ST JOSEPHS PHYSICIAN ASSOCIATES INC, 10KSB40, 2000-04-14

ST JOSEPHS PHYSICIAN ASSOCIATES INC
10KSB40, 2000-04-14
HOME HEALTH CARE SERVICES

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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, 1999

[ ] 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.
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(Name of small business issuer in its charter)

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

4900 North Habana Ave., Tampa, Florida 33614
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(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. $119,663

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

Approximately $1,386,360 as of February 29, 2000 (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 -- 425 shares as of
March 31, 2000

Documents incorporated by reference: None

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ST. JOSEPH'S PHYSICIAN ASSOCIATES, INC.

ANNUAL REPORT ON FORM 10-KSB
for the
YEAR ENDED DECEMBER 31, 1999

TABLE OF CONTENTS

PART I 1

ITEM 1. BUSINESS 1
ITEM 2. PROPERTIES 31
ITEM 3. LEGAL PROCEEDINGS 31
ITEM 4. SUBMISSION OF MATTERS TO A VOTE
OF SECURITY HOLDERS 32

PART II 32

ITEM 5. MARKET FOR COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS. 32
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR
PLAN OF OPERATION 36
ITEM 7. FINANCIAL STATEMENTS 48
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH
ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE 48

PART III 48

ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS
AND CONTROL PERSONS; COMPLIANCE WITH
SECTION 16(a) OF THE EXCHANGE ACT 48
ITEM 10. EXECUTIVE COMPENSATION 53
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT 53
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 54

PART IV 54

ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K 54

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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. After extensive
review, SJHN's Board of Directors voted to cease business operations as of
December 31, 1999. 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 then was 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

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"HOSPITALS' 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, prior to its ceasing operations, in SJHN's risk-based
provider 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 and the Same-Day Surgery Center Partnership, (2)
indirectly participate in SJHN, 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 does 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 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,

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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, 1999. 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.

[rest of page intentionally left blank, see next page for diagram]

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[place diagram as of December 31, 1999 here]

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The Company's Ventures

The Company's Ownership Interest in the PHO. The PHO is the Company's
principal venture. In 1999, 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, several other
health care entities owned by or affiliated with the Hospital Corporation, the
Same-Day Surgery Center Partnership, and approximately 430 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 82
contracts covering approximately 25,500 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
4,000 employees.

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In addition, BayCare has contracts with other managed care entities
through which the PPO Providers are made available to provide services to the
approximately 62,000 enrolled employees of these other entities (37,500 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, 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 physician directors of BayCare who 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 physician directors of BayCare who 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 physician 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 had concentrated 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.

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Between 1996 and 1999, SJHN conducted a provider credentialing
process, and approximately 258 physicians were participating as SJHN Providers
as of December 31, 1999. During 1999, the Board of Directors of SJHN undertook
a review of SJHN's business, opportunities and strategic alternatives. Based
upon the findings of this review, the Board of Directors of SJHN voted to cease
SJHN's business operations as of December 31, 1999.

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%) general partnership
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
providing services to ____ employer self-insured plan(s), (with approximately
_______ employees and dependents participating in the plan) and it is
negotiating with several other employers to whom it proposes to provide
services. The Company has been advised that EHMS currently is working on the
development of several networks of hospitals, physicians 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
in west central Florida. When fully operational, the services to be provided by
EHMS are planned to include designing and implementing benefit

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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.

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

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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 2000 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, including the Same-Day
Surgery Center Partnership, 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 any such entity 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, 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, the Medicare program's prospective
payment system and reduced inpatient stays are causing intense competition to
offer outpatient services at alternative sites.

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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. 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.

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

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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. However, in 1999, the Board of
Directors of SJHN voted to cease business operations as of December 31, 1999.
The PHO also 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:

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

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

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

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

11
<PAGE> 14

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 1, 2000.

Brent Amey, M.D., age 54, 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 41, 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 51, 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 56, 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.

Fleury Yelvington, age 45, 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.

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<PAGE> 15

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 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.

13
<PAGE> 16

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 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

14
<PAGE> 17

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, when operating, 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 and
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.

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, 2000, 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.

15
<PAGE> 18

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 a decrease in its consolidated
revenues in 1999, resulting primarily from a decrease 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 paid 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 have been included in revenue if and when such physician
is accepted as an SJHN Provider. The Hospital also paid 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, but no membership fees were
collected in 1999. 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. SJHN did not collect any fees for the administration of the
Hospital's ProHealth Plus Employee Plan during 1999, so PHO earned no
consolidated revenues from SJHN in 1999.

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, 1999, the PHO's equity in earnings
of limited partnership was $67,295. The level of activity at the Same-Day
Surgery Center Partnership has continued during the first three months of 2000
at levels comparable to 1999. 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 $31,370 in 1999 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.

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<PAGE> 19

The PHO's combined cash balances decreased during 1999, primarily as a
result of the decrease in the amount of revenues attributable to SJHN Providers
and a decrease in the limited partner distributions from the Same-Day Surgery
Center Partnership (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. Since 1996, a PHO
Director, a PHO Coordinator, a Provider Relations Coordinator and a Provider
Relations Representative have been 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. 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
resulted in a lower percentage being allocated to the PHO, thereby resulting in
a decrease in general and administrative expenses for both 1998 and 1999. These
general and administrative expenses are expected to remain level in 2000 and
thereafter, but the PHO's aggregate general and administrative expenses are
expected to decrease in 2000 as a result of the termination of business by
SJHN.

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 1999, primarily because of reduced legal
fees associated with SJHN. The Company expects that in 2000 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 2000. As a consequence, professional fees
expense is not likely to increase substantially, if at all, in 2000.

Liquidity. As of December 31, 1999, the PHO had cash balances of
$269,560, representing approximately 51% of the PHO's total assets. This cash
balance is a decrease from 1998 and resulted primarily because the PHO
continued to incur expenses but had no income in 1999 from membership fees
collected from credentialed SJHN Providers. 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

17
<PAGE> 20

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. There can be no assurance
that the PHO's revenues and existing funds will be sufficient to cover all of
its expenses.

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, 1999, the
Same-Day Surgery Center Partnership had $1,881,880 in current assets in excess
of current liabilities and long-term debt and the Diagnostic Center Partnership
had $6,023,735 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.

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, several other
health care entities owned by or affiliated with the Hospital Corporation, the
Same Day Surgery Center Partnership, and approximately 430 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

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<PAGE> 21

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 82 contracts, covering approximately 25,500 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 4,000 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 62,000
enrolled employees of these other entities (37,500 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.

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. Since 1996, a PHO
Director, a PHO Coordinator, a Provider Relations Coordinator and a Provider
Relations Representative have been 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. 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

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<PAGE> 22

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 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.

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:

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<PAGE> 23

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

Wilfred Idsten, M.D. Isaac Mallah
Allen Miller, M.D. Gilbert Pitisci, M.D.

- ---------------
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 1, 2000.

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 can be attributed 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. 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 was established as a physician-hospital organization for the
purposes of developing a network of hospitals and physicians (collectively
referred to as the "SJHN Providers") and negotiating

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<PAGE> 24

at-risk (i.e., capitation) contracts with managed care organizations on behalf
of the SJHN Providers, thus providing a vehicle for the SJHN Providers to share
risk and receive a fair payment for health care services rendered to persons
residing or employed in the Hillsborough County, Florida area. SJHN has acted
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 certain of the specialist physicians were compensated by a
monthly capitation (i.e., fixed payment per subscriber per month) that required
each physician to assume (or share with SJHN) the risk of providing the medical
care needed by the subscribers in the managed care plan that were assigned to
the physician. Those physicians who were not capitated also could share in the
volume-of-care risk, because a portion of the fee-for-service payments that
they received was withheld in risk pools. The initial invitation to join SJHN
as a physician provider was extended only to SJPA stockholders. As of December
31, 1999, approximately 258 physicians had been credentialed.

SJHN was not successful in obtaining a significant number of managed
care contracts to develop the base of patients needed to spread risk and make
capitation successful. As a result, in 1999, the Board of Directors of SJHN
undertook a review of SJHN business, its opportunities and its strategic
alternatives. As a result of this review, the Board of directors voted to
terminate the business operations of SJHN. Based upon the advise of legal and
accounting advisors, the Board of Directors determined that the business should
cease as of December 31, 1999.

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 also state that
the Executive Director of SJPA and the PHO Director shall serve as an
ex-officio board members of SJHN. Current members of the Board of Directors of
SJHN are:

Physician Representatives(1) Hospital Representatives(2)
---------------------------- ---------------------------

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.

- ---------------
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 44, 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.

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<PAGE> 25

Cres Rodriguez, age 51, 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.

Vijay Diwadkar, age 50, 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 71, 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 50, 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). Revenues of $139,800 were earned by SJHN from membership
fees received from the physicians and the Hospital, and SJHN also earned
revenues of $34,970 (at the rate of $1.50 per member per month) from the
Hospital for administrative services rendered to its employees' ProHealth Plus
Employee Plan in 1998.

Since 1996, a PHO Director, a PHO Coordinator, a Provider Relations
Coordinator and a Provider Relations Representative have been 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. The portion of the personnel costs associated with the management and
administration of SJHN have been allocated to and paid by SJHN. In 1998, a
portion of the PHO's fixed administrative costs 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.

General and administrative expenses for 1999 decreased to $103,965 as
a result of a change in the expense allocation formula. However, SJHN also did
not generate revenues during 1999. No additional applications and membership
fees were submitted by physicians, as SJHN's physician panel stabilized, so no
membership or access fees were collected from physicians or the Hospital. In
addition, accounts receivable representing amounts due from physicians and the
Hospital for membership fees from prior years was written off as bad debt
expense. Also, SJHN did not render administrative services to the Hospital for
its employees' ProHealth Plus Employee Plan from which to generate revenues.
Accordingly, SJHN's net loss for the year was $103,219.

23
<PAGE> 26

Impact on SJPA

Because of the decision by the Board of Directors of SJHN to cease its
business operations as of December 31, 1999, the Company does not expect to
incur any future impact from SJHN.

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. Until renegotiated during 1999, the management
agreement provided for a management fee of 2.5% of gross revenues, but this fee
was changed to 4.72% of net revenues retroactive to January, 1999. 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 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.

24
<PAGE> 27

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 was undertaken, and a number of changes were
negotiated with HCC and within the Board of Directors of the PHO. The primary
changes included (1) changing the management fee paid to HCC from 2.5% of gross
revenues to 4.72% of net collection (thus allowing the Same-Day Surgery Center
Partnership to benefit from the contractual allowances and managed care
adjustments that are common in today's health care billings); (2) a review of
the billing fee that is paid to HCC to ensure that 5% is the appropriate fee
for the services rendered and to consider alternatives; (3) renewal of the
lease of the Same-Day Surgery Center facility upon its termination in 2.003;
(4) a review of the staffing of the Same-Day Surgery Center, and in particular
the late shift, to determine the cost effectiveness of that staffing; and (5) a
change in the accountants for the Same-Day Surgery Center Partnership. The
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.

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
$630,615 annually plus sales tax, and is subject to periodic escalations based
on increases in the Consumer Price Index. This rental amount was reviewed and
decreased by a small amount in connection with the negotiations with HCC and
within the Board of Directors of the PHO regarding the Same-Day Surgery Center
Partnership (see the discussion at "ST. JOSEPH'S SAME-DAY SURGERY CENTER, LTD.
- - Business" in Item 1 of this Report, which provisions are hereby incorporated
by reference).

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.

25
<PAGE> 28

In 1998, the Same-Day Surgery Center Partnership exercised its final
option to renew the lease for five years, and the lease now expires on February
28, 2003. In connection with the negotiations with HCC and within the Board of
Directors of the PHO regarding the Same-Day Surgery Center Partnership (see the
discussion at "ST. JOSEPH'S SAME-DAY SURGERY CENTER, LTD. - Business" in Item 1
of this Report, which provisions are hereby incorporated by reference),
Franciscan Properties, Inc. agreed to a ten-year extension of the lease term,
to February 28, 2010, with the parties to review and negotiate further
extensions after seven years (February 28, 2007). There can be no assurance
that any such additional renewal or lease extension can be successfully
negotiated.

Financial Matters

Results of Operations. During 1999, the Same-Day Surgery Center
performed 12,231 procedures and generated approximately $8.6 million in
revenues and net income of approximately $1.6 million. The Same-Day Surgery
Center Facility experienced a small growth in volume of procedures of .8% in
1999, but revenues decreased approximately $300,000, as managed care
contractual reimbursements and government reimbursements continued to decline.

Liquidity. At December 31, 1999, the Same-Day Surgery Center
Partnership held approximately $781,600 in cash, which accounted for 22% of
total assets. In 1999, the Same-Day Surgery Center Partnership generated
approximately $113,250 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 1999, the Same-Day Surgery Center Partnership declared
approximately $1.7 million in distributions to limited and general partners.
This included $104,560 declared payable to the Company in respect of its five
limited partner units, as well as a distribution of $69,700 declared payable to
the PHO in its capacity as managing general partner. In April 2000, the Same-Day
Surgery Center Partnership will distribute approximately $603,360 to partners of
record on March 31, 2000. Of this amount, $36,195 will be distributed to the
Company in respect of its five limited partner units, and $24,130 will be
distributed to the PHO in its capacity as managing general partner.

Capital Resources. At December 31, 1999, the Same-Day Surgery Center
Partnership had approximately $2.4 million in partners' equity. This
represented capital contributions from the general partners, 40 limited partner
shares and accumulated earnings.

26
<PAGE> 29

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, 1999, the aggregate
balance of the HCC line of credit and the capital lease was approximately
$20,540.

In 1999, the Same-Day Surgery Center Partnership completed capital
additions and replacements of approximately $121,870, all of which were funded
from existing cash balances.

The Same-Day Surgery Center Partnership plans capital expenditures in
2000 of approximately $296,520 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 $129,940 in cash in partnership distributions in 1999 in
respect of the five units it owns. SJPA also expects to receive additional cash
distributions during 2000 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.

27
<PAGE> 30

Referral limitations, reductions in reimbursements from managed care
organizations and government health plans, and increased costs 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, 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. 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.

28
<PAGE> 31

Cernuda voluntarily chose not to participate in the discussions of the SJPA
Board of Directors regarding the decision to make this investment).

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 144 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 employees 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 contracted with two employers, with
approximately 4,000 covered lives, to provide its services through a network of
providers that EHMS has contracted with (pending the development of its own
provider network). In addition, EHMS is negotiating with several other employers
to whom it proposes to provide services. 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 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

29
<PAGE> 32

that EHMS will obtain contracts with any other 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.

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 contracts that are
obtained.

Once fully 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 were made in 1999, and none are
anticipated in 2000 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

<PAGE> 33

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.

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, while SJPA
owned the stock of SJHHS, the stockholders of SJPA were 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

<PAGE> 34

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 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. With one exception in 1999 (in which the Board of Directors of the
Company allowed a stockholder whose share was to be redeemed to sell his share
to another physician who wanted to become a stockholder, with the purchaser
agreeing to be bound by all of the existing restrictions on the share that he
purchased), 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

<PAGE> 35

involving a public offering in the second quarter of 1996 at $3,200, an
additional 10 shares issued in several transactions not involving a public
offering in the second quarter of 1997 at $3,450,and an additional 23 shares
issued in several transactions not involving a public offering in the third
quarter of 1999 at $3,388. 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, 1998 and 1999, and
additional share repurchases are anticipated during 2000. The most recent
repurchases were for $3,386 per share.

Holders

As of March 31, 2000, there were 425 Common Stockholders of record,
each owning exactly one share.

Dividends

In 1999, 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

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, prior to the termination of it business operations, only
stockholders in the Company were permitted to participate in SJHN's at-risk
managed care network.

<PAGE> 36

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.

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 2000, 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 Payment Terms For New Stockholders. 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. 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. More
recently, this same concern was expressed on behalf of younger specialist
physicians. The Company has recognized the importance of having a substantial
number of younger physicians available in the pool of physicians who may
participate in the preferred provider network offered by SJP, or for other
managed care ventures in which the Company may become involved in the future. As
an inducement for younger physicians, the Company first decided that primary
care physicians, and then in 1999 decided that all physicians who become
eligible to

<PAGE> 37

purchase stock in the Company, should be offered the option, at the time that an
offering of Common Stock is to proceed, of either paying the entire purchase
price for a share of stock at the time of purchase or making three annual
installments of the purchase price. 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.

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.

[rest of page left intentionally blank]

<PAGE> 38

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:

YEAR ENDED DECEMBER 31,
1999 1998 1997 1996 1995
---------- ---------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Equity (deficit) in net
earnings of investees $ (36,247) $ 42,971 $ 2,763 $ 146,911 $ 16,402

Distribution income 104,563 125,040 120,040 154,080 139,880

Net income (loss) (20,824) 41,141 (144,780) 133,111 63,068

Income per common share(1):

Net income (loss) (49) 96 (333) 307 154

Total assets 1,496,169 1,527,202 1,408,868 1,584,002 1,406,982

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.

1999 vs. 1998

In 1999, revenues decreased as a result of a decrease in the
profitability of the PHO and a decrease in distribution income received from the
Same-Day Surgery Center Partnership. The decrease in the profitability of the
PHO is primarily a result of a decrease in membership fees and administrative
fees associated with SJHN. The fourth quarter distribution from the Same-Day
Surgery Center Partnership also was decreased, in order for the Same-Day Surgery
Center Partnership to maintain the necessary cash on hand for operations. This
reduction was necessary as the cash receipts of the Same-Day Surgery Center
Partnership were lower than usual in December

<PAGE> 39

1999 because Medicare and many managed care companies delayed payment until
after January 1, 2000 (the explanation given being to avoid expected Year 2000
problems).

Expenses increased in 1999 because of increases in general and
administrative expenses relating to (1) legal fees related to the EHMS
investment and issues relating to the PHO and Same-Day Surgery Center
Partnership negotiations, (2) accounting fees related to the year-end audit and
reviews of the Company's quarterly and annual SEC reports, and (3) filing fees
associated with the Company's change in auditors on August 17, 1999. It is
anticipated that general and administrative expenses will continue to be
incurred in 2000 at levels consistent with 1999.

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.

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.

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:

<PAGE> 40

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
1999 23 $3,388 $50,827 cash plus $27,097
in notes
</TABLE>

The following table sets forth information concerning share repurchases:

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>

<PAGE> 41

Time Period Shares Repurchased Total Amount Paid
----------- ------------------ -----------------
<S> <C> <C>
First half of 1999 4 $12,727
Second half of 1999 9 $30,474
</TABLE>

No dividends were declared in 1999, and no dividends are contemplated
in the near future.

No dividends were received from the PHO in 1999 and no dividends are
expected from the PHO in 2000. All operating cash in 1999 was derived from the
distributions with respect to the Company's limited partner units in the
Same-Day Surgery Center Partnership. Operating cash in 2000 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 1999. Such cash is anticipated to meet the Company's cash needs during
2000. Further, the Company may elect to conduct a private offering of its Common
Stock in 2000 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.

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.

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.

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.

<PAGE> 42

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 1998 and 1999. Additional healthcare reform currently is being
considered by the Florida Legislature during its Session that began during the
first week of March 2000 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 2000 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, 1999. 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 Health and Human Services ("DHHS") has published 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.

<PAGE> 43

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.

Additional Regulations were published on November 5, 1992, which 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.

Additional Regulations then were published on November 19, 1999, which
revised or clarified several existing safe harbors and added eight new safe
harbors. These safe harbors include protections for: (1) investment interests in
under served areas; (2) ambulatory surgical centers; (3) investment interests in
physician group practices; (4) recruitment of health care practitioners by
hospitals; (5) obstetrical malpractice insurance subsidies provided by hospitals
and others in under served areas; (6) referral agreements to specialty
physicians in which it is understood that the specialist will refer the patient
back to the referring physician when medically appropriate; (7) cooperative
hospital service organizations; and (8) sale of a physician practice in a health
professional shortage area.

Of the additional new Regulations, only the safe harbor protecting
certain ambulatory surgical centers appears to apply to the Company and the
Partially Owned Operations. As structured, the Same-Day Surgery Center
Partnership does not appear to comply with all of the guidelines and standards
that apply to an ambulatory surgical center that is owned by a hospital and
physicians. Also, as structured, the Same-Day Surgery Center Partnership does
not comply with the guidelines and standards established by the Regulations for
investment interests. Nevertheless, 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's representatives on
the PHO Board of Directors will use their best efforts to ensure that, to the
extent feasible, the Same-Day Surgery Center Partnership will evaluate and
comply with the guidelines and standards of the applicable safe harbors. Also,
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.

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

<PAGE> 44

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 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 and the Partially Owned
Operations 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

<PAGE> 45

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.

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;

<PAGE> 46

(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 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

<PAGE> 47

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

The Patient Self-Referral Act was amended by the Florida Legislature
during its 1999 Session, with the amendments being effective on July 1, 1999.
The amendments clarified several provisions of the law and added new safe
harbors for group practices which take outside referrals for diagnostic imaging
services. To the Company's knowledge, these changes do not directly affect the
Company or the Partially Owned Operations.

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
(now under the Florida Department of Health), 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 (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). 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.

<PAGE> 48

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.

With respect to SJP (and to SJHN, prior to its ceasing to conduct
business), 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 by SJHN Providers, prior to SJHN ceasing to
conduct business) 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 applied to SJHN prior
to its ceasing to conduct business).

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 professional board of the Florida Department of Health. 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 2000 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

<PAGE> 49

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.

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 with respect to referrals for clinical
laboratory services (the so-called "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 extension of the Stark II Referral Prohibitions 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

<PAGE> 50

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.

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.

On August 17, 1999, the Company dismissed Ernst and Young, LLP as its
certifying accountant and engaged the services of Kirkland, Russ, Murphy and
Tapp, CPAs as its new certifying accountant. This action was described in Form
8-K, dated August 24, 1999.

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, with the exception of the
hospital-based physician-director who serves for a one-year term. The directors
representing non-surgery specialties are to be selected from the Hospital's
Departments of Internal Medicine, Family Practice, Pediatrics

<PAGE> 51

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, 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:

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.** 46 Physician 1994 2002 Chairman
Norman Castellano, M.D.* 53 Physician 1994 2002
Angel Docobo, M.D.** 44 Physician 1999 2003
N. Bruce Edgerton, M.D.* 53 Physician 1995 2003 President
F. Lane France, M.D.* 61 Physician 1997 2001
Wilfred Idsten, M.D.*** 46 Physician 1999 2000
Bill Luria, M.D.** 53 Physician 1996 2000 Secretary
Benedict S. Maniscalco, M.D.* 58 Physician 1996 2000 Vice President
Allen Miller, M.D.** 50 Physician 1997 2001 Treasurer
</TABLE>

49
<PAGE> 52

- ---------------
(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

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 1, 2000:

Name Age Occupation Term of Office
---- --- ---------- --------------
<S> <C> <C> <C>
Bill Luria, M.D.** 53 Physician 4 years
Benedict S. Maniscalco, M.D.* 58 Physician 4 years
Carlos Dalence, M.D.*** 42 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 46, 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 limited partner in the Same-Day
Surgery Center Partnership, and a holder of a provider contract with SJP.

Norman Castellano, M.D., age 53, 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 and a holder of a
provider contract with SJP.

Angel Docobo, M.D., age 44, 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 also is a holder of a provider contract with SJP.

N. Bruce Edgerton, M.D., age 53, 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 limited partner in the Same-Day
Surgery Center Partnership, and a holder of a provider contract with SJP.

Lane France, M.D., age 61, 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
holder of a provider contract with SJP.

<PAGE> 53

Wilfred Idsten, M.D., age 46, 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 also is a Director of SJP, a Director of BayCare and a
holder of a provider contract with SJP.

Bill Luria, M.D., age 53, 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 58, 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 50, 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 SJP, a Director of BayCare, and a holder of a provider contract with
SJP.

Carlos Dalence, M.D., age 42, received his M.D. degree from Vanderbilt
University School of Medicine. Since 1993, Dr. Dalence has been engaged in the
private practice of medicine in Tampa, Florida, specializing in pathology. Dr.
Dalence also 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 the
requirement that any group of ten percent (10%) or more of the stockholders of
the Company must 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

<PAGE> 54

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 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

<PAGE> 55

venture, trust or other enterprise. The Company maintains liability insurance
for the benefit of its directors and officers.

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 Carlos Dalence, 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 *

10 Shares 2.35%
</TABLE>

* Less than 0.5%
** Nominee for director

<PAGE> 56

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 Kirkland, Russ, Murphy and Tapp, CPAs dated
January 13, 2000, as to the financial statements of
St. Joseph's Physician Associates, Inc. for the years
ended December 31, 1999 and 1998.

- Balance Sheets of St. Joseph's Physician Associates,
Inc. as of December 31, 1999 and 1998.

- Statements of Operations of St. Joseph's Physician
Associates, Inc. for the years ended December 31,
1999 and 1998.

- Statements of Changes in Stockholders' Equity of St.
Joseph's Physician Associates, Inc. for the years
ended December 31, 1999 and 1998.

- Statements of Cash Flows of St. Joseph's Physician
Associates, Inc. for the years ended December 31,
1999 and 1998.

- Notes to Financial Statements.

<PAGE> 57

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

- Report of Kirkland, Russ, Murphy and Tapp, CPAs dated
February 25, 2000, as to the Consolidated Financial
Statements of St. Joseph's Physicians- Healthcenter
Organization, Inc. for the years ended December 31,
1999 and 1998.

- Consolidated Balance Sheets of St. Joseph's
Physicians-Healthcenter Organization, Inc. as of
December 31, 1999 and 1998.

- Consolidated Statements of Operations of St. Joseph's
Physicians-Healthcenter Organization, Inc. for the
years ended December 31, 1999 and 1998.

- Consolidated Statements of Changes in Stockholders'
Equity of St. Joseph's Physicians-Healthcenter
Organization, Inc. for the years ended December 31,
1999 and 1998.

- Consolidated Statements of Cash Flows of St. Joseph's
Physicians-Healthcenter Organization, Inc. for the
years ended December 31, 1999 and 1998.

- 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> 58

*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:

Form 8-K, dated August 24, 1999, reporting under Item 4, "Changes in
Registrant's Certifying Accountant," the dismissal of the Company's
independent accountants and the engagement of new independent
accountants.

<PAGE> 59

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.

<TABLE>

<S> <C>
By: /s/ N. BRUCE EDGERTON, M.D. 4/13/00
------------------------------------------------ ----------------
N. BRUCE EDGERTON, M.D., President, Director Date
</TABLE>

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.

<TABLE>

<S> <C>
By: /s/ N. BRUCE EDGERTON, M.D. 4/13/00
------------------------------------------------ ----------------
N. BRUCE EDGERTON, M.D., President, Director Date

By: /s/ ANTHONY BRANNAN, M.D. 4/13/00
------------------------------------------------ ----------------
ANTHONY BRANNAN, M.D., Chairman, Director Date
(principal executive officer)

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

By: /s/ BILL LURIA, M.D. 4/13/00
------------------------------------------------ ----------------
BILL LURIA, M.D., Secretary, Director Date

By: /s/ ALLEN MILLER, M.D. 4/13/00
------------------------------------------------ ----------------
ALLEN MILLER, M.D., Treasurer, Director Date
(principal financial and accounting officer)

By: /s/ NORMAN CASTELLANO, M.D. 4/13/00
------------------------------------------------ ----------------
NORMAN CASTELLANO, M.D. Date
</TABLE>

<PAGE> 60

<TABLE>

<S> <C>
By:
------------------------------------------------ ----------------
ANGEL DOCOBO, Director Date

By:
------------------------------------------------ ----------------
F. LANE FRANCE, M.D., Director Date

By:
------------------------------------------------ ----------------
WILFRED IDSTEN, M.D., Director Date
</TABLE>

<PAGE> 61

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 2000 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 2000
annual meeting of stockholders.

<PAGE> 62

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

For the fiscal year ended December 31, 1999 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> 63

ST. JOSEPH'S PHYSICIAN ASSOCIATES, INC.

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS

MAY 1, 2000

You are cordially invited to attend the 2000 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 1, 2000 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, 2000
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

----------------------------------
Bill Luria, Secretary

March 28, 2000

Enclosures

<PAGE> 64

ST. JOSEPH'S PHYSICIAN
ASSOCIATES, INC.

FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
(WITH INDEPENDENT AUDITORS' REPORT)

<PAGE> 65

INDEPENDENT AUDITORS' REPORT

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

We have audited the accompanying balance sheets of St. Joseph's Physician
Associates, Inc. as of December 31, 1999 and 1998, and the related statements
of income, 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.

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

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of St. Joseph's Physician
Associates, Inc. as of December 31, 1999 and 1998, and the results of its
operations and its cash flows for the years then ended in conformity with
generally accepted accounting principles.

January 13, 2000

<PAGE> 66

ST. JOSEPH'S PHYSICIAN ASSOCIATES, INC.

BALANCE SHEETS

DECEMBER 31, 1999 AND 1998

1999 1998
----------- ----------
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 1,115,984 1,202,252
Distribution receivable from limited partnership
investments 14,938 40,315
Recoverable income taxes 26,665 9,660
Prepaid expenses 6,375 6,521
----------- ----------

Total current assets 1,163,962 1,258,748

Equity investments 212,207 248,454
Other investments 120,000 20,000
----------- ----------

$ 1,496,169 1,527,202
=========== ==========

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
Accrued expenses 23,692 28,998
Due to related party 1,953 8,276
----------- ----------

Total current liabilities 25,645 37,274

Deferred income taxes 76,265 84,771

Stockholders' equity:
Common stock, $1 par value; 7,500 shares authorized,
415 shares issued and outstanding at December 31, 1999
and 1998 415 415
Common stock subscribed, 12 shares at December 31, 1999
and 2 shares at December 31, 1998 12 2
Subscription receivable (27,097) (2,300)
Additional paid-in capital 689,239 654,526
Retained earnings 731,690 752,514
----------- ----------

Total stockholders' equity 1,394,259 1,405,157
----------- ----------

$ 1,496,169 1,527,202
=========== ==========
</TABLE>

See accompanying notes to financial statements.

2
<PAGE> 67

ST. JOSEPH'S PHYSICIAN ASSOCIATES, INC.

STATEMENTS OF OPERATIONS

DECEMBER 31, 1999 AND 1998

1999 1998
--------- -------
<S> <C> <C>

Revenues:
Distribution income $ 104,563 125,040
Equity in net earnings of investees (36,247) 42,971
--------- -------

68,316 168,011

Expenses:
Salaries 40,000 40,000
General and administrative 113,487 111,186
--------- -------

Operating income (85,171) 16,825

Interest income 51,347 54,687
--------- -------

Income (loss) before income taxes (33,824) 71,512

Provision (benefit) for income taxes (13,000) 30,371
--------- -------

Net income (loss) $ (20,824) 41,141
========= =======

Net income (loss) per common share - basic and diluted $ (49.46) 96
========= =======

Weighted average shares outstanding and subscribed 421 428
========= =======

</TABLE>

See accompanying notes to financial statements.

3
<PAGE> 68

ST. JOSEPH'S PHYSICIAN ASSOCIATES, INC.

STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

YEARS ENDED DECEMBER 31, 1999 AND 1998

Common Additional
Common stock stock Subscriptions Paid-in Retained
Shares Amount Subscribed Receivable Capital Earnings Total
------ ------ ---------- ------------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>

Balances 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
---- ----- --- ------- -------- -------- ----------

Balances at December 31,
1998 415 415 2 (2,300) 654,526 752,514 1,405,157

Sale and subscription
of common stock 13 13 10 (24,797) 77,901 -- 53,127

Redemption of common
stock (13) (13) -- -- (43,188) -- (43,201)

Net loss -- -- -- -- -- (20,824) (20,824)
---- ----- --- ------- -------- -------- ----------
Balances at December 31,
1999 415 $ 415 12 (27,097) 689,239 731,690 1,394,259
==== ===== === ======= ======== ======== ==========

</TABLE>

See accompanying notes to financial statements.

4
<PAGE> 69

ST. JOSEPH'S PHYSICIAN ASSOCIATES, INC.

STATEMENTS OF CASH FLOWS

YEARS ENDED DECEMBER 31, 1999 AND 1998

Cash flows from operating activities:
Net (loss) income $ (20,824) 41,141
Adjustments to reconcile net income (loss) to
net cash used in operating activities:
Equity in net earnings of investees 36,247 (42,971)
Distribution income (104,563) (125,040)
Changes in operating assets and liabilities:
Recoverable income taxes (17,005) (9,660)
Prepaid expenses 146 (146)
Accrued expenses (5,306) 8,241
Due to related party (6,323) 7,635
Income taxes payable -- (28,340)
Deferred income taxes (8,506) 20,783
----------- ----------

Net cash used in operating activities (126,134) (128,357)

Cash flows from investing activities:
(Purchase) sale of investment (100,000) 100,000
Distributions received 129,940 121,365
----------- ----------

Net cash provided by
investing activities 29,940 221,365

Cash flows from financing activities:
Payments received of stock subscriptions 2,300 2,200
Proceeds from sale of common stock 50,827 --
Redemption of common stock (43,201) (43,589)
----------- ----------

Net cash provided by (used in)
financing activities 9,926 (41,389)
----------- ----------

(Decrease) increase in cash and cash equivalents (86,268) 51,619

Cash and cash equivalents at beginning of year 1,202,252 1,150,633
----------- ----------

Cash and cash equivalents at end of year $ 1,115,984 1,202,252
=========== ==========

</TABLE>

See accompanying notes to financial statements.

5
<PAGE> 70

ST. JOSEPH'S PHYSICIAN ASSOCIATES, INC.

NOTES TO FINANCIAL STATEMENTS

DECEMBER 31, 1999 AND 1998

(1) ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(a) Organization

St. Joseph's Physician Associates, Inc. (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. On January 5, 1998, the Company sold its 4,000
shares of HHC to St. Joseph's Ancillary Services, Inc. for
$100,000. No gain or loss was reported because the sale price
equaled the investments recorded book value at the date of
the sale.

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
commenced operations in June 1999. Certain stockholders of
the Company are also stockholders of EHMS.

(b) 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.

(continued)

6
<PAGE> 71

ST. JOSEPH'S PHYSICIAN ASSOCIATES, INC.

NOTES TO FINANCIAL STATEMENTS

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

The Company accounts for its investment in the PHO on the
equity method. Accordingly, this investment has 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 investment is included in the balance
sheets except to the extent of the Company's interests in the
underlying net assets included in the equity investment.

(d) Other Investments

The Company owns five limited partnership units, a 6%
interest in St. Joseph's Same-Day Surgery Center, Ltd.
(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.

The Company's 3% interest in Entrusted Health Management
Services, Inc. (EHMS) for $100,000 is also accounted for at
cost due to the limited percentage interest and inability to
exercise significant influence. This investment is presented
as non-current, other investment.

(e) Subscriptions Receivable

Subscriptions receivable relate to agreements to purchase
common stock of the Company and are to be paid in
installments during the years 2000 and 2001.

(f) Cash Equivalents

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

(continued)

7
<PAGE> 72

ST. JOSEPH'S PHYSICIAN ASSOCIATES, INC.

NOTES TO FINANCIAL STATEMENTS

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

(g) 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.

(h) Income Per Common Share

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

(i) Reclassifications

Certain reclassifications have been made to the 1998
financial statements to conform with the 1999 presentation.
These reclassifications had no effect on net income 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 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
Equity in net earnings of investees -- (36,247) (36,247)
--------- -------- --------
Balances at December 31, 1999 $ -- 212,207 212,207
========= ======== ========

</TABLE>

(continued)

8
<PAGE> 73

ST. JOSEPH'S PHYSICIAN ASSOCIATES, INC.

NOTES TO FINANCIAL STATEMENTS

(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:

December 31,
1999 1998
-------- -------
<S> <C> <C>

PHO
Assets:
Current assets $326,483 423,024
Noncurrent assets 199,549 220,747
-------- -------

Total assets $526,032 643,771
======== =======

Liabilities and stockholders' equity:
Current liabilities $101,617 146,863
Stockholders' equity 424,415 496,908
-------- -------

Total liabilities and stockholders' equity $526,032 643,771
======== =======

</TABLE>

(continued)

9
<PAGE> 74

ST. JOSEPH'S PHYSICIAN ASSOCIATES, INC.

NOTES TO FINANCIAL STATEMENTS

(2) EQUITY INVESTMENTS - CONTINUED

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

December 31,
1999 1998
--------- -------
<S> <C> <C>

PHO
Revenues $ 107,636 302,108
Expenses 161,343 193,037
--------- -------

Provision for income taxes (18,786) 23,129
--------- -------

Net income (loss) $ (72,493) 85,942
========= =======
</TABLE>

(3) INCOME TAXES

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

<TABLE>
<CAPTION>
Year Ended December 31,
1999 1998
-------- ------
<S> <C> <C>

Current:
Federal $ (3,839) 8,897
State (666) 1,074

Deferred:
Federal (7,161) 18,199
State (1,334) 2,201
-------- ------

Provision for income taxes (benefit) $(13,000) 30,371
======== ======

</TABLE>

(continued)

10
<PAGE> 75

ST. JOSEPH'S PHYSICIAN ASSOCIATES, INC.

NOTES TO FINANCIAL STATEMENTS

(3) INCOME TAXES - CONTINUED

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

Year Ended December 31,
1999 1998
--------- --------
<S> <C> <C>

Deferred tax assets:
Difference in basis of investments in limited
partnership interests between financial and
tax reporting $ 30,698 36,708
--------- --------

Total deferred tax assets 30,698 36,708

Deferred tax liabilities:
Investments accounted for under equity method
for financial accounting purposes 106,963 121,479
--------- --------

Total deferred tax liabilities 106,963 121,479
--------- --------

Net deferred tax liability $ (76,265) (84,771)
========= ========
</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:

Year Ended December 31,
1999 1998
---- ----
<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%
Other 0.8% 5.0%
---- ----

38.4% 42.6%
==== ====

</TABLE>

The Company paid income taxes of approximately $12,500 and $32,000 in
1999 and 1998, respectively.

(continued)

11
<PAGE> 76

ST. JOSEPH'S PHYSICIAN ASSOCIATES, INC.

NOTES TO FINANCIAL STATEMENTS

(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. (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
$-0- and $966 for these services for the years ended December 31, 1999
and 1998, respectively. The Company paid $2,001 to the Center for
rental of facilities for the years ended December 31, 1999 and 1998,
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 PHO and HHC, respectively.

12
<PAGE> 77

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

CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
(WITH INDEPENDENT AUDITORS' REPORT)

<PAGE> 78

INDEPENDENT AUDITORS' REPORT

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

We have audited the accompanying consolidated balance sheet of St. Joseph's
Physicians-Healthcenter Organization, Inc. and Subsidiaries (Company) as of
December 31, 1999, and the related statements of operations, changes in
stockholders' equity and cash flows for the year then ended. These consolidated
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 audit. The financial statements of St. Joseph's
Physician's-Healthcenter Organization, Inc. and Subsidiaries as of December 31,
1998 were audited by other auditors whose report dated March 3, 1999, expressed
an unqualified opinion on those statements.

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

In our opinion, the 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 as of December 31,
1999 and the results of its operations and its cash flows for the year then
ended in conformity with generally accepted accounting principles.

February 25, 2000

<PAGE> 79

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

CONSOLIDATED BALANCE SHEETS

DECEMBER 31, 1999 AND 1998

ASSETS

1999 1998
-------- -------
<S> <C> <C>
Current assets:
Cash and cash equivalents $269,562 286,789
Accounts receivable -- 54,550
Distribution receivable 14,439 38,971
Income tax receivable 35,993 35,993
Prepaid expenses 6,489 6,721
-------- -------

Total current assets 326,483 423,024

Equity investment in Surgery Center 98,432 100,844
Other investments 52,000 52,000
Deferred income taxes 49,117 67,903
-------- -------

$526,032 643,771
======== =======

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
Accounts payable and accrued expenses 23,670 20,091
Membership fees deposits -- 4,050
Due to affiliated organizations 77,947 122,722
-------- -------

Total current liabilities 101,617 146,863

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 324,415 396,908
-------- -------

Total stockholders' equity 424,415 496,908
-------- -------

$526,032 643,771
======== =======
</TABLE>

See accompanying notes to consolidated financial statements.

<PAGE> 80

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

CONSOLIDATED STATEMENTS OF OPERATIONS

DECEMBER 31, 1999 AND 1998

1999 1998
--------- -------
<S> <C> <C>
Revenues:
Membership fees $ -- 139,800
Access fees -- 34,973
Equity in net earnings and limited partnership 67,296 78,190
Investment and other income 40,340 49,145
--------- -------

Total revenues 107,636 302,108

Expenses:
General and administrative 137,054 161,005
Professional fees 24,289 32,032
--------- -------

Total expenses 161,343 193,037

Income (loss) before income taxes (53,707) 109,071

Provision for income taxes (18,786) 23,129
--------- -------

Net income (loss) $ (72,493) 85,942
========= =======
</TABLE>

See accompanying notes to consolidated financial statements.

<PAGE> 81

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

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

YEARS ENDED DECEMBER 31, 1999 AND 1998

Common stock Common Additional
--------------------- stock Subscriptions Paid-in Retained
Shares Amount Subscribed Receivable Capital Earnings Total
------- ------- ---------- ------------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances at December 31,
1997 5,000 $ 5,000 - - 95,000 310,966 410,966

Net income - - - - - 85,942 85,942
------- ------- -------- --------- -------- ------- ---------

Balances at December 31,
1998 5,000 5,000 - - 95,000 396,908 496,908

Net loss - - - - - (72,493) (72,493)
------- ------- -------- --------- -------- -------- --------

Balances at December 31,
1999 5,000 5,000 - - 95,000 324,415 424,415
======= ======= ======== ========= ======== ======== ========
</TABLE>

See accompanying notes to consolidated financial statements.

<PAGE> 82

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

CONSOLIDATED STATEMENTS OF CASH FLOWS

YEARS ENDED DECEMBER 31, 1999 AND 1998

1999 1998
--------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (72,493) 85,942
Adjustments to reconcile net income (loss) to
net cash used in operating activities:
Equity in net earnings of limited partnership (67,296) (78,190)
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable 54,550 (28,350)
Decrease (increase) in distributions 24,532 (3,553)
Decrease in income tax receivable -- 37,892
Decrease in prepaid insurance 232 4,724
Decrease in due from affiliated organizations -- 3,817
Decrease (increase) in deferred income taxes 18,786 (14,742)
Increase in accounts payable and accrued expenses 3,579 2,850
Decrease in membership fees deposits (4,050) (9,450)
(Decrease) increase in due to affiliated
organizations (44,775) 23,237
--------- --------
Net cash provided by (used in)
operating activities (86,935) 24,177

Cash flows from investing activities:
Sale of other investments -- 20,575
Distributions received from limited partnerships 69,708 83,359
--------- --------

Net cash provided by investing activities 69,708 103,934

(Decrease) increase in cash and cash equivalents (17,227) 128,111

Cash and cash equivalents at beginning of year 286,789 158,678
--------- --------

Cash and cash equivalents at end of year $ 269,562 286,789
========= ========
</TABLE>

See accompanying notes to consolidated financial statements.

<PAGE> 83

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 1999 AND 1998

(1) ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(a) Organization

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

To continue as a going concern, the Company must maintain its
relationship with its affiliates. Since all affiliated
entities have common ownership, management believes that these
relationships will continue.

(b) 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.

(continued)
<PAGE> 84

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

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 the Surgery Center's
undistributed earnings or losses since acquisition through
December 31, 1999 and 1998, respectively. None of the assets
or liabilities of the Surgery Center are included in the
consolidated balance sheets expect to the 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.

(d) Cash Equivalents

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

(e) 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.

(f) 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.

(continued)
<PAGE> 85

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

(g) 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.

(h) Accounts Receivable

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

(2) EQUITY INVESTMENT IN SURGERY CENTER

A summary of the changes in equity investment in the Surgery Center is
presented below at December 31, 1999 and 1998:

1999 1998
--------- -------
<S> <C> <C>
Balance at December 31, 1998 $ 100,844 106,013
Equity in earnings of limited partnership for
the year ended December 31 67,296 78,190
Distributions received (69,708) (83,359)
--------- -------

Balance at December 31, 1999 $ 98,432 100,844
========= =======
</TABLE>

(continued)
<PAGE> 86

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(2) EQUITY INVESTMENT IN SURGERY CENTER - CONTINUED

The condensed balance sheets and related statements of income of the
Surgery Center are as follows for the years ended December 31, 1999
and 1998:

1999 1998
---------- ---------
<S> <C> <C>
Assets:
Current assets $3,033,862 2,975,822
Noncurrent assets 488,677 613,019
---------- ---------

Total assets $3,522,539 3,588,841
========== =========

Liabilities and stockholders' equity:
Current liabilities 1,151,983 1,041,621
Long-term debt, less current portion -- 11,703
partners' equity 2,370,556 2,535,517
---------- ---------

Total liabilities and stockholders'
equity $3,522,539 3,588,841
========== =========

Revenues and non-operating gains $8,646,523 8,977,151
Expenses 7,068,888 7,022,821
---------- ---------

Net income (loss) $1,577,635 1,954,330
========== =========
</TABLE>

(3) 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, 1999, the Company owned one
and one-half limited partnership units, a 1.8% interest. These
investments of $52,000 at December 31, 1999 and 1998, 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 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.

(continued)
<PAGE> 87

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(4) INCOME TAXES

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

1999 1998
------- ------
<S> <C> <C>
Deferred:
Federal $16,040 19,382
State 2,746 3,747
------- ------

Provision for income taxes $18,786 23,129
======= ======
</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, 1999 and 1998 are as follows:

1999 1998
-------- --------
<S> <C> <C>
Total deferred tax liabilities $(21,640) --
Total deferred tax assets 76,736 114,636
Total valuation allowance (5,979) (46,733)
-------- --------
Net deferred tax asset (liability) $ 49,117 67,903
======== ========
</TABLE>

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 valuation allowance change during the year ended December 31, 1999
reflects a full allowance on net operating losses available to a
certain subsidiary included in the consolidated group. Net operating
losses begin to expire in 2012.

The Company did not pay income tax in 1999 or 1998.

(5) COMMITMENTS AND CONTINGENCIES

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

(continued)
<PAGE> 88

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(6) RELATED PARTY TRANSACTIONS

The Company is 50% owned by St. Joseph's Enterprises, Inc., an
affiliate of St. Joseph's Health Care Center, Inc. (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 approximately $62,000 and
$126,000 for this support in 1999 and 1998, respectively. In 1999, the
Company had decided to dissolve the St. Joseph's Health Network, Inc.
The dissolution will occur in early 2000 and no collections were made
in 1999. Membership fees and access fees revenue from St. Joseph's
Hospital, a controlled affiliate of the Center, totaled $104,873 in
1998.

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.

(7) SUBSEQUENT EVENT

In December 1999, the Company announced its intent to dissolve St.
Joseph's Health Network, Inc. (SJHN) during fiscal year 2000. Revenues
for SJHN were $746 and $175,267 for the years December 31, 1999 and
1998, respectively. (Loss) income for SJHN was ($103,219) and $51,910
for the years ended December 31, 1999 and 1998, respectively.

<PAGE> 89

ST. JOSEPH'S PHYSICIAN ASSOCIATES, INC.

PROXY SOLICITED ON BEHALF OF THE
BOARD OF DIRECTORS FOR
2000 ANNUAL STOCKHOLDERS' MEETING

The undersigned stockholder of St. Joseph's Physician Associates, Inc. (the
"Company"), revoking all prior proxies, hereby appoints Anthony Brannan, M.D.,
N. Bruce Edgerton, M.D., and Allen Miller, 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 2000 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 1, 2000, 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):

Benedict Maniscalco, M.D.
William Luria, 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:

Carlos Dalence, 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 _________________, 2000.

(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.

<PAGE> 90
ST. JOSEPH'S PHYSICIAN ASSOCIATES, INC.
P.O. BOX 151526 o Tampa, FL 33684-1526

March 15, 2000

Dear Stockholder:

One of the purposes of the 2000 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 N. Bruce Edgerton, M.D.;
Benedict S. Maniscalco, M.D.; and myself. The Chairman of the Committee is Dr.
Maniscalco. 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 426 shareholders of record as of March 15, 2000, so 107
shareholders must sign a nominating petition. The petition must be filed with
the President, N. Bruce Edgerton, M.D., or the Secretary, L. William Luria,
M.D., not later than fourteen (14) days before the annual meeting scheduled on
May 1, 2000.

We look forward to seeing you at the meeting.

Sincerely,

/s/ Anthony N. Brannan, M.D.
- ----------------------------------------
Anthony N. Brannan, M.D.
Chairman of the Board of Directors, SJPA

ANB:evo

<PAGE> 91

ST. JOSEPH'S PHYSICIAN ASSOCIATES, INC.
P.O. BOX 151526 o Tampa, FL 33684-1526

March 13, 2000

Anthony N. Brannan, M.D.
Chairman of the Board, SJPA
4700 N. Habana Avenue
Suite 403
Tampa, Florida 33614

RE: Nominations for SJPA Board of Directors

Dear Dr. Brannan:

The Nominating Committee, consisting of N. Bruce Edgerton, M.D., 2706 W. Dr.
M.L. King, Jr. Blvd., Suite A, Tampa, FL 33607; Anthony N. Brannan, M.D., 4700
N. Habana Ave., Suite 403, Tampa, FL 33614; and myself, Benedict S. Maniscalco,
M.D., 2727 W. Dr. M.L. King, Jr. Blvd., Suite 800, Tampa, FL 33607, has met and
submits the following nominations.

For a full four-year term on the Board of Directors as provided by the Bylaws,
L. William Luria, M.D., Surgery Representative; Benedict S. Maniscalco, M.D.,
Medicine Representative; and for the one-year hospital-based physician term:
Carlos D. Dalence, M.D., Pathology.

Respectfully submitted,

/s/ Benedict S. Maniscalco, M.D.
- --------------------------------
Benedict S. Maniscalco, M.D.
Chairman, Nominating Committee

BSN:evo

<PAGE> 92

ST. JOSEPH'S PHYSICIAN ASSOCIATES, INC.
P.O. BOX 151526 o Tampa, FL 33684-1526

March 15, 2000

Dear Stockholder:

The 2000 Annual Meeting of Stockholders will be held on MONDAY, MAY 1, 2000, 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 may find
enclosed a letter from the Chairman of the Board, Anthony N. Brannan, M.D., and
the Nominating Committee's report on its nomination for each directorship to be
filled at the annual meeting.

Reports will be presented on all 1999 activities of SJPA, Inc. This annual
meeting is intended to provide an opportunity to 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 yours,

/s/ N. Bruce Edgerton, M.D.
- ---------------------------
N. Bruce Edgerton, M.D.
President, SJPA

NBE:evo

Encls.

<PAGE> 93

St. Joseph's Physician Associates, Inc.

P.O. Box 151526 o Tampa, FL 33684-1526

NOTICE OF ANNUAL MEETING

OF STOCKHOLDERS

ST. JOSEPH'S PHYSICIAN ASSOCIATES, INC.

MAY 1, 2000

You are cordially invited to attend the 2000 Annual Meeting of stockholders of
St. Joseph's Physician Associates, Inc., which will be held in the Auditorium
of the Medical Arts Building, 3003 W. Dr. M.L. King, Jr., Boulevard, Tampa,
Florida, on Monday, May 1, 2000 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 adjournment thereof.

Only stockholders of record at the close of business on March 15, 2000, are
entitled to notice of and to vote at the meeting or any adjournment 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/ L. William Luria
----------------------------------
L. William Luria, M.D., Secretary

LWL:evo
Encls.

<PAGE> 94

ST. JOSEPH'S PHYSICIAN ASSOCIATES, INC.
ORGANIZATIONAL CHART
AS OF DECEMBER 31, 1999

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)

Mar-00

<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM ST. JOSEPH'S
PHYSICIAN ASSOCIATES, INC. BALANCE SHEET AND STATEMENT OF INCOME CONTAINED IN
THE DECEMBER 31, 1999 AUDITED FINANCIAL STATEMENTS, AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FORM 10-KSB FOR THE YEAR ENDED DECEMBER 31, 1999.
</LEGEND>

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 1,115,984
<SECURITIES> 0
<RECEIVABLES> 14,938
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,163,962
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 1,496,169
<CURRENT-LIABILITIES> 25,645
<BONDS> 0
0
0
<COMMON> 662,569
<OTHER-SE> 731,690
<TOTAL-LIABILITY-AND-EQUITY> 1,496,169
<SALES> 0
<TOTAL-REVENUES> 119,663
<CGS> 0
<TOTAL-COSTS> 153,487
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (33,824)
<INCOME-TAX> (13,000)
<INCOME-CONTINUING> (20,824)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (20,824)
<EPS-BASIC> (49.46)
<EPS-DILUTED> (49.46)

</TABLE>