This Management's Discussion and Analysis of Financial Condition and Results of Operations may include certain forward-looking statements, within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, including (without limitation) statements with respect to anticipated future operating and financial performance, growth and acquisition opportunities and other similar forecasts and statements of expectation. Words such as "expects," "anticipates," "intends," "plans," "believes," "seeks," "estimates" and "should" and variations of these words and similar expressions, are intended to identify these forward- looking statements. Forward-looking statements made by the Company and its management are based on estimates, projections, beliefs and assumptions of management at the time of such statements and are not guarantees of future performance.

The Company disclaims any obligations to update or revise any forward-looking statement based on the occurrence of future events, the receipt of new information or otherwise. Actual future performance, outcomes and results may differ materially from those expressed in forward-looking statements made by the Company and its management as a result of a number of risks, uncertainties and assumptions. Representative examples of these factors include (without limitation) general industry and economic conditions; cost of capital and capital requirements; competition from other managed care companies; the ability to expand certain areas of the Company's business; shifts in customer demands; the ability of the Company to produce market-competitive software; changes in operating expenses including employee wages, benefits and medical inflation; governmental and public policy changes; dependence on key personnel; possible litigation and legal liability in the course of operations; and the continued availability of financing in the amounts and at the terms necessary to support the Company's future business.

The Company derives the majority of its revenues from providing patient management and provider program services to payors of workers' compensation benefits and health insurance benefits. Patient management services include early intervention, utilization review, medical case management, vocational rehabilitation, and independent medical examinations. Provider program revenues include fee schedule auditing, hospital bill auditing, and preferred provider referral services. The percentages of revenues attributable to patient management and provider program services for the fiscal years ended March 31, 2000, 2001, and 2002 are as follows:

	2000	2001	2002
Patient management services	59.9%	59.3%	54.7%
Provider program services	40.1%	40.7%	45.3%
	100.0%	100.0%	100.0%

Results of Operations

The following table sets forth, for the periods indicated, the percentage of revenues represented by certain items reflected in the Company's consolidated statements of income. The Company's past operating results are not necessarily indicative of future operating results.

	Year Ended March 31,
	2000	2001	2002
Revenues	100.0%	100.0%	100.0%
Cost of revenues	81.8	82.1	81.9
Gross profit	18.2	17.9	18.1
General and administrative	7.9	7.8	8.0
Income before income taxes	10.3	10.1	10.1
Net income	6.4	6.3	6.3

Years Ended March 31, 2000, 2001 and 2002

Revenues for fiscal 2001 increased by 12% to $210 million from $187 million in fiscal 2000, an increase of $23 million. The majority of this growth came from patient management services, which grew 11% from $112 million in fiscal year 2000 to $124 million in fiscal 2001, primarily due to an increase in referrals from existing customers. Provider program services increased 13%, by $10 million from $75 million in fiscal 2000 to $85 million in fiscal 2001. This increase is primarily due to the increased volume of bills processed along with continued growth in the Company's provider network.

Revenues for fiscal 2002 increased by 13% to $236 million from $210 million in fiscal 2001, an increase of $26 million. The majority of this growth came from provider program services, which grew 26% from $85 million in fiscal year 2001 to $107 million in fiscal 2002, primarily due to an increase in the number of bills reviewed along with an increase in the number of providers included in the Company's PPO network. Patient management services increased 4%, by $5 million from $124 million in fiscal 2001 to $129 million in fiscal 2002.

The Company's cost of revenues consists primarily of salaries, salary related taxes and benefits, rent, telephone, and costs related to the Company's computer operations, including depreciation and amortization. Costs of revenues increased from $153 million in fiscal 2000 and $172 million in fiscal 2001, to $193 million in fiscal 2002, primarily due to the increases in revenues as noted above.

Cost of services as a percentage of revenues was 81.8% during fiscal 2000 and 82.1% in fiscal 2001, and decreased to 81.9% in fiscal 2002. During fiscal 2002, the cost of revenue percentage decreased primarily due to the growth rate in the program services compared to the patient management services. Provider program services have a lower cost of services percentage than that of patient management services. There is no guarantee the cost of service percentage will remain constant or decrease, should the Company pursue a strategy of reducing price in order to obtain greater market share or if competition causes pricing pressure in the industry.

General and administrative expense increased from $14.8 million in fiscal 2000 and $16.4 million in fiscal 2001 to $18.8 million in fiscal 2002. This increase was primarily due to increased MIS staff to support the Company's implementation of CareMC and further electronic data interface capabilities as required by customer needs. General and administrative expenses were 7.9%, 7.8%, and 8.0% for the years ended March 31, 2000, 2001 and 2002, respectively.

Liquidity and Capital Resources

The Company has funded its operations and capital expenditures primarily from cash flow from operations. Net working capital remained unchanged at $35 million at both March 31, 2001 and March 31, 2002. The increase in cash flow due to the net income of $15 million was offset by $15 million in repurchases of the Company's common stock in the open market. As of March 31, 2002, the Company had $12 million in cash and cash equivalents, invested primarily in short-term, highly liquid investments with maturities of 90 days or less. The Company has no interest-bearing short-term debt.

The Company has historically required substantial capital to fund the growth of its operations, particularly working capital to fund the growth in accounts receivable and capital expenditures. The Company believes, however, that the cash balance at March 31, 2002 along with anticipated internally generated funds will be sufficient to meet the Company's expected cash requirements for at least the next twelve months.