ST JOSEPHS PHYSICIAN ASSOCIATES INC, 10KSB40, 1999-04-15

ST JOSEPHS PHYSICIAN ASSOCIATES INC
10KSB40, 1999-04-15
HOME HEALTH CARE SERVICES

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<PAGE> 1
FORM 10-KSB
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 1998

[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number 33-22011-A

ST. JOSEPH'S PHYSICIAN ASSOCIATES, INC.
----------------------------------------------
(Name of small business issuer in its charter)

FLORIDA 59-2858209
- ------------------------- ---------------------
(State or other jurisdic- (IRS Employer Identi-
tion of incorporation) fication No.)

4900 North Habana Ave., Tampa, Florida 33614
---------------------------------------------------
(Address of principal executive offices) (Zip Code)

Issuer's telephone number: (813) 854-4668
---------------------------

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act: None

Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12
months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the
past 90 days. Yes X No
----- -----
Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-KSB or any amendment to this Form 10-KSB. [X]

State issuer's revenues for its most recent fiscal year. $222,698

State the aggregate market value of the voting stock held by
non-affiliates of the registrant.

Approximately $1,389,791 as of February 28, 1999
(estimate based on book value due to lack of trading market).

State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date:

Common Stock, par value $1.00 per share -- 414 shares as of March 31,
1999

Documents incorporated by reference: None

<PAGE> 2

ST. JOSEPH'S PHYSICIAN ASSOCIATES, INC.

ANNUAL REPORT ON FORM 10-KSB
for the
YEAR ENDED DECEMBER 31, 1998

TABLE OF CONTENTS

PART I . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

ITEM 1. BUSINESS . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ITEM 2. PROPERTIES . . . . . . . . . . . . . . . . . . . . . . . . . . 32
ITEM 3. LEGAL PROCEEDINGS. . . . . . . . . . . . . . . . . . . . . . . 32
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. . . . . . 33

PART II. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33

ITEM 5. MARKET FOR COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS. . . . . . . . . . . . . . . . . . . . . 33
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR
PLAN OF OPERATION. . . . . . . . . . . . . . . . . . . . . . 37
ITEM 7. FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . 50
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH
ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE . . . . . . . . . . . . . . . . . . . . 50

PART III . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50

ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS
AND CONTROL PERSONS; COMPLIANCE WITH
SECTION 16(a) OF THE EXCHANGE ACT. . . . . . . . . . . . . . 50
ITEM 10. EXECUTIVE COMPENSATION . . . . . . . . . . . . . . . . . . . . 55
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT. . . . . . . . . . . . . . . . . . . . 55
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS . . . . . . . . 56

PART IV. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56

ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K . . . . . . . . . . . . . . . 56

</TABLE>

<PAGE> 3

PART I

ITEM 1. BUSINESS.

BACKGROUND

General

St. Joseph's Physician Associates, Inc. ("SJPA" or the "Company") is a
Florida corporation which was organized on November 20, 1987 to establish,
organize, and operate as an association of qualified physicians, for the
purposes of engaging directly or indirectly in the provision of professional
services through one or more managed care arrangements and engaging in health
care related businesses, including in particular the acquisition of one-half of
the voting common stock of St. Joseph's Physicians - Healthcenter Organization,
Inc. (the "PHO") and one-half of the outstanding common stock of Hospitals'
Home Health Care of Hillsborough County, Inc., d/b/a St. Joseph's Home Health
Services ("SJHHS").

The PHO, a Florida corporation, was organized in 1987 and originally
was wholly owned by St. Joseph's Enterprises, Inc. ("Enterprises"), a Florida
not-for-profit corporation affiliated with St. Joseph's Hospital, Inc. (the
"Hospital Corporation"), which operates St. Joseph's Hospital, St. Joseph's
Women's Hospital and The Tampa Children's Hospital (collectively, the
"Hospital"), each of which is located in Hillsborough County, Florida. In
February 1989, the Company acquired 2,500 shares of the common stock of the
PHO. With the acquisition of such stock by the Company, Enterprises and the
Company became equal owners of the voting common stock of the PHO. Until its
redemption on January 31, 1997, Enterprises also owned all of the nonvoting
preferred stock of the PHO.

The PHO is principally a vehicle through which the Company and
Enterprises together indirectly provide hospital and professional services to
various managed care organizations and operate certain businesses. The PHO owns
100% of St. Joseph's Preferred, Inc. ("SJP") and St. Joseph's Health Network,
Inc. ("SJHN"). SJP, a Florida corporation, was organized on March 13, 1991 to
provide health care services as a "preferred provider" network. SJHN, also a
Florida corporation, was organized on May 26, 1995 to develop a network of
hospitals and physicians and to negotiate at-risk contracts with managed care
organizations on behalf of its hospital and physician network. The PHO also is
currently the managing general partner of St. Joseph's Same-Day Surgery Center,
Ltd. (the "Same-Day Surgery Center Partnership"), a Florida limited partnership
which operates an ambulatory care center.

SJHHS, a Florida corporation, was organized to provide home health
services, including nursing and certain other health care services in the homes
of home-bound patients. In June 1989, the Company purchased 50% of the
outstanding common stock of SJHHS. The balance of the outstanding common stock
of SJHHS is owned by St. Joseph's Ancillary Services, Inc. ("SJAS"), a wholly
owned subsidiary of St. Joseph's Health Care Center, Inc. ("HCC"). On January
5, 1998, the Company sold all of its ownership interest in SJHHS to SJAS for
$100,000. See "HOSPITALS'

<PAGE> 4

HOME HEALTH CARE OF HILLSBOROUGH COUNTY, INC. d/b/a St. Joseph's Home Health
Services - Nature of SJPA Interest" in Item 1 for further discussion.

On March 3, 1999, the Company purchased 100,000 shares of common
stock, representing approximately 3% of the outstanding common stock, of
Entrusted Health Management Services, Inc. ("EHMS"), a Florida corporation. The
balance of the outstanding common stock of EHMS is owned by several other
individuals and entities, none of whom holds a majority interest in EHMS. EHMS
is a start up entity that was organized to manage and administer health benefit
arrangements for self-insured employers. Its services ultimately are planned to
include designing and implementing benefit plans, developing one or more
networks of hospitals, physicians and other health care providers,
administering claims, and collecting and analyzing health care data for those
employers with which it has contracts for the provision of some or all of these
offered services.

An important facet of ownership of stock in the Company is that only
stockholders in the Company are permitted to participate in SJP's preferred
provider network and to participate in SJHN's provider network (although, if a
need is identified for an additional physician-provider that cannot be filled
by an SJPA stockholder, then SJHN has the discretion to allow a non-stockholder
physician to participate in its network). Likewise, the Company's investment in
EHMS was made with an expectation that EHMS would thus be encouraged to afford
the stockholders of the Company the first opportunity to participate in the
provider network that EHMS will develop.

Organization and Operations -- General

As currently operated, the primary function of the Company is to
provide a vehicle whereby stockholders of the Company can, as a group, (1)
indirectly participate (along with Enterprises) in the decision making
processes affecting SJP, SJHN, the Same-Day Surgery Center Partnership, (2)
indirectly participate in EHMS and other ventures in which the Company may have
a direct or indirect interest, (3) realize economic benefits from the
operations of such ventures; and (4) consider and evaluate the feasibility of
other ventures relating to the provision of health care services and of matters
affecting the medical community as a whole and the Company and its stockholders
in particular. However, as to the PHO and ventures in which only an indirect
interest is held through the PHO, the stockholders of the Company have only
limited managerial control because, as a group, they can affect only the
selection of one half of the directors of the PHO, SJP and SJHN. The Company's
stockholders cannot directly participate in the management of the PHO, SJP,
SJHN, or the Same Day Surgery Center Partnership, nor can they substantially
participate in the decision making process affecting the PHO, SJP, SJHN, or the
Same Day Surgery Center Partnership. Likewise, the Company's small percentage
ownership in EHMS will not give the Company or the stockholders of the Company
any significant managerial control with respect to EHMS.

In addition to its investment in the PHO, the Company owns five, of a
total of 40, limited partner units in the Same-Day Surgery Center Partnership.
Seven such units were purchased on January 1, 1991 for $4,000 in cash plus
$10,000 in contingent promissory notes per unit, for a total of $28,000 in cash
and $70,000 in contingent promissory notes. The Company sold two of such units
in March 1991 for $22,000 in cash with the release of $10,000 in contingent
promissory notes per unit, for a total of $44,000 in cash and the release of
$20,000 in contingent promissory notes. The

<PAGE> 5

contingent promissory notes were payable by their terms in full on September
30, 1992, unless the Managing General Partner, in its discretion, chose to
waive such obligation. On September 9, 1992, the Board of Directors of the PHO,
as Managing General Partner of the Same-Day Surgery Center Partnership, decided
to waive the obligation, because the funds were not needed.

The PHO, SJP, SJHN and the Same Day Surgery Center Partnership are
collectively referred to herein as the "Partially Owned Operations." The
diagram on the following page is a flow chart showing the structural
relationship between the Company and the Partially Owned Operations as of
December 31, 1998. Because the Company's interest in SJHHS was sold on January
5, 1998, SJHHS is no longer considered as part of the Partially Owned
Operations. Also, because the Company's ownership in EHMS is not significant,
EHMS has not been included in the diagram as one of the Partially Owned
Operations.

<PAGE> 6

ST. JOSEPH'S PHYSICIAN ASSOCIATES, INC.
ORGANIZATIONAL CHART
AS OF DECEMBER 31, 1998

-------------------------
St. Joseph's Physician
Associates, Inc.
("SJPA")
-------------------------

--------------------------
50%
St. Joseph's Physicians-
Healthcenter Org., Inc.
("PHO")
--------------------------

(4% Managing General partner)

(100%) (100%)
- --------------------- ----------------- --------------------------
St. Joseph's St. Joseph's St. Joseph's Same-
Health Network, Inc. Preferred, Inc. Day Surgery Center, Ltd.
("SJHN") ("SJP")
- --------------------- ----------------- --------------------------

Limited Partners
---------------------------------------

------- ------- ------- ------
PHO M.D. M.D. SJPA
------- ------- ------- ------
(1.5 shares) (33.5 shares) (5 shares)

</TABLE>

<PAGE> 7

The Company's Ventures

The Company's Ownership Interest in the PHO. The PHO is the Company's
principal venture. In 1998, the authorized capital stock of the PHO consisted
of 5,000 shares of voting common stock, par value $1.00 per share, and 6,250
shares of nonvoting (except as required by law) preferred stock, par value
$20.00 per share. The Company and Enterprises each own 2,500 shares of the
common stock of the PHO, constituting all of the outstanding stock of the PHO.
Prior to January 31, 1997, Enterprises also owned all 6,250 shares of the
preferred stock of the PHO, which preferred stock gave Enterprises the right to
require the PHO to redeem its preferred stock at any time after July 31, 1992
upon 30 days notice, at par plus dividends owing with respect thereto, on the
sole condition that funds be legally available therefor. Enterprises exercised
its right to require redemption, and all 6,250 shares of nonvoting preferred
stock were redeemed, effective on January 31, 1997, for $184,375 (including
cumulative unpaid dividends). As a result of this redemption, the Company and
Enterprises now each own a 50% interest in the PHO.

The PHO's Ownership Interest in SJP. The PHO owns 100% of St. Joseph's
Preferred, Inc., a Florida corporation ("SJP"), organized to provide health
care services through a "preferred provider" network.

SJP has signed contracts with the Hospital Corporation, the Same-Day
Surgery Center Partnership, SJHHS, St. Joseph's Diagnostic Center, Ltd. and
approximately 400 SJPA physician stockholders (collectively referred to as the
"PPO Providers"). These PPO Providers agree to accept discounted fees as
payment in full for services provided to any patient covered under a contract
between SJP and an employer, employer group, insurance carrier or other payor
pursuant to which such payors engage the services of SJP's preferred provider
network (each a "PPO Contract"). These PPO Contracts require that the health
care benefit plan of the contracting entity have a design feature which
provides some economic incentive to the patient to use a PPO Provider (versus a
non-PPO Provider).

SJP has signed a Network Linking Agreement ("Network Linking
Agreement") with BayCare Health Network, Inc. ("BayCare," formerly known as
CareFirst Health Network, Inc. and, before that, as SunHealth Care Plans - Gulf
Coast, Inc.), which allows SJP to offer its services to clients of BayCare
requiring access to health care providers in Hillsborough County, Florida.
BayCare currently is owned by Enterprises and by University Community Hospital,
Inc. and South Florida Baptist Hospital, Inc., not-for-profit hospitals located
in Hillsborough County, Florida, and by St. Anthony's Hospital, Inc., Bayfront
Medical Center, Inc., Morton Plant Hospital Association, Inc. and The Trustees
of Mease Hospital, Inc., d/b/a Morton Plant Mease Health Care, not-for-profit
hospitals located in Pinellas County, Florida. Because of mergers and
affiliations of the above-named hospitals, BayCare currently has five
hospital-stockholders.

All current PPO Contracts are held by BayCare, and access to the PPO
Providers is through the Network Linking Agreement. Currently, BayCare has 80
contracts covering approximately 29,320 enrolled employees, to provide standard
preferred provider, primary care preferred provider (i.e., "gatekeeper") and
various insured health care products. These include contracts with the Hospital
Corporation and the Same-Day Surgery Center Partnership covering approximately
3,100 employees.

<PAGE> 8

In addition, BayCare has contracts with other managed care entities
through which the PPO Providers are made available to provide services to the
approximately 63,500 enrolled employees of these other entities (35,600 of such
employees being under hospital services only contracts).

The Company has indirectly participated on the Board of Directors of
BayCare, because the physicians who serve on the BayCare Board of Directors as
representatives of St. Joseph's Hospital have historically been nominated by
SJPA. Prior to June 1998, each hospital-stockholder of BayCare was entitled to
appoint four of the directors of BayCare, with two being physicians who are
members of the medical staff of the respective hospital-stockholder and two
being administrators of the respective hospital-stockholder. However, the
Amended and Restated Articles of Incorporation of BayCare were filed with the
Florida Secretary of State on June 3, 1998, and the bylaws of BayCare were
subsequently amended, to provide, among other things, for a total of ten
directors, with each of the five hospital-stockholders of BayCare (as a result
of a recent realignment of the hospital entities, there currently are only five
hospital-stockholders) being entitled to appoint two of the directors, with one
being the chief executive officer of the respective hospital-stockholder and
one being a physician who is a member of the medical staff of the respective
hospital-stockholder. Also, prior to February 1995, the bylaws of BayCare
included director quorum and voting requirements which effectively provided
that certain actions could not be taken by BayCare without the affirmative vote
of the directors of BayCare that were designated by SJPA. However, the bylaws
of BayCare were modified by the Board of Directors of BayCare in February 1995
so as to retain the director quorum requirements, but to replace the director
voting requirements with provisions that require simply a two-thirds majority
vote of the directors present at a meeting, thus eliminating the requirement
that certain actions could not be taken by BayCare without the affirmative vote
of the directors of BayCare that are designated by SJPA. In addition, in
November 1996, the Board of Directors of BayCare voted to change the quorum
requirements to specify that a quorum exists when any two representatives
(physicians or administrators) from five out of the then seven
hospital-stockholders (i.e., at least two representatives of 70% of the
stockholders) were present at a meeting. There can be no assurance that there
will not be additional changes to the Bylaws of BayCare that would operate to
further limit the impact that the directors of BayCare who are designated by
SJPA would have on the Board of Directors of BayCare.

The PHO's Ownership Interest in SJHN. The PHO also owns 100% of St.
Joseph's Health Network, Inc., a Florida corporation ("SJHN"). SJHN, a
physician-hospital organization, was incorporated on May 26, 1995 for the
purpose of developing a network of hospitals and physicians (collectively
referred to as the "SJHN Providers") and negotiating at-risk (i.e., capitation)
contracts, or discounted fee-for-service contracts that will evolve over time
into capitation contracts, with managed care organizations on behalf of the
SJHN Providers to provide high quality, competitively priced health care
services for persons residing or employed in the Hillsborough County, Florida
area. The network of providers comprising the SJHN Providers is separate and
distinct from the PPO Providers comprising SJP's PPO network (although many of
the SJHN Providers also are PPO Providers). Because SJHN concentrates its
efforts on negotiating at-risk contracts (as opposed to the pure discounted
fee-for-service contracts under which the PPO Providers provide services,
without assuming direct risk), there are fewer physicians in SJHN's network,
and the ratio of primary care (i.e., pediatrics, family and general internal
medicine and OB-Gyn) physicians to specialist physicians is more strictly
controlled.

<PAGE> 9

During 1996, 1997 and 1998, SJHN conducted a provider credentialing
process, and approximately 240 physicians currently are participating as SJHN
Providers. SJHN is actively negotiating for capitation contracts. Its first
such contract, covering the employees of St. Joseph's Hospital, became
effective on May 1, 1997.

The PHO provided the initial funding for the development of SJHN.
However, SJHN may require additional capital, and it is anticipated that the
PHO, as well as the Company, may be called upon to provide a portion of the
funding for the balance of SJHN's initial capitalization.

The PHO's Ownership Interest in the Same-Day Surgery Center
Partnership. The PHO also owns a four percent (4%) partnership interest in the
Same-Day Surgery Center Partnership, and serves as managing general partner of
the Same-Day Surgery Center Partnership. Accordingly, through its ownership of
the PHO, the Company beneficially owns a two percent (2%) interest in the
Same-Day Surgery Center Partnership. Prior to the January 31, 1997 redemption
of Enterprises' preferred stock in the PHO, the Company's participation in the
net income of the PHO was determined after deduction for accumulated PHO
preferred stock dividends, and, thus, any cash distributed by the Same-Day
Surgery Center Partnership to the PHO was applied first to accumulated unpaid
dividends on the PHO preferred stock. As a result of this redemption, cash
distributed by the Same-Day Surgery Center Partnership to the PHO is available
for other purposes, including distribution equally to Enterprises and the
Company (as the Board of Directors of the PHO deems appropriate). However,
there can be no assurance that the Same-Day Surgery Center Partnership will
distribute cash to the PHO or that the PHO will make any dividend distribution
of any cash that it receives from the Same-Day Surgery Center Partnership.

As managing general partner of the Same-Day Surgery Center
Partnership, the PHO is not guaranteed any management fees or other
compensation for its services (although it is entitled to reimbursement for its
out-of-pocket expenses). The PHO is entitled to enter into contracts with, and
to compensate, anyone, including itself or its affiliates, for services
rendered to the Same-Day Surgery Center Partnership. Thus, there is no
guarantee to the PHO of any economic benefits other than the benefits of being
a four percent (4%) partner in the Same-Day Surgery Center Partnership.

The Company's Prior Ownership Interest in SJHHS. Prior to the
January 5, 1998 sale of stock to SJAS, the Company owned 50% (4,000 shares) of
the common stock of Hospitals' Home Health Care of Hillsborough County, Inc.
("SJHHS"). SJHHS primarily provides medical services in the homes of patients.
These services include nursing services by registered nurses ("RNs") and
licensed practical nurses ("LPNs"), personal care services, custodial and
companion services by home health aides, and other ancillary services, such as
infusion therapy.

The Company's Ownership Interest in EHMS. On March 3, 1999, the
Company purchased approximately 3% (100,000 shares) of the common stock of
Entrusted Health Management Services, Inc. ("EHMS"), for which it paid
$100,000. EHMS is a start up entity that was organized to manage and administer
health benefit arrangements for self-insured employers. EHMS currently is
negotiating with several employers to whom it proposes to provide services. The
Company has been advised that EHMS expects to implement its first contract with
an employer (with approximately 4,000 employees and dependents participating in
the employer's self-insured plan) on or about June 1, 1999, and that EHMS
currently also is working on the development of several networks of hospitals,
physicians and

<PAGE> 10

other health care providers (each such network being referred to as an "EHMS
Network"). Each such EHMS Network is expected to be designed to service a
specific geographic area in west central Florida. When fully operational, the
services to be provided by EHMS is planned to include designing and
implementing benefit plans, offering the services of one or more provider
networks, administering claims, and collecting and analyzing health care data
for employers with which it contracts. The Company invested in EHMS with a
primary expectation that the stockholders of the Company would be given
priority in joining the network of physicians that is being developed for
Hillsborough County, Florida, although there currently is no written commitment
to this effect. Furthermore, as a start-up entity, there can be no assurance
that EHMS will be successful in obtaining contracts with employers or in
obtaining the capital funding that it will need to operate until it can
generate sufficient revenues to cover its operating expenses.

Future Ventures

The Company, along with the PHO and, at times, affiliates of
Enterprises, continually investigates other health care related ventures.

Pursuant to an agreement among the Company, Enterprises and the PHO
(the "PHO Agreement," as described below), the Company cannot undertake or
participate in certain specified health care related ventures without first
offering to the PHO the right to form, organize and develop the venture. If the
PHO fails to accept the offer or to proceed with respect to the venture in the
manner and within the time required by the PHO Agreement, then the PHO will
lose all rights with respect to the venture, and the Company will be free to
proceed with respect to the venture described in the offer. Thus, there can be
no assurance that any venture will be undertaken even if believed to be
feasible; and, if undertaken, there can be no assurance that any such venture
will provide any economic benefit to the Company. See "ST. JOSEPH'S
PHYSICIANS-HEALTHCENTER ORGANIZATION, INC. - The PHO Agreement, Right of First
Refusal" in this Item 1 for further discussion.

Government Regulation

The activities of the Partially Owned Operations are subject to strict
government regulation which may indirectly impact the Company and the
stockholders of the Company.

Certain of the Partially Owned Operations currently are subject to
state licensure requirements. While such entities have at all relevant times
satisfied such requirements, a failure to do so for any reason would preclude
such entities from operating and therefore would have a material adverse effect
upon the Company. The Company is not aware of any facts or circumstances which
would prevent such entities from complying with all licensure and other
requirements currently in effect.

Some or all of the Partially Owned Operations are subject to the rules
and regulations relating to federal health care programs, including the
Medicare and Medicaid Programs. These rules and regulations include the
applicable fraud and abuse rules and the rules prohibiting a physician from
referring a Medicare or Medicaid patient for certain designated health services
to an entity in which the physician is an investor or has a financial interest.

<PAGE> 11

Likewise, the Company, its stockholders and some of the Partially
Owned Operations are subject to Florida laws and regulations relating to health
care providers and related entities, including the "Florida Patient
Self-Referral Act of 1992," and various decisions of applicable Florida
regulatory agencies that interpret Florida law.

Also, from time to time, bills are proposed and considered by the
Florida Legislature (which currently is holding its 1999 Session) and the
United States Congress, and regulations are proposed by various Florida and
federal regulatory agencies, that could change or expand the prohibitions on
physicians' ability to refer patients to entities in which they are investors.
If implemented, one or all of these legislative or regulatory proposals could
substantially affect some or all of the Partially Owned Operations and the
Company. There is no assurance that future legislation or regulations will not
have a materially adverse effect upon the Company.

For a more complete discussion of the regulatory environment, see the
discussion under the heading "SPECIAL CONSIDERATIONS" in Item 6 of this Annual
Report on Form 10-KSB (this "Report"), which provisions are hereby incorporated
by reference into the discussion under this Item 1.

Third Party Reimbursement

Certain of the Partially Owned Operations are subject to accreditation
requirements in order to facilitate reimbursement from third party payors,
including Medicare and Medicaid. To date, such entities have met all such
requirements as are material, and the Company is not aware of any facts or
circumstances which would prevent such entities from complying with such
requirements. However, failure to so comply would adversely affect the ability
of such entities to be reimbursed for services provided, and therefore, would
adversely affect the Company.

It can be anticipated that federal and state governmental agencies, as
well as insurance companies and other third party payors, will continue their
efforts to contain the cost of medical care. There can be no assurance that
such efforts will not substantially curtail the revenues of the Partially Owned
Operations, and therefore, of the Company.

Competition

While the Company does not directly compete with any business, the
Partially Owned Operations are subject to competition which may impact upon the
Company. The health care industry operates in a competitive environment. In
order to maintain market share and replace decreasing revenue sources, health
care institutions and physicians have engaged in various means to diversify
their services.

Areas believed by the Company to be major targets of such
diversification are the areas of managed care operations and ambulatory care -
the respective businesses of SJP, SJHN, EHMS and the Same-Day Surgery Center
Partnership. Public and private efforts to shift care to less costly
alternatives, as well as growing consumerism and competition, have dictated a
need to provide efficiency and comfort to patients usually not available within
the traditional hospital. In addition,

<PAGE> 12

the Medicare program's prospective payment system and reduced inpatient stays
are causing intense competition to offer outpatient services at alternative
sites.

SJP and SJHN compete with a myriad of managed care businesses,
including health maintenance organizations (HMOs) and "independent practice
associations" that market their provider services to HMOs or independently as
"preferred provider organizations" (PPOs) or "exclusive provider organizations"
(EPOs) to insurance carriers or directly to employers and other payors. EHMS
will compete with the managed care businesses with which SJP and SJHN contract,
as well as competing against the same myriad of other managed care competitors
that are faced by SJP and SJHN.

The Same-Day Surgery Center Partnership competes with three similar
facilities in Hillsborough County. One such facility is within a short distance
of the partnership's site and offers most of the same services. That center is
currently owned by a group of physicians. The other similar facilities are
located more than ten miles away. Also, the Same-Day Surgery Center Partnership
competes with a nearby outpatient ophthalmic surgery facility. In addition to
competition from other existing and future free standing centers, the Same-Day
Surgery Center Partnership faces competition from hospital-based programs,
including programs at the Hospital, one of which is connected to the space
occupied by the Same-Day Surgery Center facility. Also, other area hospitals
have constructed or may construct separate outpatient surgery facilities to
take advantage of the growing ambulatory surgery market.

Another area of the expanding ambulatory care market is the delivery
of outpatient services in physicians' offices. Thus, the Same-Day Surgery
Center Partnership also competes with physicians' offices located in the
service area of the Same-Day Surgery Center Partnership.

Conflicts of Interest

The stockholders of the Company, health care related businesses
engaged directly or indirectly by the Company, and employees of such health
care related businesses are subject to potential conflicts of interest as a
result of associations with and/or ownership interests in other facilities that
may be considered to be in competition with the health care related businesses
engaged in directly or indirectly by the Company.

Employees

The Company engages the services of Charles E. Cernuda, M.D., a former
director and officer of the Company, as a part-time Executive Director to
handle various administrative matters for the Company. The Executive Director
position is not an officer position with the Company. Dr. Cernuda is paid
$40,000 annually for his services in such capacity. The Company currently is
funding the Executive Director's compensation from its revenue sources.

<PAGE> 13

ST. JOSEPH'S PHYSICIANS - HEALTHCENTER ORGANIZATION, INC.

Nature of SJPA Interest

The Company owns 50% (2,500 shares) of the common stock of St.
Joseph's Physicians - Healthcenter Organization, Inc. (the "PHO"). The
remaining 50% (2,500 shares) of the common stock is held by St. Joseph's
Enterprises, Inc. ("Enterprises"). Prior to January 31, 1997, Enterprises also
owned 100% of the PHO's preferred stock (6,250 shares), which had a par value
of $20 per share and carried the right to receive annual dividends amounting to
six percent (6%) of the par value of such shares, accumulating from year to
year until paid in full, prior to the payment of any dividends with respect to
the common stock. All cumulative preferred dividends were paid in connection
with the January 31, 1997 redemption of the preferred stock. Thus, any future
dividends that are paid by the PHO, if any, will be shared equally, on a per
share basis, by all shares of common stock. However, except for the cumulative
dividends paid upon redemption of the preferred stock, no dividends have been
paid by the PHO since the Company became a stockholder in the PHO.

Business

The PHO was organized principally as the vehicle through which the
Company and Enterprises together indirectly provide hospital and professional
services to various managed care organizations, and it also engages directly or
indirectly in various health care related businesses. The PHO owns 100% of SJP,
a Florida corporation organized on March 13, 1991 to provide health care
services through a "preferred provider" network. The PHO also owns 100% of
SJHN, a Florida corporation organized on May 26, 1995 to contract with managed
care entities primarily on a risk bearing basis. The PHO is currently the
managing general partner of, and in that respect owns a four percent (4%)
interest in, the Same-Day Surgery Center Partnership, a Florida limited
partnership that operates an ambulatory care center. In addition, the PHO owns
one and one half (1 1/2) limited partnership units (out of a total of 40 units)
in the Same-Day Surgery Center Partnership, but may resell these units to
qualified limited partners.

The PHO Agreement

General. On February 24, 1988, the Company, Enterprises and the PHO
entered into a written agreement setting forth various aspects of the
organization and operation of the PHO (the "PHO Agreement"). Pursuant to the
PHO Agreement. the Company acquired one-half of the authorized capital common
stock of the PHO for $50,000. Enterprises paid $50,000 for its common stock in
the PHO and $125,000 for its preferred stock (which was redeemed on January 31,
1997).

Management. The PHO Agreement prescribes a Board of Directors for the
PHO composed of ten (10) persons, five (5) of whom are selected by the
Company's Board of Directors and five (5) of whom are selected by Enterprises.
Current members of the Board of Directors of the PHO are:

<PAGE> 14

<TABLE>

Company's Representatives(1) Enterprises' Representatives
---------------------------- ----------------------------
<S> <C>

Anthony Brannan, M.D. Brent Amey, M.D.
Norman Castellano, M.D. Tommy Inzina
N. Bruce Edgerton, M.D. Isaac Mallah
Bill Luria, M.D. Gilbert Pitisci, M.D.
Benedict Maniscalco, M.D. Fleury Yelvington
</TABLE>

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

(1) See the discussion under Item 9 of this Report for information regarding
the Company's representatives, which discussion is hereby incorporated by
reference into the discussion under this Item 1. It should be noted that
certain of the Company's representatives may change when the Company's
Board of Directors considers these appointments at its annual meeting
scheduled for May 3, 1999.

Brent Amey, M.D., age 53, has been Vice President of Medical Affairs
of St. Joseph's-Baptist Health Care System since August 1997, and was Vice
President of Medical Affairs of St. Joseph's/St. Anthony's Health System from
February 1995 to August 1997, was Chief of Emergency Medicine at St. Joseph's
Hospital prior to February 1995 and was engaged in the private practice of
medicine in Tampa, Florida, specializing in emergency medicine, for 21 years
prior to February 1995, was a Director of St. Anthony's PHO from February 1995
through 1996, and was President of St. Anthony's PHO during 1997.

Tommy Inzina, age 40, has been Vice President of Finance and Treasurer
of BayCare Health System, Inc. since 1997, and was Director of Fiscal Services
for St. Joseph's/St. Anthony's Health System from 1993 to 1997.

Isaac Mallah, age 50, has been the President and Chief Executive
Officer of St. Joseph's-Baptist Health Care System since July 1997, was the
President and Chief Executive Officer of St. Joseph's/St. Anthony's Health
System from January to June 1997, and was the Executive Vice President from
1993 to 1996, Vice President from 1983 to 1993, and Chief Operating Officer
from 1989 to 1993 of St. Joseph's Health Care Center, Inc., Executive Vice
President since 1993 and a Director since 1986 of Enterprises,
Secretary/Treasurer and Director of the PHO since 1986, Secretary/Treasurer and
Director of SJHHS and SJP since 1991, Vice Chairman and Director of BayCare
since 1991 and Treasurer and Director of SJHN since 1995.

Gilbert Pitisci, M.D., age 55, was Senior Vice President of the
Hospital Corporation from 1993 to 1997, and was Vice President of Medical Staff
Affairs of the Hospital Corporation from 1987 to 1993, President of the PHO
from 1994 to 1995 and 1996 to 1997 and Chairman from 1995 to 1996, a Director
of the PHO from 1989 to 1997, a Director of SJP since 1994, Chairman from 1994
to 1995 and 1996 to 1997 and President from 1995 to 1996, Secretary and
Director of Enterprises from 1993 to 1997, and a Director and Vice Chairman of
SJHN since 1995. Since 1974, and prior to his position at St. Joseph's
Hospital, Dr. Pitisci was engaged in the private practice of medicine in Tampa,
Florida, specializing in pediatrics. In 1998, Dr. Pitisci returned to the
private practice of medicine in Tampa, Florida, specializing in pediatrics, as
an employee of HealthPoint Medical Group, which is owned by an affiliate of the
Hospital Corporation.

12
<PAGE> 15

Fleury Yelvington, age 44, has been Chief Operating Officer of the
Hospital Corporation since March 1999, and was Chief Operating Officer of St.
Joseph's Hospital, Inc. and St. Joseph's Women's Hospital, Inc. from August
1997 to March 1999, Administrator of St. Joseph's Women's Hospital, Inc. from
March 1995 to August 1997, and Vice President of Operations from 1993 to 1995.

The PHO Agreement requires that the President of the Hospital
Corporation shall at all times serve on the PHO Board of Directors as one of
the designees of Enterprises. In no event can an attorney or retired or former
attorney at any time serve on the Board of Directors of the PHO.

Vacancies occurring among the Company's representatives on the PHO
Board of Directors are filled by the Company's Board of Directors. Vacancies
occurring among Enterprises' representatives are filled by Enterprises' Board
of Directors.

For there to be a quorum at meetings of the Board of Directors of the
PHO, there must be present at least a majority of the directors representing
the Company and a majority of the directors representing Enterprises. When a
quorum is present, the act of a majority of the directors representing the
Company and a majority of the directors representing Enterprises will be the
act of the Board of Directors of the PHO.

The Bylaws of the Company contain a number of provisions governing the
electing of directors to the PHO Board and the manner in which the Company's
representatives on such Board shall act.

Officers of the PHO must be members of the PHO Board of Directors, and
the Company and Enterprises select an equal number of such officers.

Enterprises' Affiliates Bound By PHO Agreement. Pursuant to the PHO
Agreement, Enterprises is required to cause all of its present and future
affiliates to be bound by all of the agreements between Enterprises and the PHO
and/or the Company. The term "affiliates" of Enterprises is defined to include
all present and future subsidiaries of St. Joseph's Health Care Center, Inc.,
or its successor or successors, and all other present and future affiliated and
related entities and divisions of Enterprises, engaged directly or indirectly
in the delivery of health care services, including without limitation the
Hospital Corporation, the division of an affiliate of the Hospital known as
"HealthLine," and their respective present and future affiliated and related
entities and divisions.

Right of First Refusal. The PHO Agreement by its terms currently
prohibits Enterprises or any affiliate (as defined in the PHO Agreement) of
Enterprises, and the Company or any group comprised of ten percent (10%) or
more of the Company's stockholders, (individually or collectively, the
"Offeror") from forming, organizing or developing, or accepting any offer to
form, organize, develop, join, invest or otherwise participate in any future
health care related venture (as defined below) without first offering to the
PHO the right to form, organize or develop the same or similar health care
related venture (the "Offer"). The PHO will have thirty (30) days after receipt
of an Offer within which to accept the Offer on the terms and conditions
specified therein.

In the event the PHO accepts an Offer, then the Offeror is prohibited
from forming, organizing, developing, joining, investing or otherwise
participating in the proposed venture. However, an

<PAGE> 16

exception is provided for an Offer by a group of physicians. Each member of the
group of physicians will be entitled to and will have the option to purchase an
equitable interest in the same or similar health care related venture of the
PHO.

The "equitable interest" will be determined by the PHO Board of
Directors on a case-by-case basis. In any case-by-case determination, the
equitable interest offered to any physician making an Offer may not be equal to
the equitable interest offered to any other physician making the Offer, but
will be at least equal to the minimum interest which is offered by the PHO to
any other potential physician investor.

The PHO is required to use reasonable efforts to undertake the venture
within sixty (60) days of the PHO's acceptance of the Offer. If the PHO fails
to accept the Offer or to proceed with respect to the venture in the manner and
within the time required by the PHO Agreement, then the PHO will lose all
rights with respect to the venture, and the Offeror will be free to proceed
with respect to the venture described in the Offer.

Whoever proceeds with respect to a venture (whether it be the PHO or
the Offeror) is prohibited from making any substantial changes in the venture
as described in the Offer without obtaining the prior written approval of the
other party.

If either the PHO or the Offeror proceeds with respect to a venture in
violation of the provisions of the PHO Agreement, then the other party will
have the right within one (1) year after it becomes aware of such violation to
purchase the venture at the lower of the cost or appraised value of the
venture.

Except as provided in the following paragraph, the term "health care
related venture" is defined to include any venture that is related to the
delivery of health care services, including without limitation any type of
health care clinic, the rental of any property on the Hospital's campus for
physicians' offices or for any type of health care clinic, any expansion of the
services presently offered by a division of an affiliate of the Hospital known
as "HealthLine," any venture that is related to health care services affecting
non-acute inpatients (such as the establishment of a retirement living/nursing
home facility) and/or outpatients (such as the establishment of an intermediate
care facility or surgical ambulatory care center), any venture that is related
to health care and affects the reimbursement mechanism by which the Hospital
and the Company receive payment for services (such as the establishment of a
provider panel to contract with prepaid health plans, including HMOs or PPOs),
a medical office building, a convalescent care or diagnostic facility, durable
medical equipment services, outpatient or home oxygen/respiratory therapy,
outpatient clinical laboratory or imaging services and all opportunities for
the formation of HMOs, PPOs, PHOs and all other physician-hospital
organizations or entities.

However, the term "health care related venture" is defined to exclude,
without limitation, any venture relating to health care services affecting
acute inpatients (such as the purchase of St. Joseph's Women's Hospital or the
development and construction of The Tampa Children's Hospital), any venture
relating to the care delivered in private offices of the Company's stockholders
and any venture relating to instruments, equipment (with the exception of
diagnostic imaging equipment in connection with a venture involving the
delivery of health care services, such as a diagnostic imaging

<PAGE> 17

center) and devices used in the delivery of health care services or ancillary
thereto. There are certain arrangements, specified therein, to which the right
of first refusal provision in the PHO Agreement does not apply.

Although the PHO Agreement by its terms requires the stockholders of
the Company to make the Offer described above, because such stockholders are
not parties to the PHO Agreement, the issue has been raised as to whether
stockholders are bound by such requirement. However, the Company notes that all
stockholders were aware of such requirement prior to their purchase of stock
and, although there can be no assurance of success, the Company would seek to
enforce such requirement against a non-complying stockholder. Further, the
Company would intend to avail itself of its right to repurchase the Common
Stock in the Company owned by any stockholder who failed to comply with such
provision. Any such repurchase would make the stockholder ineligible to
participate in SJP's preferred provider network and in SJHN's managed care
arrangements and ineligible to continue any ownership interest in the Same-Day
Surgery Center Partnership.

Notwithstanding the foregoing, the PHO has not yet decided upon
whether to involve itself in any businesses other than SJP, SJHN and the
Same-Day Surgery Center Partnership, and the PHO may never decide to involve
itself in any other business.

Other situations have arisen during the past several years to which
the Right of First Refusal might apply (e.g., the creation of a pediatric
clinic and purchase of primary care medical practices by Enterprises or its
affiliates; the Company's investment in EHMS). The Company and Enterprises have
expressed differing views concerning the situations created by Enterprises or
by the Company, and discussions are ongoing with respect to the parameters of
the Right of First Refusal and the exceptions thereto. In January 1996,
Enterprises proposed that the Right of First Refusal be deleted from the PHO
Agreement and replaced with a memorandum of understanding, pursuant to which
the Company and Enterprises would strive to communicate with each other openly
regarding possible health care related ventures and would consider requests
from the other party to participate in possible health care related ventures
(but with no obligation to do so). A draft of such a memorandum of
understanding was prepared, and the Company has continued, so far
unsuccessfully, to attempt to complete negotiations. There can be no assurance
that the Company and Enterprises will be able to reach a mutually satisfactory
resolution concerning the parameters and application of the Right of First
Refusal.

Stock Transfer Restriction; Buy/Sell Option. The PHO Agreement also
provides that, since February 24, 1993 (which is the date five (5) years from
the date of the execution of the PHO Agreement), either the Company or
Enterprises (the "Offeror") may give written notice (the "Notice") to the other
(the "Recipient") that the Offeror desires to purchase the entire interest of
the Recipient in the PHO, or that the Offeror desires to sell to the Recipient
the Offeror's interest in the PHO. The Recipient will have one hundred and
eighty (180) days from the date the Notice is received to accept the offer or
to counteroffer by reversing the offer set forth in the Notice. If the
Recipient does not respond within the 180 day period, then the Recipient will
be deemed to have accepted the offer. If a counteroffer is made, then the
Offeror will be deemed to have accepted the counteroffer on the date of
receipt.

<PAGE> 18

In the event either party offers to purchase the interest of the other
party, the purchase price is required to be at least equal to the original
capital contribution and any additional capital contributions by the Recipient,
plus a return from the date of the contribution at the rate of six percent (6%)
per annum, compounded annually. In the event either party offers to sell its
interest to the other party, the selling price will be determined by the party
making the offer to sell.

As of April 15, 1999, no Notice has been given by either party, and
the Company is not presently aware of any intent on the part of either party to
give such a Notice.

Several members of the Board of Directors of the PHO have recommended
that the purchase price for exercise of this option should be changed to the
fair market value of the stock (to be determined in a mutually acceptable
manner), and this change currently is under review by the Company and
Enterprises. There can be no assurance that the Company and Enterprises will be
able to reach a mutually satisfactory resolution concerning this suggested
change.

Except for the buy/sell option, the Company and Enterprises each are
prohibited from attempting, directly or indirectly, to sell, assign, transfer,
mortgage, encumber, pledge, or otherwise deal with or dispose of all or any
part of their respective shares of stock in the PHO without first obtaining the
written consent of the other party.

Financial Matters

Results of Operations. The PHO had an increase in its consolidated
revenues in 1998, resulting primarily from an increase in the receipt by SJHN
of membership fees from the physicians and the Hospital who have been
credentialed as SJHN Providers. Each physician desiring to be an SJHN Provider
pays a one-time membership fee of either $150 (if a primary care physician) or
$1,000 (if a specialist) in connection with his or her credentialing
application, which membership fees are included in revenue if and when such
physician is accepted as an SJHN Provider. The Hospital also pays a membership
fee equal to the aggregate amount of membership fees paid by all of the
physicians. In 1998, SJHN collected membership fees of $139,800, while
aggregate membership fees in 1997 were $44,300, an increase of $95,500 from the
previous year. After 1998, it is anticipated that SJHN will not receive any
significant membership fees, as its panel is expected to have stabilized (the
only additions being replacements for physicians who leave or die and additions
to meet actual or perceived needs). See the discussion at "ST. JOSEPH'S HEALTH
NETWORK, INC. - Financial Matters," in Item 1 of this Report, which provisions
are hereby incorporated by reference. Other consolidated revenues earned by the
PHO during 1998 included $34,970 in fees collected by SJHN (at the rate of
$1.50 per member per month) from the Hospital for the administration of its
ProHealth Plus Employee Plan.

The PHO accounts for its 4% investment in the Same-Day Surgery Center
Partnership under the equity method, because of the PHO's ability to exercise
significant influence over the limited partnership. The PHO's net gain or loss
resulting from its proportionate share of the partnership's revenue and
expenses for the year is included in its statement of operations, included with
this Report. For the year ended December 31, 1998, the PHO's equity in earnings
of limited partnership was $78,190. The level of activity at the Same-Day
Surgery Center Partnership has continued during the

<PAGE> 19

first three months of 1999 at levels comparable to 1998. While there can be no
assurance that the level of activity for the Same-Day Surgery Center
Partnership will continue, the Company is not aware of any reason that such
level of activity should change significantly in the immediate future, although
the Company cannot predict the impact of certain regulatory matters. See
"SPECIAL CONSIDERATIONS -- Government Regulation" under Item 6 of this Report,
which discussion is incorporated by reference into the discussion under this
Item 1.

The PHO also earned $40,845 in 1998 from its holding of 1 1/2 limited
partnership units in the Same-Day Surgery Center Partnership. Income is
recorded at the time distributions are declared.

Investment income consists of distributions from certain of the
Partially Owned Operations and interest on bank accounts.

The PHO's combined cash balances increased during 1998, primarily as a
result of a delay in management fee payments paid to St. Joseph's Health Care
Center, Inc. ("HCC") and the increase in the amount of membership fees
collected from credentialed SJHN Providers (see the discussion at "BACKGROUND -
The Company's Ventures" in Item 1 of this Report, which provisions are hereby
incorporated by reference).

General and administrative expenses primarily consist of compensation
paid and benefit costs incurred with respect to management staff, internal
accounting costs and director and officer liability insurance premiums. Prior
to 1996, the PHO had no staff and relied on Enterprises and its affiliates to
perform all management and administrative functions. In 1996, a PHO Director, a
PHO Coordinator and a Provider Relations Representative were hired to staff the
operations of the PHO, SJP, SJHN and the physician hospital organization
operated for St. Anthony's Hospital (an organization affiliated with the
Hospital Corporation) and the physicians at that hospital in St. Petersburg,
Florida. Two additional staff persons were hired in 1997, one to act as a
financial analyst and one to provide provider relations coordination. The PHO
will incur general and administrative costs for its share of these personnel,
as well as for the share that is attributable to SJP, which will be allocated
to and paid by the PHO (see the discussion at "ST. JOSEPH'S PREFERRED, INC. -
Type of Business," in Item 1 of this Report, which provisions are hereby
incorporated by reference). In 1998, the Board of Directors of the PHO and the
boards of directors of physician-hospital organizations at Bayfront Medical
Center, Inc. and South Florida Baptist Hospital, Inc. (organizations affiliated
with the Hospital Corporation) approved a revision to the manner in which the
management fee (which includes aggregate PHO fixed costs) that is paid by each
physician- hospital organization to HCC is allocated, in order to align these
support activities along geographic and community boundaries. The new
allocation method results in a lower percentage allocated to the PHO, thereby
resulting in a decrease in general and administrative expenses. Thus, general
and administrative costs are expected to remain level or decrease in 1999 and
thereafter. There can be no assurance that the PHO's revenues and existing
funds will be sufficient to cover all of these expenses, particularly in light
of the anticipated decrease in revenues from SJHN membership fees.

Professional fees expense consists of costs associated with the
evaluation of and input with respect to new and proposed legislation and
business ventures, expenditures related to consulting, legal and actuarial
services with respect to implementation of new ventures, and audit fees.
Professional fees expense decreased in 1998, primarily because of reduced legal
fees associated with

<PAGE> 20

SJHN. The Company expects that in 1999 and future years, the PHO will continue
to make more in depth investigations of new and proposed legislation and
possible new ventures. However, it is not anticipated that any new ventures
will be implemented in 1999. As a consequence, professional fees expense is not
likely to increase substantially, if at all, in 1999.

Liquidity. As of December 31, 1998, the PHO had cash balances of
$286,789, representing approximately 45% of the PHO's total assets. This
increase in cash balances resulted primarily from a delay in management fee
payments paid to St. Joseph's Health Care Center, Inc. ("HCC") and the increase
in the amount of membership fees collected from credentialed SJHN Providers. As
of December 31, 1998, the delayed management fees were approximately
$122,722. In addition, the PHO generally receives quarterly distributions
from the Same-Day Surgery Center Partnership. The Same-Day Surgery Center
Partnership makes quarterly distributions in amounts equal to the amount by
which the Same-Day Surgery Center Partnership's cash balances exceed the amount
of the cash reserves estimated as being needed to satisfy the Partnership's
cash needs over a 45 day period. In addition, the PHO earns interest income on
its cash balances. For the near future, management believes it likely that its
current cash inflows, together with the existing cash balances, will continue
to provide sufficient funds for the PHO to pay its operating expenses, which
consist primarily of management fees to HCC, personnel costs, legal,
accounting, insurance, tax costs and investigations and funding of new
ventures. No dividends are expected from SJP or SJHN. It is anticipated that
the PHO may provide additional capital to SJHN, although the amount of such
capital has not been determined. It is expected, however, that the amount of
the PHO's contribution to SJHN, if any, would be determined taking into account
the PHO's then available liquidity and its other anticipated cash needs.

Capital Resources. As the managing general partner of the Same-Day
Surgery Center Partnership, the PHO is contingently liable for all liabilities
of the partnership. As a former managing general partner of St. Joseph's
Diagnostic Center, Ltd. (the "Diagnostic Center Partnership"), the PHO remains
contingently liable for liabilities of the Diagnostic Center Partnership
arising prior to sale by the PHO of its interest. As of December 31, 1998, the
Same-Day Surgery Center Partnership had $1,922,498 in current assets in excess
of current liabilities and long-term debt and the Diagnostic Center Partnership
had $6,287,049 in current assets in excess of current liabilities and long-term
debt. In addition, all long-term debt of the partnerships is collateralized by
inventory, accounts receivable and medical equipment.

Also, as the managing general partner of the Same-Day Surgery Center
Partnership, the PHO has determined that it will seek to cause the Same-Day
Surgery Center Partnership to finance, through long-term indebtedness, most, if
not all, of its future acquisitions of new and replacement equipment.

Other than as indicated above, the PHO has no debt and it is not
anticipated that any other debt will be incurred.

<PAGE> 21

Impact on SJPA

The Company accounts for its 50% common stock investment in the PHO on
the equity method. As a result of the redemption from Enterprises of the
preferred stock in the PHO on January 31, 1997, the Company's share of the
PHO's net income or loss will be 50%.

ST. JOSEPH'S PREFERRED, INC.

Nature of SJPA Interest

The PHO owns 100% of the outstanding stock of St. Joseph's Preferred,
Inc. ("SJP"). This corporation was organized by the PHO on March 13, 1991, and
initially capitalized with $10,000.

Type of Business

SJP has signed contracts with the Hospital Corporation, the Same Day
Surgery Center Partnership, SJHHS, and approximately 400 SJPA physician
stockholders (collectively referred to as the "PPO Providers"). These PPO
Providers have agreed to accept discounted fees as payment in full for services
provided to any patient covered under a PPO Contract between SJP and a payor.
These PPO Contracts require that the health care benefit plan of the
contracting entity have a design feature that provides some economic incentive
to the patient to use a PPO Provider (versus a non-PPO Provider).

SJP has signed a Network Linking Agreement (the "Network Linking
Agreement") with BayCare Health Network, Inc. ("BayCare"). This Network Linking
Agreement allows SJP to offer the services of its PPO Providers to enrollees of
BayCare requiring access to health care providers in Hillsborough County,
Florida. BayCare previously was owned entirely by Enterprises and by St.
Anthony's Hospital, Inc. and Morton F. Plant Hospital Association, Inc., two
not-for-profit hospitals located in Pinellas County, Florida. During 1994,
several additional hospitals in Hillsborough County and in Pinellas County
acquired ownership interests in BayCare. See the discussions under "BACKGROUND
- - The Company's Ventures" in Item 1 of this Report, which provisions are hereby
incorporated by reference. BayCare was initially operated under the name
SunHealth Care Plans - Gulf Coast, Inc., which name was changed in 1994 to
CareFirst Health Network, Inc. In 1995, the name again was changed to BayCare
Health Network, Inc.

The majority of the current PPO Contracts are held by BayCare, and
access to SJP's PPO Providers is through the Network Linking Agreement.
Currently BayCare has 80 contracts, covering approximately 29,320 enrolled
employees, to provide standard preferred provider, primary care preferred
provider and various insured health care products. This includes contracts with
the Hospital Corporation and the Same Day Surgery Center Partnership covering
approximately 3,100 employees. In addition, BayCare has entered into linking
agreements with a number of other managed care entities through which the PPO
Providers are made available to provide services to the approximately 63,500
enrolled employees of these other entities (35,600 of such employees being
under hospital services only contracts). In addition, the PHO Director has
functioned as a messenger for the Board of Directors of SJP in contracting with
two additional managed care organizations.

<PAGE> 22

SJP's principal activity is to provide a "managed care" vehicle for
bringing together otherwise unaffiliated service providers and groups of health
care consumers, and coordinating the relationships between PPO Providers and
the groups of consumers. Prior to 1996, SJP had no staff and relied on BayCare
to perform all operational and marketing functions for SJP. In 1996, a PHO
Director was hired, as well as a PHO Coordinator and a Provider Relations
Representative, to staff the operations of the PHO, SJP, SJHN and the physician
hospital organization operated for St. Anthony's Hospital (an organization
affiliated with the Hospital Corporation) and the physicians at that hospital
in St. Petersburg, Florida. Two additional staff were hired in 1997, one to act
as a financial analyst and the other to act as Provider Relations Coordinator.
The portion of the personnel costs associated with the management and
administration of SJP is allocated to and paid by the PHO. Accordingly, SJP has
no significant income or expenses.

Only stockholders in the Company are permitted to participate in SJP's
preferred provider network. As is described under the heading "DESCRIPTION OF
SECURITIES-Physician Qualifications" in Item 5 of this Report, only certain
members in good standing of the Active or Senior Active Medical Staff of St.
Joseph's Hospital are eligible to be stockholders in the Company. A physician
must provide services at the Hospital for at least one year as a Provisional
Member before qualifying to become a member of the Active or Senior Active
Medical Staff. In this regard, a question arose as to whether it would be in
SJP's best interest to also allow Provisional Members to participate in SJP's
provider panel, in part to facilitate the provision of care by newly hired
physicians in groups of PPO Providers. The Company did not believe that it was
in its best interests to relax its eligibility requirements or to consent to
SJP relaxing its requirements. Instead, an accommodation was reached to allow
Provisional Members to be given temporary credentials as providers in BayCare's
panel of providers, and the individuals then can provide services through the
network linking agreement between SJP and BayCare. The temporary credentials
will terminate when the physician becomes eligible to be a member of the Active
or Senior Active Medical Staff and does not then become a stockholder in the
Company. In 1995, the Company's Board of Directors voted to instruct the
Company's representatives on the Boards of Directors of the PHO and SJP to take
all steps necessary to inform BayCare that it should no longer extend temporary
provider contracts to members of the Provisional Medical Staff of St. Joseph's
Hospital who are not primary care physicians (i.e., those physicians practicing
in the areas of family or general practice, general internal medicine and
general pediatrics) or specialists who join a group which already has an
existing SJPA stockholder as a part of that group.

<PAGE> 23

prior to February 1995, the bylaws of BayCare included director quorum and
voting requirements which effectively provided that certain actions could not
be taken by BayCare without the affirmative vote of the directors of BayCare
that were designated by SJPA. However, the bylaws of BayCare were modified by
the Board of Directors of BayCare in February 1995 so as to retain the director
quorum requirements, but to replace the director voting requirements with
provisions that require simply a two-thirds majority vote of the directors
present at a meeting, thus eliminating the requirement that certain actions
could not be taken by BayCare without the affirmative vote of the directors of
BayCare that are designated by SJPA. In addition, in November 1996, the Board
of Directors of BayCare voted to change the quorum requirements to specify that
a quorum exists when any two representatives (physicians or administrators)
from five out of the then seven hospital-stockholders (i.e., at least two
representatives of 70% of the stockholders) were present at a meeting. There
can be no assurance that there will not be additional changes to the Bylaws of
BayCare that would operate to further limit the impact that the directors of
BayCare who are designated by SJPA would have on the Board of Directors of
BayCare.

Management

The Bylaws of SJP prescribe a Board of Directors for SJP composed of
four (4) persons, two (2) of whom are selected by the Company's Board of
Directors and two (2) of whom are selected by Enterprises. Current members of
the Board of Directors of SJP are:

Company's Representatives(1) Enterprises' Representatives(2)
---------------------------- -------------------------------

<S> <C>
Dennis Agliano, M.D. Isaac Mallah
F. Lane France, M.D. Gilbert Pitisci, M.D.

</TABLE>

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

(2) See the discussion above relating to management of the PHO for information
regarding Isaac Mallah and Gilbert Pitisci, M.D.

The above referenced SJP Board members also are Board members of
BayCare.

Financial Matters

SJP commenced operations in July 1991. Prior to 1996, SJP did not have
employees or significant administrative or other expenses, nor any significant
income. Although a portion of the costs associated with the PHO Director and
staff will be attributable to SJP's operations, such costs were and continue to
be allocated to and paid by the PHO, so financial matters relating to SJP have
not changed and are not expected to change significantly. It is anticipated
that the majority of SJP's contractual arrangements will continue to be entered
into via its linking agreement with BayCare.

<PAGE> 24

SJP also may sign individual contracts, as well, but these contracts are not
expected to result in significant income for SJP.

Impact on SJPA

Because SJP is not anticipated to have any significant income or
expenses, it is not anticipated to have a material impact on the business, or
the financial condition or results of operations, of the Company.

ST. JOSEPH'S HEALTH NETWORK, INC.

Nature of SJPA Interest

The PHO owns 100% of the outstanding stock of St. Joseph's Health
Network, Inc. ("SJHN"). This corporation was organized by the PHO on May 26,
1995, and initially capitalized with $1,000.

Type of Business

SJHN is a physician-hospital organization established for the purposes
of developing a network of hospitals and physicians (collectively referred to
as the "SJHN Providers") and negotiating at-risk (i.e., capitation) contracts
with managed care organizations on behalf of the SJHN Providers in order to
provide high quality, competitively priced health care services for persons
residing or employed in the Hillsborough County, Florida area.

SJHN has provided and is expected to continue to provide a vehicle for
risk sharing among the participating doctors and hospitals, while striving to
establish competitive prices, along with fair payments to the SJHN Providers.
SJHN has acted and plans to continue to act as the contracting agent to review,
evaluate and negotiate prepaid or capitated contracts on behalf of the SJHN
Providers. Under these contracts, the primary care physicians (i.e.,
pediatrics, family practice and general internal medicine) and perhaps certain
of the specialist physicians will be compensated by a monthly capitation (i.e.,
fixed payment per subscriber per month) that will require each physician to
assume the risk of providing the medical care needed by the subscribers in the
managed care plan that are assigned to the physician. This risk may be shared
by SJHN and the physician, or it may be borne by the physician alone. Those
physicians who are not capitated also could share in the volume of care risk,
because a portion of the fee-for-service payments that they will receive may be
withheld in risk pools.

The initial invitation to join SJHN as a physician provider was
extended only to SJPA stockholders. To date, approximately 243 physicians have
been credentialed. To be competitive in the capitated managed care business,
the ratio of primary care physicians to specialist physicians must be strictly
controlled. On an ongoing basis, the physician representation on SJHN's panel
is reviewed and evaluated to determine if any additional primary care
physicians or specialists are needed. The Company expects that, if a decision
is made that additional physicians are needed, then invitations will be made
only to SJPA stockholders; provided, that, if a need is identified for an
additional physician-

<PAGE> 25

provider that cannot be filled by an SJPA stockholder,
then SJHN has the discretion to allow a physician who is not an SJPA
stockholder to participate in the network.

SJHN has been negotiating, and continues to actively negotiate, for
capitation contracts with managed care entities. Its first such contract,
covering the employees of St. Joseph's Hospital, became effective on May 1,
1997. Despite its efforts, no additional capitation contracts have since been
added.

In 1996, a PHO Director was hired, as well as a PHO Coordinator and a
Provider Relations Representative, to staff the operations of the PHO, SJP,
SJHN and the physician hospital organization operated for St. Anthony's
Hospital (an organization affiliated with the Hospital Corporation) and the
physicians at that hospital in St. Petersburg, Florida. Two additional staff
were hired in 1997, one to act as a financial analyst and the other to act as
Provider Relations Coordinator. The portion of the personnel costs associated
with the management and administration of SJHN is allocated to and paid by
SJHN.

Management

The bylaws of SJHN prescribe a Board of Directors for SJHN composed of
nine (9) persons, including five physicians (three primary care physicians and
two specialists) and four hospital representatives. The bylaws of SJHN state
that the Executive Director of SJPA shall serve as an ex-officio board member
of SJHN. In addition, the PHO Director also will serve as an ex-officio board
member. Current members of the Board of Directors of SJHN are:

<TABLE>
<CAPTION>
Physician Representatives(1) Hospital Representatives(2)
---------------------------- ---------------------------
<S> <C>

Todd Rosenthal, M.D. Isaac Mallah
Cres Rodriguez, M.D. Tommy Inzina
Vijay Diwadkar, M.D. Gilbert Pitisci, M.D.
Jack Mezrah, M.D. Fleury Yelvington
Steve Ferzoco, M.D.
</TABLE>

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

(1) The Physician Representatives are all stockholders in the Company, but do
not currently serve on the Board of Directors of the Company.

(2) See the discussion above relating to management of the PHO and of SJP for
information regarding the Hospital Representatives.

Todd Rosenthal, age 43, received his M.D. degree from the University
of Miami. Since 1984, Dr. Rosenthal has engaged in the private practice of
medicine in Tampa, Florida specializing in Internal Medicine. Dr. Rosenthal is
a holder of a provider contract with SJP.

Cres Rodriguez, age 50, received his M.D. degree from the University
Central de Santo Pedro in the Dominican Republic. Since 1990, Dr. Rodriguez has
engaged in the private practice of medicine in Tampa, Florida specializing in
Internal Medicine. Dr. Rodriguez is a holder of a provider contract with SJP.

<PAGE> 26

Vijay Diwadkar, age 49, received his M.D. degree from the Topiwala
National Medical College in India. Since 1983, Dr. Diwadkar has engaged in the
private practice of medicine in Tampa, Florida specializing in Family Practice.
Dr. Diwadkar is a holder of a provider contract with SJP.

Jack Mezrah, age 70, received his M.D. degree from Emory University.
Since 1961, Dr. Mezrah has engaged in the private practice of medicine in
Tampa, Florida specializing in Gynecology. Dr. Mezrah is a holder of a provider
contract with SJP.

Steve Ferzoco, age 49, received his M.D. degree from Tufts Medical
School. Since 1981, Dr. Ferzoco has engaged in the practice of medicine in
Tampa, Florida specializing in Radiology. Dr. Ferzoco's group practice is a
holder of a provider contract with SJP.

Financial Matters

In 1998, applications and membership fees were received from
approximately 81 physicians expressing an interest in joining SJHN, and 77
physicians completed the credentialing process (some of whose applications were
submitted in 1997). In 1998, revenues of $139,800 were earned by SJHN from
membership fees received from the physicians and the Hospital. SJHN also earned
revenues of $34,970 (at the rate of $1.60 per member per month) from the
Hospital for administrative services rendered to its employees' ProHealth Plus
Employee Plan.

In 1997, $44,300 was earned in membership fees from the physicians and
the Hospital. Membership fee revenues increased in 1998 as a result of an
increase in the number of physicians who applied for and completed the
credentialing process. Each physician pays a one-time membership fee of either
$150 (if a primary care physician) or $1,000 (if a specialist). SJHN expects to
credential additional physician providers in 1999, but only as necessary to
replace departing providers and to fill gaps in certain sub-specialities. This
process will generate additional membership fee revenue, but it is not
anticipated that SJHN will receive any significant membership fees in 1999 or
thereafter (see the discussion regarding the membership fees at "ST. JOSEPH'S
PHYSICIANS HEALTHCENTER ORGANIZATION, INC. - Financial Matters -- Results of
Operations," in Item 1 of this Report, which provisions are hereby incorporated
by reference).

SJHN is expected not to generate any significant direct administrative
costs in 1999, because it does not directly employ any personnel. Rather, the
PHO will continue to provide personnel, and some administrative services will
be obtained from BayCare (through the Hospital's affiliation). In 1998, a
portion of the PHO's fixed administrative costs (most notably salaries and
benefits) were allocated to SJHN on the basis of twenty-eight percent (28%) of
total fixed costs (with other entities supported by the PHO being allocated the
remaining share). Total expenses for 1998 amounted to approximately $123,360,
and revenues were sufficient to cover expenses. A similar allocation of
administrative overhead is anticipated in 1999.

Impact on SJPA

There can be no assurance that SJHN's revenues will be sufficient to
cover its current operating expenses in 1999 and thereafter, particularly given
the anticipated decrease in membership

<PAGE> 27

fees, the inability to date to establish more than one contractual capitated
relationship, SJHN's lack of experience in handling risk-based (i.e.,
capitation) compensation and the inherent uncertainty relative to the funding
of fee-for-service specialist payments, which are dependent upon utilization.
In this regard, the Company might find it appropriate to assist
the PHO to provide funds to SJHN to be used to cover its working capital needs.
The amount of such funding has not been determined at this time. It is expected
that the Company's contribution to such funding would be
determined after taking into account the Company's available liquidity and its
other anticipated cash needs.

ST. JOSEPH'S SAME-DAY SURGERY CENTER, LTD.

Nature of the Company's Interest

The Same-Day Surgery Center Partnership was organized on May 19, 1987
to develop and operate an outpatient surgery center (the "Same-Day Surgery
Center Facility") in the Medical Arts Building which is located on the campus
of the Hospital and is owned by an affiliate of the Hospital Corporation. San
Damiano Enterprises, Inc., a Florida not-for-profit corporation and an
affiliate of the Hospital Corporation ("San Damiano") is the non-managing
general partner of the Same-Day Surgery Center Partnership, owning a
forty-eight percent (48%) partnership interest therein, and the PHO owns a four
percent (4%) interest as the managing general partner of the Same-Day Surgery
Center Partnership (the remaining interests being held by the limited
partners). The Company owns a fifty percent (50%) interest in the PHO, and thus
a 2% indirect interest in the Same-Day Surgery Center Partnership by virtue of
the PHO's 4% interest therein. Also, as indicated above, the Company owns five
limited partnership shares in the Same-Day Surgery Center Partnership,
amounting to a direct 6% ownership interest.

Business

The Same-Day Surgery Center Facility is a licensed outpatient surgery
center. The services offered include gastroenterology and outpatient surgery
including general surgery, ophthalmology, otolaryngology, orthopedics,
gynecology (excluding abortions and sterilizations), urology, and plastic
surgery. The services of the Same-Day Surgery Center are available to patients
of local physicians on a referral basis. Revenues are derived from billing
third party payors, including insurers, managed care organizations, Medicare,
Medicaid, other governmental health programs, and patients the portion to be
paid by each. The PHO, as the managing general partner, is the only partner
with management authority and is responsible for overall management of the
affairs of the Same-Day Surgery Center Partnership.

The Same-Day Surgery Center Partnership has entered into a management
agreement with St. Joseph's Health Care Center, Inc. ("HCC"). HCC is the 100%
owner of San Damiano, a 48% non-managing general partner of the Same-Day
Surgery Center Partnership. The management agreement provides for a management
fee of 2.5% of gross revenues. Services provided under the management agreement
include management of the day-to-day operations of the Same-Day Surgery Center
Facility by a full-time on-site HCC employee, data processing systems and
support, personnel administration, accounting services, and various other
administrative services. In addition, HCC provides billing and

<PAGE> 28

collection services for 5% of net revenues. The Same-Day Surgery Center
Partnership also has entered into agreements with anesthesiologists and other
professionals to provide medical services.

At the request of the Company's representatives on the PHO Board of
Directors, an evaluation of the economic impact of the management agreement and
the billing and collection agreement with HCC, as well as a number of
operational issues relating to the staffing and administration of the Same-Day
Surgery Center Partnership currently is underway, and a number of issues in
this regard are being negotiated with HCC and within the Board of Directors of
the PHO. Changes arising from this evaluation and the negotiations resulting
therefrom could have a material impact on the profitability and cash flow of
the Same-Day Surgery Center Partnership. However, there can be no assurance
that any changes will be made as a result of the evaluation and negotiations,
or that any such changes actually will achieve the anticipated results.

The Same-Day Surgery Center is in competition with three similar
facilities in Hillsborough County. One such facility is within a short distance
of the Same-Day Surgery Center and offers most of the same services. The other
similar facilities are located more than 10 miles away. The Same-Day Surgery
Center also competes with a nearby outpatient ophthalmic surgery facility. In
addition to existing free-standing centers, the Same-Day Surgery Center faces
competition from hospital-based programs, including both a program at the
Hospital to which the space occupied by the Same-Day Surgery Center Facility is
connected and a program at St. Joseph's Women's Hospital, a hospital located
across the street from the Same-Day Surgery Center Facility.

Facilities and Equipment

The Same-Day Surgery Center Partnership leases, from Franciscan
Properties, Inc., a wholly owned subsidiary of HCC and an affiliate of the
Hospital Corporation, approximately 17,000 net square feet on the first floor
of the St. Joseph's Medical Arts Building on the campus of the Hospital. The
rent paid by the Same-Day Surgery Center Partnership currently amounts to
$632,369 annually plus sales tax, and is subject to periodic escalations based
on increases in the Consumer Price Index.

The facility includes the leasehold and improvements providing six
operating suites, three endoscopy rooms, one treatment room, one stereotactic
breast suite, one pre-operative assessment area, one post anesthesia recovery
room with phases I and II, a stage II pediatric recovery area and support
facilities such as waiting areas, physician reading rooms, offices, medical
records and business office. The Same-Day Surgery Center Facility is an
outpatient facility designed to create a comfortable, noninstitutional
environment that will be efficient and convenient for both patients and
physicians.

The Same-Day Surgery Center Partnership recently exercised its final
option to renew the lease for five years and the lease now expires on February
28, 2003. However, an extension of the lease term beyond 2003 currently is one
of the issues being negotiated by the Company's representatives on the Board of
Directors of the PHO. There can be no assurance that any such renewal or lease
extension can be successfully negotiated.

<PAGE> 29

Financial Matters

Results of Operations. During 1998, the Same-Day Surgery Center
performed 12,132 procedures and generated approximately $8.9 million in
revenues and a net income of approximately $1.9 million. The Same-Day Surgery
Center Facility experienced a growth in volume of procedures of 5.5% in 1998,
but revenues decreased approximately $200,000, as managed care contractual
reimbursements and government reimbursements continued to decline.

Liquidity. At December 31, 1998, the Same-Day Surgery Center
Partnership held approximately $1,165,000 in cash, which accounted for 32% of
total assets. In 1998, the Same-Day Surgery Center Partnership generated
approximately $158,200 of cash per month after paying expenses and debt
service. There can be no assurance that such level of cash flow will continue.

Beginning with the period commencing on July 1, 1991, and for each
fiscal year of the Same-Day Surgery Center Partnership thereafter, an
assessment equal to 1.5% of the partnership's net revenues is being collected
to fund indigent care in Florida.

The Company is not aware of any other reason that the level of cash
flow for the Partnership should change in the immediate future, except to the
extent that any distributions are made, or if additional Florida or federal
legislation is passed which could affect reimbursement rates or impose
additional compliance expenses or there should occur continued managed care
contractual changes or changes in government rules that impact reimbursements.
See the discussion under the heading "SPECIAL CONSIDERATIONS" in Item 6 of this
Report, which discussion is hereby incorporated by reference into the
discussion under this Item 1. During 1998, the Same-Day Surgery Center
Partnership declared approximately $2.1 million in distributions to limited and
general partners. This included $125,040 declared payable to the Company in
respect of its five limited partner units, as well as a distribution of $83,360
declared payable to the PHO in its capacity as managing general partner. In
April 1999, the Same-Day Surgery Center Partnership will distribute
approximately $497,900 to partners of record on March 31, 1999. Of this amount,
$29,875 will be distributed to the Company in respect of its five limited
partner units, and $19,916 will be distributed to the PHO in its capacity as
managing general partner.

Capital Resources. At December 31, 1998, the Same-Day Surgery Center
Partnership had approximately $2.5 million in partners' equity. This
represented capital contributions from the general partners, 40 limited partner
shares and accumulated earnings.

The Same-Day Surgery Center Partnership has long-term debt consisting
of a line of credit with HCC, payable in monthly installments with interest at
prime rate, and a capital lease with an unaffiliated vendor for equipment,
payable in thirty-six (36) monthly installments of principal plus accrued
interest at the annual rate of 8.25%. At December 31, 1998, the aggregate
balance of the HCC line of credit and the capital lease was approximately
$202,400.

In 1998, the Same-Day Surgery Center Partnership completed capital
additions and replacements of approximately $299,900 in replacements and
upgrades, all of which were funded from existing cash balances.

<PAGE> 30

The Same-Day Surgery Center Partnership plans capital expenditures in
1999 of approximately $376,700 in equipment and instrumentation replacements
and upgrades, which are expected to be funded through additional borrowings.

Impact on SJPA

The Company is affected indirectly by the Same-Day Surgery Center
Partnership through its investment in the PHO, which is the 4% managing general
partner of the Same-Day Surgery Center Partnership. The PHO accounts for its
investment under the equity method, because of the PHO's ability to exercise
significant influence over the Same-Day Surgery Center Partnership.

SJPA accounts for its 50% common stock investment in the PHO on the
equity method. The Company is allocated 50% of the earnings and losses of the
PHO, and thus indirectly 2% of the net income or loss of the Same-Day Surgery
Center Partnership.

In addition, as indicated above, SJPA owns five limited partner units
in the Same-Day Surgery Center Partnership, which are accounted for on the cost
method. Revenue on the limited partners units will only be recorded by SJPA
upon declaration of distributions or a gain upon sale of the units. SJPA
actually received $121,365 in cash in partnership distributions in 1998 in
respect of the five units it owns. SJPA also expects to receive additional cash
distributions during 1999 in respect of the five units.

HOSPITALS' HOME HEALTH CARE OF HILLSBOROUGH COUNTY, INC.
d/b/a St. Joseph's Home Health Services

Nature of SJPA Interest

Until January 5, 1998, the Company owned 50% (4,000 shares) of the
common stock of Hospitals' Home Health Care of Hillsborough County, Inc., d/b/a
St. Joseph's Home Health Services ("SJHHS"). The other 50% was owned by St.
Joseph's Ancillary Services, Inc. ("SJAS"), a wholly owned subsidiary of HCC.
The difference between the Company's cost of acquisition and its equity in the
net liabilities of SJHHS was approximately $84,000 at the acquisition date and
had been amortized using the straight-line method over 40 years as a reduction
of equity in net earnings of investees. The amount of $66,362, representing the
unamortized portion of the difference, was written off and included in loss on
impairment of equity investment for the year ended December 31, 1997.

Over the last several years, the Company has been reviewing its
ownership of SJHHS. The Company has noted that referral limitations, reductions
in reimbursements from managed care organizations and government health plans,
and increased costs have negatively impacted on SJHHS' profitability. For
example, health care reform legislation was enacted by the Florida Legislature
in 1992, which became effective on October 1, 1994, which prohibits physician
referrals for certain "designated health services" (including, among others,
clinical laboratory and physical therapy services). Similar federal legislation
became effective on January 1, 1995 which prohibits a physician from referring
a Medicare or Medicaid patient for home health services, physical therapy
services,

<PAGE> 31

occupational therapy services, parenteral and enteral nutrients, equipment and
supplies to any entity in which the physician directly or indirectly owns a
financial interest. See the discussion under the heading "SPECIAL
CONSIDERATIONS" in Item 6 of this Report, which discussion is hereby
incorporated by reference into the discussion under this Item 1. As a result of
this Florida and federal legislation, SJHHS was no longer able to receive
referrals from physician-stockholders of the Company, and elimination of those
services resulted in a significant decrease in net income on an ongoing basis,
as compared to operations prior to 1995.

In addition, because the hospital-stockholders of BayCare decided to
expand BayCare's focus to integrate and coordinate many of the operations that
previously were conducted separately by each hospital (including home health
services), the competition faced by SJHHS in Hillsborough County grew more
intense as the Hospital began to divert its attention to the home health care
service operated by Morton Plant Mease Health Care (which is the home health
service designated to act on behalf of BayCare).

Based upon these facts, the Company determined that it would be
prudent to negotiate a sale of the Company's interest in SJHHS to SJAS. After
negotiations, it was agreed that SJAS would purchase the 4,000 shares of SJHHS'
common stock owned by the Company for $100,000, and the sale was agreed upon
and consummated on January 5, 1998.

Impact on SJPA

SJPA recognized its investment in SJHHS on the equity basis. Thus, it
annually recognized 50% of the net income of SJHHS. For the year ended December
31, 1997, SJPA recognized approximately $45,300 in earnings from its interest
in SJHHS. In addition, the equity investment in SJHHS was written down $200,410
to properly reflect the fair value as of December 31, 1997. Given the sale by
SJPA of all of its stock in SJHHS, future operations of SJHHS will have no
impact on the Company.

ENTRUSTED HEALTH MANAGEMENT SERVICES, INC.

Nature of SJPA Interest

On March 3, 1999, the Company purchased approximately 3% (100,000
shares) of the common stock of Entrusted Health Management Services, Inc.
("EHMS"), for which it paid $1.00 per share (for a total capital contribution
of $100,000). The balance of the outstanding common stock of EHMS is owned by
other individuals and entities, none of whom holds a majority interest in EHMS.
The Company has not been furnished with a listing of the stockholders of EHMS,
but it understands that several of the individuals who own stock in EHMS also
are stockholders in the Company. None of the members of the Company's Board of
Directors own any stock in EHMS, but the Company's Executive Director, Charles
Cernuda, is a stockholder in EHMS (as a result, Dr. Cernuda voluntarily chose
not to participate in the discussions of the SJPA Board of Directors regarding
the decision to make this investment).

<PAGE> 32

Business

EHMS is a start up entity that was organized to manage and administer
health benefit arrangements for self-insured employers. As described to the
Company, EHMS was founded and developed by several individuals, including the
President and Chief Executive Officer of the Employers Health Coalition, Inc.
(the "Coalition") and the Employers Purchasing Alliance, Inc. (the "Purchasing
Alliance"), both of which are Florida corporations. The Coalition is comprised
of approximately 148 members, each of whom is an employer who operates in west
central Florida, and provides educational and advocacy services to its
employer-members and their employee regarding health related issues and
healthful lifestyles. The Purchasing Alliance operates a group purchasing
service that offers preferred rates on health care related products and
services (e.g., HMO, PPO and insurance programs, managed care plan
administration, dental and vision care programs, drug testing services,
outpatient laboratory services, employee assistance programs) that it
negotiates with third party vendors on behalf of the employer-members of the
Coalition.

The Company was advised that the concept underlying EHMS is to bring
together employers and health care providers (e.g., physicians) to implement
self-insured plans that are designed to give control of the administration of
the health care benefits to the employer (the ultimate payer) and the physician
(the ultimate provider of health care services). By working together to design
health care programs and protocols for the provision and management of care,
and by providing the employer and the physician with detailed outcome and
utilization data, EHMS hopes to offer a system that is designed to allow the
employer and the physician - not an insurance company or HMO - to collect
savings realized through the implementation of cost-efficient delivery of
health care to employees. When fully operational, the services to be provided
by EHMS (either directly or through contractual arrangements with outside
vendors) are expected to include (1) designing and implementing benefit plans,
(2) offering the services of one or EHMS Network(s), (3) administering claims,
(4) collecting and analyzing health care data for employers with which it
contracts, and (5) disseminating detailed outcome and utilization data to the
employer and the physicians who provide services to the employer's employees
and their dependents.

This "employer/physician model" initially is expected to be offered to
the employer-members of the Coalition in addition to, and as an alternative to,
the existing HMO, PPO and insurance products offered through the Purchasing
Alliance. EHMS began to actively market its services to employer-members of the
Coalition in December 1998. It currently is negotiating with several employers
to whom it proposes to provide services, and EHMS has indicated that it expects
to implement its first contract with an employer (with approximately 4,000
employees and dependents participating in that employer's self-insured plan) on
or about June 1, 1999. EHMS also currently is working on the development of
several networks of physicians, hospitals and other health care providers (each
such network being referred to as an "EHMS Network"). Each such EHMS Network is
expected to be designed to service a specific geographic area within west
central Florida. The providers in the applicable EHMS Network are expected to
contract directly with EHMS on behalf of its employers (as opposed to the
providers contracting through a managed care organization, such as a HMO, which
then contracts with the employer). There can be no assurance that EHMS will
obtain contracts with any employers, or that it will be successful in building
the EHMS Networks that will be necessary to provide services in the west
central Florida area in which EHMS will concentrate its initial marketing
efforts.

<PAGE> 33

The Company was advised that initial development of EHMS and its
employer-physician model was funded through operational grants from various
sources. EHMS began in April 1998 to privately solicit capital contributions to
generate funds to finance its start-up. The funds derived from capital
contributions, including the funds provided by the Company, are being used as
collected, and are expected to be used, in part, to finalize systems and
contracts, obtain a Florida license as a "third party administrator" (to enable
EHMS to be involved in administering claims), develop the EHMS Networks,
develop marketing materials, hire and pay necessary staff and implement systems
in anticipation of administering the first employer contract that is obtained.
Once operational, EHMS plans to derive revenues from the services that it will
offer to employers in two ways. First, EHMS plans to charge a management fee
equal to 13.5% of the projected claims of each employer with which it
contracts. Second, beginning in the second year of a contract with an employer,
it plans to share in 10% of the savings, if any, that are derived from the
efficient operation of the employer's plan. EHMS has projected that it will
take approximately one and one half years to obtain contracts with employers
that will generate sufficient operating revenues to cover its operating
expenses. As of this time, EHMS has not obtained sufficient funding from
capital contributions to cover both its start-up costs and any operating
shortfall that occurs until it can generate sufficient operating revenues.
There can be no assurance that EHMS will be successful in generating the
initial capital funding to implement and support its start-up operations, or
that EHMS will obtain employer contracts that will generate operating revenues
that will be sufficient to support its ongoing business.

Impact on SJPA

The Company will account for its common stock investment in EHMS on
the cost method. Thus, revenue derived from the EHMS common stock will only be
recorded by the Company upon declaration of distributions or a gain upon sale
of the stock. No distributions from EHMS are anticipated in 1999 or the
foreseeable future, and there can be no assurance that the Company ever will
receive any distributions from EHMS. Likewise, although the Company has no
present intention to sell the EHMS stock, there can be no assurance that the
Company would be able to realize a gain, or even recover its investment, on any
sale of the stock in the future.

As noted above, EHMS currently has not generated sufficient capital
contributions to ensure adequate funding to implement and support its start-up
operations. In making its capital contribution, the Board of Directors of the
Company was aware of the significant risk of its investment. Nevertheless, the
decision was made to invest in EHMS, primarily with the expectation that the
stockholders of the Company would be given priority in joining the EHMS Network
that is being developed for Hillsborough County, Florida. In addition, in
negotiating the terms of the investment, EHMS provided some oral assurances
that the Company and its stockholders will have significant input into the
physician members of the various committees that are expected to be formed to
develop physician practice patterns and protocols and to work with the local
employers to develop health plan parameters. EHMS also provided some oral
assurances that the Company would have an option to purchase an additional
100,000 shares of EHMS' common stock for $1.00 per share. The Company is in the
process of preparing and negotiating an agreement with EHMS to memorialize
these oral assurances.

<PAGE> 34

ITEM 2. PROPERTIES.

The Company does not own any tangible property, either real or
personal. The Company's principal assets are its investments in other entities,
and the Company does not have any present plans to acquire any significant
properties other than interests in other entities. Although the entities in
which the Company owns interests do own significant properties, and although
the Company does exercise some degree of indirect control over the management
of those entities and their properties, as discussed elsewhere in this Report,
the Company does not directly own or control any such properties.

ITEM 3. LEGAL PROCEEDINGS.

Declaratory Statement Action With Respect to SJHHS

The language of the Patient Self-Referral Act of 1992 is ambiguous in
many respects. One such ambiguity can be found in the definition of an
"investor," which relates to whether a stockholder in SJPA is deemed indirectly
to be an "investor" in the Same-Day Surgery Center Partnership or SJHHS. A
provision of the Patient Self-Referral Act of 1992 allows a person or an entity
that could be affected by the prohibitions included in the Patient
Self-Referral Act of 1992 to request that the Florida Agency for Health Care
Administration ("AHCA"), or the applicable professional board under the Florida
Department of Business and Professional Regulation, issue a declaratory
statement defining how the applicable state agency interprets an ambiguous
provision of the Patient Self-Referral Act of 1992. Using this procedure, a
Petition for Declaratory Statement was filed by Charles E. Cernuda, M.D. and
SJPA (the "Declaratory Statement Action"), seeking an interpretation from the
Board of Medicine of the Department of Business and Professional Regulation
(the "Board") on whether a stockholder in SJPA is deemed to indirectly be an
"investor" in SJHHS, thereby prohibiting the stockholder in SJPA from referring
a patient to SJHHS for physical therapy services, occupational and speech
therapy services or clinical laboratory services that are rendered as an
incident to other home health services provided by SJHHS.

In a Final Order issued on March 16, 1995, the Board of Medicine ruled
that the definition of "investor" should be broadly interpreted and concluded
that each stockholder's investment interest in SJPA results in such stockholder
also being an "investor" in SJHHS (by virtue of SJPA's ownership of 50% of the
outstanding stock of SJHHS). Accordingly, the Board concluded that the
stockholders of SJPA are subject to the absolute prohibition for referrals to
SJHHS for the "designated health services" that are specified in the Patient
Self-Referral Act of 1992. For the impact of this ruling, see the discussion
under the heading "HOSPITALS' HOME HEALTH CARE OF HILLSBOROUGH COUNTY, INC.
d/b/a St. Joseph's Home Health Services - Nature of SJPA Interest" in Item 1 of
this Report, which provisions are hereby incorporated by reference into the
discussion under this Item 3. For further discussion regarding the Patient
Self-Referral Act of 1992, see the discussion under the heading "SPECIAL
CONSIDERATIONS" in Item 6 of this Report, which provisions are hereby
incorporated by reference into the discussion under this Item 3.

To the knowledge of the Company's management, there are no other
material pending legal proceedings, other than ordinary routine litigation
incidental to the business of the Company, or its

<PAGE> 35

Partially Owned Operations, to which the Company or any of its Partially Owned
Operations is a party or of which any of their property is the subject.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

None.

PART II

ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.

GENERAL

No Market for the Company's Stock

There are substantial limitations on the ownership and transfer of the
Company's Common Stock. Accordingly, there has never been nor will there ever
be (unless there are substantial revisions to the Company's Articles of
Incorporation and Bylaws) any public or other market for the Company's Common
Stock.

Due to restrictions in the Bylaws, there is no market in the Common
Stock, except for repurchase by the Company at a price equivalent to current
book value. All shares of the Company's Common Stock that are issued and
outstanding were purchased directly from the Company. Shares sold to date
include the nine shares sold to the Company's nine initial stockholders shortly
after the Company's organization, shares sold in the Company's initial public
offering in the third quarter of 1988, an additional 11 shares issued in
several transactions not involving a public offering in the third quarter of
1990, all at $1,250 per share, an additional 19 shares issued in several
transactions not involving a public offering in the third quarter of 1991 at
$1,500 per share, an additional 62 shares issued in several transactions not
involving a public offering in the second quarter of 1992 at $1,750 per share,
an additional 62 shares issued in several transactions not involving a public
offering in the second quarter of 1993 at $1,925 per share, an additional 46
shares issued in several transactions not involving a public offering in the
second quarter of 1994 at $2,570 per share, an additional 43 shares issued in
several transactions not involving a public offering in the second quarter of
1995 at $3,000 per share, an additional 22 shares issued in several
transactions not involving a public offering in the second quarter of 1996 at
$3,200, and an additional 10 shares issued in several transactions not
involving a public offering in the second quarter of 1997 at $3,450. There were
no additional shares of Common Stock issued by the Company in 1998.

Shares have been repurchased by the Company during the second half of
1990 and during 1991, 1992, 1993, 1994, 1995, 1996, 1997 and 1998, and
additional share repurchases are anticipated during 1999. The most recent
repurchases were for $3,113 per share, or approximately $1,863 per share more
than the original purchase price of the Common Stock.

<PAGE> 36

Holders

As of March 31, 1999, there were 414 Common Stockholders of record,
each owning exactly one share.

Dividends

In 1998, the Company did not declare any dividends on its Common
Stock. For the foreseeable future, the Board of Directors generally intends to
continue to retain earnings for use in the Company's business. Any future
determination as to declaration and payment of dividends will be made at the
discretion of the Board of Directors and will depend upon, among other things,
the Company's future earnings, capital requirements and financial condition, as
well as all other relevant factors.

DESCRIPTION OF SECURITIES

General

The Company has an authorized capital of 7,500 common shares of one
class, $1.00 par value per share. Upon any dissolution or liquidation of the
Company, the holders of Common Stock will share pro rata in all assets
remaining after the payment of expenses and debts. The holders thereof have no
preemptive or conversion rights. Holders of Common Stock are entitled to one
vote for each share held on all matters submitted to a vote of the Company's
stockholders. Such holders are entitled to receive such dividends as may be
declared by the Board of Directors out of assets legally available for the
payment of dividends.

Eligibility to Participate in Other Ventures

Non-Cumulative Voting

The holders of Common Stock do not have cumulative voting rights,
which means that the holders of more than 50% of such outstanding shares
participating in any election of directors can elect all of the directors to be
elected if they so choose, and in such event the holders of the remaining
shares will not be able to elect any directors.

Restrictions on Transferability

Shares of Common Stock of the Company are not transferable without the
prior written consent of the Company (which consent may be withheld in the sole
discretion of the Board of Directors), and such Shares are subject to
redemption by the Company under certain circumstances.

<PAGE> 37

Physician Qualifications

General. As provided in the Bylaws of the Company, only
individual physicians who are members in good standing of the Active or Senior
Active Medical Staff of the Hospital are qualified to be stockholders. A
stockholder at all times must satisfy the foregoing requirement unless waived
by a vote of two-thirds of the members of the Board of Directors. A
stockholder's failure at any time to satisfy such requirement for any reason
whatsoever, including death, retirement or disability, will cause a termination
of such stockholder's interest and the share of Common Stock held by such
stockholder will be redeemed by the Company. In addition, in 1995, the Board of
Directors voted to restrict the offering of shares to only those Active and
Senior Active members of the Medical Staff of the Hospital who are primary care
physicians (i.e. family or general practitioners, general internists and
general pediatricians) or specialists who are members of a group in which at
least one existing SJPA stockholder also is a part. If additional shares of
stock of the Company are sold in 1998, it is possible that similar restrictions
on potential investors could be imposed again by the Board of Directors.

Notwithstanding a physician's satisfaction at any time of such
requirement, if a determination is made by two-thirds (2/3) of the members of
the Board of Directors that continued qualification of the physician as a
stockholder is not in the best interests of the Company, then the physician
will not be permitted to acquire or retain any interest in the Company, and
there shall then be a mandatory redemption of such stockholder's Common Stock
in the Company.

Special Consideration for Primary Care Physicians.
Historically, physicians have been given the opportunity to become stockholders
of the Company during specified offering periods by paying the then applicable
purchase price in cash. More recently, a concern was expressed to the Company
that many younger primary care physicians (i.e., family practitioners, general
practitioners, general internists and general pediatricians) have been deterred
from purchasing stock because the purchase price is required to be paid all at
once. The Company has recognized the importance of having a substantial number
of primary care physicians available in the pool of physicians who may
participate in the preferred provider network offered by SJP, in the network
offered by SJHN or for other managed care ventures in which the Company may
become involved in the future. As an inducement for primary care physicians,
the Company has decided that, any time an offering of Common Stock is to
proceed, primary care physicians may be given the option by the Company's Board
of Directors, of either paying the entire purchase price for a share of stock
at the time of purchase or making three annual installments (with interest) of
the purchase price. This special consideration may be given only to primary
care physicians, as classified by the Company; all other physicians will be
required to pay the purchase price in cash all at once before shares of stock
may be issued to such other physicians. In 1997, the Board of Directors of the
Company decided that interest should be charged on the deferred installments
(prior to 1997, the installments were due without interest). The interest rate
is determined on the date of the promissory note evidencing the installment
obligation, based upon the "applicable federal rate" (i.e., the rate necessary
to avoid imputed interest on a "below market" loan under the Internal Revenue
Code of 1986 and the Treasury Regulations promulgated thereunder), and it is
fixed for the period that the installment obligation remains outstanding.

<PAGE> 38

Procedure for Redemption and Termination of Interest

The redemption price of each share of Common Stock redeemed pursuant
to mandatory redemption will be the adjusted book value per share as of the end
of the fiscal quarter immediately preceding the date on which the Company
receives notice of the mandatory redemption event.

If any stockholder, for any reason other than a mandatory redemption
event, desires to terminate the stockholder's interest in the Company and
offers to transfer such stockholder's share to the Company, then the Company
will be obligated to accept the transfer to the Company of such stockholder's
share. The price and the terms of payment, if any, for each such share accepted
by the Company will be determined by the Board of Directors in its sole and
absolute discretion, within thirty (30) days after receipt by the Company of
the certificate representing the share transferred to the Company. No
stockholder will have the right to require the Company to pay anything to the
stockholder upon termination of the stockholder's interest for any reason other
than a mandatory redemption event. Accordingly, the stockholder may lose the
entire purchase price paid for the share.

<PAGE> 39

ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.

RESULTS OF OPERATIONS AND FINANCIAL CONDITION

The following table sets forth, for the periods indicated, selected
financial data with respect to the Company:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1998 1997 1996 1995 1994
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>

Equity in net earnings of
investees $ 42,971 $ 2,763 $ 146,911 $ 16,402 $ 228,891

Distribution income $ 125,040 120,040 154,080 139,880 125,310

Net income (loss) 41,141 (144,780) 133,111 63,068 149,135

Income per common share(1):

Net income (loss) 96 (333) 307 154 402

Total assets 1,517,542 1,408,868 1,584,002 1,406,982 1,216,228

Long-term obligations -0- -0- -0- -0- -0-

Cash dividends declared
per common share -0- -0- -0- -0- -0-

</TABLE>

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

(1) The adoption of Financial Accounting Standards Board ("FASB") Statement
128, Earnings per Share, had no effect on the computation of income per
common share.

Because there exist material uncertainties as to matters that could
affect the Company, the data reflected above may not be indicative of the
Company's future financial condition or results of operations. See the
discussion under the heading "SPECIAL CONSIDERATIONS" in Item 6 of this Report,
which provisions are hereby incorporated by reference into the discussion under
this Item 6.

<PAGE> 40

1998 vs. 1997

In 1998, revenues increased as a result of an increase in the
profitability of the PHO. The increase in the profitability of the PHO is
primarily a result of (1) an increase in membership fees associated with SJHN,
and (2) a reduction in the management fee paid to HCC (see the discussion
regarding the membership fees and management fees at "ST JOSEPH'S PHYSICIANS
HEALTHCENTER ORGANIZATION, INC. - Financial Matters -- Results of Operations,"
in Item 1 of this Report, which provisions are hereby incorporated by
reference). The Company's revenues also increased as a result of an increase in
interest income because of higher cash balances.

The increase in the Company's revenues in 1998 was offset by the
elimination of SJHHS earnings, resulting from the Company's sale of its SJHHS
stock on January 5, 1998. The Company sold its 4,000 shares of the common stock
of SJHHS to SJAS for $100,000. Although the Company believes that the sales
price reflected the fair market value for the stock of SJHHS, the investment
was sold for a price that was lower than the equity investment in SJHHS at
December 31, 1997. As a result, the equity investment in SJHHS was written down
$200,410 in 1997 to properly reflect the fair value at December 31, 1997. There
is no impact from the write-down of the equity investment in the 1998 statement
of operations.

The Company anticipates that its revenues will decrease in 1999 and
thereafter, primarily because membership fees associated with SJHN are expected
to decrease substantially.

Expenses increased in 1998 because of increases in general and
administrative expenses relating primarily to (1) consulting fees related to
the review of the operations of the Same-Day Surgery Center Partnership, (2)
legal fees related to a review of strategic planning options for the Company,
and (3) accounting fees related to the year-end audit and reviews of the
Company's quarterly and annual SEC reports. It is anticipated that general and
administrative expenses will continue to be incurred in 1999 at levels
consistent with 1998, as the Company is continuing to review strategic planning
options.

1997 vs. 1996

In 1997, the Company's revenues decreased as a result of a loss
incurred by the PHO and a decrease in the profitability of SJHHS. The impact of
the operating loss incurred by the PHO in 1997 was further magnified because of
the 1997 redemption of the preferred stock in the PHO from Enterprises, which
resulted in the Company reporting approximately 50% of the PHO's loss in the
Company's revenues for 1997 as opposed to reporting approximately 22% had the
redemption not occurred. The loss incurred by the PHO is a result of (1) an
increase in expenses relating to compensation and benefit costs incurred with
respect to recently hired staff, and (2) a decrease in member and credentialing
fees associated with SJHN. The decrease in the profitability of SJHHS is the
result of an increase in the volume of Medicaid and certain HMO patients
(referred to SJHHS for infusion therapy and pediatric home care visits by
physicians who were not stockholders in the Company) for whom reimbursements
are lower than for patients covered by commercial insurance (although the
patients require the same level of care, and thus the same costs). In addition,
the cost of providing infusion therapy services increased during 1997.

Expenses increased in 1997 because of increases in general and
administrative expenses relating to (1) consulting fees incurred for an
analysis of the issues relating to the feasibility of the sale of SJHHS' common
stock and the negotiation of such sale with SJAS, and (2) bookkeeping fees

<PAGE> 41

incurred which were previously provided without charge by HCC. These increases
were offset by a decrease in legal fees and reduced cost of directors and
officers liability insurance.

During 1997, the Company adopted FASB Statement 128, Earning per
Share. The adoption of this Statement had no effect on the computation of
income per common share of the Company.

On January 5, 1998, the Company sold its 4,000 shares of the common
stock of SJHHS to SJAS, which owned the other outstanding 50%, for $100,000.
Although the Company believes that the sales price reflected the fair market
value for the stock of SJHHS, the investment was sold for a price that was
lower than the equity investment in SJHHS at December 31, 1997. As a result,
the equity investment in SJHHS was written down $200,410 to properly reflect
the fair value at December 31, 1997.

LIQUIDITY AND CAPITAL RESOURCES

Shortly after its organization, the Company's nine founding
stockholders each purchased one share of Common Stock in the Company for $1,250
per share. An additional 202 shares of Common Stock were sold for the same
amount in the Company's initial public offering, conducted in the period from
August 12, 1988 through December 31, 1988, bringing the Company's total initial
capitalization to $263,750. The following table sets forth information
concerning additional shares that have since been issued:

Year Shares Issued Per Share Price Total Consideration Received
--------- ------------- -------------- ----------------------------
<S> <C> <C> <C>
1990 11 $1,250 $13,750
--------- ------------- -------------- ----------------------------
1991 19 $1,500 $28,500
--------- ------------- -------------- ----------------------------
1992 62 $1,750 $108,500
--------- ------------- -------------- ----------------------------
1993 62 $1,925 $119,350
--------- ------------- -------------- ----------------------------
1994 46 $2,570 $118,220
--------- ------------- -------------- ----------------------------
1995 43 $3,000 $119,000 cash plus $10,000
in notes
--------- ------------- -------------- ----------------------------
1996 22 $3,200 $63,800 cash plus $6,600
in notes
--------- ------------- -------------- ----------------------------
1997 10 $3,450 $34,500
--------- ------------- -------------- ----------------------------
1998 0 $0 $0
--------- ------------- -------------- ----------------------------
</TABLE>

The following table sets forth information concerning share repurchases:

<PAGE> 42

Time Period Shares Repurchased Total Amount Paid
- --------------------- ------------------ -------------------
<S> <C> <C>

Second half of 1990 6 $ 5,639
- --------------------- ------------------ -------------------
Second half of 1991 3 $ 3,512
- --------------------- ------------------ -------------------
Second half of 1992 3 $ 5,769
- --------------------- ------------------ -------------------
Second half of 1993 4 $ 8,124
- --------------------- ------------------ -------------------
Second half of 1994 5 $13,134
- --------------------- ------------------ -------------------
First half of 1995 1 $ 2,627
- --------------------- ------------------ -------------------
Second half of 1995 5 $15,241
- --------------------- ------------------ -------------------
First half of 1996 1 $ 3,048
- --------------------- ------------------ -------------------
Second half of 1996 15 $45,848
- --------------------- ------------------ -------------------
Second half of 1997 12 $39,376
- --------------------- ------------------ -------------------
First half of 1998 1 $ 3,048
- --------------------- ------------------ -------------------
Second half of 1998 13 $40,540
- --------------------- ------------------ -------------------

</TABLE>

No dividends were declared in 1998, and no dividends are contemplated
in the near future.

No dividends were received from the PHO in 1998 and no dividends are
expected from the PHO in 1999. All operating cash in 1998 was derived from the
distributions with respect to the Company's limited partner units in the
Same-Day Surgery Center Partnership. Operating cash in 1999 is expected to be
derived from distributions with respect to the Company's limited partnership
units in the Same-Day Surgery Center Partnership and from cash on hand at the
end of 1998. Such cash is anticipated to meet the Company's cash needs during
1999. Further, the Company may elect to conduct a private offering of its
Common Stock in 1999 at a price that will be determined based upon the then per
share book value of the Company's stock. See the discussion under the heading
"Physician Qualifications" in Item 5 of this report, which discussion is hereby
incorporated by reference into the discussion under this Item 6. If additional
shares are sold in this fashion, such purchases will reduce the percentage of
the Company owned by each shareholder, and thus also the percentage of the net
income and net assets attributable to each shareholder.

As a result of the PHO's return to profitability in 1998, the 1998
balance sheet of the Company reflects an increase of $110,263 in the Company's
equity investment in the PHO and appropriate adjustments to certain related
items. These changes are designed to take into account the increase, from
approximately 22% to 50%, in the Company's effective ownership in the PHO that
resulted from the 1997 redemption from Enterprises of the outstanding preferred
stock in the PHO. Although these various changes in the balance sheet of the
Company have the cumulative effect of increasing the Company's stockholders'
equity by $68,263, none of these adjustments have any material impact, either
positive or negative, on the Company's liquidity.

PARTIALLY OWNED OPERATIONS

The financial condition, results of operations, liquidity and capital
resources of the Company reflect and depend upon the financial condition,
results of operations, liquidity and capital resources of the Partially Owned
Operations. The discussions of such matters under Item 1 of this Report are
hereby incorporated by reference into the discussion under this Item 6.

<PAGE> 43

The Company recognizes that its current revenues likely will not be
sufficient to fund its expenses as they currently exist. A review of expenses
and strategic planning for additional revenue sources currently is underway.

YEAR 2000

The Company is aware of the issues associated with the programing code
in existing systems as the Year 2000 approaches, and it has developed an
implementation plan to resolve this issue by June 30, 1999. This plan involves
the assessment of whether the existing hardware system and accounting software
used in the management of the Company's operations are Year 2000 compliant. The
third party providing the Company's administrative support services currently
operates only one PC in connection with the Company's administrative operations
and runs only widely-used "off the shelf" third party software in connection
with performing these services. The Company expects that the third party
handling the administrative support services is Year 2000 compliant and that,
even if it is determined that such hardware and software are not Year 2000
compliant, then the third party will incur the cost to replace such hardware
and/or software (because such cost is not anticipated to be significant).
Furthermore, the Company believes that even if the hardware and/or software are
not made Year 2000 compliant, then the Company would simply have a short term
information gap until new hardware and/or software is purchased by the third
party handling the administrative services; but the information gap would not
be expected to have a material adverse impact on the Company, its financial
condition or its results of operations. The Company does not currently own or
operate any Information Technology ("IT") systems, and it has not identified
any non-IT systems, such as equipment with embedded chips, that currently are
in operation by the Company.

The Company also is making inquiries as to the Year 2000 readiness of
other third parties (including the PHO, SJP, SJHN, the Same Day Surgery Center
Partnership, BayCare and other unrelated third parties) that could cause a
material impact on the Company. The Company has received some preliminary
information concerning the status of third parties and anticipates initiating
more extensive inquiries. The PHO, SJP, SJHN and the Same Day Surgery Center
Partnership have completed the risk assessment phase and are in the process of
upgrading and replacing systems and equipment found not to be compliant, and
the Company has been informed that these entities expect to achieve Year 2000
compliance by December 1999. However, there can be no assurances that computer
systems of any third party, whether related or unrelated, will be Year 2000
compliant, or that any failure to be compliant will not have a material adverse
impact on the Company, its financial condition or its results of operations.

In addition, the Company believes that a significant number of the
stockholders of the Company acquired stock in the Company for the purpose of
being eligible to participate in certain activities that are available only to
the stockholders of the Company (e.g., participation on the provider networks
of SJP and SJHN). It is possible that a Year 2000 compliance failure by SJP,
BayCare or SJHN, or a third party with which any of these entities contracts,
could have a material adverse impact on the individual stockholders who
participate in the various provider panels operated by these entities, even
though the compliance failure would not have a material adverse impact on the
Company, its financial condition or its results of operations. Whether or not
any such adverse effect

<PAGE> 44

occurs is beyond the control of the Company, and the extent of the adverse
effect will depend upon the individual stockholder's particular circumstances.

At this time, the Company does not believe that it is necessary to
have a contingency plan for the Year 2000 issue. However, this need will be
continuously monitored as the Company receives more information about the
preparations of third parties.

SPECIAL CONSIDERATIONS

As with any business venture, there are matters which the Company
cannot predict with certainty. Several of these matters are discussed below,
some of which already have materialized, and others, if they were to
materialize, could have a materially adverse effect on the Company.

Government Regulation

Several new laws and regulations affecting the health care business
were adopted, at both the state and federal levels, during the last several
years, including 1997 and 1998. Additional healthcare reform currently is being
considered by the Florida Legislature during its Session that began on March 2,
1999 and currently is scheduled to continue through the first week in May.
Additional health care reform legislation also is has been proposed for
consideration in 1999 at the federal level. All of the legislation and
regulation could have a dramatically adverse impact on the Company, the
Partially Owned Operations, EHMS and the stockholders of SJPA.

Indigent Care Assessment. Legislation was passed by the Florida
Legislature during its 1991 Session to raise additional State revenues to fund
health care for the indigent. This legislation imposed an assessment (the
"Assessment") equal to 1.5% of the annual "net operating revenues" (gross
revenues less expenses of collection and certain contractual adjustments and
discounts) of certain specified health care entities. The specified health care
entities include: (1) ambulatory surgical centers, (2) clinical laboratories,
(3) free standing radiation therapy centers and (4) free standing outpatient
diagnostic imaging centers. An entity subject to the Assessment which fails to
file the required quarterly reports or files incomplete reports, or which fails
to pay the quarterly Assessment in a timely manner, will be subject to daily
fines that can become substantial for continuing failures.

The Same-Day Surgery Center Partnership is subject to the Assessment.
The partnership provided for this accrued expense in its financial statements
for the period ended December 31, 1998. See the discussion under "ST. JOSEPH'S
SAME-DAY SURGERY CENTER, LTD. - Financial Matters" in Item 1 of this Report,
which provisions are hereby incorporated by reference into this Item 6. The
Assessment adversely impacts the cash flow available for distribution to the
investors in the partnership, which, in turn, impacts on the cash flow of the
PHO and the Company.

Fraud and Abuse in Health Care Programs. The Medicare Anti-Kickback
Statute (the "Statute"), which came into law in the 1970's, is violated by
anyone who offers, pays or receives "remuneration" in return for referring (or
inducing a referral) or for purchasing, leasing or ordering any business
reimbursed under the Medicare or Medicaid Program. This law is commonly known
as the "fraud and abuse statute." The Office of Inspector General ("OIG") of
the U.S. Department of

<PAGE> 45

Health and Human Services ("DHHS") has published its final Medicare and
Medicaid fraud and abuse safe harbor regulations (collectively, the
"Regulations"). The Regulations, which became effective immediately upon
publication, are designed to identify certain arrangements that fall within
"safe harbors" and are deemed not to be violations of the Statute.

Any entity that provides health care services and is reimbursed for
those services under the Medicare or Medicaid Program, or any other
federally-funded health care program, is subject to the provisions of the
Statute. SJP currently does not enter into contracts that cover Medicare
patients. SJHN currently contracts with managed care organizations that are
qualified to enroll Medicare patients. Thus, SJHN will be, and the other
Partially Owned Operations are, subject to the provisions of the Statute.

The original Regulations, published on July 29, 1991 established
guidelines and standards for eleven different arrangements that, if the
guidelines and standards are met, are deemed not to be violations of the
Statute (i.e., are "safe harbors"). The arrangements covered include: (1)
investments in privately held ventures (such as the Partially Owned
Operations), (2) rental of office space, (3) rental of equipment, (4) personal
service and management contracts and (5) group purchasing arrangements.

The additional Regulations, published on November 5, 1992, added two
additional safe harbors that were specifically designed to address the
relationships between healthcare providers, managed care organizations (i.e.,
health maintenance organizations and preferred provider organizations), and
enrollees in managed care organizations. These safe harbors include protections
for: (1) incentives to enrollees (including waiver of coinsurance and
deductible amounts), and (2) negotiated price reductions between healthcare
providers and managed care organizations.

The Company has no intention, and it believes that none of the
entities responsible for operation or management of any of the Partially Owned
Operations intends, to be involved in arrangements that constitute a fraud and
abuse violation. The Company believes that the various rental and management
contract arrangements to which the various Partially Owned Operations are
parties and any group purchasing arrangements in which any of the Partially
Owned Operations may participate, comply with the applicable provisions of the
Regulations. However, as structured, the Partially Owned Operations that are
subject to the Statute (primarily the Same-Day Surgery Center Partnership) will
not comply with the guidelines and standards established for investment
interests.

Failure to comply with the Regulations does not mean that an
arrangement automatically violates the Statute. All of the facts and
circumstances of the arrangement must be considered to determine whether a
fraud and abuse violation exists. Violation of the Statute is a criminal
felony, punishable by fines of up to $25,000 and up to five years in prison. In
addition to the potential criminal sanctions, in certain cases the OIG can
exclude any physician or other provider from the Medicare or Medicaid Program
for a period of five years (or longer in some cases). This exclusionary
authority is draconian in effect. Medicare and Medicaid will not pay any amount
to an excluded physician, to the patient or to any provider through which
services or medications are ordered or prescribed by the excluded physician.
The exclusion applies whether or not the physician is "participating" in the
Medicare or Medicaid Program, and the right to appeal the exclusion generally
arises only after the exclusion has been imposed. The exclusion of one
physician also could adversely

<PAGE> 46

affect his or her entire group's ability to be paid by Medicare or Medicaid
during the period of exclusion.

Several laws passed by the United States Congress and regulations
issued by the OIG and DHHS since 1992 have added additional sanctions and
clarified the application of the Statute and the Regulations. For example, the
Health Insurance Portability and Accountability Act of 1996 (commonly known as
"HIPAA"), which was signed into law on August 21, 1996, among other things,
expanded the scope of the Statute to apply its fraud and abuse provisions to
all federal health care programs, other than the Federal Employees Health
Benefits Program. In addition, it clarified the definition of "remuneration"
(especially as it relates to waivers and partial waivers of coinsurance and
deductible amounts), and it added six statutory "safe harbors," including
exceptions to the fraud and abuse Statute for certain managed care arrangements
(e.g., an arrangement which places a provider at "substantial financial risk,"
such as a capitation agreement).

HIPAA also created five new criminal statutes that apply to a "health
care benefit program," which term is broadly defined to cover governmental and
private health programs (e.g., private insurance or self-insured plans for
employees). These new laws are in addition to the Statute (which, by its terms,
applies only to fraud and abuse in federal health benefit programs), and they
prohibit fraudulent or abusive activities, embezzlement or stealing, making of
false statements, and obstructing, preventing or misleading a criminal
investigation relating to any health care benefit program. In addition,
existing federal criminal laws relating to money laundering, asset forfeiture,
and fraud injunctions were expanded to cover "federal health care offenses."
Finally, HIPAA increases the sanctions that may be imposed for a violation of
the law (including civil money penalties and exclusion from continued
participation in the Medicare or Medicaid Programs).

In the Balanced Budget Act of 1997, which became law in the summer of
1997, Congress continued to expand the scope of the Statute by adding several
new civil money penalties for violation of the fraud and abuse Statute. As a
result, the government now has greater flexibility in choosing whether to
pursue a violation in a civil action or in a criminal prosecution. This
prosecutorial flexibility is a potent weapon for the government, because the
civil action carries a lower burden of proof and does not require the same
level of "intent" to violate the law as would a criminal prosecution.

The net effect of these changes is to further augment the arsenal of
criminal and civil statutes available to the federal government to combat
actual or perceived health care fraud and abuse. The Company, the PHO, SJP and
SJHN are continuing to evaluate how these laws and regulations may impact on
their business arrangements and relationships.

In addition, a number of proposals for federal health care reform are
under consideration by the United States Congress. From time to time, several
of the proposals have included an expansion of the Statute to cover all health
care payors, including Medicare/Medicaid and other federal programs, private
insurers, self-insured plans and health maintenance organizations. If the
Statute is expanded in this manner, it is anticipated that the concepts
underlying the Regulations also will be expanded, and the OIG and DHHS (or
another federal regulatory body) will be given authority to enforce the
expanded scope of the Statute and Regulations.

44
<PAGE> 47

The Company, in conjunction with the various entities responsible for
operating and managing the applicable Partially Owned Operations, is continuing
to review whether its arrangements could be deemed to constitute fraud and
abuse violations under the Statute, both in the Statute's current form and with
respect to any proposed expansion, and to review the planning options available
to limit or avoid the risks. The Company cannot predict whether any of the
arrangements would constitute a fraud and abuse violation.

Finally, in connection with the publication of the Regulations,
certain health care entities (including SJHHS) were required to report the
names of physician-investors to the Health Care Financing Administration
("HCFA" - the department within DHHS responsible for administering Medicare).
Because of the broad definitions included on the reporting form, it was
concluded that the names of all physicians who were stockholders of SJPA at the
time that such information was requested (before January 1998) should be
included as indirect owners of SJHHS. This information was intended to be used
in analyzing referral patterns and utilization. The Company cannot predict how
the reporting of its stockholders could impact on any individual stockholder.

The Florida Patient Self-Referral Act of 1992. At the close of its
1992 Session on March 13, 1992, the Florida Legislature passed several bills
that apply to the business of health care. One bill that directly impacted on
the Company, the Partially Owned Operations and the stockholders of SJPA was
known as the "Patient Self-Referral Act of 1992" (the "Patient Self-Referral
Act"). It applied new prohibitions, rules and restrictions on the conduct of
business by a "health care provider" (defined to include an allopathic
physician, osteopathic physician, chiropractor, podiatrist, optometrist and
dentist) and any other "entity" (defined to include an individual, partnership,
firm, corporation or other business entity) that provides any health care
services in Florida.

The applicable provisions of the Patient Self-Referral Act:

(1) absolutely prohibit a referral by a health care provider for the
provision of "designated health services" (clinical laboratory
services, diagnostic imaging services, radiation therapy services,
physical therapy services and comprehensive rehabilitation services,
including speech therapy, audiology, occupational therapy and physical
therapy) to an entity in which the health care provider is an investor
or has an investment interest;

(2) prohibit a referral by a health care provider for any other health
care item or service to an entity in which the health care provider is
an investor or owns an investment interest, unless certain safe
harbors are met;

(3) prohibit an entity from making claims for payment or receiving
payment from any individual, third party payor or other entity for a
service that is furnished pursuant to a prohibited referral;

(4) require any entity that furnishes the specified "designated health
services" to be licensed by the Florida Agency For Health and
Administration ("AHCA");

(5) require a health care provider to provide written disclosure
before referring a patient for any health care service to an entity in
which the health care provider has an ownership

<PAGE> 48

interest, such written disclosure to include: (a) the existence of the
ownership interest in the entity, (b) the name and address of the
entity, (c) the patient's right to choose where to have the service
rendered (including the entity in which the health care provider owns
an interest), and (d) the names and addresses of at least two
alternative sources of the item or service;

(6) require any entity that provides health care services to get the
signature of a patient on a written disclosure form before service is
rendered, such written disclosure to include: (a) the existence or
nonexistence of a financial relationship with the referring health
care provider, (b) a schedule of typical fees charged by the entity or
a written estimate of the fees specific to the patient, (c) the
patient's right to choose where to have the service rendered and (d)
the names, addresses and telephone numbers of two reasonable
alternative sources at which the patient can receive the health care
item or service;

(7) prohibit a health care provider from "marking up" the cost of
services purchased by the health care provider from any entity outside
of the provider's practice, other than a $2 handling fee (this
provision was repealed by the Florida "Health Care and Insurance
Reform Act of 1993," discussed below); and

(8) impose a limiting fee schedule (the "fee cap") on entities that
provide the specified "designated health services" (with exceptions
for physicians practicing in a group that meets the definition of a
"group practice" and for licensed hospitals).

The constitutionality of the fee cap described in the eighth item
above was the focus of lawsuits brought in both the federal and Florida courts,
and it subsequently was repealed retroactively to its effective date by several
bills passed by the Florida Legislature during its 1996 Legislative Session.

As originally enacted, the provision described in the first item
above, which absolutely prohibits referrals for the specified "designated
health services," was to apply to referrals made on or after October 1, 1995 by
a health care provider who acquired his or her interest in the entity before
May 1, 1992. However, the effective date was moved back to October 1, 1994 by
legislation passed in 1993. Thus, if a provider acquired his or her interest in
an entity before May 1, 1992, then referrals made on or after October 1, 1994
for the specified "designated health services" are absolutely prohibited; but
if a provider acquired his or her interest in an entity on or after May 1,
1992, then referrals made on or after the effective date of the bill (April 8,
1992) for the specified "designated health services" are absolutely prohibited.

The provision described in the second item above, which limits
referrals for other health care items or services to those complying with the
safe harbors, was applicable on and after July 1, 1992.

The provision described in the third item above, which prohibits
making claims for payment or receiving payments for a service rendered pursuant
to a prohibited referral, was effective on July 1, 1992. Licenses were to be
required, under the provision described in the fourth item above, for entities
providing the specified "designated health services" on or after April 8, 1992,
although regulations for administering the licensing requirements first must be
specified by AHCA, and the Company is not aware that AHCA has issued any
proposed or final regulations implementing the

<PAGE> 49

licensing procedures. The disclosure requirements described in the fifth and
sixth items above became effective on April 8, 1992.

One provision of the Patient Self-Referral Act allows a person or an
entity that could be affected by the prohibitions included in the Patient
Self-Referral Act to request that AHCA, or the applicable professional board
under the Florida Department of Business and Professional Regulation, issue a
declaratory statement defining how the applicable state agency interprets an
ambiguous provision of the Patient Self-Referral Act. As a result,
interpretations of the law periodically are made as declaratory statements are
issued (e.g., see the discussion under "LEGAL PROCEEDINGS - Declaratory
Statement Action With Respect to SJHHS" in Item 3 of this Report, which
provisions are hereby incorporated by reference into this Item 6). Accordingly,
the Company is continuing to review the applicability to the various Partially
Owned Operations of each of the specific provisions of the Patient
Self-Referral Act that remain in effect.

It is clear that the Patient Self-Referral Act must be analyzed in two
ways with respect to each individual stockholder of SJPA. First, if an
individual physician owns any direct investment interest (e.g., a limited
partnership interest) in any of the Partially Owned Operations, then he or she
must apply the rules to his or her specific situation. Second, as described in
the Declaratory Statement Action discussed under Item 3 of the Report (which
discussion is incorporated herein by reference), the provisions of the Patient
Self-Referral Act could be applicable merely because of an individual
stockholder's ownership of stock in SJPA (whether or not he or she owns any
direct investment interest in any of the Partially Owned Operations).

The Company continues to be unable to resolve one issue to its
satisfaction. That is, it is not clear from the language of the Patient
Self-Referral Act whether the absolute prohibition will apply to all referrals
in which a "designated health service" is involved, or whether the referral
must specifically be for a "designated health service." For example, would the
absolute prohibition apply to a referral for an item or service that is not a
"designated health service" if a "designated health service" is provided as an
incident to the provision of the other item or service? The answer to this
question would be important, for example, when a patient is referred for
ambulatory surgery services to the Same-Day Surgery Center Facility, and
clinical laboratory services also are performed as an incident to the provision
of ambulatory surgery services. As of this time, by analogy to recently issued
proposed federal regulations which are similarly designed to prohibit physician
referrals to entities in which the physician owns an interest, it appears that
the Patient Self-Referral Act could be interpreted to "bundle" both the
specific service which constitutes the ancillary "designated health service"
and the primary service to be provided, thus prohibiting the referral for both
services.

With respect to referrals to the Same-Day Surgery Center Facility, the
definition of "referral" under the Patient Self-Referral Act specifically
excludes referrals by a health care provider for services provided by a
licensed ambulatory surgical center, such as the Same-Day Surgery Center
Facility. Thus, the Company believes that the Patient Self-Referral Act does
not apply to prohibit or limit referrals to the Same-Day Surgery Center
Facility. However, as described above, it is not clear whether the Same-Day
Surgery Center Partnership would be entitled to charge for clinical laboratory
services that are provided as an incident to the ambulatory surgery services
rendered at the Same-Day Surgery Center Facility.

<PAGE> 50

With respect to SJP and SJHN, the Company does not believe that these
entities provide or will provide health services. Rather, they act to
facilitate the direct provision of health services by PPO Providers or SJHN
Providers, as the case may be, to the individuals contracting for such
services. Accordingly, the Company does not believe that the Patient
Self-Referral Act's provisions relating to limitation on referrals would apply
to SJP or SJHN.

If violations of the Patient Self-Referral Act are found, then the
applicable entity, and the physician who makes the prohibited referral, could
be subject to penalties. The penalties are as follows. Any health care provider
who makes a prohibited referral will be subject to disciplinary action by the
appropriate board of the Florida Department of Business and Professional
Regulation. Any entity or person that presents or causes to be presented a
claim for services that were rendered pursuant to a prohibited referral is
subject to a civil penalty of not more than $15,000 for each such claim.
Finally, any health care provider or entity that enters into a cross-referral
arrangement which is designed to circumvent the provisions of the Patient Self-
Referral Act will be subject to a civil penalty of not more than $100,000 for
each such cross-referral arrangement.

Any health care provider or entity which fails to make the appropriate
disclosures to patients prior to making a referral, or prior to rendering
services, as the case may be, will be subject to criminal prosecution for a
misdemeanor of the first degree, carrying a fine of up to $1,000 or
imprisonment for a period not exceeding one year. In addition, any health care
provider who violates the disclosure requirements will be subject to
disciplinary action by the appropriate board of the Florida Department of
Professional Regulation.

The Florida Legislature currently is holding its 1999 Regular Session,
and pending legislation, among other things, could affect the scope and
applicability of the Patient Self-Referral Act. However, the Company cannot
currently predict whether any pending legislation will ever become law, or, if
it does, what the impact of the legislation could be on the Company and on the
various Partially Owned Operations. There can be no assurance that the Patient
Self-Referral Act as it is implemented and refined over time, will not have a
substantial adverse impact on the amount of revenues received by each of the
Partially Owned Operations for specific services rendered.

Other Federal Prohibitions on Physician Referrals - The "Stark"
Provisions. In August 1993, President Clinton signed into law the Omnibus
Budget Reconciliation Act of 1993 ("OBRA `93"), which contained a number of
provisions affecting the Medicare and Medicaid programs. The primary focus of
the Medicare provisions was a reduction in payments to providers (e.g.,
hospitals), under Medicare Part A, and physicians, durable medical equipment
suppliers and other providers of services under Medicare Part B. Taken
together, these provisions have, and will continue to, reduce the level of
reimbursement paid to the Partially Owned Operations with respect to services
rendered to Medicare patients, thus reducing the cash flow and profitability of
the Partially Owned Operations. In addition, OBRA `93 specified that there
would be no inflation updates in Medicare payments for ambulatory surgical
center services for fiscal years 1994 and 1995.

OBRA `93 also extended the scope of the federal prohibition on
physicians referring Medicare patients to entities in which they own a
financial interest or have a compensation arrangement. Prior to OBRA `93,
federal law prohibited referrals to entities in which a physician holds a
financial interest or has a compensation arrangement only to referrals for
clinical laboratory services (the so-called

<PAGE> 51

"Stark I Referral Prohibition"). OBRA '93 extended the prohibition to cover
referrals for other "designated health services," including (1) clinical
laboratory services, (2) physical therapy services, (3) occupational therapy
services, (4) radiology services, including magnetic resonance imaging,
computerized axial tomography scans, and ultrasound services, (5) radiation
therapy services, (6) the furnishing of durable medical equipment, (7)
parenteral and enteral nutrients, equipment and supplies, (8) prosthetics,
orthotics and prosthetic devises, (9) home health services, (10) outpatient
prescription drugs and (11) inpatient and outpatient hospital services (the
so-called "Stark II Referral Prohibitions"). Generally, OBRA '93 prohibits a
physician with an ownership or investment interest in or a compensation
arrangement with an entity from making referrals to that entity for the
furnishing of any of the "designated health services".

The reductions in payments were effective at various times, ranging
from the date that OBRA '93 became effective through January 1, 1994. The
extension of the prohibition against physician referrals were effective for
referrals made after December 31, 1994 (other than for clinical laboratory
services, which prohibition became effective on January 1, 1992).

On August 14, 1995, final regulations were issued that applied to the
Stark I Referral Prohibition relating to clinical laboratory services. On
January 9, 1998, regulations were proposed to apply the Stark II Referral
Prohibitions to the eleven enumerated "designated health services." These
regulations clarify a number of issues that were left open in the first
regulations, and they add some additional restrictions with respect to the
scope of the Stark II Referral Prohibitions. The Preamble to the proposed
regulations asked for public comments to be made by March 10, 1998, but the
comment period thereafter was extended. Extensive comments were received from
the public, and, at this time, it is not possible to speculate on when final
regulations could be issued.

The Company is continuing to review the applicability of the physician
referral prohibitions contained in the Stark I and Stark II Referral
Prohibitions to the various Partially Owned Operations. It is not clear at this
time whether the prohibitions will apply to the services rendered by the
Same-Day Surgery Center Partnership.

Uncertainty of Financial Results and Capital Needs

If the Company, the Partially Owned Operations and/or EHMS do not meet
their goals with respect to revenues, or if their expenses of operation are
higher than anticipated, substantial additional funds may be required. Such
additional funds may be sought from a number of sources, including the Company.
While the Company has no legal obligation to provide additional funds, it will
need to determine whether it should provide funds to protect its existing
investments. If it is determined that it is prudent to contribute additional
funds, then the Company may seek those funds from the issuance of additional
shares of Common Stock, sale of investments, and loans from banks or other
financial institutions. Likewise, any of the Partially Owned Operations and/or
EHMS may seek additional funds from the issuance of additional shares of Common
Stock, sale of investments, and loans from banks or other financial
institutions.

<PAGE> 52

Uninsured Professional Liability Claims

The health care industry is extremely vulnerable to claims for
professional liability. The physicians providing services at the facilities
operated by the Partially Owned Operations are required to maintain malpractice
insurance coverage in order to protect against liability for medical
malpractice which may occur at such facilities. Such facilities also maintain
their own professional liability insurance. Although the Company believes that
required professional liability insurance policy limits and coverage of staff
are adequate, there can be no assurance that any of the Partially Owned
Operations will not be subject to a professional liability claim. Any such
liability could have a material adverse effect on the business and financial
condition of the Company.

ITEM 7. FINANCIAL STATEMENTS.

Financial statements meeting all applicable requirements are included
in this report immediately following Item 13 hereof.

ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE.

None.

PART III

ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.

QUALIFICATION AND ELECTION

The Bylaws of the Company provide that the Board of Directors is to be
composed of nine of its stockholders, consisting of four stockholders
representing surgery specialties, four stockholders representing non-surgery
specialties and one stockholder who is a Hospital based physician. The
directors are to serve staggered terms of four years each. The directors
representing non-surgery specialties are to be selected from the Hospital's
Departments of Internal Medicine, Family Practice, Pediatrics and Psychiatry;
provided, however, that at least one primary care physician at all times is to
serve on the Board of Directors. The directors representing surgery specialties
are to be selected from the Departments of General Surgery, Cardiac Surgery,
Ophthalmology, Otolaryngology, Orthopedics and Urology; provided, however, that
at least one general surgeon at all times is to serve on the Board of
Directors.

Directors are nominated by a Nominating Committee, whose members
consist of the members of the Executive Committee. The Executive Committee is
comprised of the Chairman of the Board,

<PAGE> 53

the President and one additional director. Nominations in addition to those
made by the Nominating Committee may be made by petition signed by at least 25%
of the Company's stockholders. The officers of the Company, except for the
Chairman of the Board, are selected every two years, to serve two-year terms,
at the Annual Meeting of the Board of Directors. The Chairman of the Board is
not elected; instead, the President succeeds to the office of Chairman of the
Board.

The Bylaws of the Company require that all officers must be directors,
and that the officers at all times must be equally divided between
representatives of surgery specialties and representatives of non-surgery
specialties, except that one office may be filled by a Hospital based
physician.

The Bylaws of the Company also require that all directors be
shareholders of the Company. In addition, each director representing surgery
specialties and each director representing non-surgery specialties must be a
"qualified physician" within the given specialty in which he or she practices
for the two-year period ending on the date that he or she is nominated as a
director. Generally, the term "qualified physician" means a physician who is a
member in good standing of the Active or Senior Active medical staff of the
Hospital.

DIRECTORS AND OFFICERS

All of the following individuals are members of the Board of Directors
at the present time and have served continuously since the dates of their
election shown below. Information regarding the present officers and directors
of the Company and specialties represented is as follows:

<TABLE>
<CAPTION>
Has Served
Principal As a Expiration Office
Occupation Director of Term of Currently
Name Age or Employment(1) Since Office Held
- --------- --- ---------------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C>

Anthony Brannan, M.D.** 45 Physician 1994 2002 President
Norman Castellano, M.D.* 52 Physician 1994 2002 Chairman
N. Bruce Edgerton, M.D.* 52 Physician 1995 1999 Secretary
F. Lane France, M.D.* 60 Physician 1997 2001
Bill Luria, M.D.** 52 Physician 1996 2000 Treasurer
Benedict S. Maniscalco, M.D.* 57 Physician 1996 2000
Allen Miller, M.D.** 49 Physician 1997 2001 Vice President
Michael Wasylik, M.D.** 56 Physician 1995 1999
Michael Westbury, M.D.*** 46 Physician 1998 1999

</TABLE>

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

(1) Each of the directors and officers has been engaged in the practice of
medicine in the Tampa, Florida area for the last five years.

* non-surgery specialties
** surgery specialties
*** Hospital based

<PAGE> 54

The following individuals have been nominated for election to four
year term positions or one year term positions, as indicated, on the Company's
Board of Directors, such election to be held at the Company's upcoming annual
meeting of stockholders on May 3, 1999:

Name Age Occupation Term of Office
- ---------- --- ---------- --------------
<S> <C> <C> <C>

Angel Docobo, M.D.** 43 Physician 4 years
N. Bruce Edgerton, M.D.* 52 Physician 4 years
Wilfred Idsten, M.D.*** 45 Physician 1 year

</TABLE>

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

* non-surgery specialties
** surgery specialties
*** Hospital based

None of the directors (present or nominated) or officers of the
Company are related by blood, marriage or adoption.

Anthony Brannan, M.D., age 45, received his M.D. degree from
Vanderbilt University School of Medicine. Since 1986, Dr. Brannan has been
engaged in the private practice of medicine in Tampa, Florida, specializing in
general surgery. Dr. Brannan also is a Director of the PHO, a Director of
SJHHS, a limited partner in the Same-Day Surgery Center Partnership and a
holder of a provider contract with SJP.

Norman Castellano, M.D., age 52, received his M.D. degree from the
University of Guadalajara. Since 1978, Dr. Castellano has been engaged in the
private practice of medicine in Tampa, Florida, specializing in internal
medicine. Dr. Castellano also is a Director of the PHO, a Director SJHHS and a
holder of a provider contract with SJP.

Angel Docobo, M.D., age 43, received his M.D. degree from the
University of South Florida. Since 1985, Dr. Docobo has been engaged in the
private practice of medicine in Tampa, Florida, specializing in general
surgery. Dr. Docobo is a holder of a provider contract with SJP.

N. Bruce Edgerton, M.D., age 52, received his M.D. degree from the
University of Florida. Since 1978, Dr. Edgerton has engaged in the private
practice of medicine in Tampa, Florida, specializing in gastroenterology. Dr.
Edgerton also is a Director of the PHO, a Director of SJHHS and a holder of a
provider contract with SJP.

Lane France, M.D., age 60, received his M.D. degree from Temple
University. Since 1971, Dr. France has engaged in the private practice of
medicine in Tampa, Florida, specializing in pediatrics. Dr. France also is a
Director of SJP and a holder of a provider contract with SJP.

Wilfred Idsten, M.D., age 45, received his M.D. degree from the
University of Southern California. Since 1987, Dr. Idsten has been engaged in
the private practice of medicine in Tampa, Florida, specializing in emergency
medicine. Dr. Idsten is a holder of a provider contract with SJP.

<PAGE> 55

Bill Luria, M.D., age 52, received his M.D. degree from the Far
Eastern University in the Philippines. Since 1985, Dr. Luria has engaged in the
private practice of medicine in Tampa, Florida, specializing in plastic
surgery. Dr. Luria also is a Director of the PHO and a holder of a provider
contract with SJP.

Benedict S. Maniscalco, M.D., age 57, received his M.D. degree from
Duke University. Since 1976, Dr. Maniscalco has engaged in the private practice
of medicine in Tampa, Florida, specializing in cardiology. Dr. Maniscalco also
is a Director of the PHO and a holder of a provider contract with SJP.

Allen Miller,. M.D., age 49, received his M.D. degree from McGill
University. Since 1979, Dr. Miller has been engaged in the private practice of
medicine in Tampa, Florida, specializing in orthopedics. Dr. Miller also is a
Director of SJHHS and is a holder of a provider contract with SJP.

Michael Wasylik, M.D., age 56, received his M.D. degree from Ohio
State University. Since 1975, Dr. Wasylik has engaged in the private practice
of medicine in Tampa, Florida, specializing in orthopedics. Dr. Wasylik is a
holder of a provider contract with SJP.

Michael Westbury, M.D., age 46, received his M.D. degree from the
University of Florida. Since 1991, Dr. Westbury has engaged in the private
practice of medicine in Tampa, Florida, specializing in anesthesiology. Dr.
Westbury is a holder of a provider contract with SJP.

POTENTIAL CONFLICTS OF INTEREST

The relationships between the officers, the members of the Board of
Directors, the stockholders and the Company are such that the parties are
subject to potential conflicts of interest.

The officers and the members of the Board of Directors will not be
required to devote any specific amount of time to the business of the Company,
and there may be conflicting and competing demands upon their time and talent
that could be detrimental to the Company. However, the officers and the members
of the Board of Directors intend to devote sufficient time to discharge their
responsibilities to the Company and to the stockholders.

A potential conflict of interest also exists with respect to any group
of ten percent (10%) or more of the stockholders required to offer to the PHO
the right to engage in a health care venture pursuant to the right of first
refusal provisions in the PHO Agreement. The interests of the Company's
representatives on the PHO Board of Directors (or the interests of the
Company's Board of Directors in directing its representatives on the PHO Board
of Directors) in voting to accept or reject the right to engage in the venture
may conflict with the interests of the offering stockholders.

Notwithstanding the foregoing, the members of the Board of Directors
must act as fiduciaries to the Company and to the stockholders in resolving any
conflict of interest. Decisions under various state laws, which will govern the
affairs of the Company, recognize the rights of stockholders to bring suit
against the Board of Directors, on behalf of the Company, when fiduciary duties
are violated. When a question has arisen, courts have held that a stockholder
may institute legal action on behalf

<PAGE> 56

of himself or herself and similarly situated stockholders (a class action), or
on behalf of the Company itself (a derivative action), to recover damages for
the breach by a director of his or her fiduciary duty.

The Bylaws of the Company provide that the officers, directors and
their employees and agents are to be indemnified against any loss, damage or
expense incurred by them and any of the other indemnified parties by reason of
any act or omission performed or omitted by them, for or on behalf of the
Company in furtherance of its interests. However, this indemnification does not
relieve the directors or the other indemnified parties from liability resulting
from gross negligence, fraud, or bad faith. As a result of these Bylaw
provisions, the stockholders may have more restricted rights of action against
the officers and the Board of Directors than would otherwise be the case absent
the indemnity provisions.

As indicated above, certain of the officers and directors of the
Company now or in the future may hold various positions with the Partially
Owned Operations, with affiliates of the Company, and with businesses in
competition with the Company. The holding of such positions could give rise to
conflicts of interest. The directors and officers of the Company are not
required to resolve any such conflicts in any particular manner, provided that
all such conflicts are disclosed to the Company and provided that under certain
circumstances a director or officer may choose not to participate in any
decision relating to a matter in which such director or officer has an
interest.

The foregoing summary involves a number of technical issues in the
fiduciary responsibility area of the law. Any stockholder who believes that a
breach of fiduciary duty has occurred should consult his own counsel.

INDEMNIFICATION OF DIRECTORS AND OFFICERS

Florida corporation law provides that a corporation shall have power
to indemnify any person who was or is a party, or is threatened to be made a
party, to any threatened, pending, or completed action, suit, or proceeding,
whether civil, criminal, administrative, or investigative, by reason of the
fact that he is or was a director, officer, employee, or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee, or agent of another corporation, partnership,
joint venture, trust or other enterprise, against expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by him in connection with such action, suit or proceeding,
including any appeal thereof, if he acted in good faith and in a manner he
reasonably believed to be in, or not opposed to, the best interests of the
corporation and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful.

The Company's Bylaws provide that, under certain circumstances, it
will indemnify any person who is a party to any litigation or proceeding by
reason of the fact that he or she is or was a director or officer of the
Company or is or was a member of a Committee of the Company or is or was
serving at the request of the Company as a director or officer of another
corporation, partnership, joint venture, trust or other enterprise. The Company
maintains liability insurance for the benefit of its directors and officers.

<PAGE> 57

ITEM 10. EXECUTIVE COMPENSATION.

No compensation has been paid by the Company to any of its directors
or officers in their capacities as such in connection with the organization or
operation of the Company, or otherwise, and there is no arrangement between the
Company and any of such persons that would result in the payment of any
compensation to any such person for services in his respective capacity as
director or officer. However, on October 1, 1991 the Company engaged Charles E.
Cernuda, M.D., a former director of the Company, as a part-time executive
director to handle various administrative matters for the Company. The
Executive Director position is not an officer position with the Company. Dr.
Cernuda is paid $40,000 annually for his services in such capacity.

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

The Company does not know of any person, either individually or as
part of a group, who beneficially owns more than five percent (5%) of the
outstanding Common Stock of the Company. The following table sets forth certain
information as to the shares of the Company's Common Stock owned of record and
beneficially by each officer and director of the Company and by all officers,
directors and nominees for directors as a group:

Title of Name of Beneficial Amount and Nature of Percent
Class Owner Beneficial Ownership of Class
-------- ------------------ -------------------- --------
<S> <C> <C> <C>

Common Stock Anthony Brannan, M.D. 1 Share *
Common Stock Norman Castellano, M.D. 1 Share *
Common Stock Angel Docobo, M.D.** 1 Share *
Common Stock N. Bruce Edgerton, M.D.** 1 Share *
Common Stock F. Lane France, M.D. 1 Share *
Common Stock Wilfred Idsten, M.D.** 1 Share *
Common Stock Bill Luria, M.D. 1 Share *
Common Stock Benedict S. Maniscalco, M.D. 1 Share *
Common Stock Allen Miller, M.D. 1 Share *
Common Stock Michael Wasylik, M.D. 1 Share *
Common Stock Michael Westbury, M.D. 1 Share *

11 Shares 2.66%
</TABLE>

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

* Less than 0.5%
** Nominee for director

<PAGE> 58

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

The Company is not aware of any particular transaction of a type
required to be disclosed under this Item 12. However, reference is made to the
discussions of the relationships between and among various persons and entities
under Item 1 of this Report, which provisions are hereby incorporated by
reference into the discussion under this Item 12.

PART IV

ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.

(a) The following documents are filed as part of this Report and
included immediately following the signature pages.

Financial Statements of Issuer

- Report of Ernst & Young LLP dated March 3, 1999, as to the
financial statements of St. Joseph's Physician Associates, Inc.
for the years ended December 31, 1998 and 1997.

- Balance Sheets of St. Joseph's Physician Associates, Inc. as of
December 31, 1998 and 1997.

- Statements of Operations of St. Joseph's Physician Associates,
Inc. for the years ended December 31, 1998 and 1997.

- Statements of Changes in Stockholders' Equity of St. Joseph's
Physician Associates, Inc. for the years ended December 31,
1998 and 1997.

- Statements of Cash Flows of St. Joseph's Physician Associates,
Inc. for the years ended December 31, 1998 and 1997.

- Notes to Financial Statements.

<PAGE> 59

Consolidated Financial Statements of St. Joseph's Physicians-
Healthcenter Organization, Inc., an entity 50% or less owned by
issuer.

- Report of Ernst & Young LLP dated March 3, 1999, as to the
Consolidated Financial Statements of St. Joseph's
Physicians-Healthcenter Organization, Inc. for the years ended
December 31, 1998 and 1997.

- Consolidated Balance Sheets of St. Joseph's
Physicians-Healthcenter Organization, Inc. as of December 31,
1998 and 1997.

- Consolidated Statements of Operations of St. Joseph's
Physicians-Healthcenter Organization, Inc. for the years ended
December 31, 1998 and 1997.

- Consolidated Statements of Changes in Stockholders' Equity of
St. Joseph's Physicians-Healthcenter Organization, Inc. for the
years ended December 31, 1998 and 1997.

- Consolidated Statements of Cash Flows of St. Joseph's
Physicians-Healthcenter Organization, Inc. for the years ended
December 31, 1998 and 1997.

- Notes to Consolidated Financial Statement.

The following exhibits are filed as part of this report (exhibits marked with
an asterisk have been previously filed with the Commission and are incorporated
herein by this reference):

*3.1 Articles of Incorporation of the Company (previously filed as Exhibit
3.1 to the Company's Registration Statement on Form S-18, Number
33-22011-A).

*3.2 Amended and Restated Bylaws of the Company dated April 29, 1991
(previously filed as Exhibit 3.2 to the Company's 1991 Annual Report
on Form 10-K).

*3.3 Amendment to Article II of the Bylaws of the Company adopted December
9, 1991 (previously filed as Exhibit 3.3 to the Company's 1991 Annual
Report on Form 10-K).

*3.4 Amendment to Article V of the Bylaws of the Company adopted April 4,
1994 (previously filed as Exhibit 3.4 to the Company's 1994 Annual
Report on Form 10-K).

<PAGE> 60

*4.1 Agreement between St. Joseph's Physician Associates, Inc., St.
Joseph's Enterprises, Inc. and St. Joseph's Physicians-Healthcenter
Organization, Inc. (previously filed as Exhibit 4.2 to the Company's
Registration Statement on Form S-18, Number 33-22011-A).

*10.3 Management Agreement between St. Joseph's Same-Day Surgery Center,
Ltd. and St. Joseph's Health Care Center, Inc. (previously filed as
Exhibit 10.4 to the Company's Registration Statement on Form S-18,
Number 33-22011-A).

*10.6 Agreement between St. Joseph's Physician Associates, Inc., St.
Joseph's Enterprises, and St. Joseph's Physicians-Healthcenter
Organization, Inc. dated October 1, 1991 (previously filed as Exhibit
10.6 to the Company's 1991 Annual Report on Form 10-K).

*10.6.1 Letter, dated October 3, 1995, from Isaac Mallah, Executive Vice
President of St. Joseph's Enterprises, Inc. to Thomas Mawn, M.D.,
Chairman of St. Joseph's Physician Associates, Inc., effecting an
amendment to the Agreement between St. Joseph's Physician Associates,
Inc., St. Joseph's Enterprises, and St. Joseph's
Physicians-Healthcenter Organization, Inc. dated October 1, 1991
(previously filed as Exhibit 10.6.1 to the Company's 1995 Annual
Report on Form 10-KSB).

*10.7 Executive Director Agreement between St. Joseph's Physician
Associates, Inc. and Charles E. Cernuda, M.D. dated October 1, 1991
(previously filed as Exhibit 10.7 to the Company's 1991 Annual Report
on Form 10-K).

*10.8 Lease between St. Joseph's Same-Day Surgery Center, Ltd. and
Franciscan Properties, Inc. (previously filed as Exhibit 10.5 to the
Company's Registration Statement on Form S-18, Number 33-22011-A).

27 Financial Data Schedule (For SEC Use Only)

*99.1 Limited Partnership Agreement dated January 1, 1991 between St.
Joseph's Same-Day Surgery Center, Ltd. and the Company (previously
filed as Exhibit 28.1 to the Company's Current Report on Form 8-K
dated January 14, 1991).

(b) Reports on Form 8-K

None.

<PAGE> 61

SIGNATURES

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

ST. JOSEPH'S PHYSICIAN ASSOCIATES, INC.

By: /s/ Anthony Brannan, M.D. 4/13/99
------------------------------------------ -------------------
ANTHONY BRANNAN, M.D., President, Director Date

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

By: /s/ Anthony Brannan, M.D. 4/13/99
------------------------------------------ -------------------
ANTHONY BRANNAN, M.D., President, Director Date

By: /s/ Norman Castellano, M.D. 4/13/99
------------------------------------------ -------------------
NORMAN CASTELLANO, M.D., Chairman, Director Date
(principal executive officer)

By: /s/ N. Bruce Edgerton, M.D. 4/13/99
------------------------------------------ -------------------
N. BRUCE EDGERTON, M.D., Secretary, Director Date

By: /s/ F. Lane France, M.D. 4/13/99
------------------------------------------ -------------------
F. LANE FRANCE, M.D., Director Date

By: /s/ Bill Luria, M.D. 4/15/99
------------------------------------------ -------------------
BILL LURIA, M.D., Treasurer, Director Date
(principal financial and accounting officer)

By:
------------------------------------------ -------------------
BENEDICT S. MANISCALCO, M.D., Director Date

<PAGE> 62

By: /s/ Allen Miller, M.D. 4/13/99
------------------------------------------ -------------------
ALLEN MILLER, M.D., Vice President, Director Date

By:
------------------------------------------ -------------------
MICHAEL WASYLIK, M.D., Director Date

By:
------------------------------------------ -------------------
MICHAEL WESTBURY, M.D., Director Date

<PAGE> 63

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

For the fiscal year ended December 31, 1998 Commission File No. 33-22011-A

ST. JOSEPH'S PHYSICIAN ASSOCIATES, INC.
INDEX TO EXHIBITS

Exhibit
Number Item
- ------- ----
<S> <C>

27 Financial Data Schedule (For SEC Use Only)

</TABLE>

<PAGE> 64

St. Joseph's Physicians-Healthcenter
Organization, Inc. and Subsidiaries

Consolidated Financial Statements

Years ended December 31, 1998 and 1997

CONTENTS

<TABLE>

<S> <C>
Report of Independent Auditors............................................ 1

Audited Consolidated Financial Statements

Consolidated Balance Sheets............................................... 2
Consolidated Statements of Operations..................................... 3
Consolidated Statements of Changes in Stockholders' Equity................ 4
Consolidated Statements of Cash Flows..................................... 5
Notes to Consolidated Financial Statements................................ 6

</TABLE>

<PAGE> 65

Report of Independent Certified Public Accountants

Board of Directors
St. Joseph's Physicians-Healthcenter Organization, Inc. and Subsidiaries

We have audited the accompanying consolidated balance sheets of St. Joseph's
Physicians-Healthcenter Organization, Inc. and subsidiaries (Organization) as
of December 31, 1998 and 1997, and the related consolidated statements of
operations, changes in stockholders' equity and cash flows for the years then
ended. These financial statements are the responsibility of the Organization's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.

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

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of St. Joseph's
Physicians-Healthcenter Organization, Inc. and subsidiaries at December 31,
1998 and 1997, and the results of their operations and their cash flows for the
years then ended in conformity with generally accepted accounting principles.

Tampa, Florida
March 3, 1999

<PAGE> 66

St. Joseph's Physicians-Healthcenter
Organization, Inc. and Subsidiaries

Consolidated Balance Sheets

<TABLE>
<CAPTION>
DECEMBER 31
1998 1997
-------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $286,789 $158,678
Accounts receivable 54,550 26,200
Distributions receivable 38,971 35,418
Income tax receivable 35,993 73,885
Prepaid insurance 6,721 11,445
Due from affiliated organizations - 3,817
-------- --------
Total current assets 423,024 309,443

Equity investment in Surgery Center 100,844 106,013
Other investments 52,000 72,575
Deferred income taxes 67,903 53,161
-------- --------
Total assets $643,771 $541,192
======== ========

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 20,091 $ 17,241
Membership fees deposits 4,050 13,500
Due to affiliated organizations 122,722 99,485
-------- --------
Total current liabilities 146,863 130,226

Stockholders' equity:
Common stock, $1 par value, 5,000 shares
authorized, issued and outstanding 5,000 5,000
Additional paid-in capital 95,000 95,000
Retained earnings 396,908 310,966
-------- --------
Total stockholders' equity 496,908 410,966
-------- --------
Total liabilities and stockholders' equity $643,771 $541,192
======== ========

</TABLE>

See accompanying notes.

<PAGE> 67

St. Joseph's Physicians-Healthcenter
Organization, Inc. and Subsidiaries

Consolidated Statements of Operations

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1998 1997
-------- --------
<S> <C> <C>
Revenues:
Membership fees $139,800 $ 44,300
Access fees 34,973 7,803
Equity in earnings of Surgery Center 78,190 87,617
Investment and other income 49,145 42,330
-------- --------
Total revenues 302,108 182,050

Expenses:
General and administrative 161,005 220,620
Professional fees 32,032 43,480
-------- --------
Total expenses 193,037 264,100
-------- --------
Income (loss) before income taxes 109,071 (82,050)

Provision for income taxes 23,129 6,535
-------- --------
Net income (loss) $ 85,942 $(88,585)
======== ========

</TABLE>

See accompanying notes.

<PAGE> 68

St. Joseph's Physicians-Healthcenter
Organization, Inc. and Subsidiaries

Consolidated Statements of Changes in Stockholders' Equity

<TABLE>
<CAPTION>
$20 PAR VALUE
$1 PAR VALUE 6% CUMULATIVE
COMMON STOCK PREFERRED STOCK ADDITIONAL
--------------------------------------------- PAID-IN RETAINED
SHARES AMOUNT SHARES AMOUNT CAPITAL EARNINGS TOTAL
------ ------ ------ --------- ------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>

Balance at January 1, 1997 5,000 $5,000 6,250 $ 125,000 $95,000 $400,176 $ 625,176
Redemption of
preferred stock - - (6,250) (125,000) - - (125,000)
Dividends declared on
preferred stock - - - - - (625) (625)
Net loss for the year ended
December 31, 1997 - - - - - (88,585) (88,585)
----- ------ ------ --------- ------- -------- ---------
Balance at December 31, 1997 5,000 5,000 - - 95,000 310,966 410,966
Net income for the year ended
December 31, 1998 - - - - - 85,942 85,942
----- ------ ------ --------- ------- -------- ---------
Balance at December 31, 1998 5,000 $5,000 - $ - $95,000 $396,908 $ 496,908
===== ====== ====== ========= ======= ======== =========

</TABLE>

See accompanying notes.

<PAGE> 69

St. Joseph's Physicians-Healthcenter
Organization, Inc. and Subsidiaries

Consolidated Statements of Cash Flows

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1998 1997
--------- ---------
<S> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $ 85,942 $ (88,585)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Equity in earnings of limited partnership (78,190) (87,617)
Changes in operating assets and liabilities:
Increase in accounts receivable (28,350) (13,400)
(Increase) decrease in distributions receivable (3,553) 1,818
Decrease (increase) in income tax receivable 37,892 (73,885)
Decrease (increase) in prepaid insurance 4,724 (11,445)
Decrease (increase) in due from affiliated organizations 3,817 (3,817)
Decrease in other current assets - 19,810
(Increase) decrease in deferred income taxes (14,742) 55,442
Increase (decrease) in accounts payable and accrued expenses 2,850 (15,204)
Decrease in income taxes payable - (39,072)
Decrease in membership fees deposits (9,450) (1,500)
Increase in due to affiliated organizations 23,237 81,429
--------- ---------
Net cash provided by (used in) operating activities 24,177 (176,026)

INVESTING ACTIVITIES
Sale (purchase) of other investments 20,575 (20,575)
Distributions received from limited partnerships 83,359 80,026
--------- ---------
Net cash provided by investing activities 103,934 59,451

FINANCING ACTIVITIES
Redemption of preferred stock - (125,000)
Dividends paid - (59,375)
--------- ---------
Net cash used in financing activities - (184,375)
--------- ---------

Increase (decrease) in cash and cash equivalents 128,111 (300,950)
Cash and cash equivalents at beginning of year 158,678 459,628
--------- ---------
Cash and cash equivalents at end of year $ 286,789 $ 158,678
========= =========

</TABLE>

See accompanying notes.

<PAGE> 70

St. Joseph's Physicians-Healthcenter
Organization, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 1998

1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

ORGANIZATION

St. Joseph's Physicians-Healthcenter Organization, Inc. and subsidiaries (the
Company) is organized as a Florida corporation for the purpose of engaging
directly or indirectly in health care related ventures.

The Company is the managing general partner of St. Joseph's Same-Day Surgery
Center, Ltd. (the Surgery Center), a Florida limited partnership formed to
develop and operate an outpatient surgery center. The Company has a four
percent (4%) partnership interest in the Surgery Center.

The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiaries, St. Joseph's Preferred, Inc. (SJP), a preferred
provider network formed to negotiate fee-for-service products with self-insured
employers, health insurance plans and other preferred provider networks, and
St. Joseph's Health Network, Inc. (SJHN), a physician-hospital organization,
formed to negotiate at-risk products with managed care organizations on behalf
of its membership. To date, SJHN has not executed any at-risk products. All
intercompany accounts and transactions have been eliminated from the
consolidated financial statements.

USE OF ESTIMATES

The preparation of these consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the consolidated financial
statements and accompanying notes. Actual results could differ from these
estimates.

EQUITY INVESTMENT IN SURGERY CENTER

The Company accounts for its 4% investment in the Surgery Center under the
equity method due to the Company's ability to exercise significant influence
over the limited partnership. Accordingly, this investment has been stated in
the accompanying consolidated balance sheets at the cost of acquisition plus
the Company's equity in the Surgery Center's undistributed earnings or losses
since acquisition through December 31, 1998 and 1997, respectively. None of the
assets or liabilities of the Surgery Center are included in the consolidated
balance sheets except to the

<PAGE> 71

St. Joseph's Physicians-Healthcenter
Organization, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

extent of the Company's interests in the underlying net assets of the Surgery
Center. The Company's earnings resulting from its proportionate shares of the
Surgery Center's revenue and expenses are included in equity in earnings of
the Surgery Center in the consolidated statements of operations.

CASH EQUIVALENTS

The Company considers all highly liquid investments with original maturities of
three months or less when purchased to be cash equivalents.

INCOME TAXES

The Company follows the liability method of accounting for income taxes.
Deferred income taxes relate to the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes.

MEMBERSHIP FEES

Membership fees represent amounts paid by physicians participating in SJHN.
These amounts are recognized as revenue upon approval of the respective
physician's membership in SJHN by its board of directors. In addition, upon
board approval, St. Joseph's Hospital (see Note 7) pays an additional
membership fee equaling that of the new member physician. Amounts included in
membership fees deposits are from physicians pending board approval.

ACCESS FEES

Access fees consist of amounts paid by self-insured employers for network
access. Access fees are charged on a monthly basis and recognized as revenue
during the month the member has access to the network.

ACCOUNTS RECEIVABLE

Accounts receivable represents amounts due from physicians and St. Joseph's
Hospital for membership fees.

<PAGE> 72

St. Joseph's Physicians-Healthcenter
Organization, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

RECLASSIFICATIONS

Certain reclassifications have been made to the 1997 financial statements to
conform with the 1998 presentation. These reclassifications had no effect on
net loss as previously reported.

2. PREFERRED STOCK

The outstanding 6,250 shares of preferred stock of the Company, together with
all declared and unpaid dividends through January 31, 1997, was redeemed
through the payment of $184,375 by the Company on February 6, 1997 ($125,000
for the 6,250 shares of preferred stock and $59,375 in unpaid dividends).

3. EQUITY INVESTMENT IN SURGERY CENTER

A summary of the changes in the Company's equity investment in the Surgery
Center is presented below:

YEAR ENDED DECEMBER 31
1998 1997
-------- --------
<S> <C> <C>

Balance at January 1 $106,013 $ 98,422
Equity in earnings of limited partnership for
the year ended December 31 78,190 87,617
Distributions received (83,359) (80,026)
-------- --------
Balance at December 31 $100,844 $106,013
======== ========

</TABLE>

<PAGE> 73

St. Joseph's Physicians-Healthcenter
Organization, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

3. EQUITY INVESTMENT IN SURGERY CENTER (CONTINUED)

The condensed balance sheets and related statements of income of the Surgery
Center are as follows:

YEAR ENDED DECEMBER 31
1998 1997
---------- ----------
<S> <C> <C>

Assets:
Current assets $2,975,822 $3,620,760
Noncurrent assets 613,019 608,827
---------- ----------
Total assets $3,588,841 $4,229,587
========== ==========

Liabilities and partners' equity:
Current liabilities $1,041,621 $1,374,866
Long-term debt, less current portion 11,703 186,203
Partners' equity 2,535,517 2,668,518
---------- ----------
Total liabilities and partners' equity $3,588,841 $4,229,587
========== ==========

</TABLE>

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1998 1997
---------- ----------
<S> <C> <C>

Revenues and nonoperating gains $8,977,151 $9,183,166
Expenses 7,022,821 7,000,245
---------- ----------
Net income $1,954,330 $2,182,921
========== ==========

</TABLE>

4. OTHER INVESTMENTS

During 1998 and 1997, the Company acquired certain limited partnership units in
the Surgery Center under the Company's right of first refusal as managing
partner. As of December 31, 1998, the Company owned one and one-half limited
partnership units, a 1.8% interest. As of December 31, 1997, the Company owned
one and three-quarters limited partnership units, a 2.1% interest. These
investments of $52,000 and $72,575 at December 31, 1998 and 1997, respectively,
are presented as other noncurrent investments, since management has not
actively marketed these limited partnership units and will likely hold them
beyond one year. Distributions

<PAGE> 74

St. Joseph's Physicians-Healthcenter
Organization, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

4. OTHER INVESTMENTS (CONTINUED)

are recorded as income when declared and included in investment and other
income. The difference between accounting for these investments at cost rather
than under the equity method is not material to net income or the financial
position of the Company.

5. INCOME TAXES

The combined federal and state income tax provision consists of the following
components:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1998 1997
------- -------
<S> <C> <C>
Current:
Federal $ - $(1,857)
State - (318)
Deferred taxes:
Federal 19,382 7,437
State 3,747 1,273
------- -------
Provision for income taxes $23,129 $ 6,535
======= =======

</TABLE>

Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. The Company's deferred
tax liabilities and assets as of December 31 are as follows:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1998 1997
------- -------
<S> <C> <C>

Total deferred tax liabilities $ - $ -
Total deferred tax assets 114,636 99,894
Total valuation allowance (46,733) (46,733)
-------- --------
Net deferred tax asset $ 67,903 $ 53,161
======== ========

</TABLE>

<PAGE> 75

St. Joseph's Physicians-Healthcenter
Organization, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

5. INCOME TAXES (CONTINUED)

Components of the Company's deferred tax assets result primarily from
differences in the basis of investments in partnership interest for financial
and tax reporting purposes, net operating loss carryforwards, as well as
deferred expenses on investments in SJHN. The total valuation allowance did not
change during the year ended December 31, 1998. Net operating losses begin to
expire in 2012.

The Company did not pay income tax in 1998 and paid income tax of $36,000 in
1997.

6. COMMITMENTS AND CONTINGENCIES

As the managing general partner, the Company is contingently liable for all
liabilities of the Surgery Center.

7. RELATED-PARTY TRANSACTIONS

The Company is 50% owned by St. Joseph's Enterprises, Inc., an affiliate of St.
Joseph's Health Care Center, Inc. (the Center). Effective July 1, 1997, the
Center became a member of BayCare Health System, Inc. (BayCare) through the
execution of a joint operating agreement. The Center provides administrative
and accounting support to the Company. Amounts assessed for this support by the
Center are included in the consolidated statements of operations in general and
administrative expenses. The Company paid $125,967 and $173,324 for this
support in 1998 and 1997, respectively. Membership fees and access fees revenue
from St. Joseph's Hospital, a controlled affiliate of the Center, totaled
$104,873 and $22,150 in 1998 and 1997, respectively.

All physician limited partners in the Surgery Center are also stockholders in
St. Joseph's Physician Associates, Inc. (SJPA), which is the other 50% owner of
the Company.

8. IMPACT OF THE YEAR 2000--UNAUDITED

The Company derives certain of its revenue from its equity ownership in the
Surgery Center and receives administrative support from the Center. BayCare is
coordinating Year 2000 remediation efforts on behalf of the Surgery Center and
the Center. BayCare has determined that it will be required to modify or
replace certain portions of its software, hardware, and patient care

<PAGE> 76

St. Joseph's Physicians-Healthcenter
Organization, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

8. IMPACT OF THE YEAR 2000--UNAUDITED (CONTINUED)

equipment so that its systems and equipment will function properly with respect
to dates in the year 2000 and thereafter. Affected systems may include clinical
and biomedical instrumentation and equipment used within BayCare for purposes
of direct or indirect patient care such as imaging, laboratory, pharmacy, and
respiratory devices; cardiology measurement and support devices; emergency care
devices (including monitors, defibrillators, dialysis equipment, and
ventilators); operating room equipment (including lasers, transfusion
equipment, anesthesia equipment, and pumps); automated implants and/or the
devices used to program them; and general patient care devices (including
telemetry and endoscopy equipment and IV pumps). BayCare will utilize both
internal and external resources to reprogram, or replace, and test the software
and patient care equipment for Year 2000 readiness. The total cost to BayCare
of the Year 2000 project is estimated at $21,000,000. The purchase of new
software and patient care equipment of approximately $20,000,000 will be
capitalized and $1,000,000 will be expensed as incurred. The Year 2000 project
costs will be allocated among the participants of BayCare. The Center
anticipates that its allocation of Year 2000 project costs will be
approximately $10,600,000, of which a portion will be allocated to the Surgery
Center. Management does not expect this allocation to have a material effect on
the results of operations of the Surgery Center or the Company. To date,
BayCare has expended approximately $1,200,000 related to the assessment of, and
preliminary efforts on, its Year 2000 project and the development of a
modification plan, purchase of new systems and equipment, and systems
modifications. BayCare expects to complete Year 2000 modifications and be Year
2000 compliant by December 31, 1999.

The costs of the Year 2000 project and the date on which BayCare believes it
will complete the Year 2000 modifications are based on management's best
estimates, which were derived utilizing numerous assumptions of future events,
including the continued availability of certain resources. BayCare's, the
Surgery Center's and the Company's operating results could be materially
impacted if actual costs of the Year 2000 project are significantly higher than
management estimates or if the systems and equipment of BayCare or those of
other companies on which it relies are not compliant in a timely manner.

<PAGE> 77

St. Joseph's Physician Associates, Inc.

Financial Statements

Years ended December 31, 1998 and 1997

CONTENTS

<TABLE>
<S> <C>
Report of Independent Auditors............................................. 1

Audited Financial Statements

Balance Sheets............................................................. 2
Statements of Operations................................................... 3
Statements of Changes in Stockholders' Equity.............................. 4
Statements of Cash Flows................................................... 5
Notes to Financial Statements.............................................. 6

</TABLE>

<PAGE> 78

Report of Independent Certified Public Accountants

Board of Directors
St. Joseph's Physician Associates, Inc.

We have audited the accompanying balance sheets of St. Joseph's Physician
Associates, Inc. (the Company) as of December 31, 1998 and 1997, and the
related statements of operations, changes in stockholders' equity and cash
flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of St. Joseph's Physician
Associates, Inc. at December 31, 1998 and 1997, and the results of its
operations and its cash flows for the years then ended in conformity with
generally accepted accounting principles.

Tampa, Florida
March 3, 1999

<PAGE> 79

St. Joseph's Physician Associates, Inc.

Balance Sheets

DECEMBER 31
1998 1997
---------- ----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $1,202,252 $1,150,633
Distribution receivable from limited partnership
investments 40,315 36,640
Prepaid expenses 6,521 6,375
---------- ----------
Total current assets 1,249,088 1,193,648

Equity investments 248,454 195,220
Other investments 20,000 20,000
---------- ----------
Total assets $1,517,542 $1,408,868
========== ==========

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accrued expenses $ 28,998 $ 20,757
Due to related party 8,276 641
Income taxes payable 35,340 28,340
---------- ----------
Total current liabilities 72,614 49,738

Deferred income taxes 39,771 21,988

Stockholders' equity:
Common stock, $1 par value: 7,500 shares authorized;
415 shares at December 31, 1998 and 428 shares at
December 31, 1997 issued and outstanding 415 428
Common stock subscribed, 2 shares at December 31,
1998 and 3 shares at December 31, 1997 2 3
Subscriptions receivable (2,300) (4,500)
Additional paid-in capital 654,526 698,101
Retained earnings 752,514 643,110
---------- ----------
Total stockholders' equity 1,405,157 1,337,142
---------- ----------
Total liabilities and stockholders' equity $1,517,542 $1,408,868
========== ==========

</TABLE>

See accompanying notes.

<PAGE> 80

St. Joseph's Physician Associates, Inc.

Statements of Operations

YEAR ENDED DECEMBER 31
1998 1997
--------- ----------
<S> <C> <C>

Revenues:
Distribution income $125,040 $120,040
Equity in net earnings of investees 42,971 2,763
-------- ---------
168,011 122,803
Expenses:
Salary 40,000 40,000
General and administrative 111,186 81,622
-------- ---------
Operating income 16,825 1,181

Interest income 54,687 30,449
Loss on impairment of equity investment - (200,410)
-------- ---------
Income (loss) before income taxes 71,512 (168,780)

Provision (benefit) for income taxes 30,371 (24,000)
-------- ---------
Net income (loss) $ 41,141 $(144,780)
======== =========

Net income (loss) per common share--basic and diluted $ 96 $ (333)
======== =========

Weighted average shares outstanding and subscribed 428 435
======== =========

</TABLE>

See accompanying notes.

<PAGE> 81

St. Joseph's Physician Associates, Inc.

Statements of Changes in Stockholders' Equity

COMMON ADDITIONAL
COMMON STOCK STOCK SUBSCRIPTIONS PAID-IN RETAINED
SHARES AMOUNT SUBSCRIBED RECEIVABLE CAPITAL EARNINGS TOTAL
------ ------ ---------- ------------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>

Balance at January 1, 1997 $426 $426 $ 7 $(11,600) $704,975 $ 787,890 $1,481,698
Sale and subscription of
common stock 13 13 (3) 5,100 34,490 - 39,600
Redemption of common stock
(11) (11) (1) 2,000 (41,364) - (39,376)
Net loss - - - - - (144,780) (144,780)
---- ---- --- -------- ------- --------- ---------

Balance at December 31, 1997
428 428 3 (4,500) 698,101 643,110 1,337,142
Sale and subscription of
common stock 1 1 (1) 2,200 - - 2,200
Redemption of common stock
(14) (14) - - (43,575) - (43,589)
Adjustment to carrying value
of investment, net of taxes - - - - - 68,263 68,263
Net income - - - - - 41,141 41,141
---- ---- --- -------- ------- --------- ---------
Balance at December 31, 1998
$415 $415 $ 2 $ (2,300) $654,526 $ 752,514 $1,405,157
==== ==== === ======== ======== ========= ==========

</TABLE>

See accompanying notes.

<PAGE> 82

St. Joseph's Physician Associates, Inc.

Statements of Cash Flows

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1998 1997
---------- ----------
<S> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $ 41,141 $ (144,780)
Adjustments to reconcile net income (loss) to net cash
used in operating activities:
Equity in net earnings of investees (42,971) (2,763)
Distribution income 125,040) (120,040)
Loss on impairment of equity investment - 200,410
Deferred income taxes (24,217) (56,338)
Changes in operating assets and liabilities:
Prepaid expenses (146) 291
Income taxes receivable - 6,379
Accrued expenses 8,241 (3,221)
Due to related party 7,635 641
Income taxes payable 7,000 28,340
---------- ----------
Net cash used in operating activities (128,357) (91,081)

INVESTING ACTIVITIES
Dividends from equity investments - 350,000
Proceeds from sale of equity investment 100,000 -
Distributions received 121,365 121,920
---------- ----------
Net cash provided by investing activities 221,365 471,920

FINANCING ACTIVITIES
Proceeds from sale of common stock 2,200 39,600
Redemption of common stock (43,589) (39,376)
---------- ----------
Net cash (used in) provided by financing activities (41,389) 224
---------- ----------
Increase in cash and cash equivalents 51,619 381,063
Cash and cash equivalents at beginning of year 1,150,633 769,570
---------- ----------
Cash and cash equivalents at end of year $1,202,252 $1,150,633
========== ==========
</TABLE>

See accompanying notes.

<PAGE> 83

St. Joseph's Physician Associates, Inc.

Notes to Financial Statements

December 31, 1998

1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

ORGANIZATION

St. Joseph's Physician Associates, Inc. (the Company) was organized on November
20, 1987 to establish and operate an association of qualified physicians and
engage directly or indirectly in health care related ventures.

In February 1989, the Company acquired 2,500 shares of the common stock of St.
Joseph's Physicians-Healthcenter Organization, Inc. (PHO) for $20 per share.
The 2,500 shares represent 50% of the outstanding common stock of the PHO. The
Company earns equity in the net earnings of the PHO at 50% of the PHO's
earnings. The PHO was organized for the purpose of engaging directly or
indirectly in health care related ventures.

In June 1989, the Company acquired 4,000 shares of the common stock of
Hospitals' Home Health Care of Hillsborough County, Inc. d/b/a St. Joseph's
Home Health Services (HHC) for $10 per share. The 4,000 shares represent 50% of
the outstanding common stock of HHC. On January 5, 1998, the Company sold its
4,000 shares of HHC to St. Joseph's Ancillary Services, Inc. for $100,000. The
investment in HHC was sold for a price that was lower than the carrying amount
of the equity investment in HHC at December 31, 1997. As a result, the equity
investment in HHC was written down by $200,410 in 1997, to properly reflect its
fair value at 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 amounts reported in the financial statements and accompanying
notes. Actual results could differ from these estimates.

<PAGE> 84

St. Joseph's Physician Associates, Inc.

Notes to Financial Statements (continued)

1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

EQUITY INVESTMENTS

The Company accounts for its investments in the PHO, and HHC through January 5,
1998, on the equity method. Accordingly, these investments have been stated in
the accompanying balance sheets at the cost of acquisition plus the Company's
equity in the undistributed earnings/losses since acquisition. None of the
assets or liabilities of the investments are included in the balance sheets
except to the extent of the Company's interests in the underlying net assets
included in equity investments. The excess of the cost of acquisition of the
investment in HHC over the Company's interest in the underlying net liabilities
at the date of acquisition was $84,264 and has been amortized as a component of
equity in net earnings of investees over 40 years. The unamortized portion of
the excess of $66,362 was written off and is included in loss on impairment of
equity investment for the year ended December 31, 1997.

OTHER INVESTMENTS

The Company owns five limited partnership units, a 6% interest, in St. Joseph's
Same-Day Surgery Center, Ltd. (the Surgery Center). Management has not actively
marketed these partnership units and intends to hold them beyond one year.
Accordingly, this investment is presented as noncurrent, other investments. The
investment is accounted for at cost due to the limited percentage interest in
the partnership and inability to exercise significant influence over the
partnership. Distributions from the Surgery Center are recorded as income when
declared and reported as distribution income.

SUBSCRIPTIONS RECEIVABLE

Subscriptions receivable relate to agreements to purchase common stock of the
Company and are to be paid in installments during 1999.

CASH EQUIVALENTS

The Company considers all highly liquid investments with original maturities of
three months or less when purchased to be cash equivalents.

<PAGE> 85

St. Joseph's Physician Associates, Inc.

Notes to Financial Statements (continued)

1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

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.

INCOME PER COMMON SHARE

Income per common share is based upon the weighted average number of common
shares outstanding during the period.

RECLASSIFICATIONS

Certain reclassifications have been made to the 1997 financial statements to
conform with the 1998 presentation. These reclassifications had no effect on
net loss as previously reported.

2. EQUITY INVESTMENTS

A summary of the changes in equity investments is presented below:

HHC PHO TOTAL
--------- -------- ---------
<S> <C> <C> <C>

Balance at January 1, 1997 $ 605,100 $137,767 $ 742,867
Equity in net earnings (losses) of investees 45,310 (42,547) 2,763
Loss on impairment of equity investment (200,410) - (200,410)
Dividend received (350,000) - (350,000)
--------- -------- ---------
Balance at December 31, 1997 100,000 95,220 195,220
Equity in net earnings of investees - 42,971 42,971
Adjustment to carrying value of investment
- 110,263 110,263
Sale of equity investment (100,000) - (100,000)
========= ======== =========
Balance at December 31, 1998 $ - $248,454 $ 248,454
========= ======== =========
</TABLE>

<PAGE> 86

St. Joseph's Physician Associates, Inc.

Notes to Financial Statements (continued)

2. EQUITY INVESTMENTS (CONTINUED)

Through January 31, 1997, the PHO had 6,250 preferred shares outstanding and
the Company had a 22.22% equity ownership of the PHO. Upon redemption of the
6,250 preferred shares by the PHO on January 31, 1997, the Company's equity
ownership of the PHO increased to 50%. Due to the net loss of the PHO of
$88,585 for the year ended December 31, 1997 and the uncertainty as to the
PHO's future earnings, the Company did not adjust the carrying amount of its
investment in the PHO in 1997 to reflect the Company's 50% equity ownership
interest. In 1998, the Company determined that the PHO's earnings capacity as
demonstrated by the PHO's net income of $85,942 for the year ended December 31,
1998 was sufficient to justify adjusting the carrying amount of the Company's
investment in the PHO. Accordingly, the carrying amount of the Company's
investment in the PHO was increased by $110,263 to properly reflect its 50%
equity ownership and a deferred tax liability of $42,000 was recorded due to
the difference between the financial reporting and tax basis of the investment
which resulted in an increase in retained earnings of $68,263.

The condensed balance sheets of the equity investees are as follows:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1998 1997
---------- ----------
<S> <C> <C>

PHO
Assets:
Current assets $423,024 $ 309,443
Noncurrent assets 220,747 231,749
-------- ----------

Total assets $643,771 $ 541,192
======== ==========

Liabilities and stockholders' equity:
Current liabilities $146,863 $ 130,226
Stockholders' equity 496,908 410,966
-------- ----------
Total liabilities and stockholders' equity $643,771 $ 541,192
======== ==========

HHC
Assets:
Current assets $ - $1,516,114
Noncurrent assets - 2,374
-------- ----------
Total assets $ - $1,518,488
======== ==========
Liabilities and stockholders' equity:
Current liabilities $ - $ 801,591
Long-term liabilities - 248,799
Stockholders' equity - 468,098
-------- ----------
Total liabilities and stockholders' equity $ - $1,518,488
======== ==========

</TABLE>

<PAGE> 87

St. Joseph's Physician Associates, Inc.

Notes to Financial Statements (continued)

2. EQUITY INVESTMENTS (CONTINUED)

The condensed statements of operations of the equity investees are as follows:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1998 1997
-------- -----------
<S> <C> <C>

PHO
Revenues $302,108 $ 182,050
Expenses 193,037 (264,100)
-------- -----------
109,071 (82,050)
Provision for income taxes 23,129 6,535
-------- -----------
Net income (loss) $ 85,942 $ (88,585)
======== ===========

HHC
Revenues $ - $ 2,998,416
Expenses - (2,832,248)
-------- -----------
- 166,168
Provision for income taxes - 71,333
-------- -----------
Net income $ - $ 94,835
======== ===========

</TABLE>

3. INCOME TAXES

The provision (benefit) for income taxes consists of the following:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1998 1997
---------- --------
<S> <C> <C>

Current:
Federal $ 49,051 $ 27,000
State 5,920 5,000
Deferred:
Federal (21,955) (48,000)
State (2,645) (8,000)
-------- --------

Provision for income taxes (benefit) $ 30,371 $(24,000)
======== ========

</TABLE>

<PAGE> 88

St. Joseph's Physician Associates, Inc.

Notes to Financial Statements (continued)

3. INCOME TAXES (CONTINUED)

The differences between the federal income tax rate and the Company's effective
income tax rate are as follows:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1998 1997
---- ------
<S> <C> <C>

Federal income tax at statutory rate 34.0% (34.0)%
State income taxes, net of federal income
tax benefit 3.6 (3.6)
Effect of permanent differences - 23.4
Other 5.0 -
---- -----
42.6% (14.2)%
==== =====

</TABLE>

Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and amounts used for income tax purposes. Significant components of
the Company's deferred tax liabilities and assets are as follows:

<TABLE>
<CAPTION>
DECEMBER 31
1998 1997
-------- --------
<S> <C> <C>

Deferred tax assets:
Difference in basis of investments in
limited partnership interests between
financial and tax reporting $ 36,708 $110,000
Other - 1,012
-------- --------
Total deferred tax assets 36,708 111,012

Deferred tax liabilities:
Investments accounted for under equity
method for financial accounting purposes 76,479 133,000
-------- --------
Total deferred tax liabilities 76,479 133,000
-------- --------
Net deferred tax asset (liability) $(39,771) $(21,988)
======== ========
</TABLE>

The Company paid income taxes of approximately $32,000 and $19,000 in 1998 and
1997, respectively.

<PAGE> 89

St. Joseph's Physician Associates, Inc.

Notes to Financial Statements (continued)

4. RELATED PARTY TRANSACTIONS

The members of the Board of Directors of the Company are also members of the
medical staff of St. Joseph's Hospital, Inc. St. Joseph's Hospital, Inc. is a
controlled affiliate of St. Joseph's Health Care Center, Inc. (the Center).
Prior to February 1, 1997, the Center provided administrative support to the
Company at no charge. Effective February 1, 1997, the Center charged the
Company for administrative support and direct costs (i.e., food charges,
printing, etc.). The Company paid $966 and $1,954 for these services for the
years ended December 31, 1998 and 1997, respectively. The Company paid $2,001
and $1,839 to the Center for rental of facilities for the years ended December
31, 1998 and 1997, respectively.

All limited partner investors in the PHO's ventures are investors in the
Company. Additionally, all physicians who hold provider contracts with a
subsidiary of the PHO are investors in the Company.

St. Joseph's Enterprises, Inc. and St. Joseph's Ancillary Services, Inc., both
affiliates of the Center, own 50% and 100% of the outstanding common stock of
the PHO and HHC, respectively.

5. SUBSEQUENT EVENT

On March 3, 1999, the Company purchased approximately 3% of the common stock of
Entrusted Health Management Services, Inc. (EHMS) for $100,000. EHMS is a
development stage enterprise that was organized to manage and administer health
benefit arrangements for self-insured employers. EHMS is expected to commence
operations on or about June 1, 1999. Certain stockholders of the Company are
also stockholders of EHMS.

6. IMPACT OF YEAR 2000--UNAUDITED

The year 2000 presents a problem for computer software and hardware that were
not designed to handle dates beyond the year 1999 (Year 2000 issue). The
Company is aware of the Year 2000 issue and is in the process of assessing the
consequences of the Year 2000 issue on the Company's business, results of
operations and financial condition.

The Company does not have any information technology (IT) systems and has not
identified any non-IT systems such as equipment with embedded chips. All of the
Company's administrative support services are provided by third parties and the
Company expects these third parties to be Year 2000 compliant.

<PAGE> 90

St. Joseph's Physician Associates, Inc.

Notes to Financial Statements (continued)

6. IMPACT OF YEAR 2000--UNAUDITED (CONTINUED)

The Company derives the majority of its revenues from its equity ownership in
the PHO and its limited partnership units in the Surgery Center. The Company
has contacted representatives of the PHO and the Surgery Center in order to
verify their Year 2000 readiness. The PHO and the Surgery Center have completed
the risk assessment phase and are in the process of upgrading or replacing
systems and equipment found not to be compliant. The PHO and the Surgery Center
plan to achieve Year 2000 readiness by December 1999. The failure of the PHO
and the Surgery Center to be Year 2000 compliant could have a material impact
on the Company's business, results of operations and financial condition.

13
<PAGE> 91

SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED
PURSUANT TO SECTION 15(d) OF THE ACT BY REGISTRANTS WHICH
HAVE NOT REGISTERED SECURITIES PURSUANT TO SECTION 12 OF THE
SECURITIES EXCHANGE ACT OF 1934 (THE "ACT").

The following materials are included herewith and furnished to the
Commission for its information:

(1) One copy of the form of proxy and related materials sent to the
registrant's security holders with respect to its 1999 annual meeting
of stockholders.

The foregoing materials shall not be deemed to be "filed" with the
Commission or otherwise subject to the liabilities of Section 18 of the Act.

No annual report or similar material, other than as furnished
herewith, has been sent to the security holders of the registrant with respect
to its 1999 annual meeting of stockholders.

<PAGE> 92
St. Joseph's Physician Associates, Inc.
P.O. Box 151526
Tampa, FL 33684-1526

March 25, 1999

Dear Stockholder:

The 1999 Annual Meeting of Stockholders will be held on MONDAY, MAY 3, 1999 AT
6:00 P.M. IN THE MEDICAL ARTS BUILDING AUDITORIUM. For further information,
please refer to the enclosed Notice of Annual Meeting. You also will find
enclosed, a letter from the Chairman of the Board, Norman Castellano, M.D., and
the Nominating Committee's report on its nominations for each directorship to
be filled at the Annual Meeting.

Reports will be presented on all 1998 activities of St. Joseph's Physician
Associates, Inc. This Annual Meeting is intended to provide an opportunity for
all Stockholders to participate in the affairs of the Company. This
participation is very important to the future of the Company and the Bylaws
ensure that participation is open to all Stockholders. The new Board members
will be elected, and soon after the Annual Meeting, new committees will be
re-appointed. Please call me if you are interested in serving on a committee.

We look forward to your participation at the meeting. If you are unable to
attend, however, please complete the enclosed proxy and return it to us in the
enclosed return envelope.

Sincerely,

/s/ Anthony Brannan, M.D.
--------------------------------------
Anthony Brannan, M.D.
President

Enclosures
<PAGE> 93

St. Joseph's Physician Associates, Inc.
P.O. Box 151526
Tampa, FL 33684-1526

March 25, 1999

Dear Stockholder:

One of the purposes of the 1999 Annual Meeting of the Stockholders is to elect
three members of the Board of Directors. The Nominating Committee of the Board
of Directors has met to nominate individuals to fill the three vacancies on the
Board of Directors. The members of this Committee are Anthony Brannan, M.D.,
Allen D. Miller, M.D., and myself. The Chairman of the Committee is Dr. Miller.
All members can be contacted at the above mailing address.

Enclosed is the Nominating Committee's report on its nominations for each
directorship to be filled at the Annual Meeting.

Nominations, in addition to those made by the Nominating Committee, may be made
by petition by at least twenty-five percent (25%) of the shareholders eligible
to vote at the Annual Meeting. There were 414 shareholders of record as of
March 15, 1999, so 104 shareholders must sign a nominating petition. The
petition must be filed with the President, Anthony Brannan, M.D., or the
Secretary, N. Bruce Edgerton, M.D., not later than fourteen (14) days before
the Annual Meeting scheduled on May 3, 1999.

We look forward to seeing you at the meeting.

Sincerely,

/s/ Norman Castellano, M.D.
- -----------------------------------
Norman Castellano, M.D.
Chairman of the Board of Directors

Enclosure

<PAGE> 94

St. Joseph's Physician Associates, Inc.
P.O. Box 151526
Tampa, FL 33684-1526

March 23, 1999

Norman J. Castellano, M.D.
Chairman of the Board
St. Joseph's Physician Associates, Inc.
2727 W. Dr. M.L. King, Jr. Blvd. #450
Tampa, Florida 33607

RE: Nominations for SJPA Board of Directors

Dear Dr. Castellano:

The Nominating Committee, consisting of Anthony N. Brannan, M.D., 4700 N. Habana
Avenue, Suite 403, Tampa, FL 33614; Norman J. Castellano, M.D., 2727 W. Dr. M.L.
King, Jr. Blvd., Suite 450, Tampa FL 33607; and myself, Allen D. Miller, M.D.,
4612 N. Habana Avenue, Suite 203, Tampa, FL 33614, has met and submits the
following nominations. For a full term on the Board of Directors as provided by
the Bylaws: N. Bruce Edgerton, M.D. -- Medicine representative; and Angel
Docobo, M.D. -- Surgery representative. For a one-year term, hospital-based
physician term: Wilfred Idsten, M.D. -- Emergency Medicine representative.

Respectfully submitted,

/s/ Allen D. Miller, M.D.
- -------------------------------------
Allen D. Miller, M.D.
Chairman, Nominating Committee

<PAGE> 95
ST. JOSEPH'S PHYSICIAN ASSOCIATES, INC.

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS

MAY 3, 1999

You are cordially invited to attend the 1999 Annual Meeting of the
stockholders of St. Joseph's Physician Associates, Inc., which will be held at
the auditorium of the Medical Arts Building, 3003 W. Dr. Martin Luther King,
Jr. Blvd., Tampa, Florida, on Monday, May 3, 1999 at 6:00 p.m., local time, for
the following purposes:

(1) To elect three directors, two to serve terms of four years and one
to serve a term of one year;

and

(2) To transact such other business as may properly come before the
meeting or any adjournments thereof.

Only stockholders of record at the close of business on March 15, 1999
are entitled to notice of and to vote at the meeting or any adjournments
thereof.

Accompanying this Notice of Annual Meeting is a form of proxy. In the
event that you will be unable to attend the meeting, please sign, date and
return the proxy in the enclosed return envelope.

By order of the Board of Directors

/s/ N. Bruce Edgerton, M.D.
-------------------------------------
N. Bruce Edgerton, M.D., Secretary

March 26 1999

Enclosures
<PAGE> 96

ST. JOSEPH'S PHYSICIAN ASSOCIATES, INC.

PROXY SOLICITED ON BEHALF OF THE
BOARD OF DIRECTORS FOR
1999 ANNUAL STOCKHOLDERS' MEETING

The undersigned stockholder of St. Joseph's Physician Associates, Inc.
(the "Company"), revoking all prior proxies, hereby appoints Norman Castellano,
M.D., Anthony Brannan, M.D. and N. Bruce Edgerton, M.D., or one or more of
them, as the attorneys and proxies of the undersigned, with full power of
substitution and revocation, to vote all the shares of stock of the Company
that the undersigned may be entitled to vote at the 1999 Annual Meeting of the
Stockholders of the Company to be held at the auditorium of the Medical Arts
Building, 3003 W. Dr. Martin Luther King Jr. Blvd., Tampa, Florida, on May 3,
1999, at 6:00 p.m., local time, and at any adjournment or adjournments thereof,
with all powers that the undersigned would possess if personally present, upon
the following matters as more fully described in the accompanying Notice of
Annual Meeting, receipt of which is hereby acknowledged:

(1) Election of Directors to serve terms of four years each:
[ ] FOR the nominees listed below (except as marked to the
contrary):

N. Bruce Edgerton, M.D.
Angel Docobo, M.D.

(To withhold authority to vote for one of the nominees, strike
through his name above.)

[ ] WITHHOLD authority to vote for all nominees listed above.

(2) Election of Director to serve term of one year:

[ ] FOR the nominee listed below:

Wilfred Idsten, M.D.

[ ] WITHHOLD authority to vote for the nominee listed above.

(3) In their discretion upon such other matters as may properly come
before the meeting.

When properly executed, this proxy will be voted as specified above.
If the proxy is returned with no contrary specification made, it will be voted
FOR Proposal (1) and FOR Proposal (2).

DATED the _____day of _________________, 1999.

--------------------------------------
(SIGNATURE)

--------------------------------------
(PRINT NAME)

PLEASE SIGN NAME EXACTLY AS IT APPEARS ON STOCK CERTIFICATE. WHEN SIGNING AS
ATTORNEY, EXECUTOR, ADMINISTRATOR, TRUSTEE OR GUARDIAN, GIVE FULL TITLE. IF
MORE THAN ONE TRUSTEE OR PERSONAL REPRESENTATIVE, ALL MUST SIGN.

<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM (A) ST.
JOSEPH'S PHYSICIAN ASSOCIATES, INC. BALANCE SHEET AND STATEMENT OF INCOME
CONTAINED IN THE 12/31/98 AUDITED FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH (B) FORM 10-KSB FOR THE YEAR END DECEMBER 31,
1998.
</LEGEND>

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 1,202,252
<SECURITIES> 0
<RECEIVABLES> 40,315
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,249,088
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 1,517,542
<CURRENT-LIABILITIES> 72,614
<BONDS> 0
0
0
<COMMON> 652,643
<OTHER-SE> 752,514
<TOTAL-LIABILITY-AND-EQUITY> 1,517,542
<SALES> 0
<TOTAL-REVENUES> 222,698
<CGS> 0
<TOTAL-COSTS> 151,186
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 71,512
<INCOME-TAX> 30,371
<INCOME-CONTINUING> 41,141
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 41,141
<EPS-PRIMARY> 96
<EPS-DILUTED> 96

</TABLE>