federal and state regulation of
health care, including the relationships among health care providers such as
physicians and other clinicians, could have a material adverse effect on the
Company's financial condition and results of operations. While the Company
believes that its operations are conducted in material compliance with
applicable laws, it has not received or applied for a legal opinion from counsel
or from any federal or state judicial or regulatory authority to this effect,
and many aspects of the Company's business operations have not been the subject
of state or federal regulatory interpretation. The laws applicable to the
Company are subject to evolving interpretations, and therefore there can be no
assurance that a review of the Company's operations by federal or state judicial
or regulatory authorities would not result in a determination that the Company,
or one of the Practices has violated one or more provisions of federal or state
law. Any such determination could have a material adverse effect on the Company.
 
     Expansion of the operations of the Company to certain jurisdictions may
require modification of the Company's form of relationship with the Practices,
which could have a material adverse effect on the Company. Furthermore, the
Company's ability to expand into, or to continue to operate within, certain
jurisdictions may depend on the Company's ability to modify its or the
Practices' operational structure to conform to such jurisdictions' regulatory
framework or to obtain necessary approvals, licenses and/or permits. Any
limitation on the Company's ability to expand could have a material adverse
effect on the Company. See 'Business--Government Regulation and Supervision.'
 
          Physician Self-Referral Laws.  The federal Self-Referral Law (also
known as the 'Stark Law') imposes restrictions on physicians' referrals for
designated health services reimbursable by Medicare or Medicaid to entities with
which any such physician (or an immediate family member of such physician) has a
financial relationship, whether through an ownership, debt or compensation
arrangement. Many states, including several of the states in which the Company
conducts business, also have adopted self-referral laws. Unlike the Stark Law,

however, many state self-referral laws are not limited to Medicare or Medicaid
reimbursed services. In addition, state self-referral laws may apply to all
health care services, not just certain designated health services, and state
self-referral laws may apply only to ownership relationships and not to
compensation relationships. State workers' compensation laws also may contain
self-referral prohibitions. Unless a statutory exception applies, if a physician
has a financial relationship in or with the Company, then that physician is
prohibited from referring patients to any Ancillary Service Facilities owned (or
possibly managed) by the Company for the furnishing of designated health
services or other health care services as defined by federal or state law. In
addition, neither the Company nor the physician is authorized to bill for
services furnished to such physician's patients by the
 
                                       8

<PAGE>

Company or at such Ancillary Service Facilities where there is no exception
available for the physician's financial relationship with the Company. Penalties
for violating these restrictions usually are limited to civil penalties. State
laws also may require a physician to disclose to patients the nature of the
physician's financial relationship with the Company and any Ancillary Service
Facilities prior to recommending the Company and any Ancillary Service
Facilities to that patient.
 
     In the preamble to the adoption of certain regulations regarding the Stark
Law, adopted when such law only regulated clinical laboratory services, HCFA
stated that it would not recognize any group in which the physicians were in
multiple corporate entities as a 'group practice' under the Stark Law. SCOI is a
partnership comprised of individual physician members as well as single member
professional corporations ('P.C.s'). The use of P.C.s as partners at SCOI was
historical and designed to accommodate practice structures that existed prior to
the creation of SCOI. Recently, at the Eighteenth Annual Institute on Medicare
and Medicaid Payment Issues, co-sponsored by the American Academy of Healthcare
Attorneys and National Health Lawyer's Association, an HCFA representative
stated that HCFA will recognize a 'group practice' consisting of multiple
physician entities, such as P.C.s, provided that each P.C. or other physician
entity is limited to one physician member. Nevertheless, given HCFA's prior
written statement and HCFA's position that its written comments on the Stark Law
as applied to clinical laboratories reflect its view on the Stark Law in its
current expanded form, it may be necessary to restructure SCOI before any
Stark-designated health services are provided. Failure to do so would result in
the risk of the penalties described above, or the inability of SCOI to provide
Stark-designated health services, either of which could have a material adverse
effect on the Company. See 'Business--Government Regulation and Supervision.'
 
          Fraud and Abuse.  The anti-kickback provisions of the Social Security
Act, as well as anti-kickback laws adopted by many states, including the states
in which the Company conducts business, prohibit the solicitation, payment,
receipt or offering of any direct or indirect remuneration in return for, or as
an inducement for, certain referrals of patients for items or services covered
by health benefits programs. State laws governing workers' compensation may also
contain anti-kickback prohibitions. In addition, federal law and some state laws
impose significant penalties for false or improper billings. These anti-kickback

and false claims laws are commonly referred to as the fraud and abuse laws.
Violations of any of these laws may result in substantial civil or criminal
penalties, and, in the case of violations of federal laws, exclusion from
participation in the Medicare and Medicaid programs. Such exclusion and
penalties, if applied to the Company, its Ancillary Service Facilities or the
Practices, would have a material adverse effect on the Company. Further, the
application of these laws is subject to modification by statutory amendment or
promulgation of regulations and any such change could have a material adverse
effect on the Company.
 
          State Regulation of the Practices.  The laws of many states, including
one or more of the states in which the Company conducts business: (i) prohibit
business corporations, such as the Company, from practicing medicine or
exercising control over the medical judgments or decisions of physicians and
from engaging in certain financial arrangements involving the division of
professional fees earned by physicians (commonly referred to as
'fee-splitting'); (ii) require entities seeking to provide certain ancillary
services (including ambulatory surgery) to be licensed and/or to have obtained a
certificate of need related to the service; and (iii) require licensure or
certification of, and regulate provider networks that agree to provide or
arrange for the provision of certain health services to members of health care
plans. These laws and their interpretations vary from state to state and are
enforced by both the courts and regulatory authorities, each of which has broad
discretion. Violations of these laws could result in censure or loss of license
for the physician, civil or criminal penalties, or other sanctions. The
licensure or certificate of need laws of applicable states could also preclude
the Company from expanding its operated or managed services to include certain
ancillary services, which could have a material adverse effect on the Company.
In addition, a determination in any state that the Company is engaged in the
corporate practice of medicine or any unlawful fee-splitting arrangement could
render any Management Services Agreement between the Company and a Practice
located in such state unenforceable or subject to modification, which could have
a material adverse effect on the Company. Although the Company believes that it
and the Existing Practices are in material compliance with applicable state laws
and regulations relating to licensing, certificate of need, the corporate
practice of medicine and fee-splitting, there can be no assurance that
regulatory authorities or other parties will not assert that the Company or a
Practice is engaged in the business of insurance or the corporate practice of
medicine in such states or that the management and
 
                                       9

<PAGE>

administrative fees paid to the Company by the Practices constitute unlawful
fee-splitting or the corporate practice of medicine. If such a claim were
asserted successfully, the Company could be subject to civil and criminal
penalties and the Company or the Practices could be required to restructure
their contractual arrangements. Such results or the inability of the Company or
the Practices to restructure their relationships to comply with such
prohibitions could have a material adverse effect on the Company's financial
condition and results of operations. See 'Business--Government Regulation and
Supervision--State Law.'
 

     In Texas, it is unlawful to provide 'staff leasing services' without a
license issued by the State. The Company believes that the provision of
non-physician personnel to STSC in connection with the Management Services
Agreement between the Company and STSC constitutes staff leasing services
subject to licensure under Texas law. While the Company is in the process of
obtaining such a license, there can be no guaranty that the State of Texas will
approve the Company's application. Failure to obtain a license to provide staff
leasing services may result in criminal penalties, may prevent the Company from
providing personnel to STSC and may, therefore, have a material adverse effect
on the Company.
 
          Antitrust Issues.  Because the Practices remain separate legal
entities, they may be deemed competitors subject to a range of antitrust laws
that prohibit anti-competitive conduct, including price fixing, concerted
refusals to deal and division of market. The Company intends to comply with such
state and federal laws as may affect its development of integrated health care
delivery networks, but there can be 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 the Practices.
 
          Numerous Reform Initiatives.  In addition to extensive existing
government health care regulation, there are numerous initiatives on the federal
and state levels for comprehensive reforms affecting the payment for, and
availability of, health care services. These initiatives include reductions in
Medicare and Medicaid payments, trends in adopting managed care for Medicare,
Medicaid and workers' compensation patients, regulation of entities that provide
managed care, and additional prohibitions related to financial relationships
between health care providers that are in a position to generate business for
each other. Certain of these health care proposals, if adopted, could have a
material adverse effect on the Company. See '--Reliance on Affiliation and
Expansion,' '--Reductions in Third Party Reimbursements' and 
'Business--Government Regulation and Supervision.'
 
     Changes in Workers' Compensation Market. Legislative reforms in some
states permit employers to designate health plans such as HMOs to cover workers'
compensation claimants. Because many health plans have the capacity to manage
health care for workers' compensation claimants, such legislation may intensify
competition in the market served by the Company. Within the past few years,
several states have experienced decreases in the number of workers' compensation
claims and the average cost per claim, both of which have been reflected in
workers' compensation insurance premium rate reductions in those states. The
Company believes that declines in workers' compensation costs in these states
are due principally to intensified efforts by payors to manage and control claim
costs, improved risk management by employers and legislative reforms. In Florida
(a state in which the Company does business), all workers' compensation services
must be provided under a managed care arrangement approved by Florida's Agency
for Health Care Administration. If declines in workers' compensation costs occur
in many states and persist over the long-term, they may have an adverse impact
on the Company's business and results of operations. A number of states,
including California and Pennsylvania (states in which the Company does
business), have regulations such as anti-kickback and self-referral laws that
are specific to the workers' compensation program. See 'Business--Payor
Contracting--Workers' Compensation' and 'Business--Government Regulation and
Supervision.'

 
     Dependence on Managed Care Contracts.  As more patients enter into health
care coverage arrangements with managed care payors, no assurance can be given
that the Company will be able to negotiate contracts on behalf of the Practices
with health maintenance organizations ('HMOs'), employer groups and other
private third party payors. The inability of the Company to enter into such
arrangements on behalf of the Practices, or unfavorable terms that may be
contained in such arrangements, could have a material adverse effect on the
Company.
 
     The Company may seek to negotiate with third party payors on behalf of the
Practices and other physicians or group practices willing to permit the Company
to negotiate on their behalf. The Company anticipates that, in
 
                                       10

<PAGE>

the future, the payor contracts entered into on behalf of the Practices and any
related network physicians may include contracts based on capitated fee
arrangements. Under some of these types of contracts, a health care provider
agrees either to accept a predetermined dollar amount per member per month in
exchange for undertaking to provide all covered services to patients or to
provide treatment on an episode of care basis. Such health care providers bear
the risk, generally subject to certain loss limits, that the aggregate costs of
providing medical services will not exceed the predetermined amounts. Some
agreements may also contain 'shared risk' provisions under which the Practices
may earn additional compensation based on utilization control of institutional,
ancillary and other services to patients, and the Practices may be required to
bear a portion of any loss in connection with such 'shared risk' provisions. If
patients or enrollees covered by such contracts require more frequent or, in
certain instances, more extensive care than anticipated, there could be a
material adverse effect on a Practice and, therefore, on the Company. Revenue
negotiated under risk-sharing or capitated contracts could be insufficient to
cover the costs of the health care services provided. Any such reduction or
elimination of earnings to the Practices under such fee arrangements could have
a material adverse effect on the Company.
 
     No assurance can be given that the Company or the Practices will be able to
establish or maintain satisfactory relationships with managed care and other
third party payors, many of which already have existing provider structures in
place and may not be able or willing to change their provider networks. In
addition, any significant loss of revenue by the Practices as a result of the
termination of third party payor contracts or otherwise would have a material
adverse effect on the Company. See 'Business--Government Regulation and
Supervision.'
 
     Need for Additional Funds.  The Company's expansion and acquisition
strategy will require substantial capital, and no assurance can be given that
the Company will be able to raise additional funds through debt financing or the
issuance of equity or debt securities. Sufficient funds may not be available on
terms acceptable to the Company, if at all. If equity securities are issued,
either to raise funds or in connection with future affiliations, dilution to the
Company's stockholders may result, and if additional funds are raised through

the incurrence of debt, the Company may become subject to restrictions on its
operation and finances. Such restrictions may have a material adverse effect on,
among other things, the Company's ability to pursue its affiliation and
expansion strategy. See 'Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources.'
 
     Risks Related to Intangible Assets.  The Company has a significant amount
of intangible assets. As a result of the Affiliation Transactions, intangible
assets (net of accumulated amortization) of approximately $7.3 million have been
recorded on the Company's balance sheet as of June 30, 1997. Affiliations that
result in the recognition of intangible assets will cause amortization expense
to increase further. Although the Company's net unamortized balance of
intangible assets acquired and anticipated to be acquired was not considered to
be impaired as of June 30, 1997, any future determination that a significant
impairment has occurred would require the write-off of the impaired portion of
unamortized intangible assets, which could have a material adverse effect on the
Company's results of operations. See 'Management's Discussion and Analysis of
Financial Condition and Results of Operations.'
 
     Intense Competition.  Competition for affiliation with additional
musculoskeletal physician practices is intense and may limit the availability of
suitable practices with which the Company may be able to affiliate. Several
companies with established operating histories and greater resources than the
Company, including multi-specialty companies, companies that specialize in
orthopedics, some hospitals, clinics and HMOs, are pursuing activities similar
to those of the Company. The Company may not be able to compete effectively with
such competitors, additional competitors could enter the market and such
competition could make it more difficult and costly to affiliate with, and
provide management services to, musculoskeletal physician practices on terms
beneficial to the Company. The Company also believes that changes in
governmental and private reimbursement policies, among other factors, have
resulted in increased competition among providers of medical services. The
Practices face competition from several sources, including sole practitioners,
single and multi-specialty groups, hospitals and managed care organizations. The
Company's strategy includes the development of Ancillary Service Facilities.
Pursuit of this strategy will subject the Company to competition with other
providers of such facilities, some of which will have greater financial
resources and experience than the Company. There can be no assurance that the
Company or the Practices will be able to compete effectively in the markets they
serve. See 'Business--Competition.'
 
                                       11

<PAGE>

     Dependence on Key Personnel.  The Company is dependent upon the ability and
experience of its executive officers and key personnel, including Dr. Naresh
Nagpal, the Company's President and Chief Executive Officer, for the management
of the Company and the implementation of its business strategy. The Company
currently has an employment contract with Dr. Nagpal. Because of the difficulty
in finding an adequate replacement for Dr. Nagpal, the loss of his services,
regardless of whether he may choose to compete with the Company, or the
Company's inability in the future to attract and retain management and other key
personnel could have a material adverse effect on the Company. See

'Management--Employment Agreements.'
 
     Exposure to Professional Liability.  Due to the nature of its business, the
Company from time to time may become a defendant in medical malpractice
lawsuits, and may become subject to the attendant risk of substantial damage
awards. Direct claims, suits or complaints could be asserted against the Company
relating to services delivered by the Practices (including claims with regard to
services rendered by the Existing Practices prior to the Affiliation
Transactions). While the Company has attempted to address these risks by
maintaining malpractice and other types of insurance on behalf of itself and the
Existing Practices, there can be no assurance that any claim asserted against
the Company, any of the Existing Practices, or any other Practice will be
covered by, or will not exceed the coverage limits of, applicable insurance.
However, the Company may not be able to maintain insurance in the future at a
cost that is acceptable to the Company, or at all. A successful malpractice
claim against any of the Practices, even if covered by insurance, or any claim
made against the Company that is not fully covered by insurance, could have a
material adverse effect on the Company. See 'Business--Corporate Liability and
Insurance.'
 
     No Prior Market; Possible Volatility of Stock Price.  Prior to this
Offering, there has been no public market for the Common Stock, and there can be
no assurance that an active public market for the Common Stock will develop or
continue after the Offering. The initial public offering price will be
determined by negotiations among the Company and Hambrecht & Quist LLC, Raymond
James & Associates, Inc. and Volpe Brown Whelan & Company, LLC and may not be
indicative of the market price for the Common Stock after the Offering. See
'Underwriting' for factors to be considered in determining the initial public
offering price. From time to time after the Offering, there may be significant
volatility in the market price of the Common Stock. Deviations in results of
operations from estimates of securities analysts, changes in general conditions
in the economy or the health care industry or other developments affecting the
Company or its competitors could cause the market price of the Common Stock to
fluctuate substantially. The equity markets have, on occasion, experienced
significant price and volume fluctuations that have affected the market prices
for many companies' securities and have often been unrelated to the operating
performance of these companies. Concern about the potential effects of health
care reform measures has contributed to the volatility of stock prices of
companies in health care and related industries and may similarly affect the
price of the Common Stock following the Offering. Any such fluctuations that
occur following completion of the Offering may adversely affect the market price
of the Common Stock.
 
     Shares Eligible for Future Sale.  The market price of the Common Stock of
the Company could be materially adversely affected by the sale of substantial
amounts of the Common Stock in the public market following the Offering. After
giving effect to the shares of Common Stock offered hereby, the Company will
have outstanding           shares of Common Stock. Of these shares, all of the
shares of Common Stock sold in the Offering will be freely tradeable without
restriction under the Securities Act of 1933, as amended (the 'Securities Act'),
except for any shares purchased by 'affiliates,' as that term is defined under
the Securities Act, of the Company. The remaining           shares are
'restricted securities' within the meaning of Rule 144 promulgated under the
Securities Act. Of these restricted shares,           shares will be eligible

for sale pursuant to Rule 144 in           1997 and the balance will be eligible
for sale at various times in 1998. See 'Shares Eligible for Future Sale.'
 
     The Company and the officers, directors and certain other stockholders of
the Company, who upon completion of the Offering will own in the aggregate
        shares of Common Stock, have agreed that they will not, without the
prior written consent of Hambrecht & Quist LLC, issue, sell, offer, contract to
sell, make any short sale, pledge, issue or sell any option or contract to
purchase, purchase any option or contract to sell, grant any option, right or
warrant to purchase or otherwise transfer or dispose of any shares of Common
Stock, or securities exchangeable for or convertible into or exercisable for any
rights to purchase or acquire any shares of Common Stock during the 180-day
period following the date of this Prospectus, except that such stockholders may
transfer securities pursuant to bona fide gifts and the Company may issue, and
grant options to purchase,
 
                                       12

<PAGE>

shares of Common Stock under its current stock option plan and may issue shares
of Common Stock in connection with affiliation transactions, provided such
shares are subject to the 180-day lock-up agreement.
 
     Certain holders of shares of Common Stock outstanding on the date of this
Prospectus have certain registration rights with respect to such shares and
additional shares that may be issued to such persons upon exercise of options
and warrants (subject to certain limitations on the number of shares such
holders are entitled to have registered under any registration statement),
although all such holders have agreed to refrain from selling their shares
during the lock-up period. In addition, the Company intends to register
approximately 2,000,000 shares of Common Stock reserved for issuance under the
BMJ Medical Management, Inc. 1996 Stock Option Plan (the 'Option Plan') as soon
as practicable after completion of the Offering. See 'Management' and
'Underwriting.'
 
     Control by Existing Stockholders.  Following the completion of the
Offering, the officers and directors of the Company and the physician owners of
the Existing Practices will beneficially own approximately      % of the
outstanding shares of Common Stock. Following the Offering, such persons may
effectively be able to control the affairs of the Company, including the ability
to delay or prevent a change of control of the Company. See 'Principal
Stockholders.'
 
     Potential Anti-Takeover Effects of Charter and By-laws Provisions; Possible
Issuances of Preferred Stock.  Certain provisions of the Restated Certificate of
Incorporation (the 'Certificate of Incorporation') and by-laws (the 'By-laws')
of the Company that will become operative upon the closing of this Offering may
be deemed to have anti-takeover effects and may delay, deter or prevent a change
in control of the Company that a stockholder might consider in his/her best
interest. These provisions (i) classify the Company's Board of Directors into
three classes, each of which will serve for different three-year periods; (ii)
provide that only the Board of Directors or certain members thereof or officers
of the Company may call special meetings of the stockholders; and (iii)

authorize the issuance of 'blank check' preferred stock having such
designations, rights and preferences as may be determined from time to time by
the Board of Directors. See 'Description of Capital Stock.'
 
     Immediate and Substantial Dilution.  Purchasers of the Common Stock in this
Offering will incur immediate and substantial dilution in the net tangible book
value per share of Common Stock of $       per share. See 'Dilution.'
 
                                       13

<PAGE>

                                  THE COMPANY
 
     The Company was founded by Dr. Nagpal in January 1996. Since its inception,
the Company has expanded its network through Affiliation Transactions and
through the addition of physicians to its Existing Practices to reach a total of
20 Existing Practices comprising 87 physicians in five states as of the date of
this Prospectus.
 
     In July 1996, the Company affiliated with its first Practice, Lehigh Valley
Bone, Muscle and Joint Group, LLC ('LVBMJ'), comprising five physicians. In
November 1996, the Company affiliated with STSC and the Southern California
Orthopedic Institute Medical Group ('SCOI'), resulting in the addition of a
total of 29 physicians located in Texas and California. The Company affiliated
with Lauderdale Orthopaedic Surgeons ('LOS') and Tri-City Orthopedic Surgery
Medical Group, Inc. ('Tri-City') in April 1997, Fishman & Stashak, M.D.'s, P.A.
(d/b/a Gold Coast Orthopaedics) ('Gold Coast') in June 1997 and Sun Valley
Orthopaedic Surgeons ('Sun Valley') in July 1997, resulting in the addition of a
total of 23 physicians. In addition to the foregoing Affiliation Transactions,
the Company has affiliated with 13 other Practices comprising 27 additional
physicians. In order to finance the Affiliation Transactions and provide for its
working capital needs, the Company has raised approximately $31.7 million
through a series of equity and debt financings. See 'Certain
Transactions--Equity and Debt Financings.'
 
     The Company was incorporated under the laws of Delaware in January 1996.
The Company's principal executive offices are located at 4800 North Federal
Highway, Suite 104D, Boca Raton, Florida 33431 and its telephone number is (561)
391-1311.
 
                                       14

<PAGE>

                                USE OF PROCEEDS
 
     The net proceeds to the Company from the sale of the        shares of
Common Stock offered hereby are estimated to be $       ($       if the
Underwriters' over-allotment option is exercised in full), based on an assumed
initial public offering price of $       per share and after deducting estimated
underwriting discounts and expenses of the Offering. The Company intends to use
approximately $14.5 million of the net proceeds to repay certain indebtedness
and the remaining net proceeds for general corporate purposes, including

possible future affiliations.
 
     The indebtedness being repaid consists of (i) approximately $7.25 million
(the 'HCFP Debt') outstanding under several loan and security agreements
(collectively, the 'HCFP Loan Agreements') between the Company and HCFP Funding,
Inc. ('HCFP Funding'), an affiliate of Health Care Financial Partners; (ii)
approximately $5.0 million of subordinated debt (the 'Comdisco Loan')
outstanding under a Subordinated Loan and Security Agreement (the 'Comdisco Loan
Agreement') between the Company and Comdisco, Inc. ('Comdisco'); (iii)
approximately $1.5 million of subordinated debt (the 'Galtney Loan') outstanding
under a Subordinated Loan and Security Agreement (the 'Galtney Loan Agreement')
between the Company and Galtney Corporate Services, Inc. ('Galtney'); and (iv)
approximately $750,000 of subordinated debt owed to Dr. Nagpal (the 'Nagpal
Debt'). See 'Certain Transactions--Equity and Debt Financings.'
 
     The HCFP Debt was incurred for working capital purposes and to finance
Affiliation Transactions, bears interest at rates ranging from 10 1/4% to 12%
per annum and matures from 1999 to 2000. The indebtedness under the Comdisco
Loan and the Galtney Loan was incurred to finance Affiliation Transactions,
bears interest at 14% per annum and matures on December 31, 2000. The Nagpal
Debt was also incurred to finance Affiliation Transactions, bears interest at 8%
per annum and is payable on demand.
 
     Pending use of the remaining net proceeds for general corporate purposes,
the Company intends to invest such net proceeds in short-term, investment grade,
interest-bearing securities.
 
                                DIVIDEND POLICY
 
     The Company has never paid or declared dividends on the Common Stock and
does not anticipate paying any dividends on the Common Stock in the foreseeable
future. The Company is prohibited from paying dividends on the Common Stock
under the terms of the HCFP Loan Agreements and the Debenture Purchase Agreement
(as defined). See 'Management's Discussion and Analysis of Financial Condition
and Results of Operations-- Liquidity and Capital Resources' and 'Certain
Transactions--Equity and Debt Financings.'
 
                                       15

<PAGE>

                                 CAPITALIZATION
 
     The following table sets forth the actual capitalization of the Company at
June 30, 1997, the pro forma capitalization of the Company at June 30, 1997
after giving effect to the Affiliation Transactions and the pro forma
capitalization as adjusted to give effect to the sale of the        shares of
Common Stock offered hereby, based on an assumed initial public offering price
of $       per share and after deducting estimated underwriting discounts and
expenses of the Offering, and the application of the net proceeds therefrom. See
'Use of Proceeds.' The table should be read in conjunction with the Pro Forma
Financial Information and 'Management's Discussion and Analysis of Financial
Condition and Results of Operations' and the historical financial statements of
the Company and the Existing Practices appearing elsewhere in this Prospectus.

 
<TABLE>
<CAPTION>
                                                                                            JUNE 30, 1997
                                                                                 -----------------------------------
                                                                                                          PRO FORMA
                                                                                 ACTUAL     PRO FORMA    AS ADJUSTED
                                                                                 -------    ---------    -----------
                                                                                  (IN THOUSANDS, EXCEPT SHARE DATA)
<S>                                                                              <C>        <C>          <C>
Short-term debt, including current portion of long-term debt and capital lease
  obligations.................................................................   $ 1,418     $ 1,536       $
                                                                                 -------    ---------    -----------
                                                                                 -------    ---------    -----------
Long-term debt and capital lease obligations, less current portion............   $ 6,540     $17,340       $ 4,000
Stockholders' equity:
  Convertible preferred stock--3,976,406 shares authorized, issued and
     outstanding; 4,184,740 shares authorized, issued and outstanding pro
     forma; and no shares issued and outstanding pro forma as adjusted........        40          42            --
  Common stock, $.001 par value--25,000,000 shares authorized; 8,306,462
     shares issued and outstanding; 10,277,479 shares issued and outstanding
     pro forma; and             shares issued and outstanding pro forma as
     adjusted(1)..............................................................         9          11
  Additional paid-in capital..................................................    14,482      18,591
  Accumulated deficit.........................................................    (2,985)     (2,985)       (2,985)
                                                                                 -------    ---------    -----------
     Total stockholders' equity...............................................    11,546      15,659
                                                                                 -------    ---------    -----------
          Total capitalization................................................   $18,086     $32,999       $
                                                                                 -------    ---------    -----------
                                                                                 -------    ---------    -----------
</TABLE>
 
------------------
(1) Excludes 1,203,000 shares issuable upon exercise of outstanding options with
    a weighted average exercise price of $0.39 per share and 254,165 shares of
    Common Stock issuable upon exercise of outstanding warrants to purchase
    Common Stock with a weighted average exercise price of $4.35 per share. See
    'Management' and 'Certain Transactions.'
 
                                       16

<PAGE>

                                    DILUTION
 
     As of June 30, 1997, the pro forma net tangible book value of the Company
was approximately $15,659,000, or approximately $1.08 per share. Pro forma 'net
tangible book value per share' represents the amount of the Company's total pro
forma tangible assets less the Company's total pro forma liabilities divided by
the number of shares of Common Stock outstanding, after giving effect to the
conversion of all outstanding shares of Preferred Stock (including accrued
dividends) into shares of Common Stock. After giving effect to the sale of
       shares of Common Stock offered by the Company hereby based on an assumed

initial public offering price of $       per share and after deducting estimated
underwriting discounts and expenses of the Offering, the pro forma net tangible
book value of the Company at June 30, 1997 would have been approximately
$       or approximately $       per share of Common Stock, representing an
immediate increase in pro forma net tangible book value of $       per share to
existing stockholders and an immediate, substantial dilution of $       per
share to persons purchasing shares of Common Stock offered hereby. The following
table illustrates this dilution:
 
<TABLE>
<S>                                                                                <C>         <C>
Assumed initial public offering price per share.................................               $
  Pro forma net tangible book value per share at June 30, 1997..................   $   1.08
  Increase attributable to price paid by new investors per share................
                                                                                   --------
Pro forma net tangible book value per share after the Offering..................
                                                                                               --------
Dilution per share to new investors.............................................               $
                                                                                               --------
                                                                                               --------
</TABLE>
 
     The following table sets forth, as of June 30, 1997, the pro forma number 
of shares of Common Stock purchased from the Company, the total consideration
paid to the Company and the average price paid per share by existing
stockholders and  purchasers of shares of Common Stock offered hereby, after
giving effect to (i) the sale of        shares of Common Stock offered hereby
based on an assumed initial public offering price of $       per share and
before deducting estimated underwriting discounts and expenses of the Offering
and (ii) the conversion of all outstanding shares of Preferred Stock of the
Company into shares of Common Stock.
 
<TABLE>
<CAPTION>
                                                   SHARES PURCHASED        TOTAL CONSIDERATION       AVERAGE
                                                 ---------------------    ----------------------    PRICE PER
                                                   NUMBER      PERCENT      AMOUNT       PERCENT      SHARE
                                                 ----------    -------    -----------    -------    ---------
<S>                                              <C>           <C>        <C>            <C>        <C>
Existing stockholders.........................   14,462,219          %    $18,644,000          %      $1.29
New investors.................................
                                                 ----------    -------    -----------    -------
       Total..................................                  100.0%    $               100.0%
                                                 ----------    -------    -----------    -------
                                                 ----------    -------    -----------    -------
</TABLE>
 
     The foregoing computations do not include the effect of the issuance of
1,203,000 shares of Common Stock issuable upon exercise of outstanding options
with a weighted average exercise price of $0.39 per share and 254,165 shares of
Common Stock issuable upon exercise of outstanding warrants with a weighted
average exercise price of $4.35 per share. To the extent such options and
warrants are exercised, there will be further dilution to the new investors. See
'Management' and 'Certain Transactions.'

 
                                       17

<PAGE>

                        PRO FORMA FINANCIAL INFORMATION
 
     The pro forma statement of operations for the six months ended June 30,
1997 gives effect to (i) the 1997 Affiliation Transactions and (ii) receipt and
application of the estimated net proceeds from this Offering at an assumed
initial public offering price of $       per share as if such transactions had
occurred on January 1, 1996. The pro forma statement of operations for the year
ended December 31, 1996 gives effect to (i) the Affiliation Transactions and
(ii) the receipt and application of the estimated net proceeds from this
Offering as if such transactions had occurred on January 1, 1996. The pro forma
balance sheet as of June 30, 1997 gives effect to (i) the 1997 Affiliation
Transactions, (ii) the receipt and application of the estimated net proceeds
from this Offering, (iii) the conversion of all outstanding Preferred Stock and
other outstanding equity securities into Common Stock concurrently with the
Offering as if all of such transactions had occurred on June 30, 1997. The pro
forma financial information is based on the financial statements of the Company,
after giving effect to the assumptions and adjustments in the accompanying notes
to the pro forma financial information. Although such information is based on
preliminary allocations of the consideration paid in connection with the 1997
Affiliation Transactions, the Company does not expect that the final allocations
will be materially different from such preliminary allocations.
 
     The pro forma financial information has been prepared by management based
on the historical financial statements of the Company and the Existing Practices
at and for the year ended December 31, 1996 and the six months ended June 30,
1997, adjusted where necessary to reflect the Affiliation Transactions as if the
related Management Service Agreements had been in effect during the entire
periods presented. The pro forma financial information is presented for
illustrative purposes and does not purport to represent what the results of
operations or financial condition of the Company for the periods or at the dates
presented would have been if such transactions had been consummated as of such
dates and is not indicative of the results that may be obtained in the future.
 
                          BMJ MEDICAL MANAGEMENT, INC.
                  UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
                         SIX MONTHS ENDED JUNE 30, 1997
 
<TABLE>
<CAPTION>
                                                           1997 AFFILIATIONS(A)
                                              ----------------------------------------------
                                     THE                         GOLD    SUN       OTHER       PRO FORMA               PRO FORMA
                                 COMPANY(B)   TRI-CITY   LOS    COAST   VALLEY  AFFILIATIONS  ADJUSTMENTS  PRO FORMA  AS ADJUSTED
                                 -----------  --------  ------  ------  ------  ------------  -----------  ---------  -----------
                                                             (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S>                              <C>          <C>       <C>     <C>     <C>     <C>           <C>          <C>        <C>
Patient revenues, net...........   $19,907     $1,240   $1,600  $1,609  $1,358     $9,131       $    --     $34,845     $34,845
Less: physician and other
  provider services.............     9,509        578      653     764     646      2,194          (940)(c)  13,404      13,404

                                 -----------  --------  ------  ------  ------  ------------  -----------  ---------  -----------
Management fee revenue..........    10,398        662      947     845     712      6,937          (940)     21,441      21,441
Costs and expenses:
  Medical support services......     9,541        538      787     604     576      5,806            --      17,852
  General and administrative....     2,433         --       --      --      --         --            --       2,433
  Depreciation and
    amortization................       300         --       --      --      --         --           234 (d)     534
  Interest expense (income),
    net.........................        --         --       --      --      --         --           614 (e)     614
                                 -----------  --------  ------  ------  ------  ------------  -----------  ---------  -----------
    Total costs and expenses....    12,274        538      787     604     576      5,806           848      21,433
                                 -----------  --------  ------  ------  ------  ------------  -----------  ---------  -----------
(Loss) income before income
  taxes.........................    (1,876)       124      160     241     136      1,131            92           8
Income taxes....................        --         --       --      --      --         --             3 (f)       3            (g)
                                 -----------  --------  ------  ------  ------  ------------  -----------  ---------  -----------
Net (loss) income...............   $(1,876)    $  124   $  160  $  241  $  136     $1,131       $    89     $     5     $
                                 -----------  --------  ------  ------  ------  ------------  -----------  ---------  -----------
                                 -----------  --------  ------  ------  ------  ------------  -----------  ---------  -----------
Net (loss) income per common share:
  Primary.......................   $ (0.11)                                                                             $
  Diluted.......................   $ (0.11)                                                                             $
Weighted average common shares
  outstanding:
  Primary.......................    16,469
  Diluted.......................    16,469
</TABLE>
 
                                       18

<PAGE>

                          BMJ MEDICAL MANAGEMENT, INC.
                  UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
                          YEAR ENDED DECEMBER 31, 1996

<TABLE>
<CAPTION>
                                                                                 1997 AFFILIATIONS(A)
                                            1996 AFFILIATIONS(A)    ----------------------------------------------
                                  THE      -----------------------                     GOLD    SUN       OTHER       PRO FORMA
                              COMPANY(B)   LVBMJ    SCOI     STSC   TRI-CITY   LOS    COAST   VALLEY  AFFILIATIONS  ADJUSTMENTS
                              -----------  ------  -------  ------  --------  ------  ------  ------  ------------  -----------
                                                                       (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S>                           <C>          <C>     <C>      <C>     <C>       <C>     <C>     <C>     <C>           <C>
Patient revenues, net........   $ 6,029    $1,540  $17,907  $6,027   $3,478   $6,365  $3,434  $2,468    $ 16,500      $    --
Less: physician and other
 provider services...........     2,912      562     8,545   3,766    1,310    3,418   1,535   1,137       3,978        (1,537)(c)
                              -----------  ------  -------  ------  --------  ------  ------  ------  ------------  -----------
Management fee revenue.......     3,117      978     9,362   2,261    2,168    2,947   1,899   1,331      12,522        (1,537)
Costs and expenses:
 Medical support services....     2,844      824     8,766   1,628    1,820    2,310   1,384   1,084      10,476           --
 General and
   administrative............     1,278       --        --      --       --       --      --      --          --           --
 Depreciation and
   amortization..............       104       --        --      --       --       --      --      --          --          629 (d)
 Interest expense (income),
   net.......................        --       --        --      --       --       --      --      --          --        1,474 (e)
                              -----------  ------  -------  ------  --------  ------  ------  ------  ------------  -----------
   Total costs and
     expenses................     4,226      824     8,766   1,628    1,820    2,310   1,384   1,084      10,476        2,103
                              -----------  ------  -------  ------  --------  ------  ------  ------  ------------  -----------
(Loss) income before income
 taxes.......................    (1,109)     154       596     633      348      637     515     247       2,046         (566)
Income taxes.................        --       --        --      --       --       --      --      --          --        1,330(f)
                              -----------  ------  -------  ------  --------  ------  ------  ------  ------------  -----------
Net (loss) income............   $(1,109)   $ 154   $   596  $  633   $  348   $  637  $  515  $  247    $  2,046      $(1,896)
                              -----------  ------  -------  ------  --------  ------  ------  ------  ------------  -----------
                              -----------  ------  -------  ------  --------  ------  ------  ------  ------------  -----------
Net (loss) income per common share:
 Primary.....................   $ (0.07)
 Diluted.....................   $ (0.07)
Weighted average shares outstanding:
 Primary.....................    15,811
 Diluted.....................    15,811
 
<CAPTION>
                                          PRO FORMA
                                             AS
                               PRO FORMA  ADJUSTED
                               ---------  ---------
<S>                           <C>         <C>
Patient revenues, net........   $63,748    $63,748
Less: physician and other

 provider services...........    25,626     25,626
                               ---------  ---------
Management fee revenue.......    38,122     38,122
Costs and expenses:
 Medical support services....    31,136
 General and
   administrative............     1,278
 Depreciation and
   amortization..............       733
 Interest expense (income),
   net.......................     1,474
                               ---------  ---------
   Total costs and
     expenses................    34,621
                               ---------  ---------
(Loss) income before income
 taxes.......................     3,501
Income taxes.................     1,330           (g)
                               ---------  ---------
Net (loss) income............   $ 2,171    $
                               ---------  ---------
                               ---------  ---------
Net (loss) income per common
 Primary.....................              $
 Diluted.....................              $
Weighted average shares outst
 Primary.....................
 Diluted.....................
</TABLE>
 
                                       19

<PAGE>

NOTES TO PRO FORMA STATEMENTS OF OPERATIONS
 
     Practice revenue represents the revenue of the Existing Practices reported
at the estimated realizable amounts from patients, third party payors and others
for services rendered, net of contractual and other adjustments. Management fee
revenue represents practice revenue less amounts retained by the Existing
Practices (consisting of physician and other provider services costs,
principally compensation and fees paid to physicians pursuant to the Management
Services Agreements). Under each Management Services Agreement, the Company
assumes responsibility for the management of the non-medical operations of the
Practice, employs substantially all of the non-professional personnel utilized
by the Practice and may provide the Practice with the facilities and equipment
used in its medical practice.
 
     The Company's operating expenses consist of the expenses incurred in
fulfilling its obligations under the Management Services Agreements. These
expenses include medical support services (principally clinic overhead expenses
that would have been incurred by the Existing Practices, including
non-professional employee salaries, employee benefits, medical supplies,
malpractice insurance premiums, rent and other expenses related to clinic

operations) and general and administrative expenses (personnel and
administrative expenses in connection with maintaining a corporate office that
provides management, contracting, administrative, marketing and development
services to the Existing Practices). The Practices' operating expenses prior to
affiliation with the Company consist of the clinic overhead expenses, including
non-professional employee salaries, employee benefits, medical supplies,
malpractice insurance premiums, rent, depreciation and amortization and general
and administrative expenses related to clinic operations which have been
presented as medical support services.
 
          (a) The 1996 Affiliations column presents historical information for
     the portion of the year preceding the Practices' affiliation with the
     Company as if the affiliations had occurred on January 1, 1996 and reflects
     the impact of applying the provisions of the Management Services Agreements
     relating to management fees payable to the Company. In the pro forma
     statement of operations for the year ended December 31, 1996, the 1997
     Affiliations columns present historical information of the 1997 Affiliation
     Transactions as if such transactions had occurred on January 1, 1996 and
     reflects the impact of applying the provisions of the Management Services
     Agreements. In the pro forma statements of operations for the six months
     ended June 30, 1997, the Company column includes the operations of the
     Existing Practices that affiliated with the Company in 1996 and the
     Existing Practices that affiliated with the Company in the first six months
     of 1997 from their respective dates of affiliation in 1997. The 1997
     Affiliation column presents historical information of the 1997 Affiliation
     Transactions as if such transactions had occurred on January 1, 1997 and
     reflects the impact of applying the provisions of the Management Services
     Agreements except for the Existing Practices that affiliated with the
     Company in the first six months of 1997 for which the information reflects
     the historical information for that portion of 1997 preceding the
     Practice's affiliation with the Company and reflects the impact of applying
     the provisions of the Management Services Agreements.
 
          (b) In the pro forma statement of operations for the year ended
     December 31, 1996, the Company column includes the operations of the
     Existing Practices that affiliated with the Company in 1996 from the date
     of affiliation and all actual expenses related to corporate infrastructure,
     which were primarily general and administrative expenses. In the pro forma
     statement of operations for the six months ended June 30, 1997, the Company
     column includes all operations of the Existing Practices that affiliated
     with the Company in 1996 and the operations of the Existing Practices that
     affiliated with the Company in the first six months of 1997 from the date
     of affiliation and all actual expenses related to corporate infrastructure,
     which were primarily general and administrative expenses. See 'Management's
     Discussion and Analysis of Financial Condition and Results of Operations.'
 
          (c) Reflects the impact of applying the provisions of the amended and
     restated Management Services Agreements of SCOI and LVBMJ relating to
     management fees payable to the Company retroactively to January 1, 1996 and
     1997.
 
          (d) Reflects increase in depreciation and amortization expense for
     intangible assets and furniture, fixtures and equipment based upon the
     Affiliation Transactions as if they had all occurred on January 1, 1996 and

     January 1, 1997. The intangible assets related to all the affiliations
     total approximately $13.8 million at June 30, 1997 and are being amortized
     over periods ranging from 7 to 30 years.
 
          (e) To record interest expense on debt issued in connection with the
     Affiliation Transactions as if such transactions had occurred on January 1,
     1996 and January 1, 1997.
 
          (f) To reflect the estimated income tax effect at an effective rate of
     approximately 38%.
 
          (g) To eliminate interest expense assuming repayment of all
     outstanding senior and subordinated indebtedness (other than the
     Debentures) with a portion of the net proceeds of the Offering, net of
     estimated federal and state income taxes at a rate of approximately 38%.
     See 'Use of Proceeds.'
 
                                       20

<PAGE>

                          BMJ MEDICAL MANAGEMENT, INC.
                       UNAUDITED PRO FORMA BALANCE SHEET
                                 JUNE 30, 1997
 
<TABLE>
<CAPTION>
                                                                               AFFILIATION                 PRO FORMA
                                                                                AND OTHER                      AS
                                                                 THE COMPANY   ADJUSTMENTS    PRO FORMA   ADJUSTED(A)
                                                                 -----------   -----------    ---------   ------------
                                                                                    (IN THOUSANDS)
<S>                                                              <C>           <C>            <C>         <C>
                            ASSETS
Current assets:
  Cash and cash equivalents....................................    $ 6,915       $(9,599)(b)   $ 9,484      $
                                                                                  12,168(c)
  Accounts receivable..........................................     10,319         4,606(b)     14,925        14,925
  Due from physician groups....................................      1,578            --         1,578         1,578
  Prepaid expenses and other current assets....................         48            66(b)        114
                                                                 -----------   -----------    ---------   ------------
     Total current assets......................................     18,860         7,241        26,101
Furniture, fixtures and equipment, net.........................      2,546         1,253(b)      3,799         3,799
Management Services Agreements, net............................      7,310         6,537(b)     13,847        13,847
Other assets...................................................        740            --           740           740
                                                                 -----------   -----------    ---------   ------------
     Total assets..............................................    $29,456       $15,031       $44,487      $
                                                                 -----------   -----------    ---------   ------------
                                                                 -----------   -----------    ---------   ------------
 
             LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Accounts payable.............................................    $   353       $    --       $   353      $    353
  Accrued expenses.............................................        826            --           826           826

  Accrued salaries and benefits................................        841            --           841           841
  Due to physician groups......................................      7,932            --         7,932
  Shareholder note payable.....................................        753           118           871
  Current portion of long-term debt and capital lease
     obligations...............................................        665            --           665
                                                                 -----------   -----------    ---------   ------------
     Total current liabilities.................................     11,370           118        11,488
Long-term debt.................................................      6,540        10,800(c)     17,340
Stockholders' equity:
  Convertible preferred stock..................................         40             2            42            --
  Common stock.................................................          9             2(c)         11
  Additional paid-in capital...................................     14,482         2,861(b)     18,591
                                                                                   1,248(c)
  Deficit......................................................     (2,985)           --        (2,985)       (2,985)
                                                                 -----------   -----------    ---------   ------------
     Total stockholders' equity................................     11,546         4,113        15,659
                                                                 -----------   -----------    ---------   ------------
          Total liabilities and stockholders' equity...........    $29,456       $15,031       $44,487      $
                                                                 -----------   -----------    ---------   ------------
                                                                 -----------   -----------    ---------   ------------
</TABLE>
 
                                       21

<PAGE>

NOTES TO PRO FORMA BALANCE SHEET
 
     (a) To reflect (i) the net proceeds from the sale of shares of Common Stock
in the Offering estimated to be approximately $       million (after deducting
underwriting discounts and estimated Offering expenses) and the repayment of
$       million of indebtedness and (ii) the conversion of the Preferred Stock
and all other outstanding equity securities into Common Stock upon the closing
of the Offering..
 
     (b) To record the historical basis of the assets acquired and liabilities
assumed by the Company in the Affiliation Transactions. In connection with the
Affiliation Transactions, the Company issued 1,604,270 shares of common stock
and paid cash of approximately $9.6 million. The accounts receivable were
recorded at net realizable value and the furniture, fixtures and equipment was
recorded at fair market value. In connection with the recording of intangible
assets, primarily Management Services Agreements, the Company analyzed the
nature of each Practice with which a Management Services Agreement was entered
into, including the number of physicians in each Practice, number of offices and
ability to recruit additional physicians, the Practice's relative market
position, the length of time each Practice had been in existence and the term
and enforceability of the Management Services Agreement. The Management Services
Agreements are for a term of 40 years and typically cannot be terminated by the
Practice without cause, consisting primarily of bankruptcy or material default.
 
     The Company believes that there is no material value allocable to the
employment and noncompete agreements entered into between the Existing Practices
and the individual physicians, because the primary economic beneficiaries of
these agreements are the Existing Practices, which are entities that the Company

does not legally control. The Company believes that the Existing Practices are
long-lived entities with an indeterminable life and that the physicians, patient
demographics and various contracts will be continuously replaced. The amounts
allocated to the Management Services Agreement are being amortized over periods
varying from 7-30 years.
 
     The Emerging Issues Task Force of the Financial Accounting Standards Board
is currently evaluating certain matters relating to the PPM industry, which the
Company expects will include a review of the consolidation of professional
corporation revenues and the accounting for business combinations. The Company
is unable to predict the impact, if any, that this review may have on the
Company's affiliation strategy, allocation of consideration related to
affiliations and amortization life assigned to intangible assets.
 
     (c) To record $12.2 million raised after June 30, 1997. Of such amount,
$1.3 million was provided from the issuance of 208,333 shares of Series E
Preferred Stock and $10.8 million was provided from the Comdisco Loan, the
Galtney Loan and the Debentures. The Debentures are convertible into 555,556
shares of Common Stock.
 
                                       22

<PAGE>

                         SELECTED FINANCIAL INFORMATION
 
     The following selected financial data with respect to the Company's
statements of operations for the year ended December 31, 1996 and the balance
sheet data at December 31, 1996 have been derived from the financial statements
of the Company which have been audited by Ernst & Young LLP, independent
certified public accountants. The selected financial data presented below for
the six months ended June 30, 1996 and 1997 and the balance sheet data at June
30, 1997 are unaudited and were prepared by management of the Company on the
same basis as the audited financial statements appearing elsewhere in this
Prospectus and, in the opinion of management of the Company, include all
adjustments necessary to present fairly the information set forth therein. The
results for the six months ended June 30, 1997 are not necessarily indicative of
the results to be expected for the year ending December 31, 1997 or future
periods. The following data should be read in conjunction with 'Management's
Discussion and Analysis of Financial Condition and Results of Operations' and
the financial statements of the Company and the related notes thereto included
elsewhere in this Prospectus.
 
<TABLE>
<CAPTION>
                                                                                                   SIX MONTHS ENDED
                                                                                                       JUNE 30,
                                                                                YEAR ENDED        ------------------
                                                                             DECEMBER 31, 1996     1996       1997
                                                                             -----------------    -------    -------
                                                                               (IN THOUSANDS, EXCEPT PER SHARE AND
                                                                                         OPERATING DATA)
<S>                                                                          <C>                  <C>        <C>
STATEMENT OF INCOME DATA:

  Practice revenue, net...................................................        $ 6,029           $  --    $19,907
  Less: physician and other provider services.............................         (2,912)             --     (9,509)
                                                                                 --------         -------    -------
  Management fee revenue..................................................          3,117              --     10,398
  Costs and expenses:
     Medical support services.............................................          2,844              --      9,541
     General and administrative...........................................          1,278              51      2,433
     Depreciation and amortization........................................            104               1        300
                                                                                 --------         -------    -------
       Total costs and expenses...........................................          4,226              52     12,274
  Loss before income taxes................................................         (1,109)            (52)    (1,876)
  Income taxes............................................................             --              --         --
                                                                                 --------         -------    -------
  Net loss................................................................        $(1,109)           $(52)   $(1,876)
                                                                                 --------         -------    -------
                                                                                 --------         -------    -------
  Net loss per common share...............................................        $ (0.07)          $0.00    $ (0.11)
                                                                                 --------         -------    -------
                                                                                 --------         -------    -------
  Weighted average common shares outstanding..............................         15,811          15,206     16,469
OTHER OPERATING DATA:
  Number of Practices (end of period).....................................              3               0          8
  Number of physicians (end of period)....................................             34               0         57
</TABLE>
 
<TABLE>
<CAPTION>
                                                                                            DECEMBER 31,    JUNE 30,
                                                                                                1996          1997
                                                                                            ------------    --------
                                                                                                 (IN THOUSANDS)
<S>                                                                                         <C>             <C>
BALANCE SHEET DATA:
  Cash and cash equivalents..............................................................     $  1,439      $  6,915
  Working capital........................................................................        1,819         7,490
  Total assets...........................................................................       14,490        29,456
  Long-term debt, less current portion...................................................           59         6,540
  Total stockholders' equity.............................................................        7,724        11,546
</TABLE>
 
                                       23

<PAGE>

               MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                      CONDITION AND RESULTS OF OPERATIONS
 
     The following discussion of the results of operations and financial
condition of the Company should be read in conjunction with the consolidated
financial statements and notes thereto of the Company included elsewhere in this
Prospectus. This Prospectus contains forward-looking statements. Discussions
containing such forward-looking statements may be found in the material set
forth below and under 'Business,' as well as in this Prospectus generally.
Prospective investors are cautioned that any such forward-looking statements are

not guarantees of future performance and involve risks and uncertainties. Actual
events or results may differ materially from those discussed in the
forward-looking statements as a result of various factors, including, without
limitation, the risk factors set forth under 'Risk Factors' and the matters set
forth in this Prospectus generally.
 
OVERVIEW
 
     The Company is a PPM that provides management services to physician
practices that focus on musculoskeletal care, which involves the medical and
surgical treatment of conditions relating to bones, muscles, joints and related
connective tissues. The broad spectrum of musculoskeletal care offered by the
physician practices ranges from acute procedures, such as spine or other complex
surgeries, to the treatment of chronic conditions, such as arthritis and back
pain. As of the date of this Prospectus, the Company has affiliated (the
'Affiliation Transactions') with twenty Existing Practices comprising 87 doctors
practicing in Arizona, California, Florida, Pennsylvania and Texas by entering
into Management Services Agreements. The Company was incorporated in Delaware in
January 1996 and affiliated with the first Existing Practice in July 1996. At
December 31, 1996 the Company had entered into Management Services Agreements
with three Existing Practices comprising 34 physicians at that time and 37
physicians as of the date of this Prospectus. During the first eight months of
1997, the Company entered into additional Management Services Agreements with 17
Existing Practices, comprising 50 physicians.
 
     The total consideration paid to a Practice's physicians, once the Practice
has agreed to affiliate with the Company, is based on a multiple of the
Company's management fee plus the fair market value of the Practice's furniture,
fixtures and equipment and, subject to legal limitations regarding Medicare and
Medicaid receivables, the estimated net realizable value of its accounts
receivable. The consideration paid by the Company consists of Common Stock, cash
and the assumption of certain liabilities. In exchange for this consideration,
the Practice enters into a 40-year Management Services Agreement with the
Company.
 
     Practice revenue represents the revenue of the Existing Practices reported
at the estimated realizable amounts from patients, third party payors and others
for services rendered, net of contractual and other adjustments. Management fee
revenue represents Practice revenue less amounts retained by the Existing
Practices (consisting of physician and other provider services costs,
principally compensation and fees paid to physicians and other health care
providers) which are paid to the physicians pursuant to the Management Services
Agreements. Under each Management Services Agreement, the Company assumes
responsibility for the management of the non-medical operations of the Practice,
employs substantially all of the non-professional personnel utilized by the
Practice and may provide the Practice with the facilities and equipment used in
its medical practice.
 
     The Company's management fee revenue constitutes a stated percentage of
each Practice's net collected revenue, except that under one Management Services
Agreement the Company's management fee is based on the Existing Practice's net
operating income. See 'Certain Transactions--Affiliation Transactions.'
Accordingly, the Company's revenues are dependent on the Existing Practices'
revenues, which must be billed and collected. The percentage of revenue paid to

the Company as a management fee is generally 10% to 15% of the net collected
revenue of the Practice. The management fees and an amount equal to 100% of the
clinic expenses are reflected as management fee revenue earned by the Company.
 
     The Company's operating expenses consist of the expenses incurred in
fulfilling its obligations under the Management Services Agreements. These
expenses include medical support services (principally clinic overhead expenses
that would have been incurred by the Existing Practices, including
non-professional employee salaries, employee benefits, medical supplies,
malpractice insurance premiums, building and equipment rental and other
 
                                       24

<PAGE>

expenses related to clinic operations) and general and administrative expenses
(personnel and administrative expenses in connection with maintaining a
corporate office function that provides management, contracting, administrative,
marketing and development services to the Existing Practices).
 
     As a result of the Company's rapid growth, costs and expenses exceeded
management fee revenue due to the start-up nature of the Company and the
transition period included in two of the Management Services Agreements during
which time the Company effectively received less than 10% of the net collected
revenue. The level of these costs and expenses are expected to continue to
increase as affiliations with additional Practices are achieved and the Company
adds to its management infrastructure.
 
RESULTS OF OPERATIONS
 
     The following table sets forth the percentages of the Existing Practices'
revenue represented by certain items reflected in the Company's consolidated
statements of operations. As a result of the Company's limited period of
existence and affiliation with the Existing Practices, the Company does not
believe that comparisons between periods and percentage relationships within the
periods set forth below are meaningful.
 
<TABLE>
<CAPTION>
                                                                                                         SIX MONTHS
                                                                                      YEAR ENDED            ENDED
                                                                                   DECEMBER 31, 1996    JUNE 30, 1997
                                                                                   -----------------    -------------
<S>                                                                                <C>                  <C>
Practice revenue, net...........................................................         100.0%             100.0%
Less: physician and other provider services.....................................          48.3               47.8
                                                                                        ------             ------
Management fee revenue..........................................................          51.7               52.2
Costs and expenses:
  Medical support services......................................................          47.2               47.9
  General and administrative....................................................          21.2               12.2
  Depreciation and amortization.................................................           1.7                1.5
                                                                                        ------             ------
     Total costs and expenses...................................................          70.1               61.6

                                                                                        ------             ------
Loss before income taxes........................................................         (18.4)              (9.4)
Income taxes....................................................................            --                 --
                                                                                        ------             ------
Net loss........................................................................         (18.4)%             (9.4)%
                                                                                        ------             ------
                                                                                        ------             ------
</TABLE>
 
     Practice Revenue, Net.  For the year ended December 31, 1996, net practice
revenue was $6.0 million arising from Affiliation Transactions with LVBMJ on
July 1, 1996 and SCOI and STSC on November 1, 1996 ('the 1996 Affiliations').
For the six months ended June 30, 1997, net practice revenue was $19.9 million
arising from the 1996 Affiliations and affiliations with five additional
Practices comprising 21 physicians at April 1, 1997 (LOS and Tri-City) and June
1, 1997 (Gold Coast and two additional Practices in Los Angeles, CA).
 
     Physician and Other Provider Services.  Physician and other provider
services for the year ended December 31, 1996 was $2.9 million consisting of
compensation and fees paid to physicians and other health care providers
pursuant to Management Services Agreements entered into on July 1, 1996 and
November 1, 1996. For the six months ended June 30, 1997, physician and other
provider services was $9.5 million, reflecting the effect of the 1996
Affiliations and affiliations with five additional Practices pursuant to
Management Services Agreements executed in the first six months of 1997.
 
     Management Fee Revenue.  Management fee revenue for the year ended December
31, 1996 was $3.1 million as a result of the factors set forth above. For the
six months ended June 30, 1997, management fee revenue was $10.4 million as a
result of the factors set forth above.
 
     Medical Support Services.  Medical support services, principally clinic
overhead expenses, was $2.8 million for the year ended December 31, 1996,
resulting from the 1996 Affiliations. For the six months ended June 30, 1997,
medical support services was $9.5 million, reflecting the 1996 Affiliations,
plus the effect of five additional Management Services Agreements executed in
the first six months of 1997.
 
     General and Administrative.  General and administrative expenses for the
year ended December 31, 1996 was $1.3 million, reflecting the expenses incurred
in establishing a corporate office. These expenses consisted of labor costs,
group benefits, accounting, legal, rent and other expenses, substantially all of
which were incurred after July 1, 1996 (the date of the first Affiliation
Transaction). For the six months ended June 30, 1997, general
 
                                       25

<PAGE>

and administrative expenses were $2.4 million, of which $1.8 million were
incurred in the three months ended June 30, 1997, reflecting the Company's
increased development of corporate infrastructure to support the additional
affiliations as they occur. While the Company expects that general and
administrative expenses will continue to increase as more Practices affiliate

with the Company, it also expects them to continue to decline as a percentage of
both practice revenue and management fee revenue.
 
     Depreciation and Amortization.  Depreciation and amortization for the year
ended December 31, 1996 was $104,000, substantially all of which was incurred
after July 1, 1996. The depreciation expense relates to acquired furniture,
fixtures and equipment and the amortization relates to Management Services
Agreements. For the six months ended June 30, 1997, depreciation and
amortization was $300,000, reflecting the additional Affiliation Transactions
entered into in the first six months of 1997. The Company expects that
depreciation and amortization expenses will continue to increase significantly
as additional Practices affiliate with the Company, but may remain relatively
constant as a percentage of both practice revenue and management fee revenue.
Although the Company's net unamortized balance of intangible assets acquired
($7.3 million at June 30, 1997) is not considered to be impaired, any future
determination that a significant impairment has occurred would require the
write-off of the impaired portion of unamortized intangible assets, which could
have a material adverse effect on the Company's results of operations.
 
LIQUIDITY AND CAPITAL RESOURCES
 
     At December 31, 1996 and June 30, 1997, the Company had $1.8 million and
$7.5 million, respectively, in working capital and $1.4 million and $6.9
million, respectively, in cash and cash equivalents. The Company's principal
sources of liquidity as of December 31, 1996 and June 30, 1997 consisted of the
cash and cash equivalents and net accounts receivable of $5.8 million and $10.3
million, respectively.
 
     The Company has financed its Affiliation Transactions, capital expenditures
and working capital needs since its inception through a combination of (i)
private placements of capital stock; (ii) borrowings from institutional lenders;
and (iii) short-term borrowings from stockholders. Through June 30, 1997, the
Company had paid or committed to pay consideration of cash and stock in
connection with Affiliation Transactions aggregating $19.3 million. See 'Certain
Transactions.'
 
     For the year ended December 31, 1996 and the six months ended June 30,
1997, cash used in operations was $1.0 million and $1.2 million, respectively,
resulting primarily from net operating losses adjusted for non-cash expenses.
 
     Cash used in investing activities for the year ended December 31, 1996 and
the six months ended June 30, 1997 was $4.6 million and $8.0 million,
respectively, relating primarily to Affiliation Transactions resulting in
increases in accounts receivable, intangible assets and furniture, fixtures and
equipment.
 
     Cash provided by financing activities for the year ended December 31, 1996
and the six months ended June 30, 1997 was $7.1 million and $14.7 million,
respectively. For the year ended December 31, 1996, substantially all of the
cash provided resulted from proceeds from the issuance by the Company of two
series of Preferred Stock. For the six months ended June 30, 1997, cash provided
by financing activities resulted primarily from $8.1 million in net borrowings
and $5.0 million in proceeds from the issuance of three series of preferred
stock.

 
     Beginning in March 1997, the Company entered into the HCFP Loan Agreements
with HCFP Funding, secured by the accounts receivable acquired from Existing
Practices. The Company may borrow up to an aggregate of $14.0 million under HCFP
Loan Agreements, subject to a borrowing base of 85% of eligible accounts
receivable. In connection with the Offering, the Company will repay all
outstanding amounts under the HCFP Loan Agreements. See 'Use of Proceeds.'
Borrowings under the HCFP Loan Agreements bear interest at the prime rate plus
1.75% per annum. The HCFP Loan Agreements require the Company to maintain a
prescribed level of tangible net worth, place limitations on indebtedness,
liens, and investments and prohibit the payment of dividends.
 
     On June 30, 1997, the Company entered into an additional HCFP Loan
Agreement secured by a pledge of all of the assets of the Company. The Company
may borrow up to $3.3 million under such agreement for Practice affiliations.
Borrowings under such agreement bear interest at the prime rate plus 3.5%.
Interest only is payable
 
                                       26

<PAGE>

through December 31, 1997, at which time the loan converts to a term loan
repayable in 36 monthly installments. In addition, in connection with such
agreement the Company issued warrants to HCFP to purchase 40,000 shares of the
Common Stock.
 
     In August 1997, the Company borrowed an aggregate of $6.5 million under the
Comdisco Loan Agreement and the Galtney Loan Agreement to fund Practice
affiliations. The Comdisco Loan and the Galtney Loan both have three year terms,
bear interest at 14% per annum and are secured by a lien on all of the Company's
tangible and intangible personal property. On September 9, 1997, the Company
issued $4.0 million principal amount of its 6% convertible debentures due 2000
(the 'Debentures') to fund Practice affiliations. The Debentures are convertible
into Common Stock. See 'Certain Transactions.'
 
     The Company's affiliation and expansion programs will require substantial
capital resources. In addition, the operations and expansion of the Practices,
including the addition of Ancillary Service Facilities, will require ongoing
capital expenditures. The financing of future affiliations and business
expansion is anticipated to be provided by a combination of the proceeds of the
Offering, borrowings under the HCFP Loan Agreements and cash flows from
operations. The Company believes that the combination of these sources will be
sufficient to meet its currently anticipated operating and capital expenditure
requirements and working capital needs through 1998. In order to meet its
affiliation and expansion goals as well as its long-term liquidity needs, the
Company expects to incur, from time to time, additional short-term and long-term
indebtedness and to issue additional debt and equity securities, the
availability and terms of which will depend upon market and other conditions.
There can be no assurance that such additional financing will be available on
terms acceptable to the Company. The failure to raise the funds necessary to
finance its future cash requirements could adversely affect the Company's
ability to pursue its strategy and could adversely affect its results of
operations for future periods.

 
REIMBURSEMENT RATES
 
     The health care industry is experiencing a trend toward cost containment as
payors seek to improve lower reimbursement and utilization rates with providers.
Further reductions in payments to health care providers or other changes in
reimbursement for health care services could adversely affect the Practices with
which the Company is affiliated and adversely affect the Company's results of
operations.
 
                                       27

<PAGE>
                                    BUSINESS
 
GENERAL
 
     The Company is a PPM that provides management services to physician
practices that focus on musculoskeletal care, which involves the medical and
surgical treatment of conditions relating to bones, muscles, joints and related
connective tissues. The broad spectrum of musculoskeletal care offered by the
physician practices ranges from acute procedures, such as spine or other complex
surgeries, to the treatment of chronic conditions, such as arthritis and back
pain. The management services provided by the Company include physician practice
and network development, marketing, payor contracting and financial,
administrative and clinical information management. As of the date of this
Prospectus, the Company has entered into Affiliation Transactions by entering
into Management Services Agreements with 20 Existing Practices comprising 87
doctors practicing in Arizona, California, Florida, Pennsylvania, and Texas.
 
INDUSTRY OVERVIEW
 
     The market for muscoloskeletal care in the United States is significant and
growing. Total direct costs associated with the delivery of musculoskeletal care
exceeded $60 billion in 1988 and increased to approximately $72 billion in 1992.
The increase in expenditures can be attributed to various factors, including
improvements in medical technology, more active lifestyles which have resulted
in the growth of sports medicine and the overall aging of the population. In
1992, the 65-and-over age group represented approximately 12% of the U.S.
population, but accounted for more than half of all musculoskeletal care
expenditures.
 
     Musculoskeletal care is provided by a variety of medical and surgical
specialists. Although the orthopaedic surgeon is the primary musculoskeletal
provider, musculoskeletal care is also provided by physiatrists,
rheumatologists, podiatrists, occupational medicine physicians, rehabilitative
therapists, neurosurgeons and neurologists. In addition, there are a number of
subspecialties of orthopaedics, including adult reconstructive (joint
replacement) surgery, spinal care, sports medicine, foot and ankle care, hand
and upper extremity care, pediatrics and trauma care. The American Academy of
Orthopaedic Surgeons (the 'AAOS') estimates that in 1995 there were
approximately 23,000 orthopaedic surgeons, as well as approximately 5,500
physiatrists, 3,500 rheumatologists, 3,000 occupational medicine physicians,
4,900 neurosurgeons and 11,400 neurologists in the United States.

 
     Historically, most orthopaedic procedures have been performed on an
inpatient basis. Recently, however, there has been a trend towards handling
these procedures on an outpatient basis. The Company believes this trend may be
attributable to a number of factors: less invasive surgery with the arthroscope
and new anaesthetic techniques have significantly reduced post-operation trauma;
outpatient procedures are less costly and thus more desirable to both patients
and payors; outpatient settings represent a 'health environment' which promotes
wellness and improved patient attitudes; and outpatient settings foster
preventive team situations which minimize waste and improve efficiency. For
these reasons, the Company believes that the trend toward treatment in the
outpatient setting will continue to increase in the foreseeable future.
 
     In 1996, principal payors for musculoskeletal care were Medicare and
Medicaid at 27% (combined), managed care, including discounted fee-for-service
and capitation, at 26%, private pay (indemnity insurers) at 23% and workers'
compensation at 17%. Reflecting the emergence of managed care, the percentage of
payments by private payors declined from 39% in 1988 to 23% in 1996, while
payments from managed care sources increased from 12% to 26%. This shift from
private pay to managed care reimbursement has added the complexity of managing
the clinical and administrative aspects of the physicians' practices and
increased the emphasis on managing practices more efficiently.
 
     Historically, surgical and non-surgical orthopaedic specialists have
maintained separate practices; recently, however, musculoskeletal physicians
have begun to follow the consolidation trend seen elsewhere in the health care
industry. The AAOS estimates that approximately 3-5% of all orthopaedic
practices have affiliated with PPMs as of February 1997. Consolidated practices
increasingly are utilizing a separate professional management company to handle
practice management functions such as staffing, information systems, managed
care contracting, leasing, purchasing and marketing, thereby enabling the
physicians to focus on providing high quality medical services. Several factors
have contributed to the trend toward affiliation with PPMs by
 
                                       28

<PAGE>

musculoskeletal physicians. These factors include the increasing complexity of
managing a practice due, in part, to the increase in managed care contracting,
the need for cost-effective management of patient care, the economies of scale
achievable in such areas as administration, purchasing and marketing, the desire
to capture revenues from ancillary services and in-network referrals and the
growing importance of capital resources to acquire and maintain state-of-the-art
equipment, clinical facilities and management information systems.
 
STRATEGY
 
     The Company's goal is to develop the leading musculoskeletal network in
each of its markets by aligning the Company's interests with those of the
Practices' physicians. Key components of the Company's strategy are:
 
     Expand Into New Markets.  The Company intends to expand into targeted new
markets by establishing relationships and affiliations with the most qualified

practices in such markets. The Company targets markets that have a large enough
population to support a viable musculoskeletal physician network. The Company
generally seeks to affiliate initially with platform practices in new markets.
Platform practices generally consist of at least five physicians who have the
demonstrated ability to grow in their market. Potential affiliation candidates
are evaluated on a variety of factors, including, but not limited to, physician
credentials and reputation, the practice's competitive market position,
specialty and subspecialty mix of physicians, historical financial performance,
growth potential, the local demographics potential and potential for development
of Ancillary Service Facilities.
 
     Continue to Develop Existing Markets.  The Company strengthens its market
positions by (i) providing uniform financial reporting systems to the Practices;
(ii) implementing uniform practice management systems to facilitate the
collection of financial and clinical data; (iii) investing in new clinical
equipment such as EMGs and bone densitometers; (iv) increasing the number of
physicians and diversifying the subspecialties in a Practice; (v) developing
satellite offices to accommodate increased patient flow; (vi) committing capital
to develop or acquire Ancillary Service Facilities; and (vii) expanding revenues
through additional payor contracting and focused marketing on a regional basis.
The Company believes these services will enable the physicians to devote more
time to the practice of medicine and the strategic development of their
practice, thereby increasing revenues and creating greater efficiencies in the
operation of each Practice.
 
     Introduce Ancillary Service Facilities. Ancillary Service Facilities will
provide such services as ambulatory surgery, physical therapy and MRI services.
Once the Practices or a network in a particular market have achieved a
significant local presence, the Company plans to introduce Ancillary Service
Facilities by assisting the Practices in developing such facilities. The first
Ancillary Service Facility is planned to open in late 1997 (a mobile MRI unit in
San Antonio, Texas) and additional Ancillary Service Facilities are planned to
be opened in 1998 in other markets. In addition, the Company currently manages
one physician-owned ambulatory surgery center which was under development by the
physicians prior to their involvement with the Company and for which the Company
receives a 10% management fee.
 
     Develop Disease Management and Clinical Information System.  Following the
implementation of a uniform practice management system, the Company has a
two-step strategy for creating a disease management and clinical information
system. The Company is in the process of developing standard procedures for
gathering clinical and financial information, such as personal patient data,
physician and procedure identifier codes, payor class and amounts charged and
reimbursed. The Company's goal is to establish a non-patient identifiable
information database across all Practices pursuant to which efficiencies may be
achieved by gathering, interpreting and sharing clinical information,
standardizing referral patterns and treatment protocols within a physician
network and coordinating the needs of the patient population in any geographic
market. Utilization of the database is expected to result in an increased
ability to control and predict the cost of care for various patient diagnoses.
The Company believes that its network of musculoskeletal physicians with access
to reliable clinical outcome information will make the Company more attractive
to payors because the Company will be able to demonstrate cost-effective quality
care.

 
BMJ OPERATIONS
 
     Existing Practices. Since commencing operations in January 1996 until
September 1, 1997, the Company has affiliated with 20 Existing Practices,
comprising 87 physicians, in Arizona, California, Pennsylvania, Texas and
Florida. 82% of the physicians at the Existing Practices are orthopaedic
surgeons.
 
                                       29

<PAGE>

     The following table sets forth certain information concerning the Existing
Practices.
 
<TABLE>
<CAPTION>
                                                                                              ADDITIONAL PRACTICES
                                                                                                       IN
                                                            NUMBER/SPECIALITIES                   MARKET SINCE
                                                               OF PHYSICIANS                       AFFILIATION
                                               EFFECTIVE    -------------------   NUMBER OF   ---------------------
                                               AFFILIATION     AT AUGUST 31,      SATELLITE   NUMBER OF   NUMBER OF
REGION    PRACTICE     MARKET                     DATE             1997            OFFICES    PRACTICES   PHYSICIANS
--------  -----------  ---------------------   ----------   -------------------   ---------   ---------   ---------
<S>       <C>          <C>                     <C>          <C>                   <C>         <C>         <C>
Eastern   LVBMJ        Bethlehem, PA            7/1/96       6 Orthopaedics           0            1           2
                                                               1 Physiatry
                                                             1 Spine surgery
          LOS          Ft. Lauderdale, FL       4/1/97       6 Orthopaedics           2            3          10
                                                               1 Podiatry
          Gold Coast   Palm Beach               6/1/97       5 Orthopaedics           0            1           4
                       County, FL
Central   STSC         San Antonio, TX          11/1/96      6 Orthopaedics           9            1           1
                                                               1 Physiatry
Western   SCOI         Los Angeles, CA          11/1/96      20 Orthopaedics          4            7          10*
                                                               2 Physiatry
          Tri-City     Oceanside, CA            4/1/97       7 Orthopaedics           0            0           0
          Sun Valley   Sun City, AZ             7/1/97       4 Orthopaedics           0            0           0
</TABLE>
 
------------------
* Includes three doctors and three separate practices in South Lake Tahoe,
California.
 
     Regional Business Model. While health care has become an increasingly
significant national issue, it is still delivered on a local level. Therefore,
in order to execute its growth and operating strategies, the Company has divided
the United States into the eastern, central, and western regions. The Company
believes that its regional business model benefits both the Company and the
Practices. Local management teams allow the Company to better understand the
specific characteristics of a region, such as the demographics, the payor mix,
the competitive landscape and the managed care environment, thus enabling the

Company to be more effective in marketing to patients and negotiating with third
party payors and suppliers. In addition, the regional management team is able to
develop and maintain long-term relationships with both the Practices' physicians
and local entities such as hospitals, managed care networks, suppliers and
non-musculoskeletal physician groups. The Company believes that due to its
regional business model, it is better equipped to develop relationships with
such local entities than PPMs with centralized business models.
 
     A regional vice president is responsible for a management team that
supervises the development of each market within a region. The regional
management team coordinates market expansion initiatives and integration of
administrative services within the region. The regional team provides management
and network services related to the following: (i) integration and transition;
(ii) physician services including cost containment and operating efficiencies;
(iii) ancillary services development and management; (iv) physician recruitment
and professional development; (v) workers' compensation; and (vi) payor
contracting.
 
     Affiliation Structure. The Company believes its affiliation model aligns
the interests of the Company and the Practices' physicians by (i) providing
equity ownership in the Company to the physicians; (ii) assuring that the
physicians and the Company share in the profits from the Ancillary Service
Facilities and Practice cost savings; (iii) focusing on revenue enhancement; and
(iv) reducing the amount of time the physicians must spend on administrative
matters, thereby enabling them to dedicate more of their efforts to the delivery
of health care services. Additionally, each Practice retains professional
autonomy and control over its medical practice through continued ownership and
participation in Practice governance.
 
     The total consideration paid to a Practice's physicians, once the Practice
has agreed to affiliate with the Company, is based on a multiple of the
Company's management fee plus the fair market value of the Practice's assets,
including furniture, fixtures and equipment and, subject to legal limitations
regarding Medicare and Medicaid receivables, the estimated net realizable value
of its accounts receivable. The total consideration paid by the Company consists
of Common Stock, cash and the assumption of certain liabilities. In exchange for
this consideration, the Practice enters into a 40-year Management Services
Agreement with the Company.
 
     The revenue to the Company from a Practice is typically based on a
specified percentage (typically 10% to 15%) of the Practice's revenues (rather
than on a percentage of the net operating income of the Practice) plus
reimbursement of the Practice's overhead expenses and two-thirds of the cost
savings the Company is able to
 
                                       30

<PAGE>

achieve through its purchasing power. See 'Certain Transactions--Affiliation
Transactions.' In addition, the Company will be responsible for arranging the
funding of Ancillary Service Facilities when appropriate and will, subject to
applicable laws, share appropriately in the profits from such facilities.
 

     Upon affiliating with a Practice, the Company assumes the management of
substantially all aspects of the Practice's operations other than the provision
of medical services. Pursuant to the Management Services Agreements, the Company
assists the Practices in the preparation of operating budgets and capital
project analyses, the coordination of group purchases of medical supplies and
insurance and the introduction of physician candidates. The Company provides the
full range of administrative services required for a Practice's day-to-day
non-medical operations, including management and monitoring of the Practice's
billing and collection, accounting, payroll, legal services, recordkeeping, cash
flow activity, physician recruiting, payor contracting and marketing.
Comprehensive administrative support should facilitate more effective billing
and collections, and, as the Company grows, economies of scale in effecting
purchases. In addition, the Company plans to integrate the Practices' management
information systems into a single system that will expand the financial and
clinical reporting capabilities of each of the Practices and facilitate the
analysis of data collected.
 
     The Company believes that through its affiliation with practices across
multiple markets it can achieve benefits in the aggregate purchasing of products
and services for the Practices. The Company believes that, in particular, it can
assist the Practices in reducing its purchasing expenses such as insurance,
medical equipment and clinical and administrative supplies. Pursuant to the
Management Services Agreements, the Company receives two-thirds of any such cost
savings.
 
     Financial and Practice Management Systems. To date, the Company has
implemented an interconnected financial accounting system in the Practices. This
system allows the Company to analyze the financial aspects of the Practices from
a centralized location and ensure uniformity with respect to financial
classifications at the Practice level.
 
     The Company believes that the implementation of a uniform practice
management system will enable it to monitor the operations of the Practices in a
cost-effective manner, enhance utilization of the Practices, develop practice
protocols and provide the Company with a competitive advantage in negotiating
contracts with third party payors. The Company is currently reviewing various
practice management software programs and expects to select and implement such a
program within 12 to 18 months following completion of the Offering.
 
     The Company believes that the implementation of the practice management
system, together with the integrated financial accounting system, will enable it
to gather data that will be the foundation for a disease management and clinical
information system. The Company intends to capture, retain and use such
information in accordance with applicable legal and ethical requirements
regarding the confidentiality of medical records. The Company further believes
that such a system will facilitate the collection of clinical information such
as type of injuries reported, patient characteristics and diagnoses of injuries,
that will improve provider and patient access to resources and technology,
facilitate quantitative analysis of outcome quality and cost and eventually
allow for the development of curative and palliative regimens based on such
information. The Company intends to obtain the informed, written consent of each
patient for whom information will be included in the database.
 
     Staffing and Facilities. The Company employs most of the Practices'

non-professional personnel. These non-professional personnel, along with
additional personnel at the Company's headquarters, manage the day-to-day
non-medical operations of each of the Practices, including, among other things,
secretarial, bookkeeping, scheduling and other routine services. Under the
Management Services Agreements, the Company must provide facilities and
equipment to the Practices and, to this end, the Company assumes the Practice's
existing leases for the facilities and equipment and purchases the assets, or a
leasehold interest in the assets, utilized by the Practice.
 
DEVELOPMENT OF ANCILLARY SERVICE FACILITIES
 
     Within each market, the Company plans to establish Ancillary Service
Facilities including, ambulatory surgery centers, physical therapy facilities
and MRI centers and mobile units. In order to establish such facilities, the
Company has designated professionals within each market to locate sites,
identify acquisition opportunities and otherwise arrange for the provision of
the ancillary services. Additionally, the Company's regional management teams
are responsible for marketing the Ancillary Service Facilities to payors and
referral sources
 
                                       31

<PAGE>

and staffing, operating and financial management of the facilities. For risks
associated with the establishment of Ancillary Service Facilities, see 'Risk
Factors--Reliance on New Affiliations and Expansion.'
 
PAYOR MIX OF EXISTING PRACTICES
 
     The Company's Practices derive revenue from a broad mix of third party
payors. This payor mix is a result of a number of underlying trends in the
patient base of musculoskeletal specialists. A significant portion of
reimbursement to physicians in musculoskeletal practices is derived from
workers' compensation insurance programs, which generally pay higher
reimbursements per procedure than health insurance payors and are generally not
subject to co-payments and deductibles. The Company believes that reimbursement
from workers' compensation payors will continue to represent a substantial
portion of practice revenues because of broader definitions of work-related
injuries, the shift of medical costs from health insurance payors to workers'
compensation payors, aging of the work force, and the requirement that employers
pay the total cost of medical treatment for work-related injuries.
 
     The following table sets forth the payor mix of the Existing Practices for
the six months ended June 30, 1997:
 
<TABLE>
<CAPTION>
                                                                         SIX MONTHS
                                                                            ENDED
                                                                        JUNE 30, 1997
                                                                        -------------
<S>                                                                     <C>
Workers' compensation................................................           %

Medicare(1)..........................................................
Managed care.........................................................
Private payors.......................................................
</TABLE>
 
------------------
(1) Includes        attributable to Medicaid.
 
     Workers' Compensation.  Workers' compensation is a state-mandated,
comprehensive insurance program that requires employers to fund medical
expenses, lost wages and other costs resulting from work-related injuries and
illnesses. Provider reimbursement methods vary on a state-by-state basis. A
majority of states have adopted fee schedules pursuant to which all health care
providers are uniformly reimbursed. The fee schedules are set by each state and
generally prescribe the maximum amounts that may be reimbursed for a designated
procedure. In most states without fee schedules, health care providers are
reimbursed based on usual, customary and reasonable fees charged in the state in
which the services are provided. In Florida (a state in which the Company does
business), state law mandates that all workers' compensation services be
provided under a managed care arrangement approved by Florida's Agency for
Healthcare Administration.
 
     Medicare.  The federal government has implemented, through the Medicare
program, the RBRVS payment methodology for health care provider services. RBRVS
is a fee schedule that, except for certain geographical and other adjustments,
pays similarly situated health care providers the same amount for the same
services. The RBRVS is subject to annual increases or decreases at the
discretion of Congress or HCFA. To date, the implementation of RBRVS has reduced
payment rates for certain of the procedures historically provided by the
Existing Practices. Furthermore, it is expected that, within the next year, HCFA
will be required by law to recalibrate the practice expense component of the
RBRVS over the next four years in a way that will have positive effects on
payments to primary care providers, but will decrease payments for most services
provided by specialists, including many services provided by the Existing
Practices.
 
     Managed Care Payors.  An increasing portion of the net revenue of the
Existing Practices is derived from managed care payors which make payments under
discounted fee-for-service and capitation arrangements. Although rates paid by
managed care payors are generally lower than commercial indemnity rates, managed
care payors can provide access to large patient volumes. The Company seeks to
negotiate both discounted fee-for-service and capitated contracts on behalf of
the Practices. Discounted fee-for-service contracts involve negotiated rates for
specified procedures and services. Under capitated arrangements, providers
deliver health care services to managed care enrollees and typically bear all or
a portion of the risk that the cost of such services may exceed capitated
payments.
 
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     Private Payors.  Rates paid by private third party payors are based on
established health care provider and hospital charges and are generally higher

than Medicare payment rates. Recently, RBRVS types of payment systems have been
adopted by certain private third party payors and may become a predominant
payment methodology. Wider implementation of such programs would reduce payments
from private third party payors, and could indirectly reduce revenue to the
Company.
 
CONTRACTUAL AGREEMENTS WITH THE PRACTICES
 
     The Company has entered into Management Services Agreements and, in most
cases, Asset Purchase Agreements, Restricted Stock Agreements and Stockholder
Noncompetition Agreements (collectively, the 'Affiliation Agreements'), with
each of the Existing Practices, and intends to enter into Affiliation Agreements
with each additional Practice, to provide management, administrative and
development services. The following summary of the Affiliation Agreements is
intended to be a general summary of the form of the Affiliation Agreements. The
actual terms of the individual Affiliation Agreements, and other service
agreements into which the Company may enter in the future, may vary in certain
respects from the description below as a result of negotiations with the
individual Practices and the requirements of local regulations. The Management
Services Agreements and certain related agreements are filed as exhibits to the
registration statement of which this Prospectus forms a part. The following
summary is qualified in its entirety by reference to such exhibits. For a
discussion of circumstances under which a Management Services Agreement may be
rendered unenforceable, see 'Risk Factors--Government Regulation.'
 
     Management Services Agreement.  Under the Management Services Agreement,
the Practices are solely responsible for all aspects of the practice of medicine
and the Company has the primary responsibility for the business and
administrative aspects of the Practices. Pursuant to the Management Services
Agreements, the Company provides or arranges for various management,
administrative and development services relating to the day-to-day non-medical
operations of the Practices. Pursuant to the Management Services Agreements, the
Company acts as the exclusive manager and administrator of non-medical services
relating to the operation of the Practices. Subject to matters for which the
Practices maintain responsibility or which are governed by the Operations
Committee (as defined herein) of the Practices, the Company (i) bills patients,
insurance companies and other third party payors and collects, on behalf of the
Practices, the fees for medical and other services rendered, including goods and
supplies sold by the Practices; (ii) provides or arranges for, as necessary,
clerical, accounting, purchasing, payroll, legal, bookkeeping and computer
services, personnel, information management, preparation of certain tax returns,
printing, postage and duplication services and medical transcribing services;
(iii) supervises and maintains custody of substantially all files and records
(medical records of the Practices remain the property of the Practices); (iv)
provides facilities and equipment for the Practices; (v) prepares, in
consultation with the Operations Committee and the Practices, all operating and
capital expenditure budgets; (vi) orders and purchases inventory and medical
supplies as reasonably requested by the Practices; (vii) implements, in
consultation with the Operations Committee and the Practices, national and local
public relations or advertising programs; (viii) provides financial and business
assistance in the negotiation, establishment, supervision and maintenance of
contracts and relationships with managed care and other similar providers and
payors; (ix) recruits on behalf of the Practices' physician employees and other
medical professionals; and (x) ensures that all medical and technical personnel

have the licenses, credentials, approvals and other certifications needed to
perform their respective duties.
 
     Under the Management Services Agreements, the Practices retain the
responsibility for, among other things providing professional services to
patients in compliance with the ethical standards, laws and regulations to which
they are subject. In addition, the Practices maintain exclusive control of all
aspects of the practice of medicine and the delivery of medical services.
 
     The revenue to the Company from a Practice is typically based on a
specified percentage (typically 10-15%) of the Practice's revenues (rather than
on a percentage of the net operating income of the Practice) plus reimbursement
of the Practice's overhead expenses and two-thirds of cost savings that the
Company is able to achieve through its purchasing power. See 'Certain
Transactions--Affiliation Transactions.' In addition, the Company will be
responsible for arranging the funding of Ancillary Service Facilities when
appropriate and will, subject to applicable laws, share appropriately in the
profits from such facilities.
 
                                       33

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     Each Management Services Agreement has an initial term of 40 years, with
automatic extensions (unless at least six months' notice is given) of additional
five-year terms. The Management Services Agreement may be terminated by either
party if the other party (a) files a petition in bankruptcy or other similar
events occur or (b) defaults in any material respect in the performance of any
duty or obligation under the Management Services Agreement, which default is not
cured within a specified period after receipt of notice thereof or (c) any of
the representations and warranties made by such party in the Management Services
Agreement is materially untrue or misleading and such party fails to correct
such matter after receipt of written notice thereof. The Company also has the
right to terminate the Management Services Agreement in the event that the
Practice is excluded from participation in the Medicaid or Medicare program for
any reason. Either party may also terminate the Management Services Agreement if
such party determines that the structure of the Management Services Agreement
violates any state or federal laws or regulations existing at such time and that
an amendment to the Management Services Agreement will be unable to correct such
defect.
 
     Upon termination of the Management Services Agreement, neither party is
obligated to the other party except as set forth below. In the event of such
termination, the Company is required to complete, within four months after the
termination date, the annual settlement of the respective obligations of the
Company and Practice for the period prior to the termination date. Furthermore,
following any such termination, the Company must sell to the Practice all of the
Company's interest in the assets that are located in the offices of the Practice
and used in connection with the medical practice. The purchase price for all of
such assets will be agreed upon by the parties; however, if an agreement is not
reached, the purchase price will be determined by an independent appraisal.
Under the Management Services Agreement, the Company is entitled to receive all
of the revenues collected by the Practice during the 90-day period following
termination of the agreement.

 
     The Company has entered into a Management Services Agreement with STSC that
permits STSC and the individual physicians to rescind the Affiliation
Transaction on (i) November 1, 1998 if the Company has not affiliated with an
aggregate of 16 physicians in San Antonio, Texas by such date and (ii) November
1, 2003. In the event of a rescission of the Affiliation Transaction, the
transaction will be unwound, with the assets (other than the accounts
receivable) acquired by the Company being returned to the Existing Practice and
the purchase price paid therefor being returned to the Company. In addition, the
physician owners and the employed physicians, if any, who received Common Stock
of the Company in connection with the Affiliation Transaction (including any
transferees of such persons) will be required to return such capital stock to
the Company.
 
     Under the Management Services Agreement, the Practice agrees generally not
to, at any time prior to the second anniversary of the termination of the
Management Services Agreement, compete with the Company by providing services to
other medical groups similar to those provided by the Company under the
Management Services Agreement or by entering into a management relationship with
another provider of non-professional management services that provides such
services to multiple physician groups. The Company and the Practice agree not to
disclose to third parties any confidential information relating to the other
party.
 
     Asset Purchase Agreement.  Subject to the terms and conditions of an asset
purchase agreement (the 'Asset Purchase Agreement'), the Company purchases from
the Practice all of those assets used by the Practice in the operation of the
medical practice, including medical equipment, furniture, trade fixtures, office
equipment, supplies, and, subject to legal limitations regarding Medicare and
Medicaid receivables, outstanding accounts receivable. Pursuant to an assignment
and assumption agreement entered into as a condition to the Asset Purchase
Agreement, the Company also acquires a leasehold interest in certain assets
leased by the Practice, including offices and equipment. The Company also
assumes certain liabilities related to any leased equipment and leased offices.
The purchase price paid by the Company under the Asset Purchase Agreement is
customarily determined by the parties after an appraisal of the assets being
acquired. Under the Asset Purchase Agreement, the Practice agrees to indemnify
the Company for any losses resulting from the operation of such medical practice
prior to the effectiveness of the affiliation of such Practice with the Company.
 
     Restricted Stock Agreement.  The Company issues Common Stock to the
physician owners of the Practice as partial consideration for affiliating with
the Company. Such Common Stock is issued pursuant to the terms and conditions
set forth in a restricted stock agreement (the 'Restricted Stock Agreement'),
which terms include annual vesting of 25% of the Common Stock each year in a
four year period, a right of first refusal for the Company in the event the
physician decides to sell such Common Stock and the authority of the Company's
Board of Directors to prevent a physician's sale of such Common Stock to a
competitor of the Company. The
 
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<PAGE>


Restricted Stock Agreement further provides that the shares of Common Stock
issued by the Company to the physicians remain issued and outstanding regardless
of whether such physicians remain with the Practice, but the rights of the
individual physicians to such shares (as opposed to the right of the Practice)
will vest equally over four years, with the Practice retaining the right to
utilize unvested shares to recruit new physicians. Under certain circumstances,
including termination of the Management Services Agreement or a physician's
death, permanent disability or cessation of active practice, the Company has the
right to repurchase all or any part of the unvested shares of Common Stock held
by such physician. If the Company elects to repurchase such unvested shares, the
price per share is the original value of such Common Stock as set forth in the
Restricted Stock Agreement. The Company may also issue Common Stock to employed
physicians and other key personnel of the Practice pursuant to a Restricted
Stock Agreement containing substantially similar terms.
 
     Stockholder Noncompetition Agreement.  Under a non-competition agreement
(the 'Stockholder Non-competition Agreement'), each physician owner and employed
physician of the Practice agrees not to (i) compete directly or indirectly with
the Practice in the provision of medical services or with the Company in the
provision of practice management services for a period of two years after
termination of his affiliation with the Practice and within a 25 mile radius of
any of the Practice's offices; or (ii) disclose any confidential information of
the Company or the Practice. Each physician further agrees to indemnify the
Company and the Practice for any damages they may suffer as a result of the
physician's failure to abide by the foregoing covenants. There can be no
assurance as to the enforceability of the Noncompetition Agreements.
 
COMPETITION
 
     The Company competes with many other entities to affiliate with
musculoskeletal practices. Several companies that have established operating
histories and greater resources than the Company are pursuing the acquisition of
the assets of both general and specialty practices and the management of such
practices. Other PPMs and some hospitals, clinics, HMOs and provider networks
engage in activities similar to those of the Company. There can be no assurance
that the Company will be able to compete effectively with such competitors, that
additional competitors will not enter the market, or that such competition will
not make it more difficult to affiliate with, and to enter into agreements to
provide management services to, medical practices on terms beneficial to the
Company.
 
     The Practices will compete with local musculoskeletal care service
providers as well as some managed care organizations. The Company believes that
changes in governmental and private reimbursement policies and other factors
have resulted in increased competition for consumers of medical services. The
Company believes that the cost, accessibility and quality of services provided
are the principal factors that affect competition. There can be no assurance
that the Practices will be able to compete effectively in the markets that they
serve. The inability of the Practices to compete effectively would have a
material adverse effect on the Company.
 
     Further, the Practices compete with other providers for musculoskeletal
managed care contracts. The Company believes that trends toward managed care
have resulted in increased competition for such contracts. Other practices and

management service organizations may have more experience than the Practices and
the Company in obtaining such contracts. There can be no assurance that the
Company and the Practices will be able to successfully obtain sufficient managed
care contracts to compete effectively in the markets they serve. The inability
of the Practices to compete effectively for and obtain such contracts could
materially adversely affect the Company. See 'Risk Factors--Intense
Competition.'
 
GOVERNMENT REGULATION AND SUPERVISION
 
     The delivery of health care services is regulated at both the federal and
state level. While the Company believes that its operations are conducted in
material compliance with applicable laws, it has not received or applied for a
legal opinion from counsel or from any federal or state judicial or regulatory
authority to this effect, and many aspects of the Company's business operations
have not been the subject of state or federal regulatory interpretation. The
laws applicable to the Company are subject to evolving interpretations, and
therefore there can be no assurance that a review of the Company's operations by
federal or state judicial or regulatory authorities would not result in a
determination that the Company or one of the Practices has violated one or more
provisions of federal or state law. Any such determination could have a material
adverse effect on the Company.
 
                                       35

<PAGE>

FEDERAL LAW
 
     The principal federal laws that apply to the Company's activities include
those that prohibit: (a) the filing of false or improper claims with a federally
funded health program; (b) unlawful inducements for the referral of business
reimbursable under most federally funded health programs; (c) fraud in regard to
payment or service in any health program; and (d) the billing for the provision
of certain Medicare or Medicaid covered items or services where such items or
services were provided based upon a referral to the providing entity by a
physician who has, or whose immediate family member has, a financial
relationship with that entity that does not fall within an applicable exception.
 
     False and Other Improper Claims.  Under numerous federal laws, including
the Federal False Claims Act (the 'False Claims Act'), the federal government is
authorized to impose criminal, civil and administrative penalties on any health
care provider that files a false claim for reimbursement from a federally funded
health program (such as Medicare or Medicaid). The False Claims Act provides for
a civil penalty of not less than $5,000 and not more than $10,000 per false
claim and between two to three times the amount of damages depending on the
facts and circumstances. Recently enacted federal legislation also imposes
federal criminal penalties on persons who file false or fraudulent claims with
private insurers. While the criminal statutes are generally reserved for
instances of fraud, the civil and administrative penalty statutes are being
applied by the government in an increasingly broad range of circumstances. Civil
sanctions may be imposed if the claimant knew or should have known that billing
was improper. The government also has taken the position that claiming
reimbursement for services that are substandard is a violation of these false

claims statutes if the claimant knew or should have known that the care was
substandard or rendered under improper circumstances. Private persons may bring
civil actions to enforce the False Claims Act. Under certain lower court
decisions, claims derived from a violation of the Anti-Kickback Statute (as
defined herein) or the Stark Law have been deemed to be, or may under certain
circumstances be construed to be, false claims.
 
     The Stark Self-Referral Law.  The Stark Law prohibits a physician from
referring a patient for certain designated health services reimbursable by
Medicare or Medicaid to an entity with which the physician (or the physician's
immediate family member) has a financial relationship, whether through
ownership, debt or compensation arrangements. Designated health services means
clinical laboratory services, physical therapy services, occupational therapy
services, radiology (including magnetic resonance imaging, computerized axial
tomography scans and ultrasound services), radiation therapy services and
supplies, durable medical equipment and supplies, parenteral and enteral
nutrients, equipment, and supplies, prosthetics, orthotics, and prosthetic
devices, home health services and supplies, outpatient prescription drugs, and
inpatient and outpatient hospital services. Referrals for services other than
designated health services and the furnishing of physicians' services that do
not involve any designated health services are not subject to the Stark Law. The
term 'referral' under the Stark Law means more than merely recommending a vendor
for designated health services to a patient; referrals are defined to include
the request or establishment of a plan of care by a physician which includes the
provision of designated health services. Consequently, the ordering of
designated health services within a physician's medical group can constitute a
referral within the meaning of the Stark Law.
 
     Further, unless an exception is met, both the health care entity that
furnishes the services and the physician who makes the referral are prohibited
from billing Medicare or Medicaid for services rendered to Medicare or Medicaid
beneficiaries in violation of the Stark Law. The Stark Law is a civil statute
which does not include criminal penalties. Violations of the Stark Law could
result in significant civil sanctions, including denial of payment, refunds of
amounts collected in violation of the statute and civil money penalties of up to
fifteen thousand dollars ($15,000) for each bill or claim for a service a person
knows or should know is a service for which payment may not be made. The Stark
Law also includes civil money penalties of up to one hundred thousand dollars
($100,000) for each arrangement or scheme which the physician or entity knows or
should know has a principal purpose of assuring referrals which, if directly
made, would violate the Stark Law proscription. Both penalty provisions also
provide for exclusion from the Medicare and Medicaid programs.
 
     The Company currently does not directly provide any designated health
services as that term currently is defined under the Stark Law; however, one or
more of the Practices may provide designated health services within their
offices. Because the Company provides management services and managed care
contracting services to the Practices for a fee, there can be no assurance that
the Company will not be deemed to be providing designated health services within
each Practice. If the Company is held to be the provider of such designated
 
                                       36

<PAGE>


health services within each Practice, the Stark Law will require that the
arrangements between the Company and the physicians in each Practice that
provide designated health services be structured to meet a Stark Law exception.
Under this scenario, the physicians' ability to order designated health services
within the Practices and the ability of the Practices to bill Medicare or
Medicaid for such designated health services will be permissible only if the
financial arrangements under the Management Services Agreements entered into by
the Company and the Practices meet certain exceptions set forth in the Stark
Law. The Company believes that the financial arrangements under the Management
Services Agreements qualify for applicable exceptions under the Stark Law;
however, there can be no assurance that a review by the courts or regulatory
authorities would not result in a contrary determination. Also, to the extent
that the Company in the future owns, manages or operates Ancillary Service
Facilities that provide designated health services, the Stark Law may require
the arrangements for the Company's acquisition of certain non-clinical assets of
the Practices and its Management Services Agreements with each Practice to be
structured to meet Stark Law exceptions in order for the physicians within each
Practice to refer patients to the Ancillary Service Facilities for designated
health services.
 
     It is also possible that, as a result of the Company's Management Services
Agreements with the Practices, the physicians in the Practices will be deemed to
have indirect financial interests in Practices by virtue of the physicians'
ownership interests in the Company. Under such interpretation of the Stark Law,
the physicians' ability to order and bill for designated health services
provided within the Practices and the ability of the Practices to bill Medicare
or Medicaid for such designated health services will be permissible only if an
exception under the Stark Law is applicable. The current Stark Law exception
related to the physicians' ownership interests in the Company may be relevant to
the physicians' ability to make referrals for designated health services to any
Ancillary Service Facilities owned or managed by the Company in the future. The
Company will not be in a position to meet that exception related to investment
interests until the Company's stockholders' equity exceeds $75 million.
 
     The Stark Law also governs the physicians' ability to refer patients for
designated health services within the Practices in light of the physicians'
ongoing compensation and ownership arrangements with such Practices. An
exception for in-office ancillary services requires that the Practices meet
certain structural and operational requirements on an ongoing basis in order to
bill for in-office ancillary designated health services rendered by employed or
contracted physicians. A key feature of the in-office ancillary services
exception is the Stark Laws definition of a 'group practice.' HCFA has announced
its intention to publish proposed regulations in the near future which, among
other things, are expected to focus on the definition of 'group practice.' Any
adverse changes to the group practice definition may have a material adverse
effect on the Company by severely limiting the Practices' ability to bill the
Medicare and Medicaid Programs for certain ancillary services furnished by the
Practices.
 
     In the preamble to the adoption of certain regulations regarding the Stark
Law, adopted when such law regulated only clinical laboratory services, HCFA
stated that it would not recognize any group in which the physicians were in
multiple corporate entities as a 'group practice' under the Stark Law. SCOI is a

partnership comprised of individual physician members as well as P.C.s. The use
of P.C.s as partners at SCOI was historical and designed to accommodate practice
structures that existed prior to the creation of SCOI. Recently, at the
Eighteenth Annual Institute on Medicare and Medicaid Payment Issues,
co-sponsored by the American Academy of Healthcare Attorneys and the National
Health Lawyers Association, an HCFA representative stated that HCFA will
recognize a group practice consisting of multiple physician entities, such as
P.C.s, provided that each such P.C. or other physician entity is limited to one
physician member. Nevertheless, given HCFA's prior written statement and HCFA's
position that its written comments on the Stark Law as applied to clinical
laboratories reflect its view on the Stark Law in its current expanded form, it
may be necessary to restructure SCOI before any Stark-designated health services
are provided. Failure to do so would result in the risk of the penalties
described above, or the inability of SCOI to provide Stark-designated health
services, either of which would have a material adverse effect on the Company.
 
     In the recently enacted Balanced Budget Act of 1997 (the '1997 Budget
Bill'), Congress directed the Secretary of the U.S. Department of Health and
Human Services ('HHS') to issue advisory opinions as to whether a referral
relating to designated health services (other than clinical laboratory services)
is prohibited under the Stark Law. The advisory opinion mechanism is authorized
beginning on or about November 3, 1997. An advisory opinion issued by the
Secretary will be binding as to the Secretary and the party or parties
requesting
 
                                       37

<PAGE>

the opinion. The Company has no present intention to seek an advisory opinion
regarding its current operations, arrangements with physicians or the referral
activities of physicians in the Practices.
 
     Federal Anti-Kickback Statute.  A federal law commonly known as the
'Anti-Kickback Statute' prohibits the offer, solicitation, payment or receipt of
anything of value (direct or indirect, overt or covert, in cash or in kind)
which is intended to induce business for which payment may be made under a
federal health care program. A 'federal health care program' is any plan or
program that provides health benefits, whether directly, through insurance, or
otherwise, which is funded directly, in whole or in part, by the United States
Government (e.g., Medicare, Medicaid, and CHAMPUS). Excluded from the definition
of federal health care program is the Federal Employee Health Benefits Program.
The type of remuneration covered by the Anti-Kickback Statute is very broad. It
includes not only kickbacks, bribes and rebates, but also proscribes any such
remuneration, whether made directly or indirectly, overtly or covertly, in cash
or in kind. Moreover, prohibited conduct includes not only remuneration intended
to induce referrals, but also remuneration intended to induce the purchasing,
leasing, arranging or ordering of any goods, facilities, services, or items paid
for by a federal health care program. The Anti-Kickback Statute has been
interpreted broadly by a number of courts to prohibit remuneration that is
offered or paid for otherwise legitimate purposes if one purpose of the payment
is to induce referrals. Even bona fide investment interests in a health care
provider may be questioned under the Anti-Kickback Statute if the government
concludes that the opportunity to invest was offered as an inducement for

referrals.
 
      In part to address concerns regarding the implementation of the
Anti-Kickback Statute, in 1991 the federal government published regulations that
provide exceptions or 'safe harbors' for certain transactions that are deemed
not to violate the Anti-Kickback Statute. Among the safe harbors included in the
regulations are transactions involving the sale of physician practices,
management and personal services agreements and employee relationships. Congress
recently added a significant new statutory exception related to 'remuneration
between an organization and an individual or entity' if the organization is a
Medicare risk contracting organization or if the remuneration is provided
pursuant to a written agreement that places the individual or entity at
substantial financial risk for the cost or utilization of services. Regulations
implementing the foregoing statute have not yet been adopted, but are expected
to be enacted soon. The failure of an activity to qualify under a safe harbor
provision, while potentially leading to greater regulatory scrutiny, does not
render the activity automatically illegal under the Anti-Kickback Statute.
Conduct falling outside the safe harbors will be judged by government regulators
on a case-by-case basis based on the specific facts and circumstances.
 
      Each offense under the Anti-Kickback Statute is classified as a felony and
is punishable by a criminal fine of up to twenty-five thousand dollars ($25,000)
and/or imprisonment of up to five (5) years; a civil money penalty of $50,000
for each violation and/or civil damages of not more than three times the total
amount of remuneration offered, paid, solicited or received, without regard to
whether any portion of such remuneration was for a lawful purpose. Both the
offeror and the recipient of the illegal remuneration are potentially liable. In
addition, violators are subject to civil exclusion from participation in the
federal health care programs, regardless of whether they also have been
convicted under the criminal penalty provisions or have been found liable under
the civil money penalty provisions of the Anti-Kickback Statute.
 
      There are several aspects of the Company's relationships with the
physicians and the Practices to which the Anti-Kickback Statute may be relevant.
In some instances, for example, the government may construe some of the
Company's marketing and managed care contracting activities as arranging for the
referral of patients to the physicians with whom the Company has a Management
Services Agreement. Further, any referral of patients between physicians within
the Practices and between the Practices could be construed as a referral to
which the Anti-Kickback Statute applies. Although neither the investments in the
Company by physicians nor the Management Services Agreements between the Company
and the Practices qualify for protection under the statutory exception or the
safe harbor regulations described above, the Company does not believe that these
activities fall within the type of activities the Anti-Kickback Statute were
intended to prohibit. The Company also does not believe that referral activities
within the Practices violate the Anti-Kickback Statute. A determination that the
Company has violated the Anti-Kickback Statute would have a material adverse
effect on the Company.
 
      As a component of the recently enacted Health Insurance Portability and
Accountability Act of 1996, Congress directed the Secretary of the U.S.
Department of Health and Human Services to issue advisory opinions regarding
compliance with the Anti-Kickback Statute. The advisory opinion mechanism is
authorized for a trial period, beginning six months after the date of enactment,

August 21, 1996. Advisory opinions are available
 
                                       38

<PAGE>

concerning what constitutes prohibited remuneration within the meaning of the
Anti-Kickback Statute, whether an arrangement satisfies the statutory exceptions
to the Anti-Kickback Statute, whether an arrangement meets a safe harbor, what
constitutes an illegal inducement to reduce or limit services to individuals
entitled to benefits covered by the Anti-Kickback Statute, and whether an
activity constitutes grounds for the imposition of a civil or criminal penalty
under the applicable exclusion, civil money penalty and criminal provisions.
Advisory opinions, however, will not assess fair market value for any goods,
services or property or determine whether an individual is a bona fide employee
within the meaning of the Internal Revenue Code. The statutory language makes
clear that advisory opinions are available for both proposed and existing
arrangements. The failure of a party to seek an advisory opinion, however, may
not be introduced into evidence to prove that the party intended to violate the
Anti-Kickback Statute. The Company has not sought, and has no present intention
to seek an advisory opinion regarding any aspect of its current operations or
arrangements with physicians.
 
     PIP Regulations.  HCFA has issued final regulations (the 'PIP regulations')
covering the use of physician incentive plans ('PIPs') by HMOs and other managed
care contractors and subcontractors that contract to arrange for services to
Medicare or Medicaid beneficiaries ('Organizations'), potentially including the
Company. Any Organization that contracts with a physician group that places the
individual physician members of the group at substantial financial risk for the
provision of services that the group does not directly provide (e.g., a primary
care group takes risk but subcontracts with a specialty group to provide certain
services), must satisfy certain disclosure, survey and stop-loss requirements.
Under the PIP regulations, payments of any kind, direct or indirect, to induce
providers to reduce or limit covered or medically necessary services are
prohibited ('Prohibited Payments'). Further, where there are no Prohibited
Payments, but there is risk sharing among participating providers related to
utilization of services by their patients, the regulations contain three groups
of requirements: (i) requirements for physician incentive plans that place
physicians at 'substantial financial risk'; (ii) disclosure requirements for all
Organizations with PIPs; and (iii) requirements related to subcontracting
arrangements. In the case of substantial financial risk (defined in the
regulations according to several methods, but essentially risk in excess of 25%
of the maximum payments anticipated under a plan with less than 25,000 covered
lives), Organizations must conduct enrollee surveys and ensure that all
providers have specified stop-loss protection. The violation of the requirements
of the PIP regulations may result in a variety of sanctions, including
suspension of enrollment of new Medicaid or Medicare members, or a civil
monetary penalty of $25,000 for each determination of noncompliance. In
addition, because of the increasing public concerns regarding PIPs, the PIP
regulations may become the model for the industry as a whole. Although the
Company currently has no contracts that require compliance with the PIP
regulations, the new regulations, by limiting the amount of risk that may be
imposed upon physicians in certain arrangements, could affect the ability of the
Company to meaningfully reduce the costs of providing services.

 
     Antitrust.  Because the Practices that affiliate with the Company remain
separate legal entities, they may be deemed competitors subject to a range of
antitrust laws that prohibit anti-competitive conduct, including price fixing,
concerted refusals to deal and divisions of markets. In particular, the
antitrust laws have been interpreted by the Federal Trade Commission ('FTC') and
the United States Department of Justice ('DOJ') to prohibit joint negotiation by
competitors of price terms in the absence of financial risk that is shared among
the competitors, other financial integration or substantial clinical integration
among the competitors. The Company intends to comply with such state and federal
laws as may affect its development of, and contracting for, integrated health
care delivery networks and will utilize the DOJ and FTC approved 'messenger
model'-- which avoids joint price negotiations--for those agreements that do not
involve sufficient financial or clinical integration. Nevertheless, there can be
no assurance that a review of the Company's business by courts or regulatory
authorities will not result in a determination that could adversely affect the
operation of the Company and the Practices.
 
STATE LAW
 
     State Self-Referral Laws.  A number of states have enacted self-referral
laws that are similar in purpose to the Stark Law but which impose different
restrictions on referrals than the Stark Law. These various state self-referral
laws have different requirements. Some states, for example, only prohibit
referrals when the physician's financial relationship with a health care
provider is based upon an investment interest. Other state laws apply only to a
limited number of designated health services or, alternatively, to all health
care services furnished by a provider. Some states do not prohibit referrals at
all, but require only that a patient be informed of the financial
 
                                       39

<PAGE>

relationship before the referral is made. Most of the states in which the
Company conducts business have adopted some form of self-referral law. Many
states, including California and Pennsylvania, among the states in which the
Company does business, have self-referral laws that are particularly applicable
to workers' compensation patients. The Company believes that its current
operations and the structure of the Existing Practices are in material
compliance with the self-referral laws of the states in which such Practices are
located. Additional risks under state self-referral laws could arise, however,
to the extent that the Company undertakes to own, manage or operate any
Ancillary Service Facilities to which the physicians within the Practices may
wish to refer patients.
 
     State Anti-Kickback Laws.  Many states have laws that prohibit payment of
kickbacks in return for the referral of patients. Some of these laws apply only
to services reimbursable under state Medicaid programs. However, a number of
these laws apply to all health care services in the state, regardless of the
source of payment for the service. Some state laws governing workers'
compensation and other insurance also include an anti-kickback prohibition. Each
state in which the Existing Practices are located has adopted one or more anti-
kickback provisions. The laws in most states regarding kickbacks have been

subjected to limited judicial and regulatory interpretation and therefore, no
assurances can be given that the Company's activities will be found to be in
compliance. Noncompliance with such laws could have a material adverse effect
upon the Company and subject it and the Practices' physicians to penalties and
sanctions.
 
     Fee-Splitting Laws.  Many states prohibit a physician from splitting with a
referral source the fees generated from physician services. Other states have a
broader prohibition against any division of a physician's fees, regardless of
whether the other party is a referral source. Some states have laws that
specifically address payments for services rendered to physicians based on a
percentage of revenues from the physician's practice. There are strong arguments
under many state laws that it is not fee-splitting when a payment made by the
physician is reasonable reimbursement for management and other types of
administrative services furnished to the physician unrelated to the referral of
patients.
 
     The Company is reimbursed by physicians in the Practices on whose behalf
the Company provides management services. The Company believes that the
compensation provisions of the Management Services Agreements have been designed
to comply with applicable state laws relating to fee-splitting. There can be no
certainty that, if challenged, the Company and the Practices will be found to be
in compliance with each state's fee-splitting (or related corporate practice)
laws. A determination in any state that the Company is engaged in any unlawful
fee-splitting arrangement could render any Management Services Agreement between
the Company and a Practice located in such state unenforceable or subject to
modification in a manner materially adverse to the Company.
 
     Corporate Practice of Medicine.  The laws of many states prohibit business
corporations, including the Company, from employing physicians, exercising
control over the medical judgments or decisions of physicians and from engaging
in certain financial arrangements, such as fee-splitting with physicians. These
laws and their interpretations vary from state to state and are enforced by both
the courts and regulatory authorities, each with broad discretion. Some states
interpret the 'practice of medicine' broadly to include activities of
corporations such as the Company that have an indirect impact on the practice of
medicine, even where the physician rendering the medical services is not an
employee of the corporation and the corporation exercises no discretion with
respect to the diagnosis or treatment of a particular patient. For example,
judicial interpretation of the corporate practice of medicine doctrine in Texas
has suggested that payments of a percentage of profits from a physician's
medical practice to a management company is a factor indicative of the corporate
practice of medicine.
 
     The Company's management structure, which the Company believes is
consistent with standard practices for PPMs, uses an operations committee (the
'Operations Committee') of six members, three of whom are designated by each of
the Company and the Practice. Among other things, the Operations Committee
approves a budget, medical group costs, costs and expenses that exceed the
budget, the acquisition and replacement of equipment and the integration of new
technologies. In addition, the Company's explicit approval is required for
implementation or acquisition of new technologies or medical equipment if the
costs of such equipment or technology exceeds 5% of the management fee. Company
approval is also required for all new offices and new ancillary services. If a

new medical office is not profitable, the Company may, in its sole discretion,
close the new office. Finally, a change in control of the Practice requires the
consent of the Company (not to be unreasonably withheld). While these provisions
in the Company's Management Services Agreements are
 
                                       40

<PAGE>

designed to give the Company control over certain business transactions by the
Practices, which explicitly retain their professional independence, case law in
Texas and California (particularly the latter) has suggested that control of
business operations (such as the provisions discussed above) may so severely
impact the professional practice as to amount to the corporate practice of
medicine. Other states, including states in which the Company does business, may
take a similar position.
 
     The Company's intent is not to exercise any responsibility on behalf of the
Practices' physicians that interferes with the physicians' independent patient
care and professional judgments. Accordingly, the Company believes that its
operations do not violate applicable state laws relating to the corporate
practice of medicine. However, as noted, such laws and legal doctrines have been
subjected to only limited judicial and regulatory interpretation and there can
be no assurance that, if challenged, the Company would be considered to be in
compliance with all such laws and doctrines. A determination in any state that
the Company is engaged in the corporate practice of medicine could render any
Management Services Agreement between the Company and a Practice located in such
state unenforceable or subject to modification in a manner materially adverse to
the Company.
 
     The Company hires certain ancillary health personnel (nurses and
technicians) and leases their services back to the Practices in a manner that it
believes accords with applicable Medicare billing requirements. The Company's
ability to hire such ancillary personnel is subject to various state
regulations. The Company (i) does not believe that the professional practice
laws of any of the states in which it currently does business have been
interpreted to prohibit its employment of the ancillary personnel and (ii)
believes that its structure in this area is common among PPMs. Should such state
corporate practice laws be interpreted to prohibit such hiring by the Company,
the Company will be required to revise its relationship with such ancillary
personnel, and the relationship of the ancillary personnel to the Practice would
also have to be modified. Such modification in the forgoing relationships could
have a material adverse effect on the Company.
 
     Texas Staff Leasing Services Law.  Texas law requires any person offering
'staff leasing services' to obtain a license from the Texas Department of
Licensing and Regulation. The Company leases certain non-physician personnel to
STSC as part of the management services provided by the Company to STSC. The
Company believes that it must obtain a license to provide such services in
Texas, and has initiated the application process for such licensure. The Company
has no reason to believe that it does not comply with the license criteria which
require, among other things, that the Company demonstrate a certain net worth
(dependent upon the number of assigned employees that the Company has) and that
the contract between the Company and STSC contains certain provisions.

 
     Licensure and Certificate of Need Laws.  Certain of the ancillary services
that the Company anticipates providing or managing on behalf of the Practices
are now or may in the future be subject to licensure or certificate of need laws
in various states. There can be no assurance that the Company or the Practices
will be able to obtain such licenses or certificates of need approval to the
extent required for the particular ancillary service. Failure to obtain such
licenses or certificates of need could have a material adverse effect on the
Company.
 
     Insurance Laws.  Laws in all states regulate the business of insurance and
the operation of HMOs. Many states also regulate the establishment and operation
of networks of health care providers. While these laws do not generally apply to
companies that provide management services to networks of physicians, they have
been construed in some states to apply to such companies and there can be no
assurance that regulatory authorities of the states in which the Company
operates would not apply these laws to require licensure of the Company's
operations as an insurer, as an HMO or as a provider network. The Company
believes that its proposed operations are in compliance with these laws in the
states in which it currently does business, but there can be no assurance that
future interpretations of insurance and health care network laws by regulatory
authorities in these states or in the states into which the Company may expand
will not require licensure or a restructuring of some or all of the Company's
operations. See 'Risk Factors--Government Regulation.'
 
     The National Association of Insurance Commissioners ('NAIC') in 1995
endorsed a policy proposing the state regulation of risk assumption by
physicians. The policy proposes prohibiting physicians from entering into
capitated payment or other risk sharing contracts except through HMOs or
insurance companies. Several states have adopted regulations implementing the
NAIC policy in some form. In states where such regulations have been adopted,
practices are precluded from entering into capitated contracts directly with
employers, individuals
 
                                       41

<PAGE>

and benefit plans unless they qualify to do business as HMOs or insurance
companies. The Existing Practices currently provide services under very few
capitated payment contracts. The Company intends to limit the number of
capitated payments or other risk-sharing arrangements into which it enters on
its own behalf or on behalf of the Practices. The Company expects to make such
arrangements only with HMOs or insurance companies. In addition, in December
1996, the NAIC issued a white paper entitled 'Regulation of Health Risk Bearing
Entities,' which sets forth issues to be considered by state insurance
regulators when considering new regulations, and encourages that a uniform body
of regulation be adopted by the states. Certain states have enacted statutes or
adopted regulations affecting risk assumption in the health care industry. In
some states, including California, these statutes and regulations subject any
physician or physician network engaged in risk-based contracting, even if
through HMOs and insurance companies, to applicable insurance laws and
regulations, which may include, among other things, laws and regulations
providing for minimum capital requirements and other safety and soundness

requirements. The Company believes that additional regulation at the state level
will be forthcoming in response to the NAIC initiatives.
 
FEDERAL AND STATE INITIATIVES
 
     Health Care Reform. As a result of the continued escalation of health care
costs and the inability of many individuals to obtain insurance, numerous
proposals have been or may be introduced in Congress and state legislatures
relating to health care reform. There can be no assurance as to the ultimate
content, timing or effect of any health care reform legislation, nor is it
possible at this time to estimate the impact of potential legislation, which may
be material, on the Company.
 
     Confidentiality of Patient Records.  The confidentiality of patient records
and the circumstances under which such records may be released is subject to
substantial regulation under state and federal laws and regulations. To protect
patient confidentiality, data entries to the Company's databases delete any
patient identifiers, including name, address, hospital and physician. Further,
the Company obtains the informed, written consent of the patient to use or
disclose patient information where the Company believes that such consent is
necessary or appropriate. The Company believes that its procedures comply with
the laws and regulations regarding the collection of patient data in
substantially all jurisdictions, but regulations governing patient
confidentiality rights are evolving rapidly and are often difficult to apply.
Additional legislation governing the dissemination of medical record information
has been proposed at both the state and federal level. Furthermore, the Health
Insurance Portability and Accountability Act of 1996 requires the Secretary of
Health and Human Services to recommend legislation or promulgate regulations
governing privacy standards for individually identifiable health information and
creates a federal criminal offense for knowing disclosure or misuse of such
information. These statutes and regulations may require holders of such
information to implement security measures that may be of substantial cost to
the Company. There can be no assurance that changes to state or federal laws
would not materially restrict the ability of the Company to obtain patient
information originating from records.
 
EMPLOYEES
 
     As of September 11, 1997, the Company had approximately 555 employees, of
whom 16 are located at the Company's headquarters, 9 are located in the regional
offices and 530 are located at the Existing Practices. The Company believes that
its relations with its employees are satisfactory.
 
PROPERTIES
 
     The Company has a five-year lease for its headquarters in Boca Raton,
Florida, which provides for annual lease payments of approximately $63,000. In
addition, in connection with the Affiliation Transactions, the Company assumed
leases for the facilities utilized by the respective Existing Practices for
aggregate annual lease payments of approximately $2.0 million as of December 31,
1997. For additional information, see 'Certain Transactions.'
 
LEGAL PROCEEDINGS
 

     The Company is subject to legal proceedings in the ordinary course of its
business. The Company does not believe that any such legal proceedings will have
a material adverse effect on the Company, although there can be no assurance to
this effect. In addition, the Company may become subject to certain pending
claims as the
 
                                       42

<PAGE>

result of successor liability in connection with the assumption of certain
liabilities of the Practices; nevertheless, the Company believes that the
ultimate resolution of such additional claims will not have a material adverse
effect on the Company. See 'Risk Factors--Exposure to Professional Liability.'
 
CORPORATE LIABILITY AND INSURANCE
 
     The provision of medical services entails an inherent risk of professional
malpractice and other similar claims. However, the Company does not influence or
control the practice of medicine by physicians or have responsibility for
compliance with certain regulatory and other requirements directly applicable to
physicians and physician groups. As a result of the relationship between the
Company and the Practices, the Company may become subject to some medical
malpractice actions under various theories, including successor liability. There
can be no assurance that claims, suits or complaints relating to services and
products provided by the Practices will not be asserted against the Company in
the future. The Company maintains medical professional liability insurance and
general liability insurance and believes that such insurance will extend to
professional liability claims that may be asserted against employees of the
Company that work on-site at Practice locations. In addition, pursuant to the
Management Services Agreements, the Practices are required to maintain
comprehensive professional liability insurance. The availability and cost of
such insurance has been affected by various factors, many of which are beyond
the control of the Company and the Practices. The cost of such insurance to the
Company and the Practices may have a material adverse effect on the Company. In
addition, successful malpractice or other claims asserted against the Practices
or the Company that exceed applicable policy limits would have a material
adverse effect on the Company. See 'Risk Factors--Exposure to Professional
Liability.'
 
                                       43


<PAGE>

                                   MANAGEMENT
 
DIRECTORS, EXECUTIVE OFFICERS AND OTHER KEY EMPLOYEES
 
     The following table sets forth certain information concerning the
directors, executive officers and other key employees of the Company:
 
<TABLE>
<CAPTION>

NAME                                                    AGE   POSITION
----                                                    ---   --------
<S>                                                     <C>   <C>
Naresh Nagpal, M.D. .................................   47    President, Chief Executive Officer and Director
David H. Fater.......................................   50    Executive Vice President, Chief Financial Officer and
                                                                Director
Tony Anderson........................................   38    Treasurer
Ronald Garey.........................................   42    Controller
Sherry Pulliam.......................................   42    Director of Financial Operations and Assistant
                                                                Treasurer
David K. Ellwanger...................................   40    Senior Vice President, Eastern Region
Glenn Cozen..........................................   43    Regional Vice President, Western Region
Joanna Robben........................................   37    Regional Vice President, Central Region
Keith Bolton.........................................   35    Director of Ancillary Development, Central Region
Beth Landel..........................................   33    Director of Ancillary Development, Eastern Region
Lee Bodendorfer......................................   47    Director of Operations, Eastern Region
G. Steven Ensinger...................................   42    Co-Director of Development, Central Region
Randal J. Farwell....................................   37    Director of Development, Eastern Region
Brent E. Mellecker...................................   35    Co-Director of Development, Central Region
Andrea Serrate.......................................   43    Director of Development, Western Region
Georges Daou.........................................   36    Director
James M. Fox, M.D.(1)................................   55    Director
Ann H. Lamont(1).....................................   40    Director
Donald J. Lothrop....................................   38    Director
</TABLE>
 
------------------
(1)  Member of the Compensation Committee.
 
     Naresh Nagpal, M.D. became President and Chief Executive Officer and a
director in March 1996. From September 1993 to August 1996, Dr. Nagpal served on
the board of directors of InPhyNet Medical Management Inc. ('IMMI'), a PPM. From
September 1993 to August 1995, Dr. Nagpal was the Senior Executive Vice
President and Chief Operating Officer of IMMI. From January 1985 to August 1993,
Dr. Nagpal was President of Acute Care Specialists, Inc. and its related
companies which are PPMs that provide services to several hospitals and
physicians. Dr. Nagpal was the Chairman of the Department of Emergency Medicine
at Barberton Citizens Hospital in Barberton, Ohio from January to June of 1992
and Chairman of the Department of Emergency Medicine at Audobon Regional Medical
Center in Louisville, Kentucky from July to December of 1992.
 
     David H. Fater became Executive Vice President and Chief Financial Officer
in February 1997 and a director in April 1997. From June 1995 to January 1997,
Mr. Fater was the Executive Vice President and Chief Financial Officer of
Community Care of America, Inc. From January 1993 to April 1995, Mr. Fater was
the Executive Vice President and Chief Financial Officer of Coastal Physician
Group, Inc. ('Coastal'). Prior to that, Mr. Fater was a partner at Ernst &
Young, LLP.
 
     In connection with Mr. Fater's position at Coastal, in May 1995 he was
named as one of several defendants in a stockholder class-action lawsuit filed
in the United States District Court for the Middle District of North Carolina,
Friedland v. Coastal Healthcare. The complaint, as amended, alleges that the
defendants violated federal securities laws through misrepresentations and

omissions of material facts concerning the Company's
 
                                       44

<PAGE>

operations and financial condition. The defendants have filed an answer to the
complaint, denying the principal allegations contained therein.
 
     Tony Anderson became Treasurer in May 1997. From May 1995 to April 1997,
Mr. Anderson was the Vice President and Chief Financial Officer of Florida
Physician Services. From September 1993 to April 1995, he was Vice President and
Director of Internal Audit for Coastal. From February 1989 to August 1993, Mr.
Anderson was Controller for AKZO Coatings, Inc.
 
     Ronald Garey became Controller in August 1996. Mr. Garey was the
International Finance Manager for Whirlpool Corporation from August 1995 to July
1996. From June 1993 to July 1995, he was the Corporate Controller of Innovet,
Inc. From July 1985 to May 1993, Mr. Garey was the Assistant Controller for Dole
Fresh Fruit International.
 
     Sherry Pulliam became Director of Financial Operations and Assistant
Treasurer in November 1996. From February 1985 to December 1995, Ms. Pulliam
functioned in several different positions for Coastal such as, Financial
Operations Manager (from June 1994 to December 1995), Assistant Treasurer (from
July 1993 to May 1994), Vice President of Mergers and Acquisitions (from April
1992 to June 1993) and Vice President and Controller for Coastal Emergency
Services, Inc., the largest subsidiary of Coastal (from May 1988 to March 1992).
From March 1996 to October 1996 Ms. Pulliam was engaged as a Consultant in
Corporate Development for Community Care of America, Inc.
 
     David 'Deke' K. Ellwanger became Senior Vice President of the Eastern
Region in July 1997. From July 1994 to July 1997, Mr. Ellwanger was the Vice
President of Managed Care for MedPartners/InPhyNet Medical Management Inc. From
August 1985 to June 1994, Mr. Ellwanger worked for Aetna Health Plans/PARTNERS
National Health Plans managing various HMO's and HMO acquisitions.
 
     Glenn Cozen became Regional Vice President, Western Region in March 1997.
Since November 1986, Mr. Cozen has been the Chief Financial Officer at SCOI.
 
     Joanna Robben became Regional Vice President of the Central Region in June
1997. From 1995 to May 1997, Ms. Robben was Vice President of Network Strategy &
Management and Executive Director of Government Programs for CIGNA Healthcare.
From 1990 to 1995 Ms. Robben worked with First Health Strategies, Inc. (formerly
ALTA Health Strategies, Inc.), most recently as Vice President, Provider
Networks. From 1985 to 1990, Ms. Robben was Director, Network Marketing for
Partners National Health Plans. Ms. Robben is also a registered physical
therapist in private practice from 1982 to 1994.
 
     Keith Bolton became Director of Ancillary Development, Central Region in
April 1997. Mr. Bolton was the Vice President of Corporate Development from
April 1995 to March 1997, for Onecare Health Industries, Inc. From July 1993 to
March 1995, he was the Regional Vice President for Surgical Health Corporation.
From March 1992 to June 1993, Mr. Bolton was the President and Chief Executive

Officer of Southern California Surgery Centers, a small consulting firm.
 
     Lee Bodendorfer became Director of Operations, Eastern Region in April
1997. Mr. Bodendorfer was the Executive Vice President of Intellex Medical
Management Systems, Inc. from February 1995 to April 1997. From October 1993 to
February 1995, he acted as Regional Practice Administrator for Columbia/HCA.
From June 1989 to October 1993, Mr. Bodendorfer was the Managing Director for
Melbourne Neurologic, P.A., a neurosurgical and neurological group medical
practice ('Melbourne'). During this period he also served as President and Board
Chairman for Partners in Rehabilitation, Inc., an industrial rehabilitation and
chronic pain management company and an affiliate of Melbourne. During this time
he also served as General Manager of South Brevard Imaging, Ltd., a limited
partnership MRI.
 
     Beth A. Landel became Director of Ancillary Development, Eastern Region, In
July 1997. From June 1995 to July 1997, Ms. Landel was with HealthSouth
Corporation where she was Director of Corporate Development for the State of
Florida. From May 1994 to June 1995, Ms. Landel was with Surgical Health
Corporation and Physicians Health Corporation, a PPM, as Regional Marketing and
Managed Care Manager for the State of Florida. From August 1992 to May 1994, Ms.
Landel was Director of Managed Care for Wellington Regional Medical Center, an
acute hospital in the Universal Health Services system.
 
                                       45

<PAGE>

     G. Steven Ensinger became Co-Director of Development for the Central Region
in August 1997. From December 1996 to July 1997, Mr. Ensinger functioned as the
Practice Administrator for STSC. Beginning in January 1997, business development
activities for the Company were added to his responsibilities at STSC. From
November 1994 to November 1995, Mr. Ensinger was the assistant administrator for
St. Mary's Hospital in Port Arthur, Texas, a member of the Sisters of Charity of
Houston Hospital Network. From November 1992 to July 1994, Mr. Ensinger was the
Chief Operating Officer of St. Luke's Lutheran Hospital.
 
     Randal J. Farwell became Director of Development, Eastern Region in
December 1996. From February 1996 to December 1996, Mr. Farwell was the Vice
President of Marketing for PhyMatrix Corporation. He was Vice President of
Development for MedPartners from March 1995 to February 1996. From August 1993
to March 1995, Mr. Farwell was the Executive Director of Marketing and Network
Development for Florida Specialty Care Network, Ltd. Prior to that, Mr. Farwell
was the Director of Advertising and Promotions for Industry Publishers Inc., a
southern Florida medical business publication.
 
     Brent E. Mellecker became Co-Director of Development, Central Region in
April 1997. From June 1995 to March 1997, Mr. Mellecker was Vice President of
Sales and Marketing for Combined Orthopaedic Specialists. He was a Practice
Consultant at Health Directions from December 1993 to June 1995. Prior to that,
Mr. Mellecker was the Director of Business Development at Same Day Surgery.
 
     Andrea Seratte became Director of Development, Western Region in February
1997. From February 1995 to March 1997, Ms. Seratte was the sole proprietor of
SHARP Consulting, a healthcare consulting firm. From September 1993 to February

1995, Ms. Seratte was the Vice president of Operations for the Rehab Managed
Care division of NovaCare, a managed care company. From March 1993 to September
1993, she was the Vice President of Finance for the Hospital Division of
NovaCare.
 
     Georges Daou became a director in September 1997. Mr. Daou is a founder of
DAOU Systems, Inc. and has served as Chairman of the Board and Chief Executive
Officer of such company since 1987. Mr. Daou sits on the boards of various
healthcare and community organizations, including the College of Healthcare
Management Executives and the Healthcare Information Managers Association.
 
     James M. Fox, M.D. became a director in November 1996. Dr. Fox was a
founding partner of, and since 1992 has been an orthopaedic surgeon at, SCOI.
 
     Ann H. Lamont became a director in May 1996. Ms. Lamont is a managing
member of each of the general partner of Oak Investment Partners VI, Limited
Partnership ('Oak Partners') and Oak VI Affiliates Fund, Limited Partnership
('Oak VI'). Since September 1983, Ms. Lamont has been a general partner or
managing member of the general partner of four other venture capital
partnerships affiliated with Oak Partners and Oak VI. Ms. Lamont currently
serves as a director on the board of ViroPharma, Incorporated.
 
     Donald J. Lothrop became a director in May 1996. Since July 1994, Mr.
Lothrop has been a General Partner of Delphi Ventures, a privately held venture
capital firm. From January 1991 to July 1994, Mr. Lothrop was a Partner at
Marquette Venture Partners, Inc., a privately held venture capital partnership.
Mr. Lothrop currently serves as a director on the boards of Accordant Health
Services, Inc., Affiliated Research Centers, Inc., EXOGEN, Inc., Kelson
Physician Partners, Inc., Pacific Dental Benefits, Presidium Inc. and PriCare,
Inc.
 
NATIONAL PHYSICIAN ADVISORY BOARD
 
     The Company has established a National Physician Advisory Board (the
'Advisory Board') which will provide oversight of certain matters including
responsibility for all patient care and clinical issues. The Advisory Board will
also have responsibility for providing guidance to the Company regarding the
development of its disease management system and protocols as well as all
professional issues. The Advisory Board will consist of seven to nine
musculoskeletal physicians from various parts of the country, including
physicians who are not affiliated with the Company.
 
                                       46

<PAGE>

     The initial members of the Advisory Board are:
 
<TABLE>
<CAPTION>
PHYSICIAN                                                                             PRACTICE
-----------------------------------------------------------------------------------   --------
<S>                                                                                   <C>
James Esch, M.D....................................................................   Tri-City

Gilbert R. Meadows, M.D............................................................     STSC
Ranjan Sachdev, M.D................................................................    LVBMJ
Martin Silverstein, M.D............................................................     LOS
Donald Wiss, M.D...................................................................     SCOI
</TABLE>
 
DIRECTOR COMPENSATION AND COMMITTEES
 
     The directors do not currently receive compensation for their service on
the Board of Directors or any committee thereof but are reimbursed for their
out-of-pocket expenses. Under the Company's Option Plan, non-employee directors
are eligible to receive option grants. See '--Stock Option Plan.'
 
     The Board of Directors currently includes a Compensation Committee composed
of two directors, Ms. Lamont and Dr. Fox. The Board of Directors intends to
establish an Audit Committee prior to the Offering which will be composed of
three independent directors. The Compensation Committee determines compensation
for executive officers of the Company and administers the Company's Option Plan.
The Audit Committee will review the scope and results of audits and internal
accounting controls and all other tasks performed by the independent public
accountants of the Company.
 
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
 
     Prior to the establishment of the Compensation Committee in February 1997,
the Board of Directors determined the compensation payable to the Company's
executive officers. Stock options have been granted to employees of the Company
and, at the end of fiscal 1996, the Board of Directors approved an incentive
bonus for Dr. Nagpal.
 
EXECUTIVE COMPENSATION
 
     The following table sets forth certain information concerning the
compensation paid by the Company to the President and Chief Executive Officer of
the Company during the fiscal year ending December 31, 1996 (the only executive
officer of the Company during such year).
 
                           SUMMARY COMPENSATION TABLE
 
<TABLE>
<CAPTION>
                                                                                          LONG-TERM           
                                                                                         COMPENSATION
                                                          ANNUAL COMPENSATION               AWARDS
                                                   ----------------------------------    ------------       
                                                                            OTHER        SECURITIES    
                                      FISCAL                               ANNUAL         UNDERLYING       ALL OTHER
   NAME AND PRINCIPAL POSITION         YEAR        SALARY      BONUS     COMPENSATION    OPTIONS/SARS     COMPENSATION
---------------------------------   -----------    -------    -------    ------------    ------------    ------------
                                                     ($)        ($)          ($)             (#)             ($)
<S>                                 <C>            <C>        <C>        <C>             <C>             <C>
Naresh Nagpal, M.D. .............       1996       225,000     67,500        --              --              --
  President and Chief Executive
     Officer

</TABLE>
 
                             OPTION GRANTS IN 1996
 
     There were no options granted to the President and Chief Executive Officer
during the fiscal year ended December 31, 1996.
 
STOCK OPTION PLAN
 
     In order to attract and motivate employees, consultants and directors to
use their best efforts on behalf of the Company, the Company may, pursuant to
its Option Plan, grant to its employees, consultants, and directors options to
purchase an aggregate of 2,000,000 shares of Common Stock (subject to adjustment
in certain circumstances). If any options expire or are canceled or terminated
without being exercised, the Company may, in accordance with the terms of the
Option Plan, grant additional options with respect to those shares of Common
Stock underlying the unexercised portion of such expired, canceled or terminated
options.
 
     The Option Plan may be administered by the Board of Directors or by a
committee of the Board of the Directors (the 'Committee,' and references to the
Committee shall mean the Board of Directors, if a committee is not appointed).
Grants of Common Stock may consist of (i) options intended to qualify as
incentive stock
 
                                       47

<PAGE>

options ('ISOs') or (ii) nonqualified stock options that are not intended so to
qualify ('NSOs'). Except as set forth below, the term of any such option is ten
years. Options may be granted to any employees (including officers and
directors) of the Company, members of the Board of Directors who are not
employees, and consultants and advisers who perform services to the Company or
any of its subsidiaries.
 
     The option price of any ISO granted under the Option Plan will not be less
than the fair market value of the underlying shares of Common Stock on the date
of grant; provided that the price of an ISO granted to a person who owns more
than 10% of the total combined voting power of all classes of stock of the
Company must be at least equal to 110% of the fair market value of Common Stock
on the date of grant and, in such case, the ISO's term may not exceed five
years. The option price of an NSO will be determined by the Committee in its
sole discretion, and may be greater than, equal to or less than the fair market
value of the underlying shares of Common Stock on the date of grant; provided
that, subsequent to the initial public offering of the Company's Common Stock,
the price of the underlying shares may not be less than fair market value. A
grantee may pay the option price (i) in cash, (ii) by delivering shares of
Common Stock already owned by the grantee or vested options held by the grantee,
which, in either case, have a fair market value on the date of exercise equal to
the option price, or (iii) by any combination of (i) and (ii) above. With
respect to any options, the Committee may impose such vesting and other
conditions as the Committee may deem appropriate, all of which terms and
conditions must be set forth in an option agreement between the Company and the

grantee. Options may be exercised by the grantee at any time during his
employment or retention by the Company or any subsidiary thereof and within a
specified period after termination of the grantee's employment or retention.
 
     In the event of a change of control (as defined in the Option Plan), all
grantees will be afforded an opportunity to exercise the portion of their
respective options that are then vested and exercisable. Thereafter, any
unexercised and any unvested portion of all outstanding options will be
automatically terminated.
 
     All options issued under the Option Plan will be granted subject to any
applicable federal, state and local withholding requirements. At the time of
exercise, the grantee must remit to the Company an amount sufficient to satisfy
the total amount of any such taxes required to be withheld by the Company with
respect to such exercised options.
 
     The Board of Directors may amend or terminate the Option Plan at any time;
provided that, under certain circumstances the approval of the stockholders of
the Company may be required. As of August 31, 1997, the Company has granted
options under the Option Plan to purchase an aggregate of 1,303,000 shares of
Common Stock, of which 10,000 have been exercised, 90,000 have been canceled and
50,000 were issued to physicians. The Option Plan will terminate on May 6, 2006,
unless earlier terminated by the Board of Directors or extended by the Board of
Directors with the approval of the stockholders.
 
EMPLOYMENT AGREEMENTS
 
     The Company has entered into an employment agreement dated as of May 6,
1996, as amended, with Dr. Nagpal (the 'Nagpal Employment Agreement'). Base
compensation under the Nagpal Employment Agreement is $225,000 per year, subject
to increase by the Board of Directors. In addition, the Board of Directors may
award an annual bonus to Dr. Nagpal in an amount of up to 30% of his base salary
based on the attainment of certain benchmarks. The Company may terminate Dr.
Nagpal's employment at any time and for any reason; provided that, if his
employment is terminated without cause (as defined in such agreement) or as a
result of his becoming permanently disabled, the Company must pay Dr. Nagpal a
severance amount determined in accordance with a formula contained in the
agreement.
 
     Under the Nagpal Employment Agreement, Dr. Nagpal is prohibited from
directly or indirectly competing with the Company during the term of his
employment with the Company and for an additional year thereafter or as long as
the Company is making severance payments to him, however, there can be no
assurance as to the enforceability of such Agreement. The restraint on
competition by Dr. Nagpal is geographically limited to any state in the United
States in which the Company or any of its subsidiaries conducts business or
specifically plans to conduct business at the time of the termination of his
employment with the Company. Under the terms of the Nagpal Employment Agreement,
Dr. Nagpal acknowledges that any proprietary information (as defined in such
agreement) that he may develop is the sole property of the Company and agrees
not to disclose to, or use for the benefit of, any person or entity (other than
the Company) any of such proprietary information whether or not developed by
him.
 

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                              CERTAIN TRANSACTIONS
 
EQUITY AND DEBT FINANCINGS
 
     In connection with its initial capitalization, the Company sold shares of
Common Stock and Series A Convertible Preferred Stock (the 'Series A Preferred
Stock') to each of the following persons and entities at a per share purchase
price of $.01 and $1.00, respectively: (a) Oak Partners purchased 146,580 and
325,733 shares of Common Stock and Series A Preferred Stock, respectively; (b)
Oak VI purchased 3,420 and 7,600 shares of Common Stock and Series A Preferred
Stock, respectively; (c) Delphi Ventures purchased 147,347 and 327,438 shares of
Common Stock and Series A Preferred Stock, respectively; (d) Delphi
BioInvestments III, L.P. ('Delphi BioInvestments') purchased 2,653 and 5,895
shares of Common Stock and Series A Preferred Stock, respectively; (e) Dr.
Nagpal purchased 850,000 and 333,333 shares of Common Stock and Series A
Preferred Stock, respectively; and (f) Scheer & Co. purchased 25,000 shares of
Common Stock. Upon consummation of the Offering, all outstanding shares of
Series A Preferred Stock will automatically convert into an equal number of
shares of Common Stock.
 
     During the period beginning November 1996 and ending in March 1997, the
Company raised additional working capital funds by issuing additional shares of
preferred stock. On November 12, 1996, the Company issued an aggregate of
2,000,001 shares of Series B Convertible Preferred Stock, $.01 par value (the
'Series B Preferred Stock'), to the following persons and entities in the
following amounts: Oak Partners, 651,467 shares; Oak VI, 15,200 shares; Delphi
Ventures, 654,877 shares; Delphi BioInvestments, 11,790 shares; and Dr. Nagpal,
666,667 shares. The investors paid an aggregate purchase price of $6,000,003 for
the Series B Preferred Stock. An additional $764,997 was raised by the Company
from the issuance of an aggregate of 254,999 shares of Series C Convertible
Preferred Stock, $.01 par value (the 'Series C Preferred Stock'), on January 22,
1997 and March 12, 1997 to certain of the SCOI physicians (including Dr. Fox,
one of the Company's directors), key employees and legal counsel of SCOI, an
employee of the Company, CGJR Health Care Private Equities, L.P., CGJR II, L.P.
and CGJR/MF III, L.P. Upon consummation of the Offering, all outstanding shares
of Series B Preferred Stock will automatically convert into Common Stock. On
January 14, 1997, the Company obtained short-term loans in the aggregate amount
of $999,999 from Delphi Ventures, Delphi BioInvestments, Oak Partners, Oak VI
and Dr. Nagpal. In connection with such loans, the Company issued warrants to
the lenders to purchase an aggregate of 33,333 shares of Common Stock, which
warrants may be exercised at any time, in whole or in part, prior to January 14,
2002 at an exercise price of $3.00 per share. The Company borrowed an additional
$866,667 (of which $141,000 has been repaid) from Dr. Nagpal on January 10, 1997
and January 14, 1997. Each of the foregoing loans bears interest at 8% per
annum. Upon consummation of the Offering, all outstanding shares of Series C
Preferred Stock will automatically convert into Common Stock. On June 19, 1997,
pursuant to a letter agreement, the Company issued an aggregate of 188,072
shares of Series D Convertible Preferred Stock, $.01 par value (the 'Series D
Preferred Stock'), to Oak VI, Oak Partners, Delphi Ventures, Delphi
BioInvestments, and Dr. Nagpal in exchange for the cancellation of promissory

notes in the aggregate principal amount of $999,999, plus accrued interest,
previously issued by the Company to secure loans made by such investors to the
Company. Upon consummation of the Offering, all outstanding shares of Series D
Preferred Stock will automatically convert into Common Stock.
 
     On June 19, 1997, pursuant to a letter agreement, the Company issued an
aggregate of 533,335 shares of Series E Convertible Preferred Stock, $.01 par
value (the 'Series E Preferred Stock'), to Oak VI, Oak Partners, Delphi
Ventures, Delphi BioInvestments, Dr. Nagpal, CGJR Health Care, CGJR II, and
CGJR/MF. The investors paid an aggregate purchase price of $3,200,010 for the
Series E Preferred Stock. Upon consummation of the Offering, all outstanding
shares of Series E Preferred Stock will automatically convert into Common Stock.
 
     From March 1997 to July 1997 the Company entered into the HCFP Loan
Agreements with HCFP Funding. Each of the HCFP Loan Agreements is in the nature
of a revolving line of credit, with each such loan to be made against a
borrowing base equal to 85% of the qualified accounts receivable generated by
the subject Practice. Each HCFP Loan had an initial term of two years, subject
to renewals of one-year periods upon the mutual agreement of the parties, and
bears interest at the Base Rate (defined as 1.75% above the prime rate
designated by Fleet National Bank of Connecticut, N.A.), subject to increase
upon the occurrence of an event of default. In addition, upon the occurrence and
during the continuance of an event of default, the Company is prohibited from
 
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declaring or paying cash dividends on its Common Stock. As security for
repayment of the HCFP Loans, the Company granted HCFP Funding a first priority
lien and security interest in its accounts receivable.
 
     On June 30, 1997, the Company issued a secured term note in the aggregate
principal amount of $3,250,000 to HCFP Funding (the 'HCFP Note'), which bears
interest at the Base Rate (defined as the prime rate designated by Fleet
National Bank of Connecticut plus 3.5%), subject to increase upon the occurrence
of an event of default, with interest payable on the last business day of each
month for the first six months commencing July 31, 1997 through December 31,
1997. Commencing on January 31, 1998, the Company is required to make 36 equal
monthly installments of principal, plus accrued interest at the Base Rate. The
HCFP Note is secured by a lien on substantially all of the assets of the Company
and $1.5 million of the Company's obligations under the HCFP Note are guaranteed
by Dr. Nagpal, Delphi Ventures III, L.P., Delphi BioInvestments III, L.P., Oak
Investment Partners VI, L.P. and Oak VI Affiliates Fund, L.P. In connection with
such guarantees, the Company issued warrants to purchase an aggregate of 13,332
shares of Common Stock to such guarantors. In connection with the HCFP Note, the
Company issued warrants to purchase 40,000 shares (subject to increase) of
Common Stock to HCFP Funding at an exercise price of $.01 per share.
 
     On August 1, 1997, the Company entered into the Comdisco Loan Agreement
pursuant to which Comdisco made the Comdisco Loan to the Company in the
principal amount of $5,000,000. To secure its obligations to Comdisco under the
Comdisco Loan Agreement, the Company granted to Comdisco a lien on all of the
Company's tangible and intangible personal property. The Comdisco Loan and the

liens granted to Comdisco (the 'Comdisco Liens') are subordinated in all
respects to the current and future indebtedness of the Company owing to HCFP
Funding. The Comdisco Liens rank pari passu with the liens granted to Galtney.
The Comdisco Loan initially bears interest at 14% per annum; provided, however,
that if an initial public offering of the Company's capital stock is not
consummated on or prior to December 31, 1997, the Comdisco Loan will, commencing
January 1, 1998, bear interest at 15% per annum. The Comdisco Loan may be
prepaid, in whole or in part, at any time, by the Company without penalty or
premium. Within 45 days of the effective date of an initial public offering of
the capital stock of the Company, the Company is obligated to prepay the
Comdisco Loan in full. The Comdisco Loan matures December 31, 2000. The Comdisco
Loan Agreement prohibits the Company from making or declaring any cash dividends
or making any distributions of any class of capital stock of the Company, except
pursuant to an employee repurchase plan or with the consent of Comdisco.
Further, in connection with the Comdisco Loan, the Company issued to Comdisco a
warrant to purchase up to 125,000 shares of the Company's Series E Preferred
Stock at a price per share equal to $6.00; provided, however, that if an initial
public offering of the Company's capital stock is not consummated on or prior to
December 31, 1997, then the number of shares of Series E Preferred Stock
issuable upon exercise of the warrant increases to 133,333. Upon the completion
of the Company's initial public offering, such warrant becomes exercisable for a
like number of shares of Common Stock. In addition, pursuant to a Stock Purchase
Agreement dated as of August 18, 1997, the Company issued 41,667 shares of
Series E Preferred Stock to Comdisco for an aggregate purchase price of
$250,000.
 
     On August 1, 1997, the Company entered into an agreement (the 'Master Lease
Agreement') with Comdisco pursuant to which Comdisco agreed to purchase and
lease certain equipment to the Company on the terms and conditions contained in
the Master Lease Agreement. In connection with the Master Lease Agreement, the
Company issued to Comdisco a warrant to purchase up to 5,000 shares of the
Company's Series E Preferred Stock at a price per share equal to $6.00. Upon the
completion of the Company's initial public offering, such warrant becomes
exercisable for a like number of shares of Common Stock.
 
     On August 21, 1997, the Company entered into the Galtney Loan Agreement
with Galtney pursuant to which Galtney made the Galtney Loan to the Company in
the principal amount of $1,500,000. To secure its obligations to Galtney under
the Galtney Loan Agreement, the Company granted to Galtney a lien on all of the
Company's tangible and intangible personal property. The Galtney Loan and the
liens granted to Galtney ('Galtney Liens') are subordinated in all respects to
the current and future indebtedness of the Company owing to HCFP Funding. The
Galtney Liens rank pari passu with the liens granted to Comdisco. The Galtney
Loan initially bears interest at 14% per annum; provided, however, that if an
initial public offering of the Company's capital stock is not consummated on or
prior to December 31, 1997, the Galtney Loan will, commencing January 1, 1998,
bear interest at 15% per annum. The Galtney Loan may be prepaid, in whole or in
part, at any time, by the Company without penalty or premium. Within 45 days of
the effective date of an initial public offering of the
 
                                       50

<PAGE>


capital stock of the Company, the Company is obligated to prepay the Galtney
Loan in full. The Galtney Loan matures December 31, 2000. The Galtney Loan
Agreement prohibits the Company from making or declaring any cash dividends or
making any distributions of any class of capital stock of the Company, except
pursuant to an employee dividends repurchase plan or with the consent of
Galtney. Pursuant to the terms of the Galtney Loan Agreement, the outstanding
amount of the Galtney Loan is convertible into shares of Preferred Stock of the
Company at the option of Galtney after the Company completes a sale and issuance
of any shares of its Preferred Stock in connection with an equity financing (an
'Equity Financing') at any time after the earlier to occur of (i) a payment
default under the Galtney Loan Agreement or (ii) the failure of the Company to
consummate an initial public offering of its capital stock prior to December 31,
1997. Further, in connection with the Galtney Loan, the Company issued to
Galtney a warrant to purchase up to 37,500 shares of the Company's Series E
Preferred Stock at a price per share equal to $6.00; provided, however, that if
an initial public offering of the Company's capital stock is not consummated on
or prior to December 31, 1997, then the number of shares of Series E Preferred
Stock issuable upon exercise of the warrant increases to 40,000. In addition,
pursuant to a Stock Purchase Agreement dated as of July 31, 1997, the Company
issued 166,667 shares of Series E Preferred Stock to HIS Ventures, LLC, an
affiliate of Galtney, for an aggregate purchase price of $1,000,000. Upon the
completion of the Company's initial public offering, such warrant becomes
exercisable for a like number of shares of Common Stock.
 
     On September 9, 1997, the Company issued and sold $4,000,000 in aggregate
principal amount of its subordinated convertible debentures due August 31, 2000
(the 'Debentures') pursuant to the Convertible Debenture Purchase Agreement,
dated as of September 9, 1997 (the 'Debenture Purchase Agreement'). The
Debentures were purchased by Dr. Nagpal, Delphi Ventures, Delphi BioInvestments,
Oak Partners, Oak VI and Health Care Services-BMJ, LLC and H&Q Serv*is Ventures,
L.P., affiliates of Hambrecht & Quist, LLC. Pursuant to the terms of the
Debenture Purchase Agreement, the Debentures are subordinated in right of
payment to all indebtedness owing by the Company to HCFP Funding, the Comdisco
Loan and the Galtney Loan. The Debentures bear interest at 6% per annum and are
payable semi-annually on each December 31 and June 30. The unpaid principal
amount of the Debentures is due on August 31, 2000.
 
     Except in very limited instances, the Company may not prepay the Debentures
prior to September 9, 1999. The Debentures are subject to prepayment at the
option of the holders of the Debentures upon the consummation of (i) a sale of
all or substantially all of the assets of the Company; (ii) a sale or transfer
of all or a majority of the outstanding Common Stock of the Company in any one
transaction or series of related transactions; or (iii) a merger or
consolidation of the Company with or into another entity. The Debentures are
convertible at any time at the option of the holders thereof into shares of
Common Stock at an initial conversion price equal to $7.20 per share. Pursuant
to the terms of the Debenture Purchase Agreement, the holders of the Debentures
have rights of first offer on future issuances of capital stock of the Company
or other securities convertible into capital stock of the Company. The Debenture
Purchase Agreement places limitations on indebtedness and liens and prohibits
the payment of dividends.
 
AFFILIATION TRANSACTIONS
 

  Eastern Region
 
     Effective July 1, 1996, the Company consummated its initial Affiliation
Transaction with LVBMJ in the State of Pennsylvania. Under the terms of the
Amended and Restated Management Services Agreement between LVBMJ and the Company
effective as of July 1, 1997 (the 'LVBMJ Management Services Agreement'), the
Company is entitled to receive a fee equal to 10% of all cash and cash
equivalents received for professional services by the Practice during the period
in question net of refunds paid during such period ('Collections') plus
reimbursement of clinic overhead expenses and 66-2/3% of the cost savings
achieved by the Company on behalf of the Practice. As consideration to LVBMJ for
entering into the LVBMJ Management Services Agreement, the Company issued an
aggregate of 518,031 shares of Common Stock and options to purchase an aggregate
of 30,000 shares of Common Stock to the physician owners of LVBMJ physicians and
LVBMJ. The Company may be required to issue more shares of Common Stock to the
Practice in 1998 based on the Practice's actual Collections for a specified
twelve month period.
 
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     Effective April 1, 1997, the Company entered into a Management Services
Agreement (the 'LOS Management Services Agreement') with LOS. As consideration
to LOS for entering into the agreement, the Company issued an aggregate of
466,417 shares of its Common Stock and paid additional consideration of $389,709
to the LOS physicians. The Company may be required to issue more shares of
Common Stock to the Practice in 1998 based on the Practice's actual Collections
for a specified twelve month period. Under the terms of the LOS Management
Services Agreement, the Company is entitled to receive a fee equal to (i) the
aggregate of (A) 20% of net operating income (as defined in the LOS Management
Services Agreement) of the Practice, plus (B) 66-2/3% of the cost savings
achieved by the Company on behalf of the Practice. Notwithstanding the
foregoing, the Company is entitled to receive a guaranteed minimum annual
management fee of $400,000. The Company also purchased certain assets from LOS,
including the assumption of two leases, for an aggregate purchase price of
$2,250,000 (subject to adjustment based upon the Company's actual collection of
the purchased accounts receivable).
 
     Effective June 1, 1997, the Company entered into a Management Services
Agreement (the 'Gold Coast Management Services Agreement') with Gold Coast
located in West Palm Beach, Florida, pursuant to which the Company issued
265,725 shares of Common Stock and paid no additional consideration to the
physician owners of Gold Coast. The Company may be required to issue more shares
of Common Stock to the Practice in 1998 based on the Practice's actual
Collections for a specified twelve month period. Under the terms of the Gold
Coast Management Services Agreement, the Company is entitled to receive a fee
equal to the aggregate of (i) 15% of the Collections plus reimbursement of
clinic overhead expenses, plus (ii) 66-2/3% of the cost savings achieved by the
Company on behalf of Gold Coast. In connection with the Gold Coast Affiliation
Transaction, the Company also entered into an Asset Purchase Agreement,
effective as of July 1, 1997, pursuant to which the Company purchased certain
assets (including accounts receivable) from Gold Coast for an aggregate purchase
price of $2,976,577.

 
     Effective August 1, 1997, the Company entered into a Management Services
Agreement (the 'BOS Management Services Agreement') with Broward Orthopedic
Specialists, Inc. ('Broward'), Terrence Matthews, M.D., Wylie Scott, M.D., and
Mitchell Seavey, M.D. located in Ft. Lauderdale, Florida, pursuant to which the
Company issued 625,768 shares of Common Stock and paid additional consideration
of $2,215,338 to the physician owners of Broward. The Company may be required to
issue more shares of Common Stock to the Practice in 1998 based on the
Practice's actual Collections for a specified twelve month period. Under the
terms of the BOS Management Services Agreement, the Company is entitled to
receive a fee equal to the aggregate of (i) 15% of the Collections plus
reimbursement of clinic overhead expenses, plus (ii) 66-2/3% of the cost savings
achieved by the Company on behalf of Broward. In connection with the BOS
Affiliation Transaction, the Company also entered into an Asset Purchase
Agreement, effective as of August 1, 1997, pursuant to which the Company
purchased certain assets (including accounts receivable) from Broward, Matthews,
Scott and Seavey for an aggregate purchase price of $2,020,000.
 
     Effective August 1, 1997, the Company entered into a Management Services
Agreement (the 'PM&R Management Services Agreement') with Physical Medicine and
Rehabilitation Associates, Inc. ('PM&R'), located in Delray Beach, Florida,
pursuant to which the Company issued 126,923 shares of Common Stock and paid no
additional consideration to the physician owners of PM&R. Under the terms of the
PM&R Management Services Agreement, the Company is entitled to receive a fee
equal to the aggregate of (i) 10% of the Collections plus reimbursement of
clinic overhead expenses, plus (ii) 66-2/3% of the cost savings achieved by the
Company on behalf of PM&R. In connection with the PM&R Affiliation Transaction,
the Company also entered into an Asset Purchase Agreement, effective as of
August 1, 1997, pursuant to which the Company purchased certain assets
(including accounts receivable) from PM&R, for an aggregate purchase price of
$830,700.
 
  Other Eastern Region Affiliations
 
     Effective July 1, 1997, the Company entered into a Management Services
Agreement with Neal Kramer, D.P.M. located in Bethlehem, Pennsylvania. Effective
September 1, 1997, in order to enhance the Company's presence in the Ft.
Lauderdale market, the Company entered into separate Management Services
Agreements with Jeffrey Beitler, M.D., located in Adventura, Florida, and
Michael Abrahams, M.D., located in Plantation, Florida. Under the terms of these
Management Services Agreements, the Company is entitled to receive a fee equal
to the aggregate of (i) 10% (15% in the case of Dr. Abrahams) of the Collections
plus reimbursement of
 
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clinic overhead expenses, plus (ii) 66-2/3% of the cost savings achieved by the
Company on behalf of these practices.
 
  Central Region
 
     The Company's initial Affiliation Transaction in the central region was

with STSC. The Company entered into a Management Services Agreement with STSC
effective as of November 1, 1996, pursuant to which the Company issued 1,076,501
shares of Common Stock and deferred consideration of $915,835. Pursuant to the
STSC Management Services Agreement, the Company is entitled to receive a
management fee equal to an aggregate of (i) 11-1/2% of Collections of the
Practice (less certain lease payments) plus reimbursement of clinic overhead
expenses, plus (B) 66-2/3% of the cost savings achieved by the Company on behalf
of STSC. The Company also entered into an asset purchase agreement with STSC,
pursuant to which the Company agreed to purchase certain assets (including
accounts receivable) and assume certain liabilities for a purchase price of (i)
$1,703,828 (subject to adjustment based upon the Company's actual collection of
the purchased accounts receivable) plus (ii) a future payment of $446,327.
 
  Other Central Region Affiliations
 
     Effective July 1, 1997, the Company entered into a Management Services
Agreement with Eradio Arrendondo, M.D. located in San Antonio, Texas.
 
  Western Region
 
     Effective November 1, 1996, the Company entered into a Management Services
Agreement (the 'SCOI Management Services Agreement') with SCOI and, in
connection therewith, the Company issued 4,000,000 shares of Common Stock to the
physician owners and certain key employees of SCOI. Under the SCOI Management
Services Agreement, the Company is entitled to receive a fee equal to the
aggregate of (i) 10% of the Collections of the Practice (if certain conditions
are met) less certain equipment lease payments plus reimbursement of clinic
overhead expenses, plus (ii) 66-2/3% of the cost savings achieved by the Company
on behalf of SCOI. Simultaneously with the execution and delivery of the SCOI
Management Services Agreement and pursuant to an Asset Purchase Agreement, the
Company acquired certain assets (including the outstanding accounts receivable),
and assumed certain liabilities, of SCOI for an aggregate purchase price of
$5,930,897 (which included $2,224,000 of value of accounts receivable
purchased).
 
     In a subsequent transaction with the Center for Orthopedic Surgery, Inc.
('COSI'), an outpatient surgery center in Van Nuys, California owned by the SCOI
physicians, the Company issued 550,000 shares of Common Stock to the physician
owners of COSI as consideration for the execution of the Management Services
Agreement entered into between COSI and the Company (the 'COSI Management
Services Agreement'). The number of shares issued to the physicians in
connection with each of the SCOI and COSI Affiliation Transactions is subject to
recalculation on the earlier to occur of the filing by the Company of a
registration statement containing a preliminary prospectus with the Commission
or November 1, 1997. The number of shares will be increased or decreased based
upon the respective revenue contribution of the SCOI and COSI practices at such
date as compared to the aggregate revenues of the entire musculoskeletal
practice network of the Company at such date.
 
     To expand its network in the western region, effective April 1, 1997, the
Company entered into a Management Services Agreement (the 'Tri-City Management
Services Agreement') with Tri-City, located in Oceanside, California, pursuant
to which the Company issued 402,723 shares of Common Stock and paid $202,900 to
the physician owners of Tri-City. Under the terms of the Tri-City Management

Services Agreement, the Company is entitled to receive a fee equal to the
aggregate of (i) 10% of Collections of the Practice (less certain lease
payments) plus reimbursement of clinic overhead expenses, plus (ii) 66-2/3% of
the cost savings achieved by the Company on behalf of Tri-City. In connection
with the Tri-City Affiliation Transaction, the Company also entered into three
Asset Purchase Agreements with Tri-City or affiliates thereof, all effective as
of April 1, 1997, pursuant to which the Company purchased certain assets
(including accounts receivable) from such parties for an aggregate purchase
price of $745,300 ($519,000 of which is subject to refund, based upon the
Company's actual collection of the purchased accounts receivable).
 
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<PAGE>

     Effective July 1, 1997, the Company entered into a Management Services
Agreement (the 'Sun Valley Management Services Agreement') with Sun Valley,
located in Sun City, Arizona, pursuant to which the Company issued 157,807
shares of Common Stock and paid no additional consideration to the physician
owners of Sun Valley. The Sun Valley Management Services Agreement requires the
Company to pay additional cash consideration to the physician owners of Sun
Valley if the current market value of the Company's Common Stock is not at least
equal to a specified price on the first anniversary of such agreement. Under the
terms of the Sun Valley Agreement, the Company is entitled to receive a fee
equal to the aggregate of (i) 10% of the Collections plus reimbursement of
clinic overhead expenses, plus (ii) 66-2/3% of the cost savings achieved by the
Company on behalf of Sun Valley. In connection with the Sun Valley Affiliation
Transaction, the Company also entered into an Asset Purchase Agreement,
effective as of July 1, 1997, pursuant to which the Company purchased certain
assets (including accounts receivable) from Sun Valley for an aggregate purchase
price of $355,750.
 
     Effective August 1, 1997, the Company entered into a Management Services
Agreement (the 'Stockdale Management Services Agreement') with Stockdale
Podiatry Group, Inc. ('Stockdale'), located in Bakersfield, California, pursuant
to which the Company issued 124,385 shares of Common Stock and paid additional
consideration of $300,435 to the physician owners of Stockdale. Under the terms
of the Stockdale Management Services Agreement, the Company is entitled to
receive a fee equal to the aggregate of (i) 10% of the Collections plus
reimbursement of clinic overhead expenses, plus (ii) 66-2/3% of the cost savings
achieved by the Company on behalf of Stockdale. In connection with the Stockdale
Affiliation Transaction, the Company also entered into an Asset Purchase
Agreement, effective as of August 1, 1997, pursuant to which the Company
purchased certain assets (including accounts receivable) from Stockdale for an
aggregate purchase price of $516,065.
 
  Other Western Region Affiliations
 
     Effective June 1, 1997 in order to enhance the Company's presence in the
Los Angeles market area, the Company entered into separate Management Services
Agreements with H. Leon Brooks, M.D. and Clive Segil, M.D., both located in Los
Angeles, California. In addition, effective July 1, 1997, in order to establish
a presence in the Lake Tahoe area, the Company entered into separate Management
Services Agreements with R.C. Watson, M.D., Inc., Swanson Orthopedic Medical

Corporation and Lake Tahoe Sports Medicine Center, all located in South Lake
Tahoe, California. In addition, effective July 1, 1997, the Company entered into
a Management Services Agreement with Robert O. Wilson, M.D. located in Sun City,
Arizona. Effective August 1, 1997 the Company entered into a Management Services
Agreement with John Zimmerman, M.D. located in Bakersfield, California. Under
the terms of each of these Management Services Agreements, the Company is
entitled to receive a fee equal to the aggregate of (ii) 10% of the Collections
plus reimbursement of clinic overhead expenses, plus (ii) 66-2/3% of the cost
savings achieved by the Company on behalf of these Practices.
 
                                       54

<PAGE>

                             PRINCIPAL STOCKHOLDERS
 
     The following table sets forth certain information regarding the beneficial
ownership of the Common Stock of the Company as of the date of this Prospectus
and as adjusted to reflect the sale of the shares of Common Stock offered hereby
with respect to (i) each person known by the Company to own beneficially more
than 5% of the outstanding shares of Common Stock; (ii) each of the Company's
directors; and (iii) all directors and officers as a group. Unless otherwise
indicated, the address for each stockholder is c/o BMJ Medical Management, Inc.,
4800 North Federal Highway, Suite 104D, Boca Raton, Florida 33431.
 
<TABLE>
<CAPTION>
                                                                        SHARES BENEFICIALLY     SHARES BENEFICIALLY
                                                                               OWNED                   OWNED
                                                                        PRIOR TO OFFERING(1)     AFTER OFFERING(1)
                                                                        --------------------    --------------------
NAME OF BENEFICIAL OWNER                                                 NUMBER      PERCENT     NUMBER      PERCENT
---------------------------------------------------------------------   ---------    -------    ---------    -------
<S>                                                                     <C>          <C>        <C>          <C>
Delphi Ventures III, L.P.(2) ........................................     165,555       1.6%    1,394,912(3)       %
  3000 Sand Hill Road, Building One, Suite 135,
  Menlo Park, California 94025
Oak Investment Partners VI, L.P.(4) .................................     165,555       1.6     1,394,913(5)
  One Gorham Island
  Westport, Connecticut 06880
Naresh Nagpal, M.D...................................................     981,805(6)    9.6     2,211,163 6)(7)
David H. Fater.......................................................           0        --        15,000(8)
Georges Daou.........................................................           0        --             0
James M. Fox, M.D....................................................     395,708       3.9       412,083(9)
Ann H. Lamont(4).....................................................     165,555(10)   1.6     1,394,913(5)
Donald J. Lothrop(2).................................................     165,555(11)   1.6     1,394,912(3)
All officers and directors as a group (6 persons) (12)...............   1,708,623      16.9     3,216,908
</TABLE>
 
------------------
*   Less than one percent.
 
(1) Applicable percentage of ownership is based on 10,277,479 shares of Common
    Stock outstanding as of September 12, 1997 and            shares of Common

    Stock outstanding upon consummation of the Offering. Beneficial ownership is
    determined in accordance with the rules of the Commission and includes
    voting and investment power with respect to securities. Securities subject
    to options or warrants currently exercisable or exercisable within 60 days
    of September 12, 1997 are deemed outstanding for purposes of computing the
    percentage ownership of the person holding such options or warrants, but are
    not deemed outstanding for purposes of computing the percentage of any other
    person. Except for shares held jointly with a person's spouse or subject to
    applicable community property laws, or as indicated in the footnotes to this
    table, each stockholder identified in the table possesses sole voting and
    investment power with respect to all shares of Common Stock shown as
    beneficially owned by such stockholder.
 
(2) Includes (i) 2,653 shares of Common Stock owned by Delphi BioInvestments and
    (ii) warrants to purchase 15,279.5 shares of Common Stock owned by the
    stockholder and warrants to purchase 275.5 shares of Common Stock owned by
    Delphi BioInvestments.
 
(3) Includes 1,207,616 shares of Preferred Stock owned by the stockholder and
    21,741 shares of Preferred Stock owned by Delphi BioInvestments which
    automatically convert into the same number of shares of Common Stock upon
    completion of the Offering.
 
(4) Includes (i) 3,420 shares of Common Stock owned by Oak VI and (ii) warrants
    to purchase 15,200.67 shares of Common Stock owned by the stockholder and
    warrants to purchase 354.33 shares of Common Stock owned by Oak VI.
 
(5) Includes 1,201,329 shares of Preferred Stock owned by the stockholder and
    28,029 shares of Preferred Stock owned by Oak VI all of which automatically
    convert into the same number of shares of Common Stock upon completion of
    the Offering.
 
                                       55

<PAGE>

 (6) Includes (i) 18,750 shares of Common Stock reserved for issuance upon
     exercise of presently-exercisable stock options and (ii) warrants to
     purchase 15,555 shares of Common Stock. Dr. Nagpal's shares are held in two
     trusts for his children, the Prianker Nagpal Family Trust and the Zubin
     Nagpal Family Trust. Dr. Nagpal is the grantor of each trust and Dr.
     Nagpal's wife is the sole trustee of each trust.
 
 (7) Includes 1,229,358 shares of Preferred Stock owned by the stockholder which
     automatically convert into the same number of shares of Common Stock upon
     completion of the Offering.
 
 (8) Consists of 15,000 shares of Common Stock that vest automatically upon
     completion of the Offering.
 
 (9) Includes 16,375 shares of Preferred Stock owned by the stockholder which
     automatically convert into the same number of shares of Common Stock upon
     completion of the Offering.
 

(10) Ms. Lamont, a director of the Company, is a managing member of each of the
     general partner of Oak Investment and Oak VI. As such, Ms. Lamont may be
     deemed to have an indirect pecuniary interest (within the meaning of Rule
     16a-1 under the Exchange Act), in an indeterminate portion of the shares
     beneficially owned by Oak Investment and Oak VI. All of the shares
     indicated as owned by Ms. Lamont are owned beneficially by Oak Investment
     and Oak VI and are included because of the affiliation of Ms. Lamont with
     each of the partnerships. Ms. Lamont disclaims beneficial ownership of
     these shares to the extent permitted under Rule 13d-3 under the Exchange
     Act.
 
(11) Mr. Lothrop, a director of the Company, is a General Partner of Delphi
     Ventures. As such, Mr. Lothrop may be deemed to have an indirect pecuniary
     interest (within the meaning of Rule 16a-1 under the Exchange Act), in an
     indeterminate portion of the shares beneficially owned by Delphi Ventures
     and Delphi BioInvestments. All of the shares indicated as owned by Mr.
     Lothrop are owned beneficially by Delphi Ventures and Delphi BioInvestments
     and are included because of the affiliation of Mr. Lothrop with each of the
     partnerships. Mr. Lothrop disclaims beneficial ownership of these shares to
     the extent permitted under Rule 13d-3 under the Exchange Act.
 
(12) Includes beneficial ownership of an aggregate of 331,110 shares of Common
     Stock and warrants to purchase Common Stock prior to the Offering and an
     aggregate of 2,789,825 shares of Common Stock and warrants to purchase
     Common Stock after the Offering attributable to the affiliation of Ms.
     Lamont and Mr. Lothrop with the entities described in footnotes (10) and
     (11) above.
 
                                       56

<PAGE>

                          DESCRIPTION OF CAPITAL STOCK
 
     Upon the consummation of the Offering, the authorized capital stock of the
Company will consist of (i)        shares of Common Stock and (ii)        shares
of preferred stock, par value $.01 per share (the 'Preferred Stock'), which are
subject to future issuance as determined by the Board of Directors of the
Corporation.
 
COMMON STOCK
 
     Holders of Common Stock are entitled to one vote per share on all matters
on which the holders of Common Stock are entitled to vote and do not have any
cumulative voting rights. Holders of Common Stock are entitled to receive such
dividends as may from time to time be declared by the Board of Directors of the
Company out of funds legally available therefor. Holders of Common Stock have no
preemptive, conversion, redemption or sinking fund rights. In the event of a
liquidation, dissolution or winding-up of the Company, holders of Common Stock
are entitled to share ratably in the assets of the Company, if any, remaining
after the payment of all debts and liabilities of the Company and the
liquidation preference of any outstanding class or series of preferred stock.
The outstanding shares of Common Stock are, and the shares of Common Stock
offered by the Company hereby when issued will be, fully paid and nonassessable.

The rights, preferences and privileges of holders of Common Stock are subject to
the Preferred Stock currently outstanding and any series of Preferred Stock
which the Company may issue in the future.
 
     Prior to the Offering, there has been no public market for the Common
Stock. Application will be made to have the Common Stock approved for inclusion
on Nasdaq under the symbol BONS. The transfer agent and registrar for the Common
Stock is Chemical Mellon Shareholder Services.
 
PREFERRED STOCK
 
     As of September 1, 1997, the Company had five classes of authorized
Preferred Stock: (i) the Series A Preferred Stock; (ii) the Series B Preferred
Stock; (iii) the Series C Preferred Stock; (iv) the Series D Preferred Stock;
and (v) the Series E Preferred Stock. Each holder of Preferred Stock has the
right, at such holder's option, to convert any of his Preferred Stock into
Common Stock at the conversion price set forth in the Certificate of
Incorporation. Upon the consummation of the Offering, all outstanding shares of
Preferred Stock automatically convert into an equal number of shares of Common
Stock without any action on the part of the holders of such stock. Upon such
conversion, the holders of Preferred Stock are not entitled to payment of any
accrued but unpaid dividends.
 
     The Board of Directors is authorized to provide for the issuance of
Preferred Stock in one or more series and to fix the number of shares
constituting any such series, the voting powers, designations, preferences and
relative, participating, optional or other special rights and qualifications,
limitations or restrictions thereof, including the dividend rights, redemption
privileges, conversion rights and liquidation preferences of the shares
constituting any series, without any further vote or action by the stockholders
of the Company. The issuance of Preferred Stock by the Board of Directors could
adversely affect the rights of holders of Common Stock. For example, the
issuance of Preferred Stock could result in a series of securities outstanding
that would have preferences over the Common Stock with respect to dividends and
in liquidation and that could (upon conversion or otherwise) enjoy all of the
rights appurtenant to Common Stock.
 
     The authority possessed by the Board of Directors to issue Preferred Stock
could potentially be used to discourage attempts by others to obtain control of
the Company through merger, tender offer, proxy, consent or otherwise by making
such attempts more difficult to achieve or more costly. The Board of Directors
may issue Preferred Stock without stockholder approval and with voting and
conversion rights which could adversely affect the voting power of holders of
Common Stock. There are no agreements or understandings for the issuance of
Preferred Stock, and the Board of Directors has no present intent to issue
Preferred Stock.
 
                                       57

<PAGE>

CLASSIFIED BOARD OF DIRECTORS
 
     The Certificate of Incorporation provides for the Board of Directors to be

divided into three classes of directors serving staggered three-year terms. As a
result, approximately one-third of the Board of Directors will be elected each
year. Moreover, under Delaware Law, in the case of a corporation having a
classified board, stockholders may remove a director only for cause. This
provision, when coupled with the provision of the By-laws authorizing only the
Board of Directors to fill vacant directorships, will preclude a stockholder
from removing incumbent directors without cause and simultaneously gaining
control of the Board of Directors by filling the vacancies created by such
removal with its own nominees.
 
SPECIAL MEETING OF STOCKHOLDERS
 
     The Certificate of Incorporation provides that special meetings of
stockholders of the Company may be called only by the Board of Directors, the
Chairman of the Board of Directors or the Chief Executive Officer. This
provision will make it more difficult for stockholders to take actions opposed
by the Board of Directors.
 
STOCKHOLDERS AGREEMENT
 
     The Company entered into a Second Amended and Restated Stockholders
Agreement dated as of November 22, 1996 (the 'Stockholders Agreement'), with
certain of its stockholders, including Oak Partners, Oak VI, Delphi Ventures,
Delphi BioInvestments, Dr. Nagpal and the SCOI physicians. Under the
Stockholders Agreement, the stockholders party thereto agreed to vote their
shares to appoint to the Company's Board of Directors certain designees of such
stockholders. The stockholders (other than the SCOI physicians) also have the
following rights and obligations under the Stockholders Agreement: (i) a right
of first refusal with respect to issuances of the Company's capital stock or
securities convertible into capital stock; and (ii) transfer restrictions. Under
the terms of the Stockholders Agreement, 700,000 shares of Common Stock Dr.
Nagpal received on May 6, 1996 are subject to vesting over a 40-month period;
however, the vesting schedule is subject to acceleration in the following
circumstances: (i) termination of Dr. Nagpal's employment without cause prior to
December 31, 1996 but prior to January 1, 1998, 157,500 additional shares vest;
(ii) termination of Dr. Nagpal's employment without cause prior to December 31,
1997 but prior to January 1, 1999, 105,000 additional shares vest; (iii)
termination of Dr. Nagpal's employment as a result of his death or permanent
disability, 210,000 additional shares vest; (iv) simultaneously with the
effectiveness of a registration statement filed under the Securities Act, 50% of
the remaining unvested stock vests; and (v) simultaneously with any sale of a
majority of the capital stock or at least 50% of the assets of the Company, all
of the remaining unvested stock vests. In the event of the termination of Dr.
Nagpal's employment with the Company for any reason, the Company has the right
to repurchase from Dr. Nagpal all of the shares of unvested stock at a purchase
price equal to $.01 per share. The Stockholders Agreement terminates upon
consummation of the Offering.
 
REGISTRATION RIGHTS
 
     The beneficial owners of        shares of Common Stock have the right to
request that the Company effect the registration of any or all of such shares or
to include any or all of such shares in any registration statement to be filed
by the Company relating to the registration of Common Stock under the Securities

Act (other than registration statements on Form S-4 or Form S-8). Upon such
request, the Company is required to file a registration statement covering such
shares or to include such shares in such registration statement, as applicable,
except that, in the case of a requested registration, the Company is not
obligated to file any registration statement initiated pursuant to a request by
any such owner within 180 days of a prior registration by the Company and the
Company's obligations to effect any such registration is subject to other
limitations.
 
SECTION 203 OF THE DELAWARE GENERAL CORPORATION LAW
 
     Section 203 ('Section 203') of the Delaware General Corporation Law (the
'DGCL') prevents an 'interested stockholder' (defined in Section 203, generally,
as a person owning 15% or more of a corporation's outstanding voting stock) from
engaging in a 'business combination' (as defined in Section 203) with a
publicly-held Delaware corporation for three years following the date such
person became an interested stockholder unless (i) before such person became an
interested stockholder, the board of directors of the
 
                                       58

<PAGE>

corporation approved either the business combination or the transaction in which
the interested stockholder became an interested stockholder; (ii) upon
consummation of the transaction that resulted in the interested stockholder's
becoming an interested stockholder, the interested stockholder owns at least 85%
of the voting stock of the corporation outstanding at the time the transaction
commenced (excluding stock held by directors who are also officers of the
corporation and by employee stock plans that do not provide employees with the
rights to determine confidentially whether shares held subject to the plan will
be tendered in a tender or exchange offer); or (iii) following the transaction
in which such person became an interested stockholder, the business combination
is approved by the board of directors of the corporation and authorized at a
meeting of stockholders by the affirmative vote of the holders of two-thirds of
the outstanding voting stock of the corporation not owned by the interested
stockholder.
 
DIRECTORS' LIABILITY
 
     The Certificate of Incorporation contains provisions that eliminate the
personal liability of its directors for monetary damages resulting from breaches
of their fiduciary duty other than liability for breaches of the duty of
loyalty, acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, violations under Section 174 of the
DGCL or any transaction from which the director derived an improper personal
benefit. The Company's By-laws contain provisions requiring the indemnification
of the Company's directors and officers to the fullest extent permitted by
Section 145 of the DGCL, including circumstances in which indemnification is
otherwise discretionary. The Company believes that these provisions are
necessary to attract and retain qualified persons as directors and officers.
 
                                       59


<PAGE>

                        SHARES ELIGIBLE FOR FUTURE SALE
 
     After giving effect to the shares of Common Stock offered hereby, the
Company will have outstanding        shares of Common Stock. Of these shares,
all of the shares of Common Stock sold in the Offering will be freely tradeable
without restriction under the Securities Act, except for any shares purchased by
'affiliates,' as that term is defined under the Securities Act, of the Company.
The remaining        shares are 'restricted securities' within the meaning of
Rule 144 promulgated under the Securities Act. Of these restricted shares,
       shares will be eligible for the sale pursuant to Rule 144 in 1997 and the
balance of the restricted shares will be eligible for sale at various times in
1998.
 
     The Company, its directors and officers and certain other stockholders of
the Company, who upon completion of the Offering will own in the aggregate
            shares of Common Stock, have agreed that they will not, without the
prior written consent of Hambrecht & Quist LLC, issue, sell, offer, contract to
sell, make any short sale, pledge, issue or sell any option or contract to
purchase, purchase any option or contract to sell, grant any option, right or
warrant to purchase or otherwise transfer or dispose of any shares of Common
Stock, or securities exhangeable for or convertible into or exercisable for any
rights to purchase or acquire any shares of Common Stock during the 180-day
period following the date of this Prospectus, except that such stockholders may
transfer securities pursuant to bona fide gifts and the Company may issue, and
grant options to purchase, shares of Common Stock under its current stock option
plan and may issue shares of Common Stock, in connection with certain
affiliation transactions, provided such shares are subject to the 180-day
lock-up agreement. See 'Underwriting.'
 
     In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated), including any person who may be deemed to be an
'affiliate' of the Company, is entitled to sell within any three month period
'restricted' shares beneficially owned by him or her in an amount that does not
exceed the greater of (i) 1% of the then outstanding shares of Common Stock or
(ii) the average weekly trading volume in shares of Common Stock during the four
calendar weeks preceding such sale, provided that at least one year has elapsed
since such shares were acquired from the Company or an affiliate of the Company.
Sales are also subject to certain requirements as to the manner of sale, notice
and the availability of current public information regarding the Company.
However, a person who has not been an 'affiliate' of the Company at any time
within three months prior to the sale is entitled to sell his or her shares
without regard to the volume limitations or other requirements of Rule 144,
provided that at least two years have elapsed since such shares were acquired
from the Company or an affiliate of the Company.
 
     In general, under Rule 701 as currently in effect, any employee, officer,
director, consultant or advisor of the Company who purchased shares from the
Company pursuant to a written compensatory benefit plan or written contract
relating to compensation is eligible to resell such shares 90 days after the
effective date of the Offering in reliance upon Rule 144, but without the
requirement to comply with certain restrictions contained in such rule. Shares
of Common Stock obtained pursuant to Rule 701 may be sold by non-affiliates

without regard to the holding period, volume limitations, or information or
notice requirements of Rule 144, and by affiliates without regard to the holding
period requirements.
 
     The Company intends to file a registration statement on Form S-8 under the
Securities Act to register all shares of Common Stock issuable under its Option
Plan, as well as certain of the shares of Common Stock previously issued under
its Option Plan. This registration statement is expected to be filed as soon as
practicable after the date of this Prospectus and is expected to become
effective immediately upon filing. Shares of Common Stock covered by this
registration statement will be eligible for sale in the pubic market after the
effective date of such registration statement, subject to Rule 144 limitations
applicable to affiliates of the Company. See 'Management Stock Option Plan.'
 
     The Company has granted registration rights to certain of its stockholders.
See 'Description of Capital Stock Registration Rights.'
 
     Prior to the Offering, there has been no public market for the Common Stock
and it is impossible to predict with certainty the effect, if any, that market
sales of shares or the availability of such shares for sale will have on the
market price of the Common Stock. Nevertheless, sales of substantial amounts of
Common Stock in the public market may have an adverse impact on such market
price and could impair the Company's ability to raise capital through the sale
of its equity securities.
 
                                       60

<PAGE>

                                  UNDERWRITING
 
     Subject to the terms and conditions of the Underwriting Agreement, the
Underwriters named below, through their Representatives, Hambrecht & Quist LLC,
Raymond James & Associates, Inc. and Volpe Brown Whelan & Company, LLC have
severally agreed to purchase from the Company the following respective number of
shares of Common Stock:
 
<TABLE>
<CAPTION>
                                                                NUMBER
UNDERWRITER                                                   OF SHARES
-----------                                                   ---------
<S>                                                           <C>
Hambrecht & Quist LLC......................................
Raymond James & Associates, Inc............................
Volpe Brown Whelan & Company, LLC..........................
 


                                                              ---------
     Total.................................................
                                                              ---------
                                                              ---------
</TABLE>

 
     The Underwriting Agreement provides that the obligations of the
Underwriters are subject to certain conditions precedent, including the absence
of any material adverse change in the Company's business and the receipt of
certain certificates, opinions and letters from the Company, its counsel and
independent auditors. The nature of the Underwriters' obligation is such that
they are committed to purchase all shares of Common Stock offered hereby if any
of such shares are purchased.
 
     The Underwriters propose to offer the shares of Common Stock directly to
the public at the initial public offering price set forth on the cover page of
this Prospectus and to certain dealers at such price less a concession not in
excess of $            per share. The Underwriters may allow, and such dealers
may reallow, a concession not in excess of $            per share to certain
other dealers. After the initial public offering of the shares, the offering
price and other selling terms may be changed by the Representatives of the
Underwriters. The Representatives have informed the Company that the
Underwriters do not intend to conform sales to accounts over which they exercise
discretionary authority.
 
     The Company has granted to the Underwriters an option, exercisable no later
than 30 days after the date of this Prospectus, to purchase up to
additional shares of Common Stock at the initial public offering price, less the
underwriting discount, set forth on the cover page of this Prospectus. To the
extent that the Underwriters exercise this option, each of the Underwriters will
have a firm commitment to purchase approximately the same percentage thereof
which the number of shares of Common Stock to be purchased by it shown in the
above table bears to the total number of shares of Common Stock offered hereby.
The Company will be obligated, pursuant to the option, to sell shares to the
Underwriters to the extent the option is exercised. The Underwriters may
exercise such option only to cover over-allotments made in connection with the
sale of Common Stock offered hereby.
 
     The offering of the shares is made for delivery when, as and if accepted by
the Underwriters and subject to prior sale and to withdrawal, cancellation or
modification of the offering without notice. The Underwriters reserve the right
to reject an order for the purchase of shares in whole or in part.
 
     The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act, and to contribute
to payments the Underwriters may be required to make in respect thereof.
 
     Certain stockholders of the Company, including the executive officers and
directors, who will own in the aggregate           shares of Common Stock after
the Offering, have agreed that they will not, without prior written consent of
Hambrecht & Quist LLC, directly or indirectly, sell, offer, contract to sell,
transfer the economic risk of ownership in, make any short sale, pledge or
otherwise dispose of any shares of Common Stock or any securities convertible
into or exchangeable or exercisable for or any other rights to purchase or
acquire
 
                                       61

<PAGE>


Common Stock beneficially owned by them during the 180-day period following the
date of this Prospectus other than transfers pursuant to bona fide gifts. In
addition, the Company has agreed that, without the prior written consent of
Hambrecht & Quist LLC on behalf of the Underwriters, the Company will not,
directly or indirectly, sell, offer, contract to sell, make any short sale,
pledge, sell any option or contract to purchase, purchase any option or contract
to sell, grant any option, right or warrant to purchase or otherwise transfer or
dispose of any shares of Common Stock or any securities convertible into or
exchangeable or exercisable for or any rights to purchase or acquire Common
Stock, or enter into any swap or other agreement that transfers, in whole or in
part, any of the economic consequences or ownership of Common Stock, during the
180-day period following the date of this Prospectus, except that the Company
may issue, and grant options to purchase, shares of Common Stock under its
current stock option plan and may issue shares of Common Stock in connection
with certain affiliation transactions, provided such shares are subject to the
180-day lock-up agreement. Sales of such shares in the future could adversely
affect the market price of the Common Stock. Hambrecht & Quist LLC may, in its
sole discretion, release any of the shares subject to the lock-up agreements at
any time without notice.
 
     At the request of the Company, the Underwriters have reserved up to
shares of Common Stock for sale at the initial public offering price to
directors, officers, employees and persons with business relationships with the
Company, as well as others associated with such persons. The number of shares of
Common Stock available for sale to the general public will be reduced to the
extent such persons purchase the reserved shares. Any reserved shares not so
purchased will be offered by the Underwriters on the same basis as all other
shares offered hereby.
 
     Prior to the Offering, there has been no public market for the Common
Stock. The initial public offering price for the Common Stock was determined by
negotiation between the Company and the Representatives. Among the factors
considered in determining the initial public offering price were prevailing
market and economic conditions, revenues and earnings of the Company, market
valuations of other companies engaged in activities similar to the Company,
estimates of the business potential and prospects of the Company, the present
state of the Company's business operations, the Company's management and other
factors deemed relevant.
 
     Certain persons participating in this offering may overallot or effect
transactions which stabilize, maintain or otherwise affect the market price of
the Common Stock at levels above those which might otherwise prevail in the open
market, including by entering stabilizing bids, effecting syndicate covering
transactions or imposing penalty bids. A stabilizing bid means the placing of
any bid or effecting of any purchase, for the purpose of pegging, fixing or
maintaining the price of the Common Stock. A syndicate covering transaction
means the placing of any bid on behalf of the underwriting syndicate or the
effecting of any purchase to reduce a short position created in connection with
the offering. A penalty bid means an arrangement that permits the Underwriters
to reclaim a selling concession from a syndicate member in connection with the
offering when shares of Common Stock sold by the syndicate member are purchased
in syndicate covering transactions. Such transaction may be effected on the
Nasdaq Stock Market, in the over-the-counter market, or otherwise. Such

stabilizing, if commenced, may be discontinued at any time.
 
     On September 9, 1997, Health Care Services-BMJ, LLC and H&Q Serv*is
Ventures, L.P., affiliates of Hambrecht & Quist LLC, purchased $2.5 million
aggregate principal amount of the Company's Debentures as part of a financing in
which the Company sold $4.0 million aggregate principal amount of Debentures to
seven investors. See 'Certain Transactions--Equity and Debt Financings.'
 
                                       62

<PAGE>

                                 LEGAL MATTERS
 
     The validity of the Common Stock offered hereby will be passed upon by
O'Sullivan Graev & Karabell, LLP, New York, New York. Certain legal matters will
be passed upon for the Underwriters by Cravath, Swaine & Moore, New York, New
York.
 
                                    EXPERTS
 
     The financial statements of the following entities appearing in this
Prospectus have been audited by Ernst & Young LLP, independent certified public
accountants, as set forth in their reports thereon also appearing elsewhere in
this Prospectus:
 
BMJ Medical Management, Inc.
Orthopaedic Associates of Bethlehem, Inc.
Southern California Orthopedic Institute Medical Group
South Texas Spinal Clinic, P.A.
Tri-City Orthopedic Surgery Medical Group, Inc.
Lauderdale Orthopaedic Surgeons
Fishman and Stashak, M.D.'s, P.A. d/b/a Gold Coast Orthopedics
Sun Valley Orthopaedic Surgeons
 
     Such financial statements have been included herein in reliance upon such
reports given upon the authority of such firm as experts in accounting and
auditing.
 
                                       63


<PAGE>
                         INDEX TO FINANCIAL STATEMENTS
 
                                    CONTENTS
 
<TABLE>
<S>                                                                                                           <C>
FINANCIAL STATEMENTS OF BMJ MEDICAL MANAGEMENT, INC.
Report of Independent Certified Public Accountants.........................................................    F-3
Balance Sheets at December 31, 1996 and June 30, 1997 (Unaudited)..........................................    F-4
Statements of Operations for the Year Ended December 31, 1996 and the Six Months Ended
  June 30, 1996 and 1997 (Unaudited).......................................................................    F-5
Statements of Stockholders' Equity for the Year Ended December 31, 1996 and the Six Months Ended June 30,
  1997 (Unaudited).........................................................................................    F-6
Statements of Cash Flows for the Year Ended December 31, 1996 and the Six Months Ended June 30, 1996 and
  1997 (Unaudited).........................................................................................    F-7
Notes to Financial Statements..............................................................................    F-8
FINANCIAL STATEMENTS OF ORTHOPAEDIC ASSOCIATES OF BETHLEHEM, INC.
Report of Independent Auditors.............................................................................   F-21
Balance Sheets at December 31, 1994 and 1995 and June 30, 1996.............................................   F-22
Statements of Operations for the Years Ended December 31, 1994 and 1995 and the Six Months Ended June 30,
  1996.....................................................................................................   F-23
Statements of Stockholders' Equity for the Years Ended December 31, 1994 and 1995 and
  the Six Months Ended June 30, 1996.......................................................................   F-24
Statements of Cash Flows for the Years Ended December 31, 1994 and 1995 and the Six Months Ended June 30,
  1996.....................................................................................................   F-25
Notes to Financial Statements..............................................................................   F-26
FINANCIAL STATEMENTS OF SOUTHERN CALIFORNIA ORTHOPEDIC INSTITUTE MEDICAL GROUP
Report of Independent Auditors.............................................................................   F-30
Balance Sheets at December 31, 1995 and October 31, 1996...................................................   F-31
Statements of Operations and Changes in Partners' Capital for the Years Ended December 31, 1994 and 1995
  and the Ten Months Ended October 31, 1996................................................................   F-32
Statements of Cash Flows for the Years Ended December 31, 1994 and 1995 and the Ten Months Ended October
  31, 1996.................................................................................................   F-33
Notes to Financial Statements..............................................................................   F-34
FINANCIAL STATEMENTS OF SOUTH TEXAS SPINAL CLINIC, P.A.
Report of Independent Auditors.............................................................................   F-39
Balance Sheets at December 31, 1994 and 1995 and October 31, 1996..........................................   F-40
Statements of Operations for the Years Ended December 31, 1994 and 1995 and the Ten Months Ended October
  31, 1996.................................................................................................   F-41
Statements of Stockholders' Equity for the Years Ended December 31, 1994 and 1995 and
  the Ten Months Ended October 31, 1996....................................................................   F-42
Statements of Cash Flows for the Years Ended December 31, 1994 and 1995 and the Ten Months Ended October
  31, 1996.................................................................................................   F-43
Notes to Financial Statements..............................................................................   F-44
FINANCIAL STATEMENTS OF TRI-CITY ORTHOPEDIC SURGERY MEDICAL GROUP, INC.
Report of Independent Certified Public Accountants.........................................................   F-47
Balance Sheets at December 31, 1995 and 1996...............................................................   F-48
Statements of Operations for the Years Ended December 31, 1995 and 1996....................................   F-49
Statements of Stockholders' Equity for the Years Ended December 31, 1995 and 1996..........................   F-50
Statements of Cash Flows for the Years Ended December 31, 1995 and 1996....................................   F-51
Notes to Financial Statements..............................................................................   F-52
</TABLE>
                                      F-1

<PAGE>

                   INDEX TO FINANCIAL STATEMENTS--(CONTINUED)
 
<TABLE>
<S>                                                                                                           <C>
FINANCIAL STATEMENTS OF LAUDERDALE ORTHOPAEDIC SURGEONS
Report of Independent Certified Public Accountants.........................................................   F-56
Balance Sheets at December 31, 1995 and 1996...............................................................   F-57
Statements of Income and Change in Partners' Capital for the Years Ended December 31, 1995 and 1996........   F-58
Statements of Cash Flows for the Years Ended December 31, 1995 and 1996....................................   F-59
Notes to Financial Statements..............................................................................   F-60
FINANCIAL STATEMENTS OF FISHMAN AND STASHAK, M.D.'S, P.A. D/B/A GOLD COAST ORTHOPEDICS
Report of Independent Certified Public Accountants.........................................................   F-64
Balance Sheets at December 31, 1995 and 1996 and June 30, 1997 (Unaudited).................................   F-65
Statements of Income for the Years Ended December 31, 1995 and 1996 and the Six Months Ended June 30, 1996
  and 1997 (Unaudited).....................................................................................   F-66
Statements of Stockholders' Equity for the Years Ended December 31, 1995 and 1996 and the Six Months Ended
  June 30, 1997 (Unaudited)................................................................................   F-67
Statements of Cash Flows for the Years Ended December 31, 1995 and 1996 and the Six Months Ended June 30,
  1996 and 1997 (Unaudited)................................................................................   F-68
Notes to Financial Statements..............................................................................   F-69
FINANCIAL STATEMENTS OF SUN VALLEY ORTHOPAEDIC SURGEONS
Report of Independent Certified Public Accountants.........................................................   F-73
Balance Sheets at December 31, 1996 and June 30, 1997 (Unaudited)..........................................   F-74
Statements of Operations and Changes in Partners' Capital for the Year Ended
  December 31, 1996 and the Six Months Ended June 30, 1996 and 1997 (Unaudited)............................   F-75
Statements of Cash Flows for the Year Ended December 31, 1996 and
  the Six Months Ended June 30, 1996 and 1997 (Unaudited)..................................................   F-76
Notes to Financial Statements..............................................................................   F-77
</TABLE>
 
                                      F-2

<PAGE>

               REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
 
The Board of Directors
BMJ Medical Management, Inc.
 
We have audited the accompanying balance sheet of BMJ Medical Management Inc.,
(the Company) as of December 31, 1996, and the related statements of operations,
stockholders' equity, and cash flows for the year then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
 
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
 
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of BMJ Medical Management, Inc. at
December 31, 1996, and the results of its operations and its cash flows for the
year then ended in conformity with generally accepted accounting principles.
 
                                          ERNST & YOUNG, LLP
 
West Palm Beach, Florida
June 4, 1997
 
                                      F-3


<PAGE>

                          BMJ MEDICAL MANAGEMENT, INC.

                                 BALANCE SHEETS
 
<TABLE>
<CAPTION>
                                                                                      DECEMBER 31,     JUNE 30,
                                                                                          1996           1997
                                                                                      ------------    -----------
                                                                                                      (UNAUDITED)
                                                                                                     
<S>                                                                                   <C>             <C>
                                      ASSETS
Current assets:
  Cash and cash equivalents........................................................   $  1,439,000    $ 6,915,000
  Accounts receivable..............................................................      5,817,000     10,319,000
  Due from physician groups........................................................      1,241,000      1,578,000
  Prepaid expenses and other current assets........................................         29,000         48,000
                                                                                      ------------    -----------
Total current assets...............................................................      8,526,000     18,860,000
 
Furniture, fixtures and equipment, net.............................................      2,142,000      2,546,000
Management services agreements, net of accumulated amortization of $23,000 at
  December 31, 1996 and $80,000 at June 30, 1997...................................      3,790,000      7,310,000
Other assets.......................................................................         32,000        740,000
                                                                                      ------------    -----------
Total assets.......................................................................   $ 14,490,000    $29,456,000
                                                                                      ------------    -----------
                                                                                      ------------    -----------
                       LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Accounts payable.................................................................   $    149,000    $   353,000
  Accrued expenses.................................................................        366,000        826,000
  Accrued salaries and benefits....................................................        383,000        841,000
  Due to physician groups..........................................................      5,751,000      7,932,000
  Due to related party.............................................................         40,000             --
  Shareholder note payable.........................................................             --        753,000
  Current portion of long-term debt and capital lease obligations..................         18,000        665,000
                                                                                      ------------    -----------
Total current liabilities..........................................................      6,707,000     11,370,000
 
Long-term debt and capital lease obligations, less current portion.................         59,000      6,540,000
commitments and contingencies......................................................
 
Stockholders' equity:
  Convertible preferred stock--Series A, $.01 par value--999,999 shares authorized,
     issued and outstanding........................................................         10,000         10,000
  Convertible preferred stock--Series B, $.01 par value--2,000,001 shares
     authorized, issued and outstanding............................................         20,000         20,000
  Convertible preferred stock--Series C, $.01 par value--254,999 shares authorized,
     issued and outstanding........................................................             --          3,000
  Convertible preferred stock--Series D, $.01 par value--188,072 shares authorized,

     issued and outstanding........................................................             --          2,000
  Convertible preferred stock--Series E, $.01 par value--533,335 shares authorized,
     issued and outstanding........................................................             --          5,000
  Preferred stock, $.01 par value--2,000,000 shares authorized, none issued and
     outstanding...................................................................             --             --
  Common stock, $.001 par value--10,000,000 shares authorized and 6,701,501 shares
     issued and outstanding at December 31, 1996; 25,000,000 shares authorized and
     8,306,462 shares issued and outstanding at June 30, 1997......................          7,000          9,000
  Additional paid-in capital.......................................................      8,796,000     14,482,000
  Accumulated deficit..............................................................     (1,109,000)    (2,985,000)
                                                                                      ------------    -----------
Total stockholders' equity.........................................................      7,724,000     11,546,000
                                                                                      ------------    -----------
Total liabilities and stockholders' equity.........................................   $ 14,490,000    $29,456,000
                                                                                      ------------    -----------
                                                                                      ------------    -----------
</TABLE>
 
                            See accompanying notes.
 
                                      F-4

<PAGE>

                          BMJ MEDICAL MANAGEMENT, INC.

                            STATEMENTS OF OPERATIONS
 
<TABLE>
<CAPTION>
                                                                                         SIX MONTHS
                                                              YEAR ENDED                ENDED JUNE 30,
                                                              DECEMBER 31,     ------------------------------
                                                                 1996              1996              1997
                                                              -----------      ------------      ------------
                                                                                        (UNAUDITED)
<S>                                                           <C>              <C>               <C>
Practice revenue, net....................................     $ 6,029,000      $         --      $ 19,907,000
Less: physician and other provider services..............       2,912,000                --         9,509,000
                                                              -----------      ------------      ------------
Management fee revenue...................................       3,117,000                --        10,398,000
 
Costs and expenses:
  Medical support services...............................       2,844,000                --         9,541,000
  General and administrative.............................       1,278,000            51,000         2,433,000
  Depreciation and amortization                                   104,000             1,000           300,000
                                                              -----------      ------------      ------------
     Total costs and expenses............................       4,226,000            52,000        12,274,000
                                                              -----------      ------------      ------------
Net loss.................................................     $(1,109,000)     $    (52,000)     $ (1,876,000)
                                                              -----------      ------------      ------------
                                                              -----------      ------------      ------------
 
Net loss per share.......................................     $     (0.07)     $       0.00      $      (0.11)
                                                              -----------      ------------      ------------
                                                              -----------      ------------      ------------
Weighted average number of common shares outstanding.....      15,811,000        15,206,000        16,469,000
                                                              -----------      ------------      ------------
                                                              -----------      ------------      ------------
</TABLE>
 
                            See accompanying notes.
 
                                      F-5


<PAGE>

                          BMJ MEDICAL MANAGEMENT, INC.

                       STATEMENT OF STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
                                 NUMBER     SERIES A    SERIES B    SERIES C    SERIES D    SERIES E               ADDITIONAL
                                   OF       PREFERRED   PREFERRED   PREFERRED   PREFERRED   PREFERRED    COMMON      PAID-IN
                                 SHARES       STOCK       STOCK       STOCK       STOCK       STOCK      STOCK       CAPITAL
                               ----------   ---------   ---------   ---------   ---------   ---------    ------    -----------
<S>                            <C>          <C>         <C>         <C>         <C>         <C>          <C>       <C>
Balance at inception.........                $    --     $    --     $    --     $    --     $    --     $  --     $        --
Initial issuance of
  convertible preferred
  stock......................   3,000,000     10,000      20,000          --          --          --        --       6,970,000
Issuance of common stock.....   1,175,000         --          --          --          --          --     1,000          11,000
Issuance of common stock
  in connection with
  management services
  agreements.................   5,526,501         --          --          --          --          --     6,000       1,815,000
Net loss.....................                     --          --          --          --          --        --              --
                                            ---------   ---------   ---------   ---------   ---------    ------    -----------
Balance at December 31,
  1996.......................                 10,000       20,000                                         7,000       8,796,000
Issuance of convertible
  preferred stock
  (unaudited)................     976,406         --          --       3,000       2,000       5,000        --       4,990,000
Issuance of common stock in
  connection with management
  services agreements
  (unaudited)................   1,604,961         --          --          --          --          --     2,000         696,000
Net loss (unaudited).........                     --          --          --          --          --        --              --
                                           ---------   ---------   ---------   ---------   ---------    ------    -----------
Balance at June 30, 1997
  (unaudited)................                $10,000     $20,000     $ 3,000     $ 2,000     $ 5,000     $9,000    $14,482,000
                                            ---------   ---------   ---------   ---------   ---------    ------    -----------
                                            ---------   ---------   ---------   ---------   ---------    ------    -----------
 
<CAPTION>
 
                               ACCUMULATED
                                 DEFICIT         TOTAL
                               -----------    -----------
<S>                            <C>            <C>
Balance at inception.........  $       --     $        --
Initial issuance of
  convertible preferred
  stock......................          --       7,000,000
Issuance of common stock.....          --          12,000
Issuance of common stock
  in connection with
  management services

  agreements.................          --       1,821,000
Net loss.....................   (1,109,000)    (1,109,000)
                               -----------    -----------
Balance at December 31,
  1996.......................   (1,109,000)     7,724,000
Issuance of convertible
  preferred stock
  (unaudited)................          --       5,000,000
Issuance of common stock in
  connection with management
  services agreements
  (unaudited)................          --         698,000
Net loss (unaudited).........   (1,876,000)    (1,876,000)
                               -----------    -----------
Balance at June 30, 1997
  (unaudited)................  $(2,985,000)   $11,546,000
                               -----------    -----------
                               -----------    -----------
</TABLE>
 
                            See accompanying notes.
 
                                      F-6

<PAGE>

                          BMJ MEDICAL MANAGEMENT, INC.

                            STATEMENTS OF CASH FLOWS
 
<TABLE>
<CAPTION>
                                                                                               SIX MONTHS
                                                                         YEAR ENDED           ENDED JUNE 30,
                                                                         DECEMBER 31,   -------------------------
                                                                            1996           1996          1997
                                                                         -----------    ----------    -----------
                                                                                               (UNAUDITED)
<S>                                                                      <C>            <C>           <C>
OPERATING ACTIVITIES
Net loss...............................................................  $(1,109,000)   $  (52,000)   $(1,876,000)
Adjustments to reconcile net loss to net cash used in operating
  activities:
  Depreciation.........................................................       74,000         1,000        228,000
  Amortization.........................................................       30,000            --         72,000
  Interest expense converted to preferred stock........................           --            --         34,000
  Changes in operating assets and liabilities:
     Accounts receivable...............................................      366,000            --       (458,000)
     Due from physician groups.........................................   (1,241,000)           --       (337,000)
     Prepaid expenses and other current assets.........................        2,000            --         (6,000)
     Accounts payable..................................................      149,000            --        204,000
     Accrued expenses..................................................      366,000            --        460,000
     Accrued salaries and benefits.....................................      383,000            --        458,000
                                                                         -----------    ----------    -----------
Net cash used in operating activities..................................     (980,000)      (51,000)    (1,221,000)
 
INVESTING ACTIVITIES
Purchases of furniture, fixtures and equipment.........................     (697,000)      (12,000)       (92,000)
Payments for management services agreements............................     (206,000)           --       (547,000)
Payments for deferred offering costs...................................           --            --       (708,000)
Cash used for practice affiliations....................................   (3,707,000)           --     (6,628,000)
Payments for deposits..................................................      (22,000)           --             --
                                                                         -----------    ----------    -----------
Net cash used in investing activities..................................   (4,632,000)      (12,000)    (7,975,000)
 
FINANCING ACTIVITIES
Proceeds from issuance of preferred stock..............................    7,000,000     1,000,000      4,966,000
Proceeds from debt issuance............................................           --            --      7,128,000
Deferred consideration for management services agreements..............           --            --       (268,000)
Payments to related party..............................................           --            --       (154,000)
Proceeds from related party............................................       40,000            --        867,000
Proceeds from issuance of common stock.................................       11,000         8,000        220,000
Amounts due to physician groups........................................           --            --      1,913,000
                                                                         -----------    ----------    -----------
Net cash provided by financing activities..............................    7,051,000     1,008,000     14,672,000
                                                                         -----------    ----------    -----------
Net increase in cash and cash equivalents..............................    1,439,000       945,000      5,476,000
Cash and cash equivalents at beginning of period.......................           --            --      1,439,000

                                                                         -----------    ----------    -----------
Cash and cash equivalents at end of period.............................  $ 1,439,000    $  945,000    $ 6,915,000
                                                                         -----------    ----------    -----------
                                                                         -----------    ----------    -----------
 
SUPPLEMENTAL CASH FLOW INFORMATION
Interest paid..........................................................  $     9,000    $       --    $        --
                                                                         -----------    ----------    -----------
                                                                         -----------    ----------    -----------
 
Stock issued upon execution of management services agreements..........  $ 1,822,000    $       --    $   478,000
                                                                         -----------    ----------    -----------
                                                                         -----------    ----------    -----------
 
Noncash transactions from practice affiliations including accounts
  receivable, management services agreements and due to/from
  physicians...........................................................  $ 5,720,000    $       --    $   536,000
                                                                         -----------    ----------    -----------
                                                                         -----------    ----------    -----------
Equipment under capital lease obligations..............................  $    77,000    $       --    $        --
                                                                         -----------    ----------    -----------
                                                                         -----------    ----------    -----------
</TABLE>
 
                            See accompanying notes.
 
                                      F-7

<PAGE>

                          BMJ MEDICAL MANAGEMENT, INC.

                         NOTES TO FINANCIAL STATEMENTS

                               DECEMBER 31, 1996

              (INFORMATION PERTAINING TO JUNE 30, 1997 AND TO THE
                  SIX MONTHS ENDED JUNE 30, 1997 IS UNAUDITED)
 
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
GENERAL
 
     BMJ Medical Management, Inc. (the Company), a Delaware corporation, is
engaged in operating and managing physician groups focusing exclusively on
musculoskeletal disease management. The Company manages physician groups under
long-term management services agreements (the Agreements) with affiliated
physician groups located in various states. The Company may also acquire certain
assets, primarily accounts receivable, and furniture, fixtures and equipment of
these groups. The Company was incorporated in Delaware in January 1996 and
entered into its first agreement in July 1996 and two additional agreements in
November 1996.
 
     Under the Agreements, the Company provides a full range of administrative
services required for a physician group's day-to-day nonmedical operations and
employs substantially all of the nonmedical personnel utilized by the group. The
nonclinical services provided include, but are not limited to, practice
administration, practice support, data processing, business office management
including billing and collecting, marketing, accounting and the provision of
office space and equipment and the arrangement of group purchasing discounts for
medical and nonmedical supplies. The Company also assists the physician group in
the recruitment of additional physicians and negotiates managed care contracts
which must be approved by the group.
 
     The terms of the Agreements are 40 years and automatically renew for
successive 5-year periods thereafter unless terminated by one of the parties. As
compensation for services provided by the Company, the Company generally
receives a percentage of the group's net collected revenue, reimbursement of all
nonmedical expenses incurred by the Company in supporting the group, a
percentage of professional practice cost savings realized by the group and a
percentage of the profits from new ancillary services.
 
     The laws of many states, including the states in which the Company
presently has agreements, prohibit business corporations from practicing
medicine or exercising control over the medical judgments or decisions of
physicians and from engaging in certain financial arrangements with physicians.
The Company intends that, pursuant to the Agreements, it will not exercise any
responsibility on behalf of affiliated physicians that could be construed as
affecting the practice of medicine. Accordingly, the Company believes that its
operations do not violate applicable state laws relating to the corporate
practice of medicine.
 

BASIS OF PRESENTATION
 
     The Company does not consolidate the operating results and accounts of the
physician groups since it does not own or control the groups it manages. The
Company believes that the Agreements provide it with the preponderance of the
net profits of the medical services furnished by the groups. Consequently, the
Company presents physician groups' revenue less amounts retained by the
physician groups as management fee revenue in the accompanying statements of
operations.
 
PRACTICE REVENUE, NET
 
     Practice revenue, net, represents the gross revenue of the physician groups
from patients, third-party payors and others for services rendered, net of
contractual and other adjustments. Contractual adjustments typically result from
differences between the physician groups' established rates for services and the
amounts allowed by government sponsored health care programs and other insurers.
 
     Provisions for estimated third-party payor settlements and adjustments are
estimated in the period the related services are rendered and adjusted in future
periods as final settlements are determined. There are no material claims,
disputes, or other unsettled matters that exist to management's knowledge
concerning third-party
 
                                     F-8

<PAGE>

                          BMJ MEDICAL MANAGEMENT, INC.

                   NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
 
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)

reimbursements. In addition, management believes there are no retroactive
adjustments that would be material to the financial statements. The Company
estimates that approximately 15% and 12% of practice revenue, net, was received
under government sponsored health care programs (principally, the Medicare and
Medicaid programs) during the year ended December 31, 1996 and the six months
ended June 30, 1997, respectively. The physician groups have numerous agreements
with managed care and other organizations to provide physician services based on
negotiated fee schedules.
 
     Laws and regulations governing the Medicare and Medicaid programs are
complex and subject to interpretation. The Company believes that it is in
compliance with all applicable laws and regulations and is not aware of any
pending or threatened investigations involving allegations of potential
wrongdoing. While no such regulatory inquiries have been made, compliance with
such laws and regulations can be subject to future government review and
interpretation as well as significant regulatory action including fines,
penalties, and exclusion from the Medicare and Medicaid programs.
 
MANAGEMENT FEE REVENUE
 

     Management fee revenue represents practice revenue, net less amounts
retained by the physician groups.
 
     The Company's management fee revenue includes amounts based on a percentage
of the physician groups' net collected revenue plus an amount equal to 100% of
the non-physician affiliated practice expenses. The portion of the management
fee revenue that represents a percentage of net collected revenue is dependent
upon the physician groups' revenue which must be billed and collected. The
percentage of revenues paid to the Company as management fees generally ranges
from 10% to 15% of net collected revenue. Management fee revenue included in the
accompanying statements of operations is comprised of the following:
 
<TABLE>
<CAPTION>
                                                                                    
                                                                                  
                                                                   YEAR ENDED       SIX MONTHS
                                                                  DECEMBER 31,    ENDED JUNE 30,
                                                                      1996             1997 
                                                                  ------------    -------------- 
                                                                                   (UNAUDITED)
<S>                                                               <C>             <C>
Component based upon percentage of physician groups' net
  collected revenues...........................................    $1,079,000      $  1,842,000
Reimbursement of non-physician affiliated practice expenses....     2,038,000         8,556,000
                                                                  ------------    --------------
Management fee revenue.........................................    $3,117,000      $ 10,398,000
                                                                  ------------    --------------
                                                                  ------------    --------------
</TABLE>
 
     For the year ended December 31, 1996, 100% of the management fee revenue
was earned from three affiliated practices. Southern California Orthopedics
Institute Medical Group (SCOI); South Texas Spinal Clinic, P.A. (STSC); and
Lehigh Valley Bone, Muscle and Joint Group, LLC (LVBMJ) comprised approximately
52%, 23%, and 25% of management fee revenue, respectively. For the six months
ended June 30, 1997, these three groups comprised approximately 54%, 17%, and 9%
of management fee revenue, respectively.
 
COSTS AND EXPENSES
 
     Medical support services represent costs incurred by the Company relative
to the operations of the physician groups including non-physician personnel
salaries and benefits, medical supplies, malpractice insurance premiums,
building and equipment rental expense, general and administrative expenses,
supplies, maintenance and repairs, insurance, utilities and other indirect
expenses.
 
     General and administrative expenses represent primarily the salaries of
corporate headquarters personnel, rent, travel, and other administrative
expenses.
 
                                      F-9


<PAGE>

                          BMJ MEDICAL MANAGEMENT, INC.

                   NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
 
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)

CASH AND CASH EQUIVALENTS
 
     Cash in excess of daily requirements invested in short-term investments
with maturities of three months or less is considered to be cash equivalents for
financial statement purposes. Deposits in banks may exceed the amount of
insurance provided on such deposits. The Company performs reviews of the credit
worthiness of its depository banks. The Company has not experienced any losses
on its deposits of cash.
 
ACCOUNTS RECEIVABLE
 
     Accounts receivable principally represent receivables purchased from the
medical groups for medical services provided by the physician groups. Risk of
collection is borne by the physician groups and any amounts paid by the Company
for accounts receivable that are ultimately uncollectible are reimbursed to the
Company by the physician groups.
 
FURNITURE, FIXTURES AND EQUIPMENT
 
     Furniture, fixtures and equipment are stated at cost. Depreciation is
calculated using the straight-line method over the estimated useful lives of the
assets which range from three to seven years. Routine maintenance and repairs
are charged to expense as incurred and major renovations or improvements are
capitalized.
 
MANAGEMENT SERVICES AGREEMENTS
 
     Management services agreements include consideration (cash, common stock or
other consideration) paid to the physician groups for entering into Agreements,
legal and accounting fees and other similar transaction costs. The Agreements
are for a term of 40 years and one agreement is subject to rescission by a
physician group on the seventh anniversary. The Company amortizes the cost of
entering into Agreements with practices that are dominant in their market area
over periods that do not exceed 30 years. The Company amortizes the costs of
entering into Agreements over periods ranging from seven to thirty years. Shares
issued to physician practices that are subject to performance criteria are
accounted for as compensation.
 
     The Company periodically reviews its intangible assets to assess
recoverability and a charge will be recognized in the statement of operations if
a permanent impairment is determined to have occurred. Recoverability of
intangibles is determined based on undiscounted future operating cash flows from
the related business unit or activity. The amount of impairment, if any, would
be measured based on discounted future operating cash flows using a discount
rate reflecting the Company's average cost of funds. The assessment of the
recoverability of intangible assets will be affected if estimated future

operating cash flows are not achieved. The Company does not believe that any
impairment has occurred at December 31, 1996 or June 30, 1997.
 
DUE TO/FROM PHYSICIAN GROUPS
 
     Due from physician groups represents amounts due to the Company for
collections made by the physician groups on behalf of the Company related to
purchased accounts receivable collections, unpaid management fees and other
short-term advances.
 
     Due to physician groups represents cash consideration related to the
Agreements that is payable at the earlier of the consummation of an Initial
Public Offering of the Company's common stock or the one year anniversary of the
execution of the Agreement as well as amounts due to the physician groups
related to the ongoing monthly purchases of accounts receivable.
 
                                      F-10

<PAGE>

                          BMJ MEDICAL MANAGEMENT, INC.

                   NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
 
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)

USE OF ESTIMATES
 
     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 as of the date of the financial
statements and the reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates.
 
INTERIM FINANCIAL STATEMENTS
 
     The interim financial statements as of June 30, 1997 and for the six months
ended June 30, 1997 and 1996 are unaudited. In the opinion of management, these
statements have been prepared on the same basis as the audited financial
statements and include all normal and recurring adjustments necessary for a fair
presentation of the Company's financial position, results of operations and cash
flows. The interim data disclosed in these notes to the financial statements is
also unaudited. The results of operations for the six months ended June 30, 1997
are not necessarily indicative of the results of operations that may be expected
for the entire year ending December 31, 1997.
 
ACCOUNTING FOR STOCK BASED COMPENSATION
 
     The Company grants stock options for a fixed number of shares to employees
primarily with an exercise price equal to the fair value of the shares on the
date of grant. The Company accounts for stock option grants in accordance with
Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to
Employees, and accordingly, generally recognizes no compensation expense for

stock options granted.
 
NET LOSS PER SHARE
 
     For the year ended December 31, 1996, pursuant to the Securities and
Exchange Commission's Staff Accounting Bulletins, common shares and common
equivalent shares issued at prices below the estimated public offering price
during the 12 months immediately preceding the date of the proposed initial
filing of the registration statement have been included in the calculation of
common shares and common share equivalents as if they were outstanding for all
periods presented even when the effect is antidilutive.
 
     In February 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 128, Earnings per Share.
SFAS No. 128, which applies to entities with publicly held common stock,
simplifies the standards for computing earnings per share previously required in
APB Opinion No. 15, Earnings per Share, and makes them comparable to
international earnings per share standards. SFAS No. 128 is effective for
financial statements issued for periods ending after December 15, 1997,
including interim periods; earlier adoption is not permitted. Management is
currently reviewing the provisions of SFAS No. 128; however, it does not believe
that adoption of this new accounting pronouncement will have a material impact
on the calculation and presentation of earnings per share.
 
FINANCIAL INSTRUMENTS
 
     The carrying amounts of financial instruments as reported in the
accompanying balance sheet approximate their fair value primarily due to the
short-term nature of such financial instruments.
 
2. PRACTICE AFFILIATIONS
 
     Effective July 1, 1996, the Company entered into an Affiliation Transaction
with LVBMJ in the State of Pennsylvania. Under the terms of the Amended and
Restated Management Services Agreement between LVBMJ and the Company, effective
July 1, 1997 (the LVBMJ Management Services Agreement), the Company issued an
 
                                      F-11

<PAGE>

                          BMJ MEDICAL MANAGEMENT, INC.

                   NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
 
2. PRACTICE AFFILIATIONS--(CONTINUED)

aggregate of 518,031 shares of common stock recorded at its estimated fair value
of $0.10 per share and options to purchase 30,000 shares of common stock
representing consideration of $52,000.
 
     On November 22, 1996, the Company issued 4,000,000 shares of common stock,
$3,706,000 of cash and deferred consideration of $2,224,000, which is based on
actual collections of the receivable balances and is due upon the earlier of an

initial public offering of the Company's common stock or November 1, 1997, in
conjunction with the purchase of certain assets and the execution of a
management services agreement with SCOI. The common stock issued was recorded at
$.35, based on an independent valuation, representing consideration of
$1,400,000.
 
     On April 1, 1997, the Company entered into a transaction with the Center
for Orthopedic Surgery, Inc. (COSI), an outpatient surgery center owned by the
SCOI physicians, and issued 550,000 shares of common stock recorded at $0.40 per
share, based on an independent valuation, to the physician owners of COSI as
consideration for the management services agreement entered into between COSI
and the Company. The number of shares issued to the SCOI physicians in
connection with each of the SCOI and COSI transactions which exceed three
million shares, are subject to recalculation at the earlier to occur of the
filing by the Company of a preliminary prospectus with the Securities and
Exchange Commission or November 1, 1997. In accordance with the recalculation
provision, either (i) the management fee to be paid to the Company under the
Management Services Agreement may be reduced prospectively or (ii) the number of
shares issued may be increased or decreased based upon the revenue contribution
of the SCOI and COSI practices at such date as compared to the revenues of the
entire musculoskeletal network of the Company at such date.
 
     On December 23, 1996, the Company issued 1,076,501 shares of common stock
and deferred consideration of $3,065,990 to STSC and is due upon the earlier of
an initial public offering of the Company's common stock or November 1, 1997.
The common stock was recorded at $.35, based on an independent valuation,
representing consideration of $376,775.
 
     Effective April 1, 1997, the Company entered into asset purchase and
management services agreements with Tri-City Orthopedic Surgery Medical Group,
Inc., a California corporation, and two of its affiliates in exchange for
$948,000 in cash and the issuance of 402,723 shares of common stock recorded at
$.40 per share, based on an independent valuation, representing consideration of
$161,000.
 
     Effective April 1, 1997, the Company entered into an asset purchase and
management services agreement with the Lauderdale Orthopaedic Surgeons (LOS), a
Florida partnership, in exchange for $2,640,000 in cash (subject to increase or
refund based upon the Company's collection of the purchased accounts receivable)
and the issuance of 466,417 shares of common stock recorded at $.40 per share,
representing consideration of $187,000. Additionally, the Company assumed a
lease between LOS and an entity controlled by an equity owner in LOS.
 
     Effective June 1, 1997, the Company entered into three additional asset
purchase and management services agreements with Fishman and Stashak, M.D.'s,
P.A. (d/b/a Gold Coast Orthopedics) Clive M. Segil, M.D., a Professional
Corporation and H. Leon Brooks, a Medical Corporation (d/b/a Tower Orthopedics)
in exchange for $3,886,000 in cash and the issuance of 409,615 shares of common
stock recorded at $1.15 per share, based on an independent valuation,
representing consideration of $471,000. The LVBMJ and Gold Coast agreements
provide that the Company may be required to issue more shares of common stock as
additional consideration during 1998. The total number of shares to be issued
will depend on actual collections of such practices during a specified 12-month
period. The value of any subsequently issued shares will be allocated to the

management services agreements.
 
                                      F-12

<PAGE>

                          BMJ MEDICAL MANAGEMENT, INC.

                   NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
 
2. PRACTICE AFFILIATIONS--(CONTINUED)

     The cost to enter into the Agreements and acquire the assets, including
transaction costs, was allocated as follows:
 
<TABLE>
<CAPTION>
                                                                  YEAR ENDED       SIX MONTHS
                                                                 DECEMBER 31,    ENDED JUNE 30,
                                                                     1996             1997
                                                                 ------------    --------------
                                                                         
                                                                                  (UNAUDITED)
<S>                                                              <C>             <C>
Cost of acquiring the Agreements..............................   $  3,770,000      $3,043,000
Accounts receivable...........................................      6,532,000       4,044,000
Furniture, fixtures and equipment.............................      1,967,000         540,000
Other.........................................................         62,000          12,000
                                                                 ------------    --------------
                                                                 $ 12,331,000      $7,639,000
                                                                 ------------    --------------
                                                                 ------------    --------------
</TABLE>
 
     The Agreements are subject to termination in the event of (i) bankruptcy of
the Company or the medical practice; (ii) default in any material respect in the
performance of either parties' obligations under the Agreement; (iii)
representations and warranties made by either party are untrue or misleading in
any material respect; (iv) the medical practice is excluded from the Medicare or
Medicaid programs; or (v) either party determines that the structure of the
Agreement violates any state or federal laws or regulations existing at such
time and that an amendment to the Agreement will be unable to correct such
defect. Upon termination of the Agreement, the transaction will be unwound with
the assets (other than accounts receivable) acquired by the Company being
returned to the physician group and the purchase price paid, therefore, being
returned to the Company.
 
3. FURNITURE, FIXTURES AND EQUIPMENT
 
     Furniture, fixtures and equipment consists of the following:
 
<TABLE>
<CAPTION>
                                                                   YEAR ENDED       SIX MONTHS

                                                                  DECEMBER 31,    ENDED JUNE 30,
                                                                      1996             1997
                                                                  ------------    --------------
                                                                           
                                                                                   (UNAUDITED)
<S>                                                               <C>             <C>
Office, computer, and telephone equipment......................    $  999,000       $1,293,000
Medical equipment..............................................       659,000          920,000
Furniture and fixtures.........................................       558,000          635,000
Less: accumulated depreciation.................................        74,000          302,000
                                                                  ------------    --------------
Furniture, fixtures and equipment, net.........................    $2,142,000       $2,546,000
                                                                  ------------    --------------
                                                                  ------------    --------------
</TABLE>
 
4. AMOUNTS DUE TO/FROM PHYSICIAN GROUPS
 
     Amounts due from physician groups at December 31, 1996 and June 30, 1997
consists of the following:
 
<TABLE>
<CAPTION>
                                                                  YEAR ENDED       SIX MONTHS
                                                                 DECEMBER 31,    ENDED JUNE 30,
                                                                     1996            1997
                                                                  ------------    --------------
                                                                          
                                                                                   (UNAUDITED)
<S>                                                               <C>             <C>
Practice collections and short-term advances...................    $  426,000       $   21,000
Management fees................................................       815,000        1,557,000
                                                                  ------------    --------------
                                                                   $1,241,000       $1,578,000
                                                                  ------------    --------------
                                                                  ------------    --------------
</TABLE>
 
                                      F-13

<PAGE>

                          BMJ MEDICAL MANAGEMENT, INC.

                   NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
 
4. AMOUNTS DUE TO/FROM PHYSICIAN GROUPS--(CONTINUED)

     Amounts due to physician groups at December 31, 1996 and June 30, 1997
consists of the following:
 
<TABLE>
<CAPTION>                                                       
                                                             

                                                                    YEAR ENDED       SIX MONTHS
                                                                   DECEMBER 31,    ENDED JUNE 30,
                                                                        1996            1997
                                                                  ------------    --------------
                                                                                    
                                                                                    (AUDITED)
                                                                   <S>             <C>                 
Amounts due for purchased receivables..........................    $1,879,000       $3,792,000
Deferred consideration for management services agreements......     3,872,000        4,140,000
                                                                  ------------    --------------
                                                                   $5,751,000       $7,932,000
                                                                  ------------    --------------
                                                                  ------------    --------------
</TABLE>
 
5. PROFESSIONAL LIABILITY
 
     The Company and the physician groups are insured with respect to medical
malpractice risks on a claims made basis, except for OAB which is on an
occurrence basis. The insurance contracts specify that coverage is available
only during the term of each insurance contract and cover only those claims
reported while the policies are in force. Management of the Company intends to
renew the existing claims made policies annually and expects to be able to
obtain such coverage. When coverage is not renewed, the Company and the
physician groups purchase and record the cost of an extended reporting period
endorsement to provide professional liability coverage for losses incurred prior
to, but reported subsequent to, the termination of the claims made policies.
Management believes that any claims asserted against the Company would not,
after consideration of professional liability coverage and amounts provided in
the financial statements, have a material adverse effect on the Company's
financial position or results of operations. Management is not aware of any
claims against the Company or the physician groups which might have a material
impact on the Company's financial position or results of operations.
 
6. LEASES
 
     The Company is obligated under operating and capital lease agreements for
offices and certain equipment, which have terms ranging from three to ten years
and are considered reimbursable to the Company under the terms of the
Agreements. In some circumstances, these lease arrangements are with entities
owned or controlled by physician stockholders. Future minimum payments under
noncancelable capital and operating leases with lease terms in excess of one
year are summarized as follows for the years ending December 31:
 
<TABLE>
<CAPTION>
                                                                                     CAPITAL
                                                                      OPERATING     EQUIPMENT
                                                                       LEASES        LEASES
                                                                     -----------    ---------
<S>                                                                  <C>            <C>
1997..............................................................   $ 2,331,000    $ 26,500
1998..............................................................     2,296,000      22,000
1999..............................................................     2,200,000      22,000

2000..............................................................     2,045,000      22,000
2001..............................................................     2,003,000      19,000
Thereafter........................................................     7,997,000          --
                                                                     -----------    ---------
Total minimum lease obligations...................................   $18,872,000     111,500
                                                                     -----------
                                                                     -----------
Less amount representing interest.................................                    35,000
                                                                                    ---------
Present value of minimum lease obligations........................                  $ 76,500
                                                                                    ---------
                                                                                    ---------
</TABLE>
 
                                      F-14

<PAGE>

                          BMJ MEDICAL MANAGEMENT, INC.

                   NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
 
6. LEASES--(CONTINUED)

     Rent expense for the year ended December 31, 1996 and the six months ended
June 30, 1997 under all operating leases was approximately $602,000 and
$1,696,000, respectively.
 
     The Company has assumed leases between the affiliated medical practices and
entities controlled by equity owners in the related practices. Amounts charged
to expense for these leases was $193,000 in 1996 and $369,000 in 1997. The
commitments under these leases are included above.
 
7. STOCK OPTION PLAN
 
     On May 6, 1996, and subsequently amended on May 30, 1997, the Company's
Board of Directors approved the 1996 Stock Option Plan (the Option Plan), which
provides for the granting of options to purchase up to 2,000,000 shares of the
Company's common stock. Both incentive stock options and nonqualified stock
options may be issued under the provisions of the Option Plan. Employees of the
Company and any future subsidiaries, members of the Board of Directors,
independent consultants and contractors and the physicians employed by the
medical groups with which the Company is affiliated through the Agreements are
eligible to participate in the Option Plan, which will terminate no later than
May 6, 2006. The granting and vesting of options under the Option Plan are
authorized by the Company's Board of Directors or a committee of the Board of
Directors. Under the terms of the Option Plan incentive stock options vest pro
rata over four years and expire ten years from the date of grant. None of the
incentive stock options were exercisable as of December 31, 1996.
 
     Pro forma information regarding net income and earnings per share has been
determined as if the Company had accounted for its employee stock options under
the fair value method of FASB Statement No. 123, Accounting for Stock-Based
Compensation. The fair value for these options was estimated at the date of

grant using a Black-Scholes option pricing model with the following
weighted-average assumptions for 1996: risk-free interest rate of 6%; dividend
yield of 0%; volatility factor of the expected market price of the Company's
common stock of .68; and a weighted-average expected option life of four years.
 
     The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. Because the Company's employee stock options have characteristics
significantly different from those of traded options, and because changes in the
subjective input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options.
 
                                      F-15

<PAGE>

                          BMJ MEDICAL MANAGEMENT, INC.

                   NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
 
7. STOCK OPTION PLAN--(CONTINUED)

     Information regarding these option plans is as follows:
 
<TABLE>
<CAPTION>
                                                                                      WEIGHTED
                                                                          NUMBER      AVERAGE
                                                                            OF        EXERCISE
                                                                          SHARES       PRICE
                                                                         ---------    --------
 
<S>                                                                      <C>          <C>
Options outstanding at inception......................................          --      $ --
 
  Granted.............................................................     155,000       .19
 
  Exercised...........................................................          --        --
 
  Canceled............................................................          --        --
                                                                         ---------
 
Options outstanding at December 31, 1996..............................     155,000       .19
 
  Granted.............................................................     878,000       .37
 
  Exercised...........................................................     (10,000)      .01
 
  Canceled............................................................     (40,000)      .01
                                                                         ---------
 

Options outstanding at June 30, 1997..................................     983,000      $.36
                                                                         ---------    --------
                                                                         ---------    --------
 
Exercisable at December 31, 1996......................................          --
                                                                         ---------
                                                                         ---------
 
Reserved for future option grants at December 31, 1996................   1,845,000
                                                                         ---------
                                                                         ---------
 
Weighted average fair value of options granted during 1996............                  $.14
                                                                                      --------
                                                                                      --------
</TABLE>
 
     At December 31, 1996, the weighted average remaining contractual life of
stock options granted under the Option Plan is 9.7 years.
 
     The pro forma effects of adopting SFAS No. 123's fair value based method
for the year ended December 31, 1996 were not materially different from the
corresponding APB Opinion No. 25 (APB No. 25) intrinsic value methodology
because the options granted in 1996 were primarily issued near year end and the
fair value of the Company's stock, as determined by an independent valuation,
was $0.35 as of December 31, 1996. Accordingly, pro forma stock-based
compensation in 1996 is substantially less than would result from a full year's
compensation expense amortization and a higher valuation of the common stock.
The effects of applying SFAS No. 123 during 1996 are not likely to be
representative of the effects on pro forma net income for future years because
the vesting of options will cause additional incremental expense to be
recognized in future periods. Effects of applying SFAS No. 123 during the six
months ended June 30, 1997 is not materially different from the APB No. 25
methodology. Additionally, the FASB has added to its agenda a project regarding
certain APB No. 25 issues, including such things as incorporating the SFAS No.
123 grant date definition into APB No. 25, readdressing the criteria under
broad-based plans qualifying for noncompensatory accounting and defining what
constitutes employees. The resolution of these issues could result in
modification in the Company's accounting for stock-based compensation
arrangements.
 
                                      F-16

<PAGE>

                          BMJ MEDICAL MANAGEMENT, INC.

                   NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
 
7. STOCK OPTION PLAN--(CONTINUED)

     Shares of common stock reserved for future issuance at December 31, 1996 is
as follows:
 

<TABLE>
<S>                                                            <C>
Options.....................................................    2,000,000
Warrants....................................................      254,165
Convertible preferred stock.................................    3,976,406
                                                               ----------
                                                                6,230,571
                                                               ----------
                                                               ----------
</TABLE>
 
8. STOCKHOLDERS' EQUITY
 
     On May 6, 1996, the Company issued 1,175,000 shares of $.001 par value
common stock for cash consideration of $.01 per share, which resulted in
proceeds to the Company of $12,000.
 
     On May 6, 1996, the Company issued 999,999 shares of Series A convertible
preferred stock with a par value of $.01 for $1 per share, which resulted in
proceeds to the Company of $999,999. On November 12, 1996, the Company issued
2,000,001 shares of Series B convertible preferred stock with a par value of
$.01 for $3 per share, which resulted in proceeds to the Company of $6,000,003.
 
     On January 29, 1997 and March 12, 1997, the Company raised approximately
$765,000 in connection with the issuance of an aggregate of 254,999 shares of
Series C convertible preferred stock, with a par value of $.01 per share.
 
     On June 19, 1997, the Company issued 188,072 shares of Series D convertible
preferred stock with a par value of $.01 for $5.50 per share as repayment of a
$1,000,000 loan plus accrued interest that had been made to the Company by
certain stockholders on January 14, 1997. In connection with the original loan,
the stockholders received warrants to purchase 33,333 shares of the Company's
common stock at a price of $3.00 per share.
 
     On June 19, 1997, the Company issued 533,335 shares of Series E convertible
preferred stock with a par value of $.01 for $6.00 per share in exchange for
$3,200,000.
 
     All classes of convertible preferred stock have the right to share in any
dividends declared and paid or set aside for the common stock of the Company,
pro rata, in accordance with the number of shares of common stock into which
such shares of preferred stock are then convertible; liquidation preference of
the original issuance price per share; and voting rights equal to the number of
shares of common stock into which the preferred stock is then convertible. All
classes of preferred shares are convertible into common shares at a ratio of 1:1
and are automatically convertible upon the occurrence of a fully underwritten
public offering of shares of the Company's common stock. Upon such automatic
conversion, the holders of the convertible preferred stock are not entitled to
payment of any accrued but unpaid dividends.
 
9. INCOME TAXES
 
     The Company accounts for income taxes under FASB Statement No. 109,
Accounting for Income Taxes. Deferred income tax assets and liabilities are

determined based upon differences between the financial reporting and tax bases
of assets and liabilities and are measured using the enacted tax rates and laws
that will be in effect when the differences are expected to reverse.
 
                                      F-17

<PAGE>

                          BMJ MEDICAL MANAGEMENT, INC.

                   NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
 
9. INCOME TAXES--(CONTINUED)

     Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amount of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's net deferred tax assets are as follows:
 
<TABLE>
<CAPTION>
                                                                   YEAR ENDED      SIX MONTHS
                                                                  DECEMBER 31,    ENDED JUNE 30,
                                                                      1996             1997
                                                                  ------------    --------------
                                                                          
                                                                                   (UNAUDITED)
<S>                                                               <C>             <C>
Deferred tax assets:
  Accrued compensation.........................................    $  174,000      $    264,000
  Net operating loss carryforwards.............................       284,000           780,000
                                                                  ------------    --------------
Deferred tax assets............................................       458,000         1,044,000
Less valuation allowance.......................................       432,000         1,007,000
                                                                  ------------    --------------
Total deferred tax assets......................................        26,000            37,000
Deferred tax liabilities:
  Tax over book depreciation...................................       (11,000)          (15,000)
  Amortization of intangible assets............................       (15,000)          (22,000)
                                                                  ------------    --------------
Total deferred tax liabilities.................................       (26,000)          (37,000)
                                                                  ------------    --------------
Net deferred taxes.............................................    $       --      $         --
                                                                  ------------    --------------
                                                                  ------------    --------------
</TABLE>
 
     SFAS No. 109 requires a valuation allowance to reduce the deferred tax
assets reported if, based on the weight of the evidence, it is more likely than
not that some portion or all of the deferred tax assets will not be realized.
After consideration of all the evidence, both positive and negative, management
has determined that a $432,000 and $1,007,000 valuation allowance at December
31, 1996 and June 30, 1997, respectively, is necessary to reduce the deferred
tax assets to the amount that will more than likely not be realized. The change

in the valuation allowance for the current year is $432,000. On November 11,
1996, the Company had an ownership change as defined by Internal Revenue code
section 382 which caused the utilization of the net operating loss and tax
credits, at that time, to be limited to approximately $100,000 per year relating
to approximately $600,000 of the net operating losses at December 31, 1996. At
December 31, 1996 and June 30, 1997, the Company has available net operating
loss carryforwards of $734,000 and $2,020,000, which expire in the years 2011
and 2012, respectively.
 
     The reconciliation of income tax computed at the U.S. federal statutory
rate is as follows:
 
<TABLE>
<CAPTION>
                                                                   YEAR ENDED       SIX MONTHS
                                                                  DECEMBER 31,    ENDED JUNE 30,
                                                                      1996             1997
                                                                  ------------    --------------
<S>                                                               <C>             <C>
Federal tax at statutory rate..................................    $ (377,000)     $   (505,000)
State income tax, net of federal benefit.......................       (52,000)          (69,000)
Nondeductible items............................................        (3,000)           (1,000)
Increase in valuation allowance................................       432,000           575,000
                                                                  ------------    --------------
Income tax expense.............................................    $       --      $         --
                                                                  ------------    --------------
                                                                  ------------    --------------
</TABLE>
 
                                      F-18

<PAGE>

                          BMJ MEDICAL MANAGEMENT, INC.

                   NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
 
10. SUBSEQUENT EVENTS
 
     In January 1997, the Company obtained short-term loans in the aggregate
amount of $999,999 from its stockholders, including its President. In connection
with such loans, the Company issued warrants to such stockholders to purchase an
aggregate of 33,333 shares of Common Stock at an exercise price of $3.00 per
share. In June 1997, such loans were converted into 188,072 shares of Series D
Preferred Stock. Also, in January 1997, the Company issued a series of
promissory notes to the Company's President. The notes bear interest at a rate
of 8% and the outstanding loans are due on December 31, 1997. At June 30, 1997,
the balance outstanding was $753,000, which included $27,000 of accrued and
unpaid interest.
 
     From March 1997 to July 1997 the Company entered into a series of credit
agreements with its lender secured by the accounts receivable acquired from each
of the affiliated physician groups. The Company may borrow up to an aggregate
limit of $14,000,000 subject to a borrowing base of 85% of eligible accounts

receivable. Outstanding loans bear interest at prime rate plus 1.75%. The credit
agreements require the Company to maintain a prescribed level of tangible net
worth, places limitations on indebtedness, liens, and investments, and prohibits
the payment of dividends. At June 30, 1997, $4,130,000 was outstanding under
these agreements.
 
     On June 30, 1997, the Company obtained a credit facility to fund practice
affiliations with its senior lender secured by a lien on substantially all of
the assets of the Company. The Company may borrow up to $3,250,000 for practice
affiliations. Outstanding loans bear interest at the prime rate plus 3.5%.
Interest only is payable through December 31, 1997, at which time the loan
converts to a term loan repayable in 36 monthly installments. In addition, in
September 1997 the Company issued the senior lender warrants to purchase 40,000
shares of the Company's common stock for nominal cash consideration. $1.5
million of the Company's obligations under this facility are guaranteed by the
Company's President and other stockholders, and in connection therewith the
Company issued warrants to purchase an aggregate of 13,332 shares of common
stock for nominal cash consideration. At June 30, 1997, $3,000,000 was
outstanding under this agreement.
 
     On August 1, 1997 and August 21, 1997, the Company entered into
subordinated loan agreements, with two different lenders, in the principal
amounts of $5 million (the $5 million loan) and $1.5 million (the $1.5 million
loan). The loans are secured by liens on all of the Company's tangible and
intangible personal property. The loans mature on December 31, 2000, however,
within 45 days of the effective date of an initial public offering of the
Company's common stock, the Company is obligated to prepay the loans in full.
These loans and the liens granted to the respective lenders are subordinated in
all respects to the current and future indebtedness of the Company under the
affiliation credit facility described above. The loans initially bear interest
at 14% per annum, provided, however, that if an initial public offering of the
Company's capital stock is not consummated on or prior to December 31, 1997, the
loans will, commencing January 1, 1998, bear interest at 15% of per annum. The
loan agreements prohibit the Company from making or declaring any cash dividends
or making any distributions of any class of capital stock of the Company, except
pursuant to an employee repurchase plan or with the consent of the lender.
 
     In connection with the $5 million and $1.5 million loans the Company issued
warrants to purchase up to 125,000 and 37,500 shares, respectively, of the
Company's Series E Preferred Stock at a price per share equal to $6.00;
provided, however, if an initial public offering of the Company's stock is not
consummated on or prior to December 31, 1997, the number of shares of Series E
Preferred Stock issuable upon exercise of the warrants increases to 133,333 and
40,000, respectively. Upon the completion of the Company's initial public
offering, such warrants become exercisable for a like number of shares of common
stock. In addition, pursuant to stock purchase agreements dated as of July 31,
1997 and August 18, 1997, the Company issued 166,667 and 41,667 shares,
respectively, of Series E Preferred Stock to the lenders for an aggregate
purchase price of $1,250,000.
 
     The $1.5 million loan is convertible into shares of preferred stock of the
Company at the option of the lender after the Company completes a sale and
issuance of any shares of its preferred stock in connection with an equity
financing at any time after the earlier to occur of (i) a payment default under

the loan agreement or (ii) the failure of the Company to consummate an initial
public offering of its capital stock prior to December 31, 1997. The conversion
price will be equal to the purchase price per share paid by the purchasers in
such equity financings.
 
                                      F-19

<PAGE>

                          BMJ MEDICAL MANAGEMENT, INC.

                   NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
 
10. SUBSEQUENT EVENTS--(CONTINUED)

     On August 1, 1997, the Company entered into an agreement (the 'Master Lease
Agreement') with the lender of the $5 million loan pursuant to which the lender
agreed to purchase and lease certain equipment to the Company on the terms and
conditions contained in the Master Lease Agreement. In connection with the
Master Lease Agreement, the Company issued to the lender a warrant to purchase
up to 5,000 shares of the Company's Series E Preferred Stock at a price per
share equal to $6.00. Upon the completion of the Company's initial public
offering, such warrant becomes exercisable for a like number of shares of Common
Stock.
 
     On September 9, 1997, the Company issued and sold $4,000,000 in aggregate
principal amount of its subordinated convertible debentures due August 31, 2000
(the 'Debentures') pursuant to the Convertible Debenture Purchase Agreement,
dated as of September 9, 1997 (the 'Debenture Purchase Agreement'). The
Debentures were purchased by Dr. Nagpal, Delphi Ventures III, L.P., Delphi
BioInvestments, Oak Investment Partners VI, L.P., Oak VI Affiliates Fund,
Limited, and Health Care Services-BMJ, LLC and H&Q Serv*is Ventures, L.P.,
affiliates of Hambrecht & Quist, LLC. Pursuant to the terms of the Debenture
Purchase Agreement, the Debentures are subordinated in right of payment to all
indebtedness of the Company under the loans described above. The Debentures bear
interest at 6% per annum and are payable semi-annually on each December 31 and
June 30. The unpaid principal amount of the Debentures is due on August 31,
2000.
 
     Except in very limited instances, the Company may not prepay the Debentures
prior to September 9, 1999. The Debentures are subject to prepayment at the
option of the holders of the Debentures upon the consummation of (i) a sale of
all or substantially all of the assets of the Company; (ii) a sale or transfer
of all or a majority of the outstanding Common Stock of the Company in any one
transaction or series of related transactions; or (iii) a merger or
consolidation of the Company with or into another entity. The Debentures are
convertible at any time at the option of the holders thereof into shares of
Common Stock at an initial conversion price equal to $7.20 per share. Pursuant
to the terms of the Debenture Purchase Agreement, the holders of the Debentures
have rights of first offer on future issuances of capital stock of the Company
or other securities convertible into capital stock of the Company (except with
respect to a public offering of shares of the Company's common stock). The
Debenture Purchase Agreement places limitations on indebtedness and liens and
prohibits the payment of dividends.

 
     Effective July 1, 1997 and August 1, 1997 the Company entered into a total
of 13 additional asset purchase and management services agreements in exchange
for $7,124,806 in cash and the issuance of 1,604,270 shares of common stock
recorded at amounts ranging from $1.20 to $2.00 per share. One of the agreements
provides that the Company may be required to issue more shares of common stock
as additional consideration during 1998. The actual number of shares to be
issued will depend on actual collections of the practice during a specified
12-month period. The value of any subsequently issued shares will be allocated
to the management services agreement. Another agreement provides that the
Company will be required to pay additional cash consideration to the physician
shareholders of the practice if the value of the Company's common stock is not
at least equal to a specified price on the first anniversary of the agreement.
The guaranteed value is included in determining the cost of the management
services agreement as of the effective date of the agreement.
 
11. COMMITMENTS
 
     The Company has an employment agreement dated as of May 6, 1996, as
amended, with its President (the Employment Agreement). Base compensation under
the Employment Agreement is $225,000 per year, subject to increase by the Board
of Directors. In addition, the Board of Directors may award an annual bonus to
the President in an amount of up to 30% of his base salary based on the
attainment of certain benchmarks. The Company may terminate the President's
employment at any time and for any reason; provided that, if his employment is
terminated without cause (as defined in such agreement) or as a result of his
becoming permanently disabled, the Company must pay the President a severance
amount determined in accordance with a formula contained in the agreement.
 
                                      F-20

<PAGE>

                         REPORT OF INDEPENDENT AUDITORS
 
The Board of Directors
Orthopaedic Associates of Bethlehem, Inc.
 
We have audited the accompanying balance sheets of Orthopaedic Associates of
Bethlehem, Inc. (OAB) as of December 31, 1994 and 1995 and June 30, 1996 and the
related statements of operations, stockholders' equity, and cash flows for the
years ended December 31, 1994 and 1995 and for the six months ended June 30,
1996. These financial statements are the responsibility of OAB's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
 
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
 
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of OAB at December 31, 1994 and
1995 and June 30, 1996 and the results of its operations and cash flows for the
years ended December 31, 1994 and 1995, and the six months ended June 30, 1996
in conformity with generally accepted accounting principles.
 
                                          ERNST & YOUNG, LLP
 
Philadelphia, Pennsylvania
May 28, 1997, except for Note 13,
  as to which the date is August 14, 1997
 
                                      F-21

<PAGE>

                   ORTHOPAEDIC ASSOCIATES OF BETHLEHEM, INC.

                                 BALANCE SHEETS
 
<TABLE>
<CAPTION>
                                                                                    DECEMBER 31,
                                                                                --------------------    JUNE 30,
                                                                                  1994        1995        1996
                                                                                --------    --------    --------
<S>                                                                             <C>         <C>         <C>
                                   ASSETS
Current assets:
  Cash.......................................................................   $ 47,854    $  3,698    $119,572
  Accounts receivable, net...................................................    366,831     377,416     412,186
  Other current assets.......................................................    131,411     160,354     110,934
                                                                                --------    --------    --------
Total current assets.........................................................    546,096     541,468     642,692
Deferred tax asset...........................................................     15,000      54,100      16,800
Furniture and equipment, net.................................................    172,391     153,908     132,963
Other assets.................................................................    190,014     190,014     190,014
                                                                                --------    --------    --------
Total assets.................................................................   $923,501    $939,490    $982,469
                                                                                --------    --------    --------
                                                                                --------    --------    --------
 
                    LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Note payable...............................................................   $     --    $173,000    $203,000
  Capital lease obligations, current portion.................................     33,989      36,332      37,101
  Accounts payable...........................................................     29,027      66,158      48,780
  Accrued expenses...........................................................    125,383      44,684      45,166
  Deferred tax liability, current portion....................................    135,000     171,200     169,000
                                                                                --------    --------    --------
Total current liabilities....................................................    323,399     491,374     503,047
 
Capital lease obligation, noncurrent portion.................................    114,225      78,068      59,591
 
Commitments and contingencies
Stockholders' equity:
  Common stock, $1 par value, 30,000 shares authorized; 4,166 shares
     issued..................................................................      4,166       4,166       4,166
  Additional paid-in capital.................................................    112,079     112,079     112,079
  Retained earnings..........................................................    369,632     375,364     425,147
  Treasury stock, 1996 and 1995--833 shares at cost..........................         --    (121,561)   (121,561)
                                                                                --------    --------    --------
Total stockholders' equity...................................................    485,877     370,048     419,831
                                                                                --------    --------    --------
Total liabilities and stockholders' equity...................................   $923,501    $939,490    $982,469
                                                                                --------    --------    --------
                                                                                --------    --------    --------
</TABLE>

 
                            See accompanying notes.
 
                                      F-22

<PAGE>

                   ORTHOPAEDIC ASSOCIATES OF BETHLEHEM, INC.

                            STATEMENTS OF OPERATIONS
 
<TABLE>
<CAPTION>
                                                                          YEAR ENDED DECEMBER 31,      SIX MONTHS
                                                                          ------------------------        ENDED
                                                                             1994          1995       JUNE 30, 1996
                                                                          ----------    ----------    -------------
<S>                                                                       <C>           <C>           <C>
Net patient service revenue............................................   $2,527,957    $2,992,950     $ 1,540,205
Other income...........................................................       34,342        47,372          87,779
                                                                          ----------    ----------    -------------
Total revenues.........................................................    2,562,299     3,040,322       1,627,984
Costs and expenses:
  Physician and other provider services................................    1,553,725     1,639,675         720,358
  Medical support services.............................................      893,595     1,012,713         577,503
  Depreciation and amortization........................................       42,183        42,049          20,945
  Interest.............................................................       11,122        11,848          11,767
  Rent.................................................................       28,575        39,353          66,602
  Rent-related party...................................................      291,852       291,852         145,926
                                                                          ----------    ----------    -------------
Total costs and expenses...............................................    2,821,052     3,037,490       1,543,101
                                                                          ----------    ----------    -------------
(Loss) income before income taxes......................................     (258,753)        2,832          84,883
Income tax benefit (expense)...........................................      100,900         2,900         (35,100)
                                                                          ----------    ----------    -------------
Net (loss) income......................................................   $ (157,853)   $    5,732     $    49,783
                                                                          ----------    ----------    -------------
                                                                          ----------    ----------    -------------
</TABLE>
 
                            See accompanying notes.
 
                                      F-23

<PAGE>

                   ORTHOPAEDIC ASSOCIATES OF BETHLEHEM, INC.

                       STATEMENTS OF STOCKHOLDERS' EQUITY
 
<TABLE>
<CAPTION>
                                                                 ADDITIONAL
                                                       COMMON     PAID-IN      RETAINED     TREASURY
                                                       STOCK      CAPITAL      EARNINGS       STOCK        TOTAL
                                                       ------    ----------    ---------    ---------    ---------
<S>                                                    <C>       <C>           <C>          <C>          <C>
Balance, December 31, 1993..........................   $3,333     $  49,167    $ 527,485    $      --    $ 579,985
  Issuance of common stock..........................     833         62,912           --           --       63,745
  Net loss..........................................      --             --     (157,853)          --     (157,853)
                                                       ------    ----------    ---------    ---------    ---------
Balance, December 31, 1994..........................   4,166        112,079      369,632           --      485,877
  Net income........................................      --             --        5,732           --        5,732
  Treasury stock acquired...........................      --             --           --     (121,561)    (121,561)
                                                       ------    ----------    ---------    ---------    ---------
Balance, December 31, 1995..........................   4,166        112,079      375,364     (121,561)     370,048
  Net income........................................      --             --       49,783           --       49,783
                                                       ------    ----------    ---------    ---------    ---------
Balance, June 30, 1996..............................   $4,166     $ 112,079    $ 425,147    $(121,561)   $ 419,831
                                                       ------    ----------    ---------    ---------    ---------
                                                       ------    ----------    ---------    ---------    ---------
</TABLE>
 
                            See accompanying notes.
 
                                      F-24

<PAGE>

                   ORTHOPAEDIC ASSOCIATES OF BETHLEHEM, INC.

                            STATEMENTS OF CASH FLOWS
 
<TABLE>
<CAPTION>
                                                                                    YEAR ENDED          SIX MONTHS
                                                                                   DECEMBER 31,           ENDED
                                                                              ----------------------     JUNE 30,
                                                                                1994         1995          1996
                                                                              ---------    ---------    ----------
 
<S>                                                                           <C>          <C>          <C>
OPERATING ACTIVITIES:
Net (loss) income..........................................................   $(157,853)   $   5,732     $ 49,783
Adjustments to reconcile net (loss) income to net cash
  (used in) provided by operating activities:
  Depreciation and amortization............................................      42,183       42,049       20,945
  Loss on disposal of equipment............................................       5,115           --           --
  Provision for deferred taxes.............................................    (100,900)      (2,900)      35,100
  Changes in operating assets and liabilities:
     Receivables...........................................................      78,537      (10,585)     (34,770)
     Other assets..........................................................       7,357      (28,943)      49,420
     Accounts payable......................................................      17,787       37,131      (17,378)
     Accrued expenses......................................................      76,954      (80,699)         482
                                                                              ---------    ---------    ----------
Net cash (used in) provided by operating activities........................     (30,820)     (38,215)     103,582
 
INVESTING ACTIVITIES:
Purchases of furniture and equipment, net..................................     (23,898)     (23,566)          --
Collection of advances to shareholders.....................................      68,950           --           --
                                                                              ---------    ---------    ----------
Net cash provided by (used in) investing activities........................      45,052      (23,566)          --
 
FINANCING ACTIVITIES:
Issuance of common stock...................................................      63,745           --           --
Purchase of treasury stock.................................................          --     (121,561)          --
Borrowings on line of credit...............................................          --      173,000       30,000
Payment on capital lease...................................................     (31,786)     (33,814)     (17,708)
                                                                              ---------    ---------    ----------
Net cash provided by financing activities..................................      31,959       17,625       12,292
                                                                              ---------    ---------    ----------
Net increase (decrease) in cash............................................      46,191      (44,156)     115,874
 
Cash, beginning of period..................................................       1,663       47,854        3,698
                                                                              ---------    ---------    ----------
Cash, end of period........................................................   $  47,854    $   3,698     $119,572
                                                                              ---------    ---------    ----------
                                                                              ---------    ---------    ----------
 
SUPPLEMENTARY DISCLOSURES:
Interest paid..............................................................   $  11,122    $  11,848     $ 11,767

Income taxes paid..........................................................   $      --    $      --     $     --
</TABLE>
 
                            See accompanying notes.
 
                                      F-25

<PAGE>

                   ORTHOPAEDIC ASSOCIATES OF BETHLEHEM, INC.

                         NOTES TO FINANCIAL STATEMENTS

                           DECEMBER 31, 1994 AND 1995
                               AND JUNE 30, 1996
 
1. DESCRIPTION OF THE BUSINESS
 
     Orthopaedic Associates of Bethlehem, Inc. (OAB) is an orthopedic physician
practice which serves the Bethlehem, Pennsylvania area. OAB was organized as a
professional corporation under the laws of the Commonwealth of Pennsylvania (See
Note 13). All of OAB's issued and outstanding stock are owned by its practicing
orthopedic physicians.
 
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
  Net Patient Service Revenue
 
     Net patient service revenue is recorded as services are rendered at
established rates net of provision for bad debts and contractual adjustments.
Contractual adjustments arise due to the terms of certain reimbursement and
managed care contracts. Such adjustments represent the difference between
charges at established rates and estimated amounts to be reimbursed to OAB and
are recognized when the services are rendered.
 
     Revenues from the Medicare and Medicaid programs accounted for
approximately 35% and 5%, respectively, of OAB's net operating revenues. Laws
and regulations governing the Medicare and Medicaid programs are complex and
subject to interpretation. OAB believes that it is in compliance with all
applicable laws and regulations and is not aware of any pending or threatened
investigations involving allegations of potential wrongdoing. While no such
regulatory inquiries have been made, compliance with such laws and regulations
can be subject to future government review and interpretation as well as
significant regulatory action including fines, penalties, and exclusion from the
Medicare and Medicaid programs.
 
  Furniture and Equipment
 
     Furniture and equipment are stated at cost, less accumulated depreciation,
and are depreciated using the straight-line method over the estimated useful
lives of the assets, ranging from 5 to 7 years. Equipment under capital lease
obligations is amortized on the straight-line method over the shorter period of
the lease term or the estimated useful life of the equipment. Such amortization
is included in depreciation and amortization in the financial statements.
 
  Concentration of Credit Risk
 
     OAB grants credit without collateral to its patients, most of whom are
local residents and are insured under third-party payor agreements. Management
believes credit risk associated with accounts receivable is minimal.
 

  Use of Estimates
 
     The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
 
  Costs and Expenses
 
     Physician and other provider services costs are comprised primarily of
compensation and fees paid to physician and other health care providers.
 
     Medical support services costs include all indirect costs associated with
the management and operations of the practice and all direct costs associated
with medical supplies and pharmaceuticals expenses.
 
                                      F-26

<PAGE>

                   ORTHOPAEDIC ASSOCIATES OF BETHLEHEM, INC.

                   NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
 
3. ACCOUNTS RECEIVABLE, NET
 
     Accounts receivable, net consist of the following:
 
<TABLE>
<CAPTION>
                                                                          DECEMBER 31,
                                                                      --------------------    JUNE 30,
                                                                        1994        1995        1996
                                                                      --------    --------    --------
<S>                                                                   <C>         <C>         <C>
Accounts receivable................................................   $619,647    $671,558    $717,865
Less allowances for contractual adjustments and uncollectibles.....    252,816     294,142     305,679
                                                                      --------    --------    --------
Accounts receivable, net...........................................   $366,831    $377,416    $412,186
                                                                      --------    --------    --------
                                                                      --------    --------    --------
</TABLE>
 
4. FURNITURE AND EQUIPMENT
 
     Furniture and equipment consist of the following:
 
<TABLE>
<CAPTION>
                                                                          DECEMBER 31,
                                                                      --------------------    JUNE 30,
                                                                        1994        1995        1996
                                                                      --------    --------    --------
<S>                                                                   <C>         <C>         <C>

Furniture and equipment............................................   $229,438    $253,003    $253,003
Furniture and equipment--capital leases............................    180,000     180,000     180,000
                                                                      --------    --------    --------
                                                                       409,438     433,003     433,003
Less: Accumulated depreciation.....................................    201,047     207,095     210,040
     Accumulated amortization......................................     36,000      72,000      90,000
                                                                      --------    --------    --------
                                                                      $172,391    $153,908    $132,963
                                                                      --------    --------    --------
                                                                      --------    --------    --------
</TABLE>
 
5. OTHER ASSETS
 
     Other assets consist of the amount advanced by OAB to three shareholders
for the purchase of life insurance. OAB is not the beneficiary of these
policies; however, the proceeds have been assigned to OAB to the extent of these
premiums paid. No interest is accrued on these loans.
 
6. NOTES PAYABLE
 
     OAB has an unsecured $250,000 line of credit arrangement with a bank. At
June 30, 1996 and December 31, 1995, $203,000 and $173,000, respectively, was
outstanding under the line of credit. Interest is payable monthly at a variable
rate of interest (8.25% and 8.50% at June 30, 1996 and December 31, 1995,
respectively). Principal is payable upon demand. Repayment of the line of credit
is unconditionally guaranteed by the stockholders of OAB.
 
7. CAPITAL LEASE
 
     OAB has a capital lease obligation, collateralized by the leased equipment,
with scheduled payments as of June 30, 1996 as follows:
 
<TABLE>
<S>                                                                                            <C>
1996........................................................................................     $21,024
1997........................................................................................      42,048
1998........................................................................................      42,048
                                                                                               ---------
                                                                                                 105,120
Less amount representing interest...........................................................     (8,428)
                                                                                               ---------
                                                                                                 $96,692
                                                                                               ---------
                                                                                               ---------
</TABLE>
 
                                      F-27

<PAGE>

                   ORTHOPAEDIC ASSOCIATES OF BETHLEHEM, INC.

                   NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

 
8. RELATED PARTY TRANSACTIONS
 
  A. Lease Agreement
 
     In June 1989, OAB entered into a ten-year sublease lease agreement with
Shoenersville Road Realty for the rental of office space. Under the lease
agreement OAB has the option to lease the office space for an additional term of
ten years. Rental payments required under the lease are subject to a fair market
rental value adjustment. The partners of Shoenersville Road Realty are also the
stockholders of OAB. Rental expense totaled $145,926 for the six months ended
June 30, 1996 and $291,852 for both of the years ended December 31, 1995 and
1994.
 
     Future minimum rental payments under this operating lease as of June 30,
1996 are as follows:
 
<TABLE>
<S>                                                                                            <C>
1996........................................................................................    $145,926
1997........................................................................................     291,852
1998........................................................................................     291,852
1999........................................................................................     145,926
                                                                                               ---------
                                                                                                $875,556
                                                                                               ---------
                                                                                               ---------
</TABLE>
 
  B. Stock Redemption
 
     In 1995, OAB agreed to pay one of its physician stockholders $121,561 for
833 shares of common stock. This redemption represented approximately 20% of the
then outstanding shares and 20% of the stockholders' equity at the date of the
redemption.
 
9. INCOME TAXES
 
     Significant components of deferred tax assets and liabilities are as
follows:
 
<TABLE>
<CAPTION>
                                                                                   DECEMBER 31,
                                                                              ----------------------    JUNE 30,
                                                                                1994         1995         1996
                                                                              ---------    ---------    ---------
<S>                                                                           <C>          <C>          <C>
Deferred tax liabilities:
  Cash to accrual adjustment...............................................   $ 263,100    $ 269,700    $ 254,400
                                                                              ---------    ---------    ---------
                                                                              ---------    ---------    ---------
Deferred tax assets:
  Net operating loss carryforwards.........................................   $  26,500    $  66,700    $  29,400

  Cash to accrual adjustment...............................................     116,600       85,900       72,800
                                                                              ---------    ---------    ---------
Total deferred tax assets..................................................   $ 143,100    $ 152,600    $ 102,200
                                                                              ---------    ---------    ---------
                                                                              ---------    ---------    ---------
Net deferred taxes.........................................................   $(120,000)   $(117,100)   $(152,200)
                                                                              ---------    ---------    ---------
                                                                              ---------    ---------    ---------
</TABLE>
 
     Significant components of income tax (expense) benefit attributable to
continuing operations are as follows:
 
<TABLE>
<CAPTION>
                                                                          YEAR ENDED
                                                                         DECEMBER 31,        SIX MONTHS
                                                                      ------------------        ENDED
                                                                        1994       1995     JUNE 30, 1996
                                                                      --------    ------    -------------
<S>                                                                   <C>         <C>       <C>
Current............................................................   $     --    $   --      $      --
Deferred...........................................................    100,900     2,900        (35,100)
                                                                      --------    ------    -------------
Income tax (expense) benefit.......................................   $100,900    $2,900      $ (35,100)
                                                                      --------    ------    -------------
                                                                      --------    ------    -------------
</TABLE>
 
     OAB's tax rate differs from the expected tax rate due principally to state
income taxes. State income tax (expense) benefits were $11,000, $4,400 and
$(5,400) for the years ended December 31, 1994 and 1995 and the six months ended
June 30, 1996, respectively.
 
                                      F-28

<PAGE>

                   ORTHOPAEDIC ASSOCIATES OF BETHLEHEM, INC.

                   NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
 
9. INCOME TAXES--(CONTINUED)

     For the six months ended June 30, 1996 OAB has estimated income tax
(expense) benefit and net deferred taxes assuming that they have utilized
$78,000 and $65,000 in operating loss carryforwards for federal and state income
reporting purposes. At June 30, 1996 OAB has available federal and state
operating loss carryforwards of $73,000 and $60,000, respectively, which expire
in 2010 and 1998, respectively.
 
10. BENEFIT PLANS
 
     OAB sponsors a defined contribution profit-sharing plan covering all

employees who meet prescribed eligibility requirements. Expenses amounted to
$165,000 and $129,000 in 1995 and 1994, respectively. This plan was terminated
effective December 31, 1995.
 
     Effective January 1, 1996, OAB established a 401(k) plan for which OAB
matches a percentage of employee contributions. Expenses for the 401(k) plan
amounted to $25,818 for the six months ended June 30, 1996.
 
11. CONTINGENCIES
 
     OAB is involved in various legal proceedings in the ordinary course of
business. OAB does not believe that the disposition of such legal proceedings
and disputes will have a material adverse effect on the financial position and
results of operation of OAB.
 
12. MALPRACTICE INSURANCE
 
     OAB maintains professional liability coverage on behalf of its physicians
on an occurrence basis.
 
13. SUBSEQUENT EVENTS
 
     Effective July 1, 1996, the physician stockholders of OAB transferred
substantially all operations of OAB to Lehigh Valley Bone, Muscle and Joint
Group, LLC (LVBMJ). LVBMJ is a limited liability company owned by the physician
stockholders of OAB, formed specifically to operate the transferred medical
practice. Additionally, on July 1, 1996, OAB changed its legal structure from a
professional corporation to a general purpose corporation and continues to
perform limited medical advisory services.
 
     Effective July 1, 1996, the Company entered into an Affiliation Transaction
with LVBMJ. Under the terms of the Amended and Restated Management Services
Agreement between LVBMJ and the Company effective July 1, 1997 (the LVBMJ
Management Services Agreement), BMJ Medical Management, Inc. (BMJ) issued an
aggregate of 518,031 shares of common stock, recorded at $0.10 per share,
representing consideration of $51,803 and options to purchase 30,000 shares of
common stock at an exercise price of $0.25 per share.
 
     On September 5, 1997, OAB sold to BMJ (a related party) its furniture and
equipment and transferred its rights and interest under equipment and office
space leases for $254,000. Proceeds of the sale were used to repay OAB's line of
credit. Based on the collection of accounts receivable balances and the
realization of other assets available, OAB has discharged substantially all its
other remaining liabilities. OAB has distributed substantially all of its
remaining stockholders' equity in the form of dividends and compensation.
 
                                      F-29

<PAGE>

                         REPORT OF INDEPENDENT AUDITORS
 
The Board of Directors
Southern California Orthopedic Institute Medical Group,
  a California General Partnership
 
We have audited the accompanying balance sheets of Southern California
Orthopedic Institute Medical Group, a California General Partnership (SCOI) as
of December 31, 1995 and October 31, 1996, and the related statements of
operations and changes in partners' capital, and cash flows for each of the two
years in the period ended December 31, 1995 and for the ten months ended October
31, 1996. These financial statements are the responsibility of SCOI's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
 
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
 
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of SCOI at December 31, 1995 and
October 31, 1996, and the results of its operations and its cash flows for each
of the two years in the period ended December 31, 1995 and for the ten months
ended October 31, 1996 in conformity with generally accepted accounting
principles.
 
                                          ERNST & YOUNG, LLP
 
Los Angeles, California
May 23, 1997
 
                                      F-30

<PAGE>

            SOUTHERN CALIFORNIA ORTHOPEDIC INSTITUTE MEDICAL GROUP,
                        A CALIFORNIA GENERAL PARTNERSHIP

                                 BALANCE SHEETS
 
<TABLE>
<CAPTION>
                                                                                        DECEMBER 31,    OCTOBER 31,
                                                                                            1995           1996
                                                                                        ------------    -----------
<S>                                                                                     <C>             <C>
                                       ASSETS
Current assets:
Cash and cash equivalents............................................................    $  251,345     $   720,158
  Patient accounts receivable, net...................................................     4,558,438       4,778,825
  Due from partners and affiliates, net..............................................        41,231              --
  Prepaid expenses and other current assets..........................................       140,523         266,826
                                                                                        ------------    -----------
Total current assets.................................................................     4,991,537       5,765,809
 
Furniture, fixtures and equipment, net                                                      709,814         586,997
Other assets.........................................................................       337,038         310,080
                                                                                        ------------    -----------
Total assets.........................................................................    $6,038,389     $ 6,662,886
                                                                                        ------------    -----------
                                                                                        ------------    -----------
 
                          LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
  Accounts payable...................................................................    $  120,398     $   125,022
  Due to partners and affiliates, net................................................            --         284,773
  Accrued expenses and other current liabilities.....................................       287,204         284,229
  Current portion of long-term debt..................................................       228,627              --
  Deferred income....................................................................        85,090          85,090
                                                                                        ------------    -----------
Total current liabilities............................................................       721,319         779,114
Deferred income......................................................................       219,820         134,733
Accrued malpractice insurance claims.................................................     1,500,000       1,917,000
                                                                                        ------------    -----------
                                                                                          2,441,139       2,830,847
 
Commitments and contingencies
Partners' capital....................................................................     3,597,250       3,832,039
                                                                                        ------------    -----------
Total liabilities and partners' capital..............................................    $6,038,389     $ 6,662,886
                                                                                        ------------    -----------
                                                                                        ------------    -----------
</TABLE>
 
                            See accompanying notes.
 
                                      F-31

<PAGE>

            SOUTHERN CALIFORNIA ORTHOPEDIC INSTITUTE MEDICAL GROUP,
                        A CALIFORNIA GENERAL PARTNERSHIP

           STATEMENTS OF OPERATIONS AND CHANGES IN PARTNERS' CAPITAL
 
<TABLE>
<CAPTION>
                                                                                                     TEN MONTHS
                                                                        YEAR ENDED DECEMBER 31,         ENDED
                                                                       --------------------------    OCTOBER 31,
                                                                          1994           1995           1996
                                                                       -----------    -----------    -----------
<S>                                                                    <C>            <C>            <C>
Net patient service revenue.........................................   $19,230,632    $20,025,718    $17,907,084
Other income........................................................       149,318        153,923        162,512
                                                                       -----------    -----------    -----------
Total revenues......................................................    19,379,950     20,179,641     18,069,596
 
Costs and expenses:
  Physician and other provider services.............................    10,008,410     11,307,996      9,069,544
  Medical support services..........................................     7,406,706      7,621,997      6,846,899
  Depreciation......................................................       313,595        308,826        253,500
  Interest..........................................................        70,511         39,126          8,462
  Rent..............................................................       275,077        261,906        204,511
  Rent--related party...............................................     1,615,678      1,666,243      1,451,891
                                                                       -----------    -----------    -----------
Total costs and expenses............................................    19,689,977     21,206,094     17,834,807
                                                                       -----------    -----------    -----------
Net (loss) income...................................................      (310,027)    (1,026,453)       234,789
 
Beginning partners' capital.........................................     4,739,090      4,429,063      3,597,250
Capital contributions...............................................            --        194,640             --
                                                                       -----------    -----------    -----------
Ending partners' capital............................................   $ 4,429,063    $ 3,597,250    $ 3,832,039
                                                                       -----------    -----------    -----------
                                                                       -----------    -----------    -----------
</TABLE>
 
                            See accompanying notes.
 
                                      F-32

<PAGE>

            SOUTHERN CALIFORNIA ORTHOPEDIC INSTITUTE MEDICAL GROUP,
                        A CALIFORNIA GENERAL PARTNERSHIP

                            STATEMENTS OF CASH FLOWS
 
<TABLE>
<CAPTION>
                                                                                                     TEN MONTHS
                                                                        YEAR ENDED DECEMBER 31,         ENDED
                                                                       --------------------------    OCTOBER 31,
                                                                          1994           1995           1996
                                                                       -----------    -----------    -----------
<S>                                                                    <C>            <C>            <C>
OPERATING ACTIVITIES:
Net (loss) income...................................................   $  (310,027)   $(1,026,453)   $   234,789
Adjustments to reconcile net (loss) income to net cash provided by
  (used in) operating activities:
  Depreciation......................................................       313,595        308,826        253,500
  Amortization of deferred income...................................            --        (93,432)       (85,087)
  Changes in operating assets and liabilities:
     Patient accounts receivable....................................      (142,784)       287,667       (220,387)
     Prepaid expenses and other assets..............................       (58,197)       (17,215)       (99,345)
     Accounts payable...............................................         1,262        (85,930)         4,624
     Accrued expenses and other current liabilities.................       441,688        518,480        414,025
                                                                       -----------    -----------    -----------
Net cash provided by (used in) operating activities.................       245,537       (108,057)       502,119
 
INVESTING ACTIVITIES:
Changes in due to/from partners and affiliates......................       166,056       (171,832)       326,004
Purchases of furniture, fixtures and equipment......................       (85,220)       (39,331)      (130,683)
                                                                       -----------    -----------    -----------
Net cash provided by (used in) investing activities.................        80,836       (211,163)      (195,321)
 
FINANCING ACTIVITIES:
Payments on long-term debt..........................................      (287,386)      (316,503)      (228,627)
Proceeds received for covenant not to compete.......................            --        398,342             --
Capital contributions...............................................            --        194,640             --
Net cash (used in) provided by financing activities.................      (287,386)       276,479       (228,627)
                                                                       -----------    -----------    -----------
Net increase (decrease) in cash and cash equivalents................        38,987        (42,741)       468,813
Cash and cash equivalents at beginning of period....................       255,099        294,086        251,345
                                                                       -----------    -----------    -----------
Cash and cash equivalents at end of period..........................   $   294,086    $   251,345    $   720,158
                                                                       -----------    -----------    -----------
                                                                       -----------    -----------    -----------
</TABLE>
 
                            See accompanying notes.
 
                                      F-33

<PAGE>

            SOUTHERN CALIFORNIA ORTHOPEDIC INSTITUTE MEDICAL GROUP,
                        A CALIFORNIA GENERAL PARTNERSHIP

                         NOTES TO FINANCIAL STATEMENTS

                                OCTOBER 31, 1996
 
1. DESCRIPTION OF THE BUSINESS
 
     Southern California Orthopedic Institute Medical Group, a California
General Partnership (SCOI), is an orthopedic physician practice which serves
patients in Southern California. SCOI is organized as a general partnership
comprising individuals and professional corporations under the laws of the State
of California.
 
     On November 1, 1996, SCOI agreed in principle to sell substantially all of
its assets (primarily patient accounts receivable and furniture, fixtures and
equipment) to BMJ Medical Management, Inc. (BMJ) and concurrent therewith
entered into a management services agreement (see Note 12 'Subsequent Event').
 
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
  Revenue Recognition
 
     Net patient service revenue consists of fees for services provided by the
medical group under contracts with health maintenance organizations and for
services rendered to patients covered under Medicare, Medi-Cal and private
insurance. Revenue is reported on the accrual basis in the period in which
services are provided at the amounts expected to be realized from Medicare,
Medi-Cal, managed care and other insurance programs.
 
     Laws and regulations governing the Medicare and Medi-Cal programs are
complex and subject to interpretation. SCOI believes that it is in compliance
with all applicable laws and regulations and is not aware of any pending or
threatened investigations involving allegations of potential wrongdoing. While
no such regulatory inquiries have been made, compliance with such laws and
regulations can be subject to future government review and interpretation as
well as significant regulatory action including fines, penalties, and exclusion
from the Medicare and Medi-Cal programs.
 
  Costs and Expenses
 
     Physician and other provider services costs primarily comprise compensation
and fees paid to physicians and other health care providers and include medical
supplies and pharmaceutical expenses.
 
     Medical support services costs include all indirect costs associated with
the management and operations of the practice.
 
  Furniture, Fixtures and Equipment
 
     Furniture, fixtures and equipment, including leasehold improvements, are

stated at cost, and are depreciated using the straight-line method over the
estimated useful lives of the assets, ranging from five to seven years.
 
  Health and Dental Insurance
 
     SCOI maintains a self-insured medical and dental plan for its employees.
Unpaid claims accruals, including claims incurred but not reported, are based on
the estimated ultimate cost of settlement, including claim settlement expense,
in accordance with SCOI's past experience. SCOI has a stop-loss insurance
contract to cover employee health claims in excess of an annual aggregate limit
based on monthly aggregate factors determined by the insurance company and the
number of employees covered ($430,062; $349,894, and $250,304 for the years
ended December 31, 1994 and 1995 and the ten months ended October 31, 1996,
respectively). Effective October 1, 1996, SCOI purchased commercial coverage for
employee health claims. At December 31, 1995 and October 31, 1996, SCOI did not
have significant claims outstanding.
 
                                      F-34

<PAGE>

            SOUTHERN CALIFORNIA ORTHOPEDIC INSTITUTE MEDICAL GROUP,
                        A CALIFORNIA GENERAL PARTNERSHIP

                   NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
 
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)

  Cash Equivalents
 
     Cash equivalents include money market funds and certificates of deposit
with a maturity of three months or less when purchased.
 
  Allocations to Partners
 
     Income and distributions to physician partners are made based upon a
formula as defined in Schedule 4.1 of the SCOI partnership agreement. The
formula generally allocates income based on net cash collections attributable to
each physician partner, net of allocated and direct expenses. Notwithstanding
the formula, physician partners receive a guaranteed minimum based on a
percentage of total collections. Distributions to partners totaling $7,575,129,
$9,745,019 and $7,692,077 for the two years ended December 31, 1995 and the ten
months ended October 31, 1996, respectively, were included in physician and
other provider services in the statements of operations and changes in partners'
capital.
 
  Use of Estimates
 
     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 the financial
statements and the reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates.

 
  Financial Instruments
 
     The carrying amounts of financial instruments as reported in the
accompanying balance sheets approximate their fair value primarily due to the
short-term nature of such financial instruments.
 
  Concentrations of Credit Risk
 
     Financial instruments which potentially subject SCOI to concentrations of
credit risk consist primarily of cash and cash equivalents and accounts
receivable. Concentration of credit risk with respect to accounts receivable are
limited, except with respect to programs under contract with the federal and
state governments, due to the large number of payors comprising SCOI's customer
base. As of October 31, 1996, SCOI had no significant concentrations of credit
risk.
 
3. ACCOUNTS RECEIVABLE
 
     Accounts receivable consist of the following at:
 
<TABLE>
<CAPTION>
                                                                              DECEMBER 31,    OCTOBER 31,
                                                                                  1995           1996
                                                                              ------------    -----------
<S>                                                                           <C>             <C>
Gross patient accounts receivable..........................................    $7,723,438     $ 8,099,825
Less allowances for contractual adjustments and uncollectible accounts.....     3,165,000       3,321,000
                                                                              ------------    -----------
                                                                               $4,558,438     $ 4,778,825
                                                                              ------------    -----------
                                                                              ------------    -----------
</TABLE>
 
                                      F-35

<PAGE>

            SOUTHERN CALIFORNIA ORTHOPEDIC INSTITUTE MEDICAL GROUP,
                        A CALIFORNIA GENERAL PARTNERSHIP

                   NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
 
4. FURNITURE, FIXTURES AND EQUIPMENT
 
     Furniture, fixtures and equipment consist of the following at:
 
<TABLE>
<CAPTION>
                                                                              DECEMBER 31,    OCTOBER 31,
                                                                                  1995           1996
                                                                              ------------    -----------
<S>                                                                           <C>             <C>

Furniture, fixtures and equipment..........................................    $2,193,237     $ 2,137,488
Less accumulated depreciation..............................................     1,483,423       1,550,491
                                                                              ------------    -----------
                                                                               $  709,814     $   586,997
                                                                              ------------    -----------
                                                                              ------------    -----------
</TABLE>
 
5. LONG-TERM DEBT
 
     Long-term debt comprises two loans for the purchase of furniture, fixtures
and equipment. The loans bear interest at 9.69% and are payable in 60 monthly
installments of $29,627 with final maturity in August 1996. The loans were
secured by SCOI's property and equipment.
 
     Interest costs paid during the years ended December 31, 1994 and 1995 and
the ten months ended October 31, 1996, totaled $70,511, $39,126, and $8,462,
respectively.
 
6. LEASE COMMITMENTS
 
     SCOI leases various equipment, clinic and office space under non-cancelable
operating leases expiring between 1997 and 2006 with related and independent
parties (see Note 11 'Related Parties'). Certain leases contain renewal options
and annual escalation clauses. Obligations under equipment and facility leases
with unrelated parties were assumed by BMJ in connection with the sale of SCOI's
assets on November 1, 1996 (see Note 12 'Subsequent Event'). At October 31,
1996, future minimum lease payments are as follows:
 
<TABLE>
<S>                                                                                         <C>
1997.....................................................................................     $1,805,636
1998.....................................................................................      1,790,849
1999.....................................................................................      1,718,358
2000.....................................................................................      1,599,342
2001.....................................................................................      1,599,342
Therafter................................................................................      8,297,649
                                                                                            ------------
Total minimum lease payments.............................................................    $16,811,176
                                                                                            ------------
                                                                                            ------------
</TABLE>
 
7. INCOME TAXES
 
     SCOI is organized as a partnership under the Internal Revenue Code and
applicable California Franchise Tax Code. As a result, in lieu of corporate
income tax, SCOI's taxable income is passed through to the partners and taxed at
the partner level. Accordingly, no provision or liability for income tax has
been reflected in the financial statements.
 
8. BENEFIT PLANS
 
     SCOI sponsors a defined contribution plan (the Plan) for employees who meet

the minimum length of service and age requirements. The Plan was adopted on
January 1, 1996. Eligible employees may contribute up to 19% of their
compensation in the Plan year. SCOI may, at its discretion, match a portion of
employee contributions up to 4% of an employee's compensation. SCOI is
responsible for the administration of the Plan as the Plan administrator and
trustee. SCOI's contributions totaled $9,831 for the ten months ended October
1996.
 
                                      F-36

<PAGE>

            SOUTHERN CALIFORNIA ORTHOPEDIC INSTITUTE MEDICAL GROUP,
                        A CALIFORNIA GENERAL PARTNERSHIP

                   NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
 
9. CONTINGENCIES
 
     SCOI is involved in various legal proceedings in the ordinary course of
business. SCOI does not believe that the disposition of such legal proceedings
and disputes will have a material adverse effect on the financial position and
results of operations of SCOI.
 
     SCOI procures professional liability coverage on behalf of its physicians
on a claims made basis up to $1,000,000 per claim and $3,000,000 annual
aggregate per physician. The insurance contracts specify that coverage is
available only during the term of each insurance contract and cover only those
claims reported while the policies are in force. An estimate of losses for
incurred but unreported claims is recorded based upon historical experience.
Management of SCOI intends to renew the existing claims made policy annually and
expects to be able to obtain such coverage. If coverage is not renewed, SCOI
intends to purchase extended reporting period endorsements to provide
professional liability coverage for losses incurred prior to, but reported
subsequent to, the termination of the claims made policies. SCOI's policy has
been renewed through December 31, 1997.
 
10. DEFERRED INCOME
 
     In July 1992, SCOI sold its rehabilitation and therapy business to
HealthSouth Rehabilitation Center of Van Nuys Limited Partnership (HealthSouth)
for cash. In connection with the sale, the Partnership and its physicians
entered into a covenant-not-to-compete for seven years ending July 31, 1999 for
$700,000, payable in 84 equal monthly installments. Consideration received is
recorded as revenue over the term of the agreement. On January 20, 1995,
HealthSouth elected to prepay its remaining obligations under the covenant
totaling $390,000. This amount has been recorded as deferred income on SCOI's
balance sheets and is amortized over the remaining term of the covenant.
 
11. RELATED PARTIES
 
     Due to partners and affiliates includes undistributed guaranteed payments
totaling $162,699 and $475,000 at December 31, 1995 and October 31, 1996,
respectively. SCOI has notes receivable from several partners for capital

contributions. Such notes bear interest at prime rate plus one percent and
totaled $191,618 and $102,810, at December 31, 1995 and October 31, 1996,
respectively. SCOI also made advances to the Center for Orthopedic Surgery, Inc.
(COSI), an affiliated organization owned by certain physician partners. COSI is
an outpatient surgery center due to begin operations in May 1997. Amounts
outstanding at December 31, 1995 and October 31, 1996 were $12,312 and $87,417,
respectively.
 
     SCOI leases its main facility and office space under a non-cancelable
operating lease from FDP Development, Inc. (FDP), an affiliate owned by the
partners of SCOI. The lease expires in July 2006 and provides for annual
adjustments based on the increases in the Consumer Price Index. Rental costs
paid to FDP totaled $1,615,678, $1,666,243, and $1,451,891, for the years ended
December 31, 1994 and 1995, and the ten months ended October 31, 1996,
respectively. SCOI maintains a security deposit with FDP in the amount of
$300,000 at December 31, 1995 and October 31, 1996.
 
12. SUBSEQUENT EVENTS
 
     On November 1, 1996, SCOI sold its patient accounts receivable balances,
furniture, fixtures and equipment, and other minor assets to BMJ, a Delaware
corporation engaged in operating and financing physician groups focused
exclusively on musculoskeletal disease management. The carrying value of the
patient accounts receivable balances and property and equipment was $4,778,825
and $583,755, respectively. BMJ also assumed certain equipment and office lease
obligations with total future minimum lease payments of $553,460 at November 1,
1996, which are in turn subleased to SCOI. Total consideration for the sale was
$5,930,897 based on a preliminary estimate of the carrying values of the assets
sold at October 31, 1996, and is subject to purchase
 
                                      F-37

<PAGE>

            SOUTHERN CALIFORNIA ORTHOPEDIC INSTITUTE MEDICAL GROUP,
                        A CALIFORNIA GENERAL PARTNERSHIP

                   NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
 
12. SUBSEQUENT EVENTS--(CONTINUED)

price adjustments. $3,706,897 (the sales price of property and equipment and 50%
of the estimated carrying value of the receivable balances) was received in
cash. The balance of the consideration is based on actual collections of the
receivable balances and is due upon the earlier of an initial offering of BMJ's
common stock or November 1, 1997. SCOI realized a gain of $858,165 on the sale
of property and equipment.
 
     Concurrent with the sale, SCOI entered into a 40 year management services
agreement (the Agreement) with BMJ on November 1, 1996. After the initial term,
the Agreement renews automatically for successive additional five year terms,
unless terminated by either party with 6 months written notice. As an incentive
for entering into the Agreement, the physician owners of the Company received
4,000,000 common shares in BMJ with an estimated fair value of $1,400,000. At

the earlier of an initial public offering of BMJ's common shares or November 1,
1998, the number of shares will be adjusted in accordance with a prescribed
formula based in part on SCOI's net cash collections in relation to other
medical groups managed by BMJ. Under the Agreement, BMJ will provide financial
management, information systems, marketing and public relations, risk
management, and administrative support for claims processing, utilization review
and quality control services. As compensation for these services, SCOI will
reimburse BMJ for the costs of such services in addition to a management fee
based on a percentage of collections of patient revenues generated after
November 1, 1996 (reduced by the medical equipment master lease payments) and
66-2/3% of professional practice cost savings as defined in the Agreement.
 
                                      F-38

<PAGE>

                         REPORT OF INDEPENDENT AUDITORS
 
The Board of Directors
South Texas Spinal Clinic, P.A.
 
We have audited the accompanying balance sheets of South Texas Spinal Clinic,
P.A. (STSC) as of December 31, 1994 and 1995 and October 31, 1996, and the
related statements of operations, stockholders' equity, and cash flows for the
years ended December 31, 1994 and 1995 and the ten months ended October 31,
1996. These financial statements are the responsibility of STSC's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
 
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
 
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of STSC at December 31, 1994 and
1995 and the ten months ended October 31, 1996 in conformity with generally
accepted accounting principles.
 
                                          ERNST & YOUNG, LLP
 
San Antonio, Texas
June 5, 1997
 
                                      F-39

<PAGE>
                        SOUTH TEXAS SPINAL CLINIC, P.A.
                                 BALANCE SHEETS
 
<TABLE>
<CAPTION>
                                                                              DECEMBER 31,
                                                                       --------------------------    OCTOBER 31,
                                                                          1994           1995           1996
                                                                       -----------    -----------    -----------
<S>                                                                    <C>            <C>            <C>
                               ASSETS
 
Current assets:
  Cash..............................................................   $    56,205    $    41,642    $   430,452
  Accounts receivable, net..........................................     2,497,993      2,535,945      1,688,980
  Prepaid expenses and other current assets.........................        18,680         23,705         21,809
                                                                       -----------    -----------    -----------
Total current assets................................................     2,572,878      2,601,292      2,141,241
Furniture, fixtures, and equipment, net.............................       554,099        476,263        416,047
Other assets........................................................        31,016         55,200         32,925
                                                                       -----------    -----------    -----------
Total assets........................................................   $ 3,157,993    $ 3,132,755    $ 2,590,213
                                                                       -----------    -----------    -----------
                                                                       -----------    -----------    -----------
 
                LIABILITIES AND STOCKHOLDERS' EQUITY
 
Current liabilities:
  Current portion of long-term debt.................................   $   125,000    $   125,000    $   104,166
  Capital lease obligation, current portion.........................            --          3,153          3,464
  Accounts payable..................................................       132,733         91,904        515,287
  Accounts payable--related party...................................            --          5,372             --
  Accrued expenses and other current liabilities....................        11,531         13,312         17,490
                                                                       -----------    -----------    -----------
Total current liabilities...........................................       269,264        238,741        640,407
Long-term debt, less current portion................................       208,333         83,333             --
Capital lease obligation, less current portion......................            --          6,442          3,530
 
Stockholders' equity:
  Common stock, no par; 100,000 shares authorized; 2,500 shares
     issued and outstanding.........................................         1,000          1,000          1,000
  Retained earnings.................................................     2,679,396      2,803,239      1,945,276
                                                                       -----------    -----------    -----------
Total stockholders' equity..........................................     2,680,396      2,804,239      1,946,276
                                                                       -----------    -----------    -----------
Total liabilities and stockholders' equity..........................   $ 3,157,993    $ 3,132,755    $ 2,590,213
                                                                       -----------    -----------    -----------
                                                                       -----------    -----------    -----------
</TABLE>
 
                            See accompanying notes.
 
                                      F-40

<PAGE>

                        SOUTH TEXAS SPINAL CLINIC, P.A.

                            STATEMENTS OF OPERATIONS
 
<TABLE>
<CAPTION>
                                                                                           TEN MONTHS
                                                                     YEAR ENDED              ENDED
                                                                    DECEMBER 31,          OCTOBER 31,
                                                              ------------------------    ------------
                                                                 1994          1995           1996
                                                              ----------    ----------    ------------
<S>                                                           <C>           <C>           <C>
Operating revenue, net.....................................   $6,973,761    $7,748,203     $6,027,164
Costs and expenses:
  Physician and other provider services....................    4,681,361     5,578,510      5,257,398
  Medical support services.................................      971,812     1,060,037      1,073,446
  Depreciation.............................................       88,065        90,012         74,914
  Interest.................................................       36,956        27,529         13,375
  Rent.....................................................      125,770       150,168        118,491
  Rent-related party.......................................      711,892       718,104        347,503
                                                              ----------    ----------    ------------
Total costs and expenses...................................    6,615,856     7,624,360      6,885,127
                                                              ----------    ----------    ------------
Net income (loss)..........................................   $  357,905    $  123,843     $ (857,963)
                                                              ----------    ----------    ------------
                                                              ----------    ----------    ------------
</TABLE>
 
                            See accompanying notes.
 
                                      F-41

<PAGE>

                        SOUTH TEXAS SPINAL CLINIC, P.A.

                       STATEMENTS OF STOCKHOLDERS' EQUITY
 
<TABLE>
<CAPTION>
                                                           COMMON STOCK
                                                        -------------------
                                                         NUMBER                ADDITIONAL     RETAINED
                                                        OF SHARES    AMOUNT     PAID-IN       EARNINGS       TOTAL
                                                        ---------    ------    ----------    ----------    ----------
<S>                                                     <C>          <C>       <C>           <C>           <C>
Balance at December 31, 1993.........................     2,500      $1,000      $   --      $2,321,491    $2,322,491
  Repurchase and retirement of common stock..........        --         --           --              --            --
  Issuance of common stock...........................        --         --           --              --            --
  Net income.........................................        --         --           --         357,905       357,905
                                                        ---------    ------    ----------    ----------    ----------
Balance at December 31, 1994.........................     2,500      1,000           --       2,679,396     2,680,396
  Repurchase and retirement of common stock..........        --         --           --              --            --
  Issuance of common stock...........................        --         --           --              --            --
  Net income.........................................        --         --           --         123,843       123,843
                                                        ---------    ------    ----------    ----------    ----------
Balance at December 31, 1995.........................     2,500      1,000           --       2,803,239     2,804,239
  Repurchase and retirement of common stock..........        --         --           --              --            --
  Issuance of common stock...........................        --         --           --              --            --
  Net loss...........................................        --         --           --        (857,963)     (857,963)
                                                        ---------    ------    ----------    ----------    ----------
Balance at October 31, 1996..........................     2,500      $1,000      $   --      $1,945,276    $1,946,276
                                                        ---------    ------    ----------    ----------    ----------
                                                        ---------    ------    ----------    ----------    ----------
</TABLE>
 
                            See accompanying notes.
 
                                      F-42

<PAGE>

                        SOUTH TEXAS SPINAL CLINIC, P.A.

                            STATEMENTS OF CASH FLOWS
 
<TABLE>
<CAPTION>
                                                                                                       TEN MONTHS
                                                                                  YEAR ENDED             ENDED
                                                                                 DECEMBER 31,         OCTOBER 31,
                                                                            ----------------------    ------------
                                                                              1994         1995           1996
                                                                            ---------    ---------    ------------
<S>                                                                         <C>          <C>          <C>
OPERATING ACTIVITIES
Net income (loss)........................................................   $ 357,905    $ 123,843     $ (857,963)
Adjustments to reconcile net income (loss) to net cash provided by
  operating activities:
  Depreciation...........................................................      88,065       90,012         74,914
  Changes in operating assets and liabilities:
     Accounts receivable.................................................    (214,029)     (37,952)       846,965
     Deferred charges and other assets...................................     (52,734)     (29,209)        24,171
     Accounts payable....................................................      96,391      (40,829)       423,383
     Accrued expenses and other liabilities..............................       4,363        7,153         (1,194)
                                                                            ---------    ---------    ------------
Net cash provided by operating activities................................     279,961      113,018        510,276
 
INVESTING ACTIVITIES
Purchases of property and equipment......................................      (5,608)     (12,176)       (14,698)
Property and equipment under capital lease...............................          --        9,595         (2,601)
                                                                            ---------    ---------    ------------
Net cash used in investing activities....................................      (5,608)      (2,581)       (17,299)
 
FINANCING ACTIVITY
Payments on notes payable to banks.......................................    (245,000)    (125,000)      (104,167)
                                                                            ---------    ---------    ------------
Net cash used in financing activity......................................    (245,000)    (125,000)      (104,167)
                                                                            ---------    ---------    ------------
Net increase (decrease) in cash..........................................      29,353      (14,563)       388,810
 
Cash and cash equivalents at beginning of year...........................      26,852       56,205         41,642
                                                                            ---------    ---------    ------------
Cash and cash equivalents at end of year.................................   $  56,205    $  41,642     $  430,452
                                                                            ---------    ---------    ------------
                                                                            ---------    ---------    ------------
</TABLE>
 
                            See accompanying notes.
 
                                      F-43

<PAGE>

                        SOUTH TEXAS SPINAL CLINIC, P.A.
                         NOTES TO FINANCIAL STATEMENTS

                   YEARS ENDED DECEMBER 31, 1994 AND 1995 AND
                       TEN MONTHS ENDED OCTOBER 31, 1996
 
1. DESCRIPTION OF THE BUSINESS
 
     South Texas Spinal Clinic, P.A. (STSC) is an orthopedic physician practice
which services San Antonio, Texas, and the surrounding communities. STSC is
organized as a professional corporation (S corporation) under the laws of the
state of Texas.
 
     Effective November 1, 1996, STSC entered into an agreement to sell
substantially all of the assets of STSC and enter into a management services
agreement with BMJ Medical Management, Inc.
 
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
     Revenue Recognition
 
     Revenue is recorded at estimated net amounts to be received from
third-party payors and others for services rendered.
 
     Laws and regulations governing the Medicare program are complex and subject
to interpretation. STSC believes that it is in compliance with all applicable
laws and regulations and is not aware of any pending or threatened
investigations involving allegations of potential wrongdoing. While no such
regulatory inquiries have been made, compliance with such laws and regulations
can be subject to future government review and interpretation as well as
significant regulatory action including fines, penalties, and exclusion from the
Medicare program.
 
     Furniture, Fixtures, and Equipment
 
     Furniture, fixtures, and equipment are stated at cost, less accumulated
depreciation, and are depreciated using the straight-line method over the
estimated useful lives of the assets, ranging from five (5) to twenty (20)
years.
 
     Use of Estimates
 
     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 as of the date of the financial
statements and the reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates.
 
     Presentation of Expenses
 
     Physician and other provider services costs are composed primarily of

compensation and fees paid to physician and other health care providers and
include medical supplies and pharmaceutical expenses.
 
     Medical support services costs include all indirect costs associated with
the management and operations of the practice.
 
                                      F-44

<PAGE>

                        SOUTH TEXAS SPINAL CLINIC, P.A.

                   NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
 
3. ACCOUNTS RECEIVABLE AND NET REVENUE
 
     Accounts receivable consists of the following:
<TABLE>
<CAPTION>
                                                                     DECEMBER 31,          OCTOBER 31,
                                                               ------------------------    -----------
                                                                  1994          1995          1996
                                                               ----------    ----------    -----------
<S>                                                            <C>           <C>           <C>
Gross patient accounts receivable...........................   $3,122,491    $3,169,931    $ 2,711,718
Less allowances for contractual adjustments and
  uncollectibles............................................      624,498       633,986      1,022,738
                                                               ----------    ----------    -----------
                                                               $2,497,993    $2,535,945    $ 1,688,980
                                                               ----------    ----------    -----------
                                                               ----------    ----------    -----------
Net revenue consists of the following:
 
                                                                     DECEMBER 31,          OCTOBER 31,
                                                               ------------------------    -----------
                                                                  1994          1995          1996
                                                               ----------    ----------    -----------
Gross patient revenue.......................................   $8,717,201    $9,685,260    $10,045,273
Less contractual adjustments and uncollectibles.............    1,743,440     1,937,052      4,018,109
                                                               ----------    ----------    -----------
                                                               $6,973,761    $7,748,208    $ 6,027,164
                                                               ----------    ----------    -----------
                                                               ----------    ----------    -----------
</TABLE>
 
4. FURNITURE, FIXTURES, AND EQUIPMENT
 
     Furniture, fixtures, and equipment consist of the following:
 
<TABLE>
<CAPTION>
                                                                          DECEMBER 31,        OCTOBER 31,
                                                                      --------------------    -----------
                                                                        1994        1995         1996

                                                                      --------    --------    -----------
<S>                                                                   <C>         <C>         <C>
Furniture, fixtures, and equipment.................................   $674,272    $676,117     $ 690,815
Equipment under capital leases.....................................         --      10,330        10,330
                                                                      --------    --------    -----------
                                                                       674,272     686,447       701,145
Less accumulated depreciation and amortization.....................    120,173     210,184       285,098
                                                                      --------    --------    -----------
                                                                      $554,099    $476,263     $ 416,047
                                                                      --------    --------    -----------
                                                                      --------    --------    -----------
</TABLE>
 
5. NOTES PAYABLE
 
     Notes payable consists of the following:
 
<TABLE>
<CAPTION>
                                                                          DECEMBER 31,        OCTOBER 31,
                                                                      --------------------    -----------
                                                                        1994        1995         1996
                                                                      --------    --------    -----------
<S>                                                                   <C>         <C>         <C>
Note payable to bank with maturity date of August 26, 1997, with a
  variable interest rate based upon the Prime rate as described in
  the note agreement at each monthly payment date. (effective rate
  of 8.5%, 9.5% and 9.25%, at December 31, 1994 and 1995 and
  October 31, 1996, respectively)..................................   $333,333    $208,333     $ 104,166
Less current maturities............................................    125,000     125,000       104,166
                                                                      --------    --------    -----------
                                                                      $208,333    $ 83,333     $      --
                                                                      --------    --------    -----------
                                                                      --------    --------    -----------
</TABLE>
 
     The note payable to the bank is collateralized by the assets of STSC. The
note payable requires STSC to comply with certain covenants. Actual interest
payments were $36,956, $27,246, and $12,583 during the years ended December 31,
1994, 1995, and the ten months ended October 31, 1996, respectively.
 
6. LEASE COMMITMENTS
 
     STSC leases various equipment, clinic and office space, and office
buildings under operating leases and certain computer and medical equipment
under capital leases. Rent expenses charged to operations totaled approximately
$837,662, $868,272, and $460,623 during the years ended December 31, 1994, 1995,
and the ten months ended October 31, 1996, respectively.
 
                                      F-45

<PAGE>

                        SOUTH TEXAS SPINAL CLINIC, P.A.


                   NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
 
6. LEASE COMMITMENTS--(CONTINUED)

     The lease commitments for the two months ending December 31, 1996 and for
the next five years ending December 31 are as follows:
 
<TABLE>
<CAPTION>
                                                                OPERATING    CAPITAL LEASES    CAPITAL LEASES
                                                                 LEASES        PRINCIPAL          INTEREST
                                                                ---------    --------------    --------------
<S>                                                             <C>          <C>               <C>
1996.........................................................   $  77,778        $  550             $129
1997.........................................................     471,963         3,526              547
1998.........................................................     442,126         2,916              138
1999.........................................................     419,015            --               --
2000.........................................................     402,237            --               --
2001.........................................................     388,524            --               --
</TABLE>
 
7. INCOME TAXES
 
     STSC has historically not incurred significant tax liabilities for federal
income taxes. STSC has been organized as an S corporation and, accordingly,
income tax liabilities are the responsibility of the respective owners.
 
8. BENEFIT PLANS
 
     STSC maintains a defined contribution plan for employees who meet the
minimum length of service and age requirements. Under the plan, STSC makes
contributions equal to 50% up to a maximum of 5% of the employee's contribution.
STSC is responsible for the administration of the plan as the plan administrator
and trustee. STSC's contributions totaled $216,660, $21,329, and $15,177 in the
years ended December 31, 1994, 1995, and the ten-month period ended October 31,
1996, respectively.
 
9. CONTINGENCIES
 
     STSC is involved in various legal proceedings in the ordinary course of
business. STSC does not believe that the disposition of such legal proceedings
and disputes will have a material adverse effect on the financial position and
results of operations of STSC.
 
     STSC procures professional liability coverage on behalf of its physicians
on a claims-made basis. The insurance contracts specify that coverage is
available only during the term of each insurance contract. Management of STSC
intends to renew the existing claims-made policy annually and expects to be able
to obtain such coverage. Whenever coverage is not renewed, STSC purchases an
extended reporting period endorsement to provide professional liability coverage
for losses incurred prior to, but reported subsequent to, the termination of the
claims-made policies.
 

10. RELATED PARTY TRANSACTIONS
 
     STSC leases office space from Meadows Enterprises, an entity under common
ownership. Monthly rental expense is $29,498. Rental expenses for the periods
ending December 31, 1994, December 31, 1995, and October 31, 1996 were $294,842,
$361,104, and $311,653, respectively.
 
     Meadows, Dennis, Denno, G.P., an entity under common ownership, provides
certain furniture, fixtures, and equipment for use in STSC's operations. STSC
pays rents to Meadows, Dennis, Denno, G.P. in excess of fair market value. Total
payments made during the years ended December 31, 1994, 1995, and the ten-month
period ended October 31, 1996 were $417,050, $357,000, and $35,850,
respectively.
 
                                      F-46

<PAGE>

               REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
 
Board of Directors
Tri-City Orthopedic Surgery
     Medical Group, Inc.
 
We have audited the accompanying balance sheets of Tri-City Orthopedic Surgery
Medical Group, Inc. (Tri-City) as of December 31, 1995 and 1996, and the related
statements of operations, stockholders' equity (deficit), and cash flows for the
years then ended. These financial statements are the responsibility of
Tri-City's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
 
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
 
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Tri-City at December 31, 1995
and 1996, and the results of its operations and its cash flows for the years
then ended in conformity with generally accepted accounting principles.
 
                                          ERNST & YOUNG, LLP
 
West Palm Beach, Florida
May 17, 1997
 
                                      F-47

<PAGE>

                          TRI-CITY ORTHOPEDIC SURGERY
                              MEDICAL GROUP, INC.

                                 BALANCE SHEETS
 
<TABLE>
<CAPTION>
                                                                                                 DECEMBER 31,
                                                                                             --------------------
                                                                                               1995        1996
                                                                                             --------    --------
<S>                                                                                          <C>         <C>
                                          ASSETS
Current assets:
  Cash and cash equivalents...............................................................   $ 65,569    $     --
  Accounts receivable, net................................................................    544,056     538,503
  Prepaid expenses and other current assets...............................................     31,520      30,976
                                                                                             --------    --------
Total current assets......................................................................    641,145     569,479
Furniture, fixtures and equipment, net....................................................    182,010     160,418
                                                                                             --------    --------
Total assets..............................................................................   $823,155    $729,897
                                                                                             --------    --------
                                                                                             --------    --------
 
                           LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Accounts payable........................................................................   $ 50,703    $ 56,967
  Accrued shareholders' salaries..........................................................    245,398     182,159
  Accrued expenses and other current liabilities..........................................    183,404     222,960
  Current portion of notes payable........................................................     32,369      19,150
  Deferred income taxes...................................................................     98,546      83,324
                                                                                             --------    --------
Total current liabilities.................................................................    610,420     564,560
 
Notes payable, less current portion.......................................................     22,058       2,908
 
Stockholders' equity:
  Common stock, $10 par value--2,500 shares authorized, 360 shares issued and outstanding
     in 1995 and 1996.....................................................................      3,600       3,600
  Retained earnings.......................................................................    187,077     158,829
                                                                                             --------    --------
Total stockholders' equity................................................................    190,677     162,429
                                                                                             --------    --------
Total liabilities and stockholders' equity................................................   $823,155    $729,897
                                                                                             --------    --------
                                                                                             --------    --------
</TABLE>
 
                             See accompanying notes
 
                                      F-48

<PAGE>
                          TRI-CITY ORTHOPEDIC SURGERY
                              MEDICAL GROUP, INC.

                            STATEMENTS OF OPERATIONS
 
<TABLE>
<CAPTION>
                                                                                            YEAR ENDED
                                                                                           DECEMBER 31,
                                                                                   ----------------------------
                                                                                      1995             1996
                                                                                   -----------      -----------
 
<S>                                                                                <C>              <C>
Net patient service revenue...................................................     $ 3,643,823      $ 3,477,532
 
Costs and expenses:
  Physician and other provider services.......................................       2,084,397        1,701,682
  Medical support services....................................................       1,546,366        1,460,504
  Depreciation................................................................          39,604           31,867
  Interest....................................................................           4,827            2,884
  Rent--related party.........................................................         323,959          324,065
                                                                                   -----------      -----------
Total costs and expenses......................................................       3,999,153        3,521,002
                                                                                   -----------      -----------
  Loss before income taxes....................................................        (355,330)         (43,470)
  Income tax benefit..........................................................         150,005           15,222
                                                                                   -----------      -----------
 
Net loss......................................................................     $  (205,325)     $   (28,248)
                                                                                   -----------      -----------
                                                                                   -----------      -----------
</TABLE>
 
                            See accompanying notes.
 
                                      F-49

<PAGE>
                          TRI-CITY ORTHOPEDIC SURGERY
                              MEDICAL GROUP, INC.

                       STATEMENT OF STOCKHOLDERS' EQUITY
 
<TABLE>
<CAPTION>
                                                                       COMMON STOCK
                                                                   --------------------                     TOTAL
                                                                     NUMBER                RETAINED     STOCKHOLDERS'
                                                                   OF SHARES     AMOUNT    EARNINGS        EQUITY
                                                                   ----------    ------    ---------    -------------
<S>                                                                <C>           <C>       <C>          <C>
Balance at January 1, 1995......................................       360       $3,600    $ 392,402      $ 396,002
  Net loss......................................................        --          --      (205,325)      (205,325)
                                                                       ---       ------    ---------    -------------
Balance at December 31, 1995....................................       360       3,600       187,077        190,677
  Net loss......................................................        --          --       (28,248)       (28,248)
                                                                       ---       ------    ---------    -------------
Balance at December 31, 1996....................................       360       3,600       158,829        162,429
                                                                       ---       ------    ---------    -------------
                                                                       ---       ------    ---------    -------------
</TABLE>
 
                            See accompanying notes.
 
                                      F-50

<PAGE>
                          TRI-CITY ORTHOPEDIC SURGERY
                              MEDICAL GROUP, INC.

                            STATEMENTS OF CASH FLOWS
 
<TABLE>
<CAPTION>
                                                                                                  YEAR ENDED
                                                                                                 DECEMBER 31,
                                                                                             --------------------
                                                                                               1995        1996
                                                                                             ---------   --------
 
<S>                                                                                          <C>         <C>
OPERATING ACTIVITIES:
Net loss...................................................................................  $(205,325)  $(28,248)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
  Depreciation.............................................................................     39,604     31,867
  Income tax benefit.......................................................................   (150,005)   (15,222)
  Changes in operating assets and liabilities:
     Accounts receivable...................................................................    351,843      5,553
     Prepaid expenses and other current assets.............................................     (5,921)       544
     Accounts payable......................................................................      1,664      6,264
     Accrued expenses and other current liabilities........................................     43,761    (23,683)
                                                                                             ---------   --------
Net cash provided by (used in) operating activities........................................     75,621    (22,925)
 
INVESTING ACTIVITY:
Purchases of furniture, fixtures and equipment.............................................    (11,288)   (10,275)
                                                                                             ---------   --------
Net cash used in investing activity........................................................    (11,288)   (10,275)
 
FINANCING ACTIVITIES:
Proceeds from issuance of notes payable....................................................         --         --
Payments on notes payable..................................................................    (30,178)   (32,369)
                                                                                             ---------   --------
Net cash used in financing activities......................................................    (30,178)   (32,369)
                                                                                             ---------   --------
 

Net increase (decrease) in cash and
  cash equivalents.........................................................................     34,155    (65,569)
Cash and cash equivalents at beginning of year.............................................     31,414     65,569
                                                                                             ---------   --------
Cash and cash equivalents at end of year...................................................  $  65,569   $     --
                                                                                             ---------   --------
                                                                                             ---------   --------
 
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest.....................................................................  $   4,827   $  2,884
                                                                                             ---------   --------
                                                                                             ---------   --------
</TABLE>
 
                            See accompanying notes.
 
                                      F-51

<PAGE>

                          TRI-CITY ORTHOPEDIC SURGERY
                              MEDICAL GROUP, INC.

                         NOTES TO FINANCIAL STATEMENTS

                           DECEMBER 31, 1995 AND 1996
 
1. DESCRIPTION OF THE BUSINESS
 
     Tri-City Orthopedic Surgery Medical Group, Inc. (Tri-City) was incorporated
as a C corporation on October 26, 1972 under the laws of the State of
California. Tri-City specializes in providing orthopedic medical and surgical
services and related medical and ancillary services in San Diego County.
Tri-City receives payment for patient services from the federal government
primarily under the Medicare program, state governments under their respective
Medicaid programs, health maintenance organizations, preferred provider
organizations and other private insurers, and directly from patients.
 
     On April 1, 1997, Tri-City entered into a management services agreement
with BMJ Medical Management, Inc. and agreed to sell substantially all of its
assets.
 
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
     Revenue Recognition
 
     Revenue is recorded at estimated net amounts to be received from third
party payors and others for services rendered.
 
     Laws and regulations governing the Medicare and Medi-Cal programs are
complex and subject to interpretation. Tri-City believes that it is in
compliance with all applicable laws and regulations and is not aware of any
pending or threatened investigations involving allegations of potential
wrongdoing. While no such regulatory inquiries have been made, compliance with
such laws and regulations can be subject to future government review and
interpretation as well as significant regulatory action including fines,
penalties, and exclusion from the Medicare and Medi-Cal programs.
 
     Furniture, Fixtures and Equipment
 
     Furniture, fixtures and equipment are stated at cost, less accumulated
depreciation, and are depreciated using the straight-line method over the
estimated useful lives of the assets, ranging from five to ten years.
 
     Income Taxes
 
     Tri-City accounts for income taxes under FASB Statement No. 109, Accounting
for Income Taxes. Deferred income tax assets and liabilities are determined
based upon differences between financial reporting and tax losses of assets and
liabilities and are measured using the enacted tax rates that will be in effect
when the differences are expected to reverse.
 

     Use of Estimates
 
     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 the financial
statements. Estimates also affect the reported amounts of revenue and expenses
during the reporting period. Actual results could differ from those estimates.
 
     Costs and Expenses
 
     Physician and other provider services costs are comprised primarily of
compensation and fees paid to physicians and other health care providers.
 
     Medical support services costs include all indirect costs associated with
the management and operations of the practice and all direct costs associated
with medical supplies and pharmaceutical expenses.
 
                                      F-52

<PAGE>

                          TRI-CITY ORTHOPEDIC SURGERY
                              MEDICAL GROUP, INC.

                   NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
 
3. ACCOUNTS RECEIVABLE
 
     Accounts receivable consist of the following:
 
<TABLE>
<CAPTION>
                                                                                   YEAR ENDED DECEMBER
                                                                                           31,
                                                                                   --------------------
                                                                                     1995        1996
                                                                                   --------    --------
<S>                                                                                <C>         <C>
Gross patient accounts receivable...............................................   $942,225    $889,189
Less allowances for contractual adjustments and uncollectibles..................    398,169     350,686
                                                                                   --------    --------
                                                                                   $544,056    $538,503
                                                                                   --------    --------
                                                                                   --------    --------
</TABLE>
 
4. FURNITURE, FIXTURES AND EQUIPMENT
 
     Furniture, fixtures and equipment consist of the following:
 
<TABLE>
<CAPTION>
                                                                                       DECEMBER 31,

                                                                                   --------------------
                                                                                     1995        1996
                                                                                   --------    --------
<S>                                                                                <C>         <C>
Furniture, fixtures and equipment...............................................   $211,229    $221,403
Automobiles.....................................................................    224,819     224,819
Leasehold improvements..........................................................     15,331      15,432
                                                                                   --------    --------
                                                                                    451,379     461,654
Less accumulated depreciation and amortization..................................    269,369     301,236
                                                                                   --------    --------
                                                                                   $182,010    $160,418
                                                                                   --------    --------
                                                                                   --------    --------
</TABLE>
 
5. NOTES PAYABLE
 
     Notes payable consist of the following:
 
<TABLE>
<CAPTION>
                                                                                        DECEMBER 31,
                                                                                     ------------------
                                                                                      1995       1996
                                                                                     -------    -------
<S>                                                                                  <C>        <C>
Bank promissory note, secured by an automobile, bearing interest at 4.90%,
  principal and interest payable monthly at $734.50 through April 9, 1998.........   $19,396    $11,354
Bank promissory note, secured by an automobile, bearing interest at 7.75%,
  principal and interest payable monthly at $2,182.44 through May 31, 1997........    35,031     10,704
                                                                                     -------    -------
                                                                                      54,427     22,058
Less current portion..............................................................    32,369     19,150
                                                                                     -------    -------
                                                                                     $22,058    $ 2,908
                                                                                     -------    -------
                                                                                     -------    -------
</TABLE>
 
     At December 31, 1996, annual principal payments on notes payable are as
follows:
 
<TABLE>
<S>                                                                                   <C>
1997...............................................................................   $19,150
1998...............................................................................     2,908
                                                                                      -------
                                                                                      $22,058
                                                                                      -------
                                                                                      -------
</TABLE>
 
     On December 23, 1996, Tri-City entered into an unsecured line of credit

arrangement with a bank which matures on March 30, 1998. The line of credit
permits borrowings up to $150,000 and is guaranteed by the
 
                                      F-53

<PAGE>

                          TRI-CITY ORTHOPEDIC SURGERY
                              MEDICAL GROUP, INC.

                   NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
 
5. NOTES PAYABLE--(CONTINUED)

shareholders of Tri-City. Interest on the line of credit is payable monthly at
prime plus 1%, with the entire principal due at maturity. As of December 31,
1996, Tri-City had not drawn against the line of credit. On January 3, 1997 and
January 17, 1997, Tri-City drew $100,000 and $50,000, respectively, on the line
of credit.
 
6. LEASE COMMITMENTS
 
     Tri-City leases various equipment, clinic and office space under operating
leases with a related party, Tri-City Orthopedic Building Partners (TCOBP), on a
month to month basis. Rent expense charged to operations totaled approximately
$324,000 during both 1995 and 1996.
 
     Tri-City also leases an office building under a noncancelable lease with
TCOBP with future minimum rental commitments at December 31, 1996 as follows:
 
<TABLE>
<S>                                                                                <C>
1997............................................................................   $  228,936
1998............................................................................      228,000
1999............................................................................      228,000
2000............................................................................      228,000
2001............................................................................      228,000
Thereafter......................................................................    3,021,000
                                                                                   ----------
                                                                                   $4,161,936
                                                                                   ----------
                                                                                   ----------
</TABLE>
 
7. INCOME TAXES
 
     The components of the income tax provision (benefit) are as follows:
 
<TABLE>
<CAPTION>
                                                                                      DECEMBER 31,
                                                                                  ---------------------
                                                                                    1995         1996
                                                                                  ---------    --------

<S>                                                                               <C>          <C>
Current........................................................................   $      --    $     --
Deferred.......................................................................    (150,005)    (15,222)
                                                                                  ---------    --------
Total..........................................................................   $(150,005)   $(15,222)
                                                                                  ---------    --------
                                                                                  ---------    --------
</TABLE>
 
                                      F-54

<PAGE>

                          TRI-CITY ORTHOPEDIC SURGERY
                              MEDICAL GROUP, INC.

                   NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
 
7. INCOME TAXES--(CONTINUED)

     Deferred income taxes reflected the net tax effects of temporary
differences between the carrying amount of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes. Significant
components of Tri-City's net deferred income taxes are as follows:
 
<TABLE>
<CAPTION>
                                                                                      DECEMBER 31,
                                                                                  ---------------------
                                                                                    1995         1996
                                                                                  ---------    --------
<S>                                                                               <C>          <C>
Deferred tax assets:
  Depreciation.................................................................   $     241    $  1,978
  Charitable contributions.....................................................       2,304       2,943
  NOL carryforward.............................................................       7,477       3,371
                                                                                  ---------    --------
  Deferred tax assets..........................................................      10,022       8,292
  Less valuation allowance.....................................................          --          --
                                                                                  ---------    --------
Total deferred tax assets......................................................      10,022       8,292
 
Deferred tax liabilities:
Net cash to accrual conversion.................................................    (108,568)    (91,616)
                                                                                  ---------    --------
Total deferred tax liabilities.................................................    (108,568)    (91,616)
                                                                                  ---------    --------
Total net deferred taxes.......................................................   $ (98,546)   $(83,324)
                                                                                  ---------    --------
                                                                                  ---------    --------
</TABLE>
 
     At December 31, 1996, Tri-City has available net operating loss
carryforwards of $8,212, which expire in the years 2009 and 2011.

 
8. BENEFIT PLANS
 
     Tri-City maintains a defined contribution plan under the provisions of
Section 401(k) of the Internal Revenue Code. Employees who meet the minimum
length of service and age requirements are eligible for participation. Tri-City
is responsible for the administration of the plan as the plan administrator and
trustee. Under the provisions of the plan, contributions by Tri-City are
discretionary. Tri-City did not make any contributions to the plan in 1995 or
1996.
 
9. CONTINGENCIES
 
     Tri-City procures professional liability coverage on behalf of its
physicians on a claims made basis. The insurance contracts specify that coverage
is available only during the term of each insurance contract and cover only
those claims reported while the policies are in force. An estimate of losses for
incurred but unreported claims is recorded based upon historical experience.
Management of Tri-City intends to renew the existing claims made policy annually
and expects to be able to obtain such coverage. If coverage is not renewed,
Tri-City intends to purchase extended reporting period endorsements to provide
professional liability coverage for losses incurred prior to, but reported
subsequent to, the termination of the claims made policies.
 
10. SUBSEQUENT EVENT
 
     In March 1997, Tri-City issued 60 shares of common stock to an orthopedic
physician who joined the practice.
 
                                      F-55

<PAGE>

               REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
 
Partners
Lauderdale Orthopaedic Surgeons
 
We have audited the accompanying balance sheets of Lauderdale Orthopaedic
Surgeons (LOS) as of December 31, 1995 and 1996, and the related statements of
income and changes in partners' capital, and cash flows for the years then
ended. These financial statements are the responsibility of LOS' management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
 
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
 
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of LOS at December 31, 1995 and
1996, and the results of its operations and its cash flows for the years then
ended in conformity with generally accepted accounting principles.
 
                                          ERNST & YOUNG, LLP
 
West Palm Beach, Florida
May 21, 1997
 
                                      F-56

<PAGE>

                        LAUDERDALE ORTHOPAEDIC SURGEONS

                                 BALANCE SHEETS
 
<TABLE>
<CAPTION>
                                                                                               DECEMBER 31,
                                                                                         ------------------------
                                                                                            1995          1996
                                                                                         ----------    ----------
<S>                                                                                      <C>           <C>
                                        ASSETS
Current assets:
  Cash................................................................................   $   35,426    $  108,900
  Investments available for sale......................................................       55,929        77,796
  Accounts receivable, net............................................................    2,134,318     2,354,577
  Prepaid expenses and other current assets...........................................       30,214        25,650
                                                                                         ----------    ----------
Total current assets..................................................................    2,255,887     2,566,923
 
Furniture, fixtures and equipment, net................................................      177,058       143,695
Other assets..........................................................................          877           585
                                                                                         ----------    ----------
Total assets..........................................................................   $2,433,822    $2,711,203
                                                                                         ----------    ----------
                                                                                         ----------    ----------
 
                          LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
  Patients refunds....................................................................   $  402,073    $  471,328
  Accounts payable....................................................................      138,328        78,645
  Accrued expenses and other current liabilities......................................      344,285       295,831
  Current portion of long-term debt...................................................      100,000       100,000
                                                                                         ----------    ----------
Total current liabilities.............................................................      984,686       945,804
 
Long-term debt, less current portion..................................................      150,000        50,000
Commitments and contingencies.........................................................
 
Partners' capital.....................................................................    1,299,136     1,715,399
                                                                                         ----------    ----------
Total liabilities and partners' capital...............................................   $2,433,822    $2,711,203
                                                                                         ----------    ----------
                                                                                         ----------    ----------
</TABLE>
 
                            See accompanying notes.
 
                                      F-57

<PAGE>

                        LAUDERDALE ORTHOPAEDIC SURGEONS

             STATEMENTS OF INCOME AND CHANGES IN PARTNERS' CAPITAL
 
<TABLE>
<CAPTION>
                                                                                             YEAR ENDED
                                                                                            DECEMBER 31,
                                                                                     --------------------------
                                                                                        1995            1996
                                                                                     ----------      ----------
 
<S>                                                                                  <C>             <C>
Net patient service revenue.....................................................     $5,980,594      $6,365,320
Other income....................................................................         11,610          39,555
                                                                                     ----------      ----------
Total revenue...................................................................      5,992,204       6,404,875
 
Costs and expenses:
  Physician and other provider services.........................................      3,458,807       3,696,522
  Medical support services......................................................      1,606,300       1,771,864
  Medical support services--related party.......................................        100,015          96,761
  Depreciation..................................................................         68,279          58,930
  Interest......................................................................         30,666          18,253
  Rent..........................................................................        135,042         151,053
  Rent--related party...........................................................        206,000         212,867
                                                                                     ----------      ----------
 
Total costs and expenses........................................................      5,605,109       6,006,250
                                                                                     ----------      ----------
 
Net income......................................................................        387,095         398,625
                                                                                     ----------      ----------
 
Partners' capital, beginning of year............................................        894,995       1,299,136
Increase in unrealized gain on available for sale investments...................         17,046          17,638
                                                                                     ----------      ----------
Partners' capital, end of year..................................................     $1,299,136      $1,715,399
                                                                                     ----------      ----------
                                                                                     ----------      ----------
</TABLE>
 
                            See accompanying notes.
 
                                      F-58

<PAGE>

                        LAUDERDALE ORTHOPAEDIC SURGEONS

                            STATEMENTS OF CASH FLOWS
 
<TABLE>
<CAPTION>
                                                                                                 YEAR ENDED
                                                                                                DECEMBER 31,
                                                                                            ---------------------
                                                                                              1995        1996
                                                                                            ---------   ---------
<S>                                                                                         <C>         <C>
OPERATING ACTIVITIES:
Net income................................................................................  $ 387,095   $ 398,625
Adjustments to reconcile net income to net cash provided by operating activities:
  Depreciation............................................................................     68,279      58,930
  Gain on sale of assets..................................................................         --          --
  Changes in operating assets and liabilities:
     Accounts receivable..................................................................   (794,618)   (220,259)
     Physician and other provider costs receivable........................................         --          --
     Prepaid expenses and other current assets............................................     (2,557)      4,564
     Patients refunds.....................................................................    402,073      69,255
     Accounts payable.....................................................................     35,895     (59,683)
     Accrued expenses and other current
       liabilities........................................................................     45,950     (48,452)
                                                                                            ---------   ---------
Net cash provided by operating activities.................................................    142,117     202,980
 
INVESTING ACTIVITIES:
Proceeds from sale of assets..............................................................         --          --
Purchases of furniture, fixtures and equipment............................................     (7,174)    (25,274)
Purchases of investments available for sale...............................................     (7,605)     (4,232)
                                                                                            ---------   ---------
Net cash used in investing activities.....................................................    (14,779)    (29,506)
 
FINANCING ACTIVITIES
Payments on note payable to bank..........................................................   (100,000)   (100,000)
Partner distributions.....................................................................         --          --
                                                                                            ---------   ---------
Net cash used in financing activities.....................................................   (100,000)   (100,000)
                                                                                            ---------   ---------
 
Net increase in cash......................................................................     27,338      73,474
Cash at beginning of year.................................................................      8,088      35,426
                                                                                            ---------   ---------
Cash at end of year.......................................................................  $  35,426   $ 108,900
                                                                                            ---------   ---------
                                                                                            ---------   ---------
</TABLE>
                            See accompanying notes.
 
                                      F-59

<PAGE>

                        LAUDERDALE ORTHOPAEDIC SURGEONS
                         NOTES TO FINANCIAL STATEMENTS

                           DECEMBER 31, 1995 AND 1996
 
1. DESCRIPTION OF THE BUSINESS
 
     Lauderdale Orthopaedic Surgeons (LOS) is an orthopedic physician practice
which serves patients in Broward County, Florida. LOS is organized as a
partnership under the laws of the state of Florida.
 
     On April 1, 1997, LOS agreed in principle to a management services
agreement with BMJ Medical Management, Inc. and agreed to sell substantially all
of its assets.
 
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
  Revenue Recognition
 
     Revenue is recorded at estimated net amounts to be received from third
party payors and others for services rendered.
 
     Laws and regulations governing the Medicare program are complex and subject
to interpretation. LOS believes that it is in compliance with all applicable
laws and regulations and is not aware of any pending or threatened
investigations involving allegations of potential wrongdoing. While no such
regulatory inquiries have been made, compliance with such laws and regulations
can be subject to future government review and interpretation as well as
significant regulatory action including fines, penalties, and exclusion from the
Medicare program.
 
  Investments Available for Sale
 
     Investments available for sale are carried at fair market value, with
resulting unrealized holding gains and losses reported as a separate component
of partners' capital. Realized gains and losses and declines in value judged to
be other-than-temporary on investments available for sale are included in other
income. The cost of securities sold is based on the specific identification
method. Interest and dividends on investments classified as available-for-sale
are included in other income.
 
  Concentration of Credit Risk
 
     LOS grants credit without collateral to its patients, most of whom are
local residents and are insured under third-party payor agreements. Management
believes credit risk associated with accounts receivable is minimal.
 
  Furniture, Fixtures and Equipment
 
     Furniture, fixtures and equipment, including leasehold improvements, are
stated at cost, less accumulated depreciation, and are depreciated using the
straight line method over the estimated useful lives of the assets, ranging from

5 to 20 years.
 
  Use of Estimates
 
     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 the financial
statements and the reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates.
 
                                      F-60

<PAGE>

                        LAUDERDALE ORTHOPAEDIC SURGEONS

                   NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
 
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)

  Costs and Expenses
 
     Physician and other provider services costs are comprised primarily of
compensation and fees paid to physicians and other health care providers.
 
     Medical support services costs include all indirect costs associated with
the management and operations of the practice and all direct costs associated
with medical supplies and pharmaceutical expenses.
 
  Financial Instruments
 
     The carrying amounts of financial instruments as reported in the
accompanying balance sheets approximate their fair value primarily due to the
short-term nature of such financial instruments.
 
3. INVESTMENTS AVAILABLE FOR SALE
 
     Investments available for sale consist of the following:
 
<TABLE>
<CAPTION>
                                                                                    GROSS
                                                                                  UNREALIZED     FAIR
                                                                        COST        GAINS        VALUE
                                                                       -------    ----------    -------
<S>                                                                    <C>        <C>           <C>
December 31, 1995:
Corporate equities..................................................   $31,273     $ 24,656     $55,929
                                                                       -------    ----------    -------
                                                                       -------    ----------    -------
 
December 31, 1996:
Corporate equities..................................................   $35,505     $ 42,291     $77,796

                                                                       -------    ----------    -------
                                                                       -------    ----------    -------
</TABLE>
 
     In accordance with Statement of Financial Accounting Standard No. 115,
Accounting for Certain Investments in Debt and Equity Securities, unrealized
holding gains on available-for-sale securities of $24,656 and $42,291 are
included as a separate component of partners' capital at December 31, 1995 and
1996, respectively.
 
     Gross realized gains and losses from the sale of investments available for
sale were not material for the years ended December 31, 1995 and 1996.
 
4. ACCOUNTS RECEIVABLE
 
     Accounts receivable consist of the following:
 
<TABLE>
<CAPTION>
                                                                      DECEMBER 31,
                                                               --------------------------
                                                                  1995           1996
                                                               -----------    -----------
<S>                                                            <C>            <C>
Gross patient accounts receivable...........................   $ 4,662,946    $ 5,300,172
Less allowances for contractual adjustments and
  uncollectibles............................................     2,528,628      2,945,595
                                                               -----------    -----------
                                                               $ 2,134,318    $ 2,354,577
                                                               -----------    -----------
                                                               -----------    -----------
</TABLE>
 
                                      F-61

<PAGE>

                        LAUDERDALE ORTHOPAEDIC SURGEONS

                   NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
 
5. FURNITURE, FIXTURES AND EQUIPMENT
 
     Furniture, fixtures and equipment consist of the following:
 
<TABLE>
<CAPTION>
                                                                        DECEMBER 31,
                                                                   ----------------------
                                                                     1995         1996
                                                                   ---------    ---------
<S>                                                                <C>          <C>
Furniture, fixtures and equipment...............................   $ 487,241    $ 462,847
Leasehold improvements..........................................     522,678      527,179

Less accumulated depreciation and amortization..................     832,861      846,331
                                                                   ---------    ---------
                                                                   $ 177,058    $ 143,695
                                                                   ---------    ---------
                                                                   ---------    ---------
</TABLE>
 
6. LONG TERM DEBT
 
     Long term debt consists of a note payable to a bank bearing interest at the
bank's prime lending rate plus 1.25% (9.75% and 9.5% as of December 31, 1995 and
1996, respectively), with monthly payments of $8,333 plus interest, maturing
June 30, 1998. Maturities of the note are $100,000 for 1997 and $50,000 for
1998. The note is secured by substantially all of the assets of LOS and is
guaranteed by three of the partners. The note was paid in full in May 1997. LOS
paid approximately $31,000 and $18,000 of interest in 1995 and 1996,
respectively.
 
7. LEASE COMMITMENTS
 
     LOS leases various equipment, clinic and office space under operating
leases. Future minimum rental commitments under noncancelable operating leases
(with an initial or remaining term in excess of one year) at December 31, 1996
are approximately as follows (including leases with related parties):
 
<TABLE>
<CAPTION>
                        YEARS ENDING
                        DECEMBER 31,
------------------------------------------------------------
<S>                                                            <C>
1997........................................................    $  335,000
1998........................................................       296,000
1999........................................................       218,000
2000........................................................       218,000
2001........................................................       145,000
                                                               ------------
                                                                $1,212,000
                                                               ------------
                                                               ------------
</TABLE>
 
8. INCOME TAXES
 
     LOS was formed as a partnership under the Federal Internal Revenue Code. As
a result, in lieu of corporate income tax, LOS' taxable income is passed through
to the partners and taxed at the partner level. Accordingly, no provision or
liability for income tax has been reflected in the financial statements.
 
9. CONTINGENCIES
 
     LOS procures professional liability coverage on behalf of its physicians on
a claims made basis. The insurance contracts specify that coverage is available
only during the term of each insurance contract and cover only those claims

reported while the policies are in force. An estimate of losses for incurred but
unreported claims is recorded based upon historical experience. Management of
LOS intends to renew the existing claims made policy annually and expects to be
able to obtain such coverage. If coverage is not renewed, LOS intends to
purchase extended reporting period endorsements to provide professional
liability coverage for losses incurred prior to, but reported subsequent to, the
termination of the claims made policies.
 
                                      F-62

<PAGE>

                        LAUDERDALE ORTHOPAEDIC SURGEONS

                   NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
 
10. RELATED PARTY TRANSACTIONS
 
     LOS leases medical office space from an entity controlled by one of the
partners. The lease expires in 2001 and contains renewal options. Rent expense
incurred under the lease was approximately $206,000 and $213,000 for the years
ended December 31, 1995 and 1996, respectively.
 
     Under the terms of a management agreement, LOS incurs expenses to an entity
controlled by the partners for diagnostic equipment rental and other overhead
charges. Expenses incurred under this contract were approximately $100,000 and
$97,000 for the years ended December 31, 1995 and 1996, respectively.
 
                                      F-63

<PAGE>
               REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
 
Board of Directors
Fishman and Stashak, M.D.'s, P.A.
  d/b/a Gold Coast Orthopedics
 
We have audited the accompanying balance sheets of Fishman and Stashak, M.D.'s,
P.A. d/b/a Gold Coast Orthopedics (Gold Coast) as of December 31, 1995 and 1996,
and the related statements of income, stockholders' equity, and cash flows for
the years then ended. These financial statements are the responsibility of Gold
Coast's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
 
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
 
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Gold Coast at December 31, 1995
and 1996, and the results of its operations and its cash flows for the years
then ended in conformity with generally accepted accounting principles.
 
                                          ERNST & YOUNG, LLP
 
West Palm Beach, Florida
July 9, 1997
 
                                      F-64

<PAGE>

                       FISHMAN AND STASHAK, M.D.'S, P.A.
                          D/B/A GOLD COAST ORTHOPEDICS

                                 BALANCE SHEETS
 
<TABLE>
<CAPTION>
                                                                                 DECEMBER 31,
                                                                           ------------------------     JUNE 30,
                                                                              1995          1996          1997
                                                                           ----------    ----------    -----------
                                                                                                       (UNAUDITED)
<S>                                                                        <C>           <C>           <C>
                                 ASSETS
Current assets:
  Cash and cash equivalents.............................................   $       --    $       --    $    10,172
  Accounts receivable, net..............................................    1,586,752     1,756,545      1,870,853
  Advance to stockholder................................................        4,606            --             --
  Prepaid expenses......................................................       43,606        74,748         25,055
                                                                           ----------    ----------    -----------
Total current assets....................................................    1,634,964     1,831,293      1,906,080
Furniture, fixtures and equipment, net..................................      171,194       141,298        125,594
                                                                           ----------    ----------    -----------
Total assets............................................................   $1,806,158    $1,972,591    $ 2,031,674
                                                                           ----------    ----------    -----------
                                                                           ----------    ----------    -----------
 
                  LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Accounts payable......................................................   $   24,935    $   33,605    $    29,595
  Accrued consulting fee................................................           --            --         45,943
  Due to BMJ Medical Management, Inc....................................           --            --         41,666
  Due to stockholder....................................................       18,893            --             --
  Accrued compensation..................................................      130,732       101,209         83,592
  Accrued professional liability insurance..............................      130,271       166,131        167,122
  Accrued profit sharing plan contribution..............................       50,000            --             --
  Current portion of long-term debt.....................................      141,118       146,080        140,428
                                                                           ----------    ----------    -----------
Total current liabilities...............................................      495,949       447,025        508,346
 
Long-term debt..........................................................      279,232       230,357        172,128
 

Stockholders' equity:
  Common stock, $1 par value--1,000 shares authorized, 600 shares issued
     and outstanding
     in 1995, 1996 and 1997.............................................          600           600            600
  Retained earnings.....................................................    1,030,377     1,294,609      1,350,600
                                                                           ----------    ----------    -----------
Total stockholders' equity..............................................    1,030,977     1,295,209      1,351,200
                                                                           ----------    ----------    -----------
Total liabilities and stockholders' equity..............................   $1,806,158    $1,972,591    $ 2,031,674
                                                                           ----------    ----------    -----------
                                                                           ----------    ----------    -----------
</TABLE>
 
                            See accompanying notes.
 
                                      F-65

<PAGE>

                       FISHMAN AND STASHAK, M.D.'S, P.A.
                          D/B/A GOLD COAST ORTHOPEDICS

                              STATEMENTS OF INCOME
 
<TABLE>
<CAPTION>
                                                                                         SIX MONTHS ENDED JUNE
                                                            YEAR ENDED DECEMBER 31,               30,
                                                            ------------------------    ------------------------
                                                               1995          1996          1996          1997
                                                            ----------    ----------    ----------    ----------
                                                                                              (UNAUDITED)
 
<S>                                                         <C>           <C>           <C>           <C>
Net patient service revenue..............................   $3,236,573    $3,433,831    $1,780,618    $1,889,635
Costs and expenses:
  Physician and other provider services..................    1,414,343     1,785,478       971,234       631,395
  Medical support services...............................    1,290,412     1,204,912       511,132       698,654
  Management service fee.................................           --            --            --        41,666
  Depreciation...........................................       40,823        33,163        16,582        16,003
  Interest...............................................       44,821        30,940        16,872        14,355
  Rent...................................................      121,454       115,106        57,553        56,571
                                                            ----------    ----------    ----------    ----------
Total costs and expenses.................................    2,911,853     3,169,599     1,573,373     1,458,644
                                                            ----------    ----------    ----------    ----------
Net income...............................................   $  324,720    $  264,232    $  207,245    $  430,991
                                                            ----------    ----------    ----------    ----------
                                                            ----------    ----------    ----------    ----------
</TABLE>
 
                            See accompanying notes.

                                      F-66

<PAGE>
                       FISHMAN AND STASHAK, M.D.'S, P.A.
                          D/B/A GOLD COAST ORTHOPEDICS

                       STATEMENTS OF STOCKHOLDERS' EQUITY
 
<TABLE>
<CAPTION>
                                                                      COMMON STOCK
                                                                   -------------------                      TOTAL
                                                                    NUMBER                 RETAINED     STOCKHOLDERS'
                                                                   OF SHARES    AMOUNT     EARNINGS        EQUITY
                                                                   ---------    ------    ----------    -------------
<S>                                                                <C>          <C>       <C>           <C>
Balance at January 1, 1995......................................      600        $600     $  705,657     $   706,257
  Net income....................................................       --          --        324,720         324,720
                                                                      ---       ------    ----------    -------------
Balance at December 31, 1995....................................      600         600      1,030,377       1,030,977
  Net income....................................................       --          --        264,232         264,232
                                                                      ---       ------    ----------    -------------
Balance at December 31, 1996....................................      600         600      1,294,609       1,295,209
  Net income (unaudited)........................................       --          --        430,991         430,991
  Stockholder distributions (unaudited).........................       --          --       (375,000)       (375,000)
                                                                      ---       ------    ----------    -------------
Balance at June 30, 1997 (unaudited)............................      600        $600     $1,350,600     $ 1,351,200
                                                                      ---       ------    ----------    -------------
                                                                      ---       ------    ----------    -------------
</TABLE>
 
                            See accompanying notes.
 
                                      F-67

<PAGE>
                       FISHMAN AND STASHAK, M.D.'S, P.A.
                          D/B/A GOLD COAST ORTHOPEDICS

                            STATEMENTS OF CASH FLOWS
 
<TABLE>
<CAPTION>
                                                                         YEAR ENDED               SIX MONTHS
                                                                        DECEMBER 31,            ENDED JUNE 30,
                                                                    ---------------------   -----------------------
                                                                      1995        1996        1996         1997
                                                                    ---------   ---------   ---------   -----------
                                                                                                  (UNAUDITED)
<S>                                                                 <C>         <C>         <C>         <C>
OPERATING ACTIVITIES
Net income........................................................  $ 324,720   $ 264,232   $ 207,245   $   430,991
Adjustments to reconcile net income to net cash provided by
  operating activities:
  Depreciation....................................................     40,823      33,163      16,582        16,003
  Bonus paid with note payable....................................    200,000          --          --            --
  Changes in operating assets and liabilities:
     Accounts receivable..........................................   (179,258)   (169,793)   (152,229)     (114,308)
     Prepaid expenses.............................................    (38,835)    (31,142)     11,542        49,693
     Accounts payable.............................................    (32,127)      8,670      77,444        (4,010)
     Accrued consulting fee.......................................         --          --          --        45,943
     Due to BMJ Medical Management, Inc. .........................         --          --          --        41,666
     Accrued compensation.........................................    119,270     (29,523)    (36,011)      (17,617)
     Accrued professional liability insurance.....................   (157,201)     35,860      17,930           991
     Accrued profit sharing plan contribution.....................     50,000     (50,000)    (50,000)           --
                                                                    ---------   ---------   ---------   -----------
Net cash provided by operating activities.........................    327,392      61,467      92,503       449,352
 
INVESTING ACTIVITIES
Advance to stockholder............................................     (8,000)         --          --       (85,000)
Payments received on advance to stockholder.......................      3,394       4,606       4,606        85,000
Purchases of furniture, fixtures and equipment....................    (73,269)     (3,267)         --          (299)
                                                                    ---------   ---------   ---------   -----------
Net cash (used in) provided by investing activities...............    (77,875)      1,339       4,606          (299)
 
FINANCING ACTIVITIES
Distributions to stockholders.....................................         --          --          --      (375,000)
Payments on due to stockholder....................................    (75,000)   (100,893)    (50,893)           --
Proceeds of loan from stockholder.................................                 82,000      32,000            --
Proceeds of related party advance.................................                 55,000      55,000            --
Payments on related party advance.................................                (55,000)    (55,000)           --
Proceeds from long-term debt......................................    100,000     157,500          --        99,000
Payments on long-term debt........................................   (274,517)   (201,413)    (78,216)     (162,881)
                                                                    ---------   ---------   ---------   -----------
Net cash used in financing activities.............................   (249,517)    (62,806)    (97,109)     (438,881)
                                                                    ---------   ---------   ---------   -----------
 
Net change in cash and cash equivalents...........................         --          --          --        10,172
Cash and cash equivalents at beginning of period..................         --          --          --            --

                                                                    ---------   ---------   ---------   -----------
Cash and cash equivalents at end of period........................  $      --   $      --   $      --   $    10,172
                                                                    ---------   ---------   ---------   -----------
                                                                    ---------   ---------   ---------   -----------
 
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for interest............................................  $  46,932   $  30,940   $  16,782   $    13,273
                                                                    ---------   ---------   ---------   -----------
                                                                    ---------   ---------   ---------   -----------
</TABLE>
 
                            See accompanying notes.
 
                                      F-68

<PAGE>

                       FISHMAN AND STASHAK, M.D.'S, P.A.
                          D/B/A GOLD COAST ORTHOPEDICS

                         NOTES TO FINANCIAL STATEMENTS

                DECEMBER 31, 1996 AND JUNE 30, 1997 (UNAUDITED)
 
1. DESCRIPTION OF THE BUSINESS
 
     Fishman and Stashak, M.D.'s, P.A. d/b/a Gold Coast Orthopedics (Gold Coast)
was organized on April 16, 1990 under the laws of the State of Florida. Gold
Coast specializes in providing orthopedic medical and surgical services and
related medical and ancillary services in Palm Beach County. Gold Coast receives
payment for patient services primarily from private insurers, health maintenance
organizations, preferred provider organizations, the federal government
primarily under the Medicare program, state governments under their respective
Medicaid programs, and directly from patients.
 
     Effective June 1, 1997, Gold Coast and BMJ Medical Management, Inc. (BMJ)
executed a Management Services Agreement (the Agreement). The Agreement provides
that BMJ will be the exclusive provider of all management and administrative
services utilized by Gold Coast through June 1, 2037, in exchange for a
management fee based on 15% of Gold Coast's net collected revenue. In connection
with the Agreement, Gold Coast accrued management fees payable to BMJ of $41,666
at June 30, 1997.
 
     In July 1997, Gold Coast entered into an Asset Purchase Agreement with BMJ
whereby Gold Coast sold all of its accounts receivable, diagnostic and
therapeutic medical equipment, and office equipment to BMJ for approximately
$2.9 million. Furthermore, BMJ will pay Gold Coast for amounts received in
excess of $950,000 on Gold Coast's June 1, 1997 accounts receivable through June
30, 1998.
 
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
  Cash and Cash Equivalents
 
     Gold Coast considers highly liquid investments with original maturities of
three months or less to be cash equivalents.
 
  Concentration of Credit Risk
 
     Gold Coast grants credit without collateral to its patients, most of whom
are local residents that are insured under third-party payor agreements.
Management believes the credit risk associated with accounts receivable is
minimal.
 
  Furniture, Fixtures and Equipment
 
     Furniture, fixtures and equipment are stated at cost, less accumulated
depreciation, and are depreciated using the straight-line method over the
estimated useful lives of the assets, ranging from four to fifteen years.

 
  Financial Instruments
 
     The fair value of Gold Coast's financial instruments (primarily long-term
debt) are estimated using discounted cash flow analyses, based on Gold Coast's
current incremental borrowing rates for similar types of borrowing arrangements.
The carrying amounts of financial instruments as reported in the accompanying
balance sheets approximate their fair value.
 
  Revenue Recognition
 
     Revenue is recorded at estimated net amounts to be received from
third-party payors and others for services rendered.
 
     Revenues from the Medicare program accounted for approximately 10% of Gold
Coast's net patient service revenues for the years ended December 31, 1995 and
1996. Laws and regulations governing the Medicare program are complex and
subject to interpretation. Gold Coast believes that it is in compliance with all
applicable laws and regulations and is not aware of any pending or threatened
investigations involving allegations of potential wrongdoing. While no such
regulatory inquiries have been made, compliance with such laws and regulations
can be subject to future government review and interpretation as well as
significant regulatory action including fines, penalties, and exclusion from the
Medicare program.
 
                                      F-69

<PAGE>

                       FISHMAN AND STASHAK, M.D.'S, P.A.
                          D/B/A GOLD COAST ORTHOPEDICS

                   NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
 
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)

  Costs and Expenses
 
     Physician and other provider services costs are comprised primarily of
compensation and fees paid to physicians and other health care providers.
 
     Medical support services costs include all indirect costs associated with
the management and operations of the practice and all direct costs associated
with medical supplies and pharmaceutical expenses.
 
  Income Taxes
 
     Gold Coast is taxed under the provisions of Subchapter S of the Internal
Revenue Code, which generally provides that in lieu of corporate taxes, the
stockholders shall be taxed on Gold Coast's taxable income in accordance with
their ownership interests. As a result, the accompanying financial statements
include no provision for income taxes.
 
  Interim Financial Statements

 
     The interim financial statements as of June 30, 1997 and for the six months
ended June 30, 1996 and 1997 are unaudited. In the opinion of management, these
statements have been prepared on the same basis as the audited financial
statements and include all normal and recurring adjustments necessary for a fair
presentation of Gold Coast's financial position, results of operations and cash
flows. The interim data disclosed in these notes to the financial statements is
also unaudited. The results of operations for the six months ended June 30, 1997
is not necessarily indicative of the results of operations that may be expected
for the entire year ending December 31, 1997.
 
  Use of Estimates
 
     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 as of the date of the financial
statements and the reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates.
 
3. ACCOUNTS RECEIVABLE
 
     Accounts receivable consist of the following:
 
<TABLE>
<CAPTION>
                                                                       DECEMBER 31,
                                                                 ------------------------
                                                                    1995          1996
                                                                 ----------    ----------
<S>                                                              <C>           <C>
Gross patient accounts receivable.............................   $3,783,563    $3,992,148
Less allowances for contractual adjustments and
  uncollectibles..............................................    2,196,811     2,235,603
                                                                 ----------    ----------
                                                                 $1,586,752    $1,756,545
                                                                 ----------    ----------
                                                                 ----------    ----------
</TABLE>
 
4. FURNITURE, FIXTURES AND EQUIPMENT
 
     Furniture, fixtures and equipment consist of the following:
 
<TABLE>
<CAPTION>
                                                                         DECEMBER 31,
                                                                     --------------------
                                                                       1995        1996
                                                                     --------    --------
<S>                                                                  <C>         <C>
Furniture and fixtures............................................   $ 91,924    $ 91,924
Equipment.........................................................    138,918     141,940
Automobiles.......................................................     10,441      10,441

Leasehold improvements............................................     96,489      96,489
                                                                     --------    --------
                                                                      337,772     340,794
Less accumulated depreciation and amortization....................    166,578     199,496
                                                                     --------    --------
                                                                     $171,194    $141,298
                                                                     --------    --------
                                                                     --------    --------
</TABLE>
 
                                      F-70

<PAGE>
                       FISHMAN AND STASHAK, M.D.'S, P.A.
                          D/B/A GOLD COAST ORTHOPEDICS

                   NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
 
5. LONG-TERM DEBT
 
     Long-Term debt is comprised of the following:
 
<TABLE>
<CAPTION>
                                                                                      DECEMBER 31,
                                                                                ------------------------
                                                                                   1995         1996
                                                                                -----------  -----------
<S>                                                                             <C>          <C>
$350,000 promissory note payable to a bank, bearing interest at a fixed rate
  of 8.50%, principal and interest payable monthly through December 1998,
  secured by substantially all of the assets of Gold Coast....................  $   286,514  $   199,373
$142,988 promissory note payable to a bank, bearing interest at a fixed rate
  of 9.75%, principal and interest payable monthly through November 1998,
  secured by substantially all of the assets of Gold Coast....................      115,654       79,859
$100,000 revolving line-of-credit arrangement with a bank, bearing interest at
  prime plus 1% (9.25% at December 31, 1996), interest payable monthly,
  principal due in 24 monthly installments commencing thirty days following
  the cancellation of the arrangement, secured by substantially all of the
  assets of Gold Coast, the arrangement requires Gold Coast to maintain its
  primary operating account at the bank.......................................           --       97,205
$200,000 noninterest bearing promissory note payable to a former stockholder,
  principal due in monthly installments through January 1996, secured by the
  accounts receivable of Gold Coast, guaranteed by the stockholders of Gold
  Coast.......................................................................       18,182           --
                                                                                -----------  -----------
                                                                                    420,350      376,437
Less current portion..........................................................      141,118      146,080
                                                                                -----------  -----------
                                                                                $   279,232  $   230,357
                                                                                -----------  -----------
                                                                                -----------  -----------
</TABLE>
 

     At December 31, 1996, annual principal payments on long-term debt are as
follows:
 
<TABLE>
<S>                                                              <C>
1997..........................................................   $146,080
1998..........................................................    133,152
Thereafter....................................................     97,205
                                                                 --------
                                                                 $376,437
                                                                 --------
                                                                 --------
</TABLE>
 
     In July 1997, Gold Coast repaid the outstanding balance on the revolving
line-of-credit arrangement.
 
6. DUE TO STOCKHOLDER
 
     The President of Gold Coast, who is also a 50% stockholder, advanced
approximately $94,000 to Gold Coast prior to January 1, 1994. The amount was
payable to the stockholder on demand, was unsecured and bore interest at 8%.
Gold Coast repaid approximately $75,000 and $19,000 in 1995 and 1996,
respectively.
 
     The Treasurer of Gold Coast, who is also a 50% stockholder, made unsecured
advances totaling approximately $82,000 to Gold Coast during 1996 which bore
interest at 6.25% and were due on demand. Gold Coast repaid these advances
during 1996.
 
7. LEASE COMMITMENTS
 
     Gold Coast leases office space under a noncancelable operating lease, which
contains an escalation clause. Rent expense charged to operations totalled
approximately $95,000 during both 1995 and 1996.
 
                                      F-71

<PAGE>

                       FISHMAN AND STASHAK, M.D.'S, P.A.
                          D/B/A GOLD COAST ORTHOPEDICS

                   NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
 
7. LEASE COMMITMENTS--(CONTINUED)

     Future minimum rental commitments at December 31, 1996 are as follows:
 
<TABLE>
<S>                                                              <C>
1997..........................................................   $ 94,714
1998..........................................................     94,714
1999..........................................................     94,714

2000..........................................................     94,714
2001..........................................................     94,714
Thereafter....................................................    426,213
                                                                 --------
                                                                 $899,783
                                                                 --------
                                                                 --------
</TABLE>
 
8. RELATED PARTY TRANSACTIONS
 
     In February 1995, a physician employee and then stockholder of Gold Coast
terminated his employment with Gold Coast. In connection with this termination,
Gold Coast agreed to pay the physician a final bonus of $200,000, pursuant to
the physician's employment agreement. This bonus is included in physician and
other provider services expense in the 1995 statement of income and was paid
over an eleven-month period pursuant to a noninterest bearing promissory note.
At December 31, 1995, approximately $18,000 of this note was outstanding and the
balance was repaid in full during 1996.
 
9. BENEFIT PLANS
 
     Gold Coast maintains a defined contribution plan under the provisions of
Section 401(k) of the Internal Revenue Code. Employees who meet the minimum
length of service and age requirements are eligible for participation. Gold
Coast is responsible for the administration of the plan as the plan
administrator and trustee. Under the provisions of the plan, contributions by
Gold Coast are discretionary. Gold Coast made contributions of $50,000 and
$45,000 to the plan in 1995 and 1996, respectively.
 
10. CONTINGENCIES
 
     Gold Coast is involved in various legal proceedings in the ordinary course
of business. Gold Coast does not believe that the disposition of such legal
proceedings and disputes will have a material adverse effect on the financial
position or results of operations of Gold Coast. Gold Coast procures
professional liability coverage on behalf of its physicians on a claims-made
basis. The insurance contracts specify that coverage is available only during
the term of each insurance contract and cover only those claims reported while
the policies are in force. An estimate of losses for incurred but unreported
claims is recorded based upon historical experience. Management of Gold Coast
intends to renew the existing claims-made policy annually and expects to be able
to obtain such coverage.
 
11. SUBSEQUENT EVENTS
 
     In 1997, Gold Coast declared and distributed stockholders' distributions of
approximately $375,000 through June 30, 1997 and approximately $1.9 million
subsequent to June 30, 1997.
 
                                      F-72

<PAGE>

               REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
 
Partners
Sun Valley Orthopaedic Surgeons,
an Arizona General Partnership
 
We have audited the accompanying balance sheet of Sun Valley Orthopaedic
Surgeons, an Arizona General Partnership (Sun Valley) as of December 31, 1996,
and the related statements of operations and changes in partners' capital and
cash flows for the year then ended. These financial statements are the
responsibility of Sun Valley's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
 
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
 
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Sun Valley at December 31,
1996, and the results of its operations and its cash flows for the year then
ended in conformity with generally accepted accounting principles.
 
                                          ERNST & YOUNG, LLP
 
Orlando, Florida
July 18, 1997
 
                                      F-73

<PAGE>

                        SUN VALLEY ORTHOPAEDIC SURGEONS,
                         AN ARIZONA GENERAL PARTNERSHIP

                                 BALANCE SHEETS
 
<TABLE>
<CAPTION>
                                                                                                          JUNE 30,
                                                                                                            1997
                                                                                         DECEMBER 31,    -----------
                                                                                             1996
                                                                                         ------------    (UNAUDITED)
<S>                                                                                      <C>             <C>
                                        ASSETS
Current assets:
  Cash................................................................................     $137,982       $ 142,279
  Accounts receivable, net............................................................      512,267         539,654
  Due from related parties............................................................      183,062         186,663
  Inventories.........................................................................        9,500          10,000
  Prepaid expenses and other current assets...........................................       24,949          15,973
                                                                                         ------------    -----------
Total current assets..................................................................      867,760         894,569
Furniture, fixtures and equipment, net................................................       34,935          20,931
Other assets..........................................................................        7,515           7,464
Due from related parties..............................................................       48,781              --
                                                                                         ------------    -----------
Total assets..........................................................................     $958,991       $ 922,964
                                                                                         ------------    -----------
                                                                                         ------------    -----------
 
                          LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
  Accounts payable....................................................................     $ 23,665       $  22,887
  Accrued expenses and other current liabilities......................................       14,273          15,561
  Due to bank under line of credit....................................................      100,000         100,000
                                                                                         ------------    -----------
Total current liabilities.............................................................      137,938         138,448
Due to related parties................................................................       31,174              --
Commitments and contingencies.........................................................
Partners' capital.....................................................................      789,879         784,516
                                                                                         ------------    -----------
Total liabilities and partners' capital...............................................     $958,991       $ 922,964
                                                                                         ------------    -----------
                                                                                         ------------    -----------
</TABLE>
 
                            See accompanying notes.
 
                                      F-74

<PAGE>

                        SUN VALLEY ORTHOPAEDIC SURGEONS,
                         AN ARIZONA GENERAL PARTNERSHIP

           STATEMENTS OF OPERATIONS AND CHANGES IN PARTNERS' CAPITAL
 
<TABLE>
<CAPTION>
                                                                                           SIX MONTHS ENDED JUNE
                                                                           YEAR ENDED               30,
                                                                          DECEMBER 31,    ------------------------
                                                                              1996           1996          1997
                                                                          ------------    ----------    ----------
                                                                                                (UNAUDITED)
<S>                                                                       <C>             <C>           <C>
Net patient service revenue............................................    $2,467,989     $1,289,637    $1,357,617
Other revenue..........................................................        22,798         11,400        11,600
Other revenue from related party.......................................        12,005          5,500         5,500
                                                                          ------------    ----------    ----------
Total revenue..........................................................     2,502,792      1,306,537     1,374,717
 
Costs and expenses:
  Physician and other provider services................................     1,456,127        821,604       786,913
  Medical support services.............................................     1,044,879        528,110       569,164
  Depreciation.........................................................        26,912         13,456        19,102
  Interest.............................................................        10,873          4,470         4,901
  Other................................................................         1,452             --            --
                                                                          ------------    ----------    ----------
Total costs and expenses...............................................     2,540,243      1,367,640     1,380,080
                                                                          ------------    ----------    ----------
Net loss...............................................................       (37,451)       (61,103)       (5,363)
 
Beginning partners' capital............................................       827,330        827,330       789,879
                                                                          ------------    ----------    ----------
Ending partners' capital...............................................    $  789,879     $  766,227    $  784,516
                                                                          ------------    ----------    ----------
                                                                          ------------    ----------    ----------
</TABLE>
 
                            See accompanying notes.
 
                                      F-75

<PAGE>

                        SUN VALLEY ORTHOPAEDIC SURGEONS,
                         AN ARIZONA GENERAL PARTNERSHIP

                            STATEMENTS OF CASH FLOWS
 
<TABLE>
<CAPTION>
                                                                                                SIX MONTHS ENDED
                                                                               YEAR ENDED           JUNE 30,
                                                                              DECEMBER 31,    --------------------
                                                                                  1996          1996        1997
                                                                              ------------    --------    --------
                                                                                                  (UNAUDITED)
<S>                                                                           <C>             <C>         <C>
OPERATING ACTIVITIES
Net loss...................................................................    $  (37,451)    $(61,103)   $ (5,363)
Adjustments to reconcile net loss to net cash provided by (used in)
  operating activities:
  Depreciation.............................................................        26,912       13,456      19,102
  Changes in operating assets and liabilities:
     Accounts receivable, net..............................................        14,298       61,152     (27,387)
     Due from related parties..............................................        18,518       19,606      (3,601)
     Inventories...........................................................          (500)        (250)       (500)
     Prepaid expenses and other current assets.............................        (8,658)       5,179       8,976
     Accounts payable......................................................         2,393       (3,651)       (778)
     Accrued expenses and other current liabilities........................           819          933       1,288
                                                                              ------------    --------    --------
Net cash provided by (used in) operating activities........................        16,331       35,322      (8,263)
 
INVESTING ACTIVITIES
Purchases of furniture, fixtures and equipment.............................        (7,404)      (7,309)     (5,098)
Repayments of amounts due from partners and affiliates.....................        48,492       40,598      48,781
                                                                              ------------    --------    --------
Net cash provided by investing activities..................................        41,088       33,289      43,683
 
FINANCING ACTIVITIES
Amounts received on line of credit.........................................        25,000           --          --
Repayments of line of credit...............................................       (44,000)     (44,000)         --
Repayments of amounts due to related parties...............................       (39,500)     (32,495)    (31,174)
Other......................................................................            --           51          51
                                                                              ------------    --------    --------
Net cash (used in) provided by financing activities........................       (58,500)     (76,444)    (31,123)
                                                                              ------------    --------    --------
(Decrease) increase in cash................................................        (1,081)      (7,833)      4,297
Cash, beginning of period..................................................       139,063      139,063     137,982
                                                                              ------------    --------    --------
Cash, end of period........................................................    $  137,982     $131,230    $142,279
                                                                              ------------    --------    --------
                                                                              ------------    --------    --------
 
SUPPLEMENTAL CASH FLOWS INFORMATION
Interest paid..............................................................    $   10,873     $     --    $     --

                                                                              ------------    --------    --------
                                                                              ------------    --------    --------
</TABLE>
 
                            See accompanying notes.
 
                                      F-76

<PAGE>

                        SUN VALLEY ORTHOPAEDIC SURGEONS,
                         AN ARIZONA GENERAL PARTNERSHIP

                         NOTES TO FINANCIAL STATEMENTS

                DECEMBER 31, 1996 AND JUNE 30, 1997 (UNAUDITED)
 
1. DESCRIPTION OF THE BUSINESS
 
     Sun Valley Orthopaedic Surgeons, an Arizona General Partnership, (Sun
Valley) is a general partnership of individual physicians and an Arizona
professional corporation, and is engaged in the business of providing orthopedic
medical and surgical services and related medical and ancillary services to
patients in Maricopa County, Arizona. Sun Valley is organized as a general
partnership under the laws of the State of Arizona.
 
     On July 1, 1997, Sun Valley agreed in principle to sell substantially all
of its assets to and enter into a management services agreement with BMJ Medical
Management, Inc.
 
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
  Net Patient Service Revenue
 
     Net patient service revenue is reported at the estimated realizable amounts
due from patients, third-party payors and others for medical services rendered.
During 1996, approximately 60% of net patient service revenue was received under
Medicare and Medicare-related programs.
 
     Laws and regulations governing the Medicare program are complex and subject
to interpretation. Sun Valley believes that it is in compliance with all
applicable laws and regulations and is not aware of any pending or threatened
investigations involving allegations of potential wrongdoing. While no such
regulatory inquiries have been made, compliance with such laws and regulations
can be subjecct to future government review and interpretation as well as
significant regulatory action including fines, penalties, and exclusion from the
Medicare program.
 
  Inventories
 
     Inventories, which consist of medical and office supplies are stated at
current cost, which approximates market value, utilizing the first-in, first-out
method.
 
  Concentration of Credit Risk
 
     Sun Valley grants credit without collateral to its patients, most of whom
are local residents, who are insured under third-party payor agreements.
Management believes the credit risk associated with accounts receivable is
minimal.
 
  Furniture, Fixtures and Equipment

 
     Furniture, fixtures and equipment, including leasehold improvements, are
stated at cost, less accumulated depreciation, and are depreciated using the
straight-line method over the estimated useful lives of the assets, ranging from
5 to 10 years.
 
  Use of Estimates
 
     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 the financial
statements and the reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates.
 
  Interim Financial Statements
 
     The interim financial statements as of and for the six months ended June
30, 1997 and 1996 are unaudited. In the opinion of management, these statements
have been prepared on the same basis as the audited financial statements and
include all normal and recurring adjustments necessary for a fair presentation
of Sun Valley's financial position, results of operations and cash flows. The
interim data disclosed in these notes to the financial statements is also
unaudited. The results of operations for the six months ended June 30, 1997 are
not necessarily indicative of the results of operations that may be expected for
the entire year ending December 31, 1997.
 
                                      F-77

<PAGE>

                        SUN VALLEY ORTHOPAEDIC SURGEONS,
                         AN ARIZONA GENERAL PARTNERSHIP

                   NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
 
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)

  Costs and Expenses
 
     Physician and other provider services costs are comprised primarily of
compensation and fees paid to physicians and other health care providers.
 
     Medical support services costs include all indirect costs associated with
the management and operations of the practice and all direct costs associated
with medical supplies and pharmaceutical expenses.
 
3. ACCOUNTS RECEIVABLE
 
     Accounts receivable consists of the following as of December 31, 1996:
 
<TABLE>
<S>                                                                                           <C>
     Gross patient accounts receivable..........................................................   $ 613,880

     Less allowances for contractual adjustments and uncollectibles.............................     101,613
                                                                                                    ---------
                                                                                                   $ 512,267
                                                                                                    ---------
                                                                                                    ---------
</TABLE>
 
4. FURNITURE, FIXTURES AND EQUIPMENT
 
     Furniture, fixtures and equipment consists of the following as of December
31, 1996:
 
<TABLE>
<S>                                                                                           <C>
     Furniture, fixtures and equipment..........................................................   $ 176,784
     Leasehold improvements.....................................................................      40,025
     Less accumulated depreciation..............................................................     181,874
                                                                                                    ---------
                                                                                                   $  34,935
                                                                                                    ---------
                                                                                                    ---------
</TABLE>
 
5. LINE OF CREDIT
 
     As of December 31, 1996, Sun Valley has a line of credit with a bank in the
amount of $100,000. The line of credit bears interest at the bank's prime rate
plus 1.5% (the bank's prime rate was 8.5% at December 31, 1996). Sun Valley paid
approximately $11,000 in interest during 1996. There was no unused amount
available under the line-of-credit as of December 31, 1996.
 
6. LEASE COMMITMENTS
 
     Sun Valley leases various equipment, clinic and office space under
operating leases. Future minimum rental commitments under noncancelable
operating leases (with an initial or remaining term in excess of one year) at
December 31, 1996 are as follows:
 
<TABLE>
<S>                                                                                            <C>
Year ending December 31,
      1997......................................................................................   $152,961
      1998......................................................................................    153,626
      1999......................................................................................     70,364
      2000......................................................................................     41,296
                                                                                                    --------
                                                                                                   $418,247
                                                                                                    --------
                                                                                                    --------
</TABLE>
 
                                      F-78

<PAGE>

                        SUN VALLEY ORTHOPAEDIC SURGEONS,
                         AN ARIZONA GENERAL PARTNERSHIP

                   NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
 
7. INCOME TAXES
 
     Sun Valley is organized as a partnership pursuant to Subchapter K of the
Internal Revenue Code. As a result, in lieu of corporate income tax, Sun
Valley's taxable income is passed through to the partners and taxed at the
partner level. Accordingly, no provision or liability for income tax has been
reflected in the financial statements.
 
8. CONTINGENCIES
 
     Sun Valley is a general partnership organized under the laws of the State
of Arizona. Each of the individual physicians in Sun Valley is personally
responsible for and has obtained insurance coverage for professional liability.
Accordingly, no provision or liability for incurred but not reported claims has
been reflected in the financial statements of Sun Valley.
 
9. RELATED PARTY TRANSACTIONS
 
     As of December 31, 1996, one physician partner had been paid $135,743 in
excess of the amounts due to him for the physician services provided. This
amount is included in due from related parties as of December 31, 1996.
 
     Sun Valley has advanced amounts to a professional corporation that
specializes in osteoporosis and epidurals that is wholly-owned by a physician
partner. Interest on the advance accrues at 8%. As of December 31, 1996, the
amount due Sun Valley, including accrued interest, is $43,485. Sun Valley
recorded interest income for the year ended December 31, 1996 in the amount of
$12,000.
 
                                      F-79

<PAGE>

         ------------------------------------------------------------
         ------------------------------------------------------------
 
        NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO
   GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE
   CONTAINED IN THIS PROSPECTUS IN CONNECTION WITH THE OFFER MADE BY THIS
   PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST
   NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY OF THE
   UNDERWRITERS. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
   HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT
   THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATES AS
   OF WHICH INFORMATION IS GIVEN IN THIS PROSPECTUS. THIS PROSPECTUS DOES NOT
   CONSTITUTE AN OFFER OR SOLICITATION BY ANYONE IN ANY JURISDICTION IN WHICH
   SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING
   SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANY PERSON TO
   WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION.
 
                               ------------------
 
                               TABLE OF CONTENTS
 
<TABLE>
<CAPTION>
                                                  PAGE
                                                  ----
<S>                                               <C>
Additional Information.........................     2
Prospectus Summary.............................     3
Risk Factors...................................     6
The Company....................................    14
Use of Proceeds................................    15
Dividend Policy................................    15
Capitalization.................................    16
Dilution.......................................    17
Pro Forma Financial Information................    18
Selected Financial Information.................    23
Management's Discussion and Analysis of
  Financial Condition and Results of
  Operations...................................    24
Business.......................................    28
Management.....................................    44
Certain Transactions...........................    49
Principal Stockholders.........................    55
Description of Capital Stock...................    57
Shares Eligible for Future Sale................    60
Underwriting...................................    61
Legal Matters..................................    63
Experts........................................    63
Index to Financial Statements..................   F-1
</TABLE>
 
                               ------------------

 
        UNTIL                 , 1997 (25 DAYS AFTER THE DATE OF THIS
   PROSPECTUS), ALL DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK,
   WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO
   DELIVER A PROSPECTUS. THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE
   OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS
   AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.


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


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

                                            SHARES
 


                                  BMJ MEDICAL
                                MANAGEMENT, INC.
 

                                  COMMON STOCK
 
                            -----------------------

                                   PROSPECTUS

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


                               HAMBRECHT & QUIST


                                RAYMOND JAMES &
                                ASSOCIATES, INC.


                          VOLPE BROWN WHELAN & COMPANY


                                        , 1997
 
         ------------------------------------------------------------
         ------------------------------------------------------------

<PAGE>

                                    PART II

                     INFORMATION NOT REQUIRED IN PROSPECTUS
 
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
 
     The following table sets forth the various expenses in connection with the
sale and distribution of the securities being registered, other than
underwriting discounts and commissions. All of the amounts shown are estimated
except the Securities and Exchange Commission registration fee, the National
Association of Security Dealers, Inc. filing fee and the Nasdaq National Market
listing fee.
 
<TABLE>
<S>                                                                                                       <C>
SEC registration fee...................................................................................   $10,455
NASD filing fee........................................................................................     3,950
Nasdaq National Market listing fee.....................................................................      *
Blue sky fees and expenses.............................................................................      *
Printing and engraving expenses........................................................................      *
Legal fees and expenses................................................................................      *
Accounting fees and expenses...........................................................................      *
Transfer agent and registrar fees......................................................................      *
Miscellaneous..........................................................................................      *
                                                                                                          -------
     Total.............................................................................................   $  *
                                                                                                          -------
                                                                                                          -------
</TABLE>
 
------------------
* To be provided by amendment.
 
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
 
     Pursuant to Section 102(b)(7) of the Delaware General Corporation Law (the
'DGCL'), Article VI of the BMJ Medical Management, Inc. (the 'Company' or the
'Registrant') Restated Certificate of Incorporation (the 'Certificate of
Incorporation') (filed as Exhibit 3.1 to this Registration Statement) eliminates
the liability of the Company's directors to the Company or its stockholders,
except for liabilities related to breach of duty of loyalty, actions not in good
faith and certain other liabilities.
 
     Section 145 of the DGCL provides for indemnification by the Company of its
directors and officers. In addition, Article IX, Section 1 of the Company's
By-laws (filed as Exhibit 3.2 to this Registration Statement) requires the
Company to indemnify any current or former director or officer to the fullest
extent permitted by the DGCL. In addition, the Company has entered into
indemnity agreements with its directors (a form of which is filed as Exhibit
10.1 to this Registration Statement) which obligate the Company to indemnify
such directors to the fullest extent permitted by the DGCL. The Company also
maintains officers' and directors' liability insurance, which insures against

liabilities that officers and directors of the Company may incur in such
capacities.
 
     Reference is made to the form of Underwriting Agreement filed as Exhibit
1.1 to this Registration Statement, which provides for indemnification of the
directors and officers of the Company signing the Registration Statement and
certain controlling persons of the Company against certain liabilities,
including those arising under the Securities Act, in certain instances by the
Underwriters.
 
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
 
     Since May 1996 the Company has issued unregistered securities to investors
and to physicians and certain other individuals in connection with the
affiliation transactions with the medical practices (the 'Affiliation
Transactions'). Each such issuance was made in reliance upon the exemption from
the registration requirements of the Securities Act of 1933, as amended,
contained in Section 4(2) of the Securities Act or Rule 701 promulgated under
the Securities Act on the basis that such transactions did not involve a public
offering.
 
                                      II-1

<PAGE>

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.--(CONTINUED)

     1. On May 6, 1996, pursuant to a Stock Purchase Agreement, the Company
issued an aggregate of 1,175,000 shares of Common Stock, $.001 par value per
share (the 'Common Stock') and 999,999 shares of the Company's Series A
Convertible Preferred Stock, $.01 par value (the 'Series A Preferred Stock'),
for an aggregate purchase price of $1,011,749 to Naresh Nagpal, M.D. ('Dr.
Nagpal'), Oak VI Affiliates Fund, Limited Partnership ('Oak VI'), Oak Investment
Partners VI, Limited Partnership ('Oak Partners'), Delphi Ventures III, L.P.
('Delphi Ventures'), Delphi BioInvestments III, L.P. ('Delphi BioInvestments')
and Scheer & Company, Inc. ('Scheer').
 
     2. On June 1, 1996, pursuant to the terms of an Incentive Stock Option
Agreement, the Company granted Scott Cielewich an option to purchase 50,000
shares of Common Stock, with an exercise price of $.01 per share.
 
     3. On June 10, 1996, pursuant to an Incentive Stock Option Agreement, the
Company granted Caridad LaPlace an option to purchase 5,000 shares of Common
Stock with an exercise price of $.01 per share.
 
     4. On July 1, 1996, the Company issued 450,000 shares of Common Stock
pursuant to a Management Services Agreement and Restricted Stock Agreements to
Lehigh Valley Bone, Muscle and Joint ('LVBMJ') and the following physicians
affiliated with LVBMJ: Thomas Sauer, M.D., Ranjan Sachdev, M.D., Joseph
Garbarino, M.D., John Williams, M.D. and Peter W. Kozicky, M.D.
 
     5. On September 23, 1996, pursuant to an Incentive Stock Option Agreement,
the Company granted Ronald Garey an option to purchase 30,000 shares of Common
Stock with an exercise price of $.25 per share.

 
     6. On November 1, 1996, pursuant to an Incentive Stock Option Agreement,
the Company granted Deborah Flytuta an option to purchase 5,000 shares of Common
Stock with an exercise price of $.25 per share.
 
     7. On November 4, 1996, pursuant to an Incentive Stock Option Agreement,
the Company granted Sherry Pulliam an option to purchase 25,000 shares of Common
Stock with an exercise price of $.25 per share.
 
     8. On November 12, 1996, pursuant to a Stock Purchase Agreement, the
Company issued 2,000,001 shares of its Series B Convertible Preferred Stock,
$.01 par value (the 'Series B Preferred Stock'), for an aggregate purchase price
of $6,000,003 to Dr. Nagpal, Oak VI, Oak Partners, Delphi Ventures, and Delphi
BioInvestments.
 
     9. On November 22, 1996, pursuant to a Management Services Agreement and
Restricted Stock Agreements, the Company issued 4,000,000 shares of Common Stock
to the following physicians (or their respective corporations) and employees
affiliated with Southern California Orthopedic Institute Medical Group ('SCOI'):
Pamela Westlin, Glenn Cozen, James M. Fox, M.D., Inc., the Friedman Family
Trust, Wilson Del Pizzo, M.D., Inc., Stephen Snyder, M.D., Richard Ferkel, M.D.,
Todd Moldawer, M.D., Gregory Hanker, M.D., Herbert Dennis Huddleston, M.D.,
Inc., A. Elizabeth Bloze, M.D., Todd Molnar, M.D., Trevor P. Lynch, M.D., a
medical corporation, Saul M. Bernstein, M.D., Inc., Steven Schopler, M.D.,
Ronald Karzel, M.D., Hrair Darakjian, M.D., Jonathan Jaivan, M.D., Donald Wiss,
M.D., Patricia McKeever, M.D., and David Auerbach, M.D.
 
     10. On December 2, 1996, pursuant to an Incentive Stock Option Agreement,
the Company granted Randal Farwell an option to purchase 40,000 shares of Common
Stock with an exercise price of $.35 per share.
 
     11. On December 23, 1996, the Company issued 1,076,501 shares of Common
Stock to physicians affiliated with South Texas Spinal Clinic ('STSC') in
accordance with the terms of a Management Services Agreement and Restricted
Stock Agreements.
 
     12. On January 1, 1997, pursuant to a Non-qualified Stock Option Agreement,
the Company granted Dr. Nagpal an option to purchase 150,000 shares of Common
Stock with an exercise price of $.01 per share.
 
     13. On January 1, 1997, pursuant to an Incentive Stock Option Agreement,
the Company granted G. Steven Ensinger an option to purchase 25,000 shares of
Common Stock with an exercise price of $.35 per share.
 
     14. On January 2, 1997, the Company issued 10,000 shares of Common Stock to
Scott Cielewich upon exercise of the vested portion of his option (which was
granted on June 1, 1996).
 
                                      II-2

<PAGE>

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.--(CONTINUED)


     15. On January 14, 1997, the Company issued warrants to purchase an
aggregate of 33,333 shares of Common Stock at an exercise price of $3.00 per
share to Dr. Nagpal, Delphi BioInvestments, Delphi Ventures, Oak VI and Oak
Partners in connection with a bridge loan from such persons to the Company.
 
     16. On January 29, 1997, pursuant to a Stock Purchase Agreement, the
Company issued 183,332 shares of Series C Convertible Preferred Stock, $.01 par
value (the 'Series C Preferred Stock'), for an aggregate purchase price of
$549,996 to certain of the SCOI physicians, Glenn Cozen and the Saphier and
Heller Retirement Trust.
 
     17. On January 30, 1997, pursuant to an Incentive Stock Option Agreement,
the Company granted Pamela Westlin an option to purchase 22,000 shares of Common
Stock with an exercise price of $.35 per share.
 
     18. On January 30, 1997, pursuant to an Incentive Stock Option Agreement,
the Company granted Cindy Lesonsky an option to purchase 8,000 shares of Common
Stock with an exercise price of $.35 per share.
 
     19. On February 1, 1997, pursuant to an Incentive Stock Option Agreement,
the Company granted David Fater an option to purchase 140,000 shares of Common
Stock with an exercise price of $.35 per share.
 
     20. On February 1, 1997, pursuant to an Incentive Stock Option Agreement,
the Company granted Andrea Seratte an option to purchase 40,000 shares of Common
Stock with an exercise price of $.35 per share.
 
     21. On March 1, 1997, pursuant to an Incentive Stock Option Agreement, the
Company granted Glenn Cozen an option to purchase 75,000 shares of Common Stock
with an exercise price of $.35 per share.
 
     22. On March 7, 1997, pursuant to an Incentive Stock Option Agreement, the
Company granted Caridad LaPlace an option to purchase 2,000 shares of Common
Stock with an exercise price of $.50 per share.
 
     23. On March 12, 1997, pursuant to an Incentive Stock Option Agreement, the
Company granted Robert Cox an option to purchase 40,000 shares of Common Stock
with an exercise price of $.50 per share.
 
     24. On March 12, 1997, pursuant to a Stock Purchase Agreement, the Company
issued an aggregate of 71,667 shares of Series C Preferred Stock for an
aggregate purchase price of $215,001 to the following persons and entities:
Andrea Seratte, CGJR Health Care Services Private Equities, L.P. ('CGJR Health
Care'), CGJR II, L.P. ('CGJR II'), and CGJR MF/III, L.P. ('CGJR/MF').
 
     25. On April 1, 1997, the Company issued 550,000 shares of Common Stock to
the SCOI physicians who collectively own Center for Orthopedic Surgery, Inc.
('COSI').
 
     26. On April 1, 1997, pursuant to an Incentive Stock Option Agreement, the
Company granted Brent Mellecker an option to purchase 40,000 shares of Common
Stock with an exercise price of $.50 per share.
 
     27. On April 1, 1997, the Company issued 402,723 shares of Common Stock to

the following physicians affiliated with Tri-City Orthopaedic Surgery Medical
Group, Inc. ('Tri-City'): Neville Alleyne, M.D., James Esch, M.D., James
Helgager, M.D., Norman Kane, M.D., Richard Muir, M.D., Leonard Ozerkis, M.D.,
and Jacob Sharp, M.D.
 
     28. On April 14, 1997, pursuant to an Incentive Stock Option Agreement, the
Company granted Keith Bolton an option to purchase 50,000 shares of Common Stock
with an exercise price of $.50 per share.
 
     29. On April 14, 1997, pursuant to an Incentive Stock Option Agreement, the
Company granted Lee Bodendorfer an option to purchase 30,000 shares of Common
Stock with an exercise price of $.50 per share.
 
     30. On April 15, 1997, pursuant to an Incentive Stock Option Agreement, the
Company granted Pamela Montgomery an option to purchase 20,000 shares of Common
Stock with an exercise price of $.50 per share.
 
     31. On April 30, 1997, pursuant to an Incentive Stock Option Agreement, the
Company granted M. Anthony Anderson an option to purchase 25,000 shares of
Common Stock with an exercise price of $.50 per share.
 
     32. On May 1, 1997, pursuant to an Incentive Stock Option Agreement, the
Company granted Meg Finnegan an option to purchase 20,000 shares of Common Stock
with an exercise price of $.50 per share.
 
                                      II-3

<PAGE>

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.--(CONTINUED)

     33. On May 1, 1997, pursuant to an Incentive Stock Option Agreement, the
Company granted Norman Lapin an option to purchase 40,000 shares of Common Stock
with an exercise price of $.50 per share.
 
     34. On May 6, 1997 pursuant to a Management Services Agreement and
Restricted Stock Agreements, the Company issued an aggregate of 478,348 shares
of Common Stock. Such stock was issued in accordance with the following: (a) an
aggregate of 445,962 shares to the following physicians affiliated with
Lauderdale Orthopaedic Surgeons ('LOS'): Martin Silverstein, M.D., Michael
Weiss, M.D., Michael Ruddy, M.D., Raul Aparicio, M.D., Verano Hermida, M.D. and
Paul Greenman, D.P.M., Practice Solutions, (b) an aggregate of 27,613 shares to
LOS' broker and attorney and (c) 4,773 shares to LOS' accountant, Kenneth A.
Ortner, P.A.
 
     35. On May 6, 1997, pursuant to Restricted Stock Agreements, the Company
issued 5,000 shares of Common Stock to each of the following physicians
affiliated with LOS: Martin Silverstein, M.D., Michael Weiss, M.D., Michael
Ruddy, M.D., and Raul Aparicio, M.D.
 
     36. On June 1, 1997, pursuant to an Incentive Stock Option Agreement, the
Company granted Sandra Britton an option to purchase 6,000 shares of Common
Stock with an exercise price of $.50 per share.
 

     37. On June 1, 1997, the Company issued 59,693 shares of Common Stock to
Clive Segil, M.D., under the terms of a Management Services Agreement and
Restricted Stock Agreement.
 
     38. On June 1, 1997, pursuant to a Management Services Agreement and
Restricted Stock Agreement, the Company issued 84,197 shares of Common Stock to
H. Leon Brooks, M.D, a sole practitioner.
 
     39. On June 1, 1997, pursuant to a Non-qualified Stock Option Agreement,
the Company granted James Hofmann, M.D. an option to purchase 20,000 shares of
Common Stock with an exercise price of $.25 per share.
 
     40. On June 1, 1997, pursuant to a Non-qualified Stock Option Agreement,
the Company granted Christopher Dankmeyer, M.D. an option to purchase 10,000
shares of Common Stock with an exercise price of $.25 per share.
 
     41. On June 2, 1997, pursuant to an Incentive Stock Option Agreement, the
Company granted Dana Reynolds an option to purchase 30,000 shares of Common
Stock with an exercise price of $.50 per share.
 
     42. On June 19, 1997, pursuant to a Stock Purchase Agreement, the Company
issued 188,072 shares of Series D Convertible Preferred Stock, $.01 par value
(the 'Series D Preferred Stock') to Oak VI, Oak Partners, Delphi Ventures,
Delphi BioInvestments and Dr. Nagpal in exchange for promissory notes in the
principal amount of $999,999 plus accrued interest previously delivered by the
Company to the foregoing.
 
     43. On June 19, 1997, the Company issued an aggregate of 533,335 shares of
its Series E Convertible Preferred Stock, $.01 par value (the 'Series E
Preferred Stock'), for an aggregate purchase price of $3,200,010 to Dr. Nagpal,
Oak VI, Oak Partners, Delphi Ventures, Delphi BioInvestments, CGJR Health Care,
CGJR II and CGJR/MF.
 
     44. On June 23, 1997, pursuant to an Incentive Stock Option Agreement, the
Company granted Joanna Robben an option to purchase 75,000 shares of Common
Stock with an exercise price of $.50 per share.
 
     45. On June 30, 1997, the Company issued warrants to purchase 40,000 shares
of Common Stock to HCFP Funding, Inc. ('HCFP Funding') in connection with a
senior secured loan in the aggregate principal amount of $3,250,000 from HCFP
Funding to the Company and issued warrants to purchase an aggregate of 13,332
shares of Common Stock to the following persons in connection with the guarantee
of the loan by such persons: Dr. Nagpal, Delphi Ventures, Delphi BioInvestments,
Oak Partners and Oak VI.
 
     46. On July 1, 1997, pursuant to an Incentive Stock Option Agreement, the
Company granted Denise Truese an option to purchase 5,000 shares of Common Stock
with an exercise price of $.50 per share.
 
     47. On July 1, 1997, the Company issued 45,108 shares of Common Stock to
John Zimmerman, D.P.M. under the terms of a Management Services Agreement and
Restricted Stock Agreement.
 
                                      II-4


<PAGE>

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.--(CONTINUED)

     48. On July 1, 1997, the Company issued 97,500 shares of Common Stock to
Dr. Nagpal upon conversion of his 1996 accrued compensation and cash bonus for
the fiscal year ended December 31, 1996, payable by the Company to him.
 
     49. On July 1, 1997, the Company issued a total of 150,708 shares of Common
Stock to Randy C. Watson, M.D., Keith R. Swanson, M.D. and Stephen P. Abelow,
M.D., who are affiliated with Surgical Associates of Lake Tahoe, L.P. under the
terms of three Management Services Agreements and three Restricted Stock
Agreements.
 
     50. On July 3, 1997, pursuant to a Management Services Agreement and
Restricted Stock Agreements, the Company issued 265,725 shares of Common Stock
to the following physicians, one broker and one attorney affiliated with Fishman
& Stashak, M.D.'s, P.A. (dba Gold Coast Orthopedics), Eric S. Fishman, M.D.,
Gerald T. Stashak, M.D., Mark A. Rubenstein, M.D., Chaim Arlosoroff, M.D., David
J. Menkhaus and Les S. Alt.
 
     51. On July 8, 1997, pursuant to an Incentive Stock Option Agreement, the
Company granted Nancy Strayer an option to purchase 10,000 shares of Common
Stock with an exercise price of $.50 per share.
 
     52. On July 14, 1997, pursuant to an Incentive Stock Option Agreement, the
Company granted David Ellwanger an option to purchase 125,000 shares of Common
Stock with an exercise price of $.50 per share.
 
     53. On July 21, 1997, pursuant to an Incentive Stock Option Agreement, the
Company granted Beth Landel an option to purchase 35,000 shares of Common Stock
with an exercise price of $.50 per share.
 
     54. On July 24, 1997, pursuant to an Incentive Stock Option Agreement, the
Company granted David Coffler an option to purchase 8,000 shares of Common Stock
with an exercise price of $.50 per share.
 
     55. On July 31, 1997, the Company issued 166,667 shares of Series E
Preferred Stock to HIS Ventures, LLC, an affiliate of Galtney Corporate
Services, Inc. ('Galtney'), for an aggregate purchase price of $1,000,000.
 
     56. On August 1, 1997, pursuant to an Incentive Stock Option Agreement, the
Company granted Randy Farber an option to purchase 30,000 shares of Common Stock
with an exercise price of $.50 per share.
 
     57. On August 1, 1997, pursuant to an Incentive Stock Option Agreement, the
Company granted Steven Ensinger an option to purchase 15,000 shares of Common
Stock with an exercise price of $.60 per share.
 
     58. On August 1, 1997, the Company issued 40,058 shares of Common Stock to
Robert Wilson, M.D. under the terms of a Management Services Agreement and
Restricted Stock Agreement.
 

     59. On August 1, 1997, the Company issued warrants to purchase an aggregate
of 130,000 shares of Series E Preferred Stock, to Comdisco, Inc. ('Comdisco') in
connection with the execution of a (i) Master Lease Agreement and (ii)
Subordinated Loan and Security Agreement pursuant to which Comdisco made a
subordinated loan to the Company in the aggregate principal amount of
$5,000,000.
 
     60. On August 1, 1997, the Company issued 157,807 shares of Common Stock to
the following physicians affiliated with Sun Valley Orthopaedic Surgeons under
the terms of a Management Services Agreement and Restricted Stock Agreements:
Jon Gelsey, M.D., Martin Sterusky, M.D. and Robert Waldrip, M.D.
 
     61. On August 4, 1997, pursuant to an Incentive Stock Option Agreement, the
Company granted Helen Arnzen an option to purchase 5,000 shares of Common Stock
with an exercise price of $.50 per share.
 
     62. On August 9, 1997, pursuant to an Amended and Restated Management
Services Agreement and Restricted Stock Agreements, the Company issued 68,031
shares of Common Stock to the following physicians affiliated with LVBMJ: Thomas
Sauer, M.D., Ranjan Sachdev, M.D., Joseph Garbarino, M.D., John Williams, M.D.
and Peter W. Kozicky, M.D.
 
     63. On August 18, 1997, pursuant to a Stock Purchase Agreement, the Company
issued 41,667 shares of Series E Preferred Stock to Comdisco for an aggregate
purchase price of $250,000.
 
                                      II-5

<PAGE>

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.--(CONTINUED)

     64. On August 21, 1997, pursuant to an Incentive Stock Option Agreement,
the Company granted Lisa Arnold an option to purchase 5,000 shares of Common
Stock with an exercise price of $.60 per share.
 
     65. On August 21, 1997, pursuant to an Incentive Stock Option Agreement,
the Company granted Marc Guthart an option to purchase 7,000 shares of Common
Stock with an exercise price of $.60 per share.
 
     66. On August 22, 1997, the Company issued warrants to purchase an
aggregate of 37,500 shares of Series E Preferred Stock to Galtney in connection
with a Subordinated Loan from Galtney to the Company.
 
     67. On August 26, 1997, pursuant to a Management Services Agreement and
Restricted Stock Agreements, the Company issued 656,902 shares of Common Stock
to the following physicians, one attorney and one broker affiliated with Broward
Orthopedic Specialties, Inc.: Kalman Blomberg, M.D., Michael Reilly, M.D., Alan
Rootman, M.D., Jeffrey Cantor, M.D., John Fernandez, M.D., Terence Matthews,
M.D., Steven Naide, M.D., Mitchell Seavey, M.D., David Menkhaus and Les Alt.
 
     68. On August 26, 1997, pursuant to an Incentive Stock Option Agreement,
the Company granted Andrew Heeman an option to purchase 5,000 shares of Common
Stock with an exercise price of $2.00 per share.

 
     69. On September 1, 1997, the Company issued 95,384 shares of Common Stock
to Michael Abrahams, M.D. under the terms of a Management Services Agreement and
Restricted Stock Agreement.
 
     70. On September 4, 1997, the Company issued 38,229 shares of Common Stock
to Eradio Arredondo, M.D. under the terms of a Management Services Agreement and
Restricted Stock Agreement.
 
     71. On September 5, 1997, the Company issued 72,600 shares of Common Stock
to Neal Kramer, M.D. under the terms of a Management Services Agreement and
Restricted Stock Agreement.
 
     72. On September 9, 1997, the Company issued 36,492 shares of Common Stock
to Jeffrey Beitler, M.D. under the terms of a Management Services Agreement and
Restricted Stock Agreement.
 
     73. On September 9, 1997, the Company issued and sold $4,000,000 in
aggregate principal amount of its subordinated convertible debentures due 2000
to the following: Dr. Nagpal, Delphi Ventures, Delphi BioInvestments, Oak
Partners, Oak VI, and Health Care Services-BMJ, LLC and HGQ Serv*is Ventures,
L.P. affiliates of Hambrecht & Quist, LLC. which are convertible into shares of
Common Stock at an initial conversion price equal to $7.20 per share.
 
     74. On September 12, 1997, pursuant to the terms of a Management Services
Agreement and Restricted Stock Agreements, the Company issued an aggregate of
126,923 shares of Common Stock to the following physicians affiliated with
Physical Medicine and Rehabilitation Associates, Inc.: Marc Levinson, M.D.,
Joseph Alshon, M.D., Daniel Picard, M.D., Jonathan Tarrash, M.D. and Max
Gilbert, M.D.
 
     75. On July 1, 1997, pursuant to the terms of a Management Services
Agreement and Restricted Stock Agreements, the Company issued an aggregate of
124,385 shares of Common Stock to the following physicians affiliated with
Stockdale Podiatry Group, Inc.: Michelle Kraft, D.P.M., Lee Marek, D.P.M., Mark
L. Hamilton, D.P.M. and Mark F. Miller, D.P.M.
 
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
 
     (a) Exhibits
 
<TABLE>
<CAPTION>
EXHIBIT NO.         DESCRIPTION OF EXHIBIT
-----------         -------------------------------------------------------------------------------------------------
<S>           <C>   <C>
    *1.1       --   Form of Underwriting Agreement.
    *3.1       --   Restated Certificate of Incorporation of the Registrant.
     3.2       --   By-laws of the Registrant.
     4.1       --   Bone, Muscle and Joint, Inc. 1996 Stock Option Plan.
    *5         --   Opinion of O'Sullivan Graev & Karabell, LLP (including the consent of such firm) regarding
                    legality of securities being offered.
</TABLE>
 

                                      II-6

<PAGE>

ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.--(CONTINUED)
 
<TABLE>
<CAPTION>
EXHIBIT NO.         DESCRIPTION OF EXHIBIT
-----------         -------------------------------------------------------------------------------------------------
<S>           <C>   <C>
   *10.1       --   Stock Purchase Agreement dated as of May 6, 1996 among the Company, Dr. Nagpal, Oak VI, Oak
                    Partners, Delphi Ventures and Delphi BioInvestments.
    10.2       --   Stock Purchase Agreement dated November 12, 1996 among the Company, Dr. Nagpal, Oak VI, Oak
                    Partners, Delphi Ventures, and Delphi BioInvestments.
    10.3       --   Stock Purchase Agreement dated January 29, 1997 among the Company, certain physicians affiliated
                    with SCOI, Glenn Cozen and the Saphier and Heller Law Corporation Retirement Trust.
    10.4       --   Stock Purchase Agreement dated March 12, 1997, among the Company, Andrea Seratte, CGJR Health
                    Care, CGJR II and CGJR/MF.
   *10.5       --   Stock Purchase Agreement dated June 19, 1997, among the Company, Dr. Nagpal, Oak VI, Oak
                    Partners, Delphi Ventures, Delphi BioInvestments, CGJR Health Care, CGJR II and CGJR/MF.
   *10.6       --   Stock Purchase Agreement dated July 31, 1997, between the Company and HIS Ventures, LLC.
   *10.7       --   Stock Purchase Agreement dated August 18, 1997, between the Company and Comdisco.
   *10.8       --   Second Term Note dated June 30, 1997, issued by the Company to HCFP Funding.
    10.9       --   Form of Loan and Security Agreement dated March 28, 1997, between the Company and HCFP Funding.
   *10.10      --   Subordinated Loan and Security Agreement dated as of August 1, 1997, as amended, between the
                    Company and Comdisco.
   *10.11      --   Master Lease Agreement dated August 1, 1997 between Comdisco and the Company.
   *10.12      --   Subordinated Loan and Security Agreement dated as of August 22, 1997 between the Company and
                    Galtney.
   *10.13      --   Convertible Debenture Purchase Agreement dated as of September 9, 1997 among the Company, Dr.
                    Nagpal, Delphi Ventures, Delphi BioInvestments, Oak VI, Oak Partners, Health Care Services--BMJ,
                    LLC and HGQ Serv*is Ventures, L.P.
    10.14      --   8% Promissory Note in the aggregate principal amount of $700,000 issued by the Company and
                    payable to the order of Dr. Nagpal, dated January 10, 1997.
    10.15      --   8% Promissory Note in the aggregate principal amount of $167,000 issued by the Company and
                    payable to the order of Dr. Nagpal, dated January 10, 1997.
    10.16      --   Second Amended and Restated Stockholders Agreement, dated as of November 22, 1996, among the
                    Company, Dr. Nagpal, Delphi Ventures, Delphi BioInvestments, Oak Partners, Oak VI, Scheer and the
                    stockholders named therein.
   *10.17      --   Employment Agreement between the Company and Dr. Nagpal, dated May 6, 1996.
    10.18      --   Amended and Restated Management Services Agreement, effective as of July 1, 1997, among the
                    Company, LVBMJ amd certain physicians affiliated with LVBMJ.
    10.19      --   Asset Purchase Agreement, effective as of July 1, 1997, between the Company and OAB.
    10.20      --   Amended and Restated Restricted Stock Agreement, dated as of September 9, 1997, among the
                    Company, LVBMJ and certain physicians affiliated with LVBMJ.
    10.21      --   Management Services Agreement, effective as of November 1, 1996, as amended, between the Company
                    and STSC.
    10.22      --   Asset Purchase Agreement, dated as of November 1, 1996, between the Company and STSC.
    10.23      --   Restricted Stock Agreement, dated as of December 23, 1996, between the Company, STSC and certain
                    physicians affiliated with STSC.
    10.24      --   Stockholder Non-Competition Agreement, dated as of December 23, 1996, among the Company, STSC and
                    the STSC physicians.
   *10.25      --   Management Services Agreement, effective as of April 1, 1997, as amended, among the Company,

                    Tri-City and the indemnifying persons identified therein.
    10.26      --   Asset Purchase Agreement, dated as of April 1, 1997, between the Company and Tri-City.
</TABLE>
 
                                      II-7

<PAGE>

ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.--(CONTINUED)
 
<TABLE>
<CAPTION>
EXHIBIT NO.         DESCRIPTION OF EXHIBIT
-----------         -------------------------------------------------------------------------------------------------
<S>           <C>   <C>
   *10.27      --   Restricted Stock Agreement, dated as of April 1, 1997, among the Company, Tri-City and certain
                    physicians affiliated with Tri-City.
    10.28      --   Stockholder Non-Competition Agreement, dated as of April 1, 1997, among the Company, Tri-City and
                    certain physicians affiliated with Tri-City.
   *10.29      --   Management Services Agreement, effective as of November 1, 1996, as amended, between the Company
                    and SCOI.
    10.30      --   Asset Purchase Agreement, effective as of November 1, 1996, between the Company and SCOI.
   *10.31      --   Restricted Stock Agreement, effective as of November 1, 1996, among the Company, SCOI, certain
                    physicians affiliated with SCOI, Delphi Ventures, Delphi BioInvestments, Oak VI and Oak Partners.
    10.32      --   Stockholder Non-Competition Agreement, effective November 1, 1996, among the Company, SCOI and
                    certain physicians affiliated with SCOI.
   *10.33      --   Management Services Agreement, effective April 1, 1997, as amended, among the Company, LOS and
                    certain physicians affiliated with LOS.
    10.34      --   Asset Purchase Agreement, effective as of April 1, 1997, between the Company and LOS.
   *10.35      --   Restricted Stock Agreement, dated as of May 6, 1997, among the Company, LOS and certain
                    physicians affiliated with LOS.
    10.36      --   Stockholder Non-Competition Agreement effective as of April 1, 1997, among the Company, LOS and
                    certain physicians affiliated with LOS.
   *10.37      --   Management Services Agreement, effective as of August 1, 1997, as amended, among the Company, Sun
                    Valley and the indemnifying persons thereto.
   *10.38      --   Asset Purchase Agreement, effective as of August 1, 1997, between the Company and Sun Valley.
   *10.39      --   Restricted Stock Agreement, dated as of August 1, 1997, among the Company, Sun Valley and certain
                    physicians affiliated with Sun Valley.
   *10.40      --   Stockholder Non-Competition Agreement, dated as of August 1, 1997, among the Company, Sun Valley
                    and certain physicians affiliated with Sun Valley.
   *10.41      --   Management Services Agreement, effective as of June 1, 1997, as amended, among the Company, Gold
                    Coast and the physicians affiliated with Gold Coast.
    10.42      --   Asset Purchase Agreement, effective as of June 1, 1997, between the Company and Gold Coast.
   *10.43      --   Restricted Stock Agreement, dated August 8, 1997, among the Company and certain physicians
                    affiliated with Gold Coast.
    10.44      --   Stockholder Non-Competition Agreement, dated August 8, 1997, among the Company and certain
                    physicians affiliated with Gold Coast.
    11.1       --   Schedule of Calculation of Earnings Per Share.
    21         --   List of Subsidiaries.
   *23.1       --   Consent of O'Sullivan Graev & Karabell, LLP (to be included as part of its opinion to be filed as
                    Exhibit 5 hereto).
    23.2       --   Consent of Ernst & Young LLP, independent certified public accountants.
    24         --   Powers of Attorney (included on page II-10).
    27         --   Financial Data Schedule.

</TABLE>
 
------------------
 
* To be filed by amendment.
 
     (b) Financial Statement Schedules
 
             All schedules are omitted because they are inapplicable or the
        requested information is shown in the consolidated financial statements
        or related notes.
 
                                      II-8
<PAGE>

ITEM 17. UNDERTAKINGS.
 
     The Registrant hereby undertakes to provide to the Underwriters at the
closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
 
     Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the DGCL, the Certificate of Incorporation and By-laws,
or otherwise, the Registrant has been advised that in the opinion of the
Commission such indemnification is against public policy as expressed in the
Securities Act, and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than payment by the Registrant
of expenses incurred or paid by a director, officer or controlling person of the
Registrant in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with the
securities being registered, the Registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
 
     The Registrant hereby undertakes that:
 
          (1) For purposes of determining any liability under the Securities
     Act, the information omitted from the form of prospectus filed as part of
     this registration statement in reliance upon Rule 430A and contained in the
     form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
     (4) or 497(h) under the Securities Act shall be deemed to be part of this
     registration statement as of the time it was declared effective.
 
          (2) For the purpose of determining any liability under the Securities
     Act, each post-effective amendment that contains a form of prospectus shall
     be deemed to be a new registration statement relating to the securities
     offered therein, and the offering of such securities at that time shall be
     deemed to be the initial bona fide offering thereof.
 
                                      II-9

<PAGE>

                                   SIGNATURES
 
     PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF BOCA RATON, STATE OF
FLORIDA ON THE 16TH DAY OF SEPTEMBER, 1997.
 
                                          BMJ MEDICAL MANAGEMENT, INC.
 
                                          By:         /s/ Naresh Nagpal
                                              ----------------------------------
                                              Name: Naresh Nagpal, M.D.
                                              Title:  President and Chief
                                                      Executive Officer
 

                               POWER OF ATTORNEY
 
     KNOW ALL PERSON BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints each of Naresh Nagpal, M.D. and David H. Fater or
either of them, each acting alone, his or her true and lawful attorney-in-fact
and agent, with full power of substitution and resubstitution, for such person
and in his or her name, place and stead, in any and all capacities, in
connection with the Registrant's Registration Statement on Form S-1 under the
Securities Act of 1933, including to sign the Registration Statement in the name
and on behalf of the undersigned as a director or officer of the Registrant and
any and all amendments or supplements thereto, including any and all stickers
and post-effective amendments thereto, and any and all additional registration
statements relating to the same offering of securities as those that are covered
by the Registration Statement that are filed pursuant to Rule 462(b) under the
Securities Act of 1933, and to file the same, with all exhibits thereto, and all
other documents in connection therewith, with the Securities and Exchange
Commission and any applicable securities exchange or securities self-regulatory
body, granting unto said attorneys in-fact and agents, each acting alone, full
power and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes as he or she might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, or his, her or their
substitutes, may lawfully do or cause to be done by virtue hereof.
 
     PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED ON THE 16TH DAY OF SEPTEMBER, 1997, BY
THE FOLLOWING PERSONS IN THE CAPACITIES INDICATED:
 
<TABLE>
<CAPTION>
                SIGNATURE                                      TITLE
------------------------------------------  -------------------------------------------
<S>                                         <C>                                           

            /s/ NARESH NAGPAL               President, Chief Executive Officer and
------------------------------------------  Director (Principal Executive Officer)

           Naresh Nagpal, M.D.              
 

            /s/ DAVID H. FATER              Executive Vice President, Chief Financial
------------------------------------------  Officer and Director (Principal Financial
              David H. Fater                and Accounting Officer)

 
            /s/ ANN H. LAMONT               Director
------------------------------------------  
              Ann H. Lamont

 
          /s/ DONALD J. LOTHROP             Director
------------------------------------------  
            Donald J. Lothrop
 

             /s/ JAMES M. FOX               Director
------------------------------------------  
            James M. Fox, M.D.
 

------------------------------------------  Director
               Georges Daou
</TABLE>
 
                                     II-10
[{"type": "S-1", "sequence": "1", "description": "REGISTRATION STATEMENT", "secsgml_size_bytes": 636027}]
{"company-data": {"conformed-name": "BMJ MEDICAL MANAGEMENT INC", "cik": "0001036296", "assigned-sic": "", "irs-number": "650676079", "state-of-incorporation": "DE", "fiscal-year-end": "1231"}, "filing-values": {"form-type": "S-1", "act": "33", "file-number": "333-35759", "film-number": "97681405"}, "business-address": {"street1": "4800 N FEDERAL HWY", "street2": "SUITE 104 D", "city": "BOCA RATON", "state": "FL", "zip": "33431", "phone": "5613911311"}, "mail-address": {"street1": "4800 N FEDERAL HWY", "street2": "SUITE 104 D", "city": "BOCA RATON", "state": "FL", "zip": "33431"}}
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 16, 1997
 
                                                      REGISTRATION NO. 333-
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
 
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

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

                                    FORM S-1
                             REGISTRATION STATEMENT
                                     UNDER
                           THE SECURITIES ACT OF 1933

                            ------------------------
 
                          BMJ MEDICAL MANAGEMENT, INC.
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

                            ------------------------
DELAWARE                                      8099                                     65-0676079
     (STATE OR OTHER JURISDICTION OF               (PRIMARY STANDARD INDUSTRIAL                      (I.R.S. EMPLOYER
      INCORPORATION OR ORGANIZATION)               CLASSIFICATION CODE NUMBER)                    IDENTIFICATION NUMBER)
------------------------
 
                     4800 NORTH FEDERAL HIGHWAY, SUITE 104D
                           BOCA RATON, FLORIDA 33431
                                 (561) 391-1311
              (ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
       INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)

                            ------------------------
 
                              NARESH NAGPAL, M.D.
                     PRESIDENT AND CHIEF EXECUTIVE OFFICER
                     4800 NORTH FEDERAL HIGHWAY, SUITE 104D
                           BOCA RATON, FLORIDA 33431
                                 (561) 391-1311
           (NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
                   INCLUDING AREA CODE, OF AGENT FOR SERVICE)

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

                                With copies to:
LAWRENCE G. GRAEV, ESQ.                                           ROBERT ROSENMAN, ESQ.
               O'SULLIVAN GRAEV & KARABELL, LLP                                        JOHN W. WHITE, ESQ.
                     30 ROCKEFELLER PLAZA                                            CRAVATH, SWAINE & MOORE
                   NEW YORK, NEW YORK 10112                                             825 EIGHTH AVENUE
                        (212) 408-2400                                              NEW YORK, NEW YORK 10019
                                                                                         (212) 474-1000
------------------------
 
     APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
 
     If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /
 
     If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
 
     If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
 
     If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /

                            ------------------------
 
                        CALCULATION OF REGISTRATION FEE
PROPOSED
                                                                 MAXIMUM OFFERING        PROPOSED
              TITLE OF EACH CLASS                 AMOUNT TO BE       PRICE PER      MAXIMUM AGGREGATE       AMOUNT OF
         OF SECURITIES TO BE REGISTERED           REGISTERED(1)      SHARE(2)       OFFERING PRICE(2)   REGISTRATION FEE
Common Stock (par value $.001 per share)........         shares     $                 $34,500,000           $10,455
(1) Includes      shares that the Underwriters have the option to purchase to
    cover over-allotments, if any.

(2) Estimated solely for the purpose of calculating the registration fee.

                            ------------------------
 
     THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR

DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON
SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION.  THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE.  THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.

               SUBJECT TO COMPLETION, DATED SEPTEMBER 16, 1997
 
PROSPECTUS
 
                                             SHARES
 
                          BMJ MEDICAL MANAGEMENT, INC.
 
                                  COMMON STOCK
 
     All of the             shares of Common Stock offered hereby are being
issued and sold by the Company. Prior to this offering, there has been no public
market for the Common Stock. It is currently estimated that the initial public
offering price will be between $     and $     per share. See 'Underwriting' for
a discussion of the factors considered in determining the initial public
offering price. The Company intends to apply for the Common Stock to be quoted
and traded on the Nasdaq National Market ('Nasdaq') under the symbol BONS.
 
                            ------------------------
 
            THE SHARES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK.
                    SEE 'RISK FACTORS' COMMENCING ON PAGE 6.
 
                            ------------------------
 
 THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
      EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
         SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
           COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS 
                PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
                            IS A CRIMINAL OFFENSE.
PRICE TO           UNDERWRITING          PROCEEDS TO
                                                        PUBLIC             DISCOUNT(1)          COMPANY(2)
Per Share.......................................  $                    $                    $
Total(3)........................................  $                    $                    $
(1) See 'Underwriting' for indemnification arrangements with the several
    Underwriters.

 
(2) Before deducting expenses payable by the Company estimated at $            .
 
(3) The Company has granted to the Underwriters a 30-day option to purchase up
    to          additional shares of Common Stock solely to cover 
    over-allotments, if any. If all such shares are purchased, the total Price
    to Public, Underwriting Discount and Proceeds to Company will be $        ,
    $        and $        , respectively. See 'Underwriting.'
 
                            ----------------------------
 
     The shares of Common Stock are offered by the several Underwriters subject
to prior sale, receipt and acceptance by them and subject to the right of the
Underwriters to reject any order in whole or in part and certain other 
conditions. It is expected that certificates for such shares will be available 
for delivery on or about                  , 1997, at the office of the agent 
of Hambrecht & Quist LLC in New York, New York.
 
HAMBRECHT& QUIST
                   RAYMOND JAMES & ASSOCIATES, INC.
                                                    VOLPE BROWN WHELAN & COMPANY
 
                 , 1997
ADDITIONAL INFORMATION
 
     A Registration Statement on Form S-1 under the Securities Act, including
amendments thereto, relating to the Common Stock offered hereby has been filed
by the Company with the Commission. This Prospectus does not contain all of the
information set forth in the Registration Statement and the exhibits and
schedules thereto. For further information with respect to the Company and the
Common Stock offered hereby, reference is made to such Registration Statement
and exhibits and schedules filed as a part thereof. A copy of the Registration
Statement may be inspected by anyone without charge at the Public Reference
Section of the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the regional offices of the Commission located at
7 World Trade Center, Suite 1300, New York, New York 10048 and Northwest Atrium
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of
all or any portion of the Registration Statement may be obtained from the Public
Reference Section of the Commission, 450 Fifth Street, N.W., Washington, D.C.
20549, upon payment of prescribed fees. The Commission maintains a WorldWide Web
site that contains reports, proxy and information statements and other
information regarding registrants that file electronically with the Commission.
Such reports, proxy and information statements and other information may be
found on the Commission's site address, http: //www.sec.gov. Copies of such
material also can be obtained from the Company upon request.
 
     Statements made in this Prospectus as to the contents of any contract,
agreement or other document referred to are not necessarily complete. With
respect to each such contract, agreement or other document filed as an exhibit
to the Registration Statement, reference is made to the exhibit for a more

complete description of the matter involved, and each such statement shall be
deemed qualified in its entirety by such reference.
 
                           ------------------------
 
     Forward-Looking Statements. Certain statements contained in this
Prospectus, including statements regarding the anticipated development and
expansion of the Company's business, the intent, belief or current expectations
of the Company, its directors or its officers, primarily with respect to the
future operating performance of the Company and other statements contained
herein regarding matters that are not historical facts are 'forward-looking'
statements. Because such statements include risks and uncertainties, actual
results may differ materially from those expressed or implied by such
forward-looking statements. Factors that could cause actual results to differ
materially from those expressed or implied by such forward-looking statements
include, but are not limited to, the potential inability to affiliate with
physician practices, the potential termination of contractual relationships,
fluctuations in the volume of procedures performed by the practices' physicians,
changes in the reimbursement rates for those services, uncertainty about the
ability to collect the appropriate fees for services provided or ordered by the
practices' physicians, as well as other risks detailed in 'Risk Factors,'
'Management's Discussion and Analysis of Financial Condition and Results of
Operations' and 'Business.'
 
                           ------------------------
 
     CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING STABILIZING TRANSACTIONS, SYNDICATE COVERING TRANSACTIONS AND PENALTY
BIDS. SEE 'UNDERWRITING.'
 
                                      2
PROSPECTUS SUMMARY
 
     The following summary is qualified in its entirety by the more detailed
information and financial statements including the notes thereto appearing
elsewhere in this Prospectus. Investors should carefully consider the
information set forth under the heading 'Risk Factors.' As used herein, the term
the 'Company' refers to BMJ Medical Management, Inc., a Delaware corporation;
the term 'Existing Practices' refer to the 20 Practices that have affiliated
with the Company as of the date of this Prospectus; and the term 'Practices'
includes the Existing Practices and other practices with which the Company may
affiliate in the future. Unless otherwise indicated, all information in this
Prospectus assumes no exercise of the Underwriters' over-allotment option.
 
                                 THE COMPANY
 
     The Company is a physician practice management company (a 'PPM') that
provides management services to physician practices that focus on
musculoskeletal care, which involves the medical and surgical treatment of
conditions relating to bones, muscles, joints and related connective tissues.

The broad spectrum of musculoskeletal care offered by the physician practices
ranges from acute procedures, such as spine or other complex surgeries, to the
treatment of chronic conditions, such as arthritis and back pain. The management
services provided by the Company include physician practice and network
development, marketing, payor contracting and financial, administrative and
clinical information management. As of the date of this Prospectus, the Company
has affiliated (the 'Affiliation Transactions') by entering into management
services agreements (the 'Management Services Agreements') with 20 Existing
Practices comprising 87 doctors practicing in Arizona, California, Florida,
Pennsylvania and Texas.
 
     The market for musculoskeletal care in the United States is significant and
growing. Total direct costs associated with the delivery of musculoskeletal care
exceeded $60 billion in 1988 and increased to approximately $72 billion in 1992.
The increase in expenditures can be attributed to various factors, including
improvements in medical technology, more active lifestyles which have resulted
in the growth of sports medicine and the overall aging of the population. In
1992, the 65-and-over age group represented approximately 12% of the U.S.
population, but accounted for more than half of all musculoskeletal care
expenditures. Historically, surgical and non-surgical orthopaedic specialists
have maintained separate practices; recently, however, musculoskeletal
physicians have begun to follow the consolidation trend seen elsewhere in the
health care industry.
 
     The Company's goal is to develop the leading musculoskeletal network in
each of its markets by aligning the Company's interests with those of the
Practices' physicians. The Company has divided the United States into three
geographic regions, and selects specific markets based primarily on population
size, which must be large enough to support a viable musculoskeletal physician
network. The Company's strategy consists of (i) expanding into targeted new
markets by affiliating with leading musculoskeletal practices; (ii) continuing
to develop its existing markets by strengthening and expanding the Practices in
order to achieve significant local market presence; (iii) introducing ancillary
services to expand the breadth of care directly offered by the Practices'
physicians; and (iv) developing and implementing a disease management
information system to foster curative and palliative regimens, improve provider
and patient access to resources and technology and deliver cost-effective,
quality care. The Company's long-term strategy includes developing and
implementing a musculoskeletal disease management program.
 
     Under the Management Services Agreements, the Company provides management,
administrative and development services to the Existing Practices, while the
Existing Practices retain, among other things, sole responsibility for all
aspects of the practice of medicine. The Company's revenues under the Management
Services Agreements are typically based on a specified percentage of Practice
revenues, generally 10% to 15%, rather than on a percentage of net operating
income. In addition, the Company typically assumes the Practices' clinic
overhead expenses and charges them back to the Practices at actual cost, and
receives two-thirds of savings realized through the Company's purchasing power.
The Company seeks to develop and maintain long-term relationships with the
Practices by providing physician performance incentives through equity ownership
in the Company, ensuring physician clinical autonomy and participation in
Practice governance and delivering national support services on a regional
basis. The Company believes that its affiliation model, versus other existing

models, provides less financial risk to the Company while enhancing its
relationships with the Practices' physicians.
 
                                      3
THE OFFERING
Common Stock offered by the Company............................        shares
 
Common Stock to be outstanding after the offering..............        shares(1)
 
Use of proceeds................................................  Repayment of debt and general corporate
                                                                 purposes, including possible future
                                                                 affiliations. See 'Use of Proceeds.'
 
Proposed Nasdaq National Market symbol.........................  BONS
------------------
(1) Excludes 1,203,000 shares of Common Stock issuable upon exercise of
    outstanding options to purchase Common Stock with a weighted average
    exercise price of $0.39 per share and 254,165 shares of Common Stock
    issuable upon exercise of outstanding warrants to purchase Common Stock with
    a weighted average exercise price of $4.35 per share. See 'Management' and
    'Certain Transactions.'
 
                                      4
SUMMARY HISTORICAL AND PRO FORMA FINANCIAL INFORMATION
PRO FORMA
                                              YEAR ENDED         PRO FORMA             SIX MONTHS ENDED             AS
                                             DECEMBER 31,    AS ADJUSTED(1)(2)            JUNE 30,             ADJUSTED(2)(3)
                                             ------------       YEAR ENDED        ------------------------    SIX MONTHS ENDED
                                                 1996        DECEMBER 31, 1996       1996          1997        JUNE 30, 1997
                                             ------------    -----------------    ----------    ----------     -------------
                                                            (IN THOUSANDS, EXCEPT PER SHARE AND OPERATING DATA)
STATEMENT OF INCOME DATA:
  Practice revenue, net...................     $  6,029           $63,748          $      --     $  19,907        $ 34,845
  Less: physician and other provider
    services..............................       (2,912)          (25,626)                --        (9,509)        (13,414)
                                             ------------         -------         ----------    ----------         -------
  Management fee revenue..................        3,117            38,122                 --        10,398          21,441
  Costs and expenses:
    Medical support services..............        2,844            31,136                 --         9,541          17,852
    General and administrative............        1,278             1,278                 51         2,433           2,433
    Depreciation and amortization.........          104               733                  1           300             534
    Interest expense (income), net........           --                                   --            --
                                             ------------         -------         ----------    ----------         -------
      Total costs and expenses............        4,226                                   52        12,274
                                             ------------         -------         ----------    ----------         -------
  Income (loss) before income taxes.......       (1,109)                                 (52)       (1,876)
  Income taxes(4).........................           --                                   --            --
                                             ------------         -------         ----------    ----------         -------
  Net income (loss).......................     $ (1,109)          $                $     (52)    $  (1,876)       $
                                             ------------         -------         ----------    ----------         -------
                                             ------------         -------         ----------    ----------         -------
  Net income (loss) per common share:
    Primary...............................     $  (0.07)          $                $    0.00     $   (0.11)       $
    Diluted...............................     $  (0.07)          $                $    0.00     $   (0.11)       $
  Weighted average common shares
    outstanding:
    Primary...............................       15,811                               15,206        16,469
    Diluted...............................       15,811                               15,206        16,469
OTHER OPERATING DATA:
  Number of Practices (end of period).....            3                20                  0             8              20
  Number of physicians (end of period)....           34                87                  0            57              87
JUNE 30, 1997
                                                                         ------------------------------------------------
                                                                                                           PRO FORMA
                                                                         ACTUAL      PRO FORMA(4)      AS ADJUSTED(4)(5)
                                                                         -------    ---------------    ------------------
                                                                                          (IN THOUSANDS)
BALANCE SHEET DATA:
  Cash and cash equivalents...........................................   $ 6,915        $ 9,484             $
  Working capital.....................................................     7,490         14,613
  Total assets........................................................    29,456         44,487
  Long-term debt, less current portion................................     6,540         17,340
  Total stockholders' equity..........................................    11,546         15,659
------------------
 
     The unaudited pro forma financial information presented does not purport to
(i) represent what the results of operations or financial condition of the
Company would actually have been if the transactions reflected therein had in
fact occurred on the assumed dates or (ii) project the future results of
operations or financial condition of the Company.
(1) Gives effect to the Affiliation Transactions as if they had occurred on
    January 1, 1996. See 'The Company,' 'Pro Forma Financial Information' and
    'Management's Discussion and Analysis of Financial Condition and Results of
    Operations.'
(2) Gives effect to this offering (the 'Offering') as if it had occurred at
    January 1, 1996 at an assumed initial public offering price of $      per
    share and the receipt and application of the estimated net proceeds
    therefrom. See 'Use of Proceeds' and 'Capitalization.'
(3) Gives effect to the Affiliation Transactions completed in 1997 (the '1997
    Affiliation Transactions') as if they had occurred on January 1, 1997. See
    'The Company,' 'Pro Forma Financial Information' and 'Management's
    Discussion and Analysis of Financial Condition and Results of Operations.'
(4) Gives effect to the 1997 Affiliation Transactions completed after June 30,
    1997 as if such transactions had occurred on June 30, 1997. See 'The
    Company,' 'Management's Discussion and Analysis of Financial Condition and
    Results of Operations,' 'Pro Forma Financial Information' and
    'Capitalization.'
(5) Gives effect to the completion of this Offering at an assumed initial public
    offering price of $      per share and the receipt and application of the
    estimated net proceeds therefrom as if such transactions had occurred on
    June 30, 1997. See 'Use of Proceeds' and 'Capitalization.'
 
                                      5
RISK FACTORS
 
     An investment in the Common Stock offered hereby involves a high degree of
risk. Prospective investors should carefully consider the following risk
factors, in addition to the other information contained in this Prospectus,
before purchasing the securities offered hereby. This Prospectus contains
forward-looking statements. Discussions containing such forward-looking
statements may be found in the material set forth below and under 'Management's
Discussion and Analysis of Financial Condition and Results of Operations' and
'Business,' as well as in the Prospectus generally. Prospective investors are
cautioned that any such forward-looking statements are not guarantees of future
performance and involve risks and uncertainties. Actual events or results may

differ materially from those discussed in the forward-looking statements as a
result of various factors, including, without limitation, the risk factors set
forth below and the matters set forth in this Prospectus generally.
 
     Lack of Significant Combined Operating History.  The Company was
incorporated in January 1996 and, prior to its affiliation with the first
Existing Practice in July 1996, had no history of operations or earnings. Before
affiliating with the Company, the Existing Practices operated as independent
entities, and there can be no assurance that the Company will be able to
integrate and manage profitably the assets and personnel of the Existing
Practices or of any other Practices. In addition, there can be no assurance that
the Company's affiliation with any Practice will not result in a loss of
patients or other unanticipated adverse consequences, any of these events could
have a material adverse effect on the Company. The Company's strategy is
predicated on its ability to achieve significant consolidation of Practices and
to sustain and enhance the profitability of such Practices. There can be no
assurance that the Company's personnel, systems and infrastructure will be
sufficient to achieve effective and profitable management of the Practices under
the Management Services Agreements or to implement effectively the Company's
strategies. See 'Business--Strategy' and 'Management.'
 
     Dependence on the Practices and Physicians; Rescission Rights.  The
Company's revenues are dependent on its affiliation through Management Services
Agreements with the Practices and on the success of the Practices. There can be
no assurance that the Practices will maintain successful operations, that they
will not terminate their Management Services Agreements or that key physicians
in a particular Practice will continue to affiliate with such Practice. For a
further description of the Management Services Agreements, including a
description of their termination provisions and non-competition arrangements
with the Practices' physicians, see 'Business--Contractual Agreements with the
Practices.' For a discussion of circumstances under which a Management Services
Agreement may be rendered unenforceable, see '--Government Regulation.'
 
     The Company has entered into a Management Services Agreement with South
Texas Spinal Clinic, P.A. ('STSC') which permits STSC and the individual
physicians to rescind the Affiliation Transaction on (i) November 1, 1998 if the
Company has not affiliated with an aggregate of 16 physicians in San Antonio,
Texas by such date and (ii) November 1, 2003. In addition, the Management
Services Agreements for five other Existing Practices comprising eight
physicians contain provisions that permit such Existing Practices to rescind
their Affiliation Transactions on their respective seventh anniversaries.
 
     Some of the Existing Practices derive a significant portion of their
revenue from a limited number of physicians. There can be no assurance that the
Company or the Existing Practices will maintain cooperative relationships with
key members of any such Practice. In addition, key members of a Practice could
retire, become disabled or otherwise become unable or unwilling to continue
generating revenues at the current level or practicing medicine with such
Practice. The loss by a Practice of one or more key members would have a
material adverse effect on the revenue of such Practice and on the Company. The
Company has the right under the Management Services Agreements to obtain and
maintain life insurance in the amount of $500,000 on the life of each licensed
physician employed by each Practice for the benefit of the Company. Nonetheless,
the loss of revenue by any Practice as a result of a physician's death could

have a material adverse effect on the Company. Additionally, although the
Company has entered into noncompetition agreements with each Practice and its
respective physicians, there can be no assurance as to the enforceability of
such noncompetition agreements.
 
     Risks Related to New Affiliations and Expansion.  The Company is exposed to
significant growth-related risks because an essential element of its strategy is
to affiliate with and/or to merge affiliated musculoskeletal practices and to
expand the business of such practices. The Company's strategy also involves
assisting the Practices in recruiting physicians and, to the extent permitted by
applicable law, contracting with or establishing
 
                                       6
ancillary musculoskeletal facilities (the 'Ancillary Service Facilities'), such
as ambulatory surgery, physical therapy and magnetic resonance imaging ('MRI')
centers and mobile units, and contracting with associated providers. Identifying
appropriate physician group practices, individual physicians and ancillary
providers and facilities, and proposing, negotiating and implementing
economically attractive affiliations with such practices, physicians and
providers, as well as merging such practices, can be a lengthy, complex and
costly process. The failure of the Company to affiliate with additional
musculoskeletal practices or merge practices would have a material adverse
effect on the Company's ability to execute its expansion strategy. Moreover,
future affiliations or mergers, if any, may not contribute to the Company's
profitability or otherwise facilitate the successful implementation of the
Company's overall strategy. See 'Business--Strategy.'
 
     To date, the Company has not opened any Ancillary Service Facilities. The
Company is unable to predict whether it will be able to obtain the critical mass
in any particular market needed to establish Ancillary Service Facilities and,
if so, whether the Company and/or the Practices will be able to consistently
minimize costs and maintain a sufficient volume of patient visits to the
Ancillary Service Facilities for such facilities to be profitable. Moreover,
such facilities must be structured and operated to comply with various federal
and state laws. Future judicial or regulatory interpretation could adversely
affect such operations. See '--Government Regulation.'
 
     The Company's expansion is also dependent upon factors such as the ability
of the Company and the Practices to (i) adapt the Company's arrangements with
the Practices to comply with current and future legal requirements, including
state prohibitions on fee-splitting and corporate practice of medicine, state
and federal limitations on physicians ordering ancillary services from, or
referring patients to, facilities with which such physicians have a financial
relationship, state and federal anti-kickback provisions and state regulation of
the business of insurance; (ii) obtain regulatory approval and certificates of
need, where necessary; and (iii) comply with licensing requirements applicable
to physicians and to facilities operated, and services offered, by physicians.
No assurance can be given that the application of current laws or changes in
legal requirements would not have a material adverse effect on the Company.
Moreover, the Company and the Practices may not be able to obtain and maintain
all necessary regulatory approvals or comply with all applicable laws,

regulations and licensing requirements. See '--Government Regulation' and
'Business--Government Regulation and Supervision.'
 
     Since its inception, the Company's business has grown rapidly. Continued
rapid growth through affiliation and expansion could impair the Company's
ability to efficiently provide its management services to the Practices to
adequately manage and supervise its employees. There can be no assurance that
the Company will be able to expand its infrastructure and management to achieve
planned growth. In addition, the Company may be unable to retain personnel or
acquire other resources necessary to service growth adequately.
 
     Dependence on Information Systems.  No assurance can be given that the
Company will be able to enhance existing and/or implement new information
systems that can be integrated with the Practices' existing operational,
financial and clinical information gathering systems. In addition to their
integral role in helping the Practices realize operating efficiencies, such new
systems are critical to developing and implementing a disease management
information database. See 'Business--Strategy.' To develop its network, the
Company must continue to invest in and administer sophisticated management
information systems. The Company may experience unanticipated delays,
complications and expenses in implementing, integrating and operating such
systems. Furthermore, such systems may require modifications, improvements or
replacements as the Company expands and as new technologies become available.
Such modifications, improvements or replacements may require substantial
expenditures and may require interruptions in operations during periods of
implementation. Moreover, implementation of such systems is subject to the
availability of information technology and skilled personnel to assist the
Company in creating and implementing the system. The failure to successfully
implement and maintain operational, financial and clinical information systems
would have a material adverse effect on the Company. See 'Business--BMJ
Operations.'
 
     Reductions in Third Party Reimbursements.  The health care industry is
experiencing a trend toward cost containment as third party payors, such as
governmental programs (e.g., Medicare and Medicaid), private insurance plans and
managed care plans, seek to impose lower reimbursement and utilization rates and
to negotiate reduced capitated payment schedules with service providers. Further
reductions in payments to health care providers or other changes in
reimbursement for health care services could have a material adverse effect on
 
                                       7
the Practices and, as a result, on the Company. These reductions could result
from changes in current reimbursement rates or from a shift in clinical
protocols to non-surgical solutions for orthopaedic conditions. The Company may
not be able to successfully offset any or all of the payment reductions that may
occur.
 
     The federal government has implemented, through the Medicare program, a
resource-based relative value scale ('RBRVS') payment methodology for heath care
provider services. RBRVS is a fee schedule that, except for certain geographical
and other adjustments, pays similarly situated health care providers the same

amount for the same services. The RBRVS is subject to annual increases or
decreases at the discretion of Congress or the federal Health Care Financing
Administration ('HCFA'). To date, the implementation of RBRVS has reduced
payment rates for certain of the procedures historically provided by the
Existing Practices. Furthermore, HCFA is required by law to recalibrate the
practice expense component of the RBRVS over the next four years in a way that
will have positive effects on payments to primary care providers but will
decrease payments for most services provided by specialists, including many
services provided by the Existing Practices. For the six months ended June 30,
1997, the net practice revenue from Medicare constituted approximately 13% of
the aggregate net practice revenue of the Existing Practices. RBRVS types of
payment systems have also been adopted by certain private third party payors and
may become a predominant payment methodology. Wider implementation of such
programs would reduce payments from private third party payors, and could
indirectly reduce revenue to the Company.
 
     Rates paid by private third party payors are based on established health
care provider and hospital charges and are generally higher than Medicare
payment rates. A change in the patient mix of any of the Practices that results
in a decrease in patients covered by private insurance could have a material
adverse effect on the Practices and, as a result, on the Company.
 
     Government Regulation.  Existing and future federal and state regulation of
health care, including the relationships among health care providers such as
physicians and other clinicians, could have a material adverse effect on the
Company's financial condition and results of operations. While the Company
believes that its operations are conducted in material compliance with
applicable laws, it has not received or applied for a legal opinion from counsel
or from any federal or state judicial or regulatory authority to this effect,
and many aspects of the Company's business operations have not been the subject
of state or federal regulatory interpretation. The laws applicable to the
Company are subject to evolving interpretations, and therefore there can be no
assurance that a review of the Company's operations by federal or state judicial
or regulatory authorities would not result in a determination that the Company,
or one of the Practices has violated one or more provisions of federal or state
law. Any such determination could have a material adverse effect on the Company.
 
     Expansion of the operations of the Company to certain jurisdictions may
require modification of the Company's form of relationship with the Practices,
which could have a material adverse effect on the Company. Furthermore, the
Company's ability to expand into, or to continue to operate within, certain
jurisdictions may depend on the Company's ability to modify its or the
Practices' operational structure to conform to such jurisdictions' regulatory
framework or to obtain necessary approvals, licenses and/or permits. Any
limitation on the Company's ability to expand could have a material adverse
effect on the Company. See 'Business--Government Regulation and Supervision.'
 
          Physician Self-Referral Laws.  The federal Self-Referral Law (also
known as the 'Stark Law') imposes restrictions on physicians' referrals for
designated health services reimbursable by Medicare or Medicaid to entities with
which any such physician (or an immediate family member of such physician) has a
financial relationship, whether through an ownership, debt or compensation
arrangement. Many states, including several of the states in which the Company
conducts business, also have adopted self-referral laws. Unlike the Stark Law,

however, many state self-referral laws are not limited to Medicare or Medicaid
reimbursed services. In addition, state self-referral laws may apply to all
health care services, not just certain designated health services, and state
self-referral laws may apply only to ownership relationships and not to
compensation relationships. State workers' compensation laws also may contain
self-referral prohibitions. Unless a statutory exception applies, if a physician
has a financial relationship in or with the Company, then that physician is
prohibited from referring patients to any Ancillary Service Facilities owned (or
possibly managed) by the Company for the furnishing of designated health
services or other health care services as defined by federal or state law. In
addition, neither the Company nor the physician is authorized to bill for
services furnished to such physician's patients by the
 
                                       8
Company or at such Ancillary Service Facilities where there is no exception
available for the physician's financial relationship with the Company. Penalties
for violating these restrictions usually are limited to civil penalties. State
laws also may require a physician to disclose to patients the nature of the
physician's financial relationship with the Company and any Ancillary Service
Facilities prior to recommending the Company and any Ancillary Service
Facilities to that patient.
 
     In the preamble to the adoption of certain regulations regarding the Stark
Law, adopted when such law only regulated clinical laboratory services, HCFA
stated that it would not recognize any group in which the physicians were in
multiple corporate entities as a 'group practice' under the Stark Law. SCOI is a
partnership comprised of individual physician members as well as single member
professional corporations ('P.C.s'). The use of P.C.s as partners at SCOI was
historical and designed to accommodate practice structures that existed prior to
the creation of SCOI. Recently, at the Eighteenth Annual Institute on Medicare
and Medicaid Payment Issues, co-sponsored by the American Academy of Healthcare
Attorneys and National Health Lawyer's Association, an HCFA representative
stated that HCFA will recognize a 'group practice' consisting of multiple
physician entities, such as P.C.s, provided that each P.C. or other physician
entity is limited to one physician member. Nevertheless, given HCFA's prior
written statement and HCFA's position that its written comments on the Stark Law
as applied to clinical laboratories reflect its view on the Stark Law in its
current expanded form, it may be necessary to restructure SCOI before any
Stark-designated health services are provided. Failure to do so would result in
the risk of the penalties described above, or the inability of SCOI to provide
Stark-designated health services, either of which could have a material adverse
effect on the Company. See 'Business--Government Regulation and Supervision.'
 
          Fraud and Abuse.  The anti-kickback provisions of the Social Security
Act, as well as anti-kickback laws adopted by many states, including the states
in which the Company conducts business, prohibit the solicitation, payment,
receipt or offering of any direct or indirect remuneration in return for, or as
an inducement for, certain referrals of patients for items or services covered
by health benefits programs. State laws governing workers' compensation may also
contain anti-kickback prohibitions. In addition, federal law and some state laws
impose significant penalties for false or improper billings. These anti-kickback

and false claims laws are commonly referred to as the fraud and abuse laws.
Violations of any of these laws may result in substantial civil or criminal
penalties, and, in the case of violations of federal laws, exclusion from
participation in the Medicare and Medicaid programs. Such exclusion and
penalties, if applied to the Company, its Ancillary Service Facilities or the
Practices, would have a material adverse effect on the Company. Further, the
application of these laws is subject to modification by statutory amendment or
promulgation of regulations and any such change could have a material adverse
effect on the Company.
 
          State Regulation of the Practices.  The laws of many states, including
one or more of the states in which the Company conducts business: (i) prohibit
business corporations, such as the Company, from practicing medicine or
exercising control over the medical judgments or decisions of physicians and
from engaging in certain financial arrangements involving the division of
professional fees earned by physicians (commonly referred to as
'fee-splitting'); (ii) require entities seeking to provide certain ancillary
services (including ambulatory surgery) to be licensed and/or to have obtained a
certificate of need related to the service; and (iii) require licensure or
certification of, and regulate provider networks that agree to provide or
arrange for the provision of certain health services to members of health care
plans. These laws and their interpretations vary from state to state and are
enforced by both the courts and regulatory authorities, each of which has broad
discretion. Violations of these laws could result in censure or loss of license
for the physician, civil or criminal penalties, or other sanctions. The
licensure or certificate of need laws of applicable states could also preclude
the Company from expanding its operated or managed services to include certain
ancillary services, which could have a material adverse effect on the Company.
In addition, a determination in any state that the Company is engaged in the
corporate practice of medicine or any unlawful fee-splitting arrangement could
render any Management Services Agreement between the Company and a Practice
located in such state unenforceable or subject to modification, which could have
a material adverse effect on the Company. Although the Company believes that it
and the Existing Practices are in material compliance with applicable state laws
and regulations relating to licensing, certificate of need, the corporate
practice of medicine and fee-splitting, there can be no assurance that
regulatory authorities or other parties will not assert that the Company or a
Practice is engaged in the business of insurance or the corporate practice of
medicine in such states or that the management and
 
                                       9
administrative fees paid to the Company by the Practices constitute unlawful
fee-splitting or the corporate practice of medicine. If such a claim were
asserted successfully, the Company could be subject to civil and criminal
penalties and the Company or the Practices could be required to restructure
their contractual arrangements. Such results or the inability of the Company or
the Practices to restructure their relationships to comply with such
prohibitions could have a material adverse effect on the Company's financial
condition and results of operations. See 'Business--Government Regulation and
Supervision--State Law.'
 

     In Texas, it is unlawful to provide 'staff leasing services' without a
license issued by the State. The Company believes that the provision of
non-physician personnel to STSC in connection with the Management Services
Agreement between the Company and STSC constitutes staff leasing services
subject to licensure under Texas law. While the Company is in the process of
obtaining such a license, there can be no guaranty that the State of Texas will
approve the Company's application. Failure to obtain a license to provide staff
leasing services may result in criminal penalties, may prevent the Company from
providing personnel to STSC and may, therefore, have a material adverse effect
on the Company.
 
          Antitrust Issues.  Because the Practices remain separate legal
entities, they may be deemed competitors subject to a range of antitrust laws
that prohibit anti-competitive conduct, including price fixing, concerted
refusals to deal and division of market. The Company intends to comply with such
state and federal laws as may affect its development of integrated health care
delivery networks, but there can be 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 the Practices.
 
          Numerous Reform Initiatives.  In addition to extensive existing
government health care regulation, there are numerous initiatives on the federal
and state levels for comprehensive reforms affecting the payment for, and
availability of, health care services. These initiatives include reductions in
Medicare and Medicaid payments, trends in adopting managed care for Medicare,
Medicaid and workers' compensation patients, regulation of entities that provide
managed care, and additional prohibitions related to financial relationships
between health care providers that are in a position to generate business for
each other. Certain of these health care proposals, if adopted, could have a
material adverse effect on the Company. See '--Reliance on Affiliation and
Expansion,' '--Reductions in Third Party Reimbursements' and 
'Business--Government Regulation and Supervision.'
 
     Changes in Workers' Compensation Market. Legislative reforms in some
states permit employers to designate health plans such as HMOs to cover workers'
compensation claimants. Because many health plans have the capacity to manage
health care for workers' compensation claimants, such legislation may intensify
competition in the market served by the Company. Within the past few years,
several states have experienced decreases in the number of workers' compensation
claims and the average cost per claim, both of which have been reflected in
workers' compensation insurance premium rate reductions in those states. The
Company believes that declines in workers' compensation costs in these states
are due principally to intensified efforts by payors to manage and control claim
costs, improved risk management by employers and legislative reforms. In Florida
(a state in which the Company does business), all workers' compensation services
must be provided under a managed care arrangement approved by Florida's Agency
for Health Care Administration. If declines in workers' compensation costs occur
in many states and persist over the long-term, they may have an adverse impact
on the Company's business and results of operations. A number of states,
including California and Pennsylvania (states in which the Company does
business), have regulations such as anti-kickback and self-referral laws that
are specific to the workers' compensation program. See 'Business--Payor
Contracting--Workers' Compensation' and 'Business--Government Regulation and
Supervision.'

 
     Dependence on Managed Care Contracts.  As more patients enter into health
care coverage arrangements with managed care payors, no assurance can be given
that the Company will be able to negotiate contracts on behalf of the Practices
with health maintenance organizations ('HMOs'), employer groups and other
private third party payors. The inability of the Company to enter into such
arrangements on behalf of the Practices, or unfavorable terms that may be
contained in such arrangements, could have a material adverse effect on the
Company.
 
     The Company may seek to negotiate with third party payors on behalf of the
Practices and other physicians or group practices willing to permit the Company
to negotiate on their behalf. The Company anticipates that, in
 
                                       10
the future, the payor contracts entered into on behalf of the Practices and any
related network physicians may include contracts based on capitated fee
arrangements. Under some of these types of contracts, a health care provider
agrees either to accept a predetermined dollar amount per member per month in
exchange for undertaking to provide all covered services to patients or to
provide treatment on an episode of care basis. Such health care providers bear
the risk, generally subject to certain loss limits, that the aggregate costs of
providing medical services will not exceed the predetermined amounts. Some
agreements may also contain 'shared risk' provisions under which the Practices
may earn additional compensation based on utilization control of institutional,
ancillary and other services to patients, and the Practices may be required to
bear a portion of any loss in connection with such 'shared risk' provisions. If
patients or enrollees covered by such contracts require more frequent or, in
certain instances, more extensive care than anticipated, there could be a
material adverse effect on a Practice and, therefore, on the Company. Revenue
negotiated under risk-sharing or capitated contracts could be insufficient to
cover the costs of the health care services provided. Any such reduction or
elimination of earnings to the Practices under such fee arrangements could have
a material adverse effect on the Company.
 
     No assurance can be given that the Company or the Practices will be able to
establish or maintain satisfactory relationships with managed care and other
third party payors, many of which already have existing provider structures in
place and may not be able or willing to change their provider networks. In
addition, any significant loss of revenue by the Practices as a result of the
termination of third party payor contracts or otherwise would have a material
adverse effect on the Company. See 'Business--Government Regulation and
Supervision.'
 
     Need for Additional Funds.  The Company's expansion and acquisition
strategy will require substantial capital, and no assurance can be given that
the Company will be able to raise additional funds through debt financing or the
issuance of equity or debt securities. Sufficient funds may not be available on
terms acceptable to the Company, if at all. If equity securities are issued,
either to raise funds or in connection with future affiliations, dilution to the
Company's stockholders may result, and if additional funds are raised through

the incurrence of debt, the Company may become subject to restrictions on its
operation and finances. Such restrictions may have a material adverse effect on,
among other things, the Company's ability to pursue its affiliation and
expansion strategy. See 'Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources.'
 
     Risks Related to Intangible Assets.  The Company has a significant amount
of intangible assets. As a result of the Affiliation Transactions, intangible
assets (net of accumulated amortization) of approximately $7.3 million have been
recorded on the Company's balance sheet as of June 30, 1997. Affiliations that
result in the recognition of intangible assets will cause amortization expense
to increase further. Although the Company's net unamortized balance of
intangible assets acquired and anticipated to be acquired was not considered to
be impaired as of June 30, 1997, any future determination that a significant
impairment has occurred would require the write-off of the impaired portion of
unamortized intangible assets, which could have a material adverse effect on the
Company's results of operations. See 'Management's Discussion and Analysis of
Financial Condition and Results of Operations.'
 
     Intense Competition.  Competition for affiliation with additional
musculoskeletal physician practices is intense and may limit the availability of
suitable practices with which the Company may be able to affiliate. Several
companies with established operating histories and greater resources than the
Company, including multi-specialty companies, companies that specialize in
orthopedics, some hospitals, clinics and HMOs, are pursuing activities similar
to those of the Company. The Company may not be able to compete effectively with
such competitors, additional competitors could enter the market and such
competition could make it more difficult and costly to affiliate with, and
provide management services to, musculoskeletal physician practices on terms
beneficial to the Company. The Company also believes that changes in
governmental and private reimbursement policies, among other factors, have
resulted in increased competition among providers of medical services. The
Practices face competition from several sources, including sole practitioners,
single and multi-specialty groups, hospitals and managed care organizations. The
Company's strategy includes the development of Ancillary Service Facilities.
Pursuit of this strategy will subject the Company to competition with other
providers of such facilities, some of which will have greater financial
resources and experience than the Company. There can be no assurance that the
Company or the Practices will be able to compete effectively in the markets they
serve. See 'Business--Competition.'
 
                                       11
Dependence on Key Personnel.  The Company is dependent upon the ability and
experience of its executive officers and key personnel, including Dr. Naresh
Nagpal, the Company's President and Chief Executive Officer, for the management
of the Company and the implementation of its business strategy. The Company
currently has an employment contract with Dr. Nagpal. Because of the difficulty
in finding an adequate replacement for Dr. Nagpal, the loss of his services,
regardless of whether he may choose to compete with the Company, or the
Company's inability in the future to attract and retain management and other key
personnel could have a material adverse effect on the Company. See

'Management--Employment Agreements.'
 
     Exposure to Professional Liability.  Due to the nature of its business, the
Company from time to time may become a defendant in medical malpractice
lawsuits, and may become subject to the attendant risk of substantial damage
awards. Direct claims, suits or complaints could be asserted against the Company
relating to services delivered by the Practices (including claims with regard to
services rendered by the Existing Practices prior to the Affiliation
Transactions). While the Company has attempted to address these risks by
maintaining malpractice and other types of insurance on behalf of itself and the
Existing Practices, there can be no assurance that any claim asserted against
the Company, any of the Existing Practices, or any other Practice will be
covered by, or will not exceed the coverage limits of, applicable insurance.
However, the Company may not be able to maintain insurance in the future at a
cost that is acceptable to the Company, or at all. A successful malpractice
claim against any of the Practices, even if covered by insurance, or any claim
made against the Company that is not fully covered by insurance, could have a
material adverse effect on the Company. See 'Business--Corporate Liability and
Insurance.'
 
     No Prior Market; Possible Volatility of Stock Price.  Prior to this
Offering, there has been no public market for the Common Stock, and there can be
no assurance that an active public market for the Common Stock will develop or
continue after the Offering. The initial public offering price will be
determined by negotiations among the Company and Hambrecht & Quist LLC, Raymond
James & Associates, Inc. and Volpe Brown Whelan & Company, LLC and may not be
indicative of the market price for the Common Stock after the Offering. See
'Underwriting' for factors to be considered in determining the initial public
offering price. From time to time after the Offering, there may be significant
volatility in the market price of the Common Stock. Deviations in results of
operations from estimates of securities analysts, changes in general conditions
in the economy or the health care industry or other developments affecting the
Company or its competitors could cause the market price of the Common Stock to
fluctuate substantially. The equity markets have, on occasion, experienced
significant price and volume fluctuations that have affected the market prices
for many companies' securities and have often been unrelated to the operating
performance of these companies. Concern about the potential effects of health
care reform measures has contributed to the volatility of stock prices of
companies in health care and related industries and may similarly affect the
price of the Common Stock following the Offering. Any such fluctuations that
occur following completion of the Offering may adversely affect the market price
of the Common Stock.
 
     Shares Eligible for Future Sale.  The market price of the Common Stock of
the Company could be materially adversely affected by the sale of substantial
amounts of the Common Stock in the public market following the Offering. After
giving effect to the shares of Common Stock offered hereby, the Company will
have outstanding           shares of Common Stock. Of these shares, all of the
shares of Common Stock sold in the Offering will be freely tradeable without
restriction under the Securities Act of 1933, as amended (the 'Securities Act'),
except for any shares purchased by 'affiliates,' as that term is defined under
the Securities Act, of the Company. The remaining           shares are
'restricted securities' within the meaning of Rule 144 promulgated under the
Securities Act. Of these restricted shares,           shares will be eligible

for sale pursuant to Rule 144 in           1997 and the balance will be eligible
for sale at various times in 1998. See 'Shares Eligible for Future Sale.'
 
     The Company and the officers, directors and certain other stockholders of
the Company, who upon completion of the Offering will own in the aggregate
        shares of Common Stock, have agreed that they will not, without the
prior written consent of Hambrecht & Quist LLC, issue, sell, offer, contract to
sell, make any short sale, pledge, issue or sell any option or contract to
purchase, purchase any option or contract to sell, grant any option, right or
warrant to purchase or otherwise transfer or dispose of any shares of Common
Stock, or securities exchangeable for or convertible into or exercisable for any
rights to purchase or acquire any shares of Common Stock during the 180-day
period following the date of this Prospectus, except that such stockholders may
transfer securities pursuant to bona fide gifts and the Company may issue, and
grant options to purchase,
 
                                       12
shares of Common Stock under its current stock option plan and may issue shares
of Common Stock in connection with affiliation transactions, provided such
shares are subject to the 180-day lock-up agreement.
 
     Certain holders of shares of Common Stock outstanding on the date of this
Prospectus have certain registration rights with respect to such shares and
additional shares that may be issued to such persons upon exercise of options
and warrants (subject to certain limitations on the number of shares such
holders are entitled to have registered under any registration statement),
although all such holders have agreed to refrain from selling their shares
during the lock-up period. In addition, the Company intends to register
approximately 2,000,000 shares of Common Stock reserved for issuance under the
BMJ Medical Management, Inc. 1996 Stock Option Plan (the 'Option Plan') as soon
as practicable after completion of the Offering. See 'Management' and
'Underwriting.'
 
     Control by Existing Stockholders.  Following the completion of the
Offering, the officers and directors of the Company and the physician owners of
the Existing Practices will beneficially own approximately      % of the
outstanding shares of Common Stock. Following the Offering, such persons may
effectively be able to control the affairs of the Company, including the ability
to delay or prevent a change of control of the Company. See 'Principal
Stockholders.'
 
     Potential Anti-Takeover Effects of Charter and By-laws Provisions; Possible
Issuances of Preferred Stock.  Certain provisions of the Restated Certificate of
Incorporation (the 'Certificate of Incorporation') and by-laws (the 'By-laws')
of the Company that will become operative upon the closing of this Offering may
be deemed to have anti-takeover effects and may delay, deter or prevent a change
in control of the Company that a stockholder might consider in his/her best
interest. These provisions (i) classify the Company's Board of Directors into
three classes, each of which will serve for different three-year periods; (ii)
provide that only the Board of Directors or certain members thereof or officers
of the Company may call special meetings of the stockholders; and (iii)

authorize the issuance of 'blank check' preferred stock having such
designations, rights and preferences as may be determined from time to time by
the Board of Directors. See 'Description of Capital Stock.'
 
     Immediate and Substantial Dilution.  Purchasers of the Common Stock in this
Offering will incur immediate and substantial dilution in the net tangible book
value per share of Common Stock of $       per share. See 'Dilution.'
 
                                       13
THE COMPANY
 
     The Company was founded by Dr. Nagpal in January 1996. Since its inception,
the Company has expanded its network through Affiliation Transactions and
through the addition of physicians to its Existing Practices to reach a total of
20 Existing Practices comprising 87 physicians in five states as of the date of
this Prospectus.
 
     In July 1996, the Company affiliated with its first Practice, Lehigh Valley
Bone, Muscle and Joint Group, LLC ('LVBMJ'), comprising five physicians. In
November 1996, the Company affiliated with STSC and the Southern California
Orthopedic Institute Medical Group ('SCOI'), resulting in the addition of a
total of 29 physicians located in Texas and California. The Company affiliated
with Lauderdale Orthopaedic Surgeons ('LOS') and Tri-City Orthopedic Surgery
Medical Group, Inc. ('Tri-City') in April 1997, Fishman & Stashak, M.D.'s, P.A.
(d/b/a Gold Coast Orthopaedics) ('Gold Coast') in June 1997 and Sun Valley
Orthopaedic Surgeons ('Sun Valley') in July 1997, resulting in the addition of a
total of 23 physicians. In addition to the foregoing Affiliation Transactions,
the Company has affiliated with 13 other Practices comprising 27 additional
physicians. In order to finance the Affiliation Transactions and provide for its
working capital needs, the Company has raised approximately $31.7 million
through a series of equity and debt financings. See 'Certain
Transactions--Equity and Debt Financings.'
 
     The Company was incorporated under the laws of Delaware in January 1996.
The Company's principal executive offices are located at 4800 North Federal
Highway, Suite 104D, Boca Raton, Florida 33431 and its telephone number is (561)
391-1311.
 
                                       14
USE OF PROCEEDS
 
     The net proceeds to the Company from the sale of the        shares of
Common Stock offered hereby are estimated to be $       ($       if the
Underwriters' over-allotment option is exercised in full), based on an assumed
initial public offering price of $       per share and after deducting estimated
underwriting discounts and expenses of the Offering. The Company intends to use
approximately $14.5 million of the net proceeds to repay certain indebtedness
and the remaining net proceeds for general corporate purposes, including

possible future affiliations.
 
     The indebtedness being repaid consists of (i) approximately $7.25 million
(the 'HCFP Debt') outstanding under several loan and security agreements
(collectively, the 'HCFP Loan Agreements') between the Company and HCFP Funding,
Inc. ('HCFP Funding'), an affiliate of Health Care Financial Partners; (ii)
approximately $5.0 million of subordinated debt (the 'Comdisco Loan')
outstanding under a Subordinated Loan and Security Agreement (the 'Comdisco Loan
Agreement') between the Company and Comdisco, Inc. ('Comdisco'); (iii)
approximately $1.5 million of subordinated debt (the 'Galtney Loan') outstanding
under a Subordinated Loan and Security Agreement (the 'Galtney Loan Agreement')
between the Company and Galtney Corporate Services, Inc. ('Galtney'); and (iv)
approximately $750,000 of subordinated debt owed to Dr. Nagpal (the 'Nagpal
Debt'). See 'Certain Transactions--Equity and Debt Financings.'
 
     The HCFP Debt was incurred for working capital purposes and to finance
Affiliation Transactions, bears interest at rates ranging from 10 1/4% to 12%
per annum and matures from 1999 to 2000. The indebtedness under the Comdisco
Loan and the Galtney Loan was incurred to finance Affiliation Transactions,
bears interest at 14% per annum and matures on December 31, 2000. The Nagpal
Debt was also incurred to finance Affiliation Transactions, bears interest at 8%
per annum and is payable on demand.
 
     Pending use of the remaining net proceeds for general corporate purposes,
the Company intends to invest such net proceeds in short-term, investment grade,
interest-bearing securities.
 
                                DIVIDEND POLICY
 
     The Company has never paid or declared dividends on the Common Stock and
does not anticipate paying any dividends on the Common Stock in the foreseeable
future. The Company is prohibited from paying dividends on the Common Stock
under the terms of the HCFP Loan Agreements and the Debenture Purchase Agreement
(as defined). See 'Management's Discussion and Analysis of Financial Condition
and Results of Operations-- Liquidity and Capital Resources' and 'Certain
Transactions--Equity and Debt Financings.'
 
                                       15
CAPITALIZATION
 
     The following table sets forth the actual capitalization of the Company at
June 30, 1997, the pro forma capitalization of the Company at June 30, 1997
after giving effect to the Affiliation Transactions and the pro forma
capitalization as adjusted to give effect to the sale of the        shares of
Common Stock offered hereby, based on an assumed initial public offering price
of $       per share and after deducting estimated underwriting discounts and
expenses of the Offering, and the application of the net proceeds therefrom. See
'Use of Proceeds.' The table should be read in conjunction with the Pro Forma
Financial Information and 'Management's Discussion and Analysis of Financial
Condition and Results of Operations' and the historical financial statements of
the Company and the Existing Practices appearing elsewhere in this Prospectus.
JUNE 30, 1997
                                                                                 -----------------------------------
                                                                                                          PRO FORMA
                                                                                 ACTUAL     PRO FORMA    AS ADJUSTED
                                                                                 -------    ---------    -----------
                                                                                  (IN THOUSANDS, EXCEPT SHARE DATA)
Short-term debt, including current portion of long-term debt and capital lease
  obligations.................................................................   $ 1,418     $ 1,536       $
                                                                                 -------    ---------    -----------
                                                                                 -------    ---------    -----------
Long-term debt and capital lease obligations, less current portion............   $ 6,540     $17,340       $ 4,000
Stockholders' equity:
  Convertible preferred stock--3,976,406 shares authorized, issued and
     outstanding; 4,184,740 shares authorized, issued and outstanding pro
     forma; and no shares issued and outstanding pro forma as adjusted........        40          42            --
  Common stock, $.001 par value--25,000,000 shares authorized; 8,306,462
     shares issued and outstanding; 10,277,479 shares issued and outstanding
     pro forma; and             shares issued and outstanding pro forma as
     adjusted(1)..............................................................         9          11
  Additional paid-in capital..................................................    14,482      18,591
  Accumulated deficit.........................................................    (2,985)     (2,985)       (2,985)
                                                                                 -------    ---------    -----------
     Total stockholders' equity...............................................    11,546      15,659
                                                                                 -------    ---------    -----------
          Total capitalization................................................   $18,086     $32,999       $
                                                                                 -------    ---------    -----------
                                                                                 -------    ---------    -----------
------------------
(1) Excludes 1,203,000 shares issuable upon exercise of outstanding options with
    a weighted average exercise price of $0.39 per share and 254,165 shares of
    Common Stock issuable upon exercise of outstanding warrants to purchase
    Common Stock with a weighted average exercise price of $4.35 per share. See
    'Management' and 'Certain Transactions.'
 
                                       16
DILUTION
 
     As of June 30, 1997, the pro forma net tangible book value of the Company
was approximately $15,659,000, or approximately $1.08 per share. Pro forma 'net
tangible book value per share' represents the amount of the Company's total pro
forma tangible assets less the Company's total pro forma liabilities divided by
the number of shares of Common Stock outstanding, after giving effect to the
conversion of all outstanding shares of Preferred Stock (including accrued
dividends) into shares of Common Stock. After giving effect to the sale of
       shares of Common Stock offered by the Company hereby based on an assumed

initial public offering price of $       per share and after deducting estimated
underwriting discounts and expenses of the Offering, the pro forma net tangible
book value of the Company at June 30, 1997 would have been approximately
$       or approximately $       per share of Common Stock, representing an
immediate increase in pro forma net tangible book value of $       per share to
existing stockholders and an immediate, substantial dilution of $       per
share to persons purchasing shares of Common Stock offered hereby. The following
table illustrates this dilution:
Assumed initial public offering price per share.................................               $
  Pro forma net tangible book value per share at June 30, 1997..................   $   1.08
  Increase attributable to price paid by new investors per share................
                                                                                   --------
Pro forma net tangible book value per share after the Offering..................
                                                                                               --------
Dilution per share to new investors.............................................               $
                                                                                               --------
                                                                                               --------
The following table sets forth, as of June 30, 1997, the pro forma number 
of shares of Common Stock purchased from the Company, the total consideration
paid to the Company and the average price paid per share by existing
stockholders and  purchasers of shares of Common Stock offered hereby, after
giving effect to (i) the sale of        shares of Common Stock offered hereby
based on an assumed initial public offering price of $       per share and
before deducting estimated underwriting discounts and expenses of the Offering
and (ii) the conversion of all outstanding shares of Preferred Stock of the
Company into shares of Common Stock.
SHARES PURCHASED        TOTAL CONSIDERATION       AVERAGE
                                                 ---------------------    ----------------------    PRICE PER
                                                   NUMBER      PERCENT      AMOUNT       PERCENT      SHARE
                                                 ----------    -------    -----------    -------    ---------
Existing stockholders.........................   14,462,219          %    $18,644,000          %      $1.29
New investors.................................
                                                 ----------    -------    -----------    -------
       Total..................................                  100.0%    $               100.0%
                                                 ----------    -------    -----------    -------
                                                 ----------    -------    -----------    -------
The foregoing computations do not include the effect of the issuance of
1,203,000 shares of Common Stock issuable upon exercise of outstanding options
with a weighted average exercise price of $0.39 per share and 254,165 shares of
Common Stock issuable upon exercise of outstanding warrants with a weighted
average exercise price of $4.35 per share. To the extent such options and
warrants are exercised, there will be further dilution to the new investors. See
'Management' and 'Certain Transactions.'

 
                                       17
PRO FORMA FINANCIAL INFORMATION
 
     The pro forma statement of operations for the six months ended June 30,
1997 gives effect to (i) the 1997 Affiliation Transactions and (ii) receipt and
application of the estimated net proceeds from this Offering at an assumed
initial public offering price of $       per share as if such transactions had
occurred on January 1, 1996. The pro forma statement of operations for the year
ended December 31, 1996 gives effect to (i) the Affiliation Transactions and
(ii) the receipt and application of the estimated net proceeds from this
Offering as if such transactions had occurred on January 1, 1996. The pro forma
balance sheet as of June 30, 1997 gives effect to (i) the 1997 Affiliation
Transactions, (ii) the receipt and application of the estimated net proceeds
from this Offering, (iii) the conversion of all outstanding Preferred Stock and
other outstanding equity securities into Common Stock concurrently with the
Offering as if all of such transactions had occurred on June 30, 1997. The pro
forma financial information is based on the financial statements of the Company,
after giving effect to the assumptions and adjustments in the accompanying notes
to the pro forma financial information. Although such information is based on
preliminary allocations of the consideration paid in connection with the 1997
Affiliation Transactions, the Company does not expect that the final allocations
will be materially different from such preliminary allocations.
 
     The pro forma financial information has been prepared by management based
on the historical financial statements of the Company and the Existing Practices
at and for the year ended December 31, 1996 and the six months ended June 30,
1997, adjusted where necessary to reflect the Affiliation Transactions as if the
related Management Service Agreements had been in effect during the entire
periods presented. The pro forma financial information is presented for
illustrative purposes and does not purport to represent what the results of
operations or financial condition of the Company for the periods or at the dates
presented would have been if such transactions had been consummated as of such
dates and is not indicative of the results that may be obtained in the future.
 
                          BMJ MEDICAL MANAGEMENT, INC.
                  UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
                         SIX MONTHS ENDED JUNE 30, 1997
1997 AFFILIATIONS(A)
                                              ----------------------------------------------
                                     THE                         GOLD    SUN       OTHER       PRO FORMA               PRO FORMA
                                 COMPANY(B)   TRI-CITY   LOS    COAST   VALLEY  AFFILIATIONS  ADJUSTMENTS  PRO FORMA  AS ADJUSTED
                                 -----------  --------  ------  ------  ------  ------------  -----------  ---------  -----------
                                                             (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Patient revenues, net...........   $19,907     $1,240   $1,600  $1,609  $1,358     $9,131       $    --     $34,845     $34,845
Less: physician and other
  provider services.............     9,509        578      653     764     646      2,194          (940)(c)  13,404      13,404

                                 -----------  --------  ------  ------  ------  ------------  -----------  ---------  -----------
Management fee revenue..........    10,398        662      947     845     712      6,937          (940)     21,441      21,441
Costs and expenses:
  Medical support services......     9,541        538      787     604     576      5,806            --      17,852
  General and administrative....     2,433         --       --      --      --         --            --       2,433
  Depreciation and
    amortization................       300         --       --      --      --         --           234 (d)     534
  Interest expense (income),
    net.........................        --         --       --      --      --         --           614 (e)     614
                                 -----------  --------  ------  ------  ------  ------------  -----------  ---------  -----------
    Total costs and expenses....    12,274        538      787     604     576      5,806           848      21,433
                                 -----------  --------  ------  ------  ------  ------------  -----------  ---------  -----------
(Loss) income before income
  taxes.........................    (1,876)       124      160     241     136      1,131            92           8
Income taxes....................        --         --       --      --      --         --             3 (f)       3            (g)
                                 -----------  --------  ------  ------  ------  ------------  -----------  ---------  -----------
Net (loss) income...............   $(1,876)    $  124   $  160  $  241  $  136     $1,131       $    89     $     5     $
                                 -----------  --------  ------  ------  ------  ------------  -----------  ---------  -----------
                                 -----------  --------  ------  ------  ------  ------------  -----------  ---------  -----------
Net (loss) income per common share:
  Primary.......................   $ (0.11)                                                                             $
  Diluted.......................   $ (0.11)                                                                             $
Weighted average common shares
  outstanding:
  Primary.......................    16,469
  Diluted.......................    16,469
18
BMJ MEDICAL MANAGEMENT, INC.
                  UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
                          YEAR ENDED DECEMBER 31, 1996
1997 AFFILIATIONS(A)
                                            1996 AFFILIATIONS(A)    ----------------------------------------------
                                  THE      -----------------------                     GOLD    SUN       OTHER       PRO FORMA
                              COMPANY(B)   LVBMJ    SCOI     STSC   TRI-CITY   LOS    COAST   VALLEY  AFFILIATIONS  ADJUSTMENTS
                              -----------  ------  -------  ------  --------  ------  ------  ------  ------------  -----------
                                                                       (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Patient revenues, net........   $ 6,029    $1,540  $17,907  $6,027   $3,478   $6,365  $3,434  $2,468    $ 16,500      $    --
Less: physician and other
 provider services...........     2,912      562     8,545   3,766    1,310    3,418   1,535   1,137       3,978        (1,537)(c)
                              -----------  ------  -------  ------  --------  ------  ------  ------  ------------  -----------
Management fee revenue.......     3,117      978     9,362   2,261    2,168    2,947   1,899   1,331      12,522        (1,537)
Costs and expenses:
 Medical support services....     2,844      824     8,766   1,628    1,820    2,310   1,384   1,084      10,476           --
 General and
   administrative............     1,278       --        --      --       --       --      --      --          --           --
 Depreciation and
   amortization..............       104       --        --      --       --       --      --      --          --          629 (d)
 Interest expense (income),
   net.......................        --       --        --      --       --       --      --      --          --        1,474 (e)
                              -----------  ------  -------  ------  --------  ------  ------  ------  ------------  -----------
   Total costs and
     expenses................     4,226      824     8,766   1,628    1,820    2,310   1,384   1,084      10,476        2,103
                              -----------  ------  -------  ------  --------  ------  ------  ------  ------------  -----------
(Loss) income before income
 taxes.......................    (1,109)     154       596     633      348      637     515     247       2,046         (566)
Income taxes.................        --       --        --      --       --       --      --      --          --        1,330(f)
                              -----------  ------  -------  ------  --------  ------  ------  ------  ------------  -----------
Net (loss) income............   $(1,109)   $ 154   $   596  $  633   $  348   $  637  $  515  $  247    $  2,046      $(1,896)
                              -----------  ------  -------  ------  --------  ------  ------  ------  ------------  -----------
                              -----------  ------  -------  ------  --------  ------  ------  ------  ------------  -----------
Net (loss) income per common share:
 Primary.....................   $ (0.07)
 Diluted.....................   $ (0.07)
Weighted average shares outstanding:
 Primary.....................    15,811
 Diluted.....................    15,811
PRO FORMA
                                             AS
                               PRO FORMA  ADJUSTED
                               ---------  ---------
Patient revenues, net........   $63,748    $63,748
Less: physician and other

 provider services...........    25,626     25,626
                               ---------  ---------
Management fee revenue.......    38,122     38,122
Costs and expenses:
 Medical support services....    31,136
 General and
   administrative............     1,278
 Depreciation and
   amortization..............       733
 Interest expense (income),
   net.......................     1,474
                               ---------  ---------
   Total costs and
     expenses................    34,621
                               ---------  ---------
(Loss) income before income
 taxes.......................     3,501
Income taxes.................     1,330           (g)
                               ---------  ---------
Net (loss) income............   $ 2,171    $
                               ---------  ---------
                               ---------  ---------
Net (loss) income per common
 Primary.....................              $
 Diluted.....................              $
Weighted average shares outst
 Primary.....................
 Diluted.....................
19
NOTES TO PRO FORMA STATEMENTS OF OPERATIONS
 
     Practice revenue represents the revenue of the Existing Practices reported
at the estimated realizable amounts from patients, third party payors and others
for services rendered, net of contractual and other adjustments. Management fee
revenue represents practice revenue less amounts retained by the Existing
Practices (consisting of physician and other provider services costs,
principally compensation and fees paid to physicians pursuant to the Management
Services Agreements). Under each Management Services Agreement, the Company
assumes responsibility for the management of the non-medical operations of the
Practice, employs substantially all of the non-professional personnel utilized
by the Practice and may provide the Practice with the facilities and equipment
used in its medical practice.
 
     The Company's operating expenses consist of the expenses incurred in
fulfilling its obligations under the Management Services Agreements. These
expenses include medical support services (principally clinic overhead expenses
that would have been incurred by the Existing Practices, including
non-professional employee salaries, employee benefits, medical supplies,
malpractice insurance premiums, rent and other expenses related to clinic

operations) and general and administrative expenses (personnel and
administrative expenses in connection with maintaining a corporate office that
provides management, contracting, administrative, marketing and development
services to the Existing Practices). The Practices' operating expenses prior to
affiliation with the Company consist of the clinic overhead expenses, including
non-professional employee salaries, employee benefits, medical supplies,
malpractice insurance premiums, rent, depreciation and amortization and general
and administrative expenses related to clinic operations which have been
presented as medical support services.
 
          (a) The 1996 Affiliations column presents historical information for
     the portion of the year preceding the Practices' affiliation with the
     Company as if the affiliations had occurred on January 1, 1996 and reflects
     the impact of applying the provisions of the Management Services Agreements
     relating to management fees payable to the Company. In the pro forma
     statement of operations for the year ended December 31, 1996, the 1997
     Affiliations columns present historical information of the 1997 Affiliation
     Transactions as if such transactions had occurred on January 1, 1996 and
     reflects the impact of applying the provisions of the Management Services
     Agreements. In the pro forma statements of operations for the six months
     ended June 30, 1997, the Company column includes the operations of the
     Existing Practices that affiliated with the Company in 1996 and the
     Existing Practices that affiliated with the Company in the first six months
     of 1997 from their respective dates of affiliation in 1997. The 1997
     Affiliation column presents historical information of the 1997 Affiliation
     Transactions as if such transactions had occurred on January 1, 1997 and
     reflects the impact of applying the provisions of the Management Services
     Agreements except for the Existing Practices that affiliated with the
     Company in the first six months of 1997 for which the information reflects
     the historical information for that portion of 1997 preceding the
     Practice's affiliation with the Company and reflects the impact of applying
     the provisions of the Management Services Agreements.
 
          (b) In the pro forma statement of operations for the year ended
     December 31, 1996, the Company column includes the operations of the
     Existing Practices that affiliated with the Company in 1996 from the date
     of affiliation and all actual expenses related to corporate infrastructure,
     which were primarily general and administrative expenses. In the pro forma
     statement of operations for the six months ended June 30, 1997, the Company
     column includes all operations of the Existing Practices that affiliated
     with the Company in 1996 and the operations of the Existing Practices that
     affiliated with the Company in the first six months of 1997 from the date
     of affiliation and all actual expenses related to corporate infrastructure,
     which were primarily general and administrative expenses. See 'Management's
     Discussion and Analysis of Financial Condition and Results of Operations.'
 
          (c) Reflects the impact of applying the provisions of the amended and
     restated Management Services Agreements of SCOI and LVBMJ relating to
     management fees payable to the Company retroactively to January 1, 1996 and
     1997.
 
          (d) Reflects increase in depreciation and amortization expense for
     intangible assets and furniture, fixtures and equipment based upon the
     Affiliation Transactions as if they had all occurred on January 1, 1996 and

     January 1, 1997. The intangible assets related to all the affiliations
     total approximately $13.8 million at June 30, 1997 and are being amortized
     over periods ranging from 7 to 30 years.
 
          (e) To record interest expense on debt issued in connection with the
     Affiliation Transactions as if such transactions had occurred on January 1,
     1996 and January 1, 1997.
 
          (f) To reflect the estimated income tax effect at an effective rate of
     approximately 38%.
 
          (g) To eliminate interest expense assuming repayment of all
     outstanding senior and subordinated indebtedness (other than the
     Debentures) with a portion of the net proceeds of the Offering, net of
     estimated federal and state income taxes at a rate of approximately 38%.
     See 'Use of Proceeds.'
 
                                       20
BMJ MEDICAL MANAGEMENT, INC.
                       UNAUDITED PRO FORMA BALANCE SHEET
                                 JUNE 30, 1997
AFFILIATION                 PRO FORMA
                                                                                AND OTHER                      AS
                                                                 THE COMPANY   ADJUSTMENTS    PRO FORMA   ADJUSTED(A)
                                                                 -----------   -----------    ---------   ------------
                                                                                    (IN THOUSANDS)
ASSETS
Current assets:
  Cash and cash equivalents....................................    $ 6,915       $(9,599)(b)   $ 9,484      $
                                                                                  12,168(c)
  Accounts receivable..........................................     10,319         4,606(b)     14,925        14,925
  Due from physician groups....................................      1,578            --         1,578         1,578
  Prepaid expenses and other current assets....................         48            66(b)        114
                                                                 -----------   -----------    ---------   ------------
     Total current assets......................................     18,860         7,241        26,101
Furniture, fixtures and equipment, net.........................      2,546         1,253(b)      3,799         3,799
Management Services Agreements, net............................      7,310         6,537(b)     13,847        13,847
Other assets...................................................        740            --           740           740
                                                                 -----------   -----------    ---------   ------------
     Total assets..............................................    $29,456       $15,031       $44,487      $
                                                                 -----------   -----------    ---------   ------------
                                                                 -----------   -----------    ---------   ------------
 
             LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Accounts payable.............................................    $   353       $    --       $   353      $    353
  Accrued expenses.............................................        826            --           826           826

  Accrued salaries and benefits................................        841            --           841           841
  Due to physician groups......................................      7,932            --         7,932
  Shareholder note payable.....................................        753           118           871
  Current portion of long-term debt and capital lease
     obligations...............................................        665            --           665
                                                                 -----------   -----------    ---------   ------------
     Total current liabilities.................................     11,370           118        11,488
Long-term debt.................................................      6,540        10,800(c)     17,340
Stockholders' equity:
  Convertible preferred stock..................................         40             2            42            --
  Common stock.................................................          9             2(c)         11
  Additional paid-in capital...................................     14,482         2,861(b)     18,591
                                                                                   1,248(c)
  Deficit......................................................     (2,985)           --        (2,985)       (2,985)
                                                                 -----------   -----------    ---------   ------------
     Total stockholders' equity................................     11,546         4,113        15,659
                                                                 -----------   -----------    ---------   ------------
          Total liabilities and stockholders' equity...........    $29,456       $15,031       $44,487      $
                                                                 -----------   -----------    ---------   ------------
                                                                 -----------   -----------    ---------   ------------
21
NOTES TO PRO FORMA BALANCE SHEET
 
     (a) To reflect (i) the net proceeds from the sale of shares of Common Stock
in the Offering estimated to be approximately $       million (after deducting
underwriting discounts and estimated Offering expenses) and the repayment of
$       million of indebtedness and (ii) the conversion of the Preferred Stock
and all other outstanding equity securities into Common Stock upon the closing
of the Offering..
 
     (b) To record the historical basis of the assets acquired and liabilities
assumed by the Company in the Affiliation Transactions. In connection with the
Affiliation Transactions, the Company issued 1,604,270 shares of common stock
and paid cash of approximately $9.6 million. The accounts receivable were
recorded at net realizable value and the furniture, fixtures and equipment was
recorded at fair market value. In connection with the recording of intangible
assets, primarily Management Services Agreements, the Company analyzed the
nature of each Practice with which a Management Services Agreement was entered
into, including the number of physicians in each Practice, number of offices and
ability to recruit additional physicians, the Practice's relative market
position, the length of time each Practice had been in existence and the term
and enforceability of the Management Services Agreement. The Management Services
Agreements are for a term of 40 years and typically cannot be terminated by the
Practice without cause, consisting primarily of bankruptcy or material default.
 
     The Company believes that there is no material value allocable to the
employment and noncompete agreements entered into between the Existing Practices
and the individual physicians, because the primary economic beneficiaries of
these agreements are the Existing Practices, which are entities that the Company

does not legally control. The Company believes that the Existing Practices are
long-lived entities with an indeterminable life and that the physicians, patient
demographics and various contracts will be continuously replaced. The amounts
allocated to the Management Services Agreement are being amortized over periods
varying from 7-30 years.
 
     The Emerging Issues Task Force of the Financial Accounting Standards Board
is currently evaluating certain matters relating to the PPM industry, which the
Company expects will include a review of the consolidation of professional
corporation revenues and the accounting for business combinations. The Company
is unable to predict the impact, if any, that this review may have on the
Company's affiliation strategy, allocation of consideration related to
affiliations and amortization life assigned to intangible assets.
 
     (c) To record $12.2 million raised after June 30, 1997. Of such amount,
$1.3 million was provided from the issuance of 208,333 shares of Series E
Preferred Stock and $10.8 million was provided from the Comdisco Loan, the
Galtney Loan and the Debentures. The Debentures are convertible into 555,556
shares of Common Stock.
 
                                       22
SELECTED FINANCIAL INFORMATION
 
     The following selected financial data with respect to the Company's
statements of operations for the year ended December 31, 1996 and the balance
sheet data at December 31, 1996 have been derived from the financial statements
of the Company which have been audited by Ernst & Young LLP, independent
certified public accountants. The selected financial data presented below for
the six months ended June 30, 1996 and 1997 and the balance sheet data at June
30, 1997 are unaudited and were prepared by management of the Company on the
same basis as the audited financial statements appearing elsewhere in this
Prospectus and, in the opinion of management of the Company, include all
adjustments necessary to present fairly the information set forth therein. The
results for the six months ended June 30, 1997 are not necessarily indicative of
the results to be expected for the year ending December 31, 1997 or future
periods. The following data should be read in conjunction with 'Management's
Discussion and Analysis of Financial Condition and Results of Operations' and
the financial statements of the Company and the related notes thereto included
elsewhere in this Prospectus.
SIX MONTHS ENDED
                                                                                                       JUNE 30,
                                                                                YEAR ENDED        ------------------
                                                                             DECEMBER 31, 1996     1996       1997
                                                                             -----------------    -------    -------
                                                                               (IN THOUSANDS, EXCEPT PER SHARE AND
                                                                                         OPERATING DATA)
STATEMENT OF INCOME DATA:

  Practice revenue, net...................................................        $ 6,029           $  --    $19,907
  Less: physician and other provider services.............................         (2,912)             --     (9,509)
                                                                                 --------         -------    -------
  Management fee revenue..................................................          3,117              --     10,398
  Costs and expenses:
     Medical support services.............................................          2,844              --      9,541
     General and administrative...........................................          1,278              51      2,433
     Depreciation and amortization........................................            104               1        300
                                                                                 --------         -------    -------
       Total costs and expenses...........................................          4,226              52     12,274
  Loss before income taxes................................................         (1,109)            (52)    (1,876)
  Income taxes............................................................             --              --         --
                                                                                 --------         -------    -------
  Net loss................................................................        $(1,109)           $(52)   $(1,876)
                                                                                 --------         -------    -------
                                                                                 --------         -------    -------
  Net loss per common share...............................................        $ (0.07)          $0.00    $ (0.11)
                                                                                 --------         -------    -------
                                                                                 --------         -------    -------
  Weighted average common shares outstanding..............................         15,811          15,206     16,469
OTHER OPERATING DATA:
  Number of Practices (end of period).....................................              3               0          8
  Number of physicians (end of period)....................................             34               0         57
DECEMBER 31,    JUNE 30,
                                                                                                1996          1997
                                                                                            ------------    --------
                                                                                                 (IN THOUSANDS)
BALANCE SHEET DATA:
  Cash and cash equivalents..............................................................     $  1,439      $  6,915
  Working capital........................................................................        1,819         7,490
  Total assets...........................................................................       14,490        29,456
  Long-term debt, less current portion...................................................           59         6,540
  Total stockholders' equity.............................................................        7,724        11,546
23
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                      CONDITION AND RESULTS OF OPERATIONS
 
     The following discussion of the results of operations and financial
condition of the Company should be read in conjunction with the consolidated
financial statements and notes thereto of the Company included elsewhere in this
Prospectus. This Prospectus contains forward-looking statements. Discussions
containing such forward-looking statements may be found in the material set
forth below and under 'Business,' as well as in this Prospectus generally.
Prospective investors are cautioned that any such forward-looking statements are

not guarantees of future performance and involve risks and uncertainties. Actual
events or results may differ materially from those discussed in the
forward-looking statements as a result of various factors, including, without
limitation, the risk factors set forth under 'Risk Factors' and the matters set
forth in this Prospectus generally.
 
OVERVIEW
 
     The Company is a PPM that provides management services to physician
practices that focus on musculoskeletal care, which involves the medical and
surgical treatment of conditions relating to bones, muscles, joints and related
connective tissues. The broad spectrum of musculoskeletal care offered by the
physician practices ranges from acute procedures, such as spine or other complex
surgeries, to the treatment of chronic conditions, such as arthritis and back
pain. As of the date of this Prospectus, the Company has affiliated (the
'Affiliation Transactions') with twenty Existing Practices comprising 87 doctors
practicing in Arizona, California, Florida, Pennsylvania and Texas by entering
into Management Services Agreements. The Company was incorporated in Delaware in
January 1996 and affiliated with the first Existing Practice in July 1996. At
December 31, 1996 the Company had entered into Management Services Agreements
with three Existing Practices comprising 34 physicians at that time and 37
physicians as of the date of this Prospectus. During the first eight months of
1997, the Company entered into additional Management Services Agreements with 17
Existing Practices, comprising 50 physicians.
 
     The total consideration paid to a Practice's physicians, once the Practice
has agreed to affiliate with the Company, is based on a multiple of the
Company's management fee plus the fair market value of the Practice's furniture,
fixtures and equipment and, subject to legal limitations regarding Medicare and
Medicaid receivables, the estimated net realizable value of its accounts
receivable. The consideration paid by the Company consists of Common Stock, cash
and the assumption of certain liabilities. In exchange for this consideration,
the Practice enters into a 40-year Management Services Agreement with the
Company.
 
     Practice revenue represents the revenue of the Existing Practices reported
at the estimated realizable amounts from patients, third party payors and others
for services rendered, net of contractual and other adjustments. Management fee
revenue represents Practice revenue less amounts retained by the Existing
Practices (consisting of physician and other provider services costs,
principally compensation and fees paid to physicians and other health care
providers) which are paid to the physicians pursuant to the Management Services
Agreements. Under each Management Services Agreement, the Company assumes
responsibility for the management of the non-medical operations of the Practice,
employs substantially all of the non-professional personnel utilized by the
Practice and may provide the Practice with the facilities and equipment used in
its medical practice.
 
     The Company's management fee revenue constitutes a stated percentage of
each Practice's net collected revenue, except that under one Management Services
Agreement the Company's management fee is based on the Existing Practice's net
operating income. See 'Certain Transactions--Affiliation Transactions.'
Accordingly, the Company's revenues are dependent on the Existing Practices'
revenues, which must be billed and collected. The percentage of revenue paid to

the Company as a management fee is generally 10% to 15% of the net collected
revenue of the Practice. The management fees and an amount equal to 100% of the
clinic expenses are reflected as management fee revenue earned by the Company.
 
     The Company's operating expenses consist of the expenses incurred in
fulfilling its obligations under the Management Services Agreements. These
expenses include medical support services (principally clinic overhead expenses
that would have been incurred by the Existing Practices, including
non-professional employee salaries, employee benefits, medical supplies,
malpractice insurance premiums, building and equipment rental and other
 
                                       24
expenses related to clinic operations) and general and administrative expenses
(personnel and administrative expenses in connection with maintaining a
corporate office function that provides management, contracting, administrative,
marketing and development services to the Existing Practices).
 
     As a result of the Company's rapid growth, costs and expenses exceeded
management fee revenue due to the start-up nature of the Company and the
transition period included in two of the Management Services Agreements during
which time the Company effectively received less than 10% of the net collected
revenue. The level of these costs and expenses are expected to continue to
increase as affiliations with additional Practices are achieved and the Company
adds to its management infrastructure.
 
RESULTS OF OPERATIONS
 
     The following table sets forth the percentages of the Existing Practices'
revenue represented by certain items reflected in the Company's consolidated
statements of operations. As a result of the Company's limited period of
existence and affiliation with the Existing Practices, the Company does not
believe that comparisons between periods and percentage relationships within the
periods set forth below are meaningful.
SIX MONTHS
                                                                                      YEAR ENDED            ENDED
                                                                                   DECEMBER 31, 1996    JUNE 30, 1997
                                                                                   -----------------    -------------
Practice revenue, net...........................................................         100.0%             100.0%
Less: physician and other provider services.....................................          48.3               47.8
                                                                                        ------             ------
Management fee revenue..........................................................          51.7               52.2
Costs and expenses:
  Medical support services......................................................          47.2               47.9
  General and administrative....................................................          21.2               12.2
  Depreciation and amortization.................................................           1.7                1.5
                                                                                        ------             ------
     Total costs and expenses...................................................          70.1               61.6

                                                                                        ------             ------
Loss before income taxes........................................................         (18.4)              (9.4)
Income taxes....................................................................            --                 --
                                                                                        ------             ------
Net loss........................................................................         (18.4)%             (9.4)%
                                                                                        ------             ------
                                                                                        ------             ------
Practice Revenue, Net.  For the year ended December 31, 1996, net practice
revenue was $6.0 million arising from Affiliation Transactions with LVBMJ on
July 1, 1996 and SCOI and STSC on November 1, 1996 ('the 1996 Affiliations').
For the six months ended June 30, 1997, net practice revenue was $19.9 million
arising from the 1996 Affiliations and affiliations with five additional
Practices comprising 21 physicians at April 1, 1997 (LOS and Tri-City) and June
1, 1997 (Gold Coast and two additional Practices in Los Angeles, CA).
 
     Physician and Other Provider Services.  Physician and other provider
services for the year ended December 31, 1996 was $2.9 million consisting of
compensation and fees paid to physicians and other health care providers
pursuant to Management Services Agreements entered into on July 1, 1996 and
November 1, 1996. For the six months ended June 30, 1997, physician and other
provider services was $9.5 million, reflecting the effect of the 1996
Affiliations and affiliations with five additional Practices pursuant to
Management Services Agreements executed in the first six months of 1997.
 
     Management Fee Revenue.  Management fee revenue for the year ended December
31, 1996 was $3.1 million as a result of the factors set forth above. For the
six months ended June 30, 1997, management fee revenue was $10.4 million as a
result of the factors set forth above.
 
     Medical Support Services.  Medical support services, principally clinic
overhead expenses, was $2.8 million for the year ended December 31, 1996,
resulting from the 1996 Affiliations. For the six months ended June 30, 1997,
medical support services was $9.5 million, reflecting the 1996 Affiliations,
plus the effect of five additional Management Services Agreements executed in
the first six months of 1997.
 
     General and Administrative.  General and administrative expenses for the
year ended December 31, 1996 was $1.3 million, reflecting the expenses incurred
in establishing a corporate office. These expenses consisted of labor costs,
group benefits, accounting, legal, rent and other expenses, substantially all of
which were incurred after July 1, 1996 (the date of the first Affiliation
Transaction). For the six months ended June 30, 1997, general
 
                                       25
and administrative expenses were $2.4 million, of which $1.8 million were
incurred in the three months ended June 30, 1997, reflecting the Company's
increased development of corporate infrastructure to support the additional
affiliations as they occur. While the Company expects that general and
administrative expenses will continue to increase as more Practices affiliate

with the Company, it also expects them to continue to decline as a percentage of
both practice revenue and management fee revenue.
 
     Depreciation and Amortization.  Depreciation and amortization for the year
ended December 31, 1996 was $104,000, substantially all of which was incurred
after July 1, 1996. The depreciation expense relates to acquired furniture,
fixtures and equipment and the amortization relates to Management Services
Agreements. For the six months ended June 30, 1997, depreciation and
amortization was $300,000, reflecting the additional Affiliation Transactions
entered into in the first six months of 1997. The Company expects that
depreciation and amortization expenses will continue to increase significantly
as additional Practices affiliate with the Company, but may remain relatively
constant as a percentage of both practice revenue and management fee revenue.
Although the Company's net unamortized balance of intangible assets acquired
($7.3 million at June 30, 1997) is not considered to be impaired, any future
determination that a significant impairment has occurred would require the
write-off of the impaired portion of unamortized intangible assets, which could
have a material adverse effect on the Company's results of operations.
 
LIQUIDITY AND CAPITAL RESOURCES
 
     At December 31, 1996 and June 30, 1997, the Company had $1.8 million and
$7.5 million, respectively, in working capital and $1.4 million and $6.9
million, respectively, in cash and cash equivalents. The Company's principal
sources of liquidity as of December 31, 1996 and June 30, 1997 consisted of the
cash and cash equivalents and net accounts receivable of $5.8 million and $10.3
million, respectively.
 
     The Company has financed its Affiliation Transactions, capital expenditures
and working capital needs since its inception through a combination of (i)
private placements of capital stock; (ii) borrowings from institutional lenders;
and (iii) short-term borrowings from stockholders. Through June 30, 1997, the
Company had paid or committed to pay consideration of cash and stock in
connection with Affiliation Transactions aggregating $19.3 million. See 'Certain
Transactions.'
 
     For the year ended December 31, 1996 and the six months ended June 30,
1997, cash used in operations was $1.0 million and $1.2 million, respectively,
resulting primarily from net operating losses adjusted for non-cash expenses.
 
     Cash used in investing activities for the year ended December 31, 1996 and
the six months ended June 30, 1997 was $4.6 million and $8.0 million,
respectively, relating primarily to Affiliation Transactions resulting in
increases in accounts receivable, intangible assets and furniture, fixtures and
equipment.
 
     Cash provided by financing activities for the year ended December 31, 1996
and the six months ended June 30, 1997 was $7.1 million and $14.7 million,
respectively. For the year ended December 31, 1996, substantially all of the
cash provided resulted from proceeds from the issuance by the Company of two
series of Preferred Stock. For the six months ended June 30, 1997, cash provided
by financing activities resulted primarily from $8.1 million in net borrowings
and $5.0 million in proceeds from the issuance of three series of preferred
stock.

 
     Beginning in March 1997, the Company entered into the HCFP Loan Agreements
with HCFP Funding, secured by the accounts receivable acquired from Existing
Practices. The Company may borrow up to an aggregate of $14.0 million under HCFP
Loan Agreements, subject to a borrowing base of 85% of eligible accounts
receivable. In connection with the Offering, the Company will repay all
outstanding amounts under the HCFP Loan Agreements. See 'Use of Proceeds.'
Borrowings under the HCFP Loan Agreements bear interest at the prime rate plus
1.75% per annum. The HCFP Loan Agreements require the Company to maintain a
prescribed level of tangible net worth, place limitations on indebtedness,
liens, and investments and prohibit the payment of dividends.
 
     On June 30, 1997, the Company entered into an additional HCFP Loan
Agreement secured by a pledge of all of the assets of the Company. The Company
may borrow up to $3.3 million under such agreement for Practice affiliations.
Borrowings under such agreement bear interest at the prime rate plus 3.5%.
Interest only is payable
 
                                       26
through December 31, 1997, at which time the loan converts to a term loan
repayable in 36 monthly installments. In addition, in connection with such
agreement the Company issued warrants to HCFP to purchase 40,000 shares of the
Common Stock.
 
     In August 1997, the Company borrowed an aggregate of $6.5 million under the
Comdisco Loan Agreement and the Galtney Loan Agreement to fund Practice
affiliations. The Comdisco Loan and the Galtney Loan both have three year terms,
bear interest at 14% per annum and are secured by a lien on all of the Company's
tangible and intangible personal property. On September 9, 1997, the Company
issued $4.0 million principal amount of its 6% convertible debentures due 2000
(the 'Debentures') to fund Practice affiliations. The Debentures are convertible
into Common Stock. See 'Certain Transactions.'
 
     The Company's affiliation and expansion programs will require substantial
capital resources. In addition, the operations and expansion of the Practices,
including the addition of Ancillary Service Facilities, will require ongoing
capital expenditures. The financing of future affiliations and business
expansion is anticipated to be provided by a combination of the proceeds of the
Offering, borrowings under the HCFP Loan Agreements and cash flows from
operations. The Company believes that the combination of these sources will be
sufficient to meet its currently anticipated operating and capital expenditure
requirements and working capital needs through 1998. In order to meet its
affiliation and expansion goals as well as its long-term liquidity needs, the
Company expects to incur, from time to time, additional short-term and long-term
indebtedness and to issue additional debt and equity securities, the
availability and terms of which will depend upon market and other conditions.
There can be no assurance that such additional financing will be available on
terms acceptable to the Company. The failure to raise the funds necessary to
finance its future cash requirements could adversely affect the Company's
ability to pursue its strategy and could adversely affect its results of
operations for future periods.

 
REIMBURSEMENT RATES
 
     The health care industry is experiencing a trend toward cost containment as
payors seek to improve lower reimbursement and utilization rates with providers.
Further reductions in payments to health care providers or other changes in
reimbursement for health care services could adversely affect the Practices with
which the Company is affiliated and adversely affect the Company's results of
operations.
 
                                       27
BUSINESS
 
GENERAL
 
     The Company is a PPM that provides management services to physician
practices that focus on musculoskeletal care, which involves the medical and
surgical treatment of conditions relating to bones, muscles, joints and related
connective tissues. The broad spectrum of musculoskeletal care offered by the
physician practices ranges from acute procedures, such as spine or other complex
surgeries, to the treatment of chronic conditions, such as arthritis and back
pain. The management services provided by the Company include physician practice
and network development, marketing, payor contracting and financial,
administrative and clinical information management. As of the date of this
Prospectus, the Company has entered into Affiliation Transactions by entering
into Management Services Agreements with 20 Existing Practices comprising 87
doctors practicing in Arizona, California, Florida, Pennsylvania, and Texas.
 
INDUSTRY OVERVIEW
 
     The market for muscoloskeletal care in the United States is significant and
growing. Total direct costs associated with the delivery of musculoskeletal care
exceeded $60 billion in 1988 and increased to approximately $72 billion in 1992.
The increase in expenditures can be attributed to various factors, including
improvements in medical technology, more active lifestyles which have resulted
in the growth of sports medicine and the overall aging of the population. In
1992, the 65-and-over age group represented approximately 12% of the U.S.
population, but accounted for more than half of all musculoskeletal care
expenditures.
 
     Musculoskeletal care is provided by a variety of medical and surgical
specialists. Although the orthopaedic surgeon is the primary musculoskeletal
provider, musculoskeletal care is also provided by physiatrists,
rheumatologists, podiatrists, occupational medicine physicians, rehabilitative
therapists, neurosurgeons and neurologists. In addition, there are a number of
subspecialties of orthopaedics, including adult reconstructive (joint
replacement) surgery, spinal care, sports medicine, foot and ankle care, hand
and upper extremity care, pediatrics and trauma care. The American Academy of
Orthopaedic Surgeons (the 'AAOS') estimates that in 1995 there were
approximately 23,000 orthopaedic surgeons, as well as approximately 5,500
physiatrists, 3,500 rheumatologists, 3,000 occupational medicine physicians,
4,900 neurosurgeons and 11,400 neurologists in the United States.

 
     Historically, most orthopaedic procedures have been performed on an
inpatient basis. Recently, however, there has been a trend towards handling
these procedures on an outpatient basis. The Company believes this trend may be
attributable to a number of factors: less invasive surgery with the arthroscope
and new anaesthetic techniques have significantly reduced post-operation trauma;
outpatient procedures are less costly and thus more desirable to both patients
and payors; outpatient settings represent a 'health environment' which promotes
wellness and improved patient attitudes; and outpatient settings foster
preventive team situations which minimize waste and improve efficiency. For
these reasons, the Company believes that the trend toward treatment in the
outpatient setting will continue to increase in the foreseeable future.
 
     In 1996, principal payors for musculoskeletal care were Medicare and
Medicaid at 27% (combined), managed care, including discounted fee-for-service
and capitation, at 26%, private pay (indemnity insurers) at 23% and workers'
compensation at 17%. Reflecting the emergence of managed care, the percentage of
payments by private payors declined from 39% in 1988 to 23% in 1996, while
payments from managed care sources increased from 12% to 26%. This shift from
private pay to managed care reimbursement has added the complexity of managing
the clinical and administrative aspects of the physicians' practices and
increased the emphasis on managing practices more efficiently.
 
     Historically, surgical and non-surgical orthopaedic specialists have
maintained separate practices; recently, however, musculoskeletal physicians
have begun to follow the consolidation trend seen elsewhere in the health care
industry. The AAOS estimates that approximately 3-5% of all orthopaedic
practices have affiliated with PPMs as of February 1997. Consolidated practices
increasingly are utilizing a separate professional management company to handle
practice management functions such as staffing, information systems, managed
care contracting, leasing, purchasing and marketing, thereby enabling the
physicians to focus on providing high quality medical services. Several factors
have contributed to the trend toward affiliation with PPMs by
 
                                       28
musculoskeletal physicians. These factors include the increasing complexity of
managing a practice due, in part, to the increase in managed care contracting,
the need for cost-effective management of patient care, the economies of scale
achievable in such areas as administration, purchasing and marketing, the desire
to capture revenues from ancillary services and in-network referrals and the
growing importance of capital resources to acquire and maintain state-of-the-art
equipment, clinical facilities and management information systems.
 
STRATEGY
 
     The Company's goal is to develop the leading musculoskeletal network in
each of its markets by aligning the Company's interests with those of the
Practices' physicians. Key components of the Company's strategy are:
 
     Expand Into New Markets.  The Company intends to expand into targeted new
markets by establishing relationships and affiliations with the most qualified

practices in such markets. The Company targets markets that have a large enough
population to support a viable musculoskeletal physician network. The Company
generally seeks to affiliate initially with platform practices in new markets.
Platform practices generally consist of at least five physicians who have the
demonstrated ability to grow in their market. Potential affiliation candidates
are evaluated on a variety of factors, including, but not limited to, physician
credentials and reputation, the practice's competitive market position,
specialty and subspecialty mix of physicians, historical financial performance,
growth potential, the local demographics potential and potential for development
of Ancillary Service Facilities.
 
     Continue to Develop Existing Markets.  The Company strengthens its market
positions by (i) providing uniform financial reporting systems to the Practices;
(ii) implementing uniform practice management systems to facilitate the
collection of financial and clinical data; (iii) investing in new clinical
equipment such as EMGs and bone densitometers; (iv) increasing the number of
physicians and diversifying the subspecialties in a Practice; (v) developing
satellite offices to accommodate increased patient flow; (vi) committing capital
to develop or acquire Ancillary Service Facilities; and (vii) expanding revenues
through additional payor contracting and focused marketing on a regional basis.
The Company believes these services will enable the physicians to devote more
time to the practice of medicine and the strategic development of their
practice, thereby increasing revenues and creating greater efficiencies in the
operation of each Practice.
 
     Introduce Ancillary Service Facilities. Ancillary Service Facilities will
provide such services as ambulatory surgery, physical therapy and MRI services.
Once the Practices or a network in a particular market have achieved a
significant local presence, the Company plans to introduce Ancillary Service
Facilities by assisting the Practices in developing such facilities. The first
Ancillary Service Facility is planned to open in late 1997 (a mobile MRI unit in
San Antonio, Texas) and additional Ancillary Service Facilities are planned to
be opened in 1998 in other markets. In addition, the Company currently manages
one physician-owned ambulatory surgery center which was under development by the
physicians prior to their involvement with the Company and for which the Company
receives a 10% management fee.
 
     Develop Disease Management and Clinical Information System.  Following the
implementation of a uniform practice management system, the Company has a
two-step strategy for creating a disease management and clinical information
system. The Company is in the process of developing standard procedures for
gathering clinical and financial information, such as personal patient data,
physician and procedure identifier codes, payor class and amounts charged and
reimbursed. The Company's goal is to establish a non-patient identifiable
information database across all Practices pursuant to which efficiencies may be
achieved by gathering, interpreting and sharing clinical information,
standardizing referral patterns and treatment protocols within a physician
network and coordinating the needs of the patient population in any geographic
market. Utilization of the database is expected to result in an increased
ability to control and predict the cost of care for various patient diagnoses.
The Company believes that its network of musculoskeletal physicians with access
to reliable clinical outcome information will make the Company more attractive
to payors because the Company will be able to demonstrate cost-effective quality
care.

 
BMJ OPERATIONS
 
     Existing Practices. Since commencing operations in January 1996 until
September 1, 1997, the Company has affiliated with 20 Existing Practices,
comprising 87 physicians, in Arizona, California, Pennsylvania, Texas and
Florida. 82% of the physicians at the Existing Practices are orthopaedic
surgeons.
 
                                       29
The following table sets forth certain information concerning the Existing
Practices.
ADDITIONAL PRACTICES
                                                                                                       IN
                                                            NUMBER/SPECIALITIES                   MARKET SINCE
                                                               OF PHYSICIANS                       AFFILIATION
                                               EFFECTIVE    -------------------   NUMBER OF   ---------------------
                                               AFFILIATION     AT AUGUST 31,      SATELLITE   NUMBER OF   NUMBER OF
REGION    PRACTICE     MARKET                     DATE             1997            OFFICES    PRACTICES   PHYSICIANS
--------  -----------  ---------------------   ----------   -------------------   ---------   ---------   ---------
Eastern   LVBMJ        Bethlehem, PA            7/1/96       6 Orthopaedics           0            1           2
                                                               1 Physiatry
                                                             1 Spine surgery
          LOS          Ft. Lauderdale, FL       4/1/97       6 Orthopaedics           2            3          10
                                                               1 Podiatry
          Gold Coast   Palm Beach               6/1/97       5 Orthopaedics           0            1           4
                       County, FL
Central   STSC         San Antonio, TX          11/1/96      6 Orthopaedics           9            1           1
                                                               1 Physiatry
Western   SCOI         Los Angeles, CA          11/1/96      20 Orthopaedics          4            7          10*
                                                               2 Physiatry
          Tri-City     Oceanside, CA            4/1/97       7 Orthopaedics           0            0           0
          Sun Valley   Sun City, AZ             7/1/97       4 Orthopaedics           0            0           0
------------------
* Includes three doctors and three separate practices in South Lake Tahoe,
California.
 
     Regional Business Model. While health care has become an increasingly
significant national issue, it is still delivered on a local level. Therefore,
in order to execute its growth and operating strategies, the Company has divided
the United States into the eastern, central, and western regions. The Company
believes that its regional business model benefits both the Company and the
Practices. Local management teams allow the Company to better understand the
specific characteristics of a region, such as the demographics, the payor mix,
the competitive landscape and the managed care environment, thus enabling the

Company to be more effective in marketing to patients and negotiating with third
party payors and suppliers. In addition, the regional management team is able to
develop and maintain long-term relationships with both the Practices' physicians
and local entities such as hospitals, managed care networks, suppliers and
non-musculoskeletal physician groups. The Company believes that due to its
regional business model, it is better equipped to develop relationships with
such local entities than PPMs with centralized business models.
 
     A regional vice president is responsible for a management team that
supervises the development of each market within a region. The regional
management team coordinates market expansion initiatives and integration of
administrative services within the region. The regional team provides management
and network services related to the following: (i) integration and transition;
(ii) physician services including cost containment and operating efficiencies;
(iii) ancillary services development and management; (iv) physician recruitment
and professional development; (v) workers' compensation; and (vi) payor
contracting.
 
     Affiliation Structure. The Company believes its affiliation model aligns
the interests of the Company and the Practices' physicians by (i) providing
equity ownership in the Company to the physicians; (ii) assuring that the
physicians and the Company share in the profits from the Ancillary Service
Facilities and Practice cost savings; (iii) focusing on revenue enhancement; and
(iv) reducing the amount of time the physicians must spend on administrative
matters, thereby enabling them to dedicate more of their efforts to the delivery
of health care services. Additionally, each Practice retains professional
autonomy and control over its medical practice through continued ownership and
participation in Practice governance.
 
     The total consideration paid to a Practice's physicians, once the Practice
has agreed to affiliate with the Company, is based on a multiple of the
Company's management fee plus the fair market value of the Practice's assets,
including furniture, fixtures and equipment and, subject to legal limitations
regarding Medicare and Medicaid receivables, the estimated net realizable value
of its accounts receivable. The total consideration paid by the Company consists
of Common Stock, cash and the assumption of certain liabilities. In exchange for
this consideration, the Practice enters into a 40-year Management Services
Agreement with the Company.
 
     The revenue to the Company from a Practice is typically based on a
specified percentage (typically 10% to 15%) of the Practice's revenues (rather
than on a percentage of the net operating income of the Practice) plus
reimbursement of the Practice's overhead expenses and two-thirds of the cost
savings the Company is able to
 
                                       30
achieve through its purchasing power. See 'Certain Transactions--Affiliation
Transactions.' In addition, the Company will be responsible for arranging the
funding of Ancillary Service Facilities when appropriate and will, subject to
applicable laws, share appropriately in the profits from such facilities.
 

     Upon affiliating with a Practice, the Company assumes the management of
substantially all aspects of the Practice's operations other than the provision
of medical services. Pursuant to the Management Services Agreements, the Company
assists the Practices in the preparation of operating budgets and capital
project analyses, the coordination of group purchases of medical supplies and
insurance and the introduction of physician candidates. The Company provides the
full range of administrative services required for a Practice's day-to-day
non-medical operations, including management and monitoring of the Practice's
billing and collection, accounting, payroll, legal services, recordkeeping, cash
flow activity, physician recruiting, payor contracting and marketing.
Comprehensive administrative support should facilitate more effective billing
and collections, and, as the Company grows, economies of scale in effecting
purchases. In addition, the Company plans to integrate the Practices' management
information systems into a single system that will expand the financial and
clinical reporting capabilities of each of the Practices and facilitate the
analysis of data collected.
 
     The Company believes that through its affiliation with practices across
multiple markets it can achieve benefits in the aggregate purchasing of products
and services for the Practices. The Company believes that, in particular, it can
assist the Practices in reducing its purchasing expenses such as insurance,
medical equipment and clinical and administrative supplies. Pursuant to the
Management Services Agreements, the Company receives two-thirds of any such cost
savings.
 
     Financial and Practice Management Systems. To date, the Company has
implemented an interconnected financial accounting system in the Practices. This
system allows the Company to analyze the financial aspects of the Practices from
a centralized location and ensure uniformity with respect to financial
classifications at the Practice level.
 
     The Company believes that the implementation of a uniform practice
management system will enable it to monitor the operations of the Practices in a
cost-effective manner, enhance utilization of the Practices, develop practice
protocols and provide the Company with a competitive advantage in negotiating
contracts with third party payors. The Company is currently reviewing various
practice management software programs and expects to select and implement such a
program within 12 to 18 months following completion of the Offering.
 
     The Company believes that the implementation of the practice management
system, together with the integrated financial accounting system, will enable it
to gather data that will be the foundation for a disease management and clinical
information system. The Company intends to capture, retain and use such
information in accordance with applicable legal and ethical requirements
regarding the confidentiality of medical records. The Company further believes
that such a system will facilitate the collection of clinical information such
as type of injuries reported, patient characteristics and diagnoses of injuries,
that will improve provider and patient access to resources and technology,
facilitate quantitative analysis of outcome quality and cost and eventually
allow for the development of curative and palliative regimens based on such
information. The Company intends to obtain the informed, written consent of each
patient for whom information will be included in the database.
 
     Staffing and Facilities. The Company employs most of the Practices'

non-professional personnel. These non-professional personnel, along with
additional personnel at the Company's headquarters, manage the day-to-day
non-medical operations of each of the Practices, including, among other things,
secretarial, bookkeeping, scheduling and other routine services. Under the
Management Services Agreements, the Company must provide facilities and
equipment to the Practices and, to this end, the Company assumes the Practice's
existing leases for the facilities and equipment and purchases the assets, or a
leasehold interest in the assets, utilized by the Practice.
 
DEVELOPMENT OF ANCILLARY SERVICE FACILITIES
 
     Within each market, the Company plans to establish Ancillary Service
Facilities including, ambulatory surgery centers, physical therapy facilities
and MRI centers and mobile units. In order to establish such facilities, the
Company has designated professionals within each market to locate sites,
identify acquisition opportunities and otherwise arrange for the provision of
the ancillary services. Additionally, the Company's regional management teams
are responsible for marketing the Ancillary Service Facilities to payors and
referral sources
 
                                       31
and staffing, operating and financial management of the facilities. For risks
associated with the establishment of Ancillary Service Facilities, see 'Risk
Factors--Reliance on New Affiliations and Expansion.'
 
PAYOR MIX OF EXISTING PRACTICES
 
     The Company's Practices derive revenue from a broad mix of third party
payors. This payor mix is a result of a number of underlying trends in the
patient base of musculoskeletal specialists. A significant portion of
reimbursement to physicians in musculoskeletal practices is derived from
workers' compensation insurance programs, which generally pay higher
reimbursements per procedure than health insurance payors and are generally not
subject to co-payments and deductibles. The Company believes that reimbursement
from workers' compensation payors will continue to represent a substantial
portion of practice revenues because of broader definitions of work-related
injuries, the shift of medical costs from health insurance payors to workers'
compensation payors, aging of the work force, and the requirement that employers
pay the total cost of medical treatment for work-related injuries.
 
     The following table sets forth the payor mix of the Existing Practices for
the six months ended June 30, 1997:
SIX MONTHS
                                                                            ENDED
                                                                        JUNE 30, 1997
                                                                        -------------
Workers' compensation................................................           %

Medicare(1)..........................................................
Managed care.........................................................
Private payors.......................................................
------------------
(1) Includes        attributable to Medicaid.
 
     Workers' Compensation.  Workers' compensation is a state-mandated,
comprehensive insurance program that requires employers to fund medical
expenses, lost wages and other costs resulting from work-related injuries and
illnesses. Provider reimbursement methods vary on a state-by-state basis. A
majority of states have adopted fee schedules pursuant to which all health care
providers are uniformly reimbursed. The fee schedules are set by each state and
generally prescribe the maximum amounts that may be reimbursed for a designated
procedure. In most states without fee schedules, health care providers are
reimbursed based on usual, customary and reasonable fees charged in the state in
which the services are provided. In Florida (a state in which the Company does
business), state law mandates that all workers' compensation services be
provided under a managed care arrangement approved by Florida's Agency for
Healthcare Administration.
 
     Medicare.  The federal government has implemented, through the Medicare
program, the RBRVS payment methodology for health care provider services. RBRVS
is a fee schedule that, except for certain geographical and other adjustments,
pays similarly situated health care providers the same amount for the same
services. The RBRVS is subject to annual increases or decreases at the
discretion of Congress or HCFA. To date, the implementation of RBRVS has reduced
payment rates for certain of the procedures historically provided by the
Existing Practices. Furthermore, it is expected that, within the next year, HCFA
will be required by law to recalibrate the practice expense component of the
RBRVS over the next four years in a way that will have positive effects on
payments to primary care providers, but will decrease payments for most services
provided by specialists, including many services provided by the Existing
Practices.
 
     Managed Care Payors.  An increasing portion of the net revenue of the
Existing Practices is derived from managed care payors which make payments under
discounted fee-for-service and capitation arrangements. Although rates paid by
managed care payors are generally lower than commercial indemnity rates, managed
care payors can provide access to large patient volumes. The Company seeks to
negotiate both discounted fee-for-service and capitated contracts on behalf of
the Practices. Discounted fee-for-service contracts involve negotiated rates for
specified procedures and services. Under capitated arrangements, providers
deliver health care services to managed care enrollees and typically bear all or
a portion of the risk that the cost of such services may exceed capitated
payments.
 
                                       32
Private Payors.  Rates paid by private third party payors are based on
established health care provider and hospital charges and are generally higher

than Medicare payment rates. Recently, RBRVS types of payment systems have been
adopted by certain private third party payors and may become a predominant
payment methodology. Wider implementation of such programs would reduce payments
from private third party payors, and could indirectly reduce revenue to the
Company.
 
CONTRACTUAL AGREEMENTS WITH THE PRACTICES
 
     The Company has entered into Management Services Agreements and, in most
cases, Asset Purchase Agreements, Restricted Stock Agreements and Stockholder
Noncompetition Agreements (collectively, the 'Affiliation Agreements'), with
each of the Existing Practices, and intends to enter into Affiliation Agreements
with each additional Practice, to provide management, administrative and
development services. The following summary of the Affiliation Agreements is
intended to be a general summary of the form of the Affiliation Agreements. The
actual terms of the individual Affiliation Agreements, and other service
agreements into which the Company may enter in the future, may vary in certain
respects from the description below as a result of negotiations with the
individual Practices and the requirements of local regulations. The Management
Services Agreements and certain related agreements are filed as exhibits to the
registration statement of which this Prospectus forms a part. The following
summary is qualified in its entirety by reference to such exhibits. For a
discussion of circumstances under which a Management Services Agreement may be
rendered unenforceable, see 'Risk Factors--Government Regulation.'
 
     Management Services Agreement.  Under the Management Services Agreement,
the Practices are solely responsible for all aspects of the practice of medicine
and the Company has the primary responsibility for the business and
administrative aspects of the Practices. Pursuant to the Management Services
Agreements, the Company provides or arranges for various management,
administrative and development services relating to the day-to-day non-medical
operations of the Practices. Pursuant to the Management Services Agreements, the
Company acts as the exclusive manager and administrator of non-medical services
relating to the operation of the Practices. Subject to matters for which the
Practices maintain responsibility or which are governed by the Operations
Committee (as defined herein) of the Practices, the Company (i) bills patients,
insurance companies and other third party payors and collects, on behalf of the
Practices, the fees for medical and other services rendered, including goods and
supplies sold by the Practices; (ii) provides or arranges for, as necessary,
clerical, accounting, purchasing, payroll, legal, bookkeeping and computer
services, personnel, information management, preparation of certain tax returns,
printing, postage and duplication services and medical transcribing services;
(iii) supervises and maintains custody of substantially all files and records
(medical records of the Practices remain the property of the Practices); (iv)
provides facilities and equipment for the Practices; (v) prepares, in
consultation with the Operations Committee and the Practices, all operating and
capital expenditure budgets; (vi) orders and purchases inventory and medical
supplies as reasonably requested by the Practices; (vii) implements, in
consultation with the Operations Committee and the Practices, national and local
public relations or advertising programs; (viii) provides financial and business
assistance in the negotiation, establishment, supervision and maintenance of
contracts and relationships with managed care and other similar providers and
payors; (ix) recruits on behalf of the Practices' physician employees and other
medical professionals; and (x) ensures that all medical and technical personnel

have the licenses, credentials, approvals and other certifications needed to
perform their respective duties.
 
     Under the Management Services Agreements, the Practices retain the
responsibility for, among other things providing professional services to
patients in compliance with the ethical standards, laws and regulations to which
they are subject. In addition, the Practices maintain exclusive control of all
aspects of the practice of medicine and the delivery of medical services.
 
     The revenue to the Company from a Practice is typically based on a
specified percentage (typically 10-15%) of the Practice's revenues (rather than
on a percentage of the net operating income of the Practice) plus reimbursement
of the Practice's overhead expenses and two-thirds of cost savings that the
Company is able to achieve through its purchasing power. See 'Certain
Transactions--Affiliation Transactions.' In addition, the Company will be
responsible for arranging the funding of Ancillary Service Facilities when
appropriate and will, subject to applicable laws, share appropriately in the
profits from such facilities.
 
                                       33
Each Management Services Agreement has an initial term of 40 years, with
automatic extensions (unless at least six months' notice is given) of additional
five-year terms. The Management Services Agreement may be terminated by either
party if the other party (a) files a petition in bankruptcy or other similar
events occur or (b) defaults in any material respect in the performance of any
duty or obligation under the Management Services Agreement, which default is not
cured within a specified period after receipt of notice thereof or (c) any of
the representations and warranties made by such party in the Management Services
Agreement is materially untrue or misleading and such party fails to correct
such matter after receipt of written notice thereof. The Company also has the
right to terminate the Management Services Agreement in the event that the
Practice is excluded from participation in the Medicaid or Medicare program for
any reason. Either party may also terminate the Management Services Agreement if
such party determines that the structure of the Management Services Agreement
violates any state or federal laws or regulations existing at such time and that
an amendment to the Management Services Agreement will be unable to correct such
defect.
 
     Upon termination of the Management Services Agreement, neither party is
obligated to the other party except as set forth below. In the event of such
termination, the Company is required to complete, within four months after the
termination date, the annual settlement of the respective obligations of the
Company and Practice for the period prior to the termination date. Furthermore,
following any such termination, the Company must sell to the Practice all of the
Company's interest in the assets that are located in the offices of the Practice
and used in connection with the medical practice. The purchase price for all of
such assets will be agreed upon by the parties; however, if an agreement is not
reached, the purchase price will be determined by an independent appraisal.
Under the Management Services Agreement, the Company is entitled to receive all
of the revenues collected by the Practice during the 90-day period following
termination of the agreement.

 
     The Company has entered into a Management Services Agreement with STSC that
permits STSC and the individual physicians to rescind the Affiliation
Transaction on (i) November 1, 1998 if the Company has not affiliated with an
aggregate of 16 physicians in San Antonio, Texas by such date and (ii) November
1, 2003. In the event of a rescission of the Affiliation Transaction, the
transaction will be unwound, with the assets (other than the accounts
receivable) acquired by the Company being returned to the Existing Practice and
the purchase price paid therefor being returned to the Company. In addition, the
physician owners and the employed physicians, if any, who received Common Stock
of the Company in connection with the Affiliation Transaction (including any
transferees of such persons) will be required to return such capital stock to
the Company.
 
     Under the Management Services Agreement, the Practice agrees generally not
to, at any time prior to the second anniversary of the termination of the
Management Services Agreement, compete with the Company by providing services to
other medical groups similar to those provided by the Company under the
Management Services Agreement or by entering into a management relationship with
another provider of non-professional management services that provides such
services to multiple physician groups. The Company and the Practice agree not to
disclose to third parties any confidential information relating to the other
party.
 
     Asset Purchase Agreement.  Subject to the terms and conditions of an asset
purchase agreement (the 'Asset Purchase Agreement'), the Company purchases from
the Practice all of those assets used by the Practice in the operation of the
medical practice, including medical equipment, furniture, trade fixtures, office
equipment, supplies, and, subject to legal limitations regarding Medicare and
Medicaid receivables, outstanding accounts receivable. Pursuant to an assignment
and assumption agreement entered into as a condition to the Asset Purchase
Agreement, the Company also acquires a leasehold interest in certain assets
leased by the Practice, including offices and equipment. The Company also
assumes certain liabilities related to any leased equipment and leased offices.
The purchase price paid by the Company under the Asset Purchase Agreement is
customarily determined by the parties after an appraisal of the assets being
acquired. Under the Asset Purchase Agreement, the Practice agrees to indemnify
the Company for any losses resulting from the operation of such medical practice
prior to the effectiveness of the affiliation of such Practice with the Company.
 
     Restricted Stock Agreement.  The Company issues Common Stock to the
physician owners of the Practice as partial consideration for affiliating with
the Company. Such Common Stock is issued pursuant to the terms and conditions
set forth in a restricted stock agreement (the 'Restricted Stock Agreement'),
which terms include annual vesting of 25% of the Common Stock each year in a
four year period, a right of first refusal for the Company in the event the
physician decides to sell such Common Stock and the authority of the Company's
Board of Directors to prevent a physician's sale of such Common Stock to a
competitor of the Company. The
 
                                       34
Restricted Stock Agreement further provides that the shares of Common Stock
issued by the Company to the physicians remain issued and outstanding regardless
of whether such physicians remain with the Practice, but the rights of the
individual physicians to such shares (as opposed to the right of the Practice)
will vest equally over four years, with the Practice retaining the right to
utilize unvested shares to recruit new physicians. Under certain circumstances,
including termination of the Management Services Agreement or a physician's
death, permanent disability or cessation of active practice, the Company has the
right to repurchase all or any part of the unvested shares of Common Stock held
by such physician. If the Company elects to repurchase such unvested shares, the
price per share is the original value of such Common Stock as set forth in the
Restricted Stock Agreement. The Company may also issue Common Stock to employed
physicians and other key personnel of the Practice pursuant to a Restricted
Stock Agreement containing substantially similar terms.
 
     Stockholder Noncompetition Agreement.  Under a non-competition agreement
(the 'Stockholder Non-competition Agreement'), each physician owner and employed
physician of the Practice agrees not to (i) compete directly or indirectly with
the Practice in the provision of medical services or with the Company in the
provision of practice management services for a period of two years after
termination of his affiliation with the Practice and within a 25 mile radius of
any of the Practice's offices; or (ii) disclose any confidential information of
the Company or the Practice. Each physician further agrees to indemnify the
Company and the Practice for any damages they may suffer as a result of the
physician's failure to abide by the foregoing covenants. There can be no
assurance as to the enforceability of the Noncompetition Agreements.
 
COMPETITION
 
     The Company competes with many other entities to affiliate with
musculoskeletal practices. Several companies that have established operating
histories and greater resources than the Company are pursuing the acquisition of
the assets of both general and specialty practices and the management of such
practices. Other PPMs and some hospitals, clinics, HMOs and provider networks
engage in activities similar to those of the Company. There can be no assurance
that the Company will be able to compete effectively with such competitors, that
additional competitors will not enter the market, or that such competition will
not make it more difficult to affiliate with, and to enter into agreements to
provide management services to, medical practices on terms beneficial to the
Company.
 
     The Practices will compete with local musculoskeletal care service
providers as well as some managed care organizations. The Company believes that
changes in governmental and private reimbursement policies and other factors
have resulted in increased competition for consumers of medical services. The
Company believes that the cost, accessibility and quality of services provided
are the principal factors that affect competition. There can be no assurance
that the Practices will be able to compete effectively in the markets that they
serve. The inability of the Practices to compete effectively would have a
material adverse effect on the Company.
 
     Further, the Practices compete with other providers for musculoskeletal
managed care contracts. The Company believes that trends toward managed care
have resulted in increased competition for such contracts. Other practices and

management service organizations may have more experience than the Practices and
the Company in obtaining such contracts. There can be no assurance that the
Company and the Practices will be able to successfully obtain sufficient managed
care contracts to compete effectively in the markets they serve. The inability
of the Practices to compete effectively for and obtain such contracts could
materially adversely affect the Company. See 'Risk Factors--Intense
Competition.'
 
GOVERNMENT REGULATION AND SUPERVISION
 
     The delivery of health care services is regulated at both the federal and
state level. While the Company believes that its operations are conducted in
material compliance with applicable laws, it has not received or applied for a
legal opinion from counsel or from any federal or state judicial or regulatory
authority to this effect, and many aspects of the Company's business operations
have not been the subject of state or federal regulatory interpretation. The
laws applicable to the Company are subject to evolving interpretations, and
therefore there can be no assurance that a review of the Company's operations by
federal or state judicial or regulatory authorities would not result in a
determination that the Company or one of the Practices has violated one or more
provisions of federal or state law. Any such determination could have a material
adverse effect on the Company.
 
                                       35
FEDERAL LAW
 
     The principal federal laws that apply to the Company's activities include
those that prohibit: (a) the filing of false or improper claims with a federally
funded health program; (b) unlawful inducements for the referral of business
reimbursable under most federally funded health programs; (c) fraud in regard to
payment or service in any health program; and (d) the billing for the provision
of certain Medicare or Medicaid covered items or services where such items or
services were provided based upon a referral to the providing entity by a
physician who has, or whose immediate family member has, a financial
relationship with that entity that does not fall within an applicable exception.
 
     False and Other Improper Claims.  Under numerous federal laws, including
the Federal False Claims Act (the 'False Claims Act'), the federal government is
authorized to impose criminal, civil and administrative penalties on any health
care provider that files a false claim for reimbursement from a federally funded
health program (such as Medicare or Medicaid). The False Claims Act provides for
a civil penalty of not less than $5,000 and not more than $10,000 per false
claim and between two to three times the amount of damages depending on the
facts and circumstances. Recently enacted federal legislation also imposes
federal criminal penalties on persons who file false or fraudulent claims with
private insurers. While the criminal statutes are generally reserved for
instances of fraud, the civil and administrative penalty statutes are being
applied by the government in an increasingly broad range of circumstances. Civil
sanctions may be imposed if the claimant knew or should have known that billing
was improper. The government also has taken the position that claiming
reimbursement for services that are substandard is a violation of these false

claims statutes if the claimant knew or should have known that the care was
substandard or rendered under improper circumstances. Private persons may bring
civil actions to enforce the False Claims Act. Under certain lower court
decisions, claims derived from a violation of the Anti-Kickback Statute (as
defined herein) or the Stark Law have been deemed to be, or may under certain
circumstances be construed to be, false claims.
 
     The Stark Self-Referral Law.  The Stark Law prohibits a physician from
referring a patient for certain designated health services reimbursable by
Medicare or Medicaid to an entity with which the physician (or the physician's
immediate family member) has a financial relationship, whether through
ownership, debt or compensation arrangements. Designated health services means
clinical laboratory services, physical therapy services, occupational therapy
services, radiology (including magnetic resonance imaging, computerized axial
tomography scans and ultrasound services), radiation therapy services and
supplies, durable medical equipment and supplies, parenteral and enteral
nutrients, equipment, and supplies, prosthetics, orthotics, and prosthetic
devices, home health services and supplies, outpatient prescription drugs, and
inpatient and outpatient hospital services. Referrals for services other than
designated health services and the furnishing of physicians' services that do
not involve any designated health services are not subject to the Stark Law. The
term 'referral' under the Stark Law means more than merely recommending a vendor
for designated health services to a patient; referrals are defined to include
the request or establishment of a plan of care by a physician which includes the
provision of designated health services. Consequently, the ordering of
designated health services within a physician's medical group can constitute a
referral within the meaning of the Stark Law.
 
     Further, unless an exception is met, both the health care entity that
furnishes the services and the physician who makes the referral are prohibited
from billing Medicare or Medicaid for services rendered to Medicare or Medicaid
beneficiaries in violation of the Stark Law. The Stark Law is a civil statute
which does not include criminal penalties. Violations of the Stark Law could
result in significant civil sanctions, including denial of payment, refunds of
amounts collected in violation of the statute and civil money penalties of up to
fifteen thousand dollars ($15,000) for each bill or claim for a service a person
knows or should know is a service for which payment may not be made. The Stark
Law also includes civil money penalties of up to one hundred thousand dollars
($100,000) for each arrangement or scheme which the physician or entity knows or
should know has a principal purpose of assuring referrals which, if directly
made, would violate the Stark Law proscription. Both penalty provisions also
provide for exclusion from the Medicare and Medicaid programs.
 
     The Company currently does not directly provide any designated health
services as that term currently is defined under the Stark Law; however, one or
more of the Practices may provide designated health services within their
offices. Because the Company provides management services and managed care
contracting services to the Practices for a fee, there can be no assurance that
the Company will not be deemed to be providing designated health services within
each Practice. If the Company is held to be the provider of such designated
 
                                       36
health services within each Practice, the Stark Law will require that the
arrangements between the Company and the physicians in each Practice that
provide designated health services be structured to meet a Stark Law exception.
Under this scenario, the physicians' ability to order designated health services
within the Practices and the ability of the Practices to bill Medicare or
Medicaid for such designated health services will be permissible only if the
financial arrangements under the Management Services Agreements entered into by
the Company and the Practices meet certain exceptions set forth in the Stark
Law. The Company believes that the financial arrangements under the Management
Services Agreements qualify for applicable exceptions under the Stark Law;
however, there can be no assurance that a review by the courts or regulatory
authorities would not result in a contrary determination. Also, to the extent
that the Company in the future owns, manages or operates Ancillary Service
Facilities that provide designated health services, the Stark Law may require
the arrangements for the Company's acquisition of certain non-clinical assets of
the Practices and its Management Services Agreements with each Practice to be
structured to meet Stark Law exceptions in order for the physicians within each
Practice to refer patients to the Ancillary Service Facilities for designated
health services.
 
     It is also possible that, as a result of the Company's Management Services
Agreements with the Practices, the physicians in the Practices will be deemed to
have indirect financial interests in Practices by virtue of the physicians'
ownership interests in the Company. Under such interpretation of the Stark Law,
the physicians' ability to order and bill for designated health services
provided within the Practices and the ability of the Practices to bill Medicare
or Medicaid for such designated health services will be permissible only if an
exception under the Stark Law is applicable. The current Stark Law exception
related to the physicians' ownership interests in the Company may be relevant to
the physicians' ability to make referrals for designated health services to any
Ancillary Service Facilities owned or managed by the Company in the future. The
Company will not be in a position to meet that exception related to investment
interests until the Company's stockholders' equity exceeds $75 million.
 
     The Stark Law also governs the physicians' ability to refer patients for
designated health services within the Practices in light of the physicians'
ongoing compensation and ownership arrangements with such Practices. An
exception for in-office ancillary services requires that the Practices meet
certain structural and operational requirements on an ongoing basis in order to
bill for in-office ancillary designated health services rendered by employed or
contracted physicians. A key feature of the in-office ancillary services
exception is the Stark Laws definition of a 'group practice.' HCFA has announced
its intention to publish proposed regulations in the near future which, among
other things, are expected to focus on the definition of 'group practice.' Any
adverse changes to the group practice definition may have a material adverse
effect on the Company by severely limiting the Practices' ability to bill the
Medicare and Medicaid Programs for certain ancillary services furnished by the
Practices.
 
     In the preamble to the adoption of certain regulations regarding the Stark
Law, adopted when such law regulated only clinical laboratory services, HCFA
stated that it would not recognize any group in which the physicians were in
multiple corporate entities as a 'group practice' under the Stark Law. SCOI is a

partnership comprised of individual physician members as well as P.C.s. The use
of P.C.s as partners at SCOI was historical and designed to accommodate practice
structures that existed prior to the creation of SCOI. Recently, at the
Eighteenth Annual Institute on Medicare and Medicaid Payment Issues,
co-sponsored by the American Academy of Healthcare Attorneys and the National
Health Lawyers Association, an HCFA representative stated that HCFA will
recognize a group practice consisting of multiple physician entities, such as
P.C.s, provided that each such P.C. or other physician entity is limited to one
physician member. Nevertheless, given HCFA's prior written statement and HCFA's
position that its written comments on the Stark Law as applied to clinical
laboratories reflect its view on the Stark Law in its current expanded form, it
may be necessary to restructure SCOI before any Stark-designated health services
are provided. Failure to do so would result in the risk of the penalties
described above, or the inability of SCOI to provide Stark-designated health
services, either of which would have a material adverse effect on the Company.
 
     In the recently enacted Balanced Budget Act of 1997 (the '1997 Budget
Bill'), Congress directed the Secretary of the U.S. Department of Health and
Human Services ('HHS') to issue advisory opinions as to whether a referral
relating to designated health services (other than clinical laboratory services)
is prohibited under the Stark Law. The advisory opinion mechanism is authorized
beginning on or about November 3, 1997. An advisory opinion issued by the
Secretary will be binding as to the Secretary and the party or parties
requesting
 
                                       37
the opinion. The Company has no present intention to seek an advisory opinion
regarding its current operations, arrangements with physicians or the referral
activities of physicians in the Practices.
 
     Federal Anti-Kickback Statute.  A federal law commonly known as the
'Anti-Kickback Statute' prohibits the offer, solicitation, payment or receipt of
anything of value (direct or indirect, overt or covert, in cash or in kind)
which is intended to induce business for which payment may be made under a
federal health care program. A 'federal health care program' is any plan or
program that provides health benefits, whether directly, through insurance, or
otherwise, which is funded directly, in whole or in part, by the United States
Government (e.g., Medicare, Medicaid, and CHAMPUS). Excluded from the definition
of federal health care program is the Federal Employee Health Benefits Program.
The type of remuneration covered by the Anti-Kickback Statute is very broad. It
includes not only kickbacks, bribes and rebates, but also proscribes any such
remuneration, whether made directly or indirectly, overtly or covertly, in cash
or in kind. Moreover, prohibited conduct includes not only remuneration intended
to induce referrals, but also remuneration intended to induce the purchasing,
leasing, arranging or ordering of any goods, facilities, services, or items paid
for by a federal health care program. The Anti-Kickback Statute has been
interpreted broadly by a number of courts to prohibit remuneration that is
offered or paid for otherwise legitimate purposes if one purpose of the payment
is to induce referrals. Even bona fide investment interests in a health care
provider may be questioned under the Anti-Kickback Statute if the government
concludes that the opportunity to invest was offered as an inducement for

referrals.
 
      In part to address concerns regarding the implementation of the
Anti-Kickback Statute, in 1991 the federal government published regulations that
provide exceptions or 'safe harbors' for certain transactions that are deemed
not to violate the Anti-Kickback Statute. Among the safe harbors included in the
regulations are transactions involving the sale of physician practices,
management and personal services agreements and employee relationships. Congress
recently added a significant new statutory exception related to 'remuneration
between an organization and an individual or entity' if the organization is a
Medicare risk contracting organization or if the remuneration is provided
pursuant to a written agreement that places the individual or entity at
substantial financial risk for the cost or utilization of services. Regulations
implementing the foregoing statute have not yet been adopted, but are expected
to be enacted soon. The failure of an activity to qualify under a safe harbor
provision, while potentially leading to greater regulatory scrutiny, does not
render the activity automatically illegal under the Anti-Kickback Statute.
Conduct falling outside the safe harbors will be judged by government regulators
on a case-by-case basis based on the specific facts and circumstances.
 
      Each offense under the Anti-Kickback Statute is classified as a felony and
is punishable by a criminal fine of up to twenty-five thousand dollars ($25,000)
and/or imprisonment of up to five (5) years; a civil money penalty of $50,000
for each violation and/or civil damages of not more than three times the total
amount of remuneration offered, paid, solicited or received, without regard to
whether any portion of such remuneration was for a lawful purpose. Both the
offeror and the recipient of the illegal remuneration are potentially liable. In
addition, violators are subject to civil exclusion from participation in the
federal health care programs, regardless of whether they also have been
convicted under the criminal penalty provisions or have been found liable under
the civil money penalty provisions of the Anti-Kickback Statute.
 
      There are several aspects of the Company's relationships with the
physicians and the Practices to which the Anti-Kickback Statute may be relevant.
In some instances, for example, the government may construe some of the
Company's marketing and managed care contracting activities as arranging for the
referral of patients to the physicians with whom the Company has a Management
Services Agreement. Further, any referral of patients between physicians within
the Practices and between the Practices could be construed as a referral to
which the Anti-Kickback Statute applies. Although neither the investments in the
Company by physicians nor the Management Services Agreements between the Company
and the Practices qualify for protection under the statutory exception or the
safe harbor regulations described above, the Company does not believe that these
activities fall within the type of activities the Anti-Kickback Statute were
intended to prohibit. The Company also does not believe that referral activities
within the Practices violate the Anti-Kickback Statute. A determination that the
Company has violated the Anti-Kickback Statute would have a material adverse
effect on the Company.
 
      As a component of the recently enacted Health Insurance Portability and
Accountability Act of 1996, Congress directed the Secretary of the U.S.
Department of Health and Human Services to issue advisory opinions regarding
compliance with the Anti-Kickback Statute. The advisory opinion mechanism is
authorized for a trial period, beginning six months after the date of enactment,

August 21, 1996. Advisory opinions are available
 
                                       38
concerning what constitutes prohibited remuneration within the meaning of the
Anti-Kickback Statute, whether an arrangement satisfies the statutory exceptions
to the Anti-Kickback Statute, whether an arrangement meets a safe harbor, what
constitutes an illegal inducement to reduce or limit services to individuals
entitled to benefits covered by the Anti-Kickback Statute, and whether an
activity constitutes grounds for the imposition of a civil or criminal penalty
under the applicable exclusion, civil money penalty and criminal provisions.
Advisory opinions, however, will not assess fair market value for any goods,
services or property or determine whether an individual is a bona fide employee
within the meaning of the Internal Revenue Code. The statutory language makes
clear that advisory opinions are available for both proposed and existing
arrangements. The failure of a party to seek an advisory opinion, however, may
not be introduced into evidence to prove that the party intended to violate the
Anti-Kickback Statute. The Company has not sought, and has no present intention
to seek an advisory opinion regarding any aspect of its current operations or
arrangements with physicians.
 
     PIP Regulations.  HCFA has issued final regulations (the 'PIP regulations')
covering the use of physician incentive plans ('PIPs') by HMOs and other managed
care contractors and subcontractors that contract to arrange for services to
Medicare or Medicaid beneficiaries ('Organizations'), potentially including the
Company. Any Organization that contracts with a physician group that places the
individual physician members of the group at substantial financial risk for the
provision of services that the group does not directly provide (e.g., a primary
care group takes risk but subcontracts with a specialty group to provide certain
services), must satisfy certain disclosure, survey and stop-loss requirements.
Under the PIP regulations, payments of any kind, direct or indirect, to induce
providers to reduce or limit covered or medically necessary services are
prohibited ('Prohibited Payments'). Further, where there are no Prohibited
Payments, but there is risk sharing among participating providers related to
utilization of services by their patients, the regulations contain three groups
of requirements: (i) requirements for physician incentive plans that place
physicians at 'substantial financial risk'; (ii) disclosure requirements for all
Organizations with PIPs; and (iii) requirements related to subcontracting
arrangements. In the case of substantial financial risk (defined in the
regulations according to several methods, but essentially risk in excess of 25%
of the maximum payments anticipated under a plan with less than 25,000 covered
lives), Organizations must conduct enrollee surveys and ensure that all
providers have specified stop-loss protection. The violation of the requirements
of the PIP regulations may result in a variety of sanctions, including
suspension of enrollment of new Medicaid or Medicare members, or a civil
monetary penalty of $25,000 for each determination of noncompliance. In
addition, because of the increasing public concerns regarding PIPs, the PIP
regulations may become the model for the industry as a whole. Although the
Company currently has no contracts that require compliance with the PIP
regulations, the new regulations, by limiting the amount of risk that may be
imposed upon physicians in certain arrangements, could affect the ability of the
Company to meaningfully reduce the costs of providing services.

 
     Antitrust.  Because the Practices that affiliate with the Company remain
separate legal entities, they may be deemed competitors subject to a range of
antitrust laws that prohibit anti-competitive conduct, including price fixing,
concerted refusals to deal and divisions of markets. In particular, the
antitrust laws have been interpreted by the Federal Trade Commission ('FTC') and
the United States Department of Justice ('DOJ') to prohibit joint negotiation by
competitors of price terms in the absence of financial risk that is shared among
the competitors, other financial integration or substantial clinical integration
among the competitors. The Company intends to comply with such state and federal
laws as may affect its development of, and contracting for, integrated health
care delivery networks and will utilize the DOJ and FTC approved 'messenger
model'-- which avoids joint price negotiations--for those agreements that do not
involve sufficient financial or clinical integration. Nevertheless, there can be
no assurance that a review of the Company's business by courts or regulatory
authorities will not result in a determination that could adversely affect the
operation of the Company and the Practices.
 
STATE LAW
 
     State Self-Referral Laws.  A number of states have enacted self-referral
laws that are similar in purpose to the Stark Law but which impose different
restrictions on referrals than the Stark Law. These various state self-referral
laws have different requirements. Some states, for example, only prohibit
referrals when the physician's financial relationship with a health care
provider is based upon an investment interest. Other state laws apply only to a
limited number of designated health services or, alternatively, to all health
care services furnished by a provider. Some states do not prohibit referrals at
all, but require only that a patient be informed of the financial
 
                                       39
relationship before the referral is made. Most of the states in which the
Company conducts business have adopted some form of self-referral law. Many
states, including California and Pennsylvania, among the states in which the
Company does business, have self-referral laws that are particularly applicable
to workers' compensation patients. The Company believes that its current
operations and the structure of the Existing Practices are in material
compliance with the self-referral laws of the states in which such Practices are
located. Additional risks under state self-referral laws could arise, however,
to the extent that the Company undertakes to own, manage or operate any
Ancillary Service Facilities to which the physicians within the Practices may
wish to refer patients.
 
     State Anti-Kickback Laws.  Many states have laws that prohibit payment of
kickbacks in return for the referral of patients. Some of these laws apply only
to services reimbursable under state Medicaid programs. However, a number of
these laws apply to all health care services in the state, regardless of the
source of payment for the service. Some state laws governing workers'
compensation and other insurance also include an anti-kickback prohibition. Each
state in which the Existing Practices are located has adopted one or more anti-
kickback provisions. The laws in most states regarding kickbacks have been

subjected to limited judicial and regulatory interpretation and therefore, no
assurances can be given that the Company's activities will be found to be in
compliance. Noncompliance with such laws could have a material adverse effect
upon the Company and subject it and the Practices' physicians to penalties and
sanctions.
 
     Fee-Splitting Laws.  Many states prohibit a physician from splitting with a
referral source the fees generated from physician services. Other states have a
broader prohibition against any division of a physician's fees, regardless of
whether the other party is a referral source. Some states have laws that
specifically address payments for services rendered to physicians based on a
percentage of revenues from the physician's practice. There are strong arguments
under many state laws that it is not fee-splitting when a payment made by the
physician is reasonable reimbursement for management and other types of
administrative services furnished to the physician unrelated to the referral of
patients.
 
     The Company is reimbursed by physicians in the Practices on whose behalf
the Company provides management services. The Company believes that the
compensation provisions of the Management Services Agreements have been designed
to comply with applicable state laws relating to fee-splitting. There can be no
certainty that, if challenged, the Company and the Practices will be found to be
in compliance with each state's fee-splitting (or related corporate practice)
laws. A determination in any state that the Company is engaged in any unlawful
fee-splitting arrangement could render any Management Services Agreement between
the Company and a Practice located in such state unenforceable or subject to
modification in a manner materially adverse to the Company.
 
     Corporate Practice of Medicine.  The laws of many states prohibit business
corporations, including the Company, from employing physicians, exercising
control over the medical judgments or decisions of physicians and from engaging
in certain financial arrangements, such as fee-splitting with physicians. These
laws and their interpretations vary from state to state and are enforced by both
the courts and regulatory authorities, each with broad discretion. Some states
interpret the 'practice of medicine' broadly to include activities of
corporations such as the Company that have an indirect impact on the practice of
medicine, even where the physician rendering the medical services is not an
employee of the corporation and the corporation exercises no discretion with
respect to the diagnosis or treatment of a particular patient. For example,
judicial interpretation of the corporate practice of medicine doctrine in Texas
has suggested that payments of a percentage of profits from a physician's
medical practice to a management company is a factor indicative of the corporate
practice of medicine.
 
     The Company's management structure, which the Company believes is
consistent with standard practices for PPMs, uses an operations committee (the
'Operations Committee') of six members, three of whom are designated by each of
the Company and the Practice. Among other things, the Operations Committee
approves a budget, medical group costs, costs and expenses that exceed the
budget, the acquisition and replacement of equipment and the integration of new
technologies. In addition, the Company's explicit approval is required for
implementation or acquisition of new technologies or medical equipment if the
costs of such equipment or technology exceeds 5% of the management fee. Company
approval is also required for all new offices and new ancillary services. If a

new medical office is not profitable, the Company may, in its sole discretion,
close the new office. Finally, a change in control of the Practice requires the
consent of the Company (not to be unreasonably withheld). While these provisions
in the Company's Management Services Agreements are
 
                                       40
designed to give the Company control over certain business transactions by the
Practices, which explicitly retain their professional independence, case law in
Texas and California (particularly the latter) has suggested that control of
business operations (such as the provisions discussed above) may so severely
impact the professional practice as to amount to the corporate practice of
medicine. Other states, including states in which the Company does business, may
take a similar position.
 
     The Company's intent is not to exercise any responsibility on behalf of the
Practices' physicians that interferes with the physicians' independent patient
care and professional judgments. Accordingly, the Company believes that its
operations do not violate applicable state laws relating to the corporate
practice of medicine. However, as noted, such laws and legal doctrines have been
subjected to only limited judicial and regulatory interpretation and there can
be no assurance that, if challenged, the Company would be considered to be in
compliance with all such laws and doctrines. A determination in any state that
the Company is engaged in the corporate practice of medicine could render any
Management Services Agreement between the Company and a Practice located in such
state unenforceable or subject to modification in a manner materially adverse to
the Company.
 
     The Company hires certain ancillary health personnel (nurses and
technicians) and leases their services back to the Practices in a manner that it
believes accords with applicable Medicare billing requirements. The Company's
ability to hire such ancillary personnel is subject to various state
regulations. The Company (i) does not believe that the professional practice
laws of any of the states in which it currently does business have been
interpreted to prohibit its employment of the ancillary personnel and (ii)
believes that its structure in this area is common among PPMs. Should such state
corporate practice laws be interpreted to prohibit such hiring by the Company,
the Company will be required to revise its relationship with such ancillary
personnel, and the relationship of the ancillary personnel to the Practice would
also have to be modified. Such modification in the forgoing relationships could
have a material adverse effect on the Company.
 
     Texas Staff Leasing Services Law.  Texas law requires any person offering
'staff leasing services' to obtain a license from the Texas Department of
Licensing and Regulation. The Company leases certain non-physician personnel to
STSC as part of the management services provided by the Company to STSC. The
Company believes that it must obtain a license to provide such services in
Texas, and has initiated the application process for such licensure. The Company
has no reason to believe that it does not comply with the license criteria which
require, among other things, that the Company demonstrate a certain net worth
(dependent upon the number of assigned employees that the Company has) and that
the contract between the Company and STSC contains certain provisions.

 
     Licensure and Certificate of Need Laws.  Certain of the ancillary services
that the Company anticipates providing or managing on behalf of the Practices
are now or may in the future be subject to licensure or certificate of need laws
in various states. There can be no assurance that the Company or the Practices
will be able to obtain such licenses or certificates of need approval to the
extent required for the particular ancillary service. Failure to obtain such
licenses or certificates of need could have a material adverse effect on the
Company.
 
     Insurance Laws.  Laws in all states regulate the business of insurance and
the operation of HMOs. Many states also regulate the establishment and operation
of networks of health care providers. While these laws do not generally apply to
companies that provide management services to networks of physicians, they have
been construed in some states to apply to such companies and there can be no
assurance that regulatory authorities of the states in which the Company
operates would not apply these laws to require licensure of the Company's
operations as an insurer, as an HMO or as a provider network. The Company
believes that its proposed operations are in compliance with these laws in the
states in which it currently does business, but there can be no assurance that
future interpretations of insurance and health care network laws by regulatory
authorities in these states or in the states into which the Company may expand
will not require licensure or a restructuring of some or all of the Company's
operations. See 'Risk Factors--Government Regulation.'
 
     The National Association of Insurance Commissioners ('NAIC') in 1995
endorsed a policy proposing the state regulation of risk assumption by
physicians. The policy proposes prohibiting physicians from entering into
capitated payment or other risk sharing contracts except through HMOs or
insurance companies. Several states have adopted regulations implementing the
NAIC policy in some form. In states where such regulations have been adopted,
practices are precluded from entering into capitated contracts directly with
employers, individuals
 
                                       41
and benefit plans unless they qualify to do business as HMOs or insurance
companies. The Existing Practices currently provide services under very few
capitated payment contracts. The Company intends to limit the number of
capitated payments or other risk-sharing arrangements into which it enters on
its own behalf or on behalf of the Practices. The Company expects to make such
arrangements only with HMOs or insurance companies. In addition, in December
1996, the NAIC issued a white paper entitled 'Regulation of Health Risk Bearing
Entities,' which sets forth issues to be considered by state insurance
regulators when considering new regulations, and encourages that a uniform body
of regulation be adopted by the states. Certain states have enacted statutes or
adopted regulations affecting risk assumption in the health care industry. In
some states, including California, these statutes and regulations subject any
physician or physician network engaged in risk-based contracting, even if
through HMOs and insurance companies, to applicable insurance laws and
regulations, which may include, among other things, laws and regulations
providing for minimum capital requirements and other safety and soundness

requirements. The Company believes that additional regulation at the state level
will be forthcoming in response to the NAIC initiatives.
 
FEDERAL AND STATE INITIATIVES
 
     Health Care Reform. As a result of the continued escalation of health care
costs and the inability of many individuals to obtain insurance, numerous
proposals have been or may be introduced in Congress and state legislatures
relating to health care reform. There can be no assurance as to the ultimate
content, timing or effect of any health care reform legislation, nor is it
possible at this time to estimate the impact of potential legislation, which may
be material, on the Company.
 
     Confidentiality of Patient Records.  The confidentiality of patient records
and the circumstances under which such records may be released is subject to
substantial regulation under state and federal laws and regulations. To protect
patient confidentiality, data entries to the Company's databases delete any
patient identifiers, including name, address, hospital and physician. Further,
the Company obtains the informed, written consent of the patient to use or
disclose patient information where the Company believes that such consent is
necessary or appropriate. The Company believes that its procedures comply with
the laws and regulations regarding the collection of patient data in
substantially all jurisdictions, but regulations governing patient
confidentiality rights are evolving rapidly and are often difficult to apply.
Additional legislation governing the dissemination of medical record information
has been proposed at both the state and federal level. Furthermore, the Health
Insurance Portability and Accountability Act of 1996 requires the Secretary of
Health and Human Services to recommend legislation or promulgate regulations
governing privacy standards for individually identifiable health information and
creates a federal criminal offense for knowing disclosure or misuse of such
information. These statutes and regulations may require holders of such
information to implement security measures that may be of substantial cost to
the Company. There can be no assurance that changes to state or federal laws
would not materially restrict the ability of the Company to obtain patient
information originating from records.
 
EMPLOYEES
 
     As of September 11, 1997, the Company had approximately 555 employees, of
whom 16 are located at the Company's headquarters, 9 are located in the regional
offices and 530 are located at the Existing Practices. The Company believes that
its relations with its employees are satisfactory.
 
PROPERTIES
 
     The Company has a five-year lease for its headquarters in Boca Raton,
Florida, which provides for annual lease payments of approximately $63,000. In
addition, in connection with the Affiliation Transactions, the Company assumed
leases for the facilities utilized by the respective Existing Practices for
aggregate annual lease payments of approximately $2.0 million as of December 31,
1997. For additional information, see 'Certain Transactions.'
 
LEGAL PROCEEDINGS
 

     The Company is subject to legal proceedings in the ordinary course of its
business. The Company does not believe that any such legal proceedings will have
a material adverse effect on the Company, although there can be no assurance to
this effect. In addition, the Company may become subject to certain pending
claims as the
 
                                       42
result of successor liability in connection with the assumption of certain
liabilities of the Practices; nevertheless, the Company believes that the
ultimate resolution of such additional claims will not have a material adverse
effect on the Company. See 'Risk Factors--Exposure to Professional Liability.'
 
CORPORATE LIABILITY AND INSURANCE
 
     The provision of medical services entails an inherent risk of professional
malpractice and other similar claims. However, the Company does not influence or
control the practice of medicine by physicians or have responsibility for
compliance with certain regulatory and other requirements directly applicable to
physicians and physician groups. As a result of the relationship between the
Company and the Practices, the Company may become subject to some medical
malpractice actions under various theories, including successor liability. There
can be no assurance that claims, suits or complaints relating to services and
products provided by the Practices will not be asserted against the Company in
the future. The Company maintains medical professional liability insurance and
general liability insurance and believes that such insurance will extend to
professional liability claims that may be asserted against employees of the
Company that work on-site at Practice locations. In addition, pursuant to the
Management Services Agreements, the Practices are required to maintain
comprehensive professional liability insurance. The availability and cost of
such insurance has been affected by various factors, many of which are beyond
the control of the Company and the Practices. The cost of such insurance to the
Company and the Practices may have a material adverse effect on the Company. In
addition, successful malpractice or other claims asserted against the Practices
or the Company that exceed applicable policy limits would have a material
adverse effect on the Company. See 'Risk Factors--Exposure to Professional
Liability.'
 
                                       43
MANAGEMENT
 
DIRECTORS, EXECUTIVE OFFICERS AND OTHER KEY EMPLOYEES
 
     The following table sets forth certain information concerning the
directors, executive officers and other key employees of the Company:
NAME                                                    AGE   POSITION
----                                                    ---   --------
Naresh Nagpal, M.D. .................................   47    President, Chief Executive Officer and Director
David H. Fater.......................................   50    Executive Vice President, Chief Financial Officer and
                                                                Director
Tony Anderson........................................   38    Treasurer
Ronald Garey.........................................   42    Controller
Sherry Pulliam.......................................   42    Director of Financial Operations and Assistant
                                                                Treasurer
David K. Ellwanger...................................   40    Senior Vice President, Eastern Region
Glenn Cozen..........................................   43    Regional Vice President, Western Region
Joanna Robben........................................   37    Regional Vice President, Central Region
Keith Bolton.........................................   35    Director of Ancillary Development, Central Region
Beth Landel..........................................   33    Director of Ancillary Development, Eastern Region
Lee Bodendorfer......................................   47    Director of Operations, Eastern Region
G. Steven Ensinger...................................   42    Co-Director of Development, Central Region
Randal J. Farwell....................................   37    Director of Development, Eastern Region
Brent E. Mellecker...................................   35    Co-Director of Development, Central Region
Andrea Serrate.......................................   43    Director of Development, Western Region
Georges Daou.........................................   36    Director
James M. Fox, M.D.(1)................................   55    Director
Ann H. Lamont(1).....................................   40    Director
Donald J. Lothrop....................................   38    Director
------------------
(1)  Member of the Compensation Committee.
 
     Naresh Nagpal, M.D. became President and Chief Executive Officer and a
director in March 1996. From September 1993 to August 1996, Dr. Nagpal served on
the board of directors of InPhyNet Medical Management Inc. ('IMMI'), a PPM. From
September 1993 to August 1995, Dr. Nagpal was the Senior Executive Vice
President and Chief Operating Officer of IMMI. From January 1985 to August 1993,
Dr. Nagpal was President of Acute Care Specialists, Inc. and its related
companies which are PPMs that provide services to several hospitals and
physicians. Dr. Nagpal was the Chairman of the Department of Emergency Medicine
at Barberton Citizens Hospital in Barberton, Ohio from January to June of 1992
and Chairman of the Department of Emergency Medicine at Audobon Regional Medical
Center in Louisville, Kentucky from July to December of 1992.
 
     David H. Fater became Executive Vice President and Chief Financial Officer
in February 1997 and a director in April 1997. From June 1995 to January 1997,
Mr. Fater was the Executive Vice President and Chief Financial Officer of
Community Care of America, Inc. From January 1993 to April 1995, Mr. Fater was
the Executive Vice President and Chief Financial Officer of Coastal Physician
Group, Inc. ('Coastal'). Prior to that, Mr. Fater was a partner at Ernst &
Young, LLP.
 
     In connection with Mr. Fater's position at Coastal, in May 1995 he was
named as one of several defendants in a stockholder class-action lawsuit filed
in the United States District Court for the Middle District of North Carolina,
Friedland v. Coastal Healthcare. The complaint, as amended, alleges that the
defendants violated federal securities laws through misrepresentations and

omissions of material facts concerning the Company's
 
                                       44
operations and financial condition. The defendants have filed an answer to the
complaint, denying the principal allegations contained therein.
 
     Tony Anderson became Treasurer in May 1997. From May 1995 to April 1997,
Mr. Anderson was the Vice President and Chief Financial Officer of Florida
Physician Services. From September 1993 to April 1995, he was Vice President and
Director of Internal Audit for Coastal. From February 1989 to August 1993, Mr.
Anderson was Controller for AKZO Coatings, Inc.
 
     Ronald Garey became Controller in August 1996. Mr. Garey was the
International Finance Manager for Whirlpool Corporation from August 1995 to July
1996. From June 1993 to July 1995, he was the Corporate Controller of Innovet,
Inc. From July 1985 to May 1993, Mr. Garey was the Assistant Controller for Dole
Fresh Fruit International.
 
     Sherry Pulliam became Director of Financial Operations and Assistant
Treasurer in November 1996. From February 1985 to December 1995, Ms. Pulliam
functioned in several different positions for Coastal such as, Financial
Operations Manager (from June 1994 to December 1995), Assistant Treasurer (from
July 1993 to May 1994), Vice President of Mergers and Acquisitions (from April
1992 to June 1993) and Vice President and Controller for Coastal Emergency
Services, Inc., the largest subsidiary of Coastal (from May 1988 to March 1992).
From March 1996 to October 1996 Ms. Pulliam was engaged as a Consultant in
Corporate Development for Community Care of America, Inc.
 
     David 'Deke' K. Ellwanger became Senior Vice President of the Eastern
Region in July 1997. From July 1994 to July 1997, Mr. Ellwanger was the Vice
President of Managed Care for MedPartners/InPhyNet Medical Management Inc. From
August 1985 to June 1994, Mr. Ellwanger worked for Aetna Health Plans/PARTNERS
National Health Plans managing various HMO's and HMO acquisitions.
 
     Glenn Cozen became Regional Vice President, Western Region in March 1997.
Since November 1986, Mr. Cozen has been the Chief Financial Officer at SCOI.
 
     Joanna Robben became Regional Vice President of the Central Region in June
1997. From 1995 to May 1997, Ms. Robben was Vice President of Network Strategy &
Management and Executive Director of Government Programs for CIGNA Healthcare.
From 1990 to 1995 Ms. Robben worked with First Health Strategies, Inc. (formerly
ALTA Health Strategies, Inc.), most recently as Vice President, Provider
Networks. From 1985 to 1990, Ms. Robben was Director, Network Marketing for
Partners National Health Plans. Ms. Robben is also a registered physical
therapist in private practice from 1982 to 1994.
 
     Keith Bolton became Director of Ancillary Development, Central Region in
April 1997. Mr. Bolton was the Vice President of Corporate Development from
April 1995 to March 1997, for Onecare Health Industries, Inc. From July 1993 to
March 1995, he was the Regional Vice President for Surgical Health Corporation.
From March 1992 to June 1993, Mr. Bolton was the President and Chief Executive

Officer of Southern California Surgery Centers, a small consulting firm.
 
     Lee Bodendorfer became Director of Operations, Eastern Region in April
1997. Mr. Bodendorfer was the Executive Vice President of Intellex Medical
Management Systems, Inc. from February 1995 to April 1997. From October 1993 to
February 1995, he acted as Regional Practice Administrator for Columbia/HCA.
From June 1989 to October 1993, Mr. Bodendorfer was the Managing Director for
Melbourne Neurologic, P.A., a neurosurgical and neurological group medical
practice ('Melbourne'). During this period he also served as President and Board
Chairman for Partners in Rehabilitation, Inc., an industrial rehabilitation and
chronic pain management company and an affiliate of Melbourne. During this time
he also served as General Manager of South Brevard Imaging, Ltd., a limited
partnership MRI.
 
     Beth A. Landel became Director of Ancillary Development, Eastern Region, In
July 1997. From June 1995 to July 1997, Ms. Landel was with HealthSouth
Corporation where she was Director of Corporate Development for the State of
Florida. From May 1994 to June 1995, Ms. Landel was with Surgical Health
Corporation and Physicians Health Corporation, a PPM, as Regional Marketing and
Managed Care Manager for the State of Florida. From August 1992 to May 1994, Ms.
Landel was Director of Managed Care for Wellington Regional Medical Center, an
acute hospital in the Universal Health Services system.
 
                                       45
G. Steven Ensinger became Co-Director of Development for the Central Region
in August 1997. From December 1996 to July 1997, Mr. Ensinger functioned as the
Practice Administrator for STSC. Beginning in January 1997, business development
activities for the Company were added to his responsibilities at STSC. From
November 1994 to November 1995, Mr. Ensinger was the assistant administrator for
St. Mary's Hospital in Port Arthur, Texas, a member of the Sisters of Charity of
Houston Hospital Network. From November 1992 to July 1994, Mr. Ensinger was the
Chief Operating Officer of St. Luke's Lutheran Hospital.
 
     Randal J. Farwell became Director of Development, Eastern Region in
December 1996. From February 1996 to December 1996, Mr. Farwell was the Vice
President of Marketing for PhyMatrix Corporation. He was Vice President of
Development for MedPartners from March 1995 to February 1996. From August 1993
to March 1995, Mr. Farwell was the Executive Director of Marketing and Network
Development for Florida Specialty Care Network, Ltd. Prior to that, Mr. Farwell
was the Director of Advertising and Promotions for Industry Publishers Inc., a
southern Florida medical business publication.
 
     Brent E. Mellecker became Co-Director of Development, Central Region in
April 1997. From June 1995 to March 1997, Mr. Mellecker was Vice President of
Sales and Marketing for Combined Orthopaedic Specialists. He was a Practice
Consultant at Health Directions from December 1993 to June 1995. Prior to that,
Mr. Mellecker was the Director of Business Development at Same Day Surgery.
 
     Andrea Seratte became Director of Development, Western Region in February
1997. From February 1995 to March 1997, Ms. Seratte was the sole proprietor of
SHARP Consulting, a healthcare consulting firm. From September 1993 to February

1995, Ms. Seratte was the Vice president of Operations for the Rehab Managed
Care division of NovaCare, a managed care company. From March 1993 to September
1993, she was the Vice President of Finance for the Hospital Division of
NovaCare.
 
     Georges Daou became a director in September 1997. Mr. Daou is a founder of
DAOU Systems, Inc. and has served as Chairman of the Board and Chief Executive
Officer of such company since 1987. Mr. Daou sits on the boards of various
healthcare and community organizations, including the College of Healthcare
Management Executives and the Healthcare Information Managers Association.
 
     James M. Fox, M.D. became a director in November 1996. Dr. Fox was a
founding partner of, and since 1992 has been an orthopaedic surgeon at, SCOI.
 
     Ann H. Lamont became a director in May 1996. Ms. Lamont is a managing
member of each of the general partner of Oak Investment Partners VI, Limited
Partnership ('Oak Partners') and Oak VI Affiliates Fund, Limited Partnership
('Oak VI'). Since September 1983, Ms. Lamont has been a general partner or
managing member of the general partner of four other venture capital
partnerships affiliated with Oak Partners and Oak VI. Ms. Lamont currently
serves as a director on the board of ViroPharma, Incorporated.
 
     Donald J. Lothrop became a director in May 1996. Since July 1994, Mr.
Lothrop has been a General Partner of Delphi Ventures, a privately held venture
capital firm. From January 1991 to July 1994, Mr. Lothrop was a Partner at
Marquette Venture Partners, Inc., a privately held venture capital partnership.
Mr. Lothrop currently serves as a director on the boards of Accordant Health
Services, Inc., Affiliated Research Centers, Inc., EXOGEN, Inc., Kelson
Physician Partners, Inc., Pacific Dental Benefits, Presidium Inc. and PriCare,
Inc.
 
NATIONAL PHYSICIAN ADVISORY BOARD
 
     The Company has established a National Physician Advisory Board (the
'Advisory Board') which will provide oversight of certain matters including
responsibility for all patient care and clinical issues. The Advisory Board will
also have responsibility for providing guidance to the Company regarding the
development of its disease management system and protocols as well as all
professional issues. The Advisory Board will consist of seven to nine
musculoskeletal physicians from various parts of the country, including
physicians who are not affiliated with the Company.
 
                                       46
The initial members of the Advisory Board are:
PHYSICIAN                                                                             PRACTICE
-----------------------------------------------------------------------------------   --------
James Esch, M.D....................................................................   Tri-City

Gilbert R. Meadows, M.D............................................................     STSC
Ranjan Sachdev, M.D................................................................    LVBMJ
Martin Silverstein, M.D............................................................     LOS
Donald Wiss, M.D...................................................................     SCOI
DIRECTOR COMPENSATION AND COMMITTEES
 
     The directors do not currently receive compensation for their service on
the Board of Directors or any committee thereof but are reimbursed for their
out-of-pocket expenses. Under the Company's Option Plan, non-employee directors
are eligible to receive option grants. See '--Stock Option Plan.'
 
     The Board of Directors currently includes a Compensation Committee composed
of two directors, Ms. Lamont and Dr. Fox. The Board of Directors intends to
establish an Audit Committee prior to the Offering which will be composed of
three independent directors. The Compensation Committee determines compensation
for executive officers of the Company and administers the Company's Option Plan.
The Audit Committee will review the scope and results of audits and internal
accounting controls and all other tasks performed by the independent public
accountants of the Company.
 
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
 
     Prior to the establishment of the Compensation Committee in February 1997,
the Board of Directors determined the compensation payable to the Company's
executive officers. Stock options have been granted to employees of the Company
and, at the end of fiscal 1996, the Board of Directors approved an incentive
bonus for Dr. Nagpal.
 
EXECUTIVE COMPENSATION
 
     The following table sets forth certain information concerning the
compensation paid by the Company to the President and Chief Executive Officer of
the Company during the fiscal year ending December 31, 1996 (the only executive
officer of the Company during such year).
 
                           SUMMARY COMPENSATION TABLE
LONG-TERM           
                                                                                         COMPENSATION
                                                          ANNUAL COMPENSATION               AWARDS
                                                   ----------------------------------    ------------       
                                                                            OTHER        SECURITIES    
                                      FISCAL                               ANNUAL         UNDERLYING       ALL OTHER
   NAME AND PRINCIPAL POSITION         YEAR        SALARY      BONUS     COMPENSATION    OPTIONS/SARS     COMPENSATION
---------------------------------   -----------    -------    -------    ------------    ------------    ------------
                                                     ($)        ($)          ($)             (#)             ($)
Naresh Nagpal, M.D. .............       1996       225,000     67,500        --              --              --
  President and Chief Executive
     Officer
OPTION GRANTS IN 1996
 
     There were no options granted to the President and Chief Executive Officer
during the fiscal year ended December 31, 1996.
 
STOCK OPTION PLAN
 
     In order to attract and motivate employees, consultants and directors to
use their best efforts on behalf of the Company, the Company may, pursuant to
its Option Plan, grant to its employees, consultants, and directors options to
purchase an aggregate of 2,000,000 shares of Common Stock (subject to adjustment
in certain circumstances). If any options expire or are canceled or terminated
without being exercised, the Company may, in accordance with the terms of the
Option Plan, grant additional options with respect to those shares of Common
Stock underlying the unexercised portion of such expired, canceled or terminated
options.
 
     The Option Plan may be administered by the Board of Directors or by a
committee of the Board of the Directors (the 'Committee,' and references to the
Committee shall mean the Board of Directors, if a committee is not appointed).
Grants of Common Stock may consist of (i) options intended to qualify as
incentive stock
 
                                       47
options ('ISOs') or (ii) nonqualified stock options that are not intended so to
qualify ('NSOs'). Except as set forth below, the term of any such option is ten
years. Options may be granted to any employees (including officers and
directors) of the Company, members of the Board of Directors who are not
employees, and consultants and advisers who perform services to the Company or
any of its subsidiaries.
 
     The option price of any ISO granted under the Option Plan will not be less
than the fair market value of the underlying shares of Common Stock on the date
of grant; provided that the price of an ISO granted to a person who owns more
than 10% of the total combined voting power of all classes of stock of the
Company must be at least equal to 110% of the fair market value of Common Stock
on the date of grant and, in such case, the ISO's term may not exceed five
years. The option price of an NSO will be determined by the Committee in its
sole discretion, and may be greater than, equal to or less than the fair market
value of the underlying shares of Common Stock on the date of grant; provided
that, subsequent to the initial public offering of the Company's Common Stock,
the price of the underlying shares may not be less than fair market value. A
grantee may pay the option price (i) in cash, (ii) by delivering shares of
Common Stock already owned by the grantee or vested options held by the grantee,
which, in either case, have a fair market value on the date of exercise equal to
the option price, or (iii) by any combination of (i) and (ii) above. With
respect to any options, the Committee may impose such vesting and other
conditions as the Committee may deem appropriate, all of which terms and
conditions must be set forth in an option agreement between the Company and the

grantee. Options may be exercised by the grantee at any time during his
employment or retention by the Company or any subsidiary thereof and within a
specified period after termination of the grantee's employment or retention.
 
     In the event of a change of control (as defined in the Option Plan), all
grantees will be afforded an opportunity to exercise the portion of their
respective options that are then vested and exercisable. Thereafter, any
unexercised and any unvested portion of all outstanding options will be
automatically terminated.
 
     All options issued under the Option Plan will be granted subject to any
applicable federal, state and local withholding requirements. At the time of
exercise, the grantee must remit to the Company an amount sufficient to satisfy
the total amount of any such taxes required to be withheld by the Company with
respect to such exercised options.
 
     The Board of Directors may amend or terminate the Option Plan at any time;
provided that, under certain circumstances the approval of the stockholders of
the Company may be required. As of August 31, 1997, the Company has granted
options under the Option Plan to purchase an aggregate of 1,303,000 shares of
Common Stock, of which 10,000 have been exercised, 90,000 have been canceled and
50,000 were issued to physicians. The Option Plan will terminate on May 6, 2006,
unless earlier terminated by the Board of Directors or extended by the Board of
Directors with the approval of the stockholders.
 
EMPLOYMENT AGREEMENTS
 
     The Company has entered into an employment agreement dated as of May 6,
1996, as amended, with Dr. Nagpal (the 'Nagpal Employment Agreement'). Base
compensation under the Nagpal Employment Agreement is $225,000 per year, subject
to increase by the Board of Directors. In addition, the Board of Directors may
award an annual bonus to Dr. Nagpal in an amount of up to 30% of his base salary
based on the attainment of certain benchmarks. The Company may terminate Dr.
Nagpal's employment at any time and for any reason; provided that, if his
employment is terminated without cause (as defined in such agreement) or as a
result of his becoming permanently disabled, the Company must pay Dr. Nagpal a
severance amount determined in accordance with a formula contained in the
agreement.
 
     Under the Nagpal Employment Agreement, Dr. Nagpal is prohibited from
directly or indirectly competing with the Company during the term of his
employment with the Company and for an additional year thereafter or as long as
the Company is making severance payments to him, however, there can be no
assurance as to the enforceability of such Agreement. The restraint on
competition by Dr. Nagpal is geographically limited to any state in the United
States in which the Company or any of its subsidiaries conducts business or
specifically plans to conduct business at the time of the termination of his
employment with the Company. Under the terms of the Nagpal Employment Agreement,
Dr. Nagpal acknowledges that any proprietary information (as defined in such
agreement) that he may develop is the sole property of the Company and agrees
not to disclose to, or use for the benefit of, any person or entity (other than
the Company) any of such proprietary information whether or not developed by
him.
 

                                       48
CERTAIN TRANSACTIONS
 
EQUITY AND DEBT FINANCINGS
 
     In connection with its initial capitalization, the Company sold shares of
Common Stock and Series A Convertible Preferred Stock (the 'Series A Preferred
Stock') to each of the following persons and entities at a per share purchase
price of $.01 and $1.00, respectively: (a) Oak Partners purchased 146,580 and
325,733 shares of Common Stock and Series A Preferred Stock, respectively; (b)
Oak VI purchased 3,420 and 7,600 shares of Common Stock and Series A Preferred
Stock, respectively; (c) Delphi Ventures purchased 147,347 and 327,438 shares of
Common Stock and Series A Preferred Stock, respectively; (d) Delphi
BioInvestments III, L.P. ('Delphi BioInvestments') purchased 2,653 and 5,895
shares of Common Stock and Series A Preferred Stock, respectively; (e) Dr.
Nagpal purchased 850,000 and 333,333 shares of Common Stock and Series A
Preferred Stock, respectively; and (f) Scheer & Co. purchased 25,000 shares of
Common Stock. Upon consummation of the Offering, all outstanding shares of
Series A Preferred Stock will automatically convert into an equal number of
shares of Common Stock.
 
     During the period beginning November 1996 and ending in March 1997, the
Company raised additional working capital funds by issuing additional shares of
preferred stock. On November 12, 1996, the Company issued an aggregate of
2,000,001 shares of Series B Convertible Preferred Stock, $.01 par value (the
'Series B Preferred Stock'), to the following persons and entities in the
following amounts: Oak Partners, 651,467 shares; Oak VI, 15,200 shares; Delphi
Ventures, 654,877 shares; Delphi BioInvestments, 11,790 shares; and Dr. Nagpal,
666,667 shares. The investors paid an aggregate purchase price of $6,000,003 for
the Series B Preferred Stock. An additional $764,997 was raised by the Company
from the issuance of an aggregate of 254,999 shares of Series C Convertible
Preferred Stock, $.01 par value (the 'Series C Preferred Stock'), on January 22,
1997 and March 12, 1997 to certain of the SCOI physicians (including Dr. Fox,
one of the Company's directors), key employees and legal counsel of SCOI, an
employee of the Company, CGJR Health Care Private Equities, L.P., CGJR II, L.P.
and CGJR/MF III, L.P. Upon consummation of the Offering, all outstanding shares
of Series B Preferred Stock will automatically convert into Common Stock. On
January 14, 1997, the Company obtained short-term loans in the aggregate amount
of $999,999 from Delphi Ventures, Delphi BioInvestments, Oak Partners, Oak VI
and Dr. Nagpal. In connection with such loans, the Company issued warrants to
the lenders to purchase an aggregate of 33,333 shares of Common Stock, which
warrants may be exercised at any time, in whole or in part, prior to January 14,
2002 at an exercise price of $3.00 per share. The Company borrowed an additional
$866,667 (of which $141,000 has been repaid) from Dr. Nagpal on January 10, 1997
and January 14, 1997. Each of the foregoing loans bears interest at 8% per
annum. Upon consummation of the Offering, all outstanding shares of Series C
Preferred Stock will automatically convert into Common Stock. On June 19, 1997,
pursuant to a letter agreement, the Company issued an aggregate of 188,072
shares of Series D Convertible Preferred Stock, $.01 par value (the 'Series D
Preferred Stock'), to Oak VI, Oak Partners, Delphi Ventures, Delphi
BioInvestments, and Dr. Nagpal in exchange for the cancellation of promissory

notes in the aggregate principal amount of $999,999, plus accrued interest,
previously issued by the Company to secure loans made by such investors to the
Company. Upon consummation of the Offering, all outstanding shares of Series D
Preferred Stock will automatically convert into Common Stock.
 
     On June 19, 1997, pursuant to a letter agreement, the Company issued an
aggregate of 533,335 shares of Series E Convertible Preferred Stock, $.01 par
value (the 'Series E Preferred Stock'), to Oak VI, Oak Partners, Delphi
Ventures, Delphi BioInvestments, Dr. Nagpal, CGJR Health Care, CGJR II, and
CGJR/MF. The investors paid an aggregate purchase price of $3,200,010 for the
Series E Preferred Stock. Upon consummation of the Offering, all outstanding
shares of Series E Preferred Stock will automatically convert into Common Stock.
 
     From March 1997 to July 1997 the Company entered into the HCFP Loan
Agreements with HCFP Funding. Each of the HCFP Loan Agreements is in the nature
of a revolving line of credit, with each such loan to be made against a
borrowing base equal to 85% of the qualified accounts receivable generated by
the subject Practice. Each HCFP Loan had an initial term of two years, subject
to renewals of one-year periods upon the mutual agreement of the parties, and
bears interest at the Base Rate (defined as 1.75% above the prime rate
designated by Fleet National Bank of Connecticut, N.A.), subject to increase
upon the occurrence of an event of default. In addition, upon the occurrence and
during the continuance of an event of default, the Company is prohibited from
 
                                       49
declaring or paying cash dividends on its Common Stock. As security for
repayment of the HCFP Loans, the Company granted HCFP Funding a first priority
lien and security interest in its accounts receivable.
 
     On June 30, 1997, the Company issued a secured term note in the aggregate
principal amount of $3,250,000 to HCFP Funding (the 'HCFP Note'), which bears
interest at the Base Rate (defined as the prime rate designated by Fleet
National Bank of Connecticut plus 3.5%), subject to increase upon the occurrence
of an event of default, with interest payable on the last business day of each
month for the first six months commencing July 31, 1997 through December 31,
1997. Commencing on January 31, 1998, the Company is required to make 36 equal
monthly installments of principal, plus accrued interest at the Base Rate. The
HCFP Note is secured by a lien on substantially all of the assets of the Company
and $1.5 million of the Company's obligations under the HCFP Note are guaranteed
by Dr. Nagpal, Delphi Ventures III, L.P., Delphi BioInvestments III, L.P., Oak
Investment Partners VI, L.P. and Oak VI Affiliates Fund, L.P. In connection with
such guarantees, the Company issued warrants to purchase an aggregate of 13,332
shares of Common Stock to such guarantors. In connection with the HCFP Note, the
Company issued warrants to purchase 40,000 shares (subject to increase) of
Common Stock to HCFP Funding at an exercise price of $.01 per share.
 
     On August 1, 1997, the Company entered into the Comdisco Loan Agreement
pursuant to which Comdisco made the Comdisco Loan to the Company in the
principal amount of $5,000,000. To secure its obligations to Comdisco under the
Comdisco Loan Agreement, the Company granted to Comdisco a lien on all of the
Company's tangible and intangible personal property. The Comdisco Loan and the

liens granted to Comdisco (the 'Comdisco Liens') are subordinated in all
respects to the current and future indebtedness of the Company owing to HCFP
Funding. The Comdisco Liens rank pari passu with the liens granted to Galtney.
The Comdisco Loan initially bears interest at 14% per annum; provided, however,
that if an initial public offering of the Company's capital stock is not
consummated on or prior to December 31, 1997, the Comdisco Loan will, commencing
January 1, 1998, bear interest at 15% per annum. The Comdisco Loan may be
prepaid, in whole or in part, at any time, by the Company without penalty or
premium. Within 45 days of the effective date of an initial public offering of
the capital stock of the Company, the Company is obligated to prepay the
Comdisco Loan in full. The Comdisco Loan matures December 31, 2000. The Comdisco
Loan Agreement prohibits the Company from making or declaring any cash dividends
or making any distributions of any class of capital stock of the Company, except
pursuant to an employee repurchase plan or with the consent of Comdisco.
Further, in connection with the Comdisco Loan, the Company issued to Comdisco a
warrant to purchase up to 125,000 shares of the Company's Series E Preferred
Stock at a price per share equal to $6.00; provided, however, that if an initial
public offering of the Company's capital stock is not consummated on or prior to
December 31, 1997, then the number of shares of Series E Preferred Stock
issuable upon exercise of the warrant increases to 133,333. Upon the completion
of the Company's initial public offering, such warrant becomes exercisable for a
like number of shares of Common Stock. In addition, pursuant to a Stock Purchase
Agreement dated as of August 18, 1997, the Company issued 41,667 shares of
Series E Preferred Stock to Comdisco for an aggregate purchase price of
$250,000.
 
     On August 1, 1997, the Company entered into an agreement (the 'Master Lease
Agreement') with Comdisco pursuant to which Comdisco agreed to purchase and
lease certain equipment to the Company on the terms and conditions contained in
the Master Lease Agreement. In connection with the Master Lease Agreement, the
Company issued to Comdisco a warrant to purchase up to 5,000 shares of the
Company's Series E Preferred Stock at a price per share equal to $6.00. Upon the
completion of the Company's initial public offering, such warrant becomes
exercisable for a like number of shares of Common Stock.
 
     On August 21, 1997, the Company entered into the Galtney Loan Agreement
with Galtney pursuant to which Galtney made the Galtney Loan to the Company in
the principal amount of $1,500,000. To secure its obligations to Galtney under
the Galtney Loan Agreement, the Company granted to Galtney a lien on all of the
Company's tangible and intangible personal property. The Galtney Loan and the
liens granted to Galtney ('Galtney Liens') are subordinated in all respects to
the current and future indebtedness of the Company owing to HCFP Funding. The
Galtney Liens rank pari passu with the liens granted to Comdisco. The Galtney
Loan initially bears interest at 14% per annum; provided, however, that if an
initial public offering of the Company's capital stock is not consummated on or
prior to December 31, 1997, the Galtney Loan will, commencing January 1, 1998,
bear interest at 15% per annum. The Galtney Loan may be prepaid, in whole or in
part, at any time, by the Company without penalty or premium. Within 45 days of
the effective date of an initial public offering of the
 
                                       50
capital stock of the Company, the Company is obligated to prepay the Galtney
Loan in full. The Galtney Loan matures December 31, 2000. The Galtney Loan
Agreement prohibits the Company from making or declaring any cash dividends or
making any distributions of any class of capital stock of the Company, except
pursuant to an employee dividends repurchase plan or with the consent of
Galtney. Pursuant to the terms of the Galtney Loan Agreement, the outstanding
amount of the Galtney Loan is convertible into shares of Preferred Stock of the
Company at the option of Galtney after the Company completes a sale and issuance
of any shares of its Preferred Stock in connection with an equity financing (an
'Equity Financing') at any time after the earlier to occur of (i) a payment
default under the Galtney Loan Agreement or (ii) the failure of the Company to
consummate an initial public offering of its capital stock prior to December 31,
1997. Further, in connection with the Galtney Loan, the Company issued to
Galtney a warrant to purchase up to 37,500 shares of the Company's Series E
Preferred Stock at a price per share equal to $6.00; provided, however, that if
an initial public offering of the Company's capital stock is not consummated on
or prior to December 31, 1997, then the number of shares of Series E Preferred
Stock issuable upon exercise of the warrant increases to 40,000. In addition,
pursuant to a Stock Purchase Agreement dated as of July 31, 1997, the Company
issued 166,667 shares of Series E Preferred Stock to HIS Ventures, LLC, an
affiliate of Galtney, for an aggregate purchase price of $1,000,000. Upon the
completion of the Company's initial public offering, such warrant becomes
exercisable for a like number of shares of Common Stock.
 
     On September 9, 1997, the Company issued and sold $4,000,000 in aggregate
principal amount of its subordinated convertible debentures due August 31, 2000
(the 'Debentures') pursuant to the Convertible Debenture Purchase Agreement,
dated as of September 9, 1997 (the 'Debenture Purchase Agreement'). The
Debentures were purchased by Dr. Nagpal, Delphi Ventures, Delphi BioInvestments,
Oak Partners, Oak VI and Health Care Services-BMJ, LLC and H&Q Serv*is Ventures,
L.P., affiliates of Hambrecht & Quist, LLC. Pursuant to the terms of the
Debenture Purchase Agreement, the Debentures are subordinated in right of
payment to all indebtedness owing by the Company to HCFP Funding, the Comdisco
Loan and the Galtney Loan. The Debentures bear interest at 6% per annum and are
payable semi-annually on each December 31 and June 30. The unpaid principal
amount of the Debentures is due on August 31, 2000.
 
     Except in very limited instances, the Company may not prepay the Debentures
prior to September 9, 1999. The Debentures are subject to prepayment at the
option of the holders of the Debentures upon the consummation of (i) a sale of
all or substantially all of the assets of the Company; (ii) a sale or transfer
of all or a majority of the outstanding Common Stock of the Company in any one
transaction or series of related transactions; or (iii) a merger or
consolidation of the Company with or into another entity. The Debentures are
convertible at any time at the option of the holders thereof into shares of
Common Stock at an initial conversion price equal to $7.20 per share. Pursuant
to the terms of the Debenture Purchase Agreement, the holders of the Debentures
have rights of first offer on future issuances of capital stock of the Company
or other securities convertible into capital stock of the Company. The Debenture
Purchase Agreement places limitations on indebtedness and liens and prohibits
the payment of dividends.
 
AFFILIATION TRANSACTIONS
 

  Eastern Region
 
     Effective July 1, 1996, the Company consummated its initial Affiliation
Transaction with LVBMJ in the State of Pennsylvania. Under the terms of the
Amended and Restated Management Services Agreement between LVBMJ and the Company
effective as of July 1, 1997 (the 'LVBMJ Management Services Agreement'), the
Company is entitled to receive a fee equal to 10% of all cash and cash
equivalents received for professional services by the Practice during the period
in question net of refunds paid during such period ('Collections') plus
reimbursement of clinic overhead expenses and 66-2/3% of the cost savings
achieved by the Company on behalf of the Practice. As consideration to LVBMJ for
entering into the LVBMJ Management Services Agreement, the Company issued an
aggregate of 518,031 shares of Common Stock and options to purchase an aggregate
of 30,000 shares of Common Stock to the physician owners of LVBMJ physicians and
LVBMJ. The Company may be required to issue more shares of Common Stock to the
Practice in 1998 based on the Practice's actual Collections for a specified
twelve month period.
 
                                       51
Effective April 1, 1997, the Company entered into a Management Services
Agreement (the 'LOS Management Services Agreement') with LOS. As consideration
to LOS for entering into the agreement, the Company issued an aggregate of
466,417 shares of its Common Stock and paid additional consideration of $389,709
to the LOS physicians. The Company may be required to issue more shares of
Common Stock to the Practice in 1998 based on the Practice's actual Collections
for a specified twelve month period. Under the terms of the LOS Management
Services Agreement, the Company is entitled to receive a fee equal to (i) the
aggregate of (A) 20% of net operating income (as defined in the LOS Management
Services Agreement) of the Practice, plus (B) 66-2/3% of the cost savings
achieved by the Company on behalf of the Practice. Notwithstanding the
foregoing, the Company is entitled to receive a guaranteed minimum annual
management fee of $400,000. The Company also purchased certain assets from LOS,
including the assumption of two leases, for an aggregate purchase price of
$2,250,000 (subject to adjustment based upon the Company's actual collection of
the purchased accounts receivable).
 
     Effective June 1, 1997, the Company entered into a Management Services
Agreement (the 'Gold Coast Management Services Agreement') with Gold Coast
located in West Palm Beach, Florida, pursuant to which the Company issued
265,725 shares of Common Stock and paid no additional consideration to the
physician owners of Gold Coast. The Company may be required to issue more shares
of Common Stock to the Practice in 1998 based on the Practice's actual
Collections for a specified twelve month period. Under the terms of the Gold
Coast Management Services Agreement, the Company is entitled to receive a fee
equal to the aggregate of (i) 15% of the Collections plus reimbursement of
clinic overhead expenses, plus (ii) 66-2/3% of the cost savings achieved by the
Company on behalf of Gold Coast. In connection with the Gold Coast Affiliation
Transaction, the Company also entered into an Asset Purchase Agreement,
effective as of July 1, 1997, pursuant to which the Company purchased certain
assets (including accounts receivable) from Gold Coast for an aggregate purchase
price of $2,976,577.

 
     Effective August 1, 1997, the Company entered into a Management Services
Agreement (the 'BOS Management Services Agreement') with Broward Orthopedic
Specialists, Inc. ('Broward'), Terrence Matthews, M.D., Wylie Scott, M.D., and
Mitchell Seavey, M.D. located in Ft. Lauderdale, Florida, pursuant to which the
Company issued 625,768 shares of Common Stock and paid additional consideration
of $2,215,338 to the physician owners of Broward. The Company may be required to
issue more shares of Common Stock to the Practice in 1998 based on the
Practice's actual Collections for a specified twelve month period. Under the
terms of the BOS Management Services Agreement, the Company is entitled to
receive a fee equal to the aggregate of (i) 15% of the Collections plus
reimbursement of clinic overhead expenses, plus (ii) 66-2/3% of the cost savings
achieved by the Company on behalf of Broward. In connection with the BOS
Affiliation Transaction, the Company also entered into an Asset Purchase
Agreement, effective as of August 1, 1997, pursuant to which the Company
purchased certain assets (including accounts receivable) from Broward, Matthews,
Scott and Seavey for an aggregate purchase price of $2,020,000.
 
     Effective August 1, 1997, the Company entered into a Management Services
Agreement (the 'PM&R Management Services Agreement') with Physical Medicine and
Rehabilitation Associates, Inc. ('PM&R'), located in Delray Beach, Florida,
pursuant to which the Company issued 126,923 shares of Common Stock and paid no
additional consideration to the physician owners of PM&R. Under the terms of the
PM&R Management Services Agreement, the Company is entitled to receive a fee
equal to the aggregate of (i) 10% of the Collections plus reimbursement of
clinic overhead expenses, plus (ii) 66-2/3% of the cost savings achieved by the
Company on behalf of PM&R. In connection with the PM&R Affiliation Transaction,
the Company also entered into an Asset Purchase Agreement, effective as of
August 1, 1997, pursuant to which the Company purchased certain assets
(including accounts receivable) from PM&R, for an aggregate purchase price of
$830,700.
 
  Other Eastern Region Affiliations
 
     Effective July 1, 1997, the Company entered into a Management Services
Agreement with Neal Kramer, D.P.M. located in Bethlehem, Pennsylvania. Effective
September 1, 1997, in order to enhance the Company's presence in the Ft.
Lauderdale market, the Company entered into separate Management Services
Agreements with Jeffrey Beitler, M.D., located in Adventura, Florida, and
Michael Abrahams, M.D., located in Plantation, Florida. Under the terms of these
Management Services Agreements, the Company is entitled to receive a fee equal
to the aggregate of (i) 10% (15% in the case of Dr. Abrahams) of the Collections
plus reimbursement of
 
                                       52
clinic overhead expenses, plus (ii) 66-2/3% of the cost savings achieved by the
Company on behalf of these practices.
 
  Central Region
 
     The Company's initial Affiliation Transaction in the central region was

with STSC. The Company entered into a Management Services Agreement with STSC
effective as of November 1, 1996, pursuant to which the Company issued 1,076,501
shares of Common Stock and deferred consideration of $915,835. Pursuant to the
STSC Management Services Agreement, the Company is entitled to receive a
management fee equal to an aggregate of (i) 11-1/2% of Collections of the
Practice (less certain lease payments) plus reimbursement of clinic overhead
expenses, plus (B) 66-2/3% of the cost savings achieved by the Company on behalf
of STSC. The Company also entered into an asset purchase agreement with STSC,
pursuant to which the Company agreed to purchase certain assets (including
accounts receivable) and assume certain liabilities for a purchase price of (i)
$1,703,828 (subject to adjustment based upon the Company's actual collection of
the purchased accounts receivable) plus (ii) a future payment of $446,327.
 
  Other Central Region Affiliations
 
     Effective July 1, 1997, the Company entered into a Management Services
Agreement with Eradio Arrendondo, M.D. located in San Antonio, Texas.
 
  Western Region
 
     Effective November 1, 1996, the Company entered into a Management Services
Agreement (the 'SCOI Management Services Agreement') with SCOI and, in
connection therewith, the Company issued 4,000,000 shares of Common Stock to the
physician owners and certain key employees of SCOI. Under the SCOI Management
Services Agreement, the Company is entitled to receive a fee equal to the
aggregate of (i) 10% of the Collections of the Practice (if certain conditions
are met) less certain equipment lease payments plus reimbursement of clinic
overhead expenses, plus (ii) 66-2/3% of the cost savings achieved by the Company
on behalf of SCOI. Simultaneously with the execution and delivery of the SCOI
Management Services Agreement and pursuant to an Asset Purchase Agreement, the
Company acquired certain assets (including the outstanding accounts receivable),
and assumed certain liabilities, of SCOI for an aggregate purchase price of
$5,930,897 (which included $2,224,000 of value of accounts receivable
purchased).
 
     In a subsequent transaction with the Center for Orthopedic Surgery, Inc.
('COSI'), an outpatient surgery center in Van Nuys, California owned by the SCOI
physicians, the Company issued 550,000 shares of Common Stock to the physician
owners of COSI as consideration for the execution of the Management Services
Agreement entered into between COSI and the Company (the 'COSI Management
Services Agreement'). The number of shares issued to the physicians in
connection with each of the SCOI and COSI Affiliation Transactions is subject to
recalculation on the earlier to occur of the filing by the Company of a
registration statement containing a preliminary prospectus with the Commission
or November 1, 1997. The number of shares will be increased or decreased based
upon the respective revenue contribution of the SCOI and COSI practices at such
date as compared to the aggregate revenues of the entire musculoskeletal
practice network of the Company at such date.
 
     To expand its network in the western region, effective April 1, 1997, the
Company entered into a Management Services Agreement (the 'Tri-City Management
Services Agreement') with Tri-City, located in Oceanside, California, pursuant
to which the Company issued 402,723 shares of Common Stock and paid $202,900 to
the physician owners of Tri-City. Under the terms of the Tri-City Management

Services Agreement, the Company is entitled to receive a fee equal to the
aggregate of (i) 10% of Collections of the Practice (less certain lease
payments) plus reimbursement of clinic overhead expenses, plus (ii) 66-2/3% of
the cost savings achieved by the Company on behalf of Tri-City. In connection
with the Tri-City Affiliation Transaction, the Company also entered into three
Asset Purchase Agreements with Tri-City or affiliates thereof, all effective as
of April 1, 1997, pursuant to which the Company purchased certain assets
(including accounts receivable) from such parties for an aggregate purchase
price of $745,300 ($519,000 of which is subject to refund, based upon the
Company's actual collection of the purchased accounts receivable).
 
                                       53
Effective July 1, 1997, the Company entered into a Management Services
Agreement (the 'Sun Valley Management Services Agreement') with Sun Valley,
located in Sun City, Arizona, pursuant to which the Company issued 157,807
shares of Common Stock and paid no additional consideration to the physician
owners of Sun Valley. The Sun Valley Management Services Agreement requires the
Company to pay additional cash consideration to the physician owners of Sun
Valley if the current market value of the Company's Common Stock is not at least
equal to a specified price on the first anniversary of such agreement. Under the
terms of the Sun Valley Agreement, the Company is entitled to receive a fee
equal to the aggregate of (i) 10% of the Collections plus reimbursement of
clinic overhead expenses, plus (ii) 66-2/3% of the cost savings achieved by the
Company on behalf of Sun Valley. In connection with the Sun Valley Affiliation
Transaction, the Company also entered into an Asset Purchase Agreement,
effective as of July 1, 1997, pursuant to which the Company purchased certain
assets (including accounts receivable) from Sun Valley for an aggregate purchase
price of $355,750.
 
     Effective August 1, 1997, the Company entered into a Management Services
Agreement (the 'Stockdale Management Services Agreement') with Stockdale
Podiatry Group, Inc. ('Stockdale'), located in Bakersfield, California, pursuant
to which the Company issued 124,385 shares of Common Stock and paid additional
consideration of $300,435 to the physician owners of Stockdale. Under the terms
of the Stockdale Management Services Agreement, the Company is entitled to
receive a fee equal to the aggregate of (i) 10% of the Collections plus
reimbursement of clinic overhead expenses, plus (ii) 66-2/3% of the cost savings
achieved by the Company on behalf of Stockdale. In connection with the Stockdale
Affiliation Transaction, the Company also entered into an Asset Purchase
Agreement, effective as of August 1, 1997, pursuant to which the Company
purchased certain assets (including accounts receivable) from Stockdale for an
aggregate purchase price of $516,065.
 
  Other Western Region Affiliations
 
     Effective June 1, 1997 in order to enhance the Company's presence in the
Los Angeles market area, the Company entered into separate Management Services
Agreements with H. Leon Brooks, M.D. and Clive Segil, M.D., both located in Los
Angeles, California. In addition, effective July 1, 1997, in order to establish
a presence in the Lake Tahoe area, the Company entered into separate Management
Services Agreements with R.C. Watson, M.D., Inc., Swanson Orthopedic Medical

Corporation and Lake Tahoe Sports Medicine Center, all located in South Lake
Tahoe, California. In addition, effective July 1, 1997, the Company entered into
a Management Services Agreement with Robert O. Wilson, M.D. located in Sun City,
Arizona. Effective August 1, 1997 the Company entered into a Management Services
Agreement with John Zimmerman, M.D. located in Bakersfield, California. Under
the terms of each of these Management Services Agreements, the Company is
entitled to receive a fee equal to the aggregate of (ii) 10% of the Collections
plus reimbursement of clinic overhead expenses, plus (ii) 66-2/3% of the cost
savings achieved by the Company on behalf of these Practices.
 
                                       54
PRINCIPAL STOCKHOLDERS
 
     The following table sets forth certain information regarding the beneficial
ownership of the Common Stock of the Company as of the date of this Prospectus
and as adjusted to reflect the sale of the shares of Common Stock offered hereby
with respect to (i) each person known by the Company to own beneficially more
than 5% of the outstanding shares of Common Stock; (ii) each of the Company's
directors; and (iii) all directors and officers as a group. Unless otherwise
indicated, the address for each stockholder is c/o BMJ Medical Management, Inc.,
4800 North Federal Highway, Suite 104D, Boca Raton, Florida 33431.
SHARES BENEFICIALLY     SHARES BENEFICIALLY
                                                                               OWNED                   OWNED
                                                                        PRIOR TO OFFERING(1)     AFTER OFFERING(1)
                                                                        --------------------    --------------------
NAME OF BENEFICIAL OWNER                                                 NUMBER      PERCENT     NUMBER      PERCENT
---------------------------------------------------------------------   ---------    -------    ---------    -------
Delphi Ventures III, L.P.(2) ........................................     165,555       1.6%    1,394,912(3)       %
  3000 Sand Hill Road, Building One, Suite 135,
  Menlo Park, California 94025
Oak Investment Partners VI, L.P.(4) .................................     165,555       1.6     1,394,913(5)
  One Gorham Island
  Westport, Connecticut 06880
Naresh Nagpal, M.D...................................................     981,805(6)    9.6     2,211,163 6)(7)
David H. Fater.......................................................           0        --        15,000(8)
Georges Daou.........................................................           0        --             0
James M. Fox, M.D....................................................     395,708       3.9       412,083(9)
Ann H. Lamont(4).....................................................     165,555(10)   1.6     1,394,913(5)
Donald J. Lothrop(2).................................................     165,555(11)   1.6     1,394,912(3)
All officers and directors as a group (6 persons) (12)...............   1,708,623      16.9     3,216,908
------------------
*   Less than one percent.
 
(1) Applicable percentage of ownership is based on 10,277,479 shares of Common
    Stock outstanding as of September 12, 1997 and            shares of Common

    Stock outstanding upon consummation of the Offering. Beneficial ownership is
    determined in accordance with the rules of the Commission and includes
    voting and investment power with respect to securities. Securities subject
    to options or warrants currently exercisable or exercisable within 60 days
    of September 12, 1997 are deemed outstanding for purposes of computing the
    percentage ownership of the person holding such options or warrants, but are
    not deemed outstanding for purposes of computing the percentage of any other
    person. Except for shares held jointly with a person's spouse or subject to
    applicable community property laws, or as indicated in the footnotes to this
    table, each stockholder identified in the table possesses sole voting and
    investment power with respect to all shares of Common Stock shown as
    beneficially owned by such stockholder.
 
(2) Includes (i) 2,653 shares of Common Stock owned by Delphi BioInvestments and
    (ii) warrants to purchase 15,279.5 shares of Common Stock owned by the
    stockholder and warrants to purchase 275.5 shares of Common Stock owned by
    Delphi BioInvestments.
 
(3) Includes 1,207,616 shares of Preferred Stock owned by the stockholder and
    21,741 shares of Preferred Stock owned by Delphi BioInvestments which
    automatically convert into the same number of shares of Common Stock upon
    completion of the Offering.
 
(4) Includes (i) 3,420 shares of Common Stock owned by Oak VI and (ii) warrants
    to purchase 15,200.67 shares of Common Stock owned by the stockholder and
    warrants to purchase 354.33 shares of Common Stock owned by Oak VI.
 
(5) Includes 1,201,329 shares of Preferred Stock owned by the stockholder and
    28,029 shares of Preferred Stock owned by Oak VI all of which automatically
    convert into the same number of shares of Common Stock upon completion of
    the Offering.
 
                                       55
(6) Includes (i) 18,750 shares of Common Stock reserved for issuance upon
     exercise of presently-exercisable stock options and (ii) warrants to
     purchase 15,555 shares of Common Stock. Dr. Nagpal's shares are held in two
     trusts for his children, the Prianker Nagpal Family Trust and the Zubin
     Nagpal Family Trust. Dr. Nagpal is the grantor of each trust and Dr.
     Nagpal's wife is the sole trustee of each trust.
 
 (7) Includes 1,229,358 shares of Preferred Stock owned by the stockholder which
     automatically convert into the same number of shares of Common Stock upon
     completion of the Offering.
 
 (8) Consists of 15,000 shares of Common Stock that vest automatically upon
     completion of the Offering.
 
 (9) Includes 16,375 shares of Preferred Stock owned by the stockholder which
     automatically convert into the same number of shares of Common Stock upon
     completion of the Offering.
 

(10) Ms. Lamont, a director of the Company, is a managing member of each of the
     general partner of Oak Investment and Oak VI. As such, Ms. Lamont may be
     deemed to have an indirect pecuniary interest (within the meaning of Rule
     16a-1 under the Exchange Act), in an indeterminate portion of the shares
     beneficially owned by Oak Investment and Oak VI. All of the shares
     indicated as owned by Ms. Lamont are owned beneficially by Oak Investment
     and Oak VI and are included because of the affiliation of Ms. Lamont with
     each of the partnerships. Ms. Lamont disclaims beneficial ownership of
     these shares to the extent permitted under Rule 13d-3 under the Exchange
     Act.
 
(11) Mr. Lothrop, a director of the Company, is a General Partner of Delphi
     Ventures. As such, Mr. Lothrop may be deemed to have an indirect pecuniary
     interest (within the meaning of Rule 16a-1 under the Exchange Act), in an
     indeterminate portion of the shares beneficially owned by Delphi Ventures
     and Delphi BioInvestments. All of the shares indicated as owned by Mr.
     Lothrop are owned beneficially by Delphi Ventures and Delphi BioInvestments
     and are included because of the affiliation of Mr. Lothrop with each of the
     partnerships. Mr. Lothrop disclaims beneficial ownership of these shares to
     the extent permitted under Rule 13d-3 under the Exchange Act.
 
(12) Includes beneficial ownership of an aggregate of 331,110 shares of Common
     Stock and warrants to purchase Common Stock prior to the Offering and an
     aggregate of 2,789,825 shares of Common Stock and warrants to purchase
     Common Stock after the Offering attributable to the affiliation of Ms.
     Lamont and Mr. Lothrop with the entities described in footnotes (10) and
     (11) above.
 
                                       56
DESCRIPTION OF CAPITAL STOCK
 
     Upon the consummation of the Offering, the authorized capital stock of the
Company will consist of (i)        shares of Common Stock and (ii)        shares
of preferred stock, par value $.01 per share (the 'Preferred Stock'), which are
subject to future issuance as determined by the Board of Directors of the
Corporation.
 
COMMON STOCK
 
     Holders of Common Stock are entitled to one vote per share on all matters
on which the holders of Common Stock are entitled to vote and do not have any
cumulative voting rights. Holders of Common Stock are entitled to receive such
dividends as may from time to time be declared by the Board of Directors of the
Company out of funds legally available therefor. Holders of Common Stock have no
preemptive, conversion, redemption or sinking fund rights. In the event of a
liquidation, dissolution or winding-up of the Company, holders of Common Stock
are entitled to share ratably in the assets of the Company, if any, remaining
after the payment of all debts and liabilities of the Company and the
liquidation preference of any outstanding class or series of preferred stock.
The outstanding shares of Common Stock are, and the shares of Common Stock
offered by the Company hereby when issued will be, fully paid and nonassessable.

The rights, preferences and privileges of holders of Common Stock are subject to
the Preferred Stock currently outstanding and any series of Preferred Stock
which the Company may issue in the future.
 
     Prior to the Offering, there has been no public market for the Common
Stock. Application will be made to have the Common Stock approved for inclusion
on Nasdaq under the symbol BONS. The transfer agent and registrar for the Common
Stock is Chemical Mellon Shareholder Services.
 
PREFERRED STOCK
 
     As of September 1, 1997, the Company had five classes of authorized
Preferred Stock: (i) the Series A Preferred Stock; (ii) the Series B Preferred
Stock; (iii) the Series C Preferred Stock; (iv) the Series D Preferred Stock;
and (v) the Series E Preferred Stock. Each holder of Preferred Stock has the
right, at such holder's option, to convert any of his Preferred Stock into
Common Stock at the conversion price set forth in the Certificate of
Incorporation. Upon the consummation of the Offering, all outstanding shares of
Preferred Stock automatically convert into an equal number of shares of Common
Stock without any action on the part of the holders of such stock. Upon such
conversion, the holders of Preferred Stock are not entitled to payment of any
accrued but unpaid dividends.
 
     The Board of Directors is authorized to provide for the issuance of
Preferred Stock in one or more series and to fix the number of shares
constituting any such series, the voting powers, designations, preferences and
relative, participating, optional or other special rights and qualifications,
limitations or restrictions thereof, including the dividend rights, redemption
privileges, conversion rights and liquidation preferences of the shares
constituting any series, without any further vote or action by the stockholders
of the Company. The issuance of Preferred Stock by the Board of Directors could
adversely affect the rights of holders of Common Stock. For example, the
issuance of Preferred Stock could result in a series of securities outstanding
that would have preferences over the Common Stock with respect to dividends and
in liquidation and that could (upon conversion or otherwise) enjoy all of the
rights appurtenant to Common Stock.
 
     The authority possessed by the Board of Directors to issue Preferred Stock
could potentially be used to discourage attempts by others to obtain control of
the Company through merger, tender offer, proxy, consent or otherwise by making
such attempts more difficult to achieve or more costly. The Board of Directors
may issue Preferred Stock without stockholder approval and with voting and
conversion rights which could adversely affect the voting power of holders of
Common Stock. There are no agreements or understandings for the issuance of
Preferred Stock, and the Board of Directors has no present intent to issue
Preferred Stock.
 
                                       57
CLASSIFIED BOARD OF DIRECTORS
 
     The Certificate of Incorporation provides for the Board of Directors to be

divided into three classes of directors serving staggered three-year terms. As a
result, approximately one-third of the Board of Directors will be elected each
year. Moreover, under Delaware Law, in the case of a corporation having a
classified board, stockholders may remove a director only for cause. This
provision, when coupled with the provision of the By-laws authorizing only the
Board of Directors to fill vacant directorships, will preclude a stockholder
from removing incumbent directors without cause and simultaneously gaining
control of the Board of Directors by filling the vacancies created by such
removal with its own nominees.
 
SPECIAL MEETING OF STOCKHOLDERS
 
     The Certificate of Incorporation provides that special meetings of
stockholders of the Company may be called only by the Board of Directors, the
Chairman of the Board of Directors or the Chief Executive Officer. This
provision will make it more difficult for stockholders to take actions opposed
by the Board of Directors.
 
STOCKHOLDERS AGREEMENT
 
     The Company entered into a Second Amended and Restated Stockholders
Agreement dated as of November 22, 1996 (the 'Stockholders Agreement'), with
certain of its stockholders, including Oak Partners, Oak VI, Delphi Ventures,
Delphi BioInvestments, Dr. Nagpal and the SCOI physicians. Under the
Stockholders Agreement, the stockholders party thereto agreed to vote their
shares to appoint to the Company's Board of Directors certain designees of such
stockholders. The stockholders (other than the SCOI physicians) also have the
following rights and obligations under the Stockholders Agreement: (i) a right
of first refusal with respect to issuances of the Company's capital stock or
securities convertible into capital stock; and (ii) transfer restrictions. Under
the terms of the Stockholders Agreement, 700,000 shares of Common Stock Dr.
Nagpal received on May 6, 1996 are subject to vesting over a 40-month period;
however, the vesting schedule is subject to acceleration in the following
circumstances: (i) termination of Dr. Nagpal's employment without cause prior to
December 31, 1996 but prior to January 1, 1998, 157,500 additional shares vest;
(ii) termination of Dr. Nagpal's employment without cause prior to December 31,
1997 but prior to January 1, 1999, 105,000 additional shares vest; (iii)
termination of Dr. Nagpal's employment as a result of his death or permanent
disability, 210,000 additional shares vest; (iv) simultaneously with the
effectiveness of a registration statement filed under the Securities Act, 50% of
the remaining unvested stock vests; and (v) simultaneously with any sale of a
majority of the capital stock or at least 50% of the assets of the Company, all
of the remaining unvested stock vests. In the event of the termination of Dr.
Nagpal's employment with the Company for any reason, the Company has the right
to repurchase from Dr. Nagpal all of the shares of unvested stock at a purchase
price equal to $.01 per share. The Stockholders Agreement terminates upon
consummation of the Offering.
 
REGISTRATION RIGHTS
 
     The beneficial owners of        shares of Common Stock have the right to
request that the Company effect the registration of any or all of such shares or
to include any or all of such shares in any registration statement to be filed
by the Company relating to the registration of Common Stock under the Securities

Act (other than registration statements on Form S-4 or Form S-8). Upon such
request, the Company is required to file a registration statement covering such
shares or to include such shares in such registration statement, as applicable,
except that, in the case of a requested registration, the Company is not
obligated to file any registration statement initiated pursuant to a request by
any such owner within 180 days of a prior registration by the Company and the
Company's obligations to effect any such registration is subject to other
limitations.
 
SECTION 203 OF THE DELAWARE GENERAL CORPORATION LAW
 
     Section 203 ('Section 203') of the Delaware General Corporation Law (the
'DGCL') prevents an 'interested stockholder' (defined in Section 203, generally,
as a person owning 15% or more of a corporation's outstanding voting stock) from
engaging in a 'business combination' (as defined in Section 203) with a
publicly-held Delaware corporation for three years following the date such
person became an interested stockholder unless (i) before such person became an
interested stockholder, the board of directors of the
 
                                       58
corporation approved either the business combination or the transaction in which
the interested stockholder became an interested stockholder; (ii) upon
consummation of the transaction that resulted in the interested stockholder's
becoming an interested stockholder, the interested stockholder owns at least 85%
of the voting stock of the corporation outstanding at the time the transaction
commenced (excluding stock held by directors who are also officers of the
corporation and by employee stock plans that do not provide employees with the
rights to determine confidentially whether shares held subject to the plan will
be tendered in a tender or exchange offer); or (iii) following the transaction
in which such person became an interested stockholder, the business combination
is approved by the board of directors of the corporation and authorized at a
meeting of stockholders by the affirmative vote of the holders of two-thirds of
the outstanding voting stock of the corporation not owned by the interested
stockholder.
 
DIRECTORS' LIABILITY
 
     The Certificate of Incorporation contains provisions that eliminate the
personal liability of its directors for monetary damages resulting from breaches
of their fiduciary duty other than liability for breaches of the duty of
loyalty, acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, violations under Section 174 of the
DGCL or any transaction from which the director derived an improper personal
benefit. The Company's By-laws contain provisions requiring the indemnification
of the Company's directors and officers to the fullest extent permitted by
Section 145 of the DGCL, including circumstances in which indemnification is
otherwise discretionary. The Company believes that these provisions are
necessary to attract and retain qualified persons as directors and officers.
 
                                       59
SHARES ELIGIBLE FOR FUTURE SALE
 
     After giving effect to the shares of Common Stock offered hereby, the
Company will have outstanding        shares of Common Stock. Of these shares,
all of the shares of Common Stock sold in the Offering will be freely tradeable
without restriction under the Securities Act, except for any shares purchased by
'affiliates,' as that term is defined under the Securities Act, of the Company.
The remaining        shares are 'restricted securities' within the meaning of
Rule 144 promulgated under the Securities Act. Of these restricted shares,
       shares will be eligible for the sale pursuant to Rule 144 in 1997 and the
balance of the restricted shares will be eligible for sale at various times in
1998.
 
     The Company, its directors and officers and certain other stockholders of
the Company, who upon completion of the Offering will own in the aggregate
            shares of Common Stock, have agreed that they will not, without the
prior written consent of Hambrecht & Quist LLC, issue, sell, offer, contract to
sell, make any short sale, pledge, issue or sell any option or contract to
purchase, purchase any option or contract to sell, grant any option, right or
warrant to purchase or otherwise transfer or dispose of any shares of Common
Stock, or securities exhangeable for or convertible into or exercisable for any
rights to purchase or acquire any shares of Common Stock during the 180-day
period following the date of this Prospectus, except that such stockholders may
transfer securities pursuant to bona fide gifts and the Company may issue, and
grant options to purchase, shares of Common Stock under its current stock option
plan and may issue shares of Common Stock, in connection with certain
affiliation transactions, provided such shares are subject to the 180-day
lock-up agreement. See 'Underwriting.'
 
     In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated), including any person who may be deemed to be an
'affiliate' of the Company, is entitled to sell within any three month period
'restricted' shares beneficially owned by him or her in an amount that does not
exceed the greater of (i) 1% of the then outstanding shares of Common Stock or
(ii) the average weekly trading volume in shares of Common Stock during the four
calendar weeks preceding such sale, provided that at least one year has elapsed
since such shares were acquired from the Company or an affiliate of the Company.
Sales are also subject to certain requirements as to the manner of sale, notice
and the availability of current public information regarding the Company.
However, a person who has not been an 'affiliate' of the Company at any time
within three months prior to the sale is entitled to sell his or her shares
without regard to the volume limitations or other requirements of Rule 144,
provided that at least two years have elapsed since such shares were acquired
from the Company or an affiliate of the Company.
 
     In general, under Rule 701 as currently in effect, any employee, officer,
director, consultant or advisor of the Company who purchased shares from the
Company pursuant to a written compensatory benefit plan or written contract
relating to compensation is eligible to resell such shares 90 days after the
effective date of the Offering in reliance upon Rule 144, but without the
requirement to comply with certain restrictions contained in such rule. Shares
of Common Stock obtained pursuant to Rule 701 may be sold by non-affiliates

without regard to the holding period, volume limitations, or information or
notice requirements of Rule 144, and by affiliates without regard to the holding
period requirements.
 
     The Company intends to file a registration statement on Form S-8 under the
Securities Act to register all shares of Common Stock issuable under its Option
Plan, as well as certain of the shares of Common Stock previously issued under
its Option Plan. This registration statement is expected to be filed as soon as
practicable after the date of this Prospectus and is expected to become
effective immediately upon filing. Shares of Common Stock covered by this
registration statement will be eligible for sale in the pubic market after the
effective date of such registration statement, subject to Rule 144 limitations
applicable to affiliates of the Company. See 'Management Stock Option Plan.'
 
     The Company has granted registration rights to certain of its stockholders.
See 'Description of Capital Stock Registration Rights.'
 
     Prior to the Offering, there has been no public market for the Common Stock
and it is impossible to predict with certainty the effect, if any, that market
sales of shares or the availability of such shares for sale will have on the
market price of the Common Stock. Nevertheless, sales of substantial amounts of
Common Stock in the public market may have an adverse impact on such market
price and could impair the Company's ability to raise capital through the sale
of its equity securities.
 
                                       60
UNDERWRITING
 
     Subject to the terms and conditions of the Underwriting Agreement, the
Underwriters named below, through their Representatives, Hambrecht & Quist LLC,
Raymond James & Associates, Inc. and Volpe Brown Whelan & Company, LLC have
severally agreed to purchase from the Company the following respective number of
shares of Common Stock:
NUMBER
UNDERWRITER                                                   OF SHARES
-----------                                                   ---------
Hambrecht & Quist LLC......................................
Raymond James & Associates, Inc............................
Volpe Brown Whelan & Company, LLC..........................
 

                                                              ---------
     Total.................................................
                                                              ---------
                                                              ---------
The Underwriting Agreement provides that the obligations of the
Underwriters are subject to certain conditions precedent, including the absence
of any material adverse change in the Company's business and the receipt of
certain certificates, opinions and letters from the Company, its counsel and
independent auditors. The nature of the Underwriters' obligation is such that
they are committed to purchase all shares of Common Stock offered hereby if any
of such shares are purchased.
 
     The Underwriters propose to offer the shares of Common Stock directly to
the public at the initial public offering price set forth on the cover page of
this Prospectus and to certain dealers at such price less a concession not in
excess of $            per share. The Underwriters may allow, and such dealers
may reallow, a concession not in excess of $            per share to certain
other dealers. After the initial public offering of the shares, the offering
price and other selling terms may be changed by the Representatives of the
Underwriters. The Representatives have informed the Company that the
Underwriters do not intend to conform sales to accounts over which they exercise
discretionary authority.
 
     The Company has granted to the Underwriters an option, exercisable no later
than 30 days after the date of this Prospectus, to purchase up to
additional shares of Common Stock at the initial public offering price, less the
underwriting discount, set forth on the cover page of this Prospectus. To the
extent that the Underwriters exercise this option, each of the Underwriters will
have a firm commitment to purchase approximately the same percentage thereof
which the number of shares of Common Stock to be purchased by it shown in the
above table bears to the total number of shares of Common Stock offered hereby.
The Company will be obligated, pursuant to the option, to sell shares to the
Underwriters to the extent the option is exercised. The Underwriters may
exercise such option only to cover over-allotments made in connection with the
sale of Common Stock offered hereby.
 
     The offering of the shares is made for delivery when, as and if accepted by
the Underwriters and subject to prior sale and to withdrawal, cancellation or
modification of the offering without notice. The Underwriters reserve the right
to reject an order for the purchase of shares in whole or in part.
 
     The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act, and to contribute
to payments the Underwriters may be required to make in respect thereof.
 
     Certain stockholders of the Company, including the executive officers and
directors, who will own in the aggregate           shares of Common Stock after
the Offering, have agreed that they will not, without prior written consent of
Hambrecht & Quist LLC, directly or indirectly, sell, offer, contract to sell,
transfer the economic risk of ownership in, make any short sale, pledge or
otherwise dispose of any shares of Common Stock or any securities convertible
into or exchangeable or exercisable for or any other rights to purchase or
acquire
 
                                       61
Common Stock beneficially owned by them during the 180-day period following the
date of this Prospectus other than transfers pursuant to bona fide gifts. In
addition, the Company has agreed that, without the prior written consent of
Hambrecht & Quist LLC on behalf of the Underwriters, the Company will not,
directly or indirectly, sell, offer, contract to sell, make any short sale,
pledge, sell any option or contract to purchase, purchase any option or contract
to sell, grant any option, right or warrant to purchase or otherwise transfer or
dispose of any shares of Common Stock or any securities convertible into or
exchangeable or exercisable for or any rights to purchase or acquire Common
Stock, or enter into any swap or other agreement that transfers, in whole or in
part, any of the economic consequences or ownership of Common Stock, during the
180-day period following the date of this Prospectus, except that the Company
may issue, and grant options to purchase, shares of Common Stock under its
current stock option plan and may issue shares of Common Stock in connection
with certain affiliation transactions, provided such shares are subject to the
180-day lock-up agreement. Sales of such shares in the future could adversely
affect the market price of the Common Stock. Hambrecht & Quist LLC may, in its
sole discretion, release any of the shares subject to the lock-up agreements at
any time without notice.
 
     At the request of the Company, the Underwriters have reserved up to
shares of Common Stock for sale at the initial public offering price to
directors, officers, employees and persons with business relationships with the
Company, as well as others associated with such persons. The number of shares of
Common Stock available for sale to the general public will be reduced to the
extent such persons purchase the reserved shares. Any reserved shares not so
purchased will be offered by the Underwriters on the same basis as all other
shares offered hereby.
 
     Prior to the Offering, there has been no public market for the Common
Stock. The initial public offering price for the Common Stock was determined by
negotiation between the Company and the Representatives. Among the factors
considered in determining the initial public offering price were prevailing
market and economic conditions, revenues and earnings of the Company, market
valuations of other companies engaged in activities similar to the Company,
estimates of the business potential and prospects of the Company, the present
state of the Company's business operations, the Company's management and other
factors deemed relevant.
 
     Certain persons participating in this offering may overallot or effect
transactions which stabilize, maintain or otherwise affect the market price of
the Common Stock at levels above those which might otherwise prevail in the open
market, including by entering stabilizing bids, effecting syndicate covering
transactions or imposing penalty bids. A stabilizing bid means the placing of
any bid or effecting of any purchase, for the purpose of pegging, fixing or
maintaining the price of the Common Stock. A syndicate covering transaction
means the placing of any bid on behalf of the underwriting syndicate or the
effecting of any purchase to reduce a short position created in connection with
the offering. A penalty bid means an arrangement that permits the Underwriters
to reclaim a selling concession from a syndicate member in connection with the
offering when shares of Common Stock sold by the syndicate member are purchased
in syndicate covering transactions. Such transaction may be effected on the
Nasdaq Stock Market, in the over-the-counter market, or otherwise. Such

stabilizing, if commenced, may be discontinued at any time.
 
     On September 9, 1997, Health Care Services-BMJ, LLC and H&Q Serv*is
Ventures, L.P., affiliates of Hambrecht & Quist LLC, purchased $2.5 million
aggregate principal amount of the Company's Debentures as part of a financing in
which the Company sold $4.0 million aggregate principal amount of Debentures to
seven investors. See 'Certain Transactions--Equity and Debt Financings.'
 
                                       62
LEGAL MATTERS
 
     The validity of the Common Stock offered hereby will be passed upon by
O'Sullivan Graev & Karabell, LLP, New York, New York. Certain legal matters will
be passed upon for the Underwriters by Cravath, Swaine & Moore, New York, New
York.
 
                                    EXPERTS
 
     The financial statements of the following entities appearing in this
Prospectus have been audited by Ernst & Young LLP, independent certified public
accountants, as set forth in their reports thereon also appearing elsewhere in
this Prospectus:
 
BMJ Medical Management, Inc.
Orthopaedic Associates of Bethlehem, Inc.
Southern California Orthopedic Institute Medical Group
South Texas Spinal Clinic, P.A.
Tri-City Orthopedic Surgery Medical Group, Inc.
Lauderdale Orthopaedic Surgeons
Fishman and Stashak, M.D.'s, P.A. d/b/a Gold Coast Orthopedics
Sun Valley Orthopaedic Surgeons
 
     Such financial statements have been included herein in reliance upon such
reports given upon the authority of such firm as experts in accounting and
auditing.
 
                                       63
INDEX TO FINANCIAL STATEMENTS
 
                                    CONTENTS
FINANCIAL STATEMENTS OF BMJ MEDICAL MANAGEMENT, INC.
Report of Independent Certified Public Accountants.........................................................    F-3
Balance Sheets at December 31, 1996 and June 30, 1997 (Unaudited)..........................................    F-4
Statements of Operations for the Year Ended December 31, 1996 and the Six Months Ended
  June 30, 1996 and 1997 (Unaudited).......................................................................    F-5
Statements of Stockholders' Equity for the Year Ended December 31, 1996 and the Six Months Ended June 30,
  1997 (Unaudited).........................................................................................    F-6
Statements of Cash Flows for the Year Ended December 31, 1996 and the Six Months Ended June 30, 1996 and
  1997 (Unaudited).........................................................................................    F-7
Notes to Financial Statements..............................................................................    F-8
FINANCIAL STATEMENTS OF ORTHOPAEDIC ASSOCIATES OF BETHLEHEM, INC.
Report of Independent Auditors.............................................................................   F-21
Balance Sheets at December 31, 1994 and 1995 and June 30, 1996.............................................   F-22
Statements of Operations for the Years Ended December 31, 1994 and 1995 and the Six Months Ended June 30,
  1996.....................................................................................................   F-23
Statements of Stockholders' Equity for the Years Ended December 31, 1994 and 1995 and
  the Six Months Ended June 30, 1996.......................................................................   F-24
Statements of Cash Flows for the Years Ended December 31, 1994 and 1995 and the Six Months Ended June 30,
  1996.....................................................................................................   F-25
Notes to Financial Statements..............................................................................   F-26
FINANCIAL STATEMENTS OF SOUTHERN CALIFORNIA ORTHOPEDIC INSTITUTE MEDICAL GROUP
Report of Independent Auditors.............................................................................   F-30
Balance Sheets at December 31, 1995 and October 31, 1996...................................................   F-31
Statements of Operations and Changes in Partners' Capital for the Years Ended December 31, 1994 and 1995
  and the Ten Months Ended October 31, 1996................................................................   F-32
Statements of Cash Flows for the Years Ended December 31, 1994 and 1995 and the Ten Months Ended October
  31, 1996.................................................................................................   F-33
Notes to Financial Statements..............................................................................   F-34
FINANCIAL STATEMENTS OF SOUTH TEXAS SPINAL CLINIC, P.A.
Report of Independent Auditors.............................................................................   F-39
Balance Sheets at December 31, 1994 and 1995 and October 31, 1996..........................................   F-40
Statements of Operations for the Years Ended December 31, 1994 and 1995 and the Ten Months Ended October
  31, 1996.................................................................................................   F-41
Statements of Stockholders' Equity for the Years Ended December 31, 1994 and 1995 and
  the Ten Months Ended October 31, 1996....................................................................   F-42
Statements of Cash Flows for the Years Ended December 31, 1994 and 1995 and the Ten Months Ended October
  31, 1996.................................................................................................   F-43
Notes to Financial Statements..............................................................................   F-44
FINANCIAL STATEMENTS OF TRI-CITY ORTHOPEDIC SURGERY MEDICAL GROUP, INC.
Report of Independent Certified Public Accountants.........................................................   F-47
Balance Sheets at December 31, 1995 and 1996...............................................................   F-48
Statements of Operations for the Years Ended December 31, 1995 and 1996....................................   F-49
Statements of Stockholders' Equity for the Years Ended December 31, 1995 and 1996..........................   F-50
Statements of Cash Flows for the Years Ended December 31, 1995 and 1996....................................   F-51
Notes to Financial Statements..............................................................................   F-52
F-1
INDEX TO FINANCIAL STATEMENTS--(CONTINUED)
FINANCIAL STATEMENTS OF LAUDERDALE ORTHOPAEDIC SURGEONS
Report of Independent Certified Public Accountants.........................................................   F-56
Balance Sheets at December 31, 1995 and 1996...............................................................   F-57
Statements of Income and Change in Partners' Capital for the Years Ended December 31, 1995 and 1996........   F-58
Statements of Cash Flows for the Years Ended December 31, 1995 and 1996....................................   F-59
Notes to Financial Statements..............................................................................   F-60
FINANCIAL STATEMENTS OF FISHMAN AND STASHAK, M.D.'S, P.A. D/B/A GOLD COAST ORTHOPEDICS
Report of Independent Certified Public Accountants.........................................................   F-64
Balance Sheets at December 31, 1995 and 1996 and June 30, 1997 (Unaudited).................................   F-65
Statements of Income for the Years Ended December 31, 1995 and 1996 and the Six Months Ended June 30, 1996
  and 1997 (Unaudited).....................................................................................   F-66
Statements of Stockholders' Equity for the Years Ended December 31, 1995 and 1996 and the Six Months Ended
  June 30, 1997 (Unaudited)................................................................................   F-67
Statements of Cash Flows for the Years Ended December 31, 1995 and 1996 and the Six Months Ended June 30,
  1996 and 1997 (Unaudited)................................................................................   F-68
Notes to Financial Statements..............................................................................   F-69
FINANCIAL STATEMENTS OF SUN VALLEY ORTHOPAEDIC SURGEONS
Report of Independent Certified Public Accountants.........................................................   F-73
Balance Sheets at December 31, 1996 and June 30, 1997 (Unaudited)..........................................   F-74
Statements of Operations and Changes in Partners' Capital for the Year Ended
  December 31, 1996 and the Six Months Ended June 30, 1996 and 1997 (Unaudited)............................   F-75
Statements of Cash Flows for the Year Ended December 31, 1996 and
  the Six Months Ended June 30, 1996 and 1997 (Unaudited)..................................................   F-76
Notes to Financial Statements..............................................................................   F-77
F-2
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
 
The Board of Directors
BMJ Medical Management, Inc.
 
We have audited the accompanying balance sheet of BMJ Medical Management Inc.,
(the Company) as of December 31, 1996, and the related statements of operations,
stockholders' equity, and cash flows for the year then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
 
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
 
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of BMJ Medical Management, Inc. at
December 31, 1996, and the results of its operations and its cash flows for the
year then ended in conformity with generally accepted accounting principles.
 
                                          ERNST & YOUNG, LLP
 
West Palm Beach, Florida
June 4, 1997
 
                                      F-3
BMJ MEDICAL MANAGEMENT, INC.

                                 BALANCE SHEETS
DECEMBER 31,     JUNE 30,
                                                                                          1996           1997
                                                                                      ------------    -----------
                                                                                                      (UNAUDITED)
ASSETS
Current assets:
  Cash and cash equivalents........................................................   $  1,439,000    $ 6,915,000
  Accounts receivable..............................................................      5,817,000     10,319,000
  Due from physician groups........................................................      1,241,000      1,578,000
  Prepaid expenses and other current assets........................................         29,000         48,000
                                                                                      ------------    -----------
Total current assets...............................................................      8,526,000     18,860,000
 
Furniture, fixtures and equipment, net.............................................      2,142,000      2,546,000
Management services agreements, net of accumulated amortization of $23,000 at
  December 31, 1996 and $80,000 at June 30, 1997...................................      3,790,000      7,310,000
Other assets.......................................................................         32,000        740,000
                                                                                      ------------    -----------
Total assets.......................................................................   $ 14,490,000    $29,456,000
                                                                                      ------------    -----------
                                                                                      ------------    -----------
                       LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Accounts payable.................................................................   $    149,000    $   353,000
  Accrued expenses.................................................................        366,000        826,000
  Accrued salaries and benefits....................................................        383,000        841,000
  Due to physician groups..........................................................      5,751,000      7,932,000
  Due to related party.............................................................         40,000             --
  Shareholder note payable.........................................................             --        753,000
  Current portion of long-term debt and capital lease obligations..................         18,000        665,000
                                                                                      ------------    -----------
Total current liabilities..........................................................      6,707,000     11,370,000
 
Long-term debt and capital lease obligations, less current portion.................         59,000      6,540,000
commitments and contingencies......................................................
 
Stockholders' equity:
  Convertible preferred stock--Series A, $.01 par value--999,999 shares authorized,
     issued and outstanding........................................................         10,000         10,000
  Convertible preferred stock--Series B, $.01 par value--2,000,001 shares
     authorized, issued and outstanding............................................         20,000         20,000
  Convertible preferred stock--Series C, $.01 par value--254,999 shares authorized,
     issued and outstanding........................................................             --          3,000
  Convertible preferred stock--Series D, $.01 par value--188,072 shares authorized,

     issued and outstanding........................................................             --          2,000
  Convertible preferred stock--Series E, $.01 par value--533,335 shares authorized,
     issued and outstanding........................................................             --          5,000
  Preferred stock, $.01 par value--2,000,000 shares authorized, none issued and
     outstanding...................................................................             --             --
  Common stock, $.001 par value--10,000,000 shares authorized and 6,701,501 shares
     issued and outstanding at December 31, 1996; 25,000,000 shares authorized and
     8,306,462 shares issued and outstanding at June 30, 1997......................          7,000          9,000
  Additional paid-in capital.......................................................      8,796,000     14,482,000
  Accumulated deficit..............................................................     (1,109,000)    (2,985,000)
                                                                                      ------------    -----------
Total stockholders' equity.........................................................      7,724,000     11,546,000
                                                                                      ------------    -----------
Total liabilities and stockholders' equity.........................................   $ 14,490,000    $29,456,000
                                                                                      ------------    -----------
                                                                                      ------------    -----------
See accompanying notes.
 
                                      F-4
BMJ MEDICAL MANAGEMENT, INC.

                            STATEMENTS OF OPERATIONS
SIX MONTHS
                                                              YEAR ENDED                ENDED JUNE 30,
                                                              DECEMBER 31,     ------------------------------
                                                                 1996              1996              1997
                                                              -----------      ------------      ------------
                                                                                        (UNAUDITED)
Practice revenue, net....................................     $ 6,029,000      $         --      $ 19,907,000
Less: physician and other provider services..............       2,912,000                --         9,509,000
                                                              -----------      ------------      ------------
Management fee revenue...................................       3,117,000                --        10,398,000
 
Costs and expenses:
  Medical support services...............................       2,844,000                --         9,541,000
  General and administrative.............................       1,278,000            51,000         2,433,000
  Depreciation and amortization                                   104,000             1,000           300,000
                                                              -----------      ------------      ------------
     Total costs and expenses............................       4,226,000            52,000        12,274,000
                                                              -----------      ------------      ------------
Net loss.................................................     $(1,109,000)     $    (52,000)     $ (1,876,000)
                                                              -----------      ------------      ------------
                                                              -----------      ------------      ------------
 
Net loss per share.......................................     $     (0.07)     $       0.00      $      (0.11)
                                                              -----------      ------------      ------------
                                                              -----------      ------------      ------------
Weighted average number of common shares outstanding.....      15,811,000        15,206,000        16,469,000
                                                              -----------      ------------      ------------
                                                              -----------      ------------      ------------
See accompanying notes.
 
                                      F-5
BMJ MEDICAL MANAGEMENT, INC.

                       STATEMENT OF STOCKHOLDERS' EQUITY
NUMBER     SERIES A    SERIES B    SERIES C    SERIES D    SERIES E               ADDITIONAL
                                   OF       PREFERRED   PREFERRED   PREFERRED   PREFERRED   PREFERRED    COMMON      PAID-IN
                                 SHARES       STOCK       STOCK       STOCK       STOCK       STOCK      STOCK       CAPITAL
                               ----------   ---------   ---------   ---------   ---------   ---------    ------    -----------
Balance at inception.........                $    --     $    --     $    --     $    --     $    --     $  --     $        --
Initial issuance of
  convertible preferred
  stock......................   3,000,000     10,000      20,000          --          --          --        --       6,970,000
Issuance of common stock.....   1,175,000         --          --          --          --          --     1,000          11,000
Issuance of common stock
  in connection with
  management services
  agreements.................   5,526,501         --          --          --          --          --     6,000       1,815,000
Net loss.....................                     --          --          --          --          --        --              --
                                            ---------   ---------   ---------   ---------   ---------    ------    -----------
Balance at December 31,
  1996.......................                 10,000       20,000                                         7,000       8,796,000
Issuance of convertible
  preferred stock
  (unaudited)................     976,406         --          --       3,000       2,000       5,000        --       4,990,000
Issuance of common stock in
  connection with management
  services agreements
  (unaudited)................   1,604,961         --          --          --          --          --     2,000         696,000
Net loss (unaudited).........                     --          --          --          --          --        --              --
                                           ---------   ---------   ---------   ---------   ---------    ------    -----------
Balance at June 30, 1997
  (unaudited)................                $10,000     $20,000     $ 3,000     $ 2,000     $ 5,000     $9,000    $14,482,000
                                            ---------   ---------   ---------   ---------   ---------    ------    -----------
                                            ---------   ---------   ---------   ---------   ---------    ------    -----------
ACCUMULATED
                                 DEFICIT         TOTAL
                               -----------    -----------
Balance at inception.........  $       --     $        --
Initial issuance of
  convertible preferred
  stock......................          --       7,000,000
Issuance of common stock.....          --          12,000
Issuance of common stock
  in connection with
  management services

  agreements.................          --       1,821,000
Net loss.....................   (1,109,000)    (1,109,000)
                               -----------    -----------
Balance at December 31,
  1996.......................   (1,109,000)     7,724,000
Issuance of convertible
  preferred stock
  (unaudited)................          --       5,000,000
Issuance of common stock in
  connection with management
  services agreements
  (unaudited)................          --         698,000
Net loss (unaudited).........   (1,876,000)    (1,876,000)
                               -----------    -----------
Balance at June 30, 1997
  (unaudited)................  $(2,985,000)   $11,546,000
                               -----------    -----------
                               -----------    -----------
See accompanying notes.
 
                                      F-6
BMJ MEDICAL MANAGEMENT, INC.

                            STATEMENTS OF CASH FLOWS
SIX MONTHS
                                                                         YEAR ENDED           ENDED JUNE 30,
                                                                         DECEMBER 31,   -------------------------
                                                                            1996           1996          1997
                                                                         -----------    ----------    -----------
                                                                                               (UNAUDITED)
OPERATING ACTIVITIES
Net loss...............................................................  $(1,109,000)   $  (52,000)   $(1,876,000)
Adjustments to reconcile net loss to net cash used in operating
  activities:
  Depreciation.........................................................       74,000         1,000        228,000
  Amortization.........................................................       30,000            --         72,000
  Interest expense converted to preferred stock........................           --            --         34,000
  Changes in operating assets and liabilities:
     Accounts receivable...............................................      366,000            --       (458,000)
     Due from physician groups.........................................   (1,241,000)           --       (337,000)
     Prepaid expenses and other current assets.........................        2,000            --         (6,000)
     Accounts payable..................................................      149,000            --        204,000
     Accrued expenses..................................................      366,000            --        460,000
     Accrued salaries and benefits.....................................      383,000            --        458,000
                                                                         -----------    ----------    -----------
Net cash used in operating activities..................................     (980,000)      (51,000)    (1,221,000)
 
INVESTING ACTIVITIES
Purchases of furniture, fixtures and equipment.........................     (697,000)      (12,000)       (92,000)
Payments for management services agreements............................     (206,000)           --       (547,000)
Payments for deferred offering costs...................................           --            --       (708,000)
Cash used for practice affiliations....................................   (3,707,000)           --     (6,628,000)
Payments for deposits..................................................      (22,000)           --             --
                                                                         -----------    ----------    -----------
Net cash used in investing activities..................................   (4,632,000)      (12,000)    (7,975,000)
 
FINANCING ACTIVITIES
Proceeds from issuance of preferred stock..............................    7,000,000     1,000,000      4,966,000
Proceeds from debt issuance............................................           --            --      7,128,000
Deferred consideration for management services agreements..............           --            --       (268,000)
Payments to related party..............................................           --            --       (154,000)
Proceeds from related party............................................       40,000            --        867,000
Proceeds from issuance of common stock.................................       11,000         8,000        220,000
Amounts due to physician groups........................................           --            --      1,913,000
                                                                         -----------    ----------    -----------
Net cash provided by financing activities..............................    7,051,000     1,008,000     14,672,000
                                                                         -----------    ----------    -----------
Net increase in cash and cash equivalents..............................    1,439,000       945,000      5,476,000
Cash and cash equivalents at beginning of period.......................           --            --      1,439,000

                                                                         -----------    ----------    -----------
Cash and cash equivalents at end of period.............................  $ 1,439,000    $  945,000    $ 6,915,000
                                                                         -----------    ----------    -----------
                                                                         -----------    ----------    -----------
 
SUPPLEMENTAL CASH FLOW INFORMATION
Interest paid..........................................................  $     9,000    $       --    $        --
                                                                         -----------    ----------    -----------
                                                                         -----------    ----------    -----------
 
Stock issued upon execution of management services agreements..........  $ 1,822,000    $       --    $   478,000
                                                                         -----------    ----------    -----------
                                                                         -----------    ----------    -----------
 
Noncash transactions from practice affiliations including accounts
  receivable, management services agreements and due to/from
  physicians...........................................................  $ 5,720,000    $       --    $   536,000
                                                                         -----------    ----------    -----------
                                                                         -----------    ----------    -----------
Equipment under capital lease obligations..............................  $    77,000    $       --    $        --
                                                                         -----------    ----------    -----------
                                                                         -----------    ----------    -----------
See accompanying notes.
 
                                      F-7
BMJ MEDICAL MANAGEMENT, INC.

                         NOTES TO FINANCIAL STATEMENTS

                               DECEMBER 31, 1996

              (INFORMATION PERTAINING TO JUNE 30, 1997 AND TO THE
                  SIX MONTHS ENDED JUNE 30, 1997 IS UNAUDITED)
 
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
GENERAL
 
     BMJ Medical Management, Inc. (the Company), a Delaware corporation, is
engaged in operating and managing physician groups focusing exclusively on
musculoskeletal disease management. The Company manages physician groups under
long-term management services agreements (the Agreements) with affiliated
physician groups located in various states. The Company may also acquire certain
assets, primarily accounts receivable, and furniture, fixtures and equipment of
these groups. The Company was incorporated in Delaware in January 1996 and
entered into its first agreement in July 1996 and two additional agreements in
November 1996.
 
     Under the Agreements, the Company provides a full range of administrative
services required for a physician group's day-to-day nonmedical operations and
employs substantially all of the nonmedical personnel utilized by the group. The
nonclinical services provided include, but are not limited to, practice
administration, practice support, data processing, business office management
including billing and collecting, marketing, accounting and the provision of
office space and equipment and the arrangement of group purchasing discounts for
medical and nonmedical supplies. The Company also assists the physician group in
the recruitment of additional physicians and negotiates managed care contracts
which must be approved by the group.
 
     The terms of the Agreements are 40 years and automatically renew for
successive 5-year periods thereafter unless terminated by one of the parties. As
compensation for services provided by the Company, the Company generally
receives a percentage of the group's net collected revenue, reimbursement of all
nonmedical expenses incurred by the Company in supporting the group, a
percentage of professional practice cost savings realized by the group and a
percentage of the profits from new ancillary services.
 
     The laws of many states, including the states in which the Company
presently has agreements, prohibit business corporations from practicing
medicine or exercising control over the medical judgments or decisions of
physicians and from engaging in certain financial arrangements with physicians.
The Company intends that, pursuant to the Agreements, it will not exercise any
responsibility on behalf of affiliated physicians that could be construed as
affecting the practice of medicine. Accordingly, the Company believes that its
operations do not violate applicable state laws relating to the corporate
practice of medicine.
 

BASIS OF PRESENTATION
 
     The Company does not consolidate the operating results and accounts of the
physician groups since it does not own or control the groups it manages. The
Company believes that the Agreements provide it with the preponderance of the
net profits of the medical services furnished by the groups. Consequently, the
Company presents physician groups' revenue less amounts retained by the
physician groups as management fee revenue in the accompanying statements of
operations.
 
PRACTICE REVENUE, NET
 
     Practice revenue, net, represents the gross revenue of the physician groups
from patients, third-party payors and others for services rendered, net of
contractual and other adjustments. Contractual adjustments typically result from
differences between the physician groups' established rates for services and the
amounts allowed by government sponsored health care programs and other insurers.
 
     Provisions for estimated third-party payor settlements and adjustments are
estimated in the period the related services are rendered and adjusted in future
periods as final settlements are determined. There are no material claims,
disputes, or other unsettled matters that exist to management's knowledge
concerning third-party
 
                                     F-8
BMJ MEDICAL MANAGEMENT, INC.

                   NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
 
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)

reimbursements. In addition, management believes there are no retroactive
adjustments that would be material to the financial statements. The Company
estimates that approximately 15% and 12% of practice revenue, net, was received
under government sponsored health care programs (principally, the Medicare and
Medicaid programs) during the year ended December 31, 1996 and the six months
ended June 30, 1997, respectively. The physician groups have numerous agreements
with managed care and other organizations to provide physician services based on
negotiated fee schedules.
 
     Laws and regulations governing the Medicare and Medicaid programs are
complex and subject to interpretation. The Company believes that it is in
compliance with all applicable laws and regulations and is not aware of any
pending or threatened investigations involving allegations of potential
wrongdoing. While no such regulatory inquiries have been made, compliance with
such laws and regulations can be subject to future government review and
interpretation as well as significant regulatory action including fines,
penalties, and exclusion from the Medicare and Medicaid programs.
 
MANAGEMENT FEE REVENUE
 

     Management fee revenue represents practice revenue, net less amounts
retained by the physician groups.
 
     The Company's management fee revenue includes amounts based on a percentage
of the physician groups' net collected revenue plus an amount equal to 100% of
the non-physician affiliated practice expenses. The portion of the management
fee revenue that represents a percentage of net collected revenue is dependent
upon the physician groups' revenue which must be billed and collected. The
percentage of revenues paid to the Company as management fees generally ranges
from 10% to 15% of net collected revenue. Management fee revenue included in the
accompanying statements of operations is comprised of the following:
YEAR ENDED       SIX MONTHS
                                                                  DECEMBER 31,    ENDED JUNE 30,
                                                                      1996             1997 
                                                                  ------------    -------------- 
                                                                                   (UNAUDITED)
Component based upon percentage of physician groups' net
  collected revenues...........................................    $1,079,000      $  1,842,000
Reimbursement of non-physician affiliated practice expenses....     2,038,000         8,556,000
                                                                  ------------    --------------
Management fee revenue.........................................    $3,117,000      $ 10,398,000
                                                                  ------------    --------------
                                                                  ------------    --------------
For the year ended December 31, 1996, 100% of the management fee revenue
was earned from three affiliated practices. Southern California Orthopedics
Institute Medical Group (SCOI); South Texas Spinal Clinic, P.A. (STSC); and
Lehigh Valley Bone, Muscle and Joint Group, LLC (LVBMJ) comprised approximately
52%, 23%, and 25% of management fee revenue, respectively. For the six months
ended June 30, 1997, these three groups comprised approximately 54%, 17%, and 9%
of management fee revenue, respectively.
 
COSTS AND EXPENSES
 
     Medical support services represent costs incurred by the Company relative
to the operations of the physician groups including non-physician personnel
salaries and benefits, medical supplies, malpractice insurance premiums,
building and equipment rental expense, general and administrative expenses,
supplies, maintenance and repairs, insurance, utilities and other indirect
expenses.
 
     General and administrative expenses represent primarily the salaries of
corporate headquarters personnel, rent, travel, and other administrative
expenses.
 
                                      F-9
BMJ MEDICAL MANAGEMENT, INC.

                   NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
 
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)

CASH AND CASH EQUIVALENTS
 
     Cash in excess of daily requirements invested in short-term investments
with maturities of three months or less is considered to be cash equivalents for
financial statement purposes. Deposits in banks may exceed the amount of
insurance provided on such deposits. The Company performs reviews of the credit
worthiness of its depository banks. The Company has not experienced any losses
on its deposits of cash.
 
ACCOUNTS RECEIVABLE
 
     Accounts receivable principally represent receivables purchased from the
medical groups for medical services provided by the physician groups. Risk of
collection is borne by the physician groups and any amounts paid by the Company
for accounts receivable that are ultimately uncollectible are reimbursed to the
Company by the physician groups.
 
FURNITURE, FIXTURES AND EQUIPMENT
 
     Furniture, fixtures and equipment are stated at cost. Depreciation is
calculated using the straight-line method over the estimated useful lives of the
assets which range from three to seven years. Routine maintenance and repairs
are charged to expense as incurred and major renovations or improvements are
capitalized.
 
MANAGEMENT SERVICES AGREEMENTS
 
     Management services agreements include consideration (cash, common stock or
other consideration) paid to the physician groups for entering into Agreements,
legal and accounting fees and other similar transaction costs. The Agreements
are for a term of 40 years and one agreement is subject to rescission by a
physician group on the seventh anniversary. The Company amortizes the cost of
entering into Agreements with practices that are dominant in their market area
over periods that do not exceed 30 years. The Company amortizes the costs of
entering into Agreements over periods ranging from seven to thirty years. Shares
issued to physician practices that are subject to performance criteria are
accounted for as compensation.
 
     The Company periodically reviews its intangible assets to assess
recoverability and a charge will be recognized in the statement of operations if
a permanent impairment is determined to have occurred. Recoverability of
intangibles is determined based on undiscounted future operating cash flows from
the related business unit or activity. The amount of impairment, if any, would
be measured based on discounted future operating cash flows using a discount
rate reflecting the Company's average cost of funds. The assessment of the
recoverability of intangible assets will be affected if estimated future

operating cash flows are not achieved. The Company does not believe that any
impairment has occurred at December 31, 1996 or June 30, 1997.
 
DUE TO/FROM PHYSICIAN GROUPS
 
     Due from physician groups represents amounts due to the Company for
collections made by the physician groups on behalf of the Company related to
purchased accounts receivable collections, unpaid management fees and other
short-term advances.
 
     Due to physician groups represents cash consideration related to the
Agreements that is payable at the earlier of the consummation of an Initial
Public Offering of the Company's common stock or the one year anniversary of the
execution of the Agreement as well as amounts due to the physician groups
related to the ongoing monthly purchases of accounts receivable.
 
                                      F-10
BMJ MEDICAL MANAGEMENT, INC.

                   NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
 
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)

USE OF ESTIMATES
 
     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 as of the date of the financial
statements and the reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates.
 
INTERIM FINANCIAL STATEMENTS
 
     The interim financial statements as of June 30, 1997 and for the six months
ended June 30, 1997 and 1996 are unaudited. In the opinion of management, these
statements have been prepared on the same basis as the audited financial
statements and include all normal and recurring adjustments necessary for a fair
presentation of the Company's financial position, results of operations and cash
flows. The interim data disclosed in these notes to the financial statements is
also unaudited. The results of operations for the six months ended June 30, 1997
are not necessarily indicative of the results of operations that may be expected
for the entire year ending December 31, 1997.
 
ACCOUNTING FOR STOCK BASED COMPENSATION
 
     The Company grants stock options for a fixed number of shares to employees
primarily with an exercise price equal to the fair value of the shares on the
date of grant. The Company accounts for stock option grants in accordance with
Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to
Employees, and accordingly, generally recognizes no compensation expense for

stock options granted.
 
NET LOSS PER SHARE
 
     For the year ended December 31, 1996, pursuant to the Securities and
Exchange Commission's Staff Accounting Bulletins, common shares and common
equivalent shares issued at prices below the estimated public offering price
during the 12 months immediately preceding the date of the proposed initial
filing of the registration statement have been included in the calculation of
common shares and common share equivalents as if they were outstanding for all
periods presented even when the effect is antidilutive.
 
     In February 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 128, Earnings per Share.
SFAS No. 128, which applies to entities with publicly held common stock,
simplifies the standards for computing earnings per share previously required in
APB Opinion No. 15, Earnings per Share, and makes them comparable to
international earnings per share standards. SFAS No. 128 is effective for
financial statements issued for periods ending after December 15, 1997,
including interim periods; earlier adoption is not permitted. Management is
currently reviewing the provisions of SFAS No. 128; however, it does not believe
that adoption of this new accounting pronouncement will have a material impact
on the calculation and presentation of earnings per share.
 
FINANCIAL INSTRUMENTS
 
     The carrying amounts of financial instruments as reported in the
accompanying balance sheet approximate their fair value primarily due to the
short-term nature of such financial instruments.
 
2. PRACTICE AFFILIATIONS
 
     Effective July 1, 1996, the Company entered into an Affiliation Transaction
with LVBMJ in the State of Pennsylvania. Under the terms of the Amended and
Restated Management Services Agreement between LVBMJ and the Company, effective
July 1, 1997 (the LVBMJ Management Services Agreement), the Company issued an
 
                                      F-11
BMJ MEDICAL MANAGEMENT, INC.

                   NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
 
2. PRACTICE AFFILIATIONS--(CONTINUED)

aggregate of 518,031 shares of common stock recorded at its estimated fair value
of $0.10 per share and options to purchase 30,000 shares of common stock
representing consideration of $52,000.
 
     On November 22, 1996, the Company issued 4,000,000 shares of common stock,
$3,706,000 of cash and deferred consideration of $2,224,000, which is based on
actual collections of the receivable balances and is due upon the earlier of an

initial public offering of the Company's common stock or November 1, 1997, in
conjunction with the purchase of certain assets and the execution of a
management services agreement with SCOI. The common stock issued was recorded at
$.35, based on an independent valuation, representing consideration of
$1,400,000.
 
     On April 1, 1997, the Company entered into a transaction with the Center
for Orthopedic Surgery, Inc. (COSI), an outpatient surgery center owned by the
SCOI physicians, and issued 550,000 shares of common stock recorded at $0.40 per
share, based on an independent valuation, to the physician owners of COSI as
consideration for the management services agreement entered into between COSI
and the Company. The number of shares issued to the SCOI physicians in
connection with each of the SCOI and COSI transactions which exceed three
million shares, are subject to recalculation at the earlier to occur of the
filing by the Company of a preliminary prospectus with the Securities and
Exchange Commission or November 1, 1997. In accordance with the recalculation
provision, either (i) the management fee to be paid to the Company under the
Management Services Agreement may be reduced prospectively or (ii) the number of
shares issued may be increased or decreased based upon the revenue contribution
of the SCOI and COSI practices at such date as compared to the revenues of the
entire musculoskeletal network of the Company at such date.
 
     On December 23, 1996, the Company issued 1,076,501 shares of common stock
and deferred consideration of $3,065,990 to STSC and is due upon the earlier of
an initial public offering of the Company's common stock or November 1, 1997.
The common stock was recorded at $.35, based on an independent valuation,
representing consideration of $376,775.
 
     Effective April 1, 1997, the Company entered into asset purchase and
management services agreements with Tri-City Orthopedic Surgery Medical Group,
Inc., a California corporation, and two of its affiliates in exchange for
$948,000 in cash and the issuance of 402,723 shares of common stock recorded at
$.40 per share, based on an independent valuation, representing consideration of
$161,000.
 
     Effective April 1, 1997, the Company entered into an asset purchase and
management services agreement with the Lauderdale Orthopaedic Surgeons (LOS), a
Florida partnership, in exchange for $2,640,000 in cash (subject to increase or
refund based upon the Company's collection of the purchased accounts receivable)
and the issuance of 466,417 shares of common stock recorded at $.40 per share,
representing consideration of $187,000. Additionally, the Company assumed a
lease between LOS and an entity controlled by an equity owner in LOS.
 
     Effective June 1, 1997, the Company entered into three additional asset
purchase and management services agreements with Fishman and Stashak, M.D.'s,
P.A. (d/b/a Gold Coast Orthopedics) Clive M. Segil, M.D., a Professional
Corporation and H. Leon Brooks, a Medical Corporation (d/b/a Tower Orthopedics)
in exchange for $3,886,000 in cash and the issuance of 409,615 shares of common
stock recorded at $1.15 per share, based on an independent valuation,
representing consideration of $471,000. The LVBMJ and Gold Coast agreements
provide that the Company may be required to issue more shares of common stock as
additional consideration during 1998. The total number of shares to be issued
will depend on actual collections of such practices during a specified 12-month
period. The value of any subsequently issued shares will be allocated to the

management services agreements.
 
                                      F-12
BMJ MEDICAL MANAGEMENT, INC.

                   NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
 
2. PRACTICE AFFILIATIONS--(CONTINUED)

     The cost to enter into the Agreements and acquire the assets, including
transaction costs, was allocated as follows:
YEAR ENDED       SIX MONTHS
                                                                 DECEMBER 31,    ENDED JUNE 30,
                                                                     1996             1997
                                                                 ------------    --------------
                                                                         
                                                                                  (UNAUDITED)
Cost of acquiring the Agreements..............................   $  3,770,000      $3,043,000
Accounts receivable...........................................      6,532,000       4,044,000
Furniture, fixtures and equipment.............................      1,967,000         540,000
Other.........................................................         62,000          12,000
                                                                 ------------    --------------
                                                                 $ 12,331,000      $7,639,000
                                                                 ------------    --------------
                                                                 ------------    --------------
The Agreements are subject to termination in the event of (i) bankruptcy of
the Company or the medical practice; (ii) default in any material respect in the
performance of either parties' obligations under the Agreement; (iii)
representations and warranties made by either party are untrue or misleading in
any material respect; (iv) the medical practice is excluded from the Medicare or
Medicaid programs; or (v) either party determines that the structure of the
Agreement violates any state or federal laws or regulations existing at such
time and that an amendment to the Agreement will be unable to correct such
defect. Upon termination of the Agreement, the transaction will be unwound with
the assets (other than accounts receivable) acquired by the Company being
returned to the physician group and the purchase price paid, therefore, being
returned to the Company.
 
3. FURNITURE, FIXTURES AND EQUIPMENT
 
     Furniture, fixtures and equipment consists of the following:
YEAR ENDED       SIX MONTHS

                                                                  DECEMBER 31,    ENDED JUNE 30,
                                                                      1996             1997
                                                                  ------------    --------------
                                                                           
                                                                                   (UNAUDITED)
Office, computer, and telephone equipment......................    $  999,000       $1,293,000
Medical equipment..............................................       659,000          920,000
Furniture and fixtures.........................................       558,000          635,000
Less: accumulated depreciation.................................        74,000          302,000
                                                                  ------------    --------------
Furniture, fixtures and equipment, net.........................    $2,142,000       $2,546,000
                                                                  ------------    --------------
                                                                  ------------    --------------
4. AMOUNTS DUE TO/FROM PHYSICIAN GROUPS
 
     Amounts due from physician groups at December 31, 1996 and June 30, 1997
consists of the following:
YEAR ENDED       SIX MONTHS
                                                                 DECEMBER 31,    ENDED JUNE 30,
                                                                     1996            1997
                                                                  ------------    --------------
                                                                          
                                                                                   (UNAUDITED)
Practice collections and short-term advances...................    $  426,000       $   21,000
Management fees................................................       815,000        1,557,000
                                                                  ------------    --------------
                                                                   $1,241,000       $1,578,000
                                                                  ------------    --------------
                                                                  ------------    --------------
F-13
BMJ MEDICAL MANAGEMENT, INC.

                   NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
 
4. AMOUNTS DUE TO/FROM PHYSICIAN GROUPS--(CONTINUED)

     Amounts due to physician groups at December 31, 1996 and June 30, 1997
consists of the following:
YEAR ENDED       SIX MONTHS
                                                                   DECEMBER 31,    ENDED JUNE 30,
                                                                        1996            1997
                                                                  ------------    --------------
                                                                                    
                                                                                    (AUDITED)
Amounts due for purchased receivables..........................    $1,879,000       $3,792,000
Deferred consideration for management services agreements......     3,872,000        4,140,000
                                                                  ------------    --------------
                                                                   $5,751,000       $7,932,000
                                                                  ------------    --------------
                                                                  ------------    --------------
5. PROFESSIONAL LIABILITY
 
     The Company and the physician groups are insured with respect to medical
malpractice risks on a claims made basis, except for OAB which is on an
occurrence basis. The insurance contracts specify that coverage is available
only during the term of each insurance contract and cover only those claims
reported while the policies are in force. Management of the Company intends to
renew the existing claims made policies annually and expects to be able to
obtain such coverage. When coverage is not renewed, the Company and the
physician groups purchase and record the cost of an extended reporting period
endorsement to provide professional liability coverage for losses incurred prior
to, but reported subsequent to, the termination of the claims made policies.
Management believes that any claims asserted against the Company would not,
after consideration of professional liability coverage and amounts provided in
the financial statements, have a material adverse effect on the Company's
financial position or results of operations. Management is not aware of any
claims against the Company or the physician groups which might have a material
impact on the Company's financial position or results of operations.
 
6. LEASES
 
     The Company is obligated under operating and capital lease agreements for
offices and certain equipment, which have terms ranging from three to ten years
and are considered reimbursable to the Company under the terms of the
Agreements. In some circumstances, these lease arrangements are with entities
owned or controlled by physician stockholders. Future minimum payments under
noncancelable capital and operating leases with lease terms in excess of one
year are summarized as follows for the years ending December 31:
CAPITAL
                                                                      OPERATING     EQUIPMENT
                                                                       LEASES        LEASES
                                                                     -----------    ---------
1997..............................................................   $ 2,331,000    $ 26,500
1998..............................................................     2,296,000      22,000
1999..............................................................     2,200,000      22,000

2000..............................................................     2,045,000      22,000
2001..............................................................     2,003,000      19,000
Thereafter........................................................     7,997,000          --
                                                                     -----------    ---------
Total minimum lease obligations...................................   $18,872,000     111,500
                                                                     -----------
                                                                     -----------
Less amount representing interest.................................                    35,000
                                                                                    ---------
Present value of minimum lease obligations........................                  $ 76,500
                                                                                    ---------
                                                                                    ---------
F-14
BMJ MEDICAL MANAGEMENT, INC.

                   NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
 
6. LEASES--(CONTINUED)

     Rent expense for the year ended December 31, 1996 and the six months ended
June 30, 1997 under all operating leases was approximately $602,000 and
$1,696,000, respectively.
 
     The Company has assumed leases between the affiliated medical practices and
entities controlled by equity owners in the related practices. Amounts charged
to expense for these leases was $193,000 in 1996 and $369,000 in 1997. The
commitments under these leases are included above.
 
7. STOCK OPTION PLAN
 
     On May 6, 1996, and subsequently amended on May 30, 1997, the Company's
Board of Directors approved the 1996 Stock Option Plan (the Option Plan), which
provides for the granting of options to purchase up to 2,000,000 shares of the
Company's common stock. Both incentive stock options and nonqualified stock
options may be issued under the provisions of the Option Plan. Employees of the
Company and any future subsidiaries, members of the Board of Directors,
independent consultants and contractors and the physicians employed by the
medical groups with which the Company is affiliated through the Agreements are
eligible to participate in the Option Plan, which will terminate no later than
May 6, 2006. The granting and vesting of options under the Option Plan are
authorized by the Company's Board of Directors or a committee of the Board of
Directors. Under the terms of the Option Plan incentive stock options vest pro
rata over four years and expire ten years from the date of grant. None of the
incentive stock options were exercisable as of December 31, 1996.
 
     Pro forma information regarding net income and earnings per share has been
determined as if the Company had accounted for its employee stock options under
the fair value method of FASB Statement No. 123, Accounting for Stock-Based
Compensation. The fair value for these options was estimated at the date of

grant using a Black-Scholes option pricing model with the following
weighted-average assumptions for 1996: risk-free interest rate of 6%; dividend
yield of 0%; volatility factor of the expected market price of the Company's
common stock of .68; and a weighted-average expected option life of four years.
 
     The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. Because the Company's employee stock options have characteristics
significantly different from those of traded options, and because changes in the
subjective input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options.
 
                                      F-15
BMJ MEDICAL MANAGEMENT, INC.

                   NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
 
7. STOCK OPTION PLAN--(CONTINUED)

     Information regarding these option plans is as follows:
WEIGHTED
                                                                          NUMBER      AVERAGE
                                                                            OF        EXERCISE
                                                                          SHARES       PRICE
                                                                         ---------    --------
Options outstanding at inception......................................          --      $ --
 
  Granted.............................................................     155,000       .19
 
  Exercised...........................................................          --        --
 
  Canceled............................................................          --        --
                                                                         ---------
 
Options outstanding at December 31, 1996..............................     155,000       .19
 
  Granted.............................................................     878,000       .37
 
  Exercised...........................................................     (10,000)      .01
 
  Canceled............................................................     (40,000)      .01
                                                                         ---------
 

Options outstanding at June 30, 1997..................................     983,000      $.36
                                                                         ---------    --------
                                                                         ---------    --------
 
Exercisable at December 31, 1996......................................          --
                                                                         ---------
                                                                         ---------
 
Reserved for future option grants at December 31, 1996................   1,845,000
                                                                         ---------
                                                                         ---------
 
Weighted average fair value of options granted during 1996............                  $.14
                                                                                      --------
                                                                                      --------
At December 31, 1996, the weighted average remaining contractual life of
stock options granted under the Option Plan is 9.7 years.
 
     The pro forma effects of adopting SFAS No. 123's fair value based method
for the year ended December 31, 1996 were not materially different from the
corresponding APB Opinion No. 25 (APB No. 25) intrinsic value methodology
because the options granted in 1996 were primarily issued near year end and the
fair value of the Company's stock, as determined by an independent valuation,
was $0.35 as of December 31, 1996. Accordingly, pro forma stock-based
compensation in 1996 is substantially less than would result from a full year's
compensation expense amortization and a higher valuation of the common stock.
The effects of applying SFAS No. 123 during 1996 are not likely to be
representative of the effects on pro forma net income for future years because
the vesting of options will cause additional incremental expense to be
recognized in future periods. Effects of applying SFAS No. 123 during the six
months ended June 30, 1997 is not materially different from the APB No. 25
methodology. Additionally, the FASB has added to its agenda a project regarding
certain APB No. 25 issues, including such things as incorporating the SFAS No.
123 grant date definition into APB No. 25, readdressing the criteria under
broad-based plans qualifying for noncompensatory accounting and defining what
constitutes employees. The resolution of these issues could result in
modification in the Company's accounting for stock-based compensation
arrangements.
 
                                      F-16
BMJ MEDICAL MANAGEMENT, INC.

                   NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
 
7. STOCK OPTION PLAN--(CONTINUED)

     Shares of common stock reserved for future issuance at December 31, 1996 is
as follows:
Options.....................................................    2,000,000
Warrants....................................................      254,165
Convertible preferred stock.................................    3,976,406
                                                               ----------
                                                                6,230,571
                                                               ----------
                                                               ----------
8. STOCKHOLDERS' EQUITY
 
     On May 6, 1996, the Company issued 1,175,000 shares of $.001 par value
common stock for cash consideration of $.01 per share, which resulted in
proceeds to the Company of $12,000.
 
     On May 6, 1996, the Company issued 999,999 shares of Series A convertible
preferred stock with a par value of $.01 for $1 per share, which resulted in
proceeds to the Company of $999,999. On November 12, 1996, the Company issued
2,000,001 shares of Series B convertible preferred stock with a par value of
$.01 for $3 per share, which resulted in proceeds to the Company of $6,000,003.
 
     On January 29, 1997 and March 12, 1997, the Company raised approximately
$765,000 in connection with the issuance of an aggregate of 254,999 shares of
Series C convertible preferred stock, with a par value of $.01 per share.
 
     On June 19, 1997, the Company issued 188,072 shares of Series D convertible
preferred stock with a par value of $.01 for $5.50 per share as repayment of a
$1,000,000 loan plus accrued interest that had been made to the Company by
certain stockholders on January 14, 1997. In connection with the original loan,
the stockholders received warrants to purchase 33,333 shares of the Company's
common stock at a price of $3.00 per share.
 
     On June 19, 1997, the Company issued 533,335 shares of Series E convertible
preferred stock with a par value of $.01 for $6.00 per share in exchange for
$3,200,000.
 
     All classes of convertible preferred stock have the right to share in any
dividends declared and paid or set aside for the common stock of the Company,
pro rata, in accordance with the number of shares of common stock into which
such shares of preferred stock are then convertible; liquidation preference of
the original issuance price per share; and voting rights equal to the number of
shares of common stock into which the preferred stock is then convertible. All
classes of preferred shares are convertible into common shares at a ratio of 1:1
and are automatically convertible upon the occurrence of a fully underwritten
public offering of shares of the Company's common stock. Upon such automatic
conversion, the holders of the convertible preferred stock are not entitled to
payment of any accrued but unpaid dividends.
 
9. INCOME TAXES
 
     The Company accounts for income taxes under FASB Statement No. 109,
Accounting for Income Taxes. Deferred income tax assets and liabilities are

determined based upon differences between the financial reporting and tax bases
of assets and liabilities and are measured using the enacted tax rates and laws
that will be in effect when the differences are expected to reverse.
 
                                      F-17
BMJ MEDICAL MANAGEMENT, INC.

                   NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
 
9. INCOME TAXES--(CONTINUED)

     Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amount of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's net deferred tax assets are as follows:
YEAR ENDED      SIX MONTHS
                                                                  DECEMBER 31,    ENDED JUNE 30,
                                                                      1996             1997
                                                                  ------------    --------------
                                                                          
                                                                                   (UNAUDITED)
Deferred tax assets:
  Accrued compensation.........................................    $  174,000      $    264,000
  Net operating loss carryforwards.............................       284,000           780,000
                                                                  ------------    --------------
Deferred tax assets............................................       458,000         1,044,000
Less valuation allowance.......................................       432,000         1,007,000
                                                                  ------------    --------------
Total deferred tax assets......................................        26,000            37,000
Deferred tax liabilities:
  Tax over book depreciation...................................       (11,000)          (15,000)
  Amortization of intangible assets............................       (15,000)          (22,000)
                                                                  ------------    --------------
Total deferred tax liabilities.................................       (26,000)          (37,000)
                                                                  ------------    --------------
Net deferred taxes.............................................    $       --      $         --
                                                                  ------------    --------------
                                                                  ------------    --------------
SFAS No. 109 requires a valuation allowance to reduce the deferred tax
assets reported if, based on the weight of the evidence, it is more likely than
not that some portion or all of the deferred tax assets will not be realized.
After consideration of all the evidence, both positive and negative, management
has determined that a $432,000 and $1,007,000 valuation allowance at December
31, 1996 and June 30, 1997, respectively, is necessary to reduce the deferred
tax assets to the amount that will more than likely not be realized. The change

in the valuation allowance for the current year is $432,000. On November 11,
1996, the Company had an ownership change as defined by Internal Revenue code
section 382 which caused the utilization of the net operating loss and tax
credits, at that time, to be limited to approximately $100,000 per year relating
to approximately $600,000 of the net operating losses at December 31, 1996. At
December 31, 1996 and June 30, 1997, the Company has available net operating
loss carryforwards of $734,000 and $2,020,000, which expire in the years 2011
and 2012, respectively.
 
     The reconciliation of income tax computed at the U.S. federal statutory
rate is as follows:
YEAR ENDED       SIX MONTHS
                                                                  DECEMBER 31,    ENDED JUNE 30,
                                                                      1996             1997
                                                                  ------------    --------------
Federal tax at statutory rate..................................    $ (377,000)     $   (505,000)
State income tax, net of federal benefit.......................       (52,000)          (69,000)
Nondeductible items............................................        (3,000)           (1,000)
Increase in valuation allowance................................       432,000           575,000
                                                                  ------------    --------------
Income tax expense.............................................    $       --      $         --
                                                                  ------------    --------------
                                                                  ------------    --------------
F-18
BMJ MEDICAL MANAGEMENT, INC.

                   NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
 
10. SUBSEQUENT EVENTS
 
     In January 1997, the Company obtained short-term loans in the aggregate
amount of $999,999 from its stockholders, including its President. In connection
with such loans, the Company issued warrants to such stockholders to purchase an
aggregate of 33,333 shares of Common Stock at an exercise price of $3.00 per
share. In June 1997, such loans were converted into 188,072 shares of Series D
Preferred Stock. Also, in January 1997, the Company issued a series of
promissory notes to the Company's President. The notes bear interest at a rate
of 8% and the outstanding loans are due on December 31, 1997. At June 30, 1997,
the balance outstanding was $753,000, which included $27,000 of accrued and
unpaid interest.
 
     From March 1997 to July 1997 the Company entered into a series of credit
agreements with its lender secured by the accounts receivable acquired from each
of the affiliated physician groups. The Company may borrow up to an aggregate
limit of $14,000,000 subject to a borrowing base of 85% of eligible accounts

receivable. Outstanding loans bear interest at prime rate plus 1.75%. The credit
agreements require the Company to maintain a prescribed level of tangible net
worth, places limitations on indebtedness, liens, and investments, and prohibits
the payment of dividends. At June 30, 1997, $4,130,000 was outstanding under
these agreements.
 
     On June 30, 1997, the Company obtained a credit facility to fund practice
affiliations with its senior lender secured by a lien on substantially all of
the assets of the Company. The Company may borrow up to $3,250,000 for practice
affiliations. Outstanding loans bear interest at the prime rate plus 3.5%.
Interest only is payable through December 31, 1997, at which time the loan
converts to a term loan repayable in 36 monthly installments. In addition, in
September 1997 the Company issued the senior lender warrants to purchase 40,000
shares of the Company's common stock for nominal cash consideration. $1.5
million of the Company's obligations under this facility are guaranteed by the
Company's President and other stockholders, and in connection therewith the
Company issued warrants to purchase an aggregate of 13,332 shares of common
stock for nominal cash consideration. At June 30, 1997, $3,000,000 was
outstanding under this agreement.
 
     On August 1, 1997 and August 21, 1997, the Company entered into
subordinated loan agreements, with two different lenders, in the principal
amounts of $5 million (the $5 million loan) and $1.5 million (the $1.5 million
loan). The loans are secured by liens on all of the Company's tangible and
intangible personal property. The loans mature on December 31, 2000, however,
within 45 days of the effective date of an initial public offering of the
Company's common stock, the Company is obligated to prepay the loans in full.
These loans and the liens granted to the respective lenders are subordinated in
all respects to the current and future indebtedness of the Company under the
affiliation credit facility described above. The loans initially bear interest
at 14% per annum, provided, however, that if an initial public offering of the
Company's capital stock is not consummated on or prior to December 31, 1997, the
loans will, commencing January 1, 1998, bear interest at 15% of per annum. The
loan agreements prohibit the Company from making or declaring any cash dividends
or making any distributions of any class of capital stock of the Company, except
pursuant to an employee repurchase plan or with the consent of the lender.
 
     In connection with the $5 million and $1.5 million loans the Company issued
warrants to purchase up to 125,000 and 37,500 shares, respectively, of the
Company's Series E Preferred Stock at a price per share equal to $6.00;
provided, however, if an initial public offering of the Company's stock is not
consummated on or prior to December 31, 1997, the number of shares of Series E
Preferred Stock issuable upon exercise of the warrants increases to 133,333 and
40,000, respectively. Upon the completion of the Company's initial public
offering, such warrants become exercisable for a like number of shares of common
stock. In addition, pursuant to stock purchase agreements dated as of July 31,
1997 and August 18, 1997, the Company issued 166,667 and 41,667 shares,
respectively, of Series E Preferred Stock to the lenders for an aggregate
purchase price of $1,250,000.
 
     The $1.5 million loan is convertible into shares of preferred stock of the
Company at the option of the lender after the Company completes a sale and
issuance of any shares of its preferred stock in connection with an equity
financing at any time after the earlier to occur of (i) a payment default under

the loan agreement or (ii) the failure of the Company to consummate an initial
public offering of its capital stock prior to December 31, 1997. The conversion
price will be equal to the purchase price per share paid by the purchasers in
such equity financings.
 
                                      F-19
BMJ MEDICAL MANAGEMENT, INC.

                   NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
 
10. SUBSEQUENT EVENTS--(CONTINUED)

     On August 1, 1997, the Company entered into an agreement (the 'Master Lease
Agreement') with the lender of the $5 million loan pursuant to which the lender
agreed to purchase and lease certain equipment to the Company on the terms and
conditions contained in the Master Lease Agreement. In connection with the
Master Lease Agreement, the Company issued to the lender a warrant to purchase
up to 5,000 shares of the Company's Series E Preferred Stock at a price per
share equal to $6.00. Upon the completion of the Company's initial public
offering, such warrant becomes exercisable for a like number of shares of Common
Stock.
 
     On September 9, 1997, the Company issued and sold $4,000,000 in aggregate
principal amount of its subordinated convertible debentures due August 31, 2000
(the 'Debentures') pursuant to the Convertible Debenture Purchase Agreement,
dated as of September 9, 1997 (the 'Debenture Purchase Agreement'). The
Debentures were purchased by Dr. Nagpal, Delphi Ventures III, L.P., Delphi
BioInvestments, Oak Investment Partners VI, L.P., Oak VI Affiliates Fund,
Limited, and Health Care Services-BMJ, LLC and H&Q Serv*is Ventures, L.P.,
affiliates of Hambrecht & Quist, LLC. Pursuant to the terms of the Debenture
Purchase Agreement, the Debentures are subordinated in right of payment to all
indebtedness of the Company under the loans described above. The Debentures bear
interest at 6% per annum and are payable semi-annually on each December 31 and
June 30. The unpaid principal amount of the Debentures is due on August 31,
2000.
 
     Except in very limited instances, the Company may not prepay the Debentures
prior to September 9, 1999. The Debentures are subject to prepayment at the
option of the holders of the Debentures upon the consummation of (i) a sale of
all or substantially all of the assets of the Company; (ii) a sale or transfer
of all or a majority of the outstanding Common Stock of the Company in any one
transaction or series of related transactions; or (iii) a merger or
consolidation of the Company with or into another entity. The Debentures are
convertible at any time at the option of the holders thereof into shares of
Common Stock at an initial conversion price equal to $7.20 per share. Pursuant
to the terms of the Debenture Purchase Agreement, the holders of the Debentures
have rights of first offer on future issuances of capital stock of the Company
or other securities convertible into capital stock of the Company (except with
respect to a public offering of shares of the Company's common stock). The
Debenture Purchase Agreement places limitations on indebtedness and liens and
prohibits the payment of dividends.

 
     Effective July 1, 1997 and August 1, 1997 the Company entered into a total
of 13 additional asset purchase and management services agreements in exchange
for $7,124,806 in cash and the issuance of 1,604,270 shares of common stock
recorded at amounts ranging from $1.20 to $2.00 per share. One of the agreements
provides that the Company may be required to issue more shares of common stock
as additional consideration during 1998. The actual number of shares to be
issued will depend on actual collections of the practice during a specified
12-month period. The value of any subsequently issued shares will be allocated
to the management services agreement. Another agreement provides that the
Company will be required to pay additional cash consideration to the physician
shareholders of the practice if the value of the Company's common stock is not
at least equal to a specified price on the first anniversary of the agreement.
The guaranteed value is included in determining the cost of the management
services agreement as of the effective date of the agreement.
 
11. COMMITMENTS
 
     The Company has an employment agreement dated as of May 6, 1996, as
amended, with its President (the Employment Agreement). Base compensation under
the Employment Agreement is $225,000 per year, subject to increase by the Board
of Directors. In addition, the Board of Directors may award an annual bonus to
the President in an amount of up to 30% of his base salary based on the
attainment of certain benchmarks. The Company may terminate the President's
employment at any time and for any reason; provided that, if his employment is
terminated without cause (as defined in such agreement) or as a result of his
becoming permanently disabled, the Company must pay the President a severance
amount determined in accordance with a formula contained in the agreement.
 
                                      F-20
REPORT OF INDEPENDENT AUDITORS
 
The Board of Directors
Orthopaedic Associates of Bethlehem, Inc.
 
We have audited the accompanying balance sheets of Orthopaedic Associates of
Bethlehem, Inc. (OAB) as of December 31, 1994 and 1995 and June 30, 1996 and the
related statements of operations, stockholders' equity, and cash flows for the
years ended December 31, 1994 and 1995 and for the six months ended June 30,
1996. These financial statements are the responsibility of OAB's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
 
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
 
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of OAB at December 31, 1994 and
1995 and June 30, 1996 and the results of its operations and cash flows for the
years ended December 31, 1994 and 1995, and the six months ended June 30, 1996
in conformity with generally accepted accounting principles.
 
                                          ERNST & YOUNG, LLP
 
Philadelphia, Pennsylvania
May 28, 1997, except for Note 13,
  as to which the date is August 14, 1997
 
                                      F-21
ORTHOPAEDIC ASSOCIATES OF BETHLEHEM, INC.

                                 BALANCE SHEETS
DECEMBER 31,
                                                                                --------------------    JUNE 30,
                                                                                  1994        1995        1996
                                                                                --------    --------    --------
ASSETS
Current assets:
  Cash.......................................................................   $ 47,854    $  3,698    $119,572
  Accounts receivable, net...................................................    366,831     377,416     412,186
  Other current assets.......................................................    131,411     160,354     110,934
                                                                                --------    --------    --------
Total current assets.........................................................    546,096     541,468     642,692
Deferred tax asset...........................................................     15,000      54,100      16,800
Furniture and equipment, net.................................................    172,391     153,908     132,963
Other assets.................................................................    190,014     190,014     190,014
                                                                                --------    --------    --------
Total assets.................................................................   $923,501    $939,490    $982,469
                                                                                --------    --------    --------
                                                                                --------    --------    --------
 
                    LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Note payable...............................................................   $     --    $173,000    $203,000
  Capital lease obligations, current portion.................................     33,989      36,332      37,101
  Accounts payable...........................................................     29,027      66,158      48,780
  Accrued expenses...........................................................    125,383      44,684      45,166
  Deferred tax liability, current portion....................................    135,000     171,200     169,000
                                                                                --------    --------    --------
Total current liabilities....................................................    323,399     491,374     503,047
 
Capital lease obligation, noncurrent portion.................................    114,225      78,068      59,591
 
Commitments and contingencies
Stockholders' equity:
  Common stock, $1 par value, 30,000 shares authorized; 4,166 shares
     issued..................................................................      4,166       4,166       4,166
  Additional paid-in capital.................................................    112,079     112,079     112,079
  Retained earnings..........................................................    369,632     375,364     425,147
  Treasury stock, 1996 and 1995--833 shares at cost..........................         --    (121,561)   (121,561)
                                                                                --------    --------    --------
Total stockholders' equity...................................................    485,877     370,048     419,831
                                                                                --------    --------    --------
Total liabilities and stockholders' equity...................................   $923,501    $939,490    $982,469
                                                                                --------    --------    --------
                                                                                --------    --------    --------
See accompanying notes.
 
                                      F-22
ORTHOPAEDIC ASSOCIATES OF BETHLEHEM, INC.

                            STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31,      SIX MONTHS
                                                                          ------------------------        ENDED
                                                                             1994          1995       JUNE 30, 1996
                                                                          ----------    ----------    -------------
Net patient service revenue............................................   $2,527,957    $2,992,950     $ 1,540,205
Other income...........................................................       34,342        47,372          87,779
                                                                          ----------    ----------    -------------
Total revenues.........................................................    2,562,299     3,040,322       1,627,984
Costs and expenses:
  Physician and other provider services................................    1,553,725     1,639,675         720,358
  Medical support services.............................................      893,595     1,012,713         577,503
  Depreciation and amortization........................................       42,183        42,049          20,945
  Interest.............................................................       11,122        11,848          11,767
  Rent.................................................................       28,575        39,353          66,602
  Rent-related party...................................................      291,852       291,852         145,926
                                                                          ----------    ----------    -------------
Total costs and expenses...............................................    2,821,052     3,037,490       1,543,101
                                                                          ----------    ----------    -------------
(Loss) income before income taxes......................................     (258,753)        2,832          84,883
Income tax benefit (expense)...........................................      100,900         2,900         (35,100)
                                                                          ----------    ----------    -------------
Net (loss) income......................................................   $ (157,853)   $    5,732     $    49,783
                                                                          ----------    ----------    -------------
                                                                          ----------    ----------    -------------
See accompanying notes.
 
                                      F-23
ORTHOPAEDIC ASSOCIATES OF BETHLEHEM, INC.

                       STATEMENTS OF STOCKHOLDERS' EQUITY
ADDITIONAL
                                                       COMMON     PAID-IN      RETAINED     TREASURY
                                                       STOCK      CAPITAL      EARNINGS       STOCK        TOTAL
                                                       ------    ----------    ---------    ---------    ---------
Balance, December 31, 1993..........................   $3,333     $  49,167    $ 527,485    $      --    $ 579,985
  Issuance of common stock..........................     833         62,912           --           --       63,745
  Net loss..........................................      --             --     (157,853)          --     (157,853)
                                                       ------    ----------    ---------    ---------    ---------
Balance, December 31, 1994..........................   4,166        112,079      369,632           --      485,877
  Net income........................................      --             --        5,732           --        5,732
  Treasury stock acquired...........................      --             --           --     (121,561)    (121,561)
                                                       ------    ----------    ---------    ---------    ---------
Balance, December 31, 1995..........................   4,166        112,079      375,364     (121,561)     370,048
  Net income........................................      --             --       49,783           --       49,783
                                                       ------    ----------    ---------    ---------    ---------
Balance, June 30, 1996..............................   $4,166     $ 112,079    $ 425,147    $(121,561)   $ 419,831
                                                       ------    ----------    ---------    ---------    ---------
                                                       ------    ----------    ---------    ---------    ---------
See accompanying notes.
 
                                      F-24
ORTHOPAEDIC ASSOCIATES OF BETHLEHEM, INC.

                            STATEMENTS OF CASH FLOWS
YEAR ENDED          SIX MONTHS
                                                                                   DECEMBER 31,           ENDED
                                                                              ----------------------     JUNE 30,
                                                                                1994         1995          1996
                                                                              ---------    ---------    ----------
OPERATING ACTIVITIES:
Net (loss) income..........................................................   $(157,853)   $   5,732     $ 49,783
Adjustments to reconcile net (loss) income to net cash
  (used in) provided by operating activities:
  Depreciation and amortization............................................      42,183       42,049       20,945
  Loss on disposal of equipment............................................       5,115           --           --
  Provision for deferred taxes.............................................    (100,900)      (2,900)      35,100
  Changes in operating assets and liabilities:
     Receivables...........................................................      78,537      (10,585)     (34,770)
     Other assets..........................................................       7,357      (28,943)      49,420
     Accounts payable......................................................      17,787       37,131      (17,378)
     Accrued expenses......................................................      76,954      (80,699)         482
                                                                              ---------    ---------    ----------
Net cash (used in) provided by operating activities........................     (30,820)     (38,215)     103,582
 
INVESTING ACTIVITIES:
Purchases of furniture and equipment, net..................................     (23,898)     (23,566)          --
Collection of advances to shareholders.....................................      68,950           --           --
                                                                              ---------    ---------    ----------
Net cash provided by (used in) investing activities........................      45,052      (23,566)          --
 
FINANCING ACTIVITIES:
Issuance of common stock...................................................      63,745           --           --
Purchase of treasury stock.................................................          --     (121,561)          --
Borrowings on line of credit...............................................          --      173,000       30,000
Payment on capital lease...................................................     (31,786)     (33,814)     (17,708)
                                                                              ---------    ---------    ----------
Net cash provided by financing activities..................................      31,959       17,625       12,292
                                                                              ---------    ---------    ----------
Net increase (decrease) in cash............................................      46,191      (44,156)     115,874
 
Cash, beginning of period..................................................       1,663       47,854        3,698
                                                                              ---------    ---------    ----------
Cash, end of period........................................................   $  47,854    $   3,698     $119,572
                                                                              ---------    ---------    ----------
                                                                              ---------    ---------    ----------
 
SUPPLEMENTARY DISCLOSURES:
Interest paid..............................................................   $  11,122    $  11,848     $ 11,767

Income taxes paid..........................................................   $      --    $      --     $     --
See accompanying notes.
 
                                      F-25
ORTHOPAEDIC ASSOCIATES OF BETHLEHEM, INC.

                         NOTES TO FINANCIAL STATEMENTS

                           DECEMBER 31, 1994 AND 1995
                               AND JUNE 30, 1996
 
1. DESCRIPTION OF THE BUSINESS
 
     Orthopaedic Associates of Bethlehem, Inc. (OAB) is an orthopedic physician
practice which serves the Bethlehem, Pennsylvania area. OAB was organized as a
professional corporation under the laws of the Commonwealth of Pennsylvania (See
Note 13). All of OAB's issued and outstanding stock are owned by its practicing
orthopedic physicians.
 
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
  Net Patient Service Revenue
 
     Net patient service revenue is recorded as services are rendered at
established rates net of provision for bad debts and contractual adjustments.
Contractual adjustments arise due to the terms of certain reimbursement and
managed care contracts. Such adjustments represent the difference between
charges at established rates and estimated amounts to be reimbursed to OAB and
are recognized when the services are rendered.
 
     Revenues from the Medicare and Medicaid programs accounted for
approximately 35% and 5%, respectively, of OAB's net operating revenues. Laws
and regulations governing the Medicare and Medicaid programs are complex and
subject to interpretation. OAB believes that it is in compliance with all
applicable laws and regulations and is not aware of any pending or threatened
investigations involving allegations of potential wrongdoing. While no such
regulatory inquiries have been made, compliance with such laws and regulations
can be subject to future government review and interpretation as well as
significant regulatory action including fines, penalties, and exclusion from the
Medicare and Medicaid programs.
 
  Furniture and Equipment
 
     Furniture and equipment are stated at cost, less accumulated depreciation,
and are depreciated using the straight-line method over the estimated useful
lives of the assets, ranging from 5 to 7 years. Equipment under capital lease
obligations is amortized on the straight-line method over the shorter period of
the lease term or the estimated useful life of the equipment. Such amortization
is included in depreciation and amortization in the financial statements.
 
  Concentration of Credit Risk
 
     OAB grants credit without collateral to its patients, most of whom are
local residents and are insured under third-party payor agreements. Management
believes credit risk associated with accounts receivable is minimal.
 

  Use of Estimates
 
     The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
 
  Costs and Expenses
 
     Physician and other provider services costs are comprised primarily of
compensation and fees paid to physician and other health care providers.
 
     Medical support services costs include all indirect costs associated with
the management and operations of the practice and all direct costs associated
with medical supplies and pharmaceuticals expenses.
 
                                      F-26
ORTHOPAEDIC ASSOCIATES OF BETHLEHEM, INC.

                   NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
 
3. ACCOUNTS RECEIVABLE, NET
 
     Accounts receivable, net consist of the following:
DECEMBER 31,
                                                                      --------------------    JUNE 30,
                                                                        1994        1995        1996
                                                                      --------    --------    --------
Accounts receivable................................................   $619,647    $671,558    $717,865
Less allowances for contractual adjustments and uncollectibles.....    252,816     294,142     305,679
                                                                      --------    --------    --------
Accounts receivable, net...........................................   $366,831    $377,416    $412,186
                                                                      --------    --------    --------
                                                                      --------    --------    --------
4. FURNITURE AND EQUIPMENT
 
     Furniture and equipment consist of the following:
DECEMBER 31,
                                                                      --------------------    JUNE 30,
                                                                        1994        1995        1996
                                                                      --------    --------    --------
Furniture and equipment............................................   $229,438    $253,003    $253,003
Furniture and equipment--capital leases............................    180,000     180,000     180,000
                                                                      --------    --------    --------
                                                                       409,438     433,003     433,003
Less: Accumulated depreciation.....................................    201,047     207,095     210,040
     Accumulated amortization......................................     36,000      72,000      90,000
                                                                      --------    --------    --------
                                                                      $172,391    $153,908    $132,963
                                                                      --------    --------    --------
                                                                      --------    --------    --------
5. OTHER ASSETS
 
     Other assets consist of the amount advanced by OAB to three shareholders
for the purchase of life insurance. OAB is not the beneficiary of these
policies; however, the proceeds have been assigned to OAB to the extent of these
premiums paid. No interest is accrued on these loans.
 
6. NOTES PAYABLE
 
     OAB has an unsecured $250,000 line of credit arrangement with a bank. At
June 30, 1996 and December 31, 1995, $203,000 and $173,000, respectively, was
outstanding under the line of credit. Interest is payable monthly at a variable
rate of interest (8.25% and 8.50% at June 30, 1996 and December 31, 1995,
respectively). Principal is payable upon demand. Repayment of the line of credit
is unconditionally guaranteed by the stockholders of OAB.
 
7. CAPITAL LEASE
 
     OAB has a capital lease obligation, collateralized by the leased equipment,
with scheduled payments as of June 30, 1996 as follows:
1996........................................................................................     $21,024
1997........................................................................................      42,048
1998........................................................................................      42,048
                                                                                               ---------
                                                                                                 105,120
Less amount representing interest...........................................................     (8,428)
                                                                                               ---------
                                                                                                 $96,692
                                                                                               ---------
                                                                                               ---------
F-27
ORTHOPAEDIC ASSOCIATES OF BETHLEHEM, INC.

                   NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

 
8. RELATED PARTY TRANSACTIONS
 
  A. Lease Agreement
 
     In June 1989, OAB entered into a ten-year sublease lease agreement with
Shoenersville Road Realty for the rental of office space. Under the lease
agreement OAB has the option to lease the office space for an additional term of
ten years. Rental payments required under the lease are subject to a fair market
rental value adjustment. The partners of Shoenersville Road Realty are also the
stockholders of OAB. Rental expense totaled $145,926 for the six months ended
June 30, 1996 and $291,852 for both of the years ended December 31, 1995 and
1994.
 
     Future minimum rental payments under this operating lease as of June 30,
1996 are as follows:
1996........................................................................................    $145,926
1997........................................................................................     291,852
1998........................................................................................     291,852
1999........................................................................................     145,926
                                                                                               ---------
                                                                                                $875,556
                                                                                               ---------
                                                                                               ---------
B. Stock Redemption
 
     In 1995, OAB agreed to pay one of its physician stockholders $121,561 for
833 shares of common stock. This redemption represented approximately 20% of the
then outstanding shares and 20% of the stockholders' equity at the date of the
redemption.
 
9. INCOME TAXES
 
     Significant components of deferred tax assets and liabilities are as
follows:
DECEMBER 31,
                                                                              ----------------------    JUNE 30,
                                                                                1994         1995         1996
                                                                              ---------    ---------    ---------
Deferred tax liabilities:
  Cash to accrual adjustment...............................................   $ 263,100    $ 269,700    $ 254,400
                                                                              ---------    ---------    ---------
                                                                              ---------    ---------    ---------
Deferred tax assets:
  Net operating loss carryforwards.........................................   $  26,500    $  66,700    $  29,400

  Cash to accrual adjustment...............................................     116,600       85,900       72,800
                                                                              ---------    ---------    ---------
Total deferred tax assets..................................................   $ 143,100    $ 152,600    $ 102,200
                                                                              ---------    ---------    ---------
                                                                              ---------    ---------    ---------
Net deferred taxes.........................................................   $(120,000)   $(117,100)   $(152,200)
                                                                              ---------    ---------    ---------
                                                                              ---------    ---------    ---------
Significant components of income tax (expense) benefit attributable to
continuing operations are as follows:
YEAR ENDED
                                                                         DECEMBER 31,        SIX MONTHS
                                                                      ------------------        ENDED
                                                                        1994       1995     JUNE 30, 1996
                                                                      --------    ------    -------------
Current............................................................   $     --    $   --      $      --
Deferred...........................................................    100,900     2,900        (35,100)
                                                                      --------    ------    -------------
Income tax (expense) benefit.......................................   $100,900    $2,900      $ (35,100)
                                                                      --------    ------    -------------
                                                                      --------    ------    -------------
OAB's tax rate differs from the expected tax rate due principally to state
income taxes. State income tax (expense) benefits were $11,000, $4,400 and
$(5,400) for the years ended December 31, 1994 and 1995 and the six months ended
June 30, 1996, respectively.
 
                                      F-28
ORTHOPAEDIC ASSOCIATES OF BETHLEHEM, INC.

                   NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
 
9. INCOME TAXES--(CONTINUED)

     For the six months ended June 30, 1996 OAB has estimated income tax
(expense) benefit and net deferred taxes assuming that they have utilized
$78,000 and $65,000 in operating loss carryforwards for federal and state income
reporting purposes. At June 30, 1996 OAB has available federal and state
operating loss carryforwards of $73,000 and $60,000, respectively, which expire
in 2010 and 1998, respectively.
 
10. BENEFIT PLANS
 
     OAB sponsors a defined contribution profit-sharing plan covering all

employees who meet prescribed eligibility requirements. Expenses amounted to
$165,000 and $129,000 in 1995 and 1994, respectively. This plan was terminated
effective December 31, 1995.
 
     Effective January 1, 1996, OAB established a 401(k) plan for which OAB
matches a percentage of employee contributions. Expenses for the 401(k) plan
amounted to $25,818 for the six months ended June 30, 1996.
 
11. CONTINGENCIES
 
     OAB is involved in various legal proceedings in the ordinary course of
business. OAB does not believe that the disposition of such legal proceedings
and disputes will have a material adverse effect on the financial position and
results of operation of OAB.
 
12. MALPRACTICE INSURANCE
 
     OAB maintains professional liability coverage on behalf of its physicians
on an occurrence basis.
 
13. SUBSEQUENT EVENTS
 
     Effective July 1, 1996, the physician stockholders of OAB transferred
substantially all operations of OAB to Lehigh Valley Bone, Muscle and Joint
Group, LLC (LVBMJ). LVBMJ is a limited liability company owned by the physician
stockholders of OAB, formed specifically to operate the transferred medical
practice. Additionally, on July 1, 1996, OAB changed its legal structure from a
professional corporation to a general purpose corporation and continues to
perform limited medical advisory services.
 
     Effective July 1, 1996, the Company entered into an Affiliation Transaction
with LVBMJ. Under the terms of the Amended and Restated Management Services
Agreement between LVBMJ and the Company effective July 1, 1997 (the LVBMJ
Management Services Agreement), BMJ Medical Management, Inc. (BMJ) issued an
aggregate of 518,031 shares of common stock, recorded at $0.10 per share,
representing consideration of $51,803 and options to purchase 30,000 shares of
common stock at an exercise price of $0.25 per share.
 
     On September 5, 1997, OAB sold to BMJ (a related party) its furniture and
equipment and transferred its rights and interest under equipment and office
space leases for $254,000. Proceeds of the sale were used to repay OAB's line of
credit. Based on the collection of accounts receivable balances and the
realization of other assets available, OAB has discharged substantially all its
other remaining liabilities. OAB has distributed substantially all of its
remaining stockholders' equity in the form of dividends and compensation.
 
                                      F-29
REPORT OF INDEPENDENT AUDITORS
 
The Board of Directors
Southern California Orthopedic Institute Medical Group,
  a California General Partnership
 
We have audited the accompanying balance sheets of Southern California
Orthopedic Institute Medical Group, a California General Partnership (SCOI) as
of December 31, 1995 and October 31, 1996, and the related statements of
operations and changes in partners' capital, and cash flows for each of the two
years in the period ended December 31, 1995 and for the ten months ended October
31, 1996. These financial statements are the responsibility of SCOI's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
 
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
 
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of SCOI at December 31, 1995 and
October 31, 1996, and the results of its operations and its cash flows for each
of the two years in the period ended December 31, 1995 and for the ten months
ended October 31, 1996 in conformity with generally accepted accounting
principles.
 
                                          ERNST & YOUNG, LLP
 
Los Angeles, California
May 23, 1997
 
                                      F-30
SOUTHERN CALIFORNIA ORTHOPEDIC INSTITUTE MEDICAL GROUP,
                        A CALIFORNIA GENERAL PARTNERSHIP

                                 BALANCE SHEETS
DECEMBER 31,    OCTOBER 31,
                                                                                            1995           1996
                                                                                        ------------    -----------
ASSETS
Current assets:
Cash and cash equivalents............................................................    $  251,345     $   720,158
  Patient accounts receivable, net...................................................     4,558,438       4,778,825
  Due from partners and affiliates, net..............................................        41,231              --
  Prepaid expenses and other current assets..........................................       140,523         266,826
                                                                                        ------------    -----------
Total current assets.................................................................     4,991,537       5,765,809
 
Furniture, fixtures and equipment, net                                                      709,814         586,997
Other assets.........................................................................       337,038         310,080
                                                                                        ------------    -----------
Total assets.........................................................................    $6,038,389     $ 6,662,886
                                                                                        ------------    -----------
                                                                                        ------------    -----------
 
                          LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
  Accounts payable...................................................................    $  120,398     $   125,022
  Due to partners and affiliates, net................................................            --         284,773
  Accrued expenses and other current liabilities.....................................       287,204         284,229
  Current portion of long-term debt..................................................       228,627              --
  Deferred income....................................................................        85,090          85,090
                                                                                        ------------    -----------
Total current liabilities............................................................       721,319         779,114
Deferred income......................................................................       219,820         134,733
Accrued malpractice insurance claims.................................................     1,500,000       1,917,000
                                                                                        ------------    -----------
                                                                                          2,441,139       2,830,847
 
Commitments and contingencies
Partners' capital....................................................................     3,597,250       3,832,039
                                                                                        ------------    -----------
Total liabilities and partners' capital..............................................    $6,038,389     $ 6,662,886
                                                                                        ------------    -----------
                                                                                        ------------    -----------
See accompanying notes.
 
                                      F-31
SOUTHERN CALIFORNIA ORTHOPEDIC INSTITUTE MEDICAL GROUP,
                        A CALIFORNIA GENERAL PARTNERSHIP

           STATEMENTS OF OPERATIONS AND CHANGES IN PARTNERS' CAPITAL
TEN MONTHS
                                                                        YEAR ENDED DECEMBER 31,         ENDED
                                                                       --------------------------    OCTOBER 31,
                                                                          1994           1995           1996
                                                                       -----------    -----------    -----------
Net patient service revenue.........................................   $19,230,632    $20,025,718    $17,907,084
Other income........................................................       149,318        153,923        162,512
                                                                       -----------    -----------    -----------
Total revenues......................................................    19,379,950     20,179,641     18,069,596
 
Costs and expenses:
  Physician and other provider services.............................    10,008,410     11,307,996      9,069,544
  Medical support services..........................................     7,406,706      7,621,997      6,846,899
  Depreciation......................................................       313,595        308,826        253,500
  Interest..........................................................        70,511         39,126          8,462
  Rent..............................................................       275,077        261,906        204,511
  Rent--related party...............................................     1,615,678      1,666,243      1,451,891
                                                                       -----------    -----------    -----------
Total costs and expenses............................................    19,689,977     21,206,094     17,834,807
                                                                       -----------    -----------    -----------
Net (loss) income...................................................      (310,027)    (1,026,453)       234,789
 
Beginning partners' capital.........................................     4,739,090      4,429,063      3,597,250
Capital contributions...............................................            --        194,640             --
                                                                       -----------    -----------    -----------
Ending partners' capital............................................   $ 4,429,063    $ 3,597,250    $ 3,832,039
                                                                       -----------    -----------    -----------
                                                                       -----------    -----------    -----------
See accompanying notes.
 
                                      F-32
SOUTHERN CALIFORNIA ORTHOPEDIC INSTITUTE MEDICAL GROUP,
                        A CALIFORNIA GENERAL PARTNERSHIP

                            STATEMENTS OF CASH FLOWS
TEN MONTHS
                                                                        YEAR ENDED DECEMBER 31,         ENDED
                                                                       --------------------------    OCTOBER 31,
                                                                          1994           1995           1996
                                                                       -----------    -----------    -----------
OPERATING ACTIVITIES:
Net (loss) income...................................................   $  (310,027)   $(1,026,453)   $   234,789
Adjustments to reconcile net (loss) income to net cash provided by
  (used in) operating activities:
  Depreciation......................................................       313,595        308,826        253,500
  Amortization of deferred income...................................            --        (93,432)       (85,087)
  Changes in operating assets and liabilities:
     Patient accounts receivable....................................      (142,784)       287,667       (220,387)
     Prepaid expenses and other assets..............................       (58,197)       (17,215)       (99,345)
     Accounts payable...............................................         1,262        (85,930)         4,624
     Accrued expenses and other current liabilities.................       441,688        518,480        414,025
                                                                       -----------    -----------    -----------
Net cash provided by (used in) operating activities.................       245,537       (108,057)       502,119
 
INVESTING ACTIVITIES:
Changes in due to/from partners and affiliates......................       166,056       (171,832)       326,004
Purchases of furniture, fixtures and equipment......................       (85,220)       (39,331)      (130,683)
                                                                       -----------    -----------    -----------
Net cash provided by (used in) investing activities.................        80,836       (211,163)      (195,321)
 
FINANCING ACTIVITIES:
Payments on long-term debt..........................................      (287,386)      (316,503)      (228,627)
Proceeds received for covenant not to compete.......................            --        398,342             --
Capital contributions...............................................            --        194,640             --
Net cash (used in) provided by financing activities.................      (287,386)       276,479       (228,627)
                                                                       -----------    -----------    -----------
Net increase (decrease) in cash and cash equivalents................        38,987        (42,741)       468,813
Cash and cash equivalents at beginning of period....................       255,099        294,086        251,345
                                                                       -----------    -----------    -----------
Cash and cash equivalents at end of period..........................   $   294,086    $   251,345    $   720,158
                                                                       -----------    -----------    -----------
                                                                       -----------    -----------    -----------
See accompanying notes.
 
                                      F-33
SOUTHERN CALIFORNIA ORTHOPEDIC INSTITUTE MEDICAL GROUP,
                        A CALIFORNIA GENERAL PARTNERSHIP

                         NOTES TO FINANCIAL STATEMENTS

                                OCTOBER 31, 1996
 
1. DESCRIPTION OF THE BUSINESS
 
     Southern California Orthopedic Institute Medical Group, a California
General Partnership (SCOI), is an orthopedic physician practice which serves
patients in Southern California. SCOI is organized as a general partnership
comprising individuals and professional corporations under the laws of the State
of California.
 
     On November 1, 1996, SCOI agreed in principle to sell substantially all of
its assets (primarily patient accounts receivable and furniture, fixtures and
equipment) to BMJ Medical Management, Inc. (BMJ) and concurrent therewith
entered into a management services agreement (see Note 12 'Subsequent Event').
 
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
  Revenue Recognition
 
     Net patient service revenue consists of fees for services provided by the
medical group under contracts with health maintenance organizations and for
services rendered to patients covered under Medicare, Medi-Cal and private
insurance. Revenue is reported on the accrual basis in the period in which
services are provided at the amounts expected to be realized from Medicare,
Medi-Cal, managed care and other insurance programs.
 
     Laws and regulations governing the Medicare and Medi-Cal programs are
complex and subject to interpretation. SCOI believes that it is in compliance
with all applicable laws and regulations and is not aware of any pending or
threatened investigations involving allegations of potential wrongdoing. While
no such regulatory inquiries have been made, compliance with such laws and
regulations can be subject to future government review and interpretation as
well as significant regulatory action including fines, penalties, and exclusion
from the Medicare and Medi-Cal programs.
 
  Costs and Expenses
 
     Physician and other provider services costs primarily comprise compensation
and fees paid to physicians and other health care providers and include medical
supplies and pharmaceutical expenses.
 
     Medical support services costs include all indirect costs associated with
the management and operations of the practice.
 
  Furniture, Fixtures and Equipment
 
     Furniture, fixtures and equipment, including leasehold improvements, are

stated at cost, and are depreciated using the straight-line method over the
estimated useful lives of the assets, ranging from five to seven years.
 
  Health and Dental Insurance
 
     SCOI maintains a self-insured medical and dental plan for its employees.
Unpaid claims accruals, including claims incurred but not reported, are based on
the estimated ultimate cost of settlement, including claim settlement expense,
in accordance with SCOI's past experience. SCOI has a stop-loss insurance
contract to cover employee health claims in excess of an annual aggregate limit
based on monthly aggregate factors determined by the insurance company and the
number of employees covered ($430,062; $349,894, and $250,304 for the years
ended December 31, 1994 and 1995 and the ten months ended October 31, 1996,
respectively). Effective October 1, 1996, SCOI purchased commercial coverage for
employee health claims. At December 31, 1995 and October 31, 1996, SCOI did not
have significant claims outstanding.
 
                                      F-34
SOUTHERN CALIFORNIA ORTHOPEDIC INSTITUTE MEDICAL GROUP,
                        A CALIFORNIA GENERAL PARTNERSHIP

                   NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
 
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)

  Cash Equivalents
 
     Cash equivalents include money market funds and certificates of deposit
with a maturity of three months or less when purchased.
 
  Allocations to Partners
 
     Income and distributions to physician partners are made based upon a
formula as defined in Schedule 4.1 of the SCOI partnership agreement. The
formula generally allocates income based on net cash collections attributable to
each physician partner, net of allocated and direct expenses. Notwithstanding
the formula, physician partners receive a guaranteed minimum based on a
percentage of total collections. Distributions to partners totaling $7,575,129,
$9,745,019 and $7,692,077 for the two years ended December 31, 1995 and the ten
months ended October 31, 1996, respectively, were included in physician and
other provider services in the statements of operations and changes in partners'
capital.
 
  Use of Estimates
 
     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 the financial
statements and the reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates.

 
  Financial Instruments
 
     The carrying amounts of financial instruments as reported in the
accompanying balance sheets approximate their fair value primarily due to the
short-term nature of such financial instruments.
 
  Concentrations of Credit Risk
 
     Financial instruments which potentially subject SCOI to concentrations of
credit risk consist primarily of cash and cash equivalents and accounts
receivable. Concentration of credit risk with respect to accounts receivable are
limited, except with respect to programs under contract with the federal and
state governments, due to the large number of payors comprising SCOI's customer
base. As of October 31, 1996, SCOI had no significant concentrations of credit
risk.
 
3. ACCOUNTS RECEIVABLE
 
     Accounts receivable consist of the following at:
DECEMBER 31,    OCTOBER 31,
                                                                                  1995           1996
                                                                              ------------    -----------
Gross patient accounts receivable..........................................    $7,723,438     $ 8,099,825
Less allowances for contractual adjustments and uncollectible accounts.....     3,165,000       3,321,000
                                                                              ------------    -----------
                                                                               $4,558,438     $ 4,778,825
                                                                              ------------    -----------
                                                                              ------------    -----------
F-35
SOUTHERN CALIFORNIA ORTHOPEDIC INSTITUTE MEDICAL GROUP,
                        A CALIFORNIA GENERAL PARTNERSHIP

                   NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
 
4. FURNITURE, FIXTURES AND EQUIPMENT
 
     Furniture, fixtures and equipment consist of the following at:
DECEMBER 31,    OCTOBER 31,
                                                                                  1995           1996
                                                                              ------------    -----------
Furniture, fixtures and equipment..........................................    $2,193,237     $ 2,137,488
Less accumulated depreciation..............................................     1,483,423       1,550,491
                                                                              ------------    -----------
                                                                               $  709,814     $   586,997
                                                                              ------------    -----------
                                                                              ------------    -----------
5. LONG-TERM DEBT
 
     Long-term debt comprises two loans for the purchase of furniture, fixtures
and equipment. The loans bear interest at 9.69% and are payable in 60 monthly
installments of $29,627 with final maturity in August 1996. The loans were
secured by SCOI's property and equipment.
 
     Interest costs paid during the years ended December 31, 1994 and 1995 and
the ten months ended October 31, 1996, totaled $70,511, $39,126, and $8,462,
respectively.
 
6. LEASE COMMITMENTS
 
     SCOI leases various equipment, clinic and office space under non-cancelable
operating leases expiring between 1997 and 2006 with related and independent
parties (see Note 11 'Related Parties'). Certain leases contain renewal options
and annual escalation clauses. Obligations under equipment and facility leases
with unrelated parties were assumed by BMJ in connection with the sale of SCOI's
assets on November 1, 1996 (see Note 12 'Subsequent Event'). At October 31,
1996, future minimum lease payments are as follows:
1997.....................................................................................     $1,805,636
1998.....................................................................................      1,790,849
1999.....................................................................................      1,718,358
2000.....................................................................................      1,599,342
2001.....................................................................................      1,599,342
Therafter................................................................................      8,297,649
                                                                                            ------------
Total minimum lease payments.............................................................    $16,811,176
                                                                                            ------------
                                                                                            ------------
7. INCOME TAXES
 
     SCOI is organized as a partnership under the Internal Revenue Code and
applicable California Franchise Tax Code. As a result, in lieu of corporate
income tax, SCOI's taxable income is passed through to the partners and taxed at
the partner level. Accordingly, no provision or liability for income tax has
been reflected in the financial statements.
 
8. BENEFIT PLANS
 
     SCOI sponsors a defined contribution plan (the Plan) for employees who meet

the minimum length of service and age requirements. The Plan was adopted on
January 1, 1996. Eligible employees may contribute up to 19% of their
compensation in the Plan year. SCOI may, at its discretion, match a portion of
employee contributions up to 4% of an employee's compensation. SCOI is
responsible for the administration of the Plan as the Plan administrator and
trustee. SCOI's contributions totaled $9,831 for the ten months ended October
1996.
 
                                      F-36
SOUTHERN CALIFORNIA ORTHOPEDIC INSTITUTE MEDICAL GROUP,
                        A CALIFORNIA GENERAL PARTNERSHIP

                   NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
 
9. CONTINGENCIES
 
     SCOI is involved in various legal proceedings in the ordinary course of
business. SCOI does not believe that the disposition of such legal proceedings
and disputes will have a material adverse effect on the financial position and
results of operations of SCOI.
 
     SCOI procures professional liability coverage on behalf of its physicians
on a claims made basis up to $1,000,000 per claim and $3,000,000 annual
aggregate per physician. The insurance contracts specify that coverage is
available only during the term of each insurance contract and cover only those
claims reported while the policies are in force. An estimate of losses for
incurred but unreported claims is recorded based upon historical experience.
Management of SCOI intends to renew the existing claims made policy annually and
expects to be able to obtain such coverage. If coverage is not renewed, SCOI
intends to purchase extended reporting period endorsements to provide
professional liability coverage for losses incurred prior to, but reported
subsequent to, the termination of the claims made policies. SCOI's policy has
been renewed through December 31, 1997.
 
10. DEFERRED INCOME
 
     In July 1992, SCOI sold its rehabilitation and therapy business to
HealthSouth Rehabilitation Center of Van Nuys Limited Partnership (HealthSouth)
for cash. In connection with the sale, the Partnership and its physicians
entered into a covenant-not-to-compete for seven years ending July 31, 1999 for
$700,000, payable in 84 equal monthly installments. Consideration received is
recorded as revenue over the term of the agreement. On January 20, 1995,
HealthSouth elected to prepay its remaining obligations under the covenant
totaling $390,000. This amount has been recorded as deferred income on SCOI's
balance sheets and is amortized over the remaining term of the covenant.
 
11. RELATED PARTIES
 
     Due to partners and affiliates includes undistributed guaranteed payments
totaling $162,699 and $475,000 at December 31, 1995 and October 31, 1996,
respectively. SCOI has notes receivable from several partners for capital

contributions. Such notes bear interest at prime rate plus one percent and
totaled $191,618 and $102,810, at December 31, 1995 and October 31, 1996,
respectively. SCOI also made advances to the Center for Orthopedic Surgery, Inc.
(COSI), an affiliated organization owned by certain physician partners. COSI is
an outpatient surgery center due to begin operations in May 1997. Amounts
outstanding at December 31, 1995 and October 31, 1996 were $12,312 and $87,417,
respectively.
 
     SCOI leases its main facility and office space under a non-cancelable
operating lease from FDP Development, Inc. (FDP), an affiliate owned by the
partners of SCOI. The lease expires in July 2006 and provides for annual
adjustments based on the increases in the Consumer Price Index. Rental costs
paid to FDP totaled $1,615,678, $1,666,243, and $1,451,891, for the years ended
December 31, 1994 and 1995, and the ten months ended October 31, 1996,
respectively. SCOI maintains a security deposit with FDP in the amount of
$300,000 at December 31, 1995 and October 31, 1996.
 
12. SUBSEQUENT EVENTS
 
     On November 1, 1996, SCOI sold its patient accounts receivable balances,
furniture, fixtures and equipment, and other minor assets to BMJ, a Delaware
corporation engaged in operating and financing physician groups focused
exclusively on musculoskeletal disease management. The carrying value of the
patient accounts receivable balances and property and equipment was $4,778,825
and $583,755, respectively. BMJ also assumed certain equipment and office lease
obligations with total future minimum lease payments of $553,460 at November 1,
1996, which are in turn subleased to SCOI. Total consideration for the sale was
$5,930,897 based on a preliminary estimate of the carrying values of the assets
sold at October 31, 1996, and is subject to purchase
 
                                      F-37
SOUTHERN CALIFORNIA ORTHOPEDIC INSTITUTE MEDICAL GROUP,
                        A CALIFORNIA GENERAL PARTNERSHIP

                   NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
 
12. SUBSEQUENT EVENTS--(CONTINUED)

price adjustments. $3,706,897 (the sales price of property and equipment and 50%
of the estimated carrying value of the receivable balances) was received in
cash. The balance of the consideration is based on actual collections of the
receivable balances and is due upon the earlier of an initial offering of BMJ's
common stock or November 1, 1997. SCOI realized a gain of $858,165 on the sale
of property and equipment.
 
     Concurrent with the sale, SCOI entered into a 40 year management services
agreement (the Agreement) with BMJ on November 1, 1996. After the initial term,
the Agreement renews automatically for successive additional five year terms,
unless terminated by either party with 6 months written notice. As an incentive
for entering into the Agreement, the physician owners of the Company received
4,000,000 common shares in BMJ with an estimated fair value of $1,400,000. At

the earlier of an initial public offering of BMJ's common shares or November 1,
1998, the number of shares will be adjusted in accordance with a prescribed
formula based in part on SCOI's net cash collections in relation to other
medical groups managed by BMJ. Under the Agreement, BMJ will provide financial
management, information systems, marketing and public relations, risk
management, and administrative support for claims processing, utilization review
and quality control services. As compensation for these services, SCOI will
reimburse BMJ for the costs of such services in addition to a management fee
based on a percentage of collections of patient revenues generated after
November 1, 1996 (reduced by the medical equipment master lease payments) and
66-2/3% of professional practice cost savings as defined in the Agreement.
 
                                      F-38
REPORT OF INDEPENDENT AUDITORS
 
The Board of Directors
South Texas Spinal Clinic, P.A.
 
We have audited the accompanying balance sheets of South Texas Spinal Clinic,
P.A. (STSC) as of December 31, 1994 and 1995 and October 31, 1996, and the
related statements of operations, stockholders' equity, and cash flows for the
years ended December 31, 1994 and 1995 and the ten months ended October 31,
1996. These financial statements are the responsibility of STSC's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
 
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
 
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of STSC at December 31, 1994 and
1995 and the ten months ended October 31, 1996 in conformity with generally
accepted accounting principles.
 
                                          ERNST & YOUNG, LLP
 
San Antonio, Texas
June 5, 1997
 
                                      F-39
SOUTH TEXAS SPINAL CLINIC, P.A.
                                 BALANCE SHEETS
DECEMBER 31,
                                                                       --------------------------    OCTOBER 31,
                                                                          1994           1995           1996
                                                                       -----------    -----------    -----------
ASSETS
 
Current assets:
  Cash..............................................................   $    56,205    $    41,642    $   430,452
  Accounts receivable, net..........................................     2,497,993      2,535,945      1,688,980
  Prepaid expenses and other current assets.........................        18,680         23,705         21,809
                                                                       -----------    -----------    -----------
Total current assets................................................     2,572,878      2,601,292      2,141,241
Furniture, fixtures, and equipment, net.............................       554,099        476,263        416,047
Other assets........................................................        31,016         55,200         32,925
                                                                       -----------    -----------    -----------
Total assets........................................................   $ 3,157,993    $ 3,132,755    $ 2,590,213
                                                                       -----------    -----------    -----------
                                                                       -----------    -----------    -----------
 
                LIABILITIES AND STOCKHOLDERS' EQUITY
 
Current liabilities:
  Current portion of long-term debt.................................   $   125,000    $   125,000    $   104,166
  Capital lease obligation, current portion.........................            --          3,153          3,464
  Accounts payable..................................................       132,733         91,904        515,287
  Accounts payable--related party...................................            --          5,372             --
  Accrued expenses and other current liabilities....................        11,531         13,312         17,490
                                                                       -----------    -----------    -----------
Total current liabilities...........................................       269,264        238,741        640,407
Long-term debt, less current portion................................       208,333         83,333             --
Capital lease obligation, less current portion......................            --          6,442          3,530
 
Stockholders' equity:
  Common stock, no par; 100,000 shares authorized; 2,500 shares
     issued and outstanding.........................................         1,000          1,000          1,000
  Retained earnings.................................................     2,679,396      2,803,239      1,945,276
                                                                       -----------    -----------    -----------
Total stockholders' equity..........................................     2,680,396      2,804,239      1,946,276
                                                                       -----------    -----------    -----------
Total liabilities and stockholders' equity..........................   $ 3,157,993    $ 3,132,755    $ 2,590,213
                                                                       -----------    -----------    -----------
                                                                       -----------    -----------    -----------
See accompanying notes.
 
                                      F-40
SOUTH TEXAS SPINAL CLINIC, P.A.

                            STATEMENTS OF OPERATIONS
TEN MONTHS
                                                                     YEAR ENDED              ENDED
                                                                    DECEMBER 31,          OCTOBER 31,
                                                              ------------------------    ------------
                                                                 1994          1995           1996
                                                              ----------    ----------    ------------
Operating revenue, net.....................................   $6,973,761    $7,748,203     $6,027,164
Costs and expenses:
  Physician and other provider services....................    4,681,361     5,578,510      5,257,398
  Medical support services.................................      971,812     1,060,037      1,073,446
  Depreciation.............................................       88,065        90,012         74,914
  Interest.................................................       36,956        27,529         13,375
  Rent.....................................................      125,770       150,168        118,491
  Rent-related party.......................................      711,892       718,104        347,503
                                                              ----------    ----------    ------------
Total costs and expenses...................................    6,615,856     7,624,360      6,885,127
                                                              ----------    ----------    ------------
Net income (loss)..........................................   $  357,905    $  123,843     $ (857,963)
                                                              ----------    ----------    ------------
                                                              ----------    ----------    ------------
See accompanying notes.
 
                                      F-41
SOUTH TEXAS SPINAL CLINIC, P.A.

                       STATEMENTS OF STOCKHOLDERS' EQUITY
COMMON STOCK
                                                        -------------------
                                                         NUMBER                ADDITIONAL     RETAINED
                                                        OF SHARES    AMOUNT     PAID-IN       EARNINGS       TOTAL
                                                        ---------    ------    ----------    ----------    ----------
Balance at December 31, 1993.........................     2,500      $1,000      $   --      $2,321,491    $2,322,491
  Repurchase and retirement of common stock..........        --         --           --              --            --
  Issuance of common stock...........................        --         --           --              --            --
  Net income.........................................        --         --           --         357,905       357,905
                                                        ---------    ------    ----------    ----------    ----------
Balance at December 31, 1994.........................     2,500      1,000           --       2,679,396     2,680,396
  Repurchase and retirement of common stock..........        --         --           --              --            --
  Issuance of common stock...........................        --         --           --              --            --
  Net income.........................................        --         --           --         123,843       123,843
                                                        ---------    ------    ----------    ----------    ----------
Balance at December 31, 1995.........................     2,500      1,000           --       2,803,239     2,804,239
  Repurchase and retirement of common stock..........        --         --           --              --            --
  Issuance of common stock...........................        --         --           --              --            --
  Net loss...........................................        --         --           --        (857,963)     (857,963)
                                                        ---------    ------    ----------    ----------    ----------
Balance at October 31, 1996..........................     2,500      $1,000      $   --      $1,945,276    $1,946,276
                                                        ---------    ------    ----------    ----------    ----------
                                                        ---------    ------    ----------    ----------    ----------
See accompanying notes.
 
                                      F-42
SOUTH TEXAS SPINAL CLINIC, P.A.

                            STATEMENTS OF CASH FLOWS
TEN MONTHS
                                                                                  YEAR ENDED             ENDED
                                                                                 DECEMBER 31,         OCTOBER 31,
                                                                            ----------------------    ------------
                                                                              1994         1995           1996
                                                                            ---------    ---------    ------------
OPERATING ACTIVITIES
Net income (loss)........................................................   $ 357,905    $ 123,843     $ (857,963)
Adjustments to reconcile net income (loss) to net cash provided by
  operating activities:
  Depreciation...........................................................      88,065       90,012         74,914
  Changes in operating assets and liabilities:
     Accounts receivable.................................................    (214,029)     (37,952)       846,965
     Deferred charges and other assets...................................     (52,734)     (29,209)        24,171
     Accounts payable....................................................      96,391      (40,829)       423,383
     Accrued expenses and other liabilities..............................       4,363        7,153         (1,194)
                                                                            ---------    ---------    ------------
Net cash provided by operating activities................................     279,961      113,018        510,276
 
INVESTING ACTIVITIES
Purchases of property and equipment......................................      (5,608)     (12,176)       (14,698)
Property and equipment under capital lease...............................          --        9,595         (2,601)
                                                                            ---------    ---------    ------------
Net cash used in investing activities....................................      (5,608)      (2,581)       (17,299)
 
FINANCING ACTIVITY
Payments on notes payable to banks.......................................    (245,000)    (125,000)      (104,167)
                                                                            ---------    ---------    ------------
Net cash used in financing activity......................................    (245,000)    (125,000)      (104,167)
                                                                            ---------    ---------    ------------
Net increase (decrease) in cash..........................................      29,353      (14,563)       388,810
 
Cash and cash equivalents at beginning of year...........................      26,852       56,205         41,642
                                                                            ---------    ---------    ------------
Cash and cash equivalents at end of year.................................   $  56,205    $  41,642     $  430,452
                                                                            ---------    ---------    ------------
                                                                            ---------    ---------    ------------
See accompanying notes.
 
                                      F-43
SOUTH TEXAS SPINAL CLINIC, P.A.
                         NOTES TO FINANCIAL STATEMENTS

                   YEARS ENDED DECEMBER 31, 1994 AND 1995 AND
                       TEN MONTHS ENDED OCTOBER 31, 1996
 
1. DESCRIPTION OF THE BUSINESS
 
     South Texas Spinal Clinic, P.A. (STSC) is an orthopedic physician practice
which services San Antonio, Texas, and the surrounding communities. STSC is
organized as a professional corporation (S corporation) under the laws of the
state of Texas.
 
     Effective November 1, 1996, STSC entered into an agreement to sell
substantially all of the assets of STSC and enter into a management services
agreement with BMJ Medical Management, Inc.
 
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
     Revenue Recognition
 
     Revenue is recorded at estimated net amounts to be received from
third-party payors and others for services rendered.
 
     Laws and regulations governing the Medicare program are complex and subject
to interpretation. STSC believes that it is in compliance with all applicable
laws and regulations and is not aware of any pending or threatened
investigations involving allegations of potential wrongdoing. While no such
regulatory inquiries have been made, compliance with such laws and regulations
can be subject to future government review and interpretation as well as
significant regulatory action including fines, penalties, and exclusion from the
Medicare program.
 
     Furniture, Fixtures, and Equipment
 
     Furniture, fixtures, and equipment are stated at cost, less accumulated
depreciation, and are depreciated using the straight-line method over the
estimated useful lives of the assets, ranging from five (5) to twenty (20)
years.
 
     Use of Estimates
 
     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 as of the date of the financial
statements and the reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates.
 
     Presentation of Expenses
 
     Physician and other provider services costs are composed primarily of

compensation and fees paid to physician and other health care providers and
include medical supplies and pharmaceutical expenses.
 
     Medical support services costs include all indirect costs associated with
the management and operations of the practice.
 
                                      F-44
SOUTH TEXAS SPINAL CLINIC, P.A.

                   NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
 
3. ACCOUNTS RECEIVABLE AND NET REVENUE
 
     Accounts receivable consists of the following:
DECEMBER 31,          OCTOBER 31,
                                                               ------------------------    -----------
                                                                  1994          1995          1996
                                                               ----------    ----------    -----------
Gross patient accounts receivable...........................   $3,122,491    $3,169,931    $ 2,711,718
Less allowances for contractual adjustments and
  uncollectibles............................................      624,498       633,986      1,022,738
                                                               ----------    ----------    -----------
                                                               $2,497,993    $2,535,945    $ 1,688,980
                                                               ----------    ----------    -----------
                                                               ----------    ----------    -----------
Net revenue consists of the following:
 
                                                                     DECEMBER 31,          OCTOBER 31,
                                                               ------------------------    -----------
                                                                  1994          1995          1996
                                                               ----------    ----------    -----------
Gross patient revenue.......................................   $8,717,201    $9,685,260    $10,045,273
Less contractual adjustments and uncollectibles.............    1,743,440     1,937,052      4,018,109
                                                               ----------    ----------    -----------
                                                               $6,973,761    $7,748,208    $ 6,027,164
                                                               ----------    ----------    -----------
                                                               ----------    ----------    -----------
4. FURNITURE, FIXTURES, AND EQUIPMENT
 
     Furniture, fixtures, and equipment consist of the following:
DECEMBER 31,        OCTOBER 31,
                                                                      --------------------    -----------
                                                                        1994        1995         1996

                                                                      --------    --------    -----------
Furniture, fixtures, and equipment.................................   $674,272    $676,117     $ 690,815
Equipment under capital leases.....................................         --      10,330        10,330
                                                                      --------    --------    -----------
                                                                       674,272     686,447       701,145
Less accumulated depreciation and amortization.....................    120,173     210,184       285,098
                                                                      --------    --------    -----------
                                                                      $554,099    $476,263     $ 416,047
                                                                      --------    --------    -----------
                                                                      --------    --------    -----------
5. NOTES PAYABLE
 
     Notes payable consists of the following:
DECEMBER 31,        OCTOBER 31,
                                                                      --------------------    -----------
                                                                        1994        1995         1996
                                                                      --------    --------    -----------
Note payable to bank with maturity date of August 26, 1997, with a
  variable interest rate based upon the Prime rate as described in
  the note agreement at each monthly payment date. (effective rate
  of 8.5%, 9.5% and 9.25%, at December 31, 1994 and 1995 and
  October 31, 1996, respectively)..................................   $333,333    $208,333     $ 104,166
Less current maturities............................................    125,000     125,000       104,166
                                                                      --------    --------    -----------
                                                                      $208,333    $ 83,333     $      --
                                                                      --------    --------    -----------
                                                                      --------    --------    -----------
The note payable to the bank is collateralized by the assets of STSC. The
note payable requires STSC to comply with certain covenants. Actual interest
payments were $36,956, $27,246, and $12,583 during the years ended December 31,
1994, 1995, and the ten months ended October 31, 1996, respectively.
 
6. LEASE COMMITMENTS
 
     STSC leases various equipment, clinic and office space, and office
buildings under operating leases and certain computer and medical equipment
under capital leases. Rent expenses charged to operations totaled approximately
$837,662, $868,272, and $460,623 during the years ended December 31, 1994, 1995,
and the ten months ended October 31, 1996, respectively.
 
                                      F-45
SOUTH TEXAS SPINAL CLINIC, P.A.

                   NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
 
6. LEASE COMMITMENTS--(CONTINUED)

     The lease commitments for the two months ending December 31, 1996 and for
the next five years ending December 31 are as follows:
OPERATING    CAPITAL LEASES    CAPITAL LEASES
                                                                 LEASES        PRINCIPAL          INTEREST
                                                                ---------    --------------    --------------
1996.........................................................   $  77,778        $  550             $129
1997.........................................................     471,963         3,526              547
1998.........................................................     442,126         2,916              138
1999.........................................................     419,015            --               --
2000.........................................................     402,237            --               --
2001.........................................................     388,524            --               --
7. INCOME TAXES
 
     STSC has historically not incurred significant tax liabilities for federal
income taxes. STSC has been organized as an S corporation and, accordingly,
income tax liabilities are the responsibility of the respective owners.
 
8. BENEFIT PLANS
 
     STSC maintains a defined contribution plan for employees who meet the
minimum length of service and age requirements. Under the plan, STSC makes
contributions equal to 50% up to a maximum of 5% of the employee's contribution.
STSC is responsible for the administration of the plan as the plan administrator
and trustee. STSC's contributions totaled $216,660, $21,329, and $15,177 in the
years ended December 31, 1994, 1995, and the ten-month period ended October 31,
1996, respectively.
 
9. CONTINGENCIES
 
     STSC is involved in various legal proceedings in the ordinary course of
business. STSC does not believe that the disposition of such legal proceedings
and disputes will have a material adverse effect on the financial position and
results of operations of STSC.
 
     STSC procures professional liability coverage on behalf of its physicians
on a claims-made basis. The insurance contracts specify that coverage is
available only during the term of each insurance contract. Management of STSC
intends to renew the existing claims-made policy annually and expects to be able
to obtain such coverage. Whenever coverage is not renewed, STSC purchases an
extended reporting period endorsement to provide professional liability coverage
for losses incurred prior to, but reported subsequent to, the termination of the
claims-made policies.
 

10. RELATED PARTY TRANSACTIONS
 
     STSC leases office space from Meadows Enterprises, an entity under common
ownership. Monthly rental expense is $29,498. Rental expenses for the periods
ending December 31, 1994, December 31, 1995, and October 31, 1996 were $294,842,
$361,104, and $311,653, respectively.
 
     Meadows, Dennis, Denno, G.P., an entity under common ownership, provides
certain furniture, fixtures, and equipment for use in STSC's operations. STSC
pays rents to Meadows, Dennis, Denno, G.P. in excess of fair market value. Total
payments made during the years ended December 31, 1994, 1995, and the ten-month
period ended October 31, 1996 were $417,050, $357,000, and $35,850,
respectively.
 
                                      F-46
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
 
Board of Directors
Tri-City Orthopedic Surgery
     Medical Group, Inc.
 
We have audited the accompanying balance sheets of Tri-City Orthopedic Surgery
Medical Group, Inc. (Tri-City) as of December 31, 1995 and 1996, and the related
statements of operations, stockholders' equity (deficit), and cash flows for the
years then ended. These financial statements are the responsibility of
Tri-City's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
 
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
 
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Tri-City at December 31, 1995
and 1996, and the results of its operations and its cash flows for the years
then ended in conformity with generally accepted accounting principles.
 
                                          ERNST & YOUNG, LLP
 
West Palm Beach, Florida
May 17, 1997
 
                                      F-47
TRI-CITY ORTHOPEDIC SURGERY
                              MEDICAL GROUP, INC.

                                 BALANCE SHEETS
DECEMBER 31,
                                                                                             --------------------
                                                                                               1995        1996
                                                                                             --------    --------
ASSETS
Current assets:
  Cash and cash equivalents...............................................................   $ 65,569    $     --
  Accounts receivable, net................................................................    544,056     538,503
  Prepaid expenses and other current assets...............................................     31,520      30,976
                                                                                             --------    --------
Total current assets......................................................................    641,145     569,479
Furniture, fixtures and equipment, net....................................................    182,010     160,418
                                                                                             --------    --------
Total assets..............................................................................   $823,155    $729,897
                                                                                             --------    --------
                                                                                             --------    --------
 
                           LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Accounts payable........................................................................   $ 50,703    $ 56,967
  Accrued shareholders' salaries..........................................................    245,398     182,159
  Accrued expenses and other current liabilities..........................................    183,404     222,960
  Current portion of notes payable........................................................     32,369      19,150
  Deferred income taxes...................................................................     98,546      83,324
                                                                                             --------    --------
Total current liabilities.................................................................    610,420     564,560
 
Notes payable, less current portion.......................................................     22,058       2,908
 
Stockholders' equity:
  Common stock, $10 par value--2,500 shares authorized, 360 shares issued and outstanding
     in 1995 and 1996.....................................................................      3,600       3,600
  Retained earnings.......................................................................    187,077     158,829
                                                                                             --------    --------
Total stockholders' equity................................................................    190,677     162,429
                                                                                             --------    --------
Total liabilities and stockholders' equity................................................   $823,155    $729,897
                                                                                             --------    --------
                                                                                             --------    --------
See accompanying notes
 
                                      F-48
TRI-CITY ORTHOPEDIC SURGERY
                              MEDICAL GROUP, INC.

                            STATEMENTS OF OPERATIONS
YEAR ENDED
                                                                                           DECEMBER 31,
                                                                                   ----------------------------
                                                                                      1995             1996
                                                                                   -----------      -----------
Net patient service revenue...................................................     $ 3,643,823      $ 3,477,532
 
Costs and expenses:
  Physician and other provider services.......................................       2,084,397        1,701,682
  Medical support services....................................................       1,546,366        1,460,504
  Depreciation................................................................          39,604           31,867
  Interest....................................................................           4,827            2,884
  Rent--related party.........................................................         323,959          324,065
                                                                                   -----------      -----------
Total costs and expenses......................................................       3,999,153        3,521,002
                                                                                   -----------      -----------
  Loss before income taxes....................................................        (355,330)         (43,470)
  Income tax benefit..........................................................         150,005           15,222
                                                                                   -----------      -----------
 
Net loss......................................................................     $  (205,325)     $   (28,248)
                                                                                   -----------      -----------
                                                                                   -----------      -----------
See accompanying notes.
 
                                      F-49
TRI-CITY ORTHOPEDIC SURGERY
                              MEDICAL GROUP, INC.

                       STATEMENT OF STOCKHOLDERS' EQUITY
COMMON STOCK
                                                                   --------------------                     TOTAL
                                                                     NUMBER                RETAINED     STOCKHOLDERS'
                                                                   OF SHARES     AMOUNT    EARNINGS        EQUITY
                                                                   ----------    ------    ---------    -------------
Balance at January 1, 1995......................................       360       $3,600    $ 392,402      $ 396,002
  Net loss......................................................        --          --      (205,325)      (205,325)
                                                                       ---       ------    ---------    -------------
Balance at December 31, 1995....................................       360       3,600       187,077        190,677
  Net loss......................................................        --          --       (28,248)       (28,248)
                                                                       ---       ------    ---------    -------------
Balance at December 31, 1996....................................       360       3,600       158,829        162,429
                                                                       ---       ------    ---------    -------------
                                                                       ---       ------    ---------    -------------
See accompanying notes.
 
                                      F-50
TRI-CITY ORTHOPEDIC SURGERY
                              MEDICAL GROUP, INC.

                            STATEMENTS OF CASH FLOWS
YEAR ENDED
                                                                                                 DECEMBER 31,
                                                                                             --------------------
                                                                                               1995        1996
                                                                                             ---------   --------
OPERATING ACTIVITIES:
Net loss...................................................................................  $(205,325)  $(28,248)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
  Depreciation.............................................................................     39,604     31,867
  Income tax benefit.......................................................................   (150,005)   (15,222)
  Changes in operating assets and liabilities:
     Accounts receivable...................................................................    351,843      5,553
     Prepaid expenses and other current assets.............................................     (5,921)       544
     Accounts payable......................................................................      1,664      6,264
     Accrued expenses and other current liabilities........................................     43,761    (23,683)
                                                                                             ---------   --------
Net cash provided by (used in) operating activities........................................     75,621    (22,925)
 
INVESTING ACTIVITY:
Purchases of furniture, fixtures and equipment.............................................    (11,288)   (10,275)
                                                                                             ---------   --------
Net cash used in investing activity........................................................    (11,288)   (10,275)
 
FINANCING ACTIVITIES:
Proceeds from issuance of notes payable....................................................         --         --
Payments on notes payable..................................................................    (30,178)   (32,369)
                                                                                             ---------   --------
Net cash used in financing activities......................................................    (30,178)   (32,369)
                                                                                             ---------   --------
 

Net increase (decrease) in cash and
  cash equivalents.........................................................................     34,155    (65,569)
Cash and cash equivalents at beginning of year.............................................     31,414     65,569
                                                                                             ---------   --------
Cash and cash equivalents at end of year...................................................  $  65,569   $     --
                                                                                             ---------   --------
                                                                                             ---------   --------
 
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest.....................................................................  $   4,827   $  2,884
                                                                                             ---------   --------
                                                                                             ---------   --------
See accompanying notes.
 
                                      F-51
TRI-CITY ORTHOPEDIC SURGERY
                              MEDICAL GROUP, INC.

                         NOTES TO FINANCIAL STATEMENTS

                           DECEMBER 31, 1995 AND 1996
 
1. DESCRIPTION OF THE BUSINESS
 
     Tri-City Orthopedic Surgery Medical Group, Inc. (Tri-City) was incorporated
as a C corporation on October 26, 1972 under the laws of the State of
California. Tri-City specializes in providing orthopedic medical and surgical
services and related medical and ancillary services in San Diego County.
Tri-City receives payment for patient services from the federal government
primarily under the Medicare program, state governments under their respective
Medicaid programs, health maintenance organizations, preferred provider
organizations and other private insurers, and directly from patients.
 
     On April 1, 1997, Tri-City entered into a management services agreement
with BMJ Medical Management, Inc. and agreed to sell substantially all of its
assets.
 
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
     Revenue Recognition
 
     Revenue is recorded at estimated net amounts to be received from third
party payors and others for services rendered.
 
     Laws and regulations governing the Medicare and Medi-Cal programs are
complex and subject to interpretation. Tri-City believes that it is in
compliance with all applicable laws and regulations and is not aware of any
pending or threatened investigations involving allegations of potential
wrongdoing. While no such regulatory inquiries have been made, compliance with
such laws and regulations can be subject to future government review and
interpretation as well as significant regulatory action including fines,
penalties, and exclusion from the Medicare and Medi-Cal programs.
 
     Furniture, Fixtures and Equipment
 
     Furniture, fixtures and equipment are stated at cost, less accumulated
depreciation, and are depreciated using the straight-line method over the
estimated useful lives of the assets, ranging from five to ten years.
 
     Income Taxes
 
     Tri-City accounts for income taxes under FASB Statement No. 109, Accounting
for Income Taxes. Deferred income tax assets and liabilities are determined
based upon differences between financial reporting and tax losses of assets and
liabilities and are measured using the enacted tax rates that will be in effect
when the differences are expected to reverse.
 

     Use of Estimates
 
     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 the financial
statements. Estimates also affect the reported amounts of revenue and expenses
during the reporting period. Actual results could differ from those estimates.
 
     Costs and Expenses
 
     Physician and other provider services costs are comprised primarily of
compensation and fees paid to physicians and other health care providers.
 
     Medical support services costs include all indirect costs associated with
the management and operations of the practice and all direct costs associated
with medical supplies and pharmaceutical expenses.
 
                                      F-52
TRI-CITY ORTHOPEDIC SURGERY
                              MEDICAL GROUP, INC.

                   NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
 
3. ACCOUNTS RECEIVABLE
 
     Accounts receivable consist of the following:
YEAR ENDED DECEMBER
                                                                                           31,
                                                                                   --------------------
                                                                                     1995        1996
                                                                                   --------    --------
Gross patient accounts receivable...............................................   $942,225    $889,189
Less allowances for contractual adjustments and uncollectibles..................    398,169     350,686
                                                                                   --------    --------
                                                                                   $544,056    $538,503
                                                                                   --------    --------
                                                                                   --------    --------
4. FURNITURE, FIXTURES AND EQUIPMENT
 
     Furniture, fixtures and equipment consist of the following:
DECEMBER 31,

                                                                                   --------------------
                                                                                     1995        1996
                                                                                   --------    --------
Furniture, fixtures and equipment...............................................   $211,229    $221,403
Automobiles.....................................................................    224,819     224,819
Leasehold improvements..........................................................     15,331      15,432
                                                                                   --------    --------
                                                                                    451,379     461,654
Less accumulated depreciation and amortization..................................    269,369     301,236
                                                                                   --------    --------
                                                                                   $182,010    $160,418
                                                                                   --------    --------
                                                                                   --------    --------
5. NOTES PAYABLE
 
     Notes payable consist of the following:
DECEMBER 31,
                                                                                     ------------------
                                                                                      1995       1996
                                                                                     -------    -------
Bank promissory note, secured by an automobile, bearing interest at 4.90%,
  principal and interest payable monthly at $734.50 through April 9, 1998.........   $19,396    $11,354
Bank promissory note, secured by an automobile, bearing interest at 7.75%,
  principal and interest payable monthly at $2,182.44 through May 31, 1997........    35,031     10,704
                                                                                     -------    -------
                                                                                      54,427     22,058
Less current portion..............................................................    32,369     19,150
                                                                                     -------    -------
                                                                                     $22,058    $ 2,908
                                                                                     -------    -------
                                                                                     -------    -------
At December 31, 1996, annual principal payments on notes payable are as
follows:
1997...............................................................................   $19,150
1998...............................................................................     2,908
                                                                                      -------
                                                                                      $22,058
                                                                                      -------
                                                                                      -------
On December 23, 1996, Tri-City entered into an unsecured line of credit

arrangement with a bank which matures on March 30, 1998. The line of credit
permits borrowings up to $150,000 and is guaranteed by the
 
                                      F-53
TRI-CITY ORTHOPEDIC SURGERY
                              MEDICAL GROUP, INC.

                   NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
 
5. NOTES PAYABLE--(CONTINUED)

shareholders of Tri-City. Interest on the line of credit is payable monthly at
prime plus 1%, with the entire principal due at maturity. As of December 31,
1996, Tri-City had not drawn against the line of credit. On January 3, 1997 and
January 17, 1997, Tri-City drew $100,000 and $50,000, respectively, on the line
of credit.
 
6. LEASE COMMITMENTS
 
     Tri-City leases various equipment, clinic and office space under operating
leases with a related party, Tri-City Orthopedic Building Partners (TCOBP), on a
month to month basis. Rent expense charged to operations totaled approximately
$324,000 during both 1995 and 1996.
 
     Tri-City also leases an office building under a noncancelable lease with
TCOBP with future minimum rental commitments at December 31, 1996 as follows:
1997............................................................................   $  228,936
1998............................................................................      228,000
1999............................................................................      228,000
2000............................................................................      228,000
2001............................................................................      228,000
Thereafter......................................................................    3,021,000
                                                                                   ----------
                                                                                   $4,161,936
                                                                                   ----------
                                                                                   ----------
7. INCOME TAXES
 
     The components of the income tax provision (benefit) are as follows:
DECEMBER 31,
                                                                                  ---------------------
                                                                                    1995         1996
                                                                                  ---------    --------
Current........................................................................   $      --    $     --
Deferred.......................................................................    (150,005)    (15,222)
                                                                                  ---------    --------
Total..........................................................................   $(150,005)   $(15,222)
                                                                                  ---------    --------
                                                                                  ---------    --------
F-54
TRI-CITY ORTHOPEDIC SURGERY
                              MEDICAL GROUP, INC.

                   NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
 
7. INCOME TAXES--(CONTINUED)

     Deferred income taxes reflected the net tax effects of temporary
differences between the carrying amount of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes. Significant
components of Tri-City's net deferred income taxes are as follows:
DECEMBER 31,
                                                                                  ---------------------
                                                                                    1995         1996
                                                                                  ---------    --------
Deferred tax assets:
  Depreciation.................................................................   $     241    $  1,978
  Charitable contributions.....................................................       2,304       2,943
  NOL carryforward.............................................................       7,477       3,371
                                                                                  ---------    --------
  Deferred tax assets..........................................................      10,022       8,292
  Less valuation allowance.....................................................          --          --
                                                                                  ---------    --------
Total deferred tax assets......................................................      10,022       8,292
 
Deferred tax liabilities:
Net cash to accrual conversion.................................................    (108,568)    (91,616)
                                                                                  ---------    --------
Total deferred tax liabilities.................................................    (108,568)    (91,616)
                                                                                  ---------    --------
Total net deferred taxes.......................................................   $ (98,546)   $(83,324)
                                                                                  ---------    --------
                                                                                  ---------    --------
At December 31, 1996, Tri-City has available net operating loss
carryforwards of $8,212, which expire in the years 2009 and 2011.

 
8. BENEFIT PLANS
 
     Tri-City maintains a defined contribution plan under the provisions of
Section 401(k) of the Internal Revenue Code. Employees who meet the minimum
length of service and age requirements are eligible for participation. Tri-City
is responsible for the administration of the plan as the plan administrator and
trustee. Under the provisions of the plan, contributions by Tri-City are
discretionary. Tri-City did not make any contributions to the plan in 1995 or
1996.
 
9. CONTINGENCIES
 
     Tri-City procures professional liability coverage on behalf of its
physicians on a claims made basis. The insurance contracts specify that coverage
is available only during the term of each insurance contract and cover only
those claims reported while the policies are in force. An estimate of losses for
incurred but unreported claims is recorded based upon historical experience.
Management of Tri-City intends to renew the existing claims made policy annually
and expects to be able to obtain such coverage. If coverage is not renewed,
Tri-City intends to purchase extended reporting period endorsements to provide
professional liability coverage for losses incurred prior to, but reported
subsequent to, the termination of the claims made policies.
 
10. SUBSEQUENT EVENT
 
     In March 1997, Tri-City issued 60 shares of common stock to an orthopedic
physician who joined the practice.
 
                                      F-55
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
 
Partners
Lauderdale Orthopaedic Surgeons
 
We have audited the accompanying balance sheets of Lauderdale Orthopaedic
Surgeons (LOS) as of December 31, 1995 and 1996, and the related statements of
income and changes in partners' capital, and cash flows for the years then
ended. These financial statements are the responsibility of LOS' management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
 
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
 
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of LOS at December 31, 1995 and
1996, and the results of its operations and its cash flows for the years then
ended in conformity with generally accepted accounting principles.
 
                                          ERNST & YOUNG, LLP
 
West Palm Beach, Florida
May 21, 1997
 
                                      F-56
LAUDERDALE ORTHOPAEDIC SURGEONS

                                 BALANCE SHEETS
DECEMBER 31,
                                                                                         ------------------------
                                                                                            1995          1996
                                                                                         ----------    ----------
ASSETS
Current assets:
  Cash................................................................................   $   35,426    $  108,900
  Investments available for sale......................................................       55,929        77,796
  Accounts receivable, net............................................................    2,134,318     2,354,577
  Prepaid expenses and other current assets...........................................       30,214        25,650
                                                                                         ----------    ----------
Total current assets..................................................................    2,255,887     2,566,923
 
Furniture, fixtures and equipment, net................................................      177,058       143,695
Other assets..........................................................................          877           585
                                                                                         ----------    ----------
Total assets..........................................................................   $2,433,822    $2,711,203
                                                                                         ----------    ----------
                                                                                         ----------    ----------
 
                          LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
  Patients refunds....................................................................   $  402,073    $  471,328
  Accounts payable....................................................................      138,328        78,645
  Accrued expenses and other current liabilities......................................      344,285       295,831
  Current portion of long-term debt...................................................      100,000       100,000
                                                                                         ----------    ----------
Total current liabilities.............................................................      984,686       945,804
 
Long-term debt, less current portion..................................................      150,000        50,000
Commitments and contingencies.........................................................
 
Partners' capital.....................................................................    1,299,136     1,715,399
                                                                                         ----------    ----------
Total liabilities and partners' capital...............................................   $2,433,822    $2,711,203
                                                                                         ----------    ----------
                                                                                         ----------    ----------
See accompanying notes.
 
                                      F-57
LAUDERDALE ORTHOPAEDIC SURGEONS

             STATEMENTS OF INCOME AND CHANGES IN PARTNERS' CAPITAL
YEAR ENDED
                                                                                            DECEMBER 31,
                                                                                     --------------------------
                                                                                        1995            1996
                                                                                     ----------      ----------
Net patient service revenue.....................................................     $5,980,594      $6,365,320
Other income....................................................................         11,610          39,555
                                                                                     ----------      ----------
Total revenue...................................................................      5,992,204       6,404,875
 
Costs and expenses:
  Physician and other provider services.........................................      3,458,807       3,696,522
  Medical support services......................................................      1,606,300       1,771,864
  Medical support services--related party.......................................        100,015          96,761
  Depreciation..................................................................         68,279          58,930
  Interest......................................................................         30,666          18,253
  Rent..........................................................................        135,042         151,053
  Rent--related party...........................................................        206,000         212,867
                                                                                     ----------      ----------
 
Total costs and expenses........................................................      5,605,109       6,006,250
                                                                                     ----------      ----------
 
Net income......................................................................        387,095         398,625
                                                                                     ----------      ----------
 
Partners' capital, beginning of year............................................        894,995       1,299,136
Increase in unrealized gain on available for sale investments...................         17,046          17,638
                                                                                     ----------      ----------
Partners' capital, end of year..................................................     $1,299,136      $1,715,399
                                                                                     ----------      ----------
                                                                                     ----------      ----------
See accompanying notes.
 
                                      F-58
LAUDERDALE ORTHOPAEDIC SURGEONS

                            STATEMENTS OF CASH FLOWS
YEAR ENDED
                                                                                                DECEMBER 31,
                                                                                            ---------------------
                                                                                              1995        1996
                                                                                            ---------   ---------
OPERATING ACTIVITIES:
Net income................................................................................  $ 387,095   $ 398,625
Adjustments to reconcile net income to net cash provided by operating activities:
  Depreciation............................................................................     68,279      58,930
  Gain on sale of assets..................................................................         --          --
  Changes in operating assets and liabilities:
     Accounts receivable..................................................................   (794,618)   (220,259)
     Physician and other provider costs receivable........................................         --          --
     Prepaid expenses and other current assets............................................     (2,557)      4,564
     Patients refunds.....................................................................    402,073      69,255
     Accounts payable.....................................................................     35,895     (59,683)
     Accrued expenses and other current
       liabilities........................................................................     45,950     (48,452)
                                                                                            ---------   ---------
Net cash provided by operating activities.................................................    142,117     202,980
 
INVESTING ACTIVITIES:
Proceeds from sale of assets..............................................................         --          --
Purchases of furniture, fixtures and equipment............................................     (7,174)    (25,274)
Purchases of investments available for sale...............................................     (7,605)     (4,232)
                                                                                            ---------   ---------
Net cash used in investing activities.....................................................    (14,779)    (29,506)
 
FINANCING ACTIVITIES
Payments on note payable to bank..........................................................   (100,000)   (100,000)
Partner distributions.....................................................................         --          --
                                                                                            ---------   ---------
Net cash used in financing activities.....................................................   (100,000)   (100,000)
                                                                                            ---------   ---------
 
Net increase in cash......................................................................     27,338      73,474
Cash at beginning of year.................................................................      8,088      35,426
                                                                                            ---------   ---------
Cash at end of year.......................................................................  $  35,426   $ 108,900
                                                                                            ---------   ---------
                                                                                            ---------   ---------
See accompanying notes.
 
                                      F-59
LAUDERDALE ORTHOPAEDIC SURGEONS
                         NOTES TO FINANCIAL STATEMENTS

                           DECEMBER 31, 1995 AND 1996
 
1. DESCRIPTION OF THE BUSINESS
 
     Lauderdale Orthopaedic Surgeons (LOS) is an orthopedic physician practice
which serves patients in Broward County, Florida. LOS is organized as a
partnership under the laws of the state of Florida.
 
     On April 1, 1997, LOS agreed in principle to a management services
agreement with BMJ Medical Management, Inc. and agreed to sell substantially all
of its assets.
 
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
  Revenue Recognition
 
     Revenue is recorded at estimated net amounts to be received from third
party payors and others for services rendered.
 
     Laws and regulations governing the Medicare program are complex and subject
to interpretation. LOS believes that it is in compliance with all applicable
laws and regulations and is not aware of any pending or threatened
investigations involving allegations of potential wrongdoing. While no such
regulatory inquiries have been made, compliance with such laws and regulations
can be subject to future government review and interpretation as well as
significant regulatory action including fines, penalties, and exclusion from the
Medicare program.
 
  Investments Available for Sale
 
     Investments available for sale are carried at fair market value, with
resulting unrealized holding gains and losses reported as a separate component
of partners' capital. Realized gains and losses and declines in value judged to
be other-than-temporary on investments available for sale are included in other
income. The cost of securities sold is based on the specific identification
method. Interest and dividends on investments classified as available-for-sale
are included in other income.
 
  Concentration of Credit Risk
 
     LOS grants credit without collateral to its patients, most of whom are
local residents and are insured under third-party payor agreements. Management
believes credit risk associated with accounts receivable is minimal.
 
  Furniture, Fixtures and Equipment
 
     Furniture, fixtures and equipment, including leasehold improvements, are
stated at cost, less accumulated depreciation, and are depreciated using the
straight line method over the estimated useful lives of the assets, ranging from

5 to 20 years.
 
  Use of Estimates
 
     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 the financial
statements and the reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates.
 
                                      F-60
LAUDERDALE ORTHOPAEDIC SURGEONS

                   NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
 
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)

  Costs and Expenses
 
     Physician and other provider services costs are comprised primarily of
compensation and fees paid to physicians and other health care providers.
 
     Medical support services costs include all indirect costs associated with
the management and operations of the practice and all direct costs associated
with medical supplies and pharmaceutical expenses.
 
  Financial Instruments
 
     The carrying amounts of financial instruments as reported in the
accompanying balance sheets approximate their fair value primarily due to the
short-term nature of such financial instruments.
 
3. INVESTMENTS AVAILABLE FOR SALE
 
     Investments available for sale consist of the following:
GROSS
                                                                                  UNREALIZED     FAIR
                                                                        COST        GAINS        VALUE
                                                                       -------    ----------    -------
December 31, 1995:
Corporate equities..................................................   $31,273     $ 24,656     $55,929
                                                                       -------    ----------    -------
                                                                       -------    ----------    -------
 
December 31, 1996:
Corporate equities..................................................   $35,505     $ 42,291     $77,796

                                                                       -------    ----------    -------
                                                                       -------    ----------    -------
In accordance with Statement of Financial Accounting Standard No. 115,
Accounting for Certain Investments in Debt and Equity Securities, unrealized
holding gains on available-for-sale securities of $24,656 and $42,291 are
included as a separate component of partners' capital at December 31, 1995 and
1996, respectively.
 
     Gross realized gains and losses from the sale of investments available for
sale were not material for the years ended December 31, 1995 and 1996.
 
4. ACCOUNTS RECEIVABLE
 
     Accounts receivable consist of the following:
DECEMBER 31,
                                                               --------------------------
                                                                  1995           1996
                                                               -----------    -----------
Gross patient accounts receivable...........................   $ 4,662,946    $ 5,300,172
Less allowances for contractual adjustments and
  uncollectibles............................................     2,528,628      2,945,595
                                                               -----------    -----------
                                                               $ 2,134,318    $ 2,354,577
                                                               -----------    -----------
                                                               -----------    -----------
F-61
LAUDERDALE ORTHOPAEDIC SURGEONS

                   NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
 
5. FURNITURE, FIXTURES AND EQUIPMENT
 
     Furniture, fixtures and equipment consist of the following:
DECEMBER 31,
                                                                   ----------------------
                                                                     1995         1996
                                                                   ---------    ---------
Furniture, fixtures and equipment...............................   $ 487,241    $ 462,847
Leasehold improvements..........................................     522,678      527,179

Less accumulated depreciation and amortization..................     832,861      846,331
                                                                   ---------    ---------
                                                                   $ 177,058    $ 143,695
                                                                   ---------    ---------
                                                                   ---------    ---------
6. LONG TERM DEBT
 
     Long term debt consists of a note payable to a bank bearing interest at the
bank's prime lending rate plus 1.25% (9.75% and 9.5% as of December 31, 1995 and
1996, respectively), with monthly payments of $8,333 plus interest, maturing
June 30, 1998. Maturities of the note are $100,000 for 1997 and $50,000 for
1998. The note is secured by substantially all of the assets of LOS and is
guaranteed by three of the partners. The note was paid in full in May 1997. LOS
paid approximately $31,000 and $18,000 of interest in 1995 and 1996,
respectively.
 
7. LEASE COMMITMENTS
 
     LOS leases various equipment, clinic and office space under operating
leases. Future minimum rental commitments under noncancelable operating leases
(with an initial or remaining term in excess of one year) at December 31, 1996
are approximately as follows (including leases with related parties):
YEARS ENDING
                        DECEMBER 31,
------------------------------------------------------------
1997........................................................    $  335,000
1998........................................................       296,000
1999........................................................       218,000
2000........................................................       218,000
2001........................................................       145,000
                                                               ------------
                                                                $1,212,000
                                                               ------------
                                                               ------------
8. INCOME TAXES
 
     LOS was formed as a partnership under the Federal Internal Revenue Code. As
a result, in lieu of corporate income tax, LOS' taxable income is passed through
to the partners and taxed at the partner level. Accordingly, no provision or
liability for income tax has been reflected in the financial statements.
 
9. CONTINGENCIES
 
     LOS procures professional liability coverage on behalf of its physicians on
a claims made basis. The insurance contracts specify that coverage is available
only during the term of each insurance contract and cover only those claims

reported while the policies are in force. An estimate of losses for incurred but
unreported claims is recorded based upon historical experience. Management of
LOS intends to renew the existing claims made policy annually and expects to be
able to obtain such coverage. If coverage is not renewed, LOS intends to
purchase extended reporting period endorsements to provide professional
liability coverage for losses incurred prior to, but reported subsequent to, the
termination of the claims made policies.
 
                                      F-62
LAUDERDALE ORTHOPAEDIC SURGEONS

                   NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
 
10. RELATED PARTY TRANSACTIONS
 
     LOS leases medical office space from an entity controlled by one of the
partners. The lease expires in 2001 and contains renewal options. Rent expense
incurred under the lease was approximately $206,000 and $213,000 for the years
ended December 31, 1995 and 1996, respectively.
 
     Under the terms of a management agreement, LOS incurs expenses to an entity
controlled by the partners for diagnostic equipment rental and other overhead
charges. Expenses incurred under this contract were approximately $100,000 and
$97,000 for the years ended December 31, 1995 and 1996, respectively.
 
                                      F-63
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
 
Board of Directors
Fishman and Stashak, M.D.'s, P.A.
  d/b/a Gold Coast Orthopedics
 
We have audited the accompanying balance sheets of Fishman and Stashak, M.D.'s,
P.A. d/b/a Gold Coast Orthopedics (Gold Coast) as of December 31, 1995 and 1996,
and the related statements of income, stockholders' equity, and cash flows for
the years then ended. These financial statements are the responsibility of Gold
Coast's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
 
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
 
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Gold Coast at December 31, 1995
and 1996, and the results of its operations and its cash flows for the years
then ended in conformity with generally accepted accounting principles.
 
                                          ERNST & YOUNG, LLP
 
West Palm Beach, Florida
July 9, 1997
 
                                      F-64
FISHMAN AND STASHAK, M.D.'S, P.A.
                          D/B/A GOLD COAST ORTHOPEDICS

                                 BALANCE SHEETS
DECEMBER 31,
                                                                           ------------------------     JUNE 30,
                                                                              1995          1996          1997
                                                                           ----------    ----------    -----------
                                                                                                       (UNAUDITED)
ASSETS
Current assets:
  Cash and cash equivalents.............................................   $       --    $       --    $    10,172
  Accounts receivable, net..............................................    1,586,752     1,756,545      1,870,853
  Advance to stockholder................................................        4,606            --             --
  Prepaid expenses......................................................       43,606        74,748         25,055
                                                                           ----------    ----------    -----------
Total current assets....................................................    1,634,964     1,831,293      1,906,080
Furniture, fixtures and equipment, net..................................      171,194       141,298        125,594
                                                                           ----------    ----------    -----------
Total assets............................................................   $1,806,158    $1,972,591    $ 2,031,674
                                                                           ----------    ----------    -----------
                                                                           ----------    ----------    -----------
 
                  LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Accounts payable......................................................   $   24,935    $   33,605    $    29,595
  Accrued consulting fee................................................           --            --         45,943
  Due to BMJ Medical Management, Inc....................................           --            --         41,666
  Due to stockholder....................................................       18,893            --             --
  Accrued compensation..................................................      130,732       101,209         83,592
  Accrued professional liability insurance..............................      130,271       166,131        167,122
  Accrued profit sharing plan contribution..............................       50,000            --             --
  Current portion of long-term debt.....................................      141,118       146,080        140,428
                                                                           ----------    ----------    -----------
Total current liabilities...............................................      495,949       447,025        508,346
 
Long-term debt..........................................................      279,232       230,357        172,128
 

Stockholders' equity:
  Common stock, $1 par value--1,000 shares authorized, 600 shares issued
     and outstanding
     in 1995, 1996 and 1997.............................................          600           600            600
  Retained earnings.....................................................    1,030,377     1,294,609      1,350,600
                                                                           ----------    ----------    -----------
Total stockholders' equity..............................................    1,030,977     1,295,209      1,351,200
                                                                           ----------    ----------    -----------
Total liabilities and stockholders' equity..............................   $1,806,158    $1,972,591    $ 2,031,674
                                                                           ----------    ----------    -----------
                                                                           ----------    ----------    -----------
See accompanying notes.
 
                                      F-65
FISHMAN AND STASHAK, M.D.'S, P.A.
                          D/B/A GOLD COAST ORTHOPEDICS

                              STATEMENTS OF INCOME
SIX MONTHS ENDED JUNE
                                                            YEAR ENDED DECEMBER 31,               30,
                                                            ------------------------    ------------------------
                                                               1995          1996          1996          1997
                                                            ----------    ----------    ----------    ----------
                                                                                              (UNAUDITED)
Net patient service revenue..............................   $3,236,573    $3,433,831    $1,780,618    $1,889,635
Costs and expenses:
  Physician and other provider services..................    1,414,343     1,785,478       971,234       631,395
  Medical support services...............................    1,290,412     1,204,912       511,132       698,654
  Management service fee.................................           --            --            --        41,666
  Depreciation...........................................       40,823        33,163        16,582        16,003
  Interest...............................................       44,821        30,940        16,872        14,355
  Rent...................................................      121,454       115,106        57,553        56,571
                                                            ----------    ----------    ----------    ----------
Total costs and expenses.................................    2,911,853     3,169,599     1,573,373     1,458,644
                                                            ----------    ----------    ----------    ----------
Net income...............................................   $  324,720    $  264,232    $  207,245    $  430,991
                                                            ----------    ----------    ----------    ----------
                                                            ----------    ----------    ----------    ----------
See accompanying notes.

                                      F-66
FISHMAN AND STASHAK, M.D.'S, P.A.
                          D/B/A GOLD COAST ORTHOPEDICS

                       STATEMENTS OF STOCKHOLDERS' EQUITY
COMMON STOCK
                                                                   -------------------                      TOTAL
                                                                    NUMBER                 RETAINED     STOCKHOLDERS'
                                                                   OF SHARES    AMOUNT     EARNINGS        EQUITY
                                                                   ---------    ------    ----------    -------------
Balance at January 1, 1995......................................      600        $600     $  705,657     $   706,257
  Net income....................................................       --          --        324,720         324,720
                                                                      ---       ------    ----------    -------------
Balance at December 31, 1995....................................      600         600      1,030,377       1,030,977
  Net income....................................................       --          --        264,232         264,232
                                                                      ---       ------    ----------    -------------
Balance at December 31, 1996....................................      600         600      1,294,609       1,295,209
  Net income (unaudited)........................................       --          --        430,991         430,991
  Stockholder distributions (unaudited).........................       --          --       (375,000)       (375,000)
                                                                      ---       ------    ----------    -------------
Balance at June 30, 1997 (unaudited)............................      600        $600     $1,350,600     $ 1,351,200
                                                                      ---       ------    ----------    -------------
                                                                      ---       ------    ----------    -------------
See accompanying notes.
 
                                      F-67
FISHMAN AND STASHAK, M.D.'S, P.A.
                          D/B/A GOLD COAST ORTHOPEDICS

                            STATEMENTS OF CASH FLOWS
YEAR ENDED               SIX MONTHS
                                                                        DECEMBER 31,            ENDED JUNE 30,
                                                                    ---------------------   -----------------------
                                                                      1995        1996        1996         1997
                                                                    ---------   ---------   ---------   -----------
                                                                                                  (UNAUDITED)
OPERATING ACTIVITIES
Net income........................................................  $ 324,720   $ 264,232   $ 207,245   $   430,991
Adjustments to reconcile net income to net cash provided by
  operating activities:
  Depreciation....................................................     40,823      33,163      16,582        16,003
  Bonus paid with note payable....................................    200,000          --          --            --
  Changes in operating assets and liabilities:
     Accounts receivable..........................................   (179,258)   (169,793)   (152,229)     (114,308)
     Prepaid expenses.............................................    (38,835)    (31,142)     11,542        49,693
     Accounts payable.............................................    (32,127)      8,670      77,444        (4,010)
     Accrued consulting fee.......................................         --          --          --        45,943
     Due to BMJ Medical Management, Inc. .........................         --          --          --        41,666
     Accrued compensation.........................................    119,270     (29,523)    (36,011)      (17,617)
     Accrued professional liability insurance.....................   (157,201)     35,860      17,930           991
     Accrued profit sharing plan contribution.....................     50,000     (50,000)    (50,000)           --
                                                                    ---------   ---------   ---------   -----------
Net cash provided by operating activities.........................    327,392      61,467      92,503       449,352
 
INVESTING ACTIVITIES
Advance to stockholder............................................     (8,000)         --          --       (85,000)
Payments received on advance to stockholder.......................      3,394       4,606       4,606        85,000
Purchases of furniture, fixtures and equipment....................    (73,269)     (3,267)         --          (299)
                                                                    ---------   ---------   ---------   -----------
Net cash (used in) provided by investing activities...............    (77,875)      1,339       4,606          (299)
 
FINANCING ACTIVITIES
Distributions to stockholders.....................................         --          --          --      (375,000)
Payments on due to stockholder....................................    (75,000)   (100,893)    (50,893)           --
Proceeds of loan from stockholder.................................                 82,000      32,000            --
Proceeds of related party advance.................................                 55,000      55,000            --
Payments on related party advance.................................                (55,000)    (55,000)           --
Proceeds from long-term debt......................................    100,000     157,500          --        99,000
Payments on long-term debt........................................   (274,517)   (201,413)    (78,216)     (162,881)
                                                                    ---------   ---------   ---------   -----------
Net cash used in financing activities.............................   (249,517)    (62,806)    (97,109)     (438,881)
                                                                    ---------   ---------   ---------   -----------
 
Net change in cash and cash equivalents...........................         --          --          --        10,172
Cash and cash equivalents at beginning of period..................         --          --          --            --

                                                                    ---------   ---------   ---------   -----------
Cash and cash equivalents at end of period........................  $      --   $      --   $      --   $    10,172
                                                                    ---------   ---------   ---------   -----------
                                                                    ---------   ---------   ---------   -----------
 
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for interest............................................  $  46,932   $  30,940   $  16,782   $    13,273
                                                                    ---------   ---------   ---------   -----------
                                                                    ---------   ---------   ---------   -----------
See accompanying notes.
 
                                      F-68
FISHMAN AND STASHAK, M.D.'S, P.A.
                          D/B/A GOLD COAST ORTHOPEDICS

                         NOTES TO FINANCIAL STATEMENTS

                DECEMBER 31, 1996 AND JUNE 30, 1997 (UNAUDITED)
 
1. DESCRIPTION OF THE BUSINESS
 
     Fishman and Stashak, M.D.'s, P.A. d/b/a Gold Coast Orthopedics (Gold Coast)
was organized on April 16, 1990 under the laws of the State of Florida. Gold
Coast specializes in providing orthopedic medical and surgical services and
related medical and ancillary services in Palm Beach County. Gold Coast receives
payment for patient services primarily from private insurers, health maintenance
organizations, preferred provider organizations, the federal government
primarily under the Medicare program, state governments under their respective
Medicaid programs, and directly from patients.
 
     Effective June 1, 1997, Gold Coast and BMJ Medical Management, Inc. (BMJ)
executed a Management Services Agreement (the Agreement). The Agreement provides
that BMJ will be the exclusive provider of all management and administrative
services utilized by Gold Coast through June 1, 2037, in exchange for a
management fee based on 15% of Gold Coast's net collected revenue. In connection
with the Agreement, Gold Coast accrued management fees payable to BMJ of $41,666
at June 30, 1997.
 
     In July 1997, Gold Coast entered into an Asset Purchase Agreement with BMJ
whereby Gold Coast sold all of its accounts receivable, diagnostic and
therapeutic medical equipment, and office equipment to BMJ for approximately
$2.9 million. Furthermore, BMJ will pay Gold Coast for amounts received in
excess of $950,000 on Gold Coast's June 1, 1997 accounts receivable through June
30, 1998.
 
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
  Cash and Cash Equivalents
 
     Gold Coast considers highly liquid investments with original maturities of
three months or less to be cash equivalents.
 
  Concentration of Credit Risk
 
     Gold Coast grants credit without collateral to its patients, most of whom
are local residents that are insured under third-party payor agreements.
Management believes the credit risk associated with accounts receivable is
minimal.
 
  Furniture, Fixtures and Equipment
 
     Furniture, fixtures and equipment are stated at cost, less accumulated
depreciation, and are depreciated using the straight-line method over the
estimated useful lives of the assets, ranging from four to fifteen years.

 
  Financial Instruments
 
     The fair value of Gold Coast's financial instruments (primarily long-term
debt) are estimated using discounted cash flow analyses, based on Gold Coast's
current incremental borrowing rates for similar types of borrowing arrangements.
The carrying amounts of financial instruments as reported in the accompanying
balance sheets approximate their fair value.
 
  Revenue Recognition
 
     Revenue is recorded at estimated net amounts to be received from
third-party payors and others for services rendered.
 
     Revenues from the Medicare program accounted for approximately 10% of Gold
Coast's net patient service revenues for the years ended December 31, 1995 and
1996. Laws and regulations governing the Medicare program are complex and
subject to interpretation. Gold Coast believes that it is in compliance with all
applicable laws and regulations and is not aware of any pending or threatened
investigations involving allegations of potential wrongdoing. While no such
regulatory inquiries have been made, compliance with such laws and regulations
can be subject to future government review and interpretation as well as
significant regulatory action including fines, penalties, and exclusion from the
Medicare program.
 
                                      F-69
FISHMAN AND STASHAK, M.D.'S, P.A.
                          D/B/A GOLD COAST ORTHOPEDICS

                   NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
 
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)

  Costs and Expenses
 
     Physician and other provider services costs are comprised primarily of
compensation and fees paid to physicians and other health care providers.
 
     Medical support services costs include all indirect costs associated with
the management and operations of the practice and all direct costs associated
with medical supplies and pharmaceutical expenses.
 
  Income Taxes
 
     Gold Coast is taxed under the provisions of Subchapter S of the Internal
Revenue Code, which generally provides that in lieu of corporate taxes, the
stockholders shall be taxed on Gold Coast's taxable income in accordance with
their ownership interests. As a result, the accompanying financial statements
include no provision for income taxes.
 
  Interim Financial Statements

 
     The interim financial statements as of June 30, 1997 and for the six months
ended June 30, 1996 and 1997 are unaudited. In the opinion of management, these
statements have been prepared on the same basis as the audited financial
statements and include all normal and recurring adjustments necessary for a fair
presentation of Gold Coast's financial position, results of operations and cash
flows. The interim data disclosed in these notes to the financial statements is
also unaudited. The results of operations for the six months ended June 30, 1997
is not necessarily indicative of the results of operations that may be expected
for the entire year ending December 31, 1997.
 
  Use of Estimates
 
     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 as of the date of the financial
statements and the reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates.
 
3. ACCOUNTS RECEIVABLE
 
     Accounts receivable consist of the following:
DECEMBER 31,
                                                                 ------------------------
                                                                    1995          1996
                                                                 ----------    ----------
Gross patient accounts receivable.............................   $3,783,563    $3,992,148
Less allowances for contractual adjustments and
  uncollectibles..............................................    2,196,811     2,235,603
                                                                 ----------    ----------
                                                                 $1,586,752    $1,756,545
                                                                 ----------    ----------
                                                                 ----------    ----------
4. FURNITURE, FIXTURES AND EQUIPMENT
 
     Furniture, fixtures and equipment consist of the following:
DECEMBER 31,
                                                                     --------------------
                                                                       1995        1996
                                                                     --------    --------
Furniture and fixtures............................................   $ 91,924    $ 91,924
Equipment.........................................................    138,918     141,940
Automobiles.......................................................     10,441      10,441

Leasehold improvements............................................     96,489      96,489
                                                                     --------    --------
                                                                      337,772     340,794
Less accumulated depreciation and amortization....................    166,578     199,496
                                                                     --------    --------
                                                                     $171,194    $141,298
                                                                     --------    --------
                                                                     --------    --------
F-70
FISHMAN AND STASHAK, M.D.'S, P.A.
                          D/B/A GOLD COAST ORTHOPEDICS

                   NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
 
5. LONG-TERM DEBT
 
     Long-Term debt is comprised of the following:
DECEMBER 31,
                                                                                ------------------------
                                                                                   1995         1996
                                                                                -----------  -----------
$350,000 promissory note payable to a bank, bearing interest at a fixed rate
  of 8.50%, principal and interest payable monthly through December 1998,
  secured by substantially all of the assets of Gold Coast....................  $   286,514  $   199,373
$142,988 promissory note payable to a bank, bearing interest at a fixed rate
  of 9.75%, principal and interest payable monthly through November 1998,
  secured by substantially all of the assets of Gold Coast....................      115,654       79,859
$100,000 revolving line-of-credit arrangement with a bank, bearing interest at
  prime plus 1% (9.25% at December 31, 1996), interest payable monthly,
  principal due in 24 monthly installments commencing thirty days following
  the cancellation of the arrangement, secured by substantially all of the
  assets of Gold Coast, the arrangement requires Gold Coast to maintain its
  primary operating account at the bank.......................................           --       97,205
$200,000 noninterest bearing promissory note payable to a former stockholder,
  principal due in monthly installments through January 1996, secured by the
  accounts receivable of Gold Coast, guaranteed by the stockholders of Gold
  Coast.......................................................................       18,182           --
                                                                                -----------  -----------
                                                                                    420,350      376,437
Less current portion..........................................................      141,118      146,080
                                                                                -----------  -----------
                                                                                $   279,232  $   230,357
                                                                                -----------  -----------
                                                                                -----------  -----------
At December 31, 1996, annual principal payments on long-term debt are as
follows:
1997..........................................................   $146,080
1998..........................................................    133,152
Thereafter....................................................     97,205
                                                                 --------
                                                                 $376,437
                                                                 --------
                                                                 --------
In July 1997, Gold Coast repaid the outstanding balance on the revolving
line-of-credit arrangement.
 
6. DUE TO STOCKHOLDER
 
     The President of Gold Coast, who is also a 50% stockholder, advanced
approximately $94,000 to Gold Coast prior to January 1, 1994. The amount was
payable to the stockholder on demand, was unsecured and bore interest at 8%.
Gold Coast repaid approximately $75,000 and $19,000 in 1995 and 1996,
respectively.
 
     The Treasurer of Gold Coast, who is also a 50% stockholder, made unsecured
advances totaling approximately $82,000 to Gold Coast during 1996 which bore
interest at 6.25% and were due on demand. Gold Coast repaid these advances
during 1996.
 
7. LEASE COMMITMENTS
 
     Gold Coast leases office space under a noncancelable operating lease, which
contains an escalation clause. Rent expense charged to operations totalled
approximately $95,000 during both 1995 and 1996.
 
                                      F-71
FISHMAN AND STASHAK, M.D.'S, P.A.
                          D/B/A GOLD COAST ORTHOPEDICS

                   NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
 
7. LEASE COMMITMENTS--(CONTINUED)

     Future minimum rental commitments at December 31, 1996 are as follows:
1997..........................................................   $ 94,714
1998..........................................................     94,714
1999..........................................................     94,714

2000..........................................................     94,714
2001..........................................................     94,714
Thereafter....................................................    426,213
                                                                 --------
                                                                 $899,783
                                                                 --------
                                                                 --------
8. RELATED PARTY TRANSACTIONS
 
     In February 1995, a physician employee and then stockholder of Gold Coast
terminated his employment with Gold Coast. In connection with this termination,
Gold Coast agreed to pay the physician a final bonus of $200,000, pursuant to
the physician's employment agreement. This bonus is included in physician and
other provider services expense in the 1995 statement of income and was paid
over an eleven-month period pursuant to a noninterest bearing promissory note.
At December 31, 1995, approximately $18,000 of this note was outstanding and the
balance was repaid in full during 1996.
 
9. BENEFIT PLANS
 
     Gold Coast maintains a defined contribution plan under the provisions of
Section 401(k) of the Internal Revenue Code. Employees who meet the minimum
length of service and age requirements are eligible for participation. Gold
Coast is responsible for the administration of the plan as the plan
administrator and trustee. Under the provisions of the plan, contributions by
Gold Coast are discretionary. Gold Coast made contributions of $50,000 and
$45,000 to the plan in 1995 and 1996, respectively.
 
10. CONTINGENCIES
 
     Gold Coast is involved in various legal proceedings in the ordinary course
of business. Gold Coast does not believe that the disposition of such legal
proceedings and disputes will have a material adverse effect on the financial
position or results of operations of Gold Coast. Gold Coast procures
professional liability coverage on behalf of its physicians on a claims-made
basis. The insurance contracts specify that coverage is available only during
the term of each insurance contract and cover only those claims reported while
the policies are in force. An estimate of losses for incurred but unreported
claims is recorded based upon historical experience. Management of Gold Coast
intends to renew the existing claims-made policy annually and expects to be able
to obtain such coverage.
 
11. SUBSEQUENT EVENTS
 
     In 1997, Gold Coast declared and distributed stockholders' distributions of
approximately $375,000 through June 30, 1997 and approximately $1.9 million
subsequent to June 30, 1997.
 
                                      F-72
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
 
Partners
Sun Valley Orthopaedic Surgeons,
an Arizona General Partnership
 
We have audited the accompanying balance sheet of Sun Valley Orthopaedic
Surgeons, an Arizona General Partnership (Sun Valley) as of December 31, 1996,
and the related statements of operations and changes in partners' capital and
cash flows for the year then ended. These financial statements are the
responsibility of Sun Valley's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
 
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
 
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Sun Valley at December 31,
1996, and the results of its operations and its cash flows for the year then
ended in conformity with generally accepted accounting principles.
 
                                          ERNST & YOUNG, LLP
 
Orlando, Florida
July 18, 1997
 
                                      F-73
SUN VALLEY ORTHOPAEDIC SURGEONS,
                         AN ARIZONA GENERAL PARTNERSHIP

                                 BALANCE SHEETS
JUNE 30,
                                                                                                            1997
                                                                                         DECEMBER 31,    -----------
                                                                                             1996
                                                                                         ------------    (UNAUDITED)
ASSETS
Current assets:
  Cash................................................................................     $137,982       $ 142,279
  Accounts receivable, net............................................................      512,267         539,654
  Due from related parties............................................................      183,062         186,663
  Inventories.........................................................................        9,500          10,000
  Prepaid expenses and other current assets...........................................       24,949          15,973
                                                                                         ------------    -----------
Total current assets..................................................................      867,760         894,569
Furniture, fixtures and equipment, net................................................       34,935          20,931
Other assets..........................................................................        7,515           7,464
Due from related parties..............................................................       48,781              --
                                                                                         ------------    -----------
Total assets..........................................................................     $958,991       $ 922,964
                                                                                         ------------    -----------
                                                                                         ------------    -----------
 
                          LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
  Accounts payable....................................................................     $ 23,665       $  22,887
  Accrued expenses and other current liabilities......................................       14,273          15,561
  Due to bank under line of credit....................................................      100,000         100,000
                                                                                         ------------    -----------
Total current liabilities.............................................................      137,938         138,448
Due to related parties................................................................       31,174              --
Commitments and contingencies.........................................................
Partners' capital.....................................................................      789,879         784,516
                                                                                         ------------    -----------
Total liabilities and partners' capital...............................................     $958,991       $ 922,964
                                                                                         ------------    -----------
                                                                                         ------------    -----------
See accompanying notes.
 
                                      F-74
SUN VALLEY ORTHOPAEDIC SURGEONS,
                         AN ARIZONA GENERAL PARTNERSHIP

           STATEMENTS OF OPERATIONS AND CHANGES IN PARTNERS' CAPITAL
SIX MONTHS ENDED JUNE
                                                                           YEAR ENDED               30,
                                                                          DECEMBER 31,    ------------------------
                                                                              1996           1996          1997
                                                                          ------------    ----------    ----------
                                                                                                (UNAUDITED)
Net patient service revenue............................................    $2,467,989     $1,289,637    $1,357,617
Other revenue..........................................................        22,798         11,400        11,600
Other revenue from related party.......................................        12,005          5,500         5,500
                                                                          ------------    ----------    ----------
Total revenue..........................................................     2,502,792      1,306,537     1,374,717
 
Costs and expenses:
  Physician and other provider services................................     1,456,127        821,604       786,913
  Medical support services.............................................     1,044,879        528,110       569,164
  Depreciation.........................................................        26,912         13,456        19,102
  Interest.............................................................        10,873          4,470         4,901
  Other................................................................         1,452             --            --
                                                                          ------------    ----------    ----------
Total costs and expenses...............................................     2,540,243      1,367,640     1,380,080
                                                                          ------------    ----------    ----------
Net loss...............................................................       (37,451)       (61,103)       (5,363)
 
Beginning partners' capital............................................       827,330        827,330       789,879
                                                                          ------------    ----------    ----------
Ending partners' capital...............................................    $  789,879     $  766,227    $  784,516
                                                                          ------------    ----------    ----------
                                                                          ------------    ----------    ----------
See accompanying notes.
 
                                      F-75
SUN VALLEY ORTHOPAEDIC SURGEONS,
                         AN ARIZONA GENERAL PARTNERSHIP

                            STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED
                                                                               YEAR ENDED           JUNE 30,
                                                                              DECEMBER 31,    --------------------
                                                                                  1996          1996        1997
                                                                              ------------    --------    --------
                                                                                                  (UNAUDITED)
OPERATING ACTIVITIES
Net loss...................................................................    $  (37,451)    $(61,103)   $ (5,363)
Adjustments to reconcile net loss to net cash provided by (used in)
  operating activities:
  Depreciation.............................................................        26,912       13,456      19,102
  Changes in operating assets and liabilities:
     Accounts receivable, net..............................................        14,298       61,152     (27,387)
     Due from related parties..............................................        18,518       19,606      (3,601)
     Inventories...........................................................          (500)        (250)       (500)
     Prepaid expenses and other current assets.............................        (8,658)       5,179       8,976
     Accounts payable......................................................         2,393       (3,651)       (778)
     Accrued expenses and other current liabilities........................           819          933       1,288
                                                                              ------------    --------    --------
Net cash provided by (used in) operating activities........................        16,331       35,322      (8,263)
 
INVESTING ACTIVITIES
Purchases of furniture, fixtures and equipment.............................        (7,404)      (7,309)     (5,098)
Repayments of amounts due from partners and affiliates.....................        48,492       40,598      48,781
                                                                              ------------    --------    --------
Net cash provided by investing activities..................................        41,088       33,289      43,683
 
FINANCING ACTIVITIES
Amounts received on line of credit.........................................        25,000           --          --
Repayments of line of credit...............................................       (44,000)     (44,000)         --
Repayments of amounts due to related parties...............................       (39,500)     (32,495)    (31,174)
Other......................................................................            --           51          51
                                                                              ------------    --------    --------
Net cash (used in) provided by financing activities........................       (58,500)     (76,444)    (31,123)
                                                                              ------------    --------    --------
(Decrease) increase in cash................................................        (1,081)      (7,833)      4,297
Cash, beginning of period..................................................       139,063      139,063     137,982
                                                                              ------------    --------    --------
Cash, end of period........................................................    $  137,982     $131,230    $142,279
                                                                              ------------    --------    --------
                                                                              ------------    --------    --------
 
SUPPLEMENTAL CASH FLOWS INFORMATION
Interest paid..............................................................    $   10,873     $     --    $     --

                                                                              ------------    --------    --------
                                                                              ------------    --------    --------
See accompanying notes.
 
                                      F-76
SUN VALLEY ORTHOPAEDIC SURGEONS,
                         AN ARIZONA GENERAL PARTNERSHIP

                         NOTES TO FINANCIAL STATEMENTS

                DECEMBER 31, 1996 AND JUNE 30, 1997 (UNAUDITED)
 
1. DESCRIPTION OF THE BUSINESS
 
     Sun Valley Orthopaedic Surgeons, an Arizona General Partnership, (Sun
Valley) is a general partnership of individual physicians and an Arizona
professional corporation, and is engaged in the business of providing orthopedic
medical and surgical services and related medical and ancillary services to
patients in Maricopa County, Arizona. Sun Valley is organized as a general
partnership under the laws of the State of Arizona.
 
     On July 1, 1997, Sun Valley agreed in principle to sell substantially all
of its assets to and enter into a management services agreement with BMJ Medical
Management, Inc.
 
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
  Net Patient Service Revenue
 
     Net patient service revenue is reported at the estimated realizable amounts
due from patients, third-party payors and others for medical services rendered.
During 1996, approximately 60% of net patient service revenue was received under
Medicare and Medicare-related programs.
 
     Laws and regulations governing the Medicare program are complex and subject
to interpretation. Sun Valley believes that it is in compliance with all
applicable laws and regulations and is not aware of any pending or threatened
investigations involving allegations of potential wrongdoing. While no such
regulatory inquiries have been made, compliance with such laws and regulations
can be subjecct to future government review and interpretation as well as
significant regulatory action including fines, penalties, and exclusion from the
Medicare program.
 
  Inventories
 
     Inventories, which consist of medical and office supplies are stated at
current cost, which approximates market value, utilizing the first-in, first-out
method.
 
  Concentration of Credit Risk
 
     Sun Valley grants credit without collateral to its patients, most of whom
are local residents, who are insured under third-party payor agreements.
Management believes the credit risk associated with accounts receivable is
minimal.
 
  Furniture, Fixtures and Equipment

 
     Furniture, fixtures and equipment, including leasehold improvements, are
stated at cost, less accumulated depreciation, and are depreciated using the
straight-line method over the estimated useful lives of the assets, ranging from
5 to 10 years.
 
  Use of Estimates
 
     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 the financial
statements and the reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates.
 
  Interim Financial Statements
 
     The interim financial statements as of and for the six months ended June
30, 1997 and 1996 are unaudited. In the opinion of management, these statements
have been prepared on the same basis as the audited financial statements and
include all normal and recurring adjustments necessary for a fair presentation
of Sun Valley's financial position, results of operations and cash flows. The
interim data disclosed in these notes to the financial statements is also
unaudited. The results of operations for the six months ended June 30, 1997 are
not necessarily indicative of the results of operations that may be expected for
the entire year ending December 31, 1997.
 
                                      F-77
SUN VALLEY ORTHOPAEDIC SURGEONS,
                         AN ARIZONA GENERAL PARTNERSHIP

                   NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
 
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)

  Costs and Expenses
 
     Physician and other provider services costs are comprised primarily of
compensation and fees paid to physicians and other health care providers.
 
     Medical support services costs include all indirect costs associated with
the management and operations of the practice and all direct costs associated
with medical supplies and pharmaceutical expenses.
 
3. ACCOUNTS RECEIVABLE
 
     Accounts receivable consists of the following as of December 31, 1996:
Gross patient accounts receivable..........................................................   $ 613,880

     Less allowances for contractual adjustments and uncollectibles.............................     101,613
                                                                                                    ---------
                                                                                                   $ 512,267
                                                                                                    ---------
                                                                                                    ---------
4. FURNITURE, FIXTURES AND EQUIPMENT
 
     Furniture, fixtures and equipment consists of the following as of December
31, 1996:
Furniture, fixtures and equipment..........................................................   $ 176,784
     Leasehold improvements.....................................................................      40,025
     Less accumulated depreciation..............................................................     181,874
                                                                                                    ---------
                                                                                                   $  34,935
                                                                                                    ---------
                                                                                                    ---------
5. LINE OF CREDIT
 
     As of December 31, 1996, Sun Valley has a line of credit with a bank in the
amount of $100,000. The line of credit bears interest at the bank's prime rate
plus 1.5% (the bank's prime rate was 8.5% at December 31, 1996). Sun Valley paid
approximately $11,000 in interest during 1996. There was no unused amount
available under the line-of-credit as of December 31, 1996.
 
6. LEASE COMMITMENTS
 
     Sun Valley leases various equipment, clinic and office space under
operating leases. Future minimum rental commitments under noncancelable
operating leases (with an initial or remaining term in excess of one year) at
December 31, 1996 are as follows:
Year ending December 31,
      1997......................................................................................   $152,961
      1998......................................................................................    153,626
      1999......................................................................................     70,364
      2000......................................................................................     41,296
                                                                                                    --------
                                                                                                   $418,247
                                                                                                    --------
                                                                                                    --------
F-78
SUN VALLEY ORTHOPAEDIC SURGEONS,
                         AN ARIZONA GENERAL PARTNERSHIP

                   NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
 
7. INCOME TAXES
 
     Sun Valley is organized as a partnership pursuant to Subchapter K of the
Internal Revenue Code. As a result, in lieu of corporate income tax, Sun
Valley's taxable income is passed through to the partners and taxed at the
partner level. Accordingly, no provision or liability for income tax has been
reflected in the financial statements.
 
8. CONTINGENCIES
 
     Sun Valley is a general partnership organized under the laws of the State
of Arizona. Each of the individual physicians in Sun Valley is personally
responsible for and has obtained insurance coverage for professional liability.
Accordingly, no provision or liability for incurred but not reported claims has
been reflected in the financial statements of Sun Valley.
 
9. RELATED PARTY TRANSACTIONS
 
     As of December 31, 1996, one physician partner had been paid $135,743 in
excess of the amounts due to him for the physician services provided. This
amount is included in due from related parties as of December 31, 1996.
 
     Sun Valley has advanced amounts to a professional corporation that
specializes in osteoporosis and epidurals that is wholly-owned by a physician
partner. Interest on the advance accrues at 8%. As of December 31, 1996, the
amount due Sun Valley, including accrued interest, is $43,485. Sun Valley
recorded interest income for the year ended December 31, 1996 in the amount of
$12,000.
 
                                      F-79
------------------------------------------------------------
         ------------------------------------------------------------
 
        NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO
   GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE
   CONTAINED IN THIS PROSPECTUS IN CONNECTION WITH THE OFFER MADE BY THIS
   PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST
   NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY OF THE
   UNDERWRITERS. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
   HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT
   THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATES AS
   OF WHICH INFORMATION IS GIVEN IN THIS PROSPECTUS. THIS PROSPECTUS DOES NOT
   CONSTITUTE AN OFFER OR SOLICITATION BY ANYONE IN ANY JURISDICTION IN WHICH
   SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING
   SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANY PERSON TO
   WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION.
 
                               ------------------
 
                               TABLE OF CONTENTS
PAGE
                                                  ----
Additional Information.........................     2
Prospectus Summary.............................     3
Risk Factors...................................     6
The Company....................................    14
Use of Proceeds................................    15
Dividend Policy................................    15
Capitalization.................................    16
Dilution.......................................    17
Pro Forma Financial Information................    18
Selected Financial Information.................    23
Management's Discussion and Analysis of
  Financial Condition and Results of
  Operations...................................    24
Business.......................................    28
Management.....................................    44
Certain Transactions...........................    49
Principal Stockholders.........................    55
Description of Capital Stock...................    57
Shares Eligible for Future Sale................    60
Underwriting...................................    61
Legal Matters..................................    63
Experts........................................    63
Index to Financial Statements..................   F-1
------------------

 
        UNTIL                 , 1997 (25 DAYS AFTER THE DATE OF THIS
   PROSPECTUS), ALL DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK,
   WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO
   DELIVER A PROSPECTUS. THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE
   OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS
   AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.

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

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

                                            SHARES
 

                                  BMJ MEDICAL
                                MANAGEMENT, INC.
 

                                  COMMON STOCK
 
                            -----------------------

                                   PROSPECTUS

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

                               HAMBRECHT & QUIST

                                RAYMOND JAMES &
                                ASSOCIATES, INC.

                          VOLPE BROWN WHELAN & COMPANY

                                        , 1997
 
         ------------------------------------------------------------
         ------------------------------------------------------------
PART II

                     INFORMATION NOT REQUIRED IN PROSPECTUS
 
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
 
     The following table sets forth the various expenses in connection with the
sale and distribution of the securities being registered, other than
underwriting discounts and commissions. All of the amounts shown are estimated
except the Securities and Exchange Commission registration fee, the National
Association of Security Dealers, Inc. filing fee and the Nasdaq National Market
listing fee.
SEC registration fee...................................................................................   $10,455
NASD filing fee........................................................................................     3,950
Nasdaq National Market listing fee.....................................................................      *
Blue sky fees and expenses.............................................................................      *
Printing and engraving expenses........................................................................      *
Legal fees and expenses................................................................................      *
Accounting fees and expenses...........................................................................      *
Transfer agent and registrar fees......................................................................      *
Miscellaneous..........................................................................................      *
                                                                                                          -------
     Total.............................................................................................   $  *
                                                                                                          -------
                                                                                                          -------
------------------
* To be provided by amendment.
 
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
 
     Pursuant to Section 102(b)(7) of the Delaware General Corporation Law (the
'DGCL'), Article VI of the BMJ Medical Management, Inc. (the 'Company' or the
'Registrant') Restated Certificate of Incorporation (the 'Certificate of
Incorporation') (filed as Exhibit 3.1 to this Registration Statement) eliminates
the liability of the Company's directors to the Company or its stockholders,
except for liabilities related to breach of duty of loyalty, actions not in good
faith and certain other liabilities.
 
     Section 145 of the DGCL provides for indemnification by the Company of its
directors and officers. In addition, Article IX, Section 1 of the Company's
By-laws (filed as Exhibit 3.2 to this Registration Statement) requires the
Company to indemnify any current or former director or officer to the fullest
extent permitted by the DGCL. In addition, the Company has entered into
indemnity agreements with its directors (a form of which is filed as Exhibit
10.1 to this Registration Statement) which obligate the Company to indemnify
such directors to the fullest extent permitted by the DGCL. The Company also
maintains officers' and directors' liability insurance, which insures against

liabilities that officers and directors of the Company may incur in such
capacities.
 
     Reference is made to the form of Underwriting Agreement filed as Exhibit
1.1 to this Registration Statement, which provides for indemnification of the
directors and officers of the Company signing the Registration Statement and
certain controlling persons of the Company against certain liabilities,
including those arising under the Securities Act, in certain instances by the
Underwriters.
 
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
 
     Since May 1996 the Company has issued unregistered securities to investors
and to physicians and certain other individuals in connection with the
affiliation transactions with the medical practices (the 'Affiliation
Transactions'). Each such issuance was made in reliance upon the exemption from
the registration requirements of the Securities Act of 1933, as amended,
contained in Section 4(2) of the Securities Act or Rule 701 promulgated under
the Securities Act on the basis that such transactions did not involve a public
offering.
 
                                      II-1
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.--(CONTINUED)

     1. On May 6, 1996, pursuant to a Stock Purchase Agreement, the Company
issued an aggregate of 1,175,000 shares of Common Stock, $.001 par value per
share (the 'Common Stock') and 999,999 shares of the Company's Series A
Convertible Preferred Stock, $.01 par value (the 'Series A Preferred Stock'),
for an aggregate purchase price of $1,011,749 to Naresh Nagpal, M.D. ('Dr.
Nagpal'), Oak VI Affiliates Fund, Limited Partnership ('Oak VI'), Oak Investment
Partners VI, Limited Partnership ('Oak Partners'), Delphi Ventures III, L.P.
('Delphi Ventures'), Delphi BioInvestments III, L.P. ('Delphi BioInvestments')
and Scheer & Company, Inc. ('Scheer').
 
     2. On June 1, 1996, pursuant to the terms of an Incentive Stock Option
Agreement, the Company granted Scott Cielewich an option to purchase 50,000
shares of Common Stock, with an exercise price of $.01 per share.
 
     3. On June 10, 1996, pursuant to an Incentive Stock Option Agreement, the
Company granted Caridad LaPlace an option to purchase 5,000 shares of Common
Stock with an exercise price of $.01 per share.
 
     4. On July 1, 1996, the Company issued 450,000 shares of Common Stock
pursuant to a Management Services Agreement and Restricted Stock Agreements to
Lehigh Valley Bone, Muscle and Joint ('LVBMJ') and the following physicians
affiliated with LVBMJ: Thomas Sauer, M.D., Ranjan Sachdev, M.D., Joseph
Garbarino, M.D., John Williams, M.D. and Peter W. Kozicky, M.D.
 
     5. On September 23, 1996, pursuant to an Incentive Stock Option Agreement,
the Company granted Ronald Garey an option to purchase 30,000 shares of Common
Stock with an exercise price of $.25 per share.

 
     6. On November 1, 1996, pursuant to an Incentive Stock Option Agreement,
the Company granted Deborah Flytuta an option to purchase 5,000 shares of Common
Stock with an exercise price of $.25 per share.
 
     7. On November 4, 1996, pursuant to an Incentive Stock Option Agreement,
the Company granted Sherry Pulliam an option to purchase 25,000 shares of Common
Stock with an exercise price of $.25 per share.
 
     8. On November 12, 1996, pursuant to a Stock Purchase Agreement, the
Company issued 2,000,001 shares of its Series B Convertible Preferred Stock,
$.01 par value (the 'Series B Preferred Stock'), for an aggregate purchase price
of $6,000,003 to Dr. Nagpal, Oak VI, Oak Partners, Delphi Ventures, and Delphi
BioInvestments.
 
     9. On November 22, 1996, pursuant to a Management Services Agreement and
Restricted Stock Agreements, the Company issued 4,000,000 shares of Common Stock
to the following physicians (or their respective corporations) and employees
affiliated with Southern California Orthopedic Institute Medical Group ('SCOI'):
Pamela Westlin, Glenn Cozen, James M. Fox, M.D., Inc., the Friedman Family
Trust, Wilson Del Pizzo, M.D., Inc., Stephen Snyder, M.D., Richard Ferkel, M.D.,
Todd Moldawer, M.D., Gregory Hanker, M.D., Herbert Dennis Huddleston, M.D.,
Inc., A. Elizabeth Bloze, M.D., Todd Molnar, M.D., Trevor P. Lynch, M.D., a
medical corporation, Saul M. Bernstein, M.D., Inc., Steven Schopler, M.D.,
Ronald Karzel, M.D., Hrair Darakjian, M.D., Jonathan Jaivan, M.D., Donald Wiss,
M.D., Patricia McKeever, M.D., and David Auerbach, M.D.
 
     10. On December 2, 1996, pursuant to an Incentive Stock Option Agreement,
the Company granted Randal Farwell an option to purchase 40,000 shares of Common
Stock with an exercise price of $.35 per share.
 
     11. On December 23, 1996, the Company issued 1,076,501 shares of Common
Stock to physicians affiliated with South Texas Spinal Clinic ('STSC') in
accordance with the terms of a Management Services Agreement and Restricted
Stock Agreements.
 
     12. On January 1, 1997, pursuant to a Non-qualified Stock Option Agreement,
the Company granted Dr. Nagpal an option to purchase 150,000 shares of Common
Stock with an exercise price of $.01 per share.
 
     13. On January 1, 1997, pursuant to an Incentive Stock Option Agreement,
the Company granted G. Steven Ensinger an option to purchase 25,000 shares of
Common Stock with an exercise price of $.35 per share.
 
     14. On January 2, 1997, the Company issued 10,000 shares of Common Stock to
Scott Cielewich upon exercise of the vested portion of his option (which was
granted on June 1, 1996).
 
                                      II-2
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.--(CONTINUED)

     15. On January 14, 1997, the Company issued warrants to purchase an
aggregate of 33,333 shares of Common Stock at an exercise price of $3.00 per
share to Dr. Nagpal, Delphi BioInvestments, Delphi Ventures, Oak VI and Oak
Partners in connection with a bridge loan from such persons to the Company.
 
     16. On January 29, 1997, pursuant to a Stock Purchase Agreement, the
Company issued 183,332 shares of Series C Convertible Preferred Stock, $.01 par
value (the 'Series C Preferred Stock'), for an aggregate purchase price of
$549,996 to certain of the SCOI physicians, Glenn Cozen and the Saphier and
Heller Retirement Trust.
 
     17. On January 30, 1997, pursuant to an Incentive Stock Option Agreement,
the Company granted Pamela Westlin an option to purchase 22,000 shares of Common
Stock with an exercise price of $.35 per share.
 
     18. On January 30, 1997, pursuant to an Incentive Stock Option Agreement,
the Company granted Cindy Lesonsky an option to purchase 8,000 shares of Common
Stock with an exercise price of $.35 per share.
 
     19. On February 1, 1997, pursuant to an Incentive Stock Option Agreement,
the Company granted David Fater an option to purchase 140,000 shares of Common
Stock with an exercise price of $.35 per share.
 
     20. On February 1, 1997, pursuant to an Incentive Stock Option Agreement,
the Company granted Andrea Seratte an option to purchase 40,000 shares of Common
Stock with an exercise price of $.35 per share.
 
     21. On March 1, 1997, pursuant to an Incentive Stock Option Agreement, the
Company granted Glenn Cozen an option to purchase 75,000 shares of Common Stock
with an exercise price of $.35 per share.
 
     22. On March 7, 1997, pursuant to an Incentive Stock Option Agreement, the
Company granted Caridad LaPlace an option to purchase 2,000 shares of Common
Stock with an exercise price of $.50 per share.
 
     23. On March 12, 1997, pursuant to an Incentive Stock Option Agreement, the
Company granted Robert Cox an option to purchase 40,000 shares of Common Stock
with an exercise price of $.50 per share.
 
     24. On March 12, 1997, pursuant to a Stock Purchase Agreement, the Company
issued an aggregate of 71,667 shares of Series C Preferred Stock for an
aggregate purchase price of $215,001 to the following persons and entities:
Andrea Seratte, CGJR Health Care Services Private Equities, L.P. ('CGJR Health
Care'), CGJR II, L.P. ('CGJR II'), and CGJR MF/III, L.P. ('CGJR/MF').
 
     25. On April 1, 1997, the Company issued 550,000 shares of Common Stock to
the SCOI physicians who collectively own Center for Orthopedic Surgery, Inc.
('COSI').
 
     26. On April 1, 1997, pursuant to an Incentive Stock Option Agreement, the
Company granted Brent Mellecker an option to purchase 40,000 shares of Common
Stock with an exercise price of $.50 per share.
 
     27. On April 1, 1997, the Company issued 402,723 shares of Common Stock to

the following physicians affiliated with Tri-City Orthopaedic Surgery Medical
Group, Inc. ('Tri-City'): Neville Alleyne, M.D., James Esch, M.D., James
Helgager, M.D., Norman Kane, M.D., Richard Muir, M.D., Leonard Ozerkis, M.D.,
and Jacob Sharp, M.D.
 
     28. On April 14, 1997, pursuant to an Incentive Stock Option Agreement, the
Company granted Keith Bolton an option to purchase 50,000 shares of Common Stock
with an exercise price of $.50 per share.
 
     29. On April 14, 1997, pursuant to an Incentive Stock Option Agreement, the
Company granted Lee Bodendorfer an option to purchase 30,000 shares of Common
Stock with an exercise price of $.50 per share.
 
     30. On April 15, 1997, pursuant to an Incentive Stock Option Agreement, the
Company granted Pamela Montgomery an option to purchase 20,000 shares of Common
Stock with an exercise price of $.50 per share.
 
     31. On April 30, 1997, pursuant to an Incentive Stock Option Agreement, the
Company granted M. Anthony Anderson an option to purchase 25,000 shares of
Common Stock with an exercise price of $.50 per share.
 
     32. On May 1, 1997, pursuant to an Incentive Stock Option Agreement, the
Company granted Meg Finnegan an option to purchase 20,000 shares of Common Stock
with an exercise price of $.50 per share.
 
                                      II-3
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.--(CONTINUED)

     33. On May 1, 1997, pursuant to an Incentive Stock Option Agreement, the
Company granted Norman Lapin an option to purchase 40,000 shares of Common Stock
with an exercise price of $.50 per share.
 
     34. On May 6, 1997 pursuant to a Management Services Agreement and
Restricted Stock Agreements, the Company issued an aggregate of 478,348 shares
of Common Stock. Such stock was issued in accordance with the following: (a) an
aggregate of 445,962 shares to the following physicians affiliated with
Lauderdale Orthopaedic Surgeons ('LOS'): Martin Silverstein, M.D., Michael
Weiss, M.D., Michael Ruddy, M.D., Raul Aparicio, M.D., Verano Hermida, M.D. and
Paul Greenman, D.P.M., Practice Solutions, (b) an aggregate of 27,613 shares to
LOS' broker and attorney and (c) 4,773 shares to LOS' accountant, Kenneth A.
Ortner, P.A.
 
     35. On May 6, 1997, pursuant to Restricted Stock Agreements, the Company
issued 5,000 shares of Common Stock to each of the following physicians
affiliated with LOS: Martin Silverstein, M.D., Michael Weiss, M.D., Michael
Ruddy, M.D., and Raul Aparicio, M.D.
 
     36. On June 1, 1997, pursuant to an Incentive Stock Option Agreement, the
Company granted Sandra Britton an option to purchase 6,000 shares of Common
Stock with an exercise price of $.50 per share.
 

     37. On June 1, 1997, the Company issued 59,693 shares of Common Stock to
Clive Segil, M.D., under the terms of a Management Services Agreement and
Restricted Stock Agreement.
 
     38. On June 1, 1997, pursuant to a Management Services Agreement and
Restricted Stock Agreement, the Company issued 84,197 shares of Common Stock to
H. Leon Brooks, M.D, a sole practitioner.
 
     39. On June 1, 1997, pursuant to a Non-qualified Stock Option Agreement,
the Company granted James Hofmann, M.D. an option to purchase 20,000 shares of
Common Stock with an exercise price of $.25 per share.
 
     40. On June 1, 1997, pursuant to a Non-qualified Stock Option Agreement,
the Company granted Christopher Dankmeyer, M.D. an option to purchase 10,000
shares of Common Stock with an exercise price of $.25 per share.
 
     41. On June 2, 1997, pursuant to an Incentive Stock Option Agreement, the
Company granted Dana Reynolds an option to purchase 30,000 shares of Common
Stock with an exercise price of $.50 per share.
 
     42. On June 19, 1997, pursuant to a Stock Purchase Agreement, the Company
issued 188,072 shares of Series D Convertible Preferred Stock, $.01 par value
(the 'Series D Preferred Stock') to Oak VI, Oak Partners, Delphi Ventures,
Delphi BioInvestments and Dr. Nagpal in exchange for promissory notes in the
principal amount of $999,999 plus accrued interest previously delivered by the
Company to the foregoing.
 
     43. On June 19, 1997, the Company issued an aggregate of 533,335 shares of
its Series E Convertible Preferred Stock, $.01 par value (the 'Series E
Preferred Stock'), for an aggregate purchase price of $3,200,010 to Dr. Nagpal,
Oak VI, Oak Partners, Delphi Ventures, Delphi BioInvestments, CGJR Health Care,
CGJR II and CGJR/MF.
 
     44. On June 23, 1997, pursuant to an Incentive Stock Option Agreement, the
Company granted Joanna Robben an option to purchase 75,000 shares of Common
Stock with an exercise price of $.50 per share.
 
     45. On June 30, 1997, the Company issued warrants to purchase 40,000 shares
of Common Stock to HCFP Funding, Inc. ('HCFP Funding') in connection with a
senior secured loan in the aggregate principal amount of $3,250,000 from HCFP
Funding to the Company and issued warrants to purchase an aggregate of 13,332
shares of Common Stock to the following persons in connection with the guarantee
of the loan by such persons: Dr. Nagpal, Delphi Ventures, Delphi BioInvestments,
Oak Partners and Oak VI.
 
     46. On July 1, 1997, pursuant to an Incentive Stock Option Agreement, the
Company granted Denise Truese an option to purchase 5,000 shares of Common Stock
with an exercise price of $.50 per share.
 
     47. On July 1, 1997, the Company issued 45,108 shares of Common Stock to
John Zimmerman, D.P.M. under the terms of a Management Services Agreement and
Restricted Stock Agreement.
 
                                      II-4
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.--(CONTINUED)

     48. On July 1, 1997, the Company issued 97,500 shares of Common Stock to
Dr. Nagpal upon conversion of his 1996 accrued compensation and cash bonus for
the fiscal year ended December 31, 1996, payable by the Company to him.
 
     49. On July 1, 1997, the Company issued a total of 150,708 shares of Common
Stock to Randy C. Watson, M.D., Keith R. Swanson, M.D. and Stephen P. Abelow,
M.D., who are affiliated with Surgical Associates of Lake Tahoe, L.P. under the
terms of three Management Services Agreements and three Restricted Stock
Agreements.
 
     50. On July 3, 1997, pursuant to a Management Services Agreement and
Restricted Stock Agreements, the Company issued 265,725 shares of Common Stock
to the following physicians, one broker and one attorney affiliated with Fishman
& Stashak, M.D.'s, P.A. (dba Gold Coast Orthopedics), Eric S. Fishman, M.D.,
Gerald T. Stashak, M.D., Mark A. Rubenstein, M.D., Chaim Arlosoroff, M.D., David
J. Menkhaus and Les S. Alt.
 
     51. On July 8, 1997, pursuant to an Incentive Stock Option Agreement, the
Company granted Nancy Strayer an option to purchase 10,000 shares of Common
Stock with an exercise price of $.50 per share.
 
     52. On July 14, 1997, pursuant to an Incentive Stock Option Agreement, the
Company granted David Ellwanger an option to purchase 125,000 shares of Common
Stock with an exercise price of $.50 per share.
 
     53. On July 21, 1997, pursuant to an Incentive Stock Option Agreement, the
Company granted Beth Landel an option to purchase 35,000 shares of Common Stock
with an exercise price of $.50 per share.
 
     54. On July 24, 1997, pursuant to an Incentive Stock Option Agreement, the
Company granted David Coffler an option to purchase 8,000 shares of Common Stock
with an exercise price of $.50 per share.
 
     55. On July 31, 1997, the Company issued 166,667 shares of Series E
Preferred Stock to HIS Ventures, LLC, an affiliate of Galtney Corporate
Services, Inc. ('Galtney'), for an aggregate purchase price of $1,000,000.
 
     56. On August 1, 1997, pursuant to an Incentive Stock Option Agreement, the
Company granted Randy Farber an option to purchase 30,000 shares of Common Stock
with an exercise price of $.50 per share.
 
     57. On August 1, 1997, pursuant to an Incentive Stock Option Agreement, the
Company granted Steven Ensinger an option to purchase 15,000 shares of Common
Stock with an exercise price of $.60 per share.
 
     58. On August 1, 1997, the Company issued 40,058 shares of Common Stock to
Robert Wilson, M.D. under the terms of a Management Services Agreement and
Restricted Stock Agreement.
 

     59. On August 1, 1997, the Company issued warrants to purchase an aggregate
of 130,000 shares of Series E Preferred Stock, to Comdisco, Inc. ('Comdisco') in
connection with the execution of a (i) Master Lease Agreement and (ii)
Subordinated Loan and Security Agreement pursuant to which Comdisco made a
subordinated loan to the Company in the aggregate principal amount of
$5,000,000.
 
     60. On August 1, 1997, the Company issued 157,807 shares of Common Stock to
the following physicians affiliated with Sun Valley Orthopaedic Surgeons under
the terms of a Management Services Agreement and Restricted Stock Agreements:
Jon Gelsey, M.D., Martin Sterusky, M.D. and Robert Waldrip, M.D.
 
     61. On August 4, 1997, pursuant to an Incentive Stock Option Agreement, the
Company granted Helen Arnzen an option to purchase 5,000 shares of Common Stock
with an exercise price of $.50 per share.
 
     62. On August 9, 1997, pursuant to an Amended and Restated Management
Services Agreement and Restricted Stock Agreements, the Company issued 68,031
shares of Common Stock to the following physicians affiliated with LVBMJ: Thomas
Sauer, M.D., Ranjan Sachdev, M.D., Joseph Garbarino, M.D., John Williams, M.D.
and Peter W. Kozicky, M.D.
 
     63. On August 18, 1997, pursuant to a Stock Purchase Agreement, the Company
issued 41,667 shares of Series E Preferred Stock to Comdisco for an aggregate
purchase price of $250,000.
 
                                      II-5
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.--(CONTINUED)

     64. On August 21, 1997, pursuant to an Incentive Stock Option Agreement,
the Company granted Lisa Arnold an option to purchase 5,000 shares of Common
Stock with an exercise price of $.60 per share.
 
     65. On August 21, 1997, pursuant to an Incentive Stock Option Agreement,
the Company granted Marc Guthart an option to purchase 7,000 shares of Common
Stock with an exercise price of $.60 per share.
 
     66. On August 22, 1997, the Company issued warrants to purchase an
aggregate of 37,500 shares of Series E Preferred Stock to Galtney in connection
with a Subordinated Loan from Galtney to the Company.
 
     67. On August 26, 1997, pursuant to a Management Services Agreement and
Restricted Stock Agreements, the Company issued 656,902 shares of Common Stock
to the following physicians, one attorney and one broker affiliated with Broward
Orthopedic Specialties, Inc.: Kalman Blomberg, M.D., Michael Reilly, M.D., Alan
Rootman, M.D., Jeffrey Cantor, M.D., John Fernandez, M.D., Terence Matthews,
M.D., Steven Naide, M.D., Mitchell Seavey, M.D., David Menkhaus and Les Alt.
 
     68. On August 26, 1997, pursuant to an Incentive Stock Option Agreement,
the Company granted Andrew Heeman an option to purchase 5,000 shares of Common
Stock with an exercise price of $2.00 per share.

 
     69. On September 1, 1997, the Company issued 95,384 shares of Common Stock
to Michael Abrahams, M.D. under the terms of a Management Services Agreement and
Restricted Stock Agreement.
 
     70. On September 4, 1997, the Company issued 38,229 shares of Common Stock
to Eradio Arredondo, M.D. under the terms of a Management Services Agreement and
Restricted Stock Agreement.
 
     71. On September 5, 1997, the Company issued 72,600 shares of Common Stock
to Neal Kramer, M.D. under the terms of a Management Services Agreement and
Restricted Stock Agreement.
 
     72. On September 9, 1997, the Company issued 36,492 shares of Common Stock
to Jeffrey Beitler, M.D. under the terms of a Management Services Agreement and
Restricted Stock Agreement.
 
     73. On September 9, 1997, the Company issued and sold $4,000,000 in
aggregate principal amount of its subordinated convertible debentures due 2000
to the following: Dr. Nagpal, Delphi Ventures, Delphi BioInvestments, Oak
Partners, Oak VI, and Health Care Services-BMJ, LLC and HGQ Serv*is Ventures,
L.P. affiliates of Hambrecht & Quist, LLC. which are convertible into shares of
Common Stock at an initial conversion price equal to $7.20 per share.
 
     74. On September 12, 1997, pursuant to the terms of a Management Services
Agreement and Restricted Stock Agreements, the Company issued an aggregate of
126,923 shares of Common Stock to the following physicians affiliated with
Physical Medicine and Rehabilitation Associates, Inc.: Marc Levinson, M.D.,
Joseph Alshon, M.D., Daniel Picard, M.D., Jonathan Tarrash, M.D. and Max
Gilbert, M.D.
 
     75. On July 1, 1997, pursuant to the terms of a Management Services
Agreement and Restricted Stock Agreements, the Company issued an aggregate of
124,385 shares of Common Stock to the following physicians affiliated with
Stockdale Podiatry Group, Inc.: Michelle Kraft, D.P.M., Lee Marek, D.P.M., Mark
L. Hamilton, D.P.M. and Mark F. Miller, D.P.M.
 
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
 
     (a) Exhibits
EXHIBIT NO.         DESCRIPTION OF EXHIBIT
-----------         -------------------------------------------------------------------------------------------------
*1.1       --   Form of Underwriting Agreement.
    *3.1       --   Restated Certificate of Incorporation of the Registrant.
     3.2       --   By-laws of the Registrant.
     4.1       --   Bone, Muscle and Joint, Inc. 1996 Stock Option Plan.
    *5         --   Opinion of O'Sullivan Graev & Karabell, LLP (including the consent of such firm) regarding
                    legality of securities being offered.
II-6
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.--(CONTINUED)
EXHIBIT NO.         DESCRIPTION OF EXHIBIT
-----------         -------------------------------------------------------------------------------------------------
*10.1       --   Stock Purchase Agreement dated as of May 6, 1996 among the Company, Dr. Nagpal, Oak VI, Oak
                    Partners, Delphi Ventures and Delphi BioInvestments.
    10.2       --   Stock Purchase Agreement dated November 12, 1996 among the Company, Dr. Nagpal, Oak VI, Oak
                    Partners, Delphi Ventures, and Delphi BioInvestments.
    10.3       --   Stock Purchase Agreement dated January 29, 1997 among the Company, certain physicians affiliated
                    with SCOI, Glenn Cozen and the Saphier and Heller Law Corporation Retirement Trust.
    10.4       --   Stock Purchase Agreement dated March 12, 1997, among the Company, Andrea Seratte, CGJR Health
                    Care, CGJR II and CGJR/MF.
   *10.5       --   Stock Purchase Agreement dated June 19, 1997, among the Company, Dr. Nagpal, Oak VI, Oak
                    Partners, Delphi Ventures, Delphi BioInvestments, CGJR Health Care, CGJR II and CGJR/MF.
   *10.6       --   Stock Purchase Agreement dated July 31, 1997, between the Company and HIS Ventures, LLC.
   *10.7       --   Stock Purchase Agreement dated August 18, 1997, between the Company and Comdisco.
   *10.8       --   Second Term Note dated June 30, 1997, issued by the Company to HCFP Funding.
    10.9       --   Form of Loan and Security Agreement dated March 28, 1997, between the Company and HCFP Funding.
   *10.10      --   Subordinated Loan and Security Agreement dated as of August 1, 1997, as amended, between the
                    Company and Comdisco.
   *10.11      --   Master Lease Agreement dated August 1, 1997 between Comdisco and the Company.
   *10.12      --   Subordinated Loan and Security Agreement dated as of August 22, 1997 between the Company and
                    Galtney.
   *10.13      --   Convertible Debenture Purchase Agreement dated as of September 9, 1997 among the Company, Dr.
                    Nagpal, Delphi Ventures, Delphi BioInvestments, Oak VI, Oak Partners, Health Care Services--BMJ,
                    LLC and HGQ Serv*is Ventures, L.P.
    10.14      --   8% Promissory Note in the aggregate principal amount of $700,000 issued by the Company and
                    payable to the order of Dr. Nagpal, dated January 10, 1997.
    10.15      --   8% Promissory Note in the aggregate principal amount of $167,000 issued by the Company and
                    payable to the order of Dr. Nagpal, dated January 10, 1997.
    10.16      --   Second Amended and Restated Stockholders Agreement, dated as of November 22, 1996, among the
                    Company, Dr. Nagpal, Delphi Ventures, Delphi BioInvestments, Oak Partners, Oak VI, Scheer and the
                    stockholders named therein.
   *10.17      --   Employment Agreement between the Company and Dr. Nagpal, dated May 6, 1996.
    10.18      --   Amended and Restated Management Services Agreement, effective as of July 1, 1997, among the
                    Company, LVBMJ amd certain physicians affiliated with LVBMJ.
    10.19      --   Asset Purchase Agreement, effective as of July 1, 1997, between the Company and OAB.
    10.20      --   Amended and Restated Restricted Stock Agreement, dated as of September 9, 1997, among the
                    Company, LVBMJ and certain physicians affiliated with LVBMJ.
    10.21      --   Management Services Agreement, effective as of November 1, 1996, as amended, between the Company
                    and STSC.
    10.22      --   Asset Purchase Agreement, dated as of November 1, 1996, between the Company and STSC.
    10.23      --   Restricted Stock Agreement, dated as of December 23, 1996, between the Company, STSC and certain
                    physicians affiliated with STSC.
    10.24      --   Stockholder Non-Competition Agreement, dated as of December 23, 1996, among the Company, STSC and
                    the STSC physicians.
   *10.25      --   Management Services Agreement, effective as of April 1, 1997, as amended, among the Company,

                    Tri-City and the indemnifying persons identified therein.
    10.26      --   Asset Purchase Agreement, dated as of April 1, 1997, between the Company and Tri-City.
II-7
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.--(CONTINUED)
EXHIBIT NO.         DESCRIPTION OF EXHIBIT
-----------         -------------------------------------------------------------------------------------------------
*10.27      --   Restricted Stock Agreement, dated as of April 1, 1997, among the Company, Tri-City and certain
                    physicians affiliated with Tri-City.
    10.28      --   Stockholder Non-Competition Agreement, dated as of April 1, 1997, among the Company, Tri-City and
                    certain physicians affiliated with Tri-City.
   *10.29      --   Management Services Agreement, effective as of November 1, 1996, as amended, between the Company
                    and SCOI.
    10.30      --   Asset Purchase Agreement, effective as of November 1, 1996, between the Company and SCOI.
   *10.31      --   Restricted Stock Agreement, effective as of November 1, 1996, among the Company, SCOI, certain
                    physicians affiliated with SCOI, Delphi Ventures, Delphi BioInvestments, Oak VI and Oak Partners.
    10.32      --   Stockholder Non-Competition Agreement, effective November 1, 1996, among the Company, SCOI and
                    certain physicians affiliated with SCOI.
   *10.33      --   Management Services Agreement, effective April 1, 1997, as amended, among the Company, LOS and
                    certain physicians affiliated with LOS.
    10.34      --   Asset Purchase Agreement, effective as of April 1, 1997, between the Company and LOS.
   *10.35      --   Restricted Stock Agreement, dated as of May 6, 1997, among the Company, LOS and certain
                    physicians affiliated with LOS.
    10.36      --   Stockholder Non-Competition Agreement effective as of April 1, 1997, among the Company, LOS and
                    certain physicians affiliated with LOS.
   *10.37      --   Management Services Agreement, effective as of August 1, 1997, as amended, among the Company, Sun
                    Valley and the indemnifying persons thereto.
   *10.38      --   Asset Purchase Agreement, effective as of August 1, 1997, between the Company and Sun Valley.
   *10.39      --   Restricted Stock Agreement, dated as of August 1, 1997, among the Company, Sun Valley and certain
                    physicians affiliated with Sun Valley.
   *10.40      --   Stockholder Non-Competition Agreement, dated as of August 1, 1997, among the Company, Sun Valley
                    and certain physicians affiliated with Sun Valley.
   *10.41      --   Management Services Agreement, effective as of June 1, 1997, as amended, among the Company, Gold
                    Coast and the physicians affiliated with Gold Coast.
    10.42      --   Asset Purchase Agreement, effective as of June 1, 1997, between the Company and Gold Coast.
   *10.43      --   Restricted Stock Agreement, dated August 8, 1997, among the Company and certain physicians
                    affiliated with Gold Coast.
    10.44      --   Stockholder Non-Competition Agreement, dated August 8, 1997, among the Company and certain
                    physicians affiliated with Gold Coast.
    11.1       --   Schedule of Calculation of Earnings Per Share.
    21         --   List of Subsidiaries.
   *23.1       --   Consent of O'Sullivan Graev & Karabell, LLP (to be included as part of its opinion to be filed as
                    Exhibit 5 hereto).
    23.2       --   Consent of Ernst & Young LLP, independent certified public accountants.
    24         --   Powers of Attorney (included on page II-10).
    27         --   Financial Data Schedule.
------------------
 
* To be filed by amendment.
 
     (b) Financial Statement Schedules
 
             All schedules are omitted because they are inapplicable or the
        requested information is shown in the consolidated financial statements
        or related notes.
 
                                      II-8
ITEM 17. UNDERTAKINGS.
 
     The Registrant hereby undertakes to provide to the Underwriters at the
closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
 
     Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the DGCL, the Certificate of Incorporation and By-laws,
or otherwise, the Registrant has been advised that in the opinion of the
Commission such indemnification is against public policy as expressed in the
Securities Act, and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than payment by the Registrant
of expenses incurred or paid by a director, officer or controlling person of the
Registrant in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with the
securities being registered, the Registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
 
     The Registrant hereby undertakes that:
 
          (1) For purposes of determining any liability under the Securities
     Act, the information omitted from the form of prospectus filed as part of
     this registration statement in reliance upon Rule 430A and contained in the
     form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
     (4) or 497(h) under the Securities Act shall be deemed to be part of this
     registration statement as of the time it was declared effective.
 
          (2) For the purpose of determining any liability under the Securities
     Act, each post-effective amendment that contains a form of prospectus shall
     be deemed to be a new registration statement relating to the securities
     offered therein, and the offering of such securities at that time shall be
     deemed to be the initial bona fide offering thereof.
 
                                      II-9
SIGNATURES
 
     PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF BOCA RATON, STATE OF
FLORIDA ON THE 16TH DAY OF SEPTEMBER, 1997.
 
                                          BMJ MEDICAL MANAGEMENT, INC.
 
                                          By:         /s/ Naresh Nagpal
                                              ----------------------------------
                                              Name: Naresh Nagpal, M.D.
                                              Title:  President and Chief
                                                      Executive Officer
 

                               POWER OF ATTORNEY
 
     KNOW ALL PERSON BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints each of Naresh Nagpal, M.D. and David H. Fater or
either of them, each acting alone, his or her true and lawful attorney-in-fact
and agent, with full power of substitution and resubstitution, for such person
and in his or her name, place and stead, in any and all capacities, in
connection with the Registrant's Registration Statement on Form S-1 under the
Securities Act of 1933, including to sign the Registration Statement in the name
and on behalf of the undersigned as a director or officer of the Registrant and
any and all amendments or supplements thereto, including any and all stickers
and post-effective amendments thereto, and any and all additional registration
statements relating to the same offering of securities as those that are covered
by the Registration Statement that are filed pursuant to Rule 462(b) under the
Securities Act of 1933, and to file the same, with all exhibits thereto, and all
other documents in connection therewith, with the Securities and Exchange
Commission and any applicable securities exchange or securities self-regulatory
body, granting unto said attorneys in-fact and agents, each acting alone, full
power and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes as he or she might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, or his, her or their
substitutes, may lawfully do or cause to be done by virtue hereof.
 
     PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED ON THE 16TH DAY OF SEPTEMBER, 1997, BY
THE FOLLOWING PERSONS IN THE CAPACITIES INDICATED:
SIGNATURE                                      TITLE
------------------------------------------  -------------------------------------------
/s/ NARESH NAGPAL               President, Chief Executive Officer and
------------------------------------------  Director (Principal Executive Officer)

           Naresh Nagpal, M.D.              
 

            /s/ DAVID H. FATER              Executive Vice President, Chief Financial
------------------------------------------  Officer and Director (Principal Financial
              David H. Fater                and Accounting Officer)

 
            /s/ ANN H. LAMONT               Director
------------------------------------------  
              Ann H. Lamont

 
          /s/ DONALD J. LOTHROP             Director
------------------------------------------  
            Donald J. Lothrop
 

             /s/ JAMES M. FOX               Director
------------------------------------------  
            James M. Fox, M.D.
 

------------------------------------------  Director
               Georges Daou
II-10