DYNACQ INTERNATIONAL INC, 10KSB40, 1997-11-25

DYNACQ INTERNATIONAL INC
10KSB40, 1997-11-25
HOME HEALTH CARE SERVICES

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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

(Mark One)
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

For the Fiscal year ended August 31, 1997
--------------------------------------

|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

For the transition period from to
----------------------- ------------
Commission file number 0-20554
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DYNACQ INTERNATIONAL, INC.
- --------------------------------------------------------------------------------
(Name of Small Business Issuer in its charter)

NEVADA 76-0375477
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation of organization)

10304 INTERSTATE 10 EAST, SUITE 369
HOUSTON, TEXAS 77029
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(Address of principal executive offices) (Zip Code)

Issuer's telephone number, including area code (713) 673-6432
--------------------------------

Securities registered pursuant to Section 12(b)of the Act:

Title of each class Name of each exchange on which registered

None None
- ----------------------------------- -----------------------------------

Securities registered pursuant to Section 12(g)of the Act:

Common Stock - $.001 Par Value
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(Title of Class)

Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15 (d) of the Exchange Act 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 such 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]

The issuer's gross revenues for the most recent fiscal year: $9,771,949

As of November 24, 1997, there were 14,415,136 shares of the registrant's
common stock, $.001 par value, issued and outstanding, 5,282,759 of which
having an aggregate market value of approximately $2,958,345 (based on the
closing bid price of $.56 as of October 29, 1997) were held by non-affiliates
of the registrant. In determining the number of shares held by non-affiliates,
shares held by officers, directors and the Company's majority shareholder were
excluded.

DOCUMENTS INCORPORATED BY REFERENCE

None
-----------------------------------

Transitional Small Business Disclosure Format. Yes [ ]. No [X].

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FORM 10-KSB

DYNACQ INTERNATIONAL, INC.

TABLE OF CONTENTS

<S> <C> <C>
PART I....................................................................................................................1
ITEM 1. DESCRIPTION OF BUSINESS........................................................................1
ITEM 2. DESCRIPTION OF PROPERTY........................................................................8
ITEM 3. LEGAL PROCEEDINGS..............................................................................9
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS............................................9
PART II...................................................................................................................9
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.......................................9
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.....................................10
ITEM 7. FINANCIAL STATEMENTS..........................................................................13
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE........................................................13
PART III.................................................................................................................14
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT.............................................14
ITEM 10. EXECUTIVE COMPENSATION........................................................................15
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT................................................................................16
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS................................................16
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K..............................................................16
SIGNATURES...............................................................................................................17
</TABLE>

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PART I

ITEM 1. DESCRIPTION OF BUSINESS

GENERAL

Dynacq International, Inc., a Nevada corporation incorporated on June
16, 1989 (the "Company"), is engaged in the business of providing home infusion
health care services and supplies to patients in their homes, the operation of
an outpatient surgical facility, the operation of a medical office complex, and
the management of physician practices, all located in the Houston metropolitan
area. The Company's predecessor completed a public offering in 1984 and merged
into the Company in June 1989 pursuant to a share-for-share exchange of stock.
On February 12, 1992, the Company changed its corporate name from Jackson
Brothers Industries, Inc. to Dynacq International, Inc. Unless otherwise
indicated, all references to the Company herein include its subsidiaries. See
Note 1.B. of Notes to Consolidated Financial Statements.

In July, 1992, the Company's current management acquired a controlling
interest in the common stock, $.001 par value of the Company (the "Common
Stock") in a private placement and prior management resigned. Effective August
1, 1992, the Company commenced operations as a provider of health care services
and supplies to patients in their homes specializing in home infusion therapy.
The Company and its predecessor had no history of operations prior to August,
1992. Home infusion therapy is the administration to a patient of nutrients,
antibiotics or other medications whether intravenously or through a feeding
tube, usually as a continuation of treatment initiated in a hospital. The
Company's home infusion services include training patients and their care
givers, compounding prescriptions and conducting other pharmacy operations,
delivering supplies, providing certain nursing services, monitoring patient
compliance with the prescribed plan of care, monitoring patient outcome,
maintaining patient records, consulting with attending physicians, maintaining
equipment and processing reimbursement claims. While historically the Company's
core business has been home infusion therapy, the Company has taken several
steps during the past three fiscal years to diversify its operations and use of
assets, including the acquisition of Vista Healthcare, Inc. described below in
August 1994 which owns a 15,000 square foot outpatient surgical facility
located in Pasadena, Texas.

Effective March 8, 1993, the Company's shareholders approved a reverse
split of the outstanding shares of the Company's Common Stock on the basis of
one share for every eight shares outstanding, with the par value of each share
remaining at $.001. The reverse split was recommended by the Board of Directors
because of its belief that the pre-split per share price level adversely
affected the marketability of the Company's Common Stock and that an increase
in the per share price was important to qualify for a listing on the National
Association of Securities Dealers, Inc. Automated Quotation System (NASDAQ). In
September 1993, the Company's Common Stock received its listing and began
trading on the NASDAQ Small Cap system under the symbol DYII.

On August 25, 1994, the Company completed the acquisition of
approximately 65% of the outstanding common stock of Vista Healthcare, Inc., a
Texas corporation ("Vista"), in exchange for newly issued shares of the
Company's Common Stock. The Company issued a total of 716,370 shares of its
Common Stock (or approximately 5% of the shares then outstanding) to 30
shareholders of Vista (the "Vista Shareholders") in exchange for an aggregate
of 128,947 shares of Vista common stock held by the Vista Shareholders. The
Common Stock was issued pursuant to an Exchange Agreement, dated July 15, 1994
(the "Exchange Agreement"), entered into by and among the Company, Vista and
the Vista Shareholders. The terms of the Exchange Agreement were the result of
negotiations between the management of the Company and Vista and certain of the
Vista Shareholders.

Vista owns and operates a 15,000 square foot medical clinic and
outpatient surgical center in Pasadena, Texas (the "Vista Facility"). Vista
provides a variety of surgeries, medical treatments and laboratory services on
an outpatient basis. Under the Company's control, Vista continues to utilize
its facilities and equipment in the same manner, however, the Company expanded
the services offered and purchased new equipment. Revenues from the Vista
Facility are expected to substantially increase in fiscal 1998 and may become
the Company's largest revenue producer, exceeding revenues from the Company's
home infusion therapy business and revenues from the Company's management of
physician practices described below.

In September, 1994, the Company commenced construction of a new
medical office building, adjacent to the Vista Facility, which was completed in
1995 at a total cost of approximately $1,925,000 (the "Office Building"). Most
of the offices in the Office Building are currently utilized by physicians with
whom the Company has management contracts through its wholly-owned subsidiary
Doctors Practice Management, Inc., a Texas corporation ("DPMI"). In March,
1994, the Company formed

1
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DPMI for the purpose of providing (i) fee based management services to
physicians' groups, and (ii) assistance in consolidating medical providers into
integrated delivery systems. These systems are intended to build a concentrated
critical mass of primary care physicians, specialty physicians, clinics and
outpatient surgical centers. DPMI plans to offer participating medical
providers health care management agreements and management systems that include
standards to better manage costs, shared administrative and clinical services
and individual or shared office facilities.

Since most physicians' current revenue streams of fee-for-service will be
replaced by managed care and capitated forms of revenue in the next few years,
controlling costs will become more critical to improve or maintain profitable
practices for physicians running their practices in a highly managed care
setting of reduced revenues. An obvious solution to produce efficiencies and
savings is for physicians to integrate and consolidate in order to share
administrative and clinical services. Much of the integration and increased
efficiencies in health care delivery are being spurred by the economic climate.
DPMI should fit well in this integrated environment, where it can provide
coordinated business management practices, which are needed by many physicians'
groups, in return for management fees and incentive performance bonuses. During
the next few years, management believes there will be a reallocation of health
care business in favor of professionally managed integrated delivery systems.
DPMI's goal is to obtain a competitive advantage in competing for managed
health care contracts with insurance companies or in direct contracting with
major employers or consortiums of employers.

DPMI commenced providing management services for the Premier Health Care
Group, P.L.L.C. ("Premier"), of which the majority of physician members are
also shareholders of Vista. In May 1995, DPMI ceased providing management
services to Premier because of the difficulty of resolving administrative and
management issues with some Premier members. Since May 1995, DPMI has been
aggressively seeking new management opportunities with other physicians. This
effort is showing steady results as DPMI began managing Vista in January of
1996 and had agreements to manage 7 and 6 physician practices at the end of
fiscal 1996 and 1997, respectively.

THE HOME INFUSION HEALTH CARE MARKET

The Company's home infusion health care business principally involves the
administration of physician-prescribed nutrients, antibiotics or other
medications to patients in their homes, usually as a continuation of a
treatment program initiated in a hospital. The market for home infusion health
care has grown rapidly since its initial development in the late 1970's.
Management believes that the growth of this market is primarily attributable to
(i) increased cost containment efforts that have encouraged home health care,
(ii) medical advances that enable doctors to treat more illnesses through home
health care, and (iii) the desire of hospitalized patients to be treated in
their homes. The growth of the industry is also the result of improved delivery
technology that permits the treatment of more diseases at home and the growing
awareness and acceptance among physicians and third-party payers of home health
care as an alternative to hospital treatment.

Home health care is favorable for insurance companies because it is much
cheaper to pay for similar patient services performed by home health care
companies than by hospitals. The trend for insurance companies to pressure
hospitals and physicians to release patients to their homes to recover at the
earliest possible time to save cost is substantial. This enhances favorable
market growth for the home health care industry. The Company selects only
referral patients with proper adequate private insurance, with confirmation
from the insurance company of ability to pay, to ensure both profitability and
collectability of performed services and concentrates on two patient service
areas, Parenteral Nutrition Therapy and Antibiotic Therapy. Home health care is
not a capital intensive business and does not require high inventory levels. It
is a skilled labor intensive business that provides professional medical
services to patients with personal care.

PARENTERAL NUTRITION THERAPY. Parenteral nutrition therapy is prescribed
for individuals unable to eat or digest food due to a failure of their
gastrointestinal tracts. Parenteral nutrition is typically administered through
central vein catheters that are surgically implanted during hospitalization.
The Company formulates, compounds and dispenses solutions pursuant to a
physician's order. Solutions used in this therapy typically contain amino acids
(protein), dextrose (carbohydrate), lipids (fat), electrolytes, vitamins and
trace minerals. Some patients requiring this type of therapy periodically
require routine re-hospitalization throughout their treatment. Some patients
may require therapy for the remainder of their life.

ANTIBIOTIC THERAPY. Antibiotic and anti-infection therapies are used to
treat a variety of infections, including osteomyelitis (bone infections),
bacterial endocarditis (heart valve infections), septicemia (blood infections),
wound infections, bone and joint infections and infections associated with
cystic fibrosis and diabetes. By intravenously administering antibiotics into
the bloodstream (as opposed to ingesting them orally), the effectiveness of the
medication is generally increased. Antibiotic therapy is also a significant
therapy for treating individuals suffering from Acquired Immune Deficiency
Syndrome ("AIDS"). Because

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of the gradual destruction of the immune system by the AIDS virus, orally
administered drugs typically become less effective against opportunistic
infections, and consequently antibiotics must be introduced intravenously.

PHYSICIANS' PRACTICE MANAGEMENT

During fiscal 1997, DPMI had agreements to manage the medical
practices of six physicians and is currently negotiating additional contracts.
Due to the cancellation of several physician management agreements following
the Company's fiscal 1997 year end, the Company currently has three remaining
physician practice management agreements. Each physician practice management
agreement is called a "Full Service Facility and Management Agreement" (the
"Management Agreement") . The Management Agreements require DPMI, at its
expense, to: (i) act as the sole and exclusive agent of the physician or
physician group for the management and administration of business functions and
services related to the physicians' medical practice; (ii) undertake marketing,
billing, record keeping, collection, clerical staffing and support services;
(iii) provide physical office space, facilities and equipment necessary for the
physician's practice, including the repair and maintenance thereof and all
utilities and supplies related thereto including licenses and permits; (iv)
undertake the hiring, firing, selection, training and supervision of all
non-medical personnel; (v) prepare and maintain accounting and financial
records and patient files; and (vi) undertake other management and
administrative functions related to the foregoing. In consideration of its
services, DPMI receives a management fee ranging from 20% to 65% of revenues
generated by the physicians. DPMI attempts to negotiate long-term (5 years or
longer) noncancellable Management Agreements due to its large initial costs in
setting up and equipping fully staffed and functional facilities for
physicians. The Management Agreements may be terminated by the non-defaulting
party in the event of a breach by the defaulting party. DPMI and the physicians
each agree to indemnify the other for claims which may arise in connection with
the performance of their respective obligations under the Management
Agreements. To facilitate the expansion and integration of physician practices
under DPMI management including the physical relocation thereof to facilities
owned by the Company, DPMI has agreed to make loans to several of the
contracting physicians. The loans (the "Physician Loans") are usually
documented by a credit agreement, a promissory note and a security agreement
which provides DPMI a security interest in certain assets of the physician's
practice including inventory, accounts, equipment and general intangibles. As
of August 31, 1997, DPMI had one (1) Physician Loan in the aggregate principal
amount of $74,647 as opposed to three (3) Physician Loans in the aggregate
principal amount of approximately $836,000 as of August 31, 1996. Although the
Physician Loans have facilitated the expansion of the physician management
business of DPMI, the Company, as a lender, incurs a risk that the Physician
Loans will not be paid or paid in a timely manner. If the Company or DPMI is
forced to foreclose on the security collateralizing any Physician Loan, there
can be no assurance that the collateral will be sufficient to cover the
obligation. Two of the Physician Loans were in material payment default as of
August 31, 1997, and the Company incurred writeoff charges for such loans in
the aggregate amount of $776,922 for fiscal 1997. The Company intends to pursue
collection of the defaulted loans and may eventually recover some portion of
the loans. If all or part of any existing or future Physician Loans prove to be
uncollectible, there could be a material adverse effect on the earnings of the
Company. The Company has initiated legal action to recover $110,000 loaned to a
physician with a Management Agreement with the Company. This lawsuit resulted
in counterclaims against the Company by the physician. See "Item 3. Legal
Proceedings." Under the Management Agreements, DPMI is entitled to a fixed
percentage of collections from the physicians' practice and DPMI has agreed to
pay certain fixed categories of expenses which obligation is not limited in
amount. To the extent DPMI's share of collections is not sufficient to cover
its expense obligations under the Management Agreements, DPMI will remain
obligated to pay the excess expenses and is subject to losses under the
Management Agreements. Excluding the writeoffs for uncollectible loans, DPMI's
physician management practice recorded a small operating profit in fiscal 1997.
See "Management's Discussion and Analysis or Plan of Operation - Analysis of
Operations."

OUTPATIENT SURGICAL FACILITY AND OFFICE BUILDING

The Company's Vista Facility provides outpatient surgical facilities,
x-ray diagnostic services and full service laboratory testing to physicians and
their patients. The Vista Facility and the Office Building are located adjacent
to each other. On January 1, 1996, DPMI entered into a five year Management
Agreement for the Vista Facility which entitles DPMI to 28% of the revenues
generated by the facility in exchange for comprehensive management services
provided by DPMI. The Management Agreement for the Vista Facility is similar in
scope to the ones entered into by DPMI to manage physician practices. Effective
September 1, 1996, the Management Agreement with DPMI was amended to increase
the management fees payable to DPMI by Vista to 38% of collections. The Office
Building is principally utilized by DPMI for the location of physician
practices under Management Agreements with DPMI and consists of approximately
35,900 square feet. The Company also leases space in the Office Building to
physicians whose practices are not managed by DPMI and receives rental revenues
from such physicians. See "Item 2. Description of Property."

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BUSINESS GROWTH STRATEGY

Beginning in late fiscal 1994 and during fiscal 1995, the Company
commenced implementation of a new business strategy of diversifying from an
almost exclusively home infusion service provider into an integrated
medical/health services Company. The foundation of this strategy was the
acquisition of a majority interest in Vista which owns the Vista outpatient
surgical center located in Pasadena, Texas in August 1994 and the completion of
the Office Building adjacent to the Vista Facility in April 1995. The Company
also formed DPMI to provide management services to medical practices. DPMI
provides office space and fee-based management services to client physicians
located in the Office Building and in other locations. Vista provides
outpatient surgical facilities, x-ray diagnostic services and full service
laboratory testing to physicians and their patients in the Vista Facility.

The Company intends to grow as a provider of health care services by
(i) expanding the business of its existing operations locally, (ii) acquiring
established health care providers, and (iii) opening new branch facilities in
selected local markets. The Company will periodically evaluate possible
acquisitions and suitable locations for new facilities. The Company does not
presently have any agreements, arrangements or understandings regarding any
acquisitions or the opening of additional facilities. The Company leased and
opened an additional facility in fiscal 1997 pursuant to a Management Agreement
for a medical practice. See "Item 2. Description of Property." The Company's
growth strategy is dependent in a large part on the ability of the Company to
attract and retain key management, marketing and operating personnel at the
local facility level. Such persons are in high demand and are often subject to
competing offers from other health care service companies and related
businesses.

The Company's acquisition strategy includes (i) identifying businesses
with stable referral sources that it can acquire at attractive purchase prices,
(ii) minimizing its initial cash investment by employing deferred payment
mechanisms and financing a significant portion of the purchase price with
Common Stock and/or long-term loans, (iii) retaining management and using
"earn-outs" based on revenues and/or profits to provide incentives to such
management, and (iv) using its management expertise and corporate information
and control systems to enhance the growth and profitability of acquired
operations.

The Company's target markets are areas with major industrial companies
and middle class blue-collar workers, generally with strong union ties and with
superior insurance coverage. This population group has proven to be very open
to the type of health care center concept offered by the Company. The Company's
operations are in Pasadena, Texas, a petrochemical industry hub which provides
a stable patient base of insured patients. The Company anticipates growth
within a hub area by expanding its core of outlying doctor practices and
clinics under management contracts, broadening the initial lines of specialized
practices, and, in selected new industrial markets, opening additional
outpatient surgical facilities. It is anticipated that each hub area will
consist of a central core of outpatient surgical, diagnostic and laboratory
centers, infusion therapy facilities and specialized practices serving outlying
clusters of general practitioners. Subsequent alliances of physicians,
specialists and clinics are feasible in other areas around Houston, such as
Clear Lake, La Porte, Baytown, Deer Park, and other industrial/petrochemical
centers.

COMPETITION

The Company is one of many in the greater Houston metropolitan area
that provide medical practice management, outpatient surgical facilities,
professional buildings or home infusion therapy. Several major hospital
organizations with greater financial resources are planning to or have entered
the Pasadena area (the Company's principal market) which will directly compete
with the Company's operations. Such competition could be particularly acute
with respect to the Company's outpatient surgical facility and have an adverse
effect on the ability of the Company to attract and retain physician practices
in the Office Building.

The home infusion health care therapy market is highly competitive and
management anticipates that competition, particularly for patient referrals,
will intensify in all metropolitan areas. The industry has been subject to
market consolidation in recent years and the Company believes that this trend
will continue. The Company currently competes with other home infusion therapy
companies, hospitals, physician groups and other health care organizations,
many of which operate on a regional or national basis and are larger and have
significantly greater resources than the Company. In the past two years, the
Company has experienced substantial pressure from insurance companies with
respect to the need for and the cost of home infusion therapy treatments. This
pressure has resulted in a declining patient base and reimbursable charges per
patient resulting in substantially lower revenues and losses to the Company for
home infusion operations.

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Presently, the Company operates only in the greater Houston
metropolitan area. However, the Company would expand its operations into other
markets through acquisitions if suitable acquisition candidates are identified
and the acquisition terms are acceptable to the Company.

With respect to the Company's health care operations, the primary
competitive factors are (i) quality of care, including responsiveness of
service and quality of professional personnel, (ii) the ability to establish
and maintain relationships with referring physicians, hospitals, health
maintenance organizations, clinics and nursing agencies, (iii) price, (iv)
breadth of services offered, and (v) general reputation with physicians, other
referral sources and potential patients. Management believes that the Company
competes successfully in all of these areas.

MARKETING AND SALES

With respect to the Company's home infusion business and its
outpatient surgical facility, the Company relies primarily on patient referrals
from physicians. With respect to home infusion therapy, these referral sources
tend to be concentrated among a limited number of physician specialists,
allowing the Company to conduct a directed selling effort. Primarily due to
escalating pressures to contain health care costs, insurance companies and
other third-party payers are participating to a greater extent in decisions
regarding health care alternatives. Consequently, management believes that such
third-party payers will be increasingly important in marketing the Company's
services in the future.

The Company's marketing strategy for DPMI is to offer to certain
oncologists, specialists and general practitioners centralized office
management services in exchange for a percentage of the doctor's revenues. The
Company will provide office personnel to perform administrative tasks, and
technicians to perform certain technical functions at the practitioners office.
While the Company expects this aspect of its business to be independently
profitable, an important reason for pursuing the management of physician
practices is to create a natural source of referrals of patients needing
parenteral nutrition and other therapies. Management also believes that as
oncologists, in particular, become more aware of the benefits of nutritional
therapy to their patients in terms of bettering their quality of life while
cancer treatments are being pursued, many of those practitioners will be more
likely to refer their patients to the Company at a much earlier stage for
parenteral nutrition treatment.

DELIVERY OF HOME INFUSION PATIENT SERVICES

The decision to proceed with home infusion therapy is made jointly by
the patient, the attending physician and the Company. This decision involves
obtaining and evaluating information about the patient's medical history, home
environment and insurance, as well as discussing the patient's willingness and
ability to participate in the self-administration of home health care. After a
patient is referred to the Company, a pharmacist takes the prescription order
from the attending physician and Company personnel coordinate the delivery of
patient care tailored to the individual's specific needs.

Throughout the course of treatment, a company licensed pharmacist
compounds or supervises the preparation of all prescribed drugs, solutions and
related supplies and answers questions concerning the prescribed therapy and
the Company's services. In certain cases where the patient is incapable of
self-administering the therapy, a nurse is also present at each administration
of the therapy. Company nurses visit patients periodically to review training,
catheter placement and compliance with the patient care plan. The Company's
personnel are available to respond to patient needs 24 hours a day, seven days
a week.

HEALTH CARE REGULATION

The federal government and the state of Texas regulate various aspects
of the Company's business. The Company's Vista Facility is licensed as a
pharmacy and is subject to federal and state laws and regulations governing
pharmacies. Federal laws require, among other things, that the Company's
facilities comply with rules relating to controlled substances. These rules
include an obligation to register with the Drug Enforcement Administration of
the United States Department of Justice and to meet certain requirements
concerning security, record keeping, inventory controls, prescription forms,
order forms and labeling. The Company's pharmacists and nurses also are subject
to state licensing requirements and laws regarding standards of professional
conduct. Each nurse and pharmacist used by the Company must have a valid
license. Management believes that the Company's operations comply in all
material respects with applicable pharmacy licensing requirements.

The health care industry is highly regulated at the federal and state
levels. The Company believes its business is in material compliance with
applicable law. The relationships between the Company and its affiliated
physician groups, however, are unique, and many aspects of these relationships
have not been the subject of judicial or regulatory interpretation. There can

<PAGE> 8

be no assurance that a review of the Company's business by courts or by health
care, tax, labor or other regulatory authorities would not result in
determinations that could adversely affect the Company's operations or that the
health care regulatory environment will not change so as to restrict the
Company's existing operations or potential for expansion.

A federal statute (the "federal anti-kickback statute") prohibits the
offer or payment of remuneration, or the solicitation or receipt of
remuneration, to induce either (i) the purchase of any item or service
reimbursable in whole or in part by Medicare or certain state health care
programs (including Medicaid); or (ii) the referral of an individual for the
furnishing of any item or service reimbursable in whole or in part by Medicare
or certain state health care programs. Both criminal and civil penalties can be
imposed for violations of the federal-kickback statute, including exclusion
from participation in the Medicare and Medicaid programs. The Department of
Health and Human Services and law enforcement authorities are increasingly
scrutinizing arrangements between health care providers and referring
physicians to ensure that those arrangements do not constitute mechanisms for
paying for referrals. In addition, a number of states have adopted similar
legislation that applies to patients not covered by Medicare or Medicaid
programs. The Company does not believe that its business operations violate
federal or state anti-kickback statutes. Medicare and state health care
programs do not reimburse medical practices for management fees paid to the
Company, and the Company does not refer patients to the medical practices.
Nevertheless, because of the breadth of federal and state anti-kickback
statutes and the absence of court decisions interpreting their application to
arrangements such as those entered into by the Company, there can be no
assurance that the Company's activities will not be challenged by regulatory
authorities or that the Company's position will prevail if challenged.

Numerous legislative proposals have been introduced or proposed in the
U.S. Congress and in some state legislatures that would effect major changes in
the U.S. health care system nationally or at the state level. It is not clear
at this time what proposals, if any, will be adopted or, if adopted, what
effect, if any, such proposals would have on the Company's business. Certain
proposals, such as reducing Medicare and Medicaid, could adversely affect the
Company. There can be no assurance that currently proposed or future health
care legislation or other changes in the administration or interpretation of
governmental health care programs will not have a material adverse effect on
the Company.

General business corporations (as opposed to professional corporations
which are wholly-owned by physicians) are generally not allowed to render
medical care. While the Company structures its operations to comply with
applicable laws concerning the corporate practice of medicine, there can be no
assurance that, given varying and uncertain interpretations of such laws, the
Company would be found to be in compliance with such laws. A determination that
the Company is in violation of applicable restrictions on the practice of
medicine could have a material adverse effect on the Company if the Company
were unable to restructure its operations to comply with applicable state
requirements.

RISKS INHERENT IN PROVISION OF MEDICAL SERVICES

The Company's operations involve the delivery of health care services
to the public and the Company is exposed to the risk of professional liability
claims. Claims of this nature, if successful, could result in damage awards to
the claimants in excess of the limits of any applicable insurance coverage
maintained by the Company or health care providers utilized by the Company or
those who utilize the Company's facilities, equipment and services. Insurance
against losses related to claims of this type can be expensive and varies
widely from state to state. The Company or its affiliated physician groups and
professional service providers maintain liability insurance in amounts and
coverages believed to be usual and customary. Nevertheless, successful
malpractice claims asserted against the medical care providers or the Company
could have a material adverse effect on the Company.

LIMITED OPERATING HISTORY

<PAGE> 9

DPMI had management agreements for six physician practices. The loss of one or
more of these contracts could have a material adverse effect on the profits and
revenues of DPMI. See "Item 6. - Management's Discussion and Analysis and Plan
of Operation".

REDUCTIONS IN THIRD PARTY REIMBURSEMENTS

Health care providers typically bill various third party payers, such
as governmental programs (e.g., Medicare and Medicaid), private insurance plans
and managed care plans, for the health care services provided to their
patients. These third party payers are increasingly negotiating the prices
charged for medical services, pharmaceuticals and other supplies, with the goal
of lowering reimbursement and utilization rates. Third party payers can also
deny reimbursement for medical services, pharmaceuticals and other supplies if
they determine that a treatment was not performed in accordance with treatment
protocols established by such payers or for other reasons. Loss of revenues to
the Company caused by cost containment efforts could have a material adverse
effect on the Company. Although the Company does not have any contracts to
provide health care services on a capitated or other risk sharing basis, the
Company anticipates that it will eventually offer its services to payers in the
future on a capitated or other risk sharing basis. To the extent that patients
or enrollees covered by a contract require more frequent or extensive care than
is anticipated by the Company, the revenue to the Company derived from such
contracts may be insufficient to cover the costs of the services provided.
Insufficient revenue under capitated or other risk sharing contracts could have
a material adverse effect on the Company.

INSURANCE

In recent years, physicians, hospitals and other participants in the
health care market have become subject to an increasing number of lawsuits
alleging malpractice, product liability or related legal theories, many of
which involve large claims and significant defense costs. With respect to its
home infusion health care business, the Company does not carry liability
insurance for any employee or contract representative. The Company requires
that all health care professionals, including registered nurses with whom the
Company contracts, carry personal professional liability insurance. However,
the Company does not require continuing proof of insurance, mandate policy
limits or deductibles or require that the Company be named as an additional
insured. Should one of the Company's agents or contracting health care
professionals commit a negligent or other liability producing act or omission
in the Company's home infusion operations, the patient could have a direct
claim against the Company which would be uninsured. Mr. Chiu Chan has in force
personal professional liability insurance with coverage limits of $1 million
per incident. He has not experienced difficulty in obtaining insurance in the
past and believes the current insurance coverage is adequate to provide for any
claims that may arise and related settlements, if any, involving him
personally. As the pharmacist in charge of home infusion therapy, any claims
would probably involve Mr. Chiu Chan and the Company and Mr. Chan's insurance
should apply to any losses. The Company may, however, be exposed to the extent
Mr. Chiu Chan's insurance does not apply or is insufficient to cover any losses
for which the Company is jointly liable. Management believes the Company has
reasonable and customary insurance coverage with respect to the remainder of
its business operations although the Company cannot provide any assurance that
its insurance would cover all losses to which the Company may be subject to.

EMPLOYEES

The Company and its subsidiaries employed approximately 70 full-time
employees and 5 part-time employees as of August 31, 1997. A number of other
individuals are utilized on an as needed contractual basis, with the number
being dependent on the patient load. The Company experienced a substantial
increase in the number of its employees as a result of the increase in the
number of physician practices managed by DPMI. The Company had 42 employees as
of August 31, 1996.

EMPLOYEE BENEFIT PLANS

Effective August 1, 1995, the Board of Directors approved a 1995
Non-Qualified Stock Option Plan for consultants and non-employee directors. The
Board believes that the Plan will advance the long term interests of the
Company (i) by providing consultants and non-employee directors with the
opportunity to obtain an equity interest in the Company, (ii) by furthering the
identity of interests of participants in the plan with those of the
shareholders of the Company through the ownership and performance of the common
stock of the Company, and (iii) by permitting the Company to attract and retain
qualified consultants and non-employee directors. Under the terms of the Plan,
the Company may grant stock options in the Company's Common Stock to
consultants and non-employee directors of the Company and its subsidiaries. The
options granted under the Plan are not intended to qualify as "incentive stock
options" as that term is defined under Section 422A of the Internal Revenue
Code and, as such, the nonstatutory options granted under the Plan are not
entitled to special treatment under Section 422 of the Code.

<PAGE> 10

Effective August 31, 1995, the Company's shareholders approved a 1995
Incentive Stock Option Plan. The 1995 Incentive Stock Option Plan was
recommended by the Board of Directors because of its belief that the Plan will
advance the interests of the Company by providing key employees, who have
substantial responsibility for the direction and management of the Company,
with additional incentive for them to promote the success of the Company by
increasing their proprietary interest in the success of the Company. It is
intended that options issued under the Plan will qualify as Incentive Stock
Options under Section 422A of the Internal Revenue Code.

ITEM 2. DESCRIPTION OF PROPERTY

The Company commenced its health care operations in August 1992 and
leased 1,000 square feet of office space in East Houston for $600 per month. As
of March 1, 1993, the office space was expanded to a total of 1,915 square feet
and, accordingly, the monthly lease rate increased to $1,286. This lease
expired March 1, 1995 and is currently on a month-to-month basis. The lessor of
the office space is Capital Bank. One of the Company's directors is a director
of Capital Bank. Management believes that the lease rate being paid is
consistent with other commercial rates available in the East Houston area.

In August 1994, the Company consummated the acquisition of 65% of the
outstanding common stock of Vista, which owns the Vista Facility, an outpatient
surgical center in Pasadena, Texas consisting of a one story building
containing approximately 15,000 square feet. The land and building owned by
Vista is subject to and collateralized by a note payable and deed of trust to
Met Life Capital. The note bears a fixed interest rate of 9.65%, requires
monthly installment payments of $19,533, contains a maturity date of September
1, 2002, and the balance as of August 31, 1997, was $938,808. The Company
entered into a Guaranty Agreement with Met Life Capital whereby the Company
guaranteed 65% of the outstanding balance of the mortgage loan. Management
believes the facility is adequately covered by insurance. The depreciation on
the Vista Facility is computed using the straight line method over thirty-nine
years, furniture and fixtures are depreciated over seven years, and equipment
is depreciated over five years. The property tax rate is about 3% of appraised
value and the annual real and personal property taxes are about $77,000. The
Vista Facility is 100% utilized by Vista as an outpatient surgical center and
to provide laboratory and diagnostic testing services.

In September 1994, the Company commenced construction of the Office
Building (adjacent to the existing Vista Facility described above) which was
completed in 1995. The total cost of the office building was approximately
$1,937,000, and was financed from working capital. The Office Building was
constructed as a professional office building for physician practices. There is
competition from several professional buildings in the surrounding area.
Management believes the Office Building is adequately covered by insurance. The
Office Building is comprised of two stories and contains approximately 35,900
square feet of space of which approximately 23,000 is utilized by physician
practices under the management of DPMI and approximately 12,200 is rented to 2
physicians who are not under Management Agreements with DPMI. The remaining
space will be utilized for additional physician practices, when contracted for
by DPMI, or it will be leased to physicians through lease agreements. A total
of $707,000 has been spent for new equipment and furnishings for the Office
Building. All depreciation is calculated on the straight line method, with the
building being depreciated over thirty-nine years, furniture and fixtures over
seven years, and equipment over five years. The property tax rate is
approximately 3% of appraised value and the annual real and personal property
taxes are about $80,000. As of August 31, 1997, there were six physician
practices under management with DPMI which are located in the Office Building.
Each physician practice utilizes more than 10% of the space in the building and
comprises more than 10% of the management fees payable to DPMI pursuant to the
Management Agreements described below. Revenues and income from the property
are derived from the management fees received by DPMI under the Management
Agreements, although the Company does receive regular rental income from
physicians who elect to rent space in the building for their practices.
Pursuant to the Management Agreements which provide DPMI with a percentage of
revenues from each physician's practice, DPMI agrees to provide fully-equipped
office space and other services. Given the limited number of Management
Agreements and lease agreements which provide revenue to DPMI and the Company
from the Office Building, the loss or cancellation of any agreement could be
material. If any Management Agreement or lease agreement relating to space in
the Office Building is cancelled or terminated, the Company believes it will be
able to find additional physician tenants in the short-term. The Office
Building is not subject to any lien or mortgages and is owned 100% by the
Company.

On July 1, 1996, DPMI leased approximately 3,000 square feet of office
space from the City of Pasadena pursuant to a five (5) year lease (containing
an option for an additional five (5) years) which requires lease payments of
$7,200 annually. The property is located at 1001 East Shaw, Pasadena, Texas.
DPMI acquired the property for the location of a medical practice under a
Management Agreement. DPMI has invested approximately $124,000 for furniture,
fixtures and equipment at this location. The property is currently 100%
utilized for a physician's practice.

<PAGE> 11

ITEM 3. LEGAL PROCEEDINGS

In March 1997, DPMI filed a civil lawsuit styled Doctors Practice
Management, Inc., Plaintiff vs. Houston Physical Medicine Associates, M.D.,
P.A. and Anjali Jain, M.D., Defendants; Cause No. 97-08711; In the 279th
Judicial District Court of Harris County, Texas to seek repayment of advances
of $110,000 owed to the Company pursuant to a revolving credit agreement and a
revolving credit note. The Defendants are a physician group that DPMI entered
into a Management Agreement with to manage their practice. In April 1997, the
Defendants filed a counterclaim against DPMI and the president of the Company,
jointly and severally, alleging fraud, intentional misrepresentation,
violations of the Texas Deceptive Trade Practices Act, and various other causes
of action, including breach of contract, seeking actual damages in excess of
$300,000, consequential damages in an amount in excess of $200,000 and
exemplary damages, attorneys' fees and court costs. In May 1997, DPMI and the
Company's President filed a response denying all allegations made in the
counterclaim by the Defendants. The Company intends to vigorously defend this
case and believes that a settlement or related judgment will not have a
material adverse effect on the Company's financial position. The Company
believes that the Defendants filed the counterclaims against DPMI in an effort
to find some legal basis to attempt to avoid or delay repayment of the
advances. The Company may not have insurance coverage for any of the claims
filed by the Defendants.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.

PART II.

ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

In September 1993, the Company's Common Stock began trading on
NASDAQ's Small Capitalization Market under the symbol DYII. Prior to obtaining
the NASDAQ listing, the Company's Common Stock had traded in the
over-the-counter market on the pink sheets and on the NASD Electronic Bulletin
Board.

The following table sets forth the high and low closing bid prices for
the Company's Common Stock during each of the last eight fiscal quarters as
reported by the National Quotation Bureau, Inc.

High Low
---- ---
<S> <C> <C>
1997 Fiscal Year - Quarter Ended:
November 30, 1996 $ 1.25 $ 0.675
February 28, 1997 1.125 0.675
May 31, 1997 0.875 0.50
August 31, 1997 1.00 0.25
1996 Fiscal Year - Quarter Ended:
November 30, 1995 1.3125 1.00
February 29, 1996 1.375 0.9375
May 31, 1996 1.125 0.6875
August 31, 1996 1.25 1.00

</TABLE>

These quotations reflect inter-dealer prices, without retail markup,
mark-down or commission and may not represent actual transactions.

As of October 8, 1997, the Company had approximately 93 shareholders
of record. This number does not include shareholders who hold the Company's
securities in nominee accounts with broker-dealer firms or depository
institutions or shares issued to employees of the Company subsequent to the
Company's fiscal year end. Including the shares issued to the Company's
employees and the beneficial owners of shares held in nominee accounts or
depository institutions, the Company believes it has in excess of 300
beneficial owners of its Common Stock.

<PAGE> 12

The Company has not paid any cash dividends on its Common Stock and
intends to retain all earnings for the operation and expansion of its business.
The Company does not anticipate paying cash dividends in the foreseeable
future. Any future determination as to the payment of cash dividends will
depend upon the Company's results of operations, financial condition and
capital requirements, as well as such other factors as the Company's Board of
Directors may consider. There are no contractual or other restrictions which
limit the Company's right to declare and pay dividends should the Board of
Directors elect to do so.

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

GENERAL

The Company (including its predecessor) did not generate any revenues
from inception in 1983 through July 1992. New management and other
individuals/entities invested $2,000,000 in 1992 and the Company began to
generate revenues from home health care therapy in August 1992, the first month
of operations.

ANALYSIS OF OPERATIONS

The following discussion provides an analysis of the Company's results
of operations and reasons for material changes therein for the three years
ended August 31, 1997.

The Company recorded a consolidated net loss of $1,059,195 for the
year ended August 31, 1997, as compared to consolidated net income of $559,473
in fiscal 1996 and $936,019 in 1995. There were no significant, unusual or
non-recurring items of income or expense during the three years ended August
31, 1997, except for writeoffs in fiscal 1997 of uncollectible notes in the
amount of $776,922 and the writeoff of $371,736 in uncollectible advances to a
subsidiary. As discussed below, the Company's loss for fiscal 1997 includes the
writeoff of loans previously made by the Company to various physician groups.
Although further losses attributable to physician loans are possible, the
Company intends to curtail its practice of making loans to physician groups in
the future and does not expect to record further significant writeoffs due to
uncollectible loans in future years.

As a result of a significant increase in the Company's revenues and
expenses during fiscal 1997 relating to the Company's management of physician
practices and the recordation of physician practice revenues and expenses on a
combined or consolidated basis (see footnote 8 of Notes to Consolidated
Financial Statements), it is difficult to meaningfully compare on a
year-to-year basis the large differences in many of the expense categories.

AUGUST 31, 1997 VS. AUGUST 31, 1996

For the fiscal year ended August 31, 1997, total consolidated revenues
increased by $2,240,954 to $9,771,949, a 30% increase. Of this amount, revenues
of $5,188,381 were recorded by DPMI in fiscal 1997 compared to $2,737,993 in
fiscal 1996 as a result of the Company's aggressive efforts in signing up
physician practices for management by DPMI. However, as a result of the
termination or cancellation of five (5) Management Agreements with physicians
during fiscal 1997 and subsequent to the year ended August 31, 1997, the
Company expects physician management revenues (and corresponding expenses) to
decrease significantly during fiscal 1998. The Company records revenues from
the management of physician practices on a combined or consolidated basis and
reflects as revenues all patient billings of the respective practices and
expenses payments to physicians and other physician practice costs.

Revenues attributable to Vista operations were $3,058,704 in fiscal
1997, compared to $3,025,249 in fiscal 1996, an increase of less than 1%.
Revenues from home infusion therapy were $1,524,864 in fiscal 1997 compared to
$1,767,753 in fiscal 1996, a decrease of 14 %, primarily as a result of fewer
patients and increasing cost and reimbursement constraints imposed by
third-party payers, resulting in lower recoverable charges per day per patient.

Costs and expenses relating to home infusion therapy declined
primarily as a result of the Company's decreased patient load. Expenses for
compensation and benefits to employees increased by 78% to $2,360,433 as a
result of additional employees hired by the Company primarily to service the
increased business associated with the management of physician practices by
DPMI. The number of employees employed by the Company and its subsidiaries
increased from approximately 42 in fiscal 1996 to approximately 75 as of August
31, 1997. Expenses for contract payments to physicians increased 78% to
$2,962,888

<PAGE> 13

primarily as a result of the additional physician practices under management
during all of fiscal 1997. The Company's provision for uncollectible trade
accounts increased from $893,486 in fiscal 1996 to $1,269,066 in fiscal 1997
primarily as a result of increased trade revenues resulting in corresponding
increases for uncollectible trade accounts. As a percentage of revenues, the
Company's provision for uncollectible trade accounts increased from 11.8% in
fiscal 1996 to 13% in fiscal 1997. The Company expects its uncollectible trade
accounts as a percentage of revenues to remain relatively constant. Due to
payment non-performance on two (2) Physician Loans, the Company incurred a
charge for uncollectible notes of $776,922 in fiscal 1997. No similar writeoffs
for uncollectible loans have been recorded by the Company in prior years. In
addition, the Company incurred a writeoff associated with an uncollectible
advance to a subsidiary of $371,736. Together the uncollectible note and
advance writeoffs totaled $1,148,658 which writeoffs substantially contributed
to the Company's consolidated net loss for the year before taxes and minority
interest of $1,593,285. The Company does not expect to incur similar recurring
writeoffs in the future and will strictly limit or curtail advances or loans
associated with the management of physician practices. Expenses for medical
supplies increased 64% to $1,283,112 primarily as a result of the need for
additional supplies associated with the increased revenues and business from
the Company's physician management practice.

General and administrative expenses increased 24% to $1,369,233
primarily as a result of increased operational activities. Rent and other
income declined from $119,843 in fiscal 1996 to $23,847 in fiscal 1997
primarily as a result of the Company utilizing its Office Building for
physician practices under the Management Agreements which require the Company
to provide office space and the physicians are not separately charged for rent.

As discussed above, of the Company's consolidated loss of $1,593,285
before income taxes and minority interest in fiscal 1997, approximately
$1,148,658 is attributable to the Company's writeoffs of physician loans and
certain advances determined by the Company to be uncollectible. DPMI had a
small operating profit of approximately $4,400 exclusive of losses associated
with the physician loans. Operations from Vista resulted in an operating profit
of approximately $38,000 in fiscal 1997 compared to an operating profit of
approximately $190,000 in fiscal 1996. Vista incurred reduced operating profits
despite an increase in revenues, principally as a result of the increase in
management fees payable to DPMI from 28% to 38% effective September 1, 1996.
The Company's home infusion therapy operations resulted in an operating loss of
approximately $1,636,010 in fiscal 1997 compared to a small operating loss of
approximately $51,418 in fiscal 1996. The significant increased loss associated
with the Company's home infusion operations is primarily attributable to the
writeoffs of the uncollectible notes and advances of $1,148,658 which were
originally recorded as loans and advances from the home infusion therapy
division. In addition, revenues from home infusion therapies declined
significantly as a result of fewer patients and lower recoverable rates
associated with the Company's home infusion patients.

The Company faces certain general business risks with respect to all
of its operations. In addition to regulatory concerns and increasing
competition with respect to all of its operations, the Company's home infusion
therapy operations are subject to substantial risks because the Company serves
a relatively small number of patients. The Company's home infusion health care
revenues decreased from $ 2,730,753 in fiscal 1995 to $1,524,864 in fiscal 1997
as a result of a significant decrease in the number of full-time patients from
approximately ten (10) in fiscal 1995 to an average of three (3) full-time
patients in fiscal 1997. The Company does not intend to aggressively market its
home infusion therapy services at this time primarily because of reduced
recoverable patient day rates being paid by third-party payers. The Company
will not continue to accept home infusion patients if rates continue to
decline. In the past two (2) years, the Company has faced increasing pressure
from insurance companies to justify the need for continued home infusion
therapy in some cases and the Company's charges therefor. The Company expects
these pressures to continue and to increase. With respect to its physician's
practice management services, the Company has yet to establish a consistently
successful operating history, particularly in view of the writeoffs for
uncollectible notes recorded in fiscal 1997. The Company's revenues and profits
from this area will remain vulnerable until the Company has more management
contracts for physician practices and more experience in managing such
contracts. As of August 31, 1997, DPMI had Management Agreements for six (6)
physician practices, however, the Company has discontinued two (2) Management
Agreements subsequent to year-end, leaving only four (4) Management Agreements
in effect, including the Vista Management Agreement and those for three (3)
physician practices. The loss of one or more of these contracts could have a
material adverse effect on the profits and revenues of DPMI. Revenues from the
Vista Facility increased slightly during fiscal 1997 due to increased patient
referrals. The Company expects, and will aggressively pursue, increased patient
referrals for the Vista Facility during fiscal 1998 and expects to record
revenue and operating profit increases.

<PAGE> 14

AUGUST 31, 1996 VS. AUGUST 31, 1995

For the fiscal year ended August 31, 1996, consolidated total revenues
were $7,530,995 compared to $6,904,586 for the prior year. Notwithstanding this
moderate increase of $626,409, or 9%, in consolidated gross revenues, there
were a number of significant increases and decreases in the component revenue
categories. For instance, revenue attributable to home infusion therapy
operations decreased $963,002, or 35%, from that of the prior year due to a
lower patient load as a result of fewer referrals and lower reimbursable
insurance charges per patient. Revenue attributable to operations of the Vista
Facility increased less than 1% from the prior year. Revenues from DPMI
increased $1,512,264, or 123%, as a result of DPMI's aggressive efforts in
signing up physician practices for management. Rental revenue decreased
$299,928, or 71%, from the prior year due to the DPMI Management Agreements
with physicians whereby DPMI is obligated to provide office space and other
services in consideration for its management fees. Interest revenue increased
$14,917, or 23%, from the prior year due to increased cash balances on deposit
in interest bearing bank accounts. The Company achieved positive net income
with respect to two of its three areas of operation. Net income (before
minority interest) from the operations of DPMI was $420,689 and $190,202 from
the operations of the Vista Facility. The Company incurred a loss of $51,418
with respect to its home infusion therapy operation.

There were significant increases in consolidated expense categories
primarily due to increases in the management activities of DPMI including a
$198,577, or 17.6%, increase in compensation and benefits expense, primarily as
a result of additional employees hired by DPMI, a $690,810, or 73.7%, increase
in contract payments to physicians and a $297,740, or 61.2%, increase in
medical supplies expense. An increase of $94,349, or 21.1%, increase in
depreciation and amortization expense was primarily due to the purchase of new
medical equipment by Vista. Although some expense categories such as rent and
occupancy expense and other expenses showed a significant decrease from that of
the prior year, while another expense category such as other general and
administrative expenses showed significant increase from that of the prior
year, the grouping of individual expense accounts under each of these three
expense categories in the current year differed than that of the prior year and
contributed to the significant increase and decrease in each of these three
expense categories.

LIQUIDITY AND CAPITAL RESOURCES

The Company maintained sufficient liquidity in fiscal 1996 and 1997 to
meet its business needs. The Company had working capital of $1,824,162 as of
August 31, 1997 and $1,826,002 as of August 31, 1996. The Company had net cash
provided by operating activities of $40,275 for fiscal 1997 as opposed to
$1,179,796 for fiscal 1996. As of August 31, 1997, the Company maintained a
liquid position evidenced by a current ratio of 2 to 1 and a total debt to
equity ratio of .49 to 1. The Company expects to have positive cash flow from
operations for fiscal 1998.

The Company is actively targeting opportunities to expand in the
outpatient surgical clinic markets and, on a selective basis, its physician
management services. Therefore, internally generated funds may not be
sufficient to finance future expansion. The Company will assess the need for
and obtain, if necessary, additional equity capital or debt financing;
provided, however, there can be no assurance that the Company will be able to
obtain any necessary financing on terms, or in amounts, that are necessary and
acceptable to the Company.

Management believes that available cash funds and funds generated from
operations will be sufficient for the Company to finance working capital
requirements for the foreseeable future and to meet its payment obligations on
its long-term indebtedness.

INFLATION. Inflation has not significantly impacted the Company's
financial position or operations.

FORWARD-LOOKING INFORMATION. Information in this Annual Report on Form
10-K contains forward-looking statements and information relating to the
Company that are based on the beliefs of the Company's management, as well as
assumptions made by, and information currently available to the Company's
management. When used in this Annual Report on Form 10-K, words such as
"anticipate", "believe", "estimate", "expect", "intend", and similar
expressions, as they relate to the Company or the Company's management,
identify forward-looking statements. Such statements reflect the current views
of the Company with respect to future events, and are subject to certain risks,
uncertainties, and assumptions relating to the operations and results of
operations of the Company, competitive factors and pricing pressures, costs of
products and services, general economic conditions, and the acts of third
parties, as well as other factors described in this Annual Report on Form 10-K,
and, from time to time, in the Company's periodic earnings releases and other
reports filed with the Securities and Exchange Commission. Should one or more
of these risks or uncertainties materialize, or should underlying assumptions
prove incorrect, actual results or outcomes may vary materially from those
described herein as anticipated, believed, estimated, expected, or intended, or
the like.

<PAGE> 15

ITEM 7. FINANCIAL STATEMENTS

The information required by this item is included in a separate
section of this Annual Report on Form 10-K beginning on Page F-1 and is
incorporated herein by reference.

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

Effective September 27, 1996, the Company terminated the accounting
firm of Bateman, Blomstrom & Co. There were no disagreements on any matter of
accounting principles or practices, financial statement presentation or
disclosure, or auditing scope or procedures with the Company's prior
accountants. The independent accountants' reports on the Company's financial
statements for the past two years did not contain an adverse opinion,
disclaimer of opinion nor was it qualified or modified as to uncertainty, audit
scope or accounting principles. The decision to change certifying accountants
was recommended and approved by the Company's Board of Directors. During the
Company's two most recent fiscal years there were no disagreements or
"reportable events" with the Company's former or current independent
accountants on any matter of accounting principles or practices, financial
statement disclosure, or auditing scope or procedure. Effective September 27,
1996, the Company engaged the accounting firm of Wood, Harper & Associates,
P.C. as its new principal independent accountants.

<PAGE> 16

PART III.

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

The following table (and accompanying text) sets forth the names and ages
of all the directors and executive officers of the Company, all positions and
offices with the Company held by each person, each such person's term of office
as a director and business experience for the past five years.

NAME AGE POSITION
<S> <C> <C>
Chiu Moon Chan 45 Chairman of the Board of Directors, Chief Executive Officer,
President and Secretary (July 1992-Present)
Philip Chan 46 Vice President - Finance and Treasurer/Director
(July 1992-Present)
Stephen L. Huber 47 Director (July 1992-Present)

Earl R. Votaw 71 Director (July 1992-Present)

</TABLE>

CHIU MOON CHAN is a registered pharmacist and since May 1978, has been
employed by health care service organizations in Houston, Texas. From March
1986 to May 1988, Mr. Chan was employed by the M.D. Anderson Cancer Center,
Houston, Texas. From June 1988 through September 1991, Mr. Chan operated his
own home infusion health care business in Houston, Texas as a sole
proprietorship. From October 1991 through July 1992, Mr. Chan was an executive
officer and employee of E.F.S.M., Inc. located in Houston, Texas, which is in
the home infusion health care business, specializing in Medicare and Medicaid
patients. Mr. Chan earned a Bachelor of Science degree in Pharmacy from the
University of Houston.

PHILIP CHAN was self-employed with his own consulting, accounting and tax
firm from September 1990 through 1992. From September 1989 to September 1991,
he was the controller for a management corporation, Related Management
Corporations of Florida, located in Miami, Florida. From March 1986 to August
1989, he was in charge of the accounting department for Hamel and Associates, a
Houston, Texas accounting firm. Mr. Chan has earned advanced accounting degrees
from the University of Houston and is a CPA in the State of Texas.

Mr. Chiu Chan and Mr. Philip Chan are not related.

STEPHEN L. HUBER is a registered pharmacist and has earned a Bachelor of
Science degree in Hospital Pharmacy from the University of Houston. He served
as director of pharmacy patient care services at the University of Texas M.D.
Anderson Cancer Center from August 1986 to December 1991 when he was promoted
to his current position, Deputy Division Head for patient care services. Mr.
Huber joined M.D. Anderson in 1984 as assistant director of operations. He was
a director of pharmacy from May 1982 through August 1984 for Life Mark Pharmacy
Management.

EARL R. VOTAW earned a Bachelor of Arts degree from the University of the
Americas in Mexico City and a certificate of graduation from the Graduate
School of Mortgage Banking from Northwestern University of Chicago. Mr. Votaw
has served as a director since 1981 and as an executive officer since 1985 of
Jacinto City Bancshares, Inc. ("Jacinto"), a Houston-based bank holding
company, which is publicly held. He has also served since 1989 as an executive
officer and a director of JACI, Inc., a Delaware corporation, that is
wholly-owned by Jacinto. Capital Bank, a Texas chartered bank located in
Houston, Texas of which Mr. Votaw has served as president, chief executive
officer, and a director since 1979 is wholly owned by JACI, Inc. As of December
31, 1993, Mr. Votaw resigned all of his positions with Jacinto, JACI, Inc. and
Capital Bank, except his director position with Capital Bank, to pursue
retirement plans.

Each director holds office until the earlier of the election of his
successor at the next annual meeting of stockholders or his resignation or
removal.

<PAGE> 17

COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT

Based solely upon the Company's review of Forms 3, 4, and 5 filed by
the Company's officers and directors and persons who beneficially own 10% or
more of the Company's Common Stock and the written representations of such
persons, the Company is not aware that any of such persons failed to timely
file the foregoing forms during the last fiscal year.

ITEM 10. EXECUTIVE COMPENSATION

The following summary compensation table sets forth in summary form
the compensation received during each of the Company's last three completed
fiscal years by the Registrant's Chief Executive Officer.

SUMMARY COMPENSATION TABLE

ANNUAL COMPENSATION
-------------------

NAME/PRINCIPAL POSITION FISCAL LONG-TERM
YEAR SALARY BONUS OTHER COMPENSATION
------ ------ ------- ----- --------------
<S> <C> <C> <C> <C> <C>
Chiu Chan, CEO 1997 $ 100,000 $ -0- $ -0- $ -0-
1996 160,000 -0- 6,010 -0-
1995 160,000 6,667 28,194 -0-
</TABLE>

NO OTHER OFFICER, DIRECTOR OR EMPLOYEE OF THE COMPANY OR ITS SUBSIDIARIES
RECEIVED TOTAL COMPENSATION IN EXCESS OF $100,000 DURING THE LAST THREE FISCAL
YEARS. THE COMPANY HAS NO EMPLOYMENT AGREEMENTS WITH ITS EXECUTIVES. MR. CHIU
CHAN AND PHILIP CHAN DEVOTE 100% OF THEIR TIME TO THE COMPANY.

PURSUANT TO THE COMPANY'S INCENTIVE STOCK OPTION PLAN, OPTIONS TO PURCHASE
275,527 SHARES WERE GRANTED ON MAY 14, 1996, WHICH NUMBER INCLUDES 157,606
OPTIONS GRANTED TO MR. PHILIP CHAN. THE REMAINING OPTIONS WERE GRANTED TO
APPROXIMATELY TEN (10) NONEXECUTIVE EMPLOYEES OF THE COMPANY AND ITS
SUBSIDIARIES. ALL OPTIONS ARE EXERCISABLE AT $0.9375 PER SHARE AND EXPIRE MAY
14, 2001. THE BOARD OF DIRECTORS ALSO ADOPTED A NON-QUALIFIED STOCK OPTION PLAN
IN AUGUST 1996 FOR NON-DIRECTOR EMPLOYEES AND CONSULTANTS, AND A TOTAL OF
175,000 OPTIONS WERE GRANTED TO TWO (2) CONSULTANTS DURING FISCAL 1996 UNDER
THAT PLAN.

OPTIONS/SAR GRANTS IN LAST FISCAL YEAR

Number of Securities Percent of Total Options/
Underlying Options/SAR's SAR's Granted to
Name Granted Employees in Fiscal Year Exercise Price Expiration Date
---- ------------------------ ---------------------------------------- ---------------
<S> <C> <C> <C>
</TABLE>

[No options were granted or exercised in fiscal 1997]

Directors of the Company do not receive any compensation for their
services as directors, although directors will be reimbursed for expenses
incurred in attending board meetings.

<PAGE> 18

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT

The following sets forth certain information with respect to the
beneficial ownership of shares held by directors, executive officers and
persons known to management to own more than 5% of the outstanding Common Stock
of the Company as of November 24, 1997.

NAME AND ADDRESS NUMBER OF SHARES AND
TITLE OF CLASS OF BENEFICIAL OWNER NATURE OF BENEFICIAL OWNERSHIP PERCENT OF CLASS
-------------- ------------------- ------------------------------ ----------------

<S> <C> <C> <C>
Common Stock Chiu Moon Chan 9,084,877(1) 63.02%
323 Wood Loop
Houston, Texas 77015
Common Stock Ella Chan 9,084,877(1) 63.02%
323 Wood Loop
Houston, Texas 77015
Common Stock Philip Chan 205,106(2) 1.42%
7930 Millbrook Drive
Houston, Texas 77095
Common Stock Hi Lite Development Ltd. 2,433,375 16.88%
First Floor, Wah Sing
Building
61A Java Road
North Point, Hong Kong
Common Stock Officers and Directors 9,289,983 64.44%
as a group (6)
</TABLE>

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

None.

ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K

A. Exhibits. The exhibits required by Item 601 of Regulation
S-B are included in this report commencing on page E-1 hereof
which contains a list of such exhibits. The list of exhibits
and the exhibits contained herein are incorporated into this
part by reference.

B. Reports on Form 8-K. No reports on Form 8-K were filed by
the Company during the fourth quarter of fiscal 1996.

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

(1) Includes (i) 6,782,188 shares held individually by Chiu Moon
Chan, (ii) 1,897,125 shares held in the name of Mr. Chan's
spouse, and (iii) 202,782 shares held in the name of two of Mr.
Chan's minor children. Mr. Chan disclaims any beneficial
ownership of the shares held by his spouse and minor children.
Mrs. Chan disclaims any beneficial ownership of the shares held
by her spouse and minor children.

(2) Includes 157,606 shares which may be acquired by Mr. Philip Chan
pursuant to options granted to him in May 1996. The options are
exercisable at $0.9375 and expire May 14, 2001.

<PAGE> 19

SIGNATURES

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

DYNACQ INTERNATIONAL, INC.

By: /s/ Chiu Moon Chan Date: November 24, 1997
-----------------------------------------
Chiu Moon Chan, Chairman of the Board
Chief Executive Officer, President and
Secretary

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

NAME TITLE DATE
---- ----- ----
<S> <C> <C>
/s/ Chiu Moon Chan Chairman of the Board, November 24, 1997
- -------------------------------------------
Chiu Moon Chan Chief Executive Officer,
President and Secretary
/s/ Philip S. Chan Vice President, November 24, 1997
- -------------------------------------------
Philip S. Chan Chief Financial Officer,
Controller, and Director
/s/ Stephen L. Huber Director November 24, 1997
- -------------------------------------------
Stephen L. Huber
/s/ Earl R. Votaw Director November 24, 1997
- -------------------------------------------
Earl R. Votaw

</TABLE>

SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT
TO SECTION 15(d) OF THE EXCHANGE ACT BY NON-REPORTING ISSUERS.

Not Applicable.

17
<PAGE> 20
INDEX TO FINANCIAL STATEMENTS AND SCHEDULES

INDEX

A. Financial Statements Page
----
<S> <C>
Report of independent public accountants F-2

Consolidated balance sheet as of August 31, 1997 F-3

Consolidated statements of operations for the years ended F-4
August 31, 1997 and 1996

Consolidated statements of changes in stockholders' equity for the F-5
years ended August 31, 1997 and 1996

Consolidated statements of cash flows for the years ended F-6
August 31, 1997 and 1996

Notes to consolidated financial statements F-7

</TABLE>

<PAGE> 21

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Shareholders and Board of Directors
Dynacq International, Inc.
Houston, Texas

We have audited the accompanying consolidated balance sheet of Dynacq
International, Inc. and its subsidiaries (the "Company") as of August 31, 1997,
and the related consolidated statements of operations, changes in stockholders'
equity and cash flows for the years ended August 31, 1997 and 1996. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.

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

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of the Company as of
August 31, 1997, and the results of its operations and its cash flows for the
years ended August 31, 1997 and 1996 in conformity with generally accepted
accounting principles.

Sugar Land, Texas WOOD, HARPER & ASSOCIATES, P.C.
November 20, 1997
<PAGE> 22

DYNACQ INTERNATIONAL, INC.
Consolidated Balance Sheet
August 31,1997

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

<TABLE>
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 842,343
Restricted short-term investments 189,638
Accounts receivable, net of allowance for doubtful accounts of $2,278,500 2,274,008
Income tax receivable 181,294
Inventories 31,679
Due from related party 16,800
------------

Total current assets 3,535,762

Property and equipment, net 5,057,627

Other assets 266,200
------------
Total assets $ 8,859,589
============

LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities:
Notes payable $ 250,000
Accounts payable 431,366
Accrued liabilities 718,881
Deferred income taxes payable 131,000
Current maturities of long-term debt 180,353
------------

Total current liabilities 1,711,600

Noncurrent liabilities:
Long-term debt 788,473
Deferred income taxes 127,000
------------
Total noncurrent liabilities 915,473

Commitments and contingencies

Minority interest 895,267

Stockholders' Equity
Preferred stock, $.01 par value, 5,000,000 shares authorized;
none issued or outstanding -
Common stock, $.001 par value, 300,000,000 shares authorized;
14,235,136 shares issued 14,235
Additional paid-in capital 3,452,130
Retained earnings 1,928,206
Less treasury stock; 71,335 shares at cost (57,322)
------------

Total stockholders' equity 5,337,249
------------
Total liabilities and stockholders' equity $ 8,859,589
============
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.

F-3

<PAGE> 23

DYNACQ INTERNATIONAL, INC.
Consolidated Statements of Operations
For the Years Ended August 31,1997 and 1996
- --------------------------------------------------------------------------------

1997 1996
---- ----

Revenues, net
<S> <C> <C>
Infusion therapy $ 1,524,864 $ 1,767,753
Physician practice management 5,188,381 2,737,993
Clinic and outpatient surgical 3,058,704 3,025,249
------------ ------------

Total revenues, net 9,771,949 7,530,995

Costs and expenses:
Direct costs of infusion therapy revenues 263,983 334,522
Compensation and benefits 2,360,433 1,328,652
Contract payments to physicians 2,962,888 1,665,102
Provision for uncollectible trade accounts 1,269,066 893,486
Provision for uncollectible notes 776,922 -
Medical supplies 1,283,112 784,056
Depreciation and amortization 455,009 540,623
Rent and occupancy 185,978 119,568
Other general and administrative expenses 1,369,233 1,103,156
Other expenses - 12,896
------------ ------------

Total costs and expenses 10,926,624 6,782,061
------------ ------------

Income (loss) from operations (1,154,675) 748,934
------------ -------------

Other income (expense):
Rent and other income 23,847 119,843
Interest income 26,674 80,259
Uncollectible advances (371,736) -
Interest expense (117,395) (137,113)
------------ ------------

Total other income (expense) (438,610) 62,989
------------ ------------

Income (loss) before income taxes and minority interest (1,593,285) 811,923

Provision (credit) for income taxes (573,000) 184,500
------------ ------------

Net income (loss) before minority interest (1,020,285) 627,473

Minority interest in earnings (38,910) (67,950)
------------ ------------

Net income (loss) $ (1,059,195) $ 559,473
============ ============

Earnings (loss) per common share $ (0.07) $ 0.04
============= ============
Weighted average number of common and
common equivalent shares outstanding 14,235,136 14,242,658
</TABLE>

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

F-4
<PAGE> 24
DYNACQ INTERNATIONAL, INC.
Consolidated Statements of Changes in Stockholders' Equity
For the Years Ended August 31, 1997 and 1996

- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Treasury Stock
Common Stock at Cost
------------ --------------------
Additional
Paid-In Retained
Shares Amount Shares Amount Capital Earnings Total
------ ------ ------ ------ ------- -------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, August 31, 1995 14,235,136 $ 14,235 - $ - $ 3,332,026 $ 2,427,928 $ 5,774,189

Treasury stock acquired - - 71,335 (57,322) - - (57,322)

Repurchase of
subsidiary stock - - - - 120,104 120,104

Net Income - - - - - 559,473 559,473
---------- -------- ------ --------- ----------- ----------- -----------
Balance, August 31, 1996 14,235,136 $ 14,235 71,335 $ (57,322) $ 3,452,130 $ 2,987,401 $ 6,396,444

Net Income (Loss) - - - - - (1,059,195) (1,059,195)
---------- -------- ------ --------- ----------- ----------- -----------
Balance, August 31, 1997 14,235,136 $ 14,235 71,335 $ (57,322) $ 3,452,130 $ 1,928,206 $ 5,337,249
========== ======== ====== ========= =========== =========== ===========
</TABLE>

The accompanying notes are in integral part of the
consolidated financial statements.
F-5
<PAGE> 25
DYNACQ INTERNATIONAL, INC.
Consolidated Statements of Changes in Stockholders' Equity
For the Years Ended August 31, 1997 and 1996

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

<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (1,059,195) $ 559,473

Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Deprecation and amortization 455,009 540,623
Bad debt expense 1,269,066 657,121
Provision for uncollectible notes 776,922 -
Uncollectible advances 371,736 -
Deferred income taxes (312,000) (169,100)
Minority interest 38,910 (52,154)
Changes in operating assets and liabilities:
Accounts receivable (1,273,671) (946,410)
Income tax receivable (181,294) -
Inventories (2,332) 578
Due from related party 28,357 480,670
Other assets 27,103 27,371
Long-term receivable - (642,928)
Accounts payable 231,914 53,204
Accrued liabilities (78,140) 720,387
Income taxes payable (252,110) (49,039)
------------ -----------

Net cash provided by operating activities 40,275 1,179,796
------------ -----------

Cash flows from investing activities:
Repurchase of subsidiary stock - 120,104
Purchases of property and equipment (234,474) (283,558)
Purchases of short-term investments (9,638) (180,000)
------------ -----------

Net cash used in investing activities (244,112) (343,454)
------------ -----------

Cash flows from financing activities:
Proceeds from long-term debt 190,000 -
Principal payments on long-term debt (278,399) (294,013)
Acquisition of treasury stock - (57,322)
------------ -----------

Net cash used in financing activities (88,399) (351,335)
------------ -----------

Net increase (decrease) in cash and cash equivalents (292,236) 485,007

Cash and cash equivalents at beginning of year 1,134,579 649,572
------------ -----------

Cash and cash equivalents at end of year $ 842,343 $ 1,134,579
============ ===========

Supplemental cash flow disclosures:
Cash paid during year for:
Interest $ 106,849 $ 137,113
Income taxes $ 185,191 $ 338,000
Noncash financing activities:
Property and equipment financed by notes payable $ 60,000 $ -
</TABLE>

The accompanying notes are in integral part of the
consolidated financial statements.
F-6
<PAGE> 26
DYNACQ INTERNATIONAL, INC.
Notes to Consolidated Financial Statements

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

NOTE 1. CORPORATE ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

A. BUSINESS AND ORGANIZATION

Dynacq International, Inc. (the "Company") is engaged in the business of
providing home infusion health care services and supplies to patients in
their homes, the operation of an outpatient surgery facility, the operation
of a medical office complex, and the management of group physician
practices, all located in the Houston metropolitan area.

The Company was incorporated under the laws of the State of Utah on
September 16, 1983, as Rujo, Inc. On January 14, 1987, the shareholders of
the Company approved the change of name of the Company to Jackson Brothers
Industries, Inc. The Company merged into a Nevada corporation of the same
name on June 16, 1989, pursuant to a share-for-share exchange of stock. On
January 12, 1992, the shareholders of the Company again approved a change
of corporate name to Dynacq International, Inc., elected directors of the
Company and approved a plan of recapitalization whereby authorized capital
was increased to an aggregate of 55,000,000 shares of stock, comprised of
50,000,000 Common Shares and 5,000,000 Preferred Shares.

On July 28, 1992, the Company completed the sale of 90 million shares of
its "restricted" common stock to several investors for a total purchase
price of $2 million. As part of this recapitalization of the Company, the
authorized number of common shares was increased from 50 to 300 million and
three holders of "restricted" stock returned a total of 9.9 million shares
to the Company's treasury.

In February 1993, the Company became the beneficial owners of all of the
outstanding common stock of Lucky China International Limited, a Hong
Kong-chartered corporation, whose corporation name has since been changed
to Dynacq (Asia), Limited ("Asia"). There a two shares outstanding. One
share is held in the name of the Company and the other share is held in the
name of Mr. Kwong Chung Wai, as a nominee for the Company. On April 13,
1995, Mr. Wai accepted an appointment as Director of Asia. During 1995,
Asia disposed of substantially all of its assets and ceased its operations.

In August 1994, the Company consummated the acquisition of approximately
65% of the outstanding stock of Vista Healthcare, Inc. ("Vista"), which
operates a clinic and outpatient surgical center in Pasadena, Texas. The
Company issued 716,370 shares of its common stock in a transaction valued
at $1,289,461. This acquisition, which was accounted for as a purchase,
resulted in the recording of excess costs over net assets acquired totaling
$230,717. In 1994, the Company commenced construction of a new medical
office building (adjacent to the Vista facility) which was completed in
1995 at a total cost of approximately $1,925,000. Several of the existing
physician-minority shareholders of Vista have relocated their offices to
the new facility.

In September 1994, the Company formed Doctors Practice Management, Inc.
("DPMI") to provide fee based practice management services to physicians
and to assist in consolidating medical providers into integrated delivery
systems.

B. CONSOLIDATED STATEMENTS

The accompanying financial statements present the consolidated accounts of
Dynacq International, Inc., a Nevada corporation, its two wholly owned
subsidiaries, Dynacq (Asia), Limited and Doctors Practice Management, Inc.,
and Vista Healthcare, Inc., a Texas corporation, which is approximately 65%
owned by the Company. Accordingly, the consolidated financial statements
include all of the assets, liabilities, income, expenses, and cash flows
for these companies. All significant intercompany transactions and
balances have been eliminated.

F-7

<PAGE> 27
DYNACQ INTERNATIONAL, INC.
Notes to Consolidated Financial Statements

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

C. REVENUE RECOGNITION

The Company recognizes revenue from the performance of medical services in
the period in which such services are provided. Substantially all of the
Company's revenues are derived from claims filed under major medical
policies, workers' compensation policies, Medicare or Medicaid, or personal
injury claims. Allowances for discounts on services or adjustments for
non-covered costs and expenses are recognized in the period in which the
related revenues are earned. Allowances for doubtful accounts are
determined by management based upon historical experience and an assessment
of the circumstances applicable to individual accounts.

D. CASH AND CASH EQUIVALENTS

The Company considers all highly liquid investments with maturity of three
months or less as cash equivalents. At August 31, 1997, cash equivalents
were composed primarily of investments in money market funds and
certificates of deposits.

E. RESTRICTED SHORT-TERM INVESTMENTS

In connection with the Company's Pledge-Security Agreement with a financial
institution (Note 9), the Company has restricted and pledged as collateral
one of its highly liquid interest bearing deposits, with a maturity of one
year. The short-term investment is being held to maturity and its carrying
value approximates its current value. In October 1997, the amount of the
deposit pledged as collateral was reduced from $189,638 to $67,200.

F. INVENTORIES

Inventories are valued at the lower of cost or market with substantially
all stated at the first-in, first-out (FIFO) method.

G. PROPERTY AND EQUIPMENT

Land, buildings and improvements, furniture, fixtures and equipment are
stated at cost. Depreciation is computed using the straight-line method
over the estimated useful lives of the assets ranging from 3 to 39 years.
The Company provides tax depreciation using various accelerated methods in
conformity with the provisions of applicable tax law. Ordinary maintenance
and repairs are charged to income as incurred. Expenditures which extend
the physical or economic life of the assets are capitalized and
depreciated. Gains or losses on the disposition of assets sold are
recognized in income and the related asset and accumulated depreciation
accounts are adjusted accordingly.

H. OTHER NON-CURRENT ASSETS

Excess costs over net assets acquired from the Vista acquisition are
amortized on a straight-line basis over a period of 14 years. Loan
origination fees are amortized on a straight-line basis over the terms of
the related debt.

The Company periodically reviews the value of its excess costs over net
assets acquired to determine if an impairment has occurred. The Company
measures the potential impairment of recorded excess costs over net assets
acquired by the undiscounted value of expected future operating cash flows
in relation to its net capital investment in the subsidiary. Based on its
review, the Company does not believe that an impairment of its excess costs
over net assets acquired has occurred.

F-8

<PAGE> 28
DYNACQ INTERNATIONAL, INC.
Notes to Consolidated Financial Statements

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

I. ADVERTISING COSTS

The Company expenses advertising costs as incurred. Amounts expended
during the two years ended August 31, 1997 and 1996, were approximately
$51,000 and $39,500, respectively.

J. INCOME TAXES

The Company utilized Statement of Financial Accounting Standards No. 109,
Accounting for Income Taxes ("FAS 109"), which requires that deferred tax
liabilities or assets be recognized for differences between the income tax
basis and the financial reporting basis of assets and liabilities and are
measured using the enacted marginal tax rates currently in effect when the
differences reverse. The Company's principal differences giving rise to
deferred income taxes are accounts receivable, reserve for bad debts,
accounts payable, accrued liabilities, and accumulated depreciation. The
deferred tax assets and liabilities represent the future tax return
consequences of those differences, which will either be taxable or
deductible when the assets and liabilities are recovered or settled.
Deferred taxes also are recognized for operating losses that are available
to offset future taxable income.

K. EARNINGS PER COMMON SHARE

Earning per common share is calculated by dividing net income by the
weighted average number of common and common equivalent shares outstanding
during each year. Fully diluted earnings per share are not presented
because such amounts would be the same as amounts computed for primary
earnings per share.

L. ESTIMATES

In preparing financial statements in conformity with generally accepted
accounting principles, management is required to make estimates and
assumptions that effect the reported amounts of assets and liabilities and
the disclosure of contingent assets and liabilities at the date of the
balance sheet. Actual results could differ from those estimates.

Accounts receivable and revenues in the health care industry are subject to
possible third party payor adjustments. Management periodically reviews
such estimates and it is reasonably possible that management's assessment
of recoverability of accounts receivable may change based on actual results
and other factors.

M. PROSPECTIVE ACCOUNTING CHANGES

The Financial Accounting Standards Board (FASB) has issued Statement of
Financial Accounting Standards (SFAS) No. 130, Reporting Comprehensive
Income, which establishes standards for reporting and display of
comprehensive income and its components in a full set of general-purpose
financial statements and SFAS No. 131, Disclosures about Segments of an
Enterprise and Related Information, which requires that public business
enterprises report certain information about operating segments in complete
sets of financial statements of the enterprise and in condensed financial
statements report certain information about their products and services,
the geographic area in which they operate, and their major customers. The
Company is not required to adopt and does not currently plan to adopt SFAS
No. 130 or SFAS No. 131 until its fiscal year ending August 31, 1999. The
Company does not expect any significant disclosures will be necessary when
SFAS No. 130 or SFAS No. 131 are adopted.

N. RECLASSIFICATIONS

Certain accounts in the prior-year financial statements have been
reclassified for comprehensive purposes to conform with the presentation in
the current-year financial statements.

F-9

<PAGE> 29
DYNACQ INTERNATIONAL, INC.
Notes to Consolidated Financial Statements

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

NOTE 2. VISTA HEALTHCARE, INC.

On August 25, 1994, the Company completed the acquisition of approximately 65%
of the common stock of Vista in a transaction accounted for as a purchase.
Accordingly, the accompanying financial statements reflect the results of
operations of Visa for the period subsequent to August 25, 1994. During 1995,
the Company sold a portion of its investment in Vista to certain affiliates for
$80,000 cash. During 1996, Vista repurchased a portion of its common stock
from certain affiliates for $134,958 and resold $20,000 of this stock to an
affiliated Physician. During 1997, the remaining treasury stock was sold to
the Company at Vista's cost of $114,958. As of August 31, 1997, the Company
owned approximately 65% of the outstanding common stock of Vista.

NOTE 3. PROPERTY AND EQUIPMENT

At August 31, 1997, property and equipment consisted of the following:

<TABLE>
<S> <C>
Land $ 252,589
Buildings and improvements 4,424,956
Furniture and fixtures 121,723
Equipment 2,271,349
Automobile 24,125
-----------

7,094,742
Less, accumulated depreciation (2,037,115)
-----------

Net property and equipment $ 5,057,627
===========

</TABLE>

Vista's exiting physical facility is pledged as collateral on a long-term
mortgage to a financing company in the amount of $938,808 as of August 31,
1997. In connection with its acquisition of approximately 65% interest in
Vista, the Company has guaranteed 65% of the outstanding balance of this
long-term mortgage. In addition, certain equipment of the Company is pledged
to collateralize a long-term bank loan of $30,018, as of August 31, 1997.

For the years ended August 31, 1997 and 1996, depreciation expenses was
$433,954 and $519,568, respectively.

NOTE 4. OTHER NON-CURRENT ASSETS

In connection with the acquisition of Vista, excess costs over net assets
acquired totaling $230,717 was incurred. This amount is being amortized over a
period of fourteen years on a straight-line basis beginning August 25,1 994.
For the years ended August 31, 1997 and 1996, amortization expense was $16,480
for each period.

NOTE 5. NOTE PAYABLE

Note payable consists of a 6.50% short-term note due to a physician group for
which the Company provides management services.

F-10

<PAGE> 30
DYNACQ INTERNATIONAL, INC.
Notes to Consolidated Financial Statements

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

NOTE 6. LONG-TERM DEBT

At August 31, 1997, long-term debt consisted of the following:

<TABLE>
<S> <C>
Note payable to a bank, payable in monthly
installments of $4,003, including interest at
8.25%, through April 1998, collateralized by
medical equipment. $ 30,018

Note payable to a financing company payable in
monthly installments of $19,533, including
interest at 9.65%, through September 2002,
collateralized by land and guaranteed by certain
minority stockholders of Vista. 938,808
---------

968,926
Less, current maturities (180,353)
---------

$ 788,473
=========

</TABLE>

The aggregate principal payments on long-term debt subsequent to August 31,
1997, are as follows:

<TABLE>
<S> <C> <C>
Year ending August 31,
1998 $ 180,453
1999 165,502
2000 182,198
2001 200,579
2002 220,816
Thereafter 19,378
---------
Total $ 968,926
=========

</TABLE>

NOTE 7. INCOME TAXES

The provision for income tax expense (benefit) consisted of the following at
August 31:

<TABLE>
<CAPTION>
1997 1996
---- -----
<S> <C> <C>
Current tax expense (benefit):
Federal $(261,000) $ 325,800
State - 27,800
--------- ----------
Total Current (261,000) 353,600
Deferred tax expense (benefit):
Federal (312,000) (169,100)
--------- ----------

Total $(573,000) $ 184,500
========= ==========

</TABLE>

F-11

<PAGE> 31
DYNACQ INTERNATIONAL, INC.
Notes to Consolidated Financial Statements

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

Deferred taxes arise primarily due to the Company's filing of its income tax
return on a cash basis, the use of accelerated methods of computing
depreciation for tax purposes, and the use of the specific charge-off method
for tax reporting. The components of the provision (benefit) for deferred
income taxes, at August 31, were as follows:

<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Applicable to:
-------------
Cash basis of accounting for federal
income tax purposes. $ 124,500 $ 31,400

Difference in methods of computing
depreciation for tax and financial
reporting purposes and other. (7,500) 22,900

Use of reserve for bad debts for
financial reporting and specific
charge-off method for tax reporting. (410,000) (223,400)

Other (19,000) -
------------ -----------
$ (312,000) $ (169,100)
============ ===========
</TABLE>

Significant components of the Company's deferred tax liabilities and assets, at
August 31, 1997, were as follows:

<TABLE>
<CAPTION>
Current Noncurrent
------- ----------
<S> <C> <C>
Deferred tax liabilities:
Basis in property and equipment $ - $ (127,000)
Receivables (1,547,000) -
Deferred tax assets:
Payables and other 395,400 -
Reserve for bad debts 1,001,600 -
Other 19,000 -
------------- -----------
Net liability $ (131,000) $ (127,000)
============= ===========
</TABLE>

The following table reconciles the Federal statutory income tax rate and the
Company's effective income tax rate:

<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Provision for income taxes at federal
statutory rate 34.0% 34.0%
State tax provision, net of federal
benefits - 2.9
Effect of utilization of net
operating loss carry forward - (18.5)

Effect of other differences 2.0 4.3
---- ----

Effective tax rate 36.0% 22.7%
==== ====
</TABLE>

F-12

<PAGE> 32
DYNACQ INTERNATIONAL, INC.
Notes to Consolidated Financial Statements

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

NOTE 8. RELATED PARTY TRANSACTIONS

The Company leases to its President his personal residence at a monthly rate of
$1,400. Total rent income for the years ended August 31, 1997 and 1996, was
$16,800 for each year. The amount due for rent for the year ended August 31,
1997 is included in current other assets as due from related party. The
company has received $15,400 of this amount subsequent to year end

Due to the legislative requirements concerning the practice of medicine in the
state of Texas, the Company has entered into agreements with various
Professional Associations and individual doctors (the "Physicians") for the
services of physicians.

The Physicians provide services to third parties and after covering the costs
associated with the Physicians, remit proceeds to the Company for management
services. The structure of the agreements between the Company for its clinic
and the Physicians require that all income be paid to the Company for
management services or to the physicians for compensation. The accompanying
financial statements reflect transactions with the Physicians on a basis as if
the Company and Physicians were "combined" or "consolidated" as revenues
reflect all clinic revenues billed to patients and expenses reflect
compensation incurred to the Physicians.

Subsequent to August 31, 1997, the Company terminated several of the management
agreements with the Physicians and anticipates the termination of several other
Physician agreements in the near future. Total revenues and expenses
associated with these Physicians was $3,534,907 and $3,403,274, respectively,
for the year ended August 31, 1997.

While the Company intends to maintain its management services to physicians,
its primary focus will be on increasing the patient volume and profitability of
the Vista clinic and outpatient surgical center.

NOTE 9. COMMITMENTS AND CONTINGENCIES

PLEDGE-SECURITY AGREEMENT

In connection with the acquisition of Vista on August 25, 1994, the Company
issued 716,370 shares of its common stock in exchange for approximately 65% of
the outstanding common stock of Vista owned by approximately 30 individual
stockholders and/or related entities. Simultaneous with the closing of this
acquisition, fifteen of the Vista stockholders pledged a total of 415,279
shares of the Company's stock to a local bank as collateral for individual
loans aggregating $730,000. The proceeds from these loans were contributed to
the capital of Vista.

The Company entered into a Pledge-Security Agreement with the lending bank
whereby the Company has granted the bank a limited security interest in, and
has pledged certain cash funds contained in the Company's account at the bank.
The Company's liability is limited to the shortfall, if any, calculated by
taking the difference between (1) 130% of the dollar amount of the outstanding
loan balance (including principal and interest) attributed to a particular
Vista shareholder and (2) the value of the Company's shares pledged by that
Vista shareholder, such value to be based upon the quoted value of shares of
the Company's common stock as published by NASDAQ. The dollar amount of the
bank's security interest in funds on deposit will be adjusted upward or
downward every 90 days.

Upon default by one of the Vista shareholders in payment on his/her loan, the
bank has the option to exercise a right of offset with respect to the funds on
deposit or proceed to foreclose upon its security interest, but only to the
extent, if any, of a shortfall as described above.

F-13

<PAGE> 33
DYNACQ INTERNATIONAL, INC.
Notes to Consolidated Financial Statements

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

As of August 31, 1997, total Vista shares pledged as collateral was 64,961 for
individual loans aggregating $67,174. As of November 7, 1997, the value of the
Company's stock, as defined above, was approximately $33,000 less than 130% of
the aggregate balance of the remaining loans to these individuals. To the best
of management's knowledge, all of the individual loans were current and the
bank has not advised the Company that any of the loans were in default.

LEASES

The Company leases certain of its facilities and equipment under operating
leases with net aggregate future lease payments of $27,600 at August 31, 1997,
payable as follows:

<TABLE>
<S> <C> <C>
Year ending August 31,
1998 $ 7,200
1999 7,200
2000 7,200
2001 6,000
----------
Total $ 27,600
==========
</TABLE>

Rent expense related to its facilities and equipment leases, for the years
ended August 31, 1997 and 1996, was $9,521 and $13,584, respectively.

The Company also leases corporate office space under an operating lease on a
month-to-month basis. Rent expense for its corporate leases was $15,432 for
each of the years ended August 31, 1997 and 1996.

In addition, the Company pays certain operating leases on behalf of the
physicians being managed by Doctors Practice Management, Inc. For the years
ended August 31, 1997 and 1996, total physicians' operating lease expenses were
$161,025 and $90,586, respectively.

Total rent expenses, including those physicians' operating leases paid by the
Company, for the years ended August 31, 1997 and 1996, was approximately
$186,000 and $119,600, respectively.

LITIGATION

In March 1997, the Company filed a civil lawsuit against one of the Physicians
for which the Company provided management services, to seek repayment of
advances of $110,000 owed to the Company pursuant to the Revolving Credit
Agreement and Security Agreement executed in July of 1996, between the parties.
In April 1997, the Physician filed a counterclaim against the Company and the
Company's president seeking alleged damages in excess of $500,000. In May
1997, the Company and the Company's president filed a response denying
allegations made in the counterclaim. The Company intends to vigorously defend
its case and believes that a settlement or related judgment would not have a
material adverse effect on the Company's financial position, results of
operations or cash flows. In the opinion of management, the Company's
allowance for doubtful accounts is adequate to cover the loss, if any, on the
advances made to the Physician. No additional amounts are recorded on the
books of the Company in anticipation of a loss as a result of this contingency.

The Company is subject to legal proceedings and claims which arise in the
ordinary course of its business. In the opinion of management, the amount of
ultimate liability with respect to these actions will not materially affect the
financial position of the Company.

F-14

<PAGE> 34
DYNACQ INTERNATIONAL, INC.
Notes to Consolidated Financial Statements

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

OTHER RISKS

The Company maintains insurance for worker's compensation, automobile, general
liability, and property loss. During the past year the Company began to
self-insure medical malpractice claims as it believes its liability related to
such claims is minimal due to the fact that the physician would be primarily
responsible for any medical malpractice claim. However, subsequent to year-end
the Company reevaluated this decision and has decided to obtain coverage for
such possible claims. Management does not believe the Company's exposure is
significant, and is not aware of any pending or potential claims against the
Company.

NOTE 10. SUPPLEMENTARY INFORMATION

At August 31, 1997, the detail of certain balance sheet accounts was as
follows:

<TABLE>
<S> <C>
Accounts receivable:
Trade $ 4,364,370
Other 188,138
-----------
4,552,508
Less, allowance for doubtful accounts
(2,278,500)
-----------
$ 2,274,008
===========

Other assets:
Excess costs over net assets acquired,
net of accumulated amortization of $49,711 $ 181,006

Note receivable, net of allowance
of $616,922 -
Other 85,194
-----------
$ 266,200
===========

Accrued liabilities:
Compensation to Physicians $ 607,729
Advalorem taxes 100,605
Other 10,547
-----------
$ 718,881
===========

</TABLE>

NOTE 11. CAPITAL STOCK

During fiscal 1996, the Company repurchased 71,335 shares of its common stock
for approximately $57,300. Additionally, during fiscal 1996, the Company's
approximately 65% owned subsidiary, Vista, repurchased 11,807 shares of its
common stock for $134,958 and resold $20,000 of this stock to an affiliated
physician. During 1997, the balance of the shares were sold to the Company at
Vista's cost of $114,958.

STOCK OPTIONS

Effective August 1, 1995, the Board of Directors approved and issued 1,000,000
shares of its common stock for a 1995 Non-Qualified Stock Option Plan for
consultants and non-employee directors. Under the terms of the Plan, the
Company may grant stock options in the Company's common stock to consultants
and non-employee directors of the Company and its subsidiaries at no less than
the fair market value of the stock at the date of grant. Under the Plan, the
options become exercisable no earlier than six (6) months from date of grant
and expire on the date of the consultants termination or the non-employee
directors' resignation. During 1996, the Company granted 175,000 options, all
of which are exercisable, at exercise prices per share ranging from $1.250 to
$1.625. There were no options granted, exercised, forfeited, or expired during
the year ended August 31, 1997.

F-15

<PAGE> 35
DYNACQ INTERNATIONAL, INC.
Notes to Consolidated Financial Statements

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

Effective August 31, 1995, the Company's shareholders approved a 1995 Incentive
Stock Option Plan. The 1995 Incentive Stock Option Plan reserves 1,000,000
shares of the Company's common stock for option grants to key employees at no
less than the fair market value of the stock at the date of grant. Under the
Plan, the options generally become exercisable cumulatively, beginning one year
after the date granted. During 1996, the Company reserved 275,527 shares for
option grants at an exercise price of $0.94. The share options outstanding
became exercisable in fiscal 1997, and expire through fiscal 2001. There were
no options granted, exercised, forfeited, or expired during the year during the
year ended August 31, 1997.

NOTE 12. CONCENTRATIONS OF CREDIT RISK AND
FAIR VALUE OF FINANCIAL INSTRUMENTS

The Company has financial instruments which are exposed to concentrations of
credit risk; they consist primarily of cash investments and trade accounts
receivable. The Company routinely maintains cash and temporary cash
investments at certain financial institutions in amounts substantially in
excess of FDIC insurance limits; however, management believes that these
financial institutions are of high quality and the risk of loss in minimal. As
is customary in the health care business, the Company has trade accounts
receivable from various private insurers, and the balance due from a particular
insurer at any point in time may be in excess of the allowance for doubtful
accounts. The Company does not request collateral from its customers and
continually monitors its exposure for credit losses and maintains allowances
for anticipated losses. The trade receivables from private insurers is
normally in excess of 90% of the total trade receivables at any point in time.

The carrying amounts of cash and cash equivalents, short-term investments,
receivables, notes payable and accounts payable approximate fair value due to
the short-term maturities of these instruments. The carrying amounts of the
Company's long-term borrowings, at August 31, 1997, approximately their fair
value.

NOTE 13. SIGNIFICANT FOURTH QUARTER ADJUSTMENTS

The following is a summary of significant adjustments that occurred during the
fourth quarter of the year ended August 31, 1997:

<TABLE>
<S> <C>
Provision for uncollectible amounts on notes
receivable from Physicians determined
unlikely to be collected $ 776,922

Provision for estimated uncollectible amounts
related to the performance of medical services 380,000

Write off of advances related to the
acquisition of a service business determined
to be uncollectible, included in other
expense in the financial statements 371,736
-----------

1,528,658
Less, estimated credit for income taxes (520,000)
-----------
$ 1,008,658
===========
</TABLE>

The Company intends to curtail its practice of making loans to physician groups
and does not expect to record future significant write offs due to
uncollectible loans in future years.

F-16
<PAGE> 36

INDEX TO EXHIBITS

All Exhibits listed below are included herewith unless otherwise noted
by asterisk(s) next to the Exhibit No.

<TABLE>
<S> <C>
(2.1.)* Stock Sale Agreement, dated July 21, 1992, pertaining to a

change in control of Dynacq International, Inc. (the
"Company") which was previously filed in and is
incorporated herein by this reference to, the Company's
Registration Statement on Form 10, No. 0-20554.

(2.2.)* Exchange Agreement by and among the Company, Vista Healthcare,
Inc. ("Vista") and certain Vista shareholders which was
previously filed in, and is incorporated by this reference to,
the Company's Current Report on Form 8-K, dated August 4,
1994.

(3.0)* Articles of Incorporation, filed June 16, 1989, which were
previously filed in, and are hereby incorporated by reference
to the Company's Registration Statement on Form 10, No.
0-20554.

(3.1.)* Amendment to Articles of Incorporation, filed February 12,

1992, which was previously filed in, and is hereby
incorporated by reference to, the Company's Registration
Statement on Form 10, No. 0-20554.

(3.2.)* Amendment to Articles of Incorporation, filed July 20, 1992,
which was previously filed in,and is hereby incorporated by
reference to, the Company's Registration Statement on Form
10, No. 0-20554.

(3.3.)* Bylaws (amended August 1, 1995) which were previously filed
in and are hereby incorporated by reference to the Company's
Amended Form 10-K for fiscal 1995 dated May 1, 1996, File No.
0-20554.

(10.1.)* Pledge-Security Agreement between the Company and Capital
Bank dated July 20, 1994, which was previously filed in and
incorporated by this reference to, the Company's current
Report on Form 8-K, dated August 4, 1994, No. 0-20554.

(10.2.)* Guaranty Agreement between the Company and Metlife Capital
Corporation dated July, 1994, which was previously filed in
and is hereby incorporated by reference to, the Company's
Annual Report on Form 10-K for the fiscal year ended August
31, 1993.

(10.3.)** Security Agreement dated July 18, 1996, between Vista and
Capital Bank.

(10.4.)** 1995 Incentive Stock Option Plan for Employees and Employee
Directors

(10.5.)** 1995 Non-Qualified Stock Option Plan for Consultants and
Non-Employee Directors.

(10.6.)** 1995 Stock Option Agreement between the Company and Philip S.
Chan.

(10.7.)** Full Service Management Agreement between Doctors Practice
Management, Inc. ("DPMI") and Mohammed M. Haq, M.D. dated
March 1, 1996.

</TABLE>

E-1

<PAGE> 37

<TABLE>
<S> <C>
(10.8.)** Full Service Facility and Management Agreement effective July
1, 1996, between Houston Physical Medicine Associates , M.D.,
P.A. and DPMI.

(10.9.)** Full Service Facility and Management Agreement between DPMI
and Medical Diagnostic Imaging Center dated May 1, 1996.

(10.10.)** Full Service Facility and Management Agreement between DPMI
and R.S. Arora, M.D. dated May 1, 1996.

(10.11.)** Full Service Facility and Management Agreement between DPMI
and JCW Medical Associates, P.A. dated May 1, 1996.

(10.12.)** Full Service Management Agreement between DPMI and Ping S.
Chu, M.D., dated March 1, 1996.

(10.13.)** Full Service Management Agreement effective May 1, 1996,
between DPMI and William E. Grose, M.D., P.A.

(10.14.)** Promissory Note dated November 15, 1996, from JCW Medical
Associates, P.A. payable to the Company in the principal
amount of $666,922.22, bearing interest at 8% per annum and
payable in 180 monthly installments.

(10.15.)** Security Agreement dated May 1, 1996, by JCW Medical
Associates, P.A. to DPMI.

(10.16.)** Credit Agreement dated May 1, 1996, between JCW Medical
Associates, P.A. and DPMI.

(10.17.)** Revolving Credit Note from JCW Medical Associates, P.A. to
DPMI dated April 1, 1996 for $675,000.

(10.18.)** Credit Agreement dated April 1, 1996, between R.S. Arora,
M.D., as Borrower, to DPMI as Lender, for advances up to
$100,000.

(10.19.)** Security Agreement dated April 1, 1996, by R.S. Arora M.D.
as Grantor to DPMI as Lender.

(10.20.)** Revolving Credit Note dated April 1, 1996, in the principal
amount of $100,000 from R.S. Arora, M.D. to DPMI.

(10.21.)** Promissory Note and Security Agreement from the Company to
Capital Bank dated April 4, 1995.

(10.22.)** $100,000 Revolving Credit Note dated July 1, 1996, from
Houston Physical Medicine Associates, M.D., P.A. to DPMI.

(10.23.)** Credit Agreement dated July 1, 1996, between Houston Physical
Medicine Associates, M.D., P.A. and DPMI

(10.24.)** Full Service Management Agreement dated January 1, 1996,
between Vista and DPMI.

</TABLE>

E-2

<PAGE> 38

<TABLE>
<S> <C>
(10.25.) Full Service Facility and Management Agreement dated October
1, 1996 by and between John Kirkwood, D.O. and DPMI.

(10.26.) Full Service Facility and Management Agreement dated October
1, 1996 by and between Ronald W. Kirkwood, D.O. and DPMI.

(10.27.) Full Service Facility and Management Agreement dated October
1, 1996 by and between Milton Kirkwood, D.O. and DPMI.

(10.28.) Asset Purchase Agreement and Bill of Sale dated October 22,
1997 by and between Medtek Management, Inc. and DPMI.

(10.29.) Asset Purchase Agreement dated November 13, 1997 by and among
DPMI, Kirkwood Medical Associates, P.A., Milton E. Kirkwood,
D.O., Ron Kirkwood, D.O., and John Kirkwood, D.O.

(10.30.) Lease Agreement effective July 1, 1996 by and between DPMI as
Tenant and the City of Pasadena as Landlord relating to 3,000
square feet of office space in Pasadena, Texas.

(10.31.) Lease Agreement dated November 1, 1997 by and between DPMI as
Landlord and Kirkwood Medical Associates as Tenant relating
to approximately 9,200 square feet of office space located at
4301A Vista Road, Pasadena, Texas.

(10.32.) Amendment No. 1 effective September 1, 1996 to the Full
Service Management Agreement dated January 1, 1996 between
DPMI and Vista.

(10.33.) Amendment No. 1 effective September 1, 1996 to the Full
Service Management Agreement between DPMI and Ping S. Chu,
M.D. dated March 1, 1996.

(10.34.) Amendment No. 1 effective September 1, 1996 to Full Service
Facility and Management Agreement between DPMI and JCW
Medical Associates, P.A. dated May 1, 1996.

(10.35.) $60,000.00 Promissory Note dated November 30, 1996, of the
Company, payable to JCW Medical Associates, P.A.

(10.36.) $190,000.00 Promissory Note dated January 31, 1997, of DPMI,
payable to JCW Medical Associates, P.A.

(22.1.)* Listing of subsidiaries of the Company which was previously
filed in and is incorporated herein by this reference to the
Company's Amended Annual Report on Form 10-K for the fiscal
year ended August 31, 1995, No. 0-20554.

(27.) Financial Data Schedule.
</TABLE>

** All Exhibits denoted with double asterisks were filed with the
Company's Annual Report on Form 10-K for the fiscal year ended August
31, 1996, Commission File No. 0-20554.

E-3

<PAGE> 1

EXHIBIT 10.25

FULL SERVICE FACILITY
AND
MANAGEMENT AGREEMENT

JOHN KIRKWOOD, D.O.

OCTOBER 1, 1996
<PAGE> 2
FULL SERVICE FACILITY AND MANAGEMENT AGREEMENT

THIS FULL SERVICE FACILITY AND MANAGEMENT AGREEMENT, entered into
effective as of October 1, 1996, is by and between JOHN KIRKWOOD, D.O.
("DOCTOR") and DOCTORS PRACTICE MANAGEMENT, INC., a Texas corporation
("COMPANY").

WITNESSETH:

WHEREAS, DOCTOR is a duly licensed Medical Doctor in the State of
Texas who is engaged in the practice of Medicine and providing professional
services, specifically including physician services, in Texas ("Professional
Services"); and

WHEREAS, COMPANY is a duly incorporated and validly existing Texas
corporation, qualified to do business in Texas., that is experienced in
providing management and related items and services including, without
limitations, capital, personnel, facilities and equipment to licensed health
care personnel professional associations, and other professional health care
entities and individuals, and

WHEREAS, DOCTOR's physician employees practice medicine in Texas and
desire and intend to continue to operate a professional health care practice to
provide Professional Services and related health care services in facilities
designed and equipped for such services,

WHEREAS, DOCTOR further desires and intends to provide Professional
Services and related health care services at various locations in the Houston,
Texas Standard Metropolitan Statistical Area, as defined by the U.S. Department
of Commerce, Bureau of the Census, including, without limitation, the provision
of such services at 4301 Vista, Pasadena, Texas 77504 ("Used Premises"),

WHEREAS, DOCTOR prefers to devote substantially all of its time to the
practice of medicine and the delivery of medical services to its patients and,
therefore, desires and intends to obtain such management, administrative, and
business services as are reasonably necessary and appropriate for DOCTOR to
efficiently provide Professional Services at the Leased Premises and other
locations and Company desires to provide and is fully capable of providing all
such management, administrative and business services, and

WHEREAS, COMPANY desires to and is capable of making Leased Premises
available to DOCTOR and COMPANY desires to and is capable of providing the
management, administrative, and business services necessary and appropriate for
DOCTOR'S provision of Professional Services at the Premises and other locations
and

WHEREAS, DOCTOR and COMPANY mutually desire an arrangement that:

1. facilitates consistency of service in the medical care
provided by Doctor and in the administrative and business services provided by
COMPANY;
<PAGE> 3
2. facilitates effective utilization of DOCTOR'S resources;

3. facilitates appropriate staffing and scheduling of personnel
for and by DOCTOR, as the case may be;

4. facilitates the management and administration of the
day-to-day business operations of DOCTOR;

5. ensures that each party will receive the total revenue
attributable to such party's services, capital investment, and business risks,
and no portion of the revenue attributable to the services, capital investment,
and business risks of the other party; and

6. ensures that (1) DOCTOR and licensed health care personnel
employed by DOCTOR shall owe their first duty to their patients; and (2)
preserve the confidential nature of the doctor-patient relationship (3) DOCTOR
controls patient care in the medical and administrative procedures to be
followed; and (4) that COMPANY does not commit any act constituting the
practice of medicine or use any licensed health care practitioners license to
practice medicine all for the benefit of those seeking services as patients.

NOW, THEREFORE, for and in consideration of the agreements contained
herein and other good and valuable consideration, the receipt and adequacy all
of which are forever acknowledged and confessed, the parties hereto agree as
follows:

ARTICLE I
DEFINITIONS

For the purposes of this Agreement, the following terms shall have the
following meanings ascribed thereto, unless otherwise clearly required by the
context in which such term is use.

1.1 AGREEMENT. The term "Agreement" shall mean this FULL SERVICE
FACILITY AND MANAGEMENT AGREEMENT between DOCTOR and COMPANY and any amendments
hereto, as may from time to time be adopted, as hereinafter provided.

1.2 PROFESSIONAL SERVICES. The term "Professional Services" shall
mean the professional services, specifically including physician services, and
related health care services provided by DOCTOR.

1.3 DOCTOR. The term "DOCTOR" shall mean John Kirkwood, D.O.

1.4 DOCTOR'S ACCOUNT. The term "DOCTOR'S Account" shall mean the
bank account of COMPANY established as described in Section 3.12 hereof.

-3-
<PAGE> 4
1.5 FACILITY. The term "Facility" shall mean the medical offices
owned or leased by COMPANY where Professional Services are provided by DOCTOR.

1.6 COMPANY. The term "COMPANY" shall mean Doctors Practice
Management, Inc., a Texas corporation.

1.7 MANAGEMENT FEE. The term "Management Fee" shall mean
Company's compensation as described in Article V hereof.

1.8 STATE. The term "State" shall mean the State of Texas.

1.9 TERM. The term "Term" shall mean the initial and any renewal
periods of duration of this Agreement as described in Section 6.1 hereof.

1.10 LOCATION. The term "Location" shall mean the Facility(ies) in
the Houston, Texas, Standard Metropolitan Statistical area and such
Facility(ies) as may exist in the future.

ARTICLE II
APPOINTMENT AND AUTHORITY

2.1 APPOINTMENT. DOCTOR hereby appoints COMPANY as its sole and
exclusive agent for the management and administration of the business functions
and services related to DOCTOR'S provision of Professional Services, and
COMPANY hereby accepts such appointment, subject at all times to the provisions
of this Agreement.

2.2 AUTHORITY OF COMPANY. Consistent with the provisions of this
Agreement, COMPANY shall have the responsibility and commensurate authority to
provide full service management services for DOCTOR, including, without
Stations equipment, supplies, support services, personnel (but specifically
excluding licensed medical personnel), marketing, billing and collection
services, management, administration, financial record keeping and reporting,
and other business office services as provided herein. COMPANY, subject to the
ultimate control and direction of DOCTOR, is hereby expressly authorized to
provide all such services in any reasonable manner COMPANY deems appropriate to
meet the day-to-day requirements of the business functions of DOCTOR. To the
extent practicable, COMPANY, at its discretion, shall perform some or all of
the services specified hereunder for DOCTOR.

2.3 AUTHORITY OF DOCTOR. DOCTOR, through licensed health care
personnel, shall be solely responsible for and have sole and complete
authority, supervision and control over the provision of Professional Services
and other related health care services performed for patients of DOCTOR, and
all diagnoses, treatments, procedures, and other professional health care
services shall be provided and performed exclusively by or under the
supervision of licensed health care personnel retained by DOCTOR, as DOCTOR, in
its sole discretion, deems appropriate and in accordance with all laws. DOCTOR
will have the ultimate authority in the hiring and termination

-4-
<PAGE> 5
of all licensed clinic staff. DOCTOR also has the right to request COMPANY to
replace any COMPANY personnel assigned to the clinic. This Agreement shall in
no way be construed to mean or suggest that COMPANY is engaged in the practice
of medicine.

ARTICLE III
COVENANTS OF COMPANY

3.1 LEASED PREMISES AND EQUIPMENT. COMPANY shall, at Company's
expense, provide to DOCTOR the Locations and all equipment that is deemed by
the parties hereto to be reasonably necessary and appropriate for the provision
of Professional Services at the Locations.

3.2 RETENTION OF TITLE. DOCTOR shall have access to and use of
the Locations and all equipment located therein throughout the Term provided,
however, that title to the Locations and all equipment other than items placed
in the Locations by DOCTOR shall at all times, be and remain in COMPANY, or if
applicable, the entity from which COMPANY leases the Locations and/or
equipment.

3.3 REPAIR AND MAINTENANCE. COMPANY shall be responsible for the
repair and maintenance of the Locations, and for the repair, maintenance, and
replacement of all equipment located at the Locations, as well as other
obligations under the Lease Agreement regarding the Locations comparable to the
effective date hereof.

3.4 ADDITIONAL EQUIPMENT. Should DOCTOR, from time to time during
the Term request COMPANY to provide additional patient care equipment, office,
or other equipment for use at the Locations or to replace used or obsolete
equipment, COMPANY and DOCTOR shall consult with each other on the matter.
Should COMPANY be unwilling or unable to provide such requested equipment,
DOCTOR may acquire and maintain such equipment and title to same shall be and
remain in DOCTOR, provided, however, that COMPANY agrees to provide and
maintain all equipment which is usual and customary in a facility similar to
the Locations, throughout the Term hereof.

3.5 DISCLAIMER OF WARRANTY. COMPANY MAKES NO WARRANTY, EITHER
EXPRESSED OR IMPLIED, WITH RESPECT TO THE LOCATIONS, PREMISES OR ANY EQUIPMENT
PROVIDED BY COMPANY PURSUANT TO THIS AGREEMENT, AND ALL WARRANTIES OF
MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE ARE HEREBY EXPRESSLY
DISCLAIMED.

3.6 ASSUMPTION OF EQUIPMENT LEASES. COMPANY will assume the
leases stipulated on SCHEDULE A attached hereto from Fairmont Family Practice,
P.A. Such assumption will be subject to the conditions stipulated by
respective Leasing Company's.

3.7 UTILITIES AND RELATED SERVICES. COMPANY shall, at COMPANY'S
expense arrange for and shall timely pay when due all charges relating to the
provision of necessary

-5-
<PAGE> 6
electricity, gas, water, telephone, sewage, cleaning and decorating (interior
and exterior), pest extermination, heating and air-conditioning maintenance,
and similar services reasonably necessary and appropriate for the provision of
Professional Services at the Locations.

3.8 SUPPLIES. COMPANY shall obtain and provide, in its name and
for its own account, all reasonable patient care, office, and other supplies,
and shall ensure that the Leased Premises are at all times adequately stocked
with such supplies as are reasonably necessary and appropriate for the
provision of Professional Services at the Leased Premises. Patient care
supplies shall be provided in accordance with the specifications of DOCTOR with
respect to brand names, dosages, quantities and other specifications.

3.9 WASTE DISPOSAL. COMPANY shall, at Company's expense, arrange
for the proper disposal of all medical and non-medical wastes generated by
DOCTOR. Such waste disposal shall include disposal of any Bio-hazardous waste
and any other medical waste that requires special disposal, provided that all
Physicians and non-physician personnel employed by DOCTOR comply with all
guidelines established by COMPANY for waste disposal. DOCTOR shall at all
times comply with guidelines set forth by COMPANY for all waste disposal,
including the disposal of sharps, bio-hazardous waste and any other waste
products. DOCTOR shall also comply with any guidelines set forth by COMPANY
with respect to the operation and maintenance of any equipment or other item
that has environmental law implications.

3.10 SUPPORT SERVICES. COMPANY, at COMPANY's expense, shall
arrange for the provision of all laundry, linen, printing, stationery, forms,
postage, duplication or photocopying services, patient record transcribing
services, and other similar support services as are reasonably necessary and
appropriate for the provision of Professional Services.

3.6 LICENSES AND PERMITS. COMPANY shall, at COMPANY's expense and
on behalf of and in the name of DOCTOR, coordinate all development and planning
processes, and apply for and use COMPANY's best efforts to obtain and maintain
all federal, State and local licenses and regulatory permits required for or in
connection with the operation of the Facility and the equipment (existing and
future) located therein, other than those relating to the practice of medicine.

3.7 PERSONNEL.

3.7.1 PROVISION OF COMPANY PERSONNEL. COMPANY shall employ
or otherwise retain, at Company's expense, and shall be responsible
for selecting, training, supervising, and terminating all management,
administrative, clerical secretarial bookkeeping, accounting, payroll,
billing and collection, and other non- professional personnel as
COMPANY deems reasonably necessary and appropriate for COMPANY's
performance of its duties and obligations under this Agreement.
COMPANY shall have the sole responsibility for determining the
salaries and fringe benefits of personnel retained by COMPANY, for
paying such salaries and providing such fringe benefits, or for

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withholding, as required by law, any sums of income tax, unemployment
insurance, social security, or any other withholding pursuant to any
applicable law or governmental requirement.

3.7.2 NON-EXCLUSIVITY. In recognition of the fact that the
personnel retained by COMPANY to provide services pursuant to this
Agreement may from time to time perform services for others, this
Agreement shall not prevent COMPANY from performing such services for
others or restrict COMPANY from using its personnel to provide
services to others, provided such activity does not cause any material
detriment to DOCTOR. In recognition of the professional obligations
of DOCTOR, DOCTOR shall have the right and obligation to retain, at
DOCTOR's expense, any additional professional or other personnel as
DOCTOR deems necessary or appropriate for the provision of health care
services.

3.7.3 EQUAL EMPLOYMENT OPPORTUNITY. COMPANY shall abide
and provide assistance to DOCTOR, and abide by any and all applicable
federal and/or State equal employment opportunity statutes, rules, and
regulations, including, without limitation, Title VII of the Civil
Rights Act of 1964, the Equal Employment Opportunity Act of 1972, the
Age Discrimination in Employment Act of 1967, the Equal Pay Act of
1963, the National Labor Relations Act, the Fair Labor Standards Act,
the Rehabilitation Act of 1973, and the Occupational Safety and Health
Act of 1970, all as may from time to time be modified or amended.

3.7.4 LABOR REPORTS. COMPANY shall appropriately prepare,
maintain, and file all requisite reports and statements regarding
income tax withholdings, unemployment insurance, social security,
workers' compensation, equal employment opportunity, or other reports
and statements required with respect to personnel provided by COMPANY
or DOCTOR pursuant to this Agreement.

3.8 CONSULTANTS. COMPANY shall render such business and financial
management, consultation, and advice as may from time-to-time be requested by
DOCTOR's connection with the business operations of DOCTOR and DOCTOR's
provision of Professional Services. In addition, COMPANY shall make available
to DOCTOR, for consultation and advice, to the extent available and as
reasonably necessary, COMPANY's specialists in such areas as accounting,
auditing, budgeting, medical practice management, finance, law, government
programs, housekeeping, insurance, management development, patient records,
nursing, recruitment, quality assurance, systems and procedures, and third
party reimbursement.

3.9 CONTRACT NEGOTIATIONS. Upon the request of DOCTOR, COMPANY
shall advise with respect to and negotiate on Doctor's behalf, all contractual
arrangements with third parties as are reasonably necessary and appropriate for
DOCTOR's provision of Professional Services, including, without limitations
negotiated price agreements with third party payers, managed care providers, or
the purchasers of group health care services.

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<PAGE> 8
3.10 MARKETING,. In accordance with applicable law and ethical
standards and restrictions, COMPANY shall establish and implement a marketing
and public relations program promoting DOCTOR'S provision of Professional
Services to the general public and to other health care professionals and
suppliers. In connection with such marketing program and in accordance with
applicable law and ethical standards and restrictions, COMPANY shall establish
signs on or about the Facility identifying the operations of the Facility and
the provision of Professional Services therein. COMPANY shall implement all
marketing programs at the direction of DOCTOR.

3.11 LICENSE TO USE TRADE NAMES AND TRADEMARKS OF COMPANY.
COMPANY, at some time in the future may grant to DOCTOR, but only subject to
the terms and conditions of this Agreement, a license to use certain names in
connection with the provision of Professional Services in combination with such
color schemes, patterns, appearances, characteristics and words as are
specifically approved by COMPANY. DOCTOR'S use of any trademarks, trade names,
service marks, insignia, slogans, emblems, symbols, designs or other
identifying characteristics owned by or associated with COMPANY or any of its
subsidiaries or affiliates (collectively, "COMPANY Marks") shall be subject to
the prior written approval of COMPANY. DOCTOR acknowledges that such names and
COMPANY Marks have acquired a secondary meaning in connection with COMPANY's
operations. DOCTOR may also apply to COMPANY for permission to use any other
COMPANY Marks which permission may or may not be granted in the absolute
discretion of COMPANY. The use of any COMPANY Marks in any signs, advertising
or any promotional material shall be subject to the prior approval of COMPANY.

The restrictions imposed hereunder shall extend to all other COMPANY
all licensed to DOCTOR by COMPANY. Except as specifically authorized by this
Agreement, DOCTOR will not use COMPANY Marks nor use, imitate or infringe upon
any of the foregoing in whole or in part. On the termination of this Agreement
for whatever cause, including COMPANY's breach DOCTOR shall forthwith, at its
expense, make whatever changes may be necessary in any signs, advertising and
promotional material in order to comply with the provisions of this Section and
cease using the name and any COMPANY Marks. DOCTOR's covenants under this
Section are unconditional and in no way dependent upon the performance of
COMPANY of any of its agreements hereunder.

DOCTOR will always acknowledge and recognize both before and after the
expiration of this Agreement the exclusive right of COMPANY to use or to grant
to others the right or license to use, whether separately or as a part of or in
connection with other words, any COMPANY Mark. If DOCTOR utilizes any COMPANY
Mark, DOCTOR shall take all actions which are necessary to maintain COMPANY's
good will and reputation or cease utilizing, at COMPANY's demand, the name and
any and all COMPANY Marks.

3.12 BILLING AND COLLECTION. On behalf of DOCTOR and for the
purpose depositing all receipts arising from DOCTOR's patient activities,
COMPANY shall maintain a DOCTOR'S lockbox account . Such DOCTOR'S account will
be under the COMPANY NAME and be

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<PAGE> 9
operated by COMPANY. COMPANY shall establish and maintain credit and billing
and collection policies and procedures, and shall use COMPANY's best efforts to
timely bill and collect all professional and other fees for all billable
Professional Services provided by DOCTOR, it being understood, however that
DOCTOR, in his sole discretion shall establish the fees for all billable
Professional Services provided by DOCTOR. DOCTOR shall timely advise COMPANY
of any changes in DOCTOR'S fee schedule to permit COMPANY to implement such
changes. In connection with this Section 3.12 and throughout the Term, DOCTOR
hereby grants a special power of attorney to and appoints COMPANY as DOCTOR's
true and lawful agent and attorney-in-fact, and COMPANY hereby accepts such
special power of attorney and appointment, for the following purposes:

3.12.1 To bill DOCTOR'S patients, in DOCTOR'S name and on
DOCTOR'S behalf for billable Professional Services provided by DOCTOR.

3.12.2 To bill, in DOCTOR'S name and on DOCTOR'S behalf, all
claims for reimbursement or indemnification from Blue Shield/Blue
Cross, Medicare, Medicaid and all other third party payers for covered
billable Professional Services provided by DOCTOR.

3.12.3 To collect and receive, in DOCTOR'S name and on
DOCTOR'S behalf, all accounts receivable generated by such billings
and claims for reimbursement or indemnification, and to deposit all
amounts collected in the DOCTOR'S Account, which account shah be and
remain in COMPANY'S name. In connection herewith, DOCTOR covenants to
transfer and deliver to COMPANY all funds received by DOCTOR from
patients or third party payers for Professional Services unless
otherwise provided for within this agreement. Upon receipt by COMPANY
of any funds from patients or third party payers or from DOCTOR
pursuant hereto for Professional Services, COMPANY shall deposit same
into the DOCTOR'S Account.

3.12.4 To take custody of, endorse in the name of DOCTOR,
and deposit into the DOCTOR'S Account any notes, checks, money orders,
insurance payments, and any other instruments received in payment of
the accounts receivable for Professional Services.

Upon request of COMPANY, DOCTOR shall execute and deliver to
COMPANY or the financial institution wherein the DOCTOR'S Account is
maintained, such additional documents or instruments as may be
reasonably necessary to evidence or effect the special power of
attorney granted to COMPANY by DOCTOR and the conditions pursuant to
this Section 3.11 or pursuant to Section 3.12 hereof

3.13 DOCTOR'S ACCOUNT. COMPANY shall operate the DOCTOR'S Account
for the purpose's stated herein. In connection herewith and throughout the
Term, DOCTOR hereby appoints COMPANY as DOCTOR'S true and lawful agent and
attorney-in-fact, and grants COMPANY a special power of attorney and COMPANY
hereby accepts such special power of

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<PAGE> 10
attorney and appointment, to deposit in the DOCTOR'S Account all funds, fees,
and revenues generated from the provision of Professional Services and
collected by COMPANY, and to make withdrawals and sign checks for disbursements
from DOCTOR'S Account.. DOCTOR shall execute any and all additional documents
required by the bank where the DOCTOR'S Account is held to effectuate the power
of attorney and conditions of the account granted herein. Notwithstanding the
limited power of attorney granted to COMPANY hereunder. COMPANY shall furnish
to DOCTOR, on a monthly basis, its normal Cash Receipts and Disbursements
Report.

3.13.1 CASH FLOW AND FUNDING. COMPANY will provide to
DOCTOR a line of Credit in the amount of $______________ interest free
, to be made available upon execution of this agreement and the
execution of a signed note by the DOCTOR. Loan will be all due and
payable within the first Twelve Months (12) months of the term of the
FULL SERVICE FACILITY AND MANAGEMENT AGREEMENT or upon its
termination., COMPANY will take a security interest in the Accounts
Receivable of DOCTOR as evidenced by a signed Security Interest by
DOCTOR and the filing of a signed UCC form.

COMPANY all provide the necessary cash flow of the DOCTOR to
allow for payment of all DOCTOR monthly expenses during the term of
this agreement in addition to the monthly sum of Twelve Thousand
Dollars ($ 12,000.00) to DOCTOR, as per section 3.13.1, for a period
of Three Months.

3.13.2 COLLECTION GUARANTEE. COMPANY guarantees that it
will collect 80 % of all billings, including adjustments and excluding
any workers compensation non compensation or personal liability
accounts, within ninety (90) days from insurance claim submission
date. COMPANY will fund any exception occasioned by their failure to
perform to this guarantee.

3.14 FISCAL MATTERS.

3.14.1 PURCHASE OF EQUIPMENT. COMPANY will purchase the
physical assets of Fairmont Family Practice , P.A. as stipulated on
SCHEDULE B , attached hereto. Such purchase will be evidenced by a
bill of sale for the sum of Seventy Five Thousand Dollars and no cents
($75,000.00) payable upon delivery and possession by company . This
purchase commitment is subject to the execution of this agreement.

3.14.2 ACCOUNTING AND FINANCIAL RECORDS. COMPANY shall
establish and administer accounting procedures, controls, and systems
for the development, preparation, and safekeeping of records and books
of account relating to the provision of Professional Services at the
Leased Premises, all of which shall be prepared and maintained in
accordance with generally accepted accounting principles consistently
applied on a cash basis COMPANY shall prepare and deliver to DOCTOR
such other financial statements

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or records as COMPANY may from time to time deem appropriate or DOCTOR
may reasonably from time-to-time request.

3.14.3 ACCESS. DOCTOR shall have the right at all
reasonable times during normal business hours to audit, examine, and
make copies of books of account maintained by COMPANY pursuant to this
Agreement. COMPANY shall maintain such records for DOCTOR's access
upon request for a period of four (4) years following the Term hereof.

3.15 REPORTS AND RECORDS.

3.15.1 PATIENT RECORDS. COMPANY shall establish monitor,
and maintain procedures and policies for the timely filing and
maintenance of all patient records generated by DOCTOR in connection
with DOCTOR'S provision of Professional Services. All patient records
shall be treated in accordance with all applicable State and federal
laws relating to the confidentiality of patient records. All patient
records shall be the property of, maintained by, and in the custody of
DOCTOR, but DOCTOR expressly agrees that COMPANY shall have access to
such patient records, at all reasonable times during normal business
hours, to the extent necessary for COMPANY to fulfill its obligations
under this Agreement and that COMPANY, to the extent lawfully
permitted, shall have access to such patient records, for the purpose
of making necessary copies, in the event this Agreement is terminated.
COMPANY shall maintain the confidentiality of all patient records in
accordance with all applicable laws and shall establish written
policies and procedures for such which are to be approved by DOCTOR
for the protection of confidential information.

3.15.2 REPORTS AND RECORDS. COMPANY shall timely create,
prepare, and file such additional reports and records as are
reasonably necessary and appropriate hereunder, and shall analyze and
interpret such reports and records upon DOCTOR's request.

3.16 LEGAL ACTIONS. As requested by DOCTOR, COMPANY shall advise
and assist DOCTOR in instituting or defending, in the name of DOCTOR, all legal
actions or proceedings by or against third parties arising out of DOCTOR'S
provision of Patient Care Service, including, without limitation, those actions
to collect fees for billable Professional Services or other billable services
provided to patients by DOCTOR, and those actions necessary for the protection
and continued operation of DOCTOR.

3.17 INDEMNIFICATION BY COMPANY. DOCTOR, its officers, its
employees, and its agents will incur no liability in connection with the
conduct of COMPANY prior to the effective date of this Agreement.
Accordingly, COMPANY shall and hereby does indemnify, hold harmless, and agrees
to defend DOCTOR and its officers, employees, and agents from and against any
claims, obligations, demands, causes of action, losses, liabilities, damages,
costs and expenses, including reasonable attorney's fees (collectively " Claims
") arising out of or connected with the conduct of COMPANY prior to the
effective date of this Agreement.

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<PAGE> 12
DOCTOR shall not, by entering into this Agreement and performing
hereunder, assume or become liable for any of the existing or future Claims
made against COMPANY. COMPANY shall and hereby does indemnify, hold-harmless,
and agrees to defend DOCTOR, its officers, employees, and agents, from and
against any Claims arising out of or connected with the negligence or fault of
COMPANY, its employees, agents, contractors or performance of its obligations
within its scope of responsibility hereunder.

If any Claim shall arise hereunder DOCTOR shall give prompt written
notice of such Claim to COMPANY; except that any delay or failure of notice
shall not relieve COMPANY of the obligations hereunder except to the extent
such delay has materially prejudiced COMPANY.

3.18 COMPANY'S EXPENSES. COMPANY shall be solely responsible and
obligated to pay all reasonable direct and indirect expenses of operating each
Location other than DOCTOR's Expenses as defined herein.

3.19 PATIENT SATISFACTION QUALITY ASSURANCE. COMPANY shall
implement and maintain a patient service satisfaction measurement system
whereby data will be sought from all patients on a consistent basis to
determine the level of patient satisfaction with regard to: Maintenance of
Facility, Professional and Courteous service by company provided personnel
regarding : Patient scheduling , Patient Insurance Billing Assistance and
whether the patient would recommend to others to seek medical attention on the
basis of these issues. It is intended to maintain a 75 % patient satisfaction
rating at all times.

ARTICLE IV
COVENANTS OF DOCTOR

4.1 ORGANIZATION/OPERATION. DOCTOR, is a duly licensed Medical
Doctor and shall at all times during the Term (1) be and remain legally
organized to provide Professional Services in a manner consistent with all
State and federal laws (ii) be duly authorized to conduct business in the State
of Texas; and (iii) have and maintain a physician to provide Professional
Services in the Leased Premises and all other locations of Doctor who shall (a)
hold a valid and unlimited license to practice medicine in the State of Texas ,
and (b) be engaged principally in the provision of Professional Services at
each such location.

4.2 PROFESSIONAL PERSONNEL OF DOCTOR. DOCTOR shall employ, at
DOCTOR's expense, all licensed health care personnel, including physicians,
nurses, vocational nurses and physician assistants, as DOCTOR deems reasonably
necessary and appropriate for DOCTOR's operation of his practice and provision
of Professional Services each of whom shall be subject to the applicable
provisions of this Agreement (collectively, "Professional Personnel"). DOCTOR
shall have the sole responsibility for paying the salaries and fringe benefits
of all such personnel, and the sole responsibility to withhold, as required by
law, any sums for income tax, unemployment insurance, social security, or any
other withholding pursuant to any applicable law or government requirements
(collectively, "Professional Compensation"). COMPANY shall, in

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the name of and on behalf of DOCTOR, establish and administer (out of funds
available in the DOCTOR'S Account) the compensation with respect to, such
professional personnel and, on behalf of DOCTOR and out of funds available in
the DOCTOR'S Account, ensure that proper tax withholdings from such
compensation are made and timely remitted to the appropriate governmental
entities. Each physician retained by DOCTOR shall at all times hold and
maintain a valid and unlimited license to practice in the State of Texas.
DOCTOR shall enter into and maintain with each such physician a written
agreement which shall include, without Limitation, the provisions of Section
4.3 hereof.

4.3 SPECIAL CONSIDERATION/DAMAGES. DOCTOR hereby recognizes and
acknowledges that COMPANY Will incur substantial costs in providing any Leased
Premises, equipment supplies, support services, personnel, marketing,
management, administration, and other items and services that are the subject
matter of this Agreement. Accordingly, DOCTOR covenants and agrees that DOCTOR
and all of its personnel shall devote their best efforts to the success of
DOCTOR's practice and the provision of Professional Services by DOCTOR.

DOCTOR shall continuously and uninterruptedly, during the term hereof
during all business hours and on such days as businesses of like nature in the
area are open for business, provide services in a manner calculated to produce
the maximum volume of revenue which is consistent with the professional
obligation of DOCTOR and in the best interest of DOCTOR's patients. DOCTOR
shall cause the work load, patient load and surgical criteria for each of its
Professional Personnel to remain substantially the same as their historical
practice during the immediate past one year.

During the Term hereof and for a period of five (5) years thereafter,
except as may be required by law, DOCTOR and its employees, agents, directors,
officers, shareholders and partners shall not disclose, immediate or disclose
to, or use for the direct or indirect benefit of any other person or entity any
confidential information regarding COMPANY's business methods, business
policies, procedures, techniques, or trade secrets or other knowledge or
processes developed by COMPANY or any other confidential information relating
to or dealing with the business operations or activities of COMPANY, made known
to DOCTOR or learned or acquired by DOCTOR hereunder.

If any restriction contained in this Section 4.3 is held by any court
to be unenforceable or unreasonable, a lesser restriction shall be enforced in
its place and the remaining restrictions set forth herein shall be enforced
independently of each other.

4.4 DOCTOR'S INSURANCE. DOCTOR shall provide, obtain, and
maintain throughout the Term appropriate workers' compensation insurance
coverage for DOCTOR'S employed personnel and shall carry professional Liability
insurance covering DOCTOR and all of DOCTOR'S physician Professional Personnel
in the minimum amount of Two Hundred Thousand Dollars ($200,000) for each
occurrence and Six Hundred Thousand Dollars ($600,000) annual aggregate, and
such amounts as may be reasonable for all other Professional Personnel
(collectively,

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"Professional Insurance"). Such professional insurance policy or policies
maintained by DOCTOR shall include COMPANY as additional insured, if permitted
by the insurer. DOCTOR shall provide to COMPANY a certificate of insurance
evidencing such coverage on an annual basis. The insurance policy or policies
shall provide for at least thirty (30) days advance written notice to DOCTOR
from the insurer as to any alteration of coverage, cancellation, or proposed
cancellation of coverage for any cause. The certificate of insurance shall
require such notice to also be given to COMPANY. DOCTOR shall notify COMPANY
of all legal actions or proceedings instituted by or against DOCTOR arising out
of or related to DOCTOR'S operation of a medical practice.

4.5 INDEMNIFICATION BY DOCTOR. COMPANY, its officers, its
employees, and its agents will incur no liability in connection with the
conduct of DOCTOR prior to the effective date of this Agreement. Accordingly,
DOCTOR shall and hereby does indemnify, hold harmless, and agrees to defend
COMPANY and its officers, employees, and agents from and against any claims,
obligations, demands, causes of action, losses, liabilities, damages, costs and
expenses, including reasonable attorney's fees (collectively "Claims) arising
out of or connected with the conduct of DOCTOR prior to the effective date of
this Agreement.

COMPANY shall not, by entering into this Agreement and performing
hereunder, assume or become liable for any of existing or future Claims made
against DOCTOR, DOCTOR shall and hereby does indemnify, hold harmless, and
agrees to defend COMPANY, its officers, employees, and agents, from and against
any Claims arising out of or connected with the negligence or fault of DOCTOR,
its employees, agents, contractors or DOCTOR's performance of its obligations
hereunder.

If any Claim shall arise hereunder COMPANY shall give prompt written
notice of such Claim to DOCTOR, except that any delay or failure of notice
shall not relieve DOCTOR of the obligations hereunder except to the extent such
delay has materially prejudiced DOCTOR.

4.6 DOCTOR'S EXPENSES. DOCTOR shall be solely responsible and
obligated to pay only the reasonable Professional Compensation including the
compensation benefits and employer costs associated with all Physicians and
other licensed health care employees, and Professional Insurance expenses
associated with the Professional Personnel including malpractice and general
liability, retained by DOCTOR in addition to such other expenses as may be
mutually agreed to by the parties hereto (collectively, "DOCTOR's Expenses").

4.7 EQUIPMENT. DOCTOR hereby represents and warrants that
sufficient equipment currently exists at each Location as may be required to
provide Professional Services of the type and volume currently provided by
DOCTOR as of the effective date of this Agreement and will treat same with
appropriate care.

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ARTICLE V
MANAGEMENT FEE

5.1 AMOUNT OF MANAGEMENT FEE. DOCTOR and COMPANY mutually
recognize and acknowledge that COMPANY will incur substantial costs in
arranging for Doctor's use of the Locations and in providing the equipment,
support services, personnel, marketing office space, management,
administration, and other items and services that are subject matter of this
Agreement. DOCTOR and COMPANY further recognize that certain of such costs and
expenses can vary to a considerable degree, according to the extent of DOCTOR's
business and services. Furthermore, DOCTOR and COMPANY agree that it will be
impracticable to ascertain and segregate all of the exact costs and expenses
that will be incurred by COMPANY from time to time in performance of his
obligations under ties Agreement. However, it is the intent of the parties
that the fees paid to COMPANY be reasonable and approximate its costs and
expenses, plus a reasonable return, considering the investment and risk taken
by COMPANY and the value of the services provided by COMPANY. DOCTOR agrees to
pay a Management Fee to COMPANY in an amount equal to Fifty percent (50 %) of
monthly collected revenue.. An amount equal to THOUSAND AND 00/100 DOLLARS
($3,000) each year is specifically designated for the provision of data
processing and other taxable services.

For purposes hereof, "Revenues Collected" shall be defined as an
amount equal to the total of any monies received from patients, and/or
third-party payers and deposited in the DOCTOR's account, less any refunds,
during any given twelve month or agreement anniversary date. It is expressly
understood and agreed by COMPANY that all collected revenues and associated
expenses connected with DOCTORS Medical Directorship fees, IPA bonus and
Emergency Room fee's are excluded from this agreement and not subject to a
management fee

Either party, not more than four times in any twelve month period,
upon giving notice to the other party hereto shall have the right to inspect
the records of DOCTOR to ascertain and audit Revenues Collected, DOCTOR's
Expenses, and COMPANY's Expenses, subject to patient confidentiality laws. If
the audit or examination discloses that the Management Fee was incorrectly
computed or any expense improperly classified, the parties shall within twenty
(20) days of such determination reconcile the difference by a cash payment to
the applicable party. In all events, a reconciliation of the preceding year
shall occur following the preparation of annual financial statements.

5.2 PAYMENT OF MANAGEMENT FEE. Will be paid in full by the 7th day
of the month following each month during the Term of this Agreement.

Payment of the Management Fee is not intended to be, and shall not be,
interpreted or applied as permitting COMPANY to share in DOCTOR's fees for
Professional Services or any other services, but is acknowledged as the
parties' negotiated agreement as to the reasonable, fair market value of the
equipment, support, services, personnel, marketing, office space, management,
administration, and other items and services furnished by COMPANY pursuant to

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this Agreement, considering the nature and volume of the services required and
the risks assumed by COMPANY.

ARTICLE VI
TERM AND TERMINATION

6.1 INITIAL AND RENEWAL TERMS. This Agreement shall be effective
as October 1, 1996 for a period of five (5) years therefrom.

6.2 TERMINATION. This Agreement may be terminated upon the first
to occur of any of the following events.

6.2.1 TERMINATION BY AGREEMENT. In the event DOCTOR and
COMPANY shall mutually agree in writing, this Agreement may be
terminated on the date specified in such written agreement.

6.2.2 OPTIONAL TERMINATION. COMPANY or DOCTOR may, with or
without cause, provide thirty (30) days written notice during the
first Six (6) months of this agreement without penalty or restriction.
Thereafter (30) day written notice of Termination may be given by
DOCTOR to COMPANY provided if after:

a. the first annual twelve month period of this
agreement such notice is given by DOCTOR, DOCTOR agrees to pay
the COMPANY an amount equal to One hundred percent (I 00 %) of
Forecasted annual collected revenue of DOCTOR based on the
prior twelve month billing and collection history.

b. twenty-four (24) months of this agreement
such notice is given, by DOCTOR , DOCTOR agrees to pay the
COMPANY an amount equal to Seventy Five Percent (75 %) of
DOCTOR'S collected revenue received by and on behalf of , the
DOCTOR, during the immediate prior Twelve month (1 2) period .

c. thirty-six (36) months of this agreement such
notice is given by DOCTOR, DOCTOR agrees to pay the COMPANY an
amount equal to Fifty Percent (50 %) of the DOCTOR'S collected
revenue received by and on behalf of, the DOCTOR, during the
immediate prior twelve month (1 2) period.

d. forty-eight (48) months of this agreement
such notice is given by DOCTOR, DOCTOR agrees to pay the
COMPANY an amount equal to Twenty Five Percent (25 %) of the
DOCTOR'S collected revenue received by and on behalf of , the
DOCTOR, during the immediate prior twelve month (12) period.

6.2.3 DAMAGES OR CONDEMNATION OF PREMISES. In the event
the Leased Premises are totally or substantially destroyed by fire,
explosion, flood, windstorm, hail,

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earthquake, or other casualty or act of God, and the owner landlord of
the Leased Premises decides not to repair or rebuild the Leased
Premises, or in the event all or a substantial portion of the Leased
Premises and the Facility are taken or are to be taken by condemnation
or eminent domain proceeding, then either party may by written notice
(sent within thirty (30) days of such event) to the other terminate
this Agreement if suitable alternative premises cannot be secured
within sixty (60) days. In the event the owner/landlord of the Leased
Premises decides to repair or rebuild the Leased Premises to their
original size and condition, the Management Fee and the duties and
obligations of COMPANY and DOCTOR hereunder shall abate until such
time as the Leased Premises are suitable for COMPANY and DOCTOR to
resume their respective duties and obligations hereunder.

6.2.4 BANKRUPTCY. In the event that either party becomes
insolvent, or if any petition under federal or State law pertaining to
bankruptcy or insolvency or for a reorganization or arrangement or
other relief from creditors shall be filed by or against either party,
or if any assignment, trust, mortgage, or other transfer shall be made
of all or a substantial part of the property of either party, or if
either party shall make or offer a composition in its debts with its
creditors, or if a receiver, trustee, or similar officer or creditor's
committee shall be appointed to take charge of any property of or to
operate or wind up the affairs of either party, then the other party
may by written notice immediately terminate this Agreement.

6.2.5 SPECIFIC DOCTOR BREACHES. At COMPANY's option, in
the event of Dr. John Kirkwood shall die or be involuntarily inducted
into the active military services of the United States, (ii) DOCTOR or
any physician employed or retained by DOCTOR shall fail by omission or
commission in any substantial manner to provide Professional Services
in a competent manner, (iii) DOCTOR shall fail to meet any of the
qualifications set forth in Section 4.1 hereof, (iv) Dr. license to
practice medicine is revoked, suspended, canceled or limited in any
manner, (v) Dr. John Kirkwood convicted of a felony or any crime of
moral turpitude, or (vi) Dr. John Kirkwood or shall fail to comply
with the terms of his Employment Contract of even date herewith, then
COMPANY may by written notice to DOCTOR immediately terminate this
Agreement.

6.2.6 COMPANY BREACHES. At DOCTOR's option, in the event
COMPANY fails to make timely payments of the obligations it has
undertaken, (ii) fails or refuses to account to DOCTOR for collection
on amounts for services rendered, or (iii) is in default of any
material obligations having an impact upon DOCTOR, then DOCTOR may by
written notice to COMPANY terminate this Agreement if COMPANY has
failed to cure such default within thirty (30) days of DOCTOR's
written notice of such violation, provided if such breach cannot by
its nature be reasonably cured within thirty (30) days then COMPANY
shall have such time as may be reasonable to cure the breach.

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6.2.7 ACTION BY BOARD OF MEDICAL EXAMINERS OR OTHER AUTHORITY
WITH LEGAL JURISDICTION. "While both parties believe that this
Agreement is in full compliance with the Texas Medical Practice Act,
the interpretation of the Act may be subject to change. In the event
the Board of Medical Examiners for the State or other authority with
legal jurisdiction shall, solely by virtue of this Agreement, initiate
an action to revoke the license of any physician retained by DOCTOR to
practice medicine in the State, DOCTOR may, by written notice to
COMPANY, immediately request that the Agreement be amended in a
mutually acceptable manner. Any amendment shall be made in the lawful
manner which results in the least changes to the parties' expectations
hereunder. In the event the offending- provisions of the Agreement
cannot be cured as to the legality of such provisions to the
satisfaction of both parties, then either party may terminate this
Agreement upon ten (10) days written notice, and such termination
shall be conducted as set forth in Section 3 of the Master Agreement.
In the event the Board of Medical Examiners shall, on any other
grounds, including, without limitation, improper medical practice or
improper conduct by any physician retained by DOCTOR, restrict,
suspend or revoke the license of such physician to practice medicine
in the State, the COMPANY may, by written notice to DOCTOR,
immediately terminate this Agreement.

6.2.8 DEFAULT. In the event either party shall give
written notice to the other that such other party has substantially
defaulted in the performance of any material duty or material
obligation imposed upon it by this Agreement, and such default shall
not have been cured within thirty (30) days following the giving of
such written notice, the party giving such written notice shall have
the right to immediately terminate this Agreement unless the
defaulting party shall within said thirty (30) day period, have made a
good faith effort to initiate corrective action and it is
contemplated that such corrective action will be completed within the
following (30) day period.

6.3 EFFECTS OF TERMINATION. Upon termination of this Agreement,
as herein above provided, neither party shall have any further obligations
hereunder except for (i) obligations accruing prior to the date of termination,
and (ii) obligations, promises, or covenants set forth herein or in those
collateral agreements of even date herewith that are expressly made to extend
beyond the Term, including, without limitation, indemnities, non-compete and
fees which provisions shall survive the expiration or termination of this
Agreement. All outstanding fee's and loans owed by DOCTOR are to be paid prior
to the termination date.

6.4 CONTINUED PROFESSIONAL SERVICES. Following any notice of
termination hereunder, whether given by COMPANY or DOCTOR, DOCTOR and COMPANY
will fully cooperate with each other in all matters relating to the performance
or discontinuance of Professional Services, as appropriate, at the Locations by
DOCTOR and the orderly transition of patients.

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that DOCTOR will advise all patients of their decision to cease to provide
medical services at all COMPANY provided clinics but will continue to provide
continued medical services at their new location. It is further agreed that
such patient letters will clearly contain information informing the patient
that continued medical services will be available to them at the COMPANY clinic
site and as such it is at the discretion of the patient to determine whether to
continue under DOCTOR's care or to seek medical attention from the succeeding
physician made available to them at COMPANY clinic sites.

In the event a patient elects to continue to receive medical attention
at the COMPANY clinic site all medical records will be made available to the
succeeding physician at no charge to patient or to succeeding physician.

ARTICLE VII
MISCELLANEOUS

7.1 EXHIBITS, SCHEDULES AND OTHER INSTRUMENTS. As used herein,
the expression "this Agreement" means the body of this Agreement and all
exhibits, certificates, and schedules- and the expressions " herein, " "
hereof, ' and " hereunder " and other words of similar import refer to this
Agreement and such exhibits, certificates, and schedules as a whole and not to
a particular part or subdivision thereof unless otherwise clearly indicated.

7.2 INDEPENDENT RELATIONSHIP. It is mutually understood and
agreed that DOCTOR and COMPANY, in performing their respective duties and
obligations under this Agreement, are at all times acting and performing as
independent contractors with respect to each other, and nothing in this
Agreement is intended nor shall be construed to create an employer/employee
relationship or a joint venture relationship, or to allow COMPANY to exercise
control or direction of any nature, kind, or description over the manner or
method by which DOCTOR performs Professional Services.

7.3 NOTICES. Any notice, demand, or communication required,
permitted, or desired to be given shall be deemed effectively given (i) when
personally delivered, (ii) upon receipt when delivered by telephonic document
transfer, (iii) three (3) business days next following the day the notice is,
mailed by prepaid certified mail, return receipt requested, or (iv) the next
business day following deposit with a reputable overnight courier, addressed as
follows:

DOCTOR: John Kirkwood, D.O.

COMPANY: Doctors Practice Management, Inc.
4301 Vista Road
Pasadena, Texas 77504

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<PAGE> 20
or to such other address, and to the attention of such other person or officer
as any party may designate, with copies thereof to the respective counsel
thereof as notified by such party. Rejection or other refusal to accept or the
inability to deliver because of a changed address of which no notice was given
in accordance with the provisions hereof, shall be deemed to be receipt of the
notice sent.

7.4 FEES AND COSTS. In the event either party brings any action
for relief against the other, declamatory or otherwise, arising out of this
Agreement (including actions to enforce and interpret this Agreement), the
losing party shall pay to the prevailing party, in addition to any other relief
to which such party shall be entitled, a reasonable sum for attorneys fees
incurred in bringing such suit and/or enforcing any judgment granted therein,
all of which shall be deemed to have accrued upon the commencement of such
action and shall be paid whether or not such action is prosecuted to judgment.
Any judgment or order entered in such action shall contain a specific provision
providing for the recovery of attorney fees and costs incurred in enforcing
such judgment, in addition to any other relief to which such party shall be
entitled.

7.5 CHOICE OF LAW AND VENUE. THIS AGREEMENT HAS BEEN EXECUTED AND
DELIVERED IN AND SHALL BE INTERPRETED, CONSTRUED, ENFORCED AND GOVERNED BY AND
IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS, AND THAT THE COURTS OF THAT
STATE IN THE COUNTY OF HARRIS, AND THE UNITED STATES DISTRICT COURT FOR
SOUTHERN DISTRICT OF TEXAS SHALL BE THE EXCLUSIVE COURTS OF JURISDICTION AND
VENUE FOR ANY LITIGATION, SPECIAL PROCEEDING OR OTHER PROCEEDING AS BETWEEN THE
PARTIES THAT MAY BE BROUGHT, OR ARISE OUT OF, IN CONNECTION OR BY REASON OF
THIS AGREEMENT. SELLER HEREBY CONSENTS TO THE JURISDICTION OF SUCH COURTS.

7.6 ASSIGNMENT. This Agreement shall inure to the benefit of and
be binding upon the parties hereto and their respective legal representatives,
successors, and assigns; provided, however, that DOCTOR shall not assign,
transfer or pledge his rights and obligations under ties Agreement or
collaterally assign or hypothecate this agreement without the prior written
consent of COMPANY. COMPANY shall have the right to (i) assign its rights and
obligations hereunder to any affiliated third party and (ii) collaterally
assign its interest in this Agreement and its right to collect Management Fees
hereunder to any financial institution or other third party without the consent
of DOCTOR. COMPANY must provide ten days prior written notice to DOCTOR prior
to assigning this Agreement but in no event will it terminate the sub contract
agreement with Management Service Organization, Inc..

7.7 WAIVER OF BREACH. The waiver by either party of a breach or
violation of any provision of this Agreement shall not operate as, or be
construed to constitute, a waiver of any subsequent breach of the same or
another provision hereof

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7.8 ENFORCEMENT. All claims and disputes relating to this
Agreement shall be subject to confidential arbitration in accordance with the
National Health Lawyers Association ,Alternative Dispute Resolution Rules of
Procedure for Arbitration then obtaining and with individuals knowledgeable of
the medical industry serving as arbitrators. Written notice of demand for
arbitration shall be filed with the other party to the Agreement and with the
National Health Lawyers Association in Washington, D.C., within a reasonable
time after the dispute has arisen. In the event either party resorts to legal
action to enforce the arbitration results or any other provision of this
Agreement, the prevailing party shall be entitled to recover the costs of such
action so incurred, including, without limitations reasonable attorneys fees.

7.9 GENDER AND NUMBER. Whenever the context of this Agreement
requires, the gender of all words herein shall include the masculine, feminine,
and neuter, and the number of all words herein shall include the singular and
plural. The term "person" when used herein shall mean an individual,
partnership, joint venture, corporation, trust, government entity, and
association.

7.10 ADDITIONAL ASSURANCES. Except as may be herein specifically
provided to the contrary, the provisions of this Agreement shall be
self-operative and shall not require further agreement by the parties;
provided, however, at the request of either party, the other party shall
execute such additional instruments and take such additional acts as are
reasonable and as the requesting party may deem necessary to effectuate this
Agreement.

7.11 CONSENTS, APPROVALS, AND EXERCISE OF DISCRETION. Except as
may herein specifically provided to the contrary, whenever this Agreement
requires any consent or approval to be given by either party, or either party
must or may exercise discretion, the parties agree that such consent or
approval shall not be unreasonably withheld or delayed, and such discretion
shall be reasonably exercised in good faith.

7.12 FORCE MAJEURE. Neither party shall be liable or deemed to be
in default for any delay or failure in performance under this Agreement or
other interruption of service deemed to result, directly or indirectly, from
acts of God, civil or military authority, acts of public enemy, war, accidents,
fires, explosions, earthquakes, floods, failure of transportation, strikes or
other work interruptions by either party's employees, or any other similar
cause beyond the reasonable control of either party.

7.13 SEVERABILITY. In the event any provisions of this Agreement
is held to be invalid, illegal, or unenforceable for any reason and in any
respect, if the extent of such invalidity, legality or unenforceability does
not destroy the basis of the bargain herein such invalidity, illegality, or
unenforceability shall in no event affect, prejudice, or disturb the validity
of the remainder of this Agreement, which shall be in full force and effect,
enforceable in accordance with its term-is as if such provisions had not been
included, or had been modified as provided below, as the case may be. To carry
out the intent of the parties hereto as fully as possible, the invalid, illegal
or unenforceable provision(s), if possible, shall be deemed modified to the
extent necessary and

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<PAGE> 22
possible to render such provision(s) valid and enforceable. In the event this
Agreement cannot be modified to the satisfaction of the parties hereto, then
either party may terminate this Agreement upon ten (10) days written notice.

7.14 DIVISIONS AND HEADINGS. The division of this Agreement into
articles, sections, and subsections and the use of captions and headings in
connection therewith are solely for convenience and shall not affect in any way
the meaning or interpretation of this Agreement.

7.15 AMENDMENTS AND AGREEMENT. This Agreement and amendments
thereto shall be in writing and executed in multiple copies on behalf of DOCTOR
by its duly authorized representative and on behalf of COMPANY by its duly
authorized representative. Each multiple copy shall be deemed an original, but
all multiple copies together shall constitute one and the same instrument.

7.16 TIME OF ESSENCE. Time shall be of the essence with respect
to this Agreement.

7.17 ENTIRE AGREEMENT/AMENDMENT. This Agreement and collateral
agreements of even date herewith supersede all previous agreements (written or
oral), and constitutes the entire agreement of whatsoever kind or nature
existing between or among the parties respecting the within subject matter and
no party shall be entitled to benefits other than those specified herein. As
between or among the parties, no oral statements or prior written material not
specifically incorporated herein shall be of any force and effect, the parties
specifically acknowledge that in entering into and executing this Agreement,
the parties rely solely upon the representations and agreements contained in
this Agreement and no others. All prior representations or agreements, whether
written or verbal, not expressly incorporated herein are superseded. This
Agreement may not be amended, supplemented, canceled or discharged except by
written instrument executed by all parties hereto. This Agreement may be
executed in two or more counterparts, each and all of which shall be deemed an
original and all of which together shall constitute one instrument. It shall
not be necessary that the signatures of all of the parties appear on each
counterpart; it shall be sufficient that the signature of each party appear on
one or more counterparts.

7.18 RULES OF CONSTRUCTION. The parties acknowledge that each
party and its counsel have reviewed and revised this Agreement, and the parties
hereby agree that the normal rule of construction to the effect that any
ambiguities are to be resolved against the drafting party shall not be employed
in the interpretation of this Agreement or any amendments or exhibits,
certificates and schedules hereto. The term " include " or " including " shall
mean without Mutation by reason of enumeration. All references in this
Agreement to Dollars or monetary payment shall be deemed to refer to U.S.
Dollars.

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<PAGE> 23
furnished, may be reproduced by any means or process including electronic or
mechanical means. Any reproduction shall be admissible into evidence as the
original itself in any Litigation without regard to whether the original is in
existence. If a party signs this Agreement and then transmits an electronic
facsimile of the signature page the recipient may rely upon the electronic
facsimile as a signed original of ties Agreement without modification or change
unless same is noted thereon.

7.20 THIRD PARTIES. None of the provisions of this Agreement shall
be for the benefit of third parties or enforceable by any third party except
as otherwise contained herein. Any agreement to pay an amount and any
assumption of a liability herein contained, expressed or implied, shall only be
for the benefit of the parties hereto and such agreement or assumption shall
not inure to the benefit of the any third party, including an obligee.

IN WITNESS WHEREOF, DOCTOR AND COMPANY HAVE EXECUTED THIS AGREEMENT IN
MULTIPLE ORIGINALS AS OF THE DATE WRITTEN ABOVE.

DOCTOR:

By: /s/ John Kirkwood,
------------------------------
John Kirkwood, D.O.

COMPANY:
DOCTORS PRACTICE MANAGEMENT, INC.

By: /s/ Chiu M. Chan
------------------------------
Chiu M. Chan, President

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<PAGE> 24
SCHEDULE A

EQUIPMENT LEASES

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<PAGE> 25
SCHEDULE B

EQUIPMENT PURCHASE LISTING

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<PAGE> 1
EXHIBIT 10.26

FULL SERVICE FACILITY
AND
MANAGEMENT AGREEMENT

RONALD W. KIRKWOOD, D.O.

OCTOBER 1, 1996
<PAGE> 2
FULL SERVICE FACILITY AND MANAGEMENT AGREEMENT

THIS FULL SERVICE FACILITY AND MANAGEMENT AGREEMENT, entered into
effective as of October 1, 1996, is by and between RONALD W. KIRKWOOD, D.O.
("DOCTOR")and DOCTORS PRACTICE MANAGEMENT, INC., a Texas corporation
("COMPANY").

WITNESSETH:

1. facilitates consistency of service in the medical care
provided by Doctor and in the administrative and business services provided by
COMPANY;

2. facilitates effective utilization of DOCTOR'S resources;

3. facilitates appropriate staffing and scheduling of personnel
for and by DOCTOR, as the case may be;

4. facilitates the management and administration of the
day-to-day business operations of DOCTOR;

6. ensures that (1) DOCTOR and licensed health care personnel
employed by DOCTOR shall owe their first duty to their patients; and (b)
preserve the confidential nature of the doctor-patient relationship (2) DOCTOR
controls patient care in the medical and administrative procedures to be
followed; and (3) that COMPANY does not commit any act constituting the
practice of medicine or use any licensed health care practitioners license to
practice medicine all for the benefit of those seeking services as patients.

ARTICLE I
DEFINITIONS

For the purposes of this Agreement, the following terms shall have the
following meanings ascribed thereto, unless otherwise clearly required by the
context in which such term is used.

1.2 PROFESSIONAL SERVICES. The term "Professional Services" shall
mean the professional services, specifically including physician services, and
related health care services provided by DOCTOR.

1.3 DOCTOR. The term "DOCTOR" shall mean Ronald W. Kirkwood, D. O.

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<PAGE> 4
1.4 DOCTOR'S ACCOUNT. The term "DOCTOR'S Account" shall mean the
bank account of COMPANY established as described in Section 3.12 hereof.

1.5 FACILITY. The term "Facility" shall mean the medical offices
owned or leased by COMPANY where Professional Services are provided by DOCTOR.

1.6 COMPANY. The term "COMPANY" shall mean Doctors Practice
Management, Inc., a Texas corporation.

1.7 MANAGEMENT FEE. The term "Management Fee" shall mean Company's
compensation as described in Article V hereof.

1.8 STATE. The term "State" shall mean the State of Texas.

1.9 TERM. The term "Term" shall mean the initial and any renewal
periods of duration of this Agreement as described in Section 6.1 hereof.

1.10 LOCATION. The term "Location" shall mean the Facility(s) in
the Houston, Texas, Standard Metropolitan Statistical area and such Facility(s)
as may exist in the future.

ARTICLE II
APPOINTMENT AND AUTHORITY

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<PAGE> 5
shall be provided and performed exclusively by or under the supervision of
licensed health care personnel retained by DOCTOR, as DOCTOR, in its sole
discretion, deems appropriate and in accordance with all laws. DOCTOR will have
the ultimate authority in the hiring and termination of all licensed clinic
staff, DOCTOR also has the right to request COMPANY to replace any COMPANY
personnel assigned to the clinic. This Agreement shall in no way be construed
to mean or suggest that COMPANY is engaged in the practice of medicine.

ARTICLE III
COVENANTS OF COMPANY

3.1.1 RETENTION OF TITLE. DOCTOR shall have access to and
use of the Locations and all equipment located therein throughout the
Term provided, however, that title to the Locations and all equipment
other than items placed in the Locations by DOCTOR shall at all times,
be and remain in COMPANY, or if applicable, the entity from which
COMPANY leases the Locations and/or equipment.

3.1.2 REPAIR AND MAINTENANCE. COMPANY shall be responsible
for the repair and maintenance of the Locations, and for the repair,
maintenance, and replacement of all equipment located at the
Locations, as well as other obligations under the Lease Agreement
regarding the Locations comparable to the effective date hereof.

3.1.3 ADDITIONAL EQUIPMENT. Should DOCTOR, from time to
time during the Term request COMPANY to provide additional patient
care equipment, office, or other equipment for use at the Locations or
to replace used or obsolete equipment, COMPANY and DOCTOR shall
consult with each other on the matter. Should COMPANY be unwilling or
unable to provide such requested equipment, DOCTOR may acquire and
maintain such equipment and title to same shall be and remain in
DOCTOR, provided, however, that COMPANY agrees to provide and maintain
all equipment which is usual and customary in a facility similar to
the Locations, throughout the Term hereof.

3.1.4 DISCLAIMER OF WARRANTY. COMPANY MAKES NO WARRANTY,
EITHER EXPRESSED OR IMPLIED, WITH RESPECT TO THE LOCATIONS, PREMISES
OR ANY EQUIPMENT PROVIDED BY COMPANY PURSUANT TO THIS AGREEMENT, AND
ALL WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE
ARE HEREBY EXPRESSLY DISCLAIMED.

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<PAGE> 6
3.1.5 ASSUMPTION OF EQUIPMENT LEASES. COMPANY will assume
the leases stipulated on Schedule A attached hereto from Fairmont
Family Practice, P.A. Such assumption will be subject to the
conditions stipulated by respective Leasing Company's.

3.2 UTILITIES AND RELATED SERVICES. COMPANY shall, at COMPANY'S
expense arrange for and shall timely pay when due all charges relating to the
provision of necessary electricity, gas, water, telephone, sewage, cleaning and
decorating (interior and exterior), pest extermination, heating and
air-conditioning maintenance, and similar services reasonably necessary and
appropriate for the provision of Professional Services at the Locations.

3.3 SUPPLIES. COMPANY shall obtain and provide, in its name and
for its own account, all reasonable patient care, office, and other supplies,
and shall ensure that the Leased Premises are at all times adequately stocked
with such supplies as are reasonably necessary and appropriate for the
provision of Professional Services at the Leased Premises. Patient care
supplies shall be provided in accordance with the specifications of DOCTOR with
respect to brand names, dosages, quantities and other specifications.

3.4 WASTE DISPOSAL. COMPANY shall, at Company's expense, arrange
for the proper disposal of all medical and non-medical wastes generated by
DOCTOR. Such waste disposal shall include disposal of any Bio-hazardous waste
and any other medical waste that requires special disposal, provided that all
Physicians and non-physician personnel employed by DOCTOR comply with all
guidelines established by COMPANY for waste disposal. DOCTOR shall at all times
comply with guidelines set forth by COMPANY for all waste disposal, including
the disposal of sharps, bio-hazardous waste and any other waste products.
DOCTOR shall also comply with any guidelines set forth by COMPANY with respect
to the operation and maintenance of any equipment or other item that has
environmental law implications.

3.5 SUPPORT SERVICES. COMPANY, at COMPANY's expense, shall arrange
for the provision of all laundry, linen, printing, stationery, forms, postage,
duplication or photocopying services, patient record transcribing services, and
other similar support services as are reasonably necessary and appropriate for
the provision of Professional Services.

3.7 PERSONNEL.

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<PAGE> 7
accounting, payroll, billing and collection, and other
non-professional personnel as COMPANY deems reasonably necessary and
appropriate for COMPANY's performance of its duties and obligations
under this Agreement. COMPANY shall have the sole responsibility for
determining the salaries and fringe benefits of personnel retained by
COMPANY, for paying such salaries and providing such fringe benefits,
or for withholding, as required by law, any sums of income tax,
unemployment insurance, social security, or any other withholding
pursuant to any applicable law or governmental requirement.

3.7.2 NON-EXCLUSIVITY. In recognition of the fact that the
personnel retained by COMPANY to provide services pursuant to this
Agreement may from time to time perform services for others, this
Agreement shall not prevent COMPANY from performing such services for
others or restrict COMPANY from using its personnel to provide
services to others, provided such activity does not cause any material
detriment to DOCTOR. In recognition of the professional obligations of
DOCTOR, DOCTOR shall have the right and obligation to retain, at
DOCTOR's expense, any additional professional or other personnel as
DOCTOR deems necessary or appropriate for the provision of health care
services.

3.7.3 EQUAL EMPLOYMENT OPPORTUNITY. COMPANY shall abide and
provide assistance to DOCTOR, and abide by any and all applicable
federal and/or State equal employment opportunity statutes, rules, and
regulations, including, without limitation, Title VII of the Civil
Rights Act of 1964, the Equal Employment Opportunity Act of 1972, the
Age Discrimination in Employment Act of 1967, the Equal Pay Act of
1963, the National Labor Relations Act, the Fair Labor Standards Act,
the Rehabilitation Act of 1973, and the Occupational Safety and Health
Act of 1970, all as may from time to time be modified or amended.

3.9 CONTRACT NEGOTIATIONS. Upon the request of DOCTOR, COMPANY
shall advise with respect to and negotiate on Doctor's behalf, all contractual
arrangements with third parties as

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<PAGE> 8
are reasonably necessary and appropriate for DOCTOR's provision of Professional
Services, including, without limitations negotiated price agreements with third
party payers, managed care providers, or the purchasers of group health care
services.

3.10 MARKETING,. In accordance with applicable law and ethical
standards and restrictions, COMPANY shall establish and implement a marketing
and public relations program promoting DOCTOR'S provision of Professional
Services to the general public and to other health care professionals and
suppliers. In connection with such marketing program and in accordance with
applicable law and ethical standards and restrictions, COMPANY shall establish
signs on or about the Facility identifying the operations of the Facility and
the provision of Professional Services therein. COMPANY shall implement all
marketing programs at the direction of DOCTOR.

3.11 LICENSE TO USE TRADE NAMES AND TRADEMARKS OF COMPANY. COMPANY,
at some time in the future may grant to DOCTOR, but only subject to the terms
and conditions of this Agreement, a license to use certain names in connection
with the provision of Professional Services in combination with such color
schemes, patterns, appearances, characteristics and words as are specifically
approved by COMPANY. DOCTOR'S use of any trademarks, trade names, service
marks, insignia, slogans, emblems, symbols, designs or other identifying
characteristics owned by or associated with COMPANY or any of its subsidiaries
or affiliates (collectively, "COMPANY Marks") shall be subject to the prior
written approval of COMPANY. DOCTOR acknowledges that such names and COMPANY
Marks have acquired a secondary meaning in connection with COMPANY's
operations. DOCTOR may also apply to COMPANY for permission to use any other
COMPANY Marks which permission may or may not be granted in the absolute
discretion of COMPANY. The use of any COMPANY Marks in any signs, advertising
or any promotional material shall be subject to the prior approval of COMPANY.

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<PAGE> 9
3.12 BILLING AND COLLECTION. On behalf of DOCTOR and for the
purpose depositing all receipts arising from DOCTOR's patient activities,
COMPANY shall maintain a DOCTOR'S lockbox account. Such DOCTOR'S account will
be under the COMPANY NAME and be operated by COMPANY. COMPANY shall establish
and maintain credit and billing and collection policies and procedures, and
shall use COMPANY's best efforts to timely bill and collect all professional
and other fees for all billable Professional Services provided by DOCTOR, it
being understood, however that DOCTOR, in his sole discretion shall establish
the fees for all billable Professional Services provided by DOCTOR. DOCTOR
shall timely advise COMPANY of any changes in DOCTOR'S fee schedule to permit
COMPANY to implement such changes. In connection with this Section 3.12 and
throughout the Term, DOCTOR hereby grants a special power of attorney to and
appoints COMPANY as DOCTOR's true and lawful agent and attorney-in-fact, and
COMPANY hereby accepts such special power of attorney and appointment, for the
following purposes:

3.12.1 To bill DOCTOR'S patients, in DOCTOR'S name and on
DOCTOR'S behalf for billable Professional Services provided by DOCTOR.

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<PAGE> 10
special power of attorney and COMPANY hereby accepts such special power of
attorney and appointment, to deposit in the DOCTOR'S Account all funds, fees,
and revenues generated from the provision of Professional Services and
collected by COMPANY, and to make withdrawals and sign checks for disbursements
from DOCTOR'S Account.. DOCTOR shall execute any and all additional documents
required by the bank where the DOCTOR'S Account is held to effectuate the power
of attorney and conditions of the account granted herein. Notwithstanding the
limited power of attorney granted to COMPANY hereunder. COMPANY shall furnish
to DOCTOR, on a monthly basis, its normal Cash Receipts and Disbursements
Report.

3.13.1 CASH FLOW AND FUNDING. COMPANY will provide to DOCTOR
a line of Credit in the amount of $__________ interest free , to be
made available upon execution of this agreement and the execution of a
signed note by the DOCTOR. Loan will be all due and payable within the
first Twelve Months (12) months of the term of the FULL SERVICE
FACILITY AND MANAGEMENT AGREEMENT or upon its termination., COMPANY
will take a security interest in the Accounts Receivable of DOCTOR as
evidenced by a signed Security Interest by DOCTOR and the filing of a
signed UCC form.

3.13.2 COLLECTION GUARANTEE. COMPANY guarantees that it will
collect 80 % of all billings, including adjustments and excluding any
workers compensation non compensation or personal liability accounts,
within ninety (90) days from insurance claim submission date. COMPANY
will fund any exception occasioned by their failure to perform to this
guarantee.

3.14 FISCAL MATTERS.

3.14.1 PURCHASE OF EQUIPMENT. COMPANY will purchase the
physical assets of Fairmont Family Practice , P.A. as stipulated on
SCHEDULE B , attached hereto. Such purchase will be evidenced by a
bill of sale for the sum of Seventy Five Thousand Dollars and no cents
($75,000.00) payable upon delivery and possession by company. This
purchase commitment is subject to the execution of this agreement.

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<PAGE> 11
as COMPANY may from time to time deem appropriate or DOCTOR may
reasonably from time-to-time request.

3.14.3 ACCESS. DOCTOR shall have the right at all reasonable
times during normal business hours to audit, examine, and make copies
of books of account maintained by COMPANY pursuant to this Agreement.
COMPANY shall maintain such records for DOCTOR's access upon request
for a period of four (4) years following the Term hereof.

3.15 REPORTS AND RECORDS.

3.15.1 PATIENT RECORDS. COMPANY shall establish monitor, and
maintain procedures and policies for the timely filing and maintenance
of all patient records generated by DOCTOR in connection with DOCTOR'S
provision of Professional Services. All patient records shall be
treated in accordance with all applicable State and federal laws
relating to the confidentiality of patient records. All patient
records shall be the property of, maintained by, and in the custody of
DOCTOR, but DOCTOR expressly agrees that COMPANY shall have access to
such patient records, at all reasonable times during normal business
hours, to the extent necessary for COMPANY to fulfill its obligations
under this Agreement and that COMPANY, to the extent lawfully
permitted, shall have access to such patient records, for the purpose
of making necessary copies, in the event this Agreement is terminated.
COMPANY shall maintain the confidentiality of all patient records in
accordance with all applicable laws and shall establish written
policies and procedures for such which are to be approved by DOCTOR
for the protection of confidential information.

3.17 INDEMNIFICATION BY COMPANY. DOCTOR, its officers, its
employees, and its agents will incur no liability in connection with the
conduct of COMPANY prior to the effective date of this Agreement. Accordingly,
COMPANY shall and hereby does indemnify, hold harmless, and agrees to defend
DOCTOR and its officers, employees, and agents from and against any claims,
obligations, demands, causes of action, losses, liabilities, damages, costs and
expenses, including reasonable attorney's fees (collectively " Claims ")
arising out of or connected with the conduct of COMPANY prior to the effective
date of this Agreement.

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<PAGE> 12
DOCTOR shall not, by entering into this Agreement and performing
hereunder, assume or become liable for any of the existing or future Claims
made against COMPANY. COMPANY shall and hereby does indemnify, hold-harmless,
and agrees to defend DOCTOR, its officers, employees, and agents, from and
against any Claims arising out of or connected with the negligence or fault of
COMPANY, its employees, agents, contractors or performance of its obligations
within its scope of responsibility hereunder.

3.19 PATIENT SATISFACTION QUALITY ASSURANCE. COMPANY shall
implement and maintain a patient service satisfaction measurement system
whereby data will be sought from all patients on a consistent basis to
determine the level of patient satisfaction with regard to: Maintenance of
Facility, Professional and Courteous service by company provided personnel
regarding: Patient scheduling, Patient Insurance Billing Assistance and whether
the patient would recommend to others to seek medical attention on the basis of
these issues. It is intended to maintain a 75 % patient satisfaction rating at
all times.

ARTICLE IV
COVENANTS OF DOCTOR

4.1 ORGANIZATION/OPERATION. DOCTOR, is a duly licensed Medical
Doctor and shall at all times during the Term (1) be and remain legally
organized to provide Professional Services in a manner consistent with all
State and federal laws (ii) be duly authorized to conduct business in the State
of Texas; and (iii) have and maintain a physician to provide Professional
Services in the Leased Premises and all other locations of Doctor who shall (a)
hold a valid and unlimited license to practice medicine in the State of Texas,
and (b) be engaged principally in the provision of Professional Services at
each such location.

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(collectively, "Professional Compensation"). COMPANY shall, in the name of and
on behalf of DOCTOR, establish and administer (out of funds available in the
DOCTOR'S Account) the compensation with respect to, such professional personnel
and, on behalf of DOCTOR and out of funds available in the DOCTOR'S Account,
ensure that proper tax withholdings from such compensation are made and timely
remitted to the appropriate governmental entities. Each physician retained by
DOCTOR shall at all times hold and maintain a valid and unlimited license to
practice in the State of Texas. DOCTOR shall enter into and maintain with each
such physician a written agreement which shall include, without Limitation, the
provisions of Section 4.3 hereof.

4.4 DOCTOR'S INSURANCE. DOCTOR shall provide, obtain, and maintain
throughout the Term appropriate workers' compensation insurance coverage for
DOCTOR'S employed personnel and shall carry professional Liability insurance
covering DOCTOR and all of DOCTOR'S physician Professional Personnel in the
minimum amount of Two Hundred Thousand Dollars ($200,000) for each occurrence
and Six Hundred Thousand Dollars ($600,000) annual aggregate, and such amounts
as may be reasonable for all other Professional Personnel (collectively,
"Professional Insurance"). Such professional insurance policy or policies
maintained by DOCTOR shall include COMPANY

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as additional insured, if permitted by the insurer. DOCTOR shall provide to
COMPANY a certificate of insurance evidencing such coverage on an annual basis.
The insurance policy or policies shall provide for at least thirty (30) days
advance written notice to DOCTOR from the insurer as to any alteration of
coverage, cancellation, or proposed cancellation of coverage for any cause. The
certificate of insurance shall require such notice to also be given to COMPANY.
DOCTOR shall notify COMPANY of all legal actions or proceedings instituted by
or against DOCTOR arising out of or related to DOCTOR'S operation of a medical
practice.

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ARTICLE V
MANAGEMENT FEE

5.1 AMOUNT OF MANAGEMENT FEE. DOCTOR and COMPANY mutually
recognize and acknowledge that COMPANY will incur substantial costs in
arranging for Doctor's use of the Locations and in providing the equipment,
support services, personnel, marketing office space, management,
administration, and other items and services that are subject matter of this
Agreement. DOCTOR and COMPANY further recognize that certain of such costs and
expenses can vary to a considerable degree, according to the extent of DOCTOR'S
business and services. Furthermore, DOCTOR and COMPANY agree that it will be
impracticable to ascertain and segregate all of the exact costs and expenses
that will be incurred by COMPANY from time to time in performance of his
obligations under ties Agreement. However, it is the intent of the parties that
the fees paid to COMPANY be reasonable and approximate its costs and expenses,
plus a reasonable return, considering the investment and risk taken by COMPANY
and the value of the services provided by COMPANY. DOCTOR agrees to pay a
Management Fee to COMPANY in an amount equal to Fifty percent (50 %) of monthly
collected revenue.. An amount equal to THOUSAND AND 00/100 DOLLARS ($3,000)
each year is specifically designated for the provision of data processing and
other taxable services.

5.2 PAYMENT OF MANAGEMENT FEE. Will be paid in full by the 7th day
of the month following each month during the Term of this Agreement.

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administration, and other items and services furnished by COMPANY pursuant to
this Agreement, considering the nature and volume of the services required and
the risks assumed by COMPANY.

ARTICLE VI
TERM AND TERMINATION

6.1 INITIAL AND RENEWAL TERMS. This Agreement shall be effective
as October 1, 1996 for a period of five (5) years therefrom.

6.2 TERMINATION. This Agreement may be terminated upon the first
to occur of any of the following events.

6.2.1 TERMINATION BY AGREEMENT. In the event DOCTOR and
COMPANY shall mutually agree in writing, this Agreement may be
terminated on the date specified in such written agreement.

a. the first annual twelve month period of this
agreement such notice is given by DOCTOR, DOCTOR agrees to pay
the COMPANY an amount equal to One hundred percent (100%) of
Forecasted annual collected revenue of DOCTOR based on the
prior twelve month billing and collection history.

b. twenty-four (24) months of this agreement
such notice is given, by DOCTOR , DOCTOR agrees to pay the
COMPANY an amount equal to Seventy Five Percent (75 %) of
DOCTOR'S collected revenue received by and on behalf of, the
DOCTOR, during the immediate prior twelve month (12) period.

6.2.3 DAMAGES OR CONDEMNATION OF PREMISES. In the event the
Leased Premises are totally or substantially destroyed by fire,
explosion, flood, windstorm, hail, earthquake,

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or other casualty or act of God, and the owner landlord of the Leased
Premises decides not to repair or rebuild the Leased Premises, or in
the event all or a substantial portion of the Leased Premises and the
Facility are taken or are to be taken by condemnation or eminent
domain proceeding, then either party may by written notice (sent
within thirty (30) days of such event) to the other terminate this
Agreement if suitable alternative premises cannot be secured within
sixty (60) days. In the event the owner/landlord of the Leased
Premises decides to repair or rebuild the Leased Premises to their
original size and condition, the Management Fee and the duties and
obligations of COMPANY and DOCTOR hereunder shall abate until such
time as the Leased Premises are suitable for COMPANY and DOCTOR to
resume their respective duties and obligations hereunder.

6.2.5 SPECIFIC DOCTOR BREACHES. At COMPANY's option, in the
event of Dr. Ronald W. Kirkwood shall die or be involuntarily inducted
into the active military services of the United States, (ii) DOCTOR or
any physician employed or retained by DOCTOR shall fail by omission or
commission in any substantial manner to provide Professional Services
in a competent manner, (iii) DOCTOR shall fail to meet any of the
qualifications set forth in Section 4.1 hereof, (iv) Dr. license to
practice medicine is revoked, suspended, canceled or limited in any
manner, (v) Dr. Ronald W. Kirkwood convicted of a felony or any crime
of moral turpitude, or (vi) Dr. Ronald W. Kirkwood or shall fail to
comply with the terms of his Employment Contract of even date
herewith, then COMPANY may by written notice to DOCTOR immediately
terminate this Agreement.

6.2.7 ACTION BY BOARD OF MEDICAL EXAMINERS OR OTHER
AUTHORITY WITH LEGAL JURISDICTION. "While both parties believe that
this Agreement is in full compliance with the

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<PAGE> 18
Texas Medical Practice Act, the interpretation of the Act may be
subject to change. In the event the Board of Medical Examiners for the
State or other authority with legal jurisdiction shall, solely by
virtue of this Agreement, initiate an action to revoke the license of
any physician retained by DOCTOR to practice medicine in the State,
DOCTOR may, by written notice to COMPANY, immediately request that the
Agreement be amended in a mutually acceptable manner. Any amendment
shall be made in the lawful manner which results in the least changes
to the parties' expectations hereunder. In the event the
offending-provisions of the Agreement cannot be cured as to the
legality of such provisions to the satisfaction of both parties, then
either party may terminate this Agreement upon ten (IO) days written
notice, and such termination shall be conducted as set forth in
Section 3 of the Master Agreement. In the event the Board of Medical
Examiners shall, on any other grounds, including, without limitation,
improper medical practice or improper conduct by any physician
retained by DOCTOR, restrict, suspend or revoke the license of such
physician to practice medicine in the State, the COMPANY may, by
written notice to DOCTOR, immediately terminate this Agreement.

6.2.8 DEFAULT. In the event either party shall give written
notice to the other that such other party has substantially defaulted
in the performance of any material duty or material obligation imposed
upon it by this Agreement, and such default shall not have been cured
within thirty (30) days following the giving of such written notice,
the party giving such written notice shall have the right to
immediately terminate this Agreement unless the defaulting party shall
within said thirty (30) day period, have made a good faith effort to
initiate corrective action and it is contemplated that such corrective
action will be completed within the following (30) day period.

6.3 EFFECTS OF TERMINATION. Upon termination of this Agreement, as
herein above provided, neither party shall have any further obligations
hereunder except for (i) obligations accruing prior to the date of termination,
and (ii) obligations, promises, or covenants set forth herein or in those
collateral agreements of even date herewith that are expressly made to extend
beyond the Term, including, without limitation, indemnities, non-compete and
fees which provisions shall survive the expiration or termination of this
Agreement. All outstanding fee's and loans owed by DOCTOR are to be paid prior
to the termination date.

6.5 PATIENT SOLICITATION/COPIES OF MEDICAL RECORDS. It is
expressly understood that patients reserve the fight to seek medical services
from the physician of their choice and as such all medical records are legally
the property of the patient. In the event of termination it is agreed that
DOCTOR will advise all patients of their decision to cease to provide medical
services at all COMPANY provided clinics but will continue to provide continued
medical services at their new

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location. It is further agreed that such patient letters will clearly contain
information informing the patient that continued medical services will be
available to them at the COMPANY clinic site and as such it is at the
discretion of the patient to determine whether to continue under DOCTOR's care
or to seek medical attention from the succeeding physician made available to
them at COMPANY clinic sites.

ARTICLE VII
MISCELLANEOUS

7.1 EXHIBITS, SCHEDULES AND OTHER INSTRUMENTS. As used herein, the
expression "this Agreement" means the body of this Agreement and all exhibits,
certificates, and schedules and the expressions " herein, " " hereof, ' and "
hereunder " and other words of similar import refer to this Agreement and such
exhibits, certificates, and schedules as a whole and not to a particular part
or subdivision thereof unless otherwise clearly indicated.

7.2 INDEPENDENT RELATIONSHIP. It is mutually understood and agreed
that DOCTOR and COMPANY, in performing their respective duties and obligations
under this Agreement, are at all times acting and performing as independent
contractors with respect to each other, and nothing in this Agreement is
intended nor shall be construed to create an employer/employee relationship or
a joint venture relationship, or to allow COMPANY to exercise control or
direction of any nature, kind, or description over the manner or method by
which DOCTOR performs Professional Services.

DOCTOR: Ronald W. Kirkwood, D.O.

COMPANY: Doctors Practice Management, Inc.
4301 Vista Road
Pasadena, Texas 77504

or to such other address, and to the attention of such other person or officer
as any party may designate, with copies thereof to the respective counsel
thereof as notified by such party. Rejection or other refusal to accept or the
inability to deliver because of a changed address of which no notice was given
in accordance with the provisions hereof, shall be deemed to be receipt of the
notice sent.

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<PAGE> 20
7.4 FEES AND COSTS. In the event either party brings any action
for relief against the other, declamatory or otherwise, arising out of this
Agreement (including actions to enforce and interpret this Agreement), the
losing party shall pay to the prevailing party, in addition to any other relief
to which such party shall be entitled, a reasonable sum for attorneys fees
incurred in bringing such suit and/or enforcing any judgment granted therein,
all of which shall be deemed to have accrued upon the commencement of such
action and shall be paid whether or not such action is prosecuted to judgment.
Any judgment or order entered in such action shall contain a specific provision
providing for the recovery of attorney fees and costs incurred in enforcing
such judgment, in addition to any other relief to which such party shall be
entitled.

7.5 CHOICE OF LAW AND VENUE. THIS AGREEMENT HAS BEEN EXECUTED AND
DELIVERED IN AND SHALL BE INTERPRETED, CONSTRUED, ENFORCED AND GOVERNED BY AND
IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS, AND THAT THE COURTS OF THAT
STATE IN TBE COUNTY OF HARRIS, AND THE UNITED STATES DISTRICT COURT FOR
SOUTHERN DISTRICT OF TEXAS SHALL BE THE EXCLUSIVE COURTS OF JURISDICTION AND
VENUE FOR ANY LITIGATION, SPECIAL PROCEEDING OR OTHER PROCEEDING AS BETWEEN THE
PARTIES THAT MAY BE BROUGHT, OR ARISE OUT OF, IN CONNECTION OR BY REASON OF
THIS AGREEMENT. SELLER HEREBY CONSENTS TO THE JURISDICTION OF SUCH COURTS.

7.8 ENFORCEMENT. All claims and disputes relating to this
Agreement shall be subject to confidential arbitration in accordance with the
National Health Lawyers Association, Alternative Dispute Resolution Rules of
Procedure for Arbitration then obtaining and with individuals knowledgeable of
the medical industry serving as arbitrators. Written notice of demand for
arbitration shall be filed with the other party to the Agreement and with the
National Health Lawyers Association in Washington, D.C., within a reasonable
time after the dispute has arisen. In the event either party resorts to legal
action to enforce the arbitration results or any other provision of this

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Agreement, the prevailing party shall be entitled to recover the costs of such
action so incurred, including, without limitations reasonable attorneys fees.

7.11 CONSENTS, APPROVALS, AND EXERCISE OF DISCRETION. Except as may
herein specifically provided to the contrary, whenever this Agreement requires
any consent or approval to be given by either party, or either party must or
may exercise discretion, the parties agree that such consent or approval shall
not be unreasonably withheld or delayed, and such discretion shall be
reasonably exercised in good faith.

7.13 SEVERABILITY. In the event any provisions of this Agreement is
held to be invalid, illegal, or unenforceable for any reason and in any
respect, if the extent of such invalidity, legality or unenforceability does
not destroy the basis of the bargain herein such invalidity, illegality, or
unenforceability shall in no event affect, prejudice, or disturb the validity
of the remainder of this Agreement, which shall be in full force and effect,
enforceable in accordance with its term-is as if such provisions had not been
included, or had been modified as provided below, as the case may be. To carry
out the intent of the parties hereto as fully as possible, the invalid, illegal
or unenforceable provision(s), if possible, shall be deemed modified to the
extent necessary and possible to render such provision(s) valid and
enforceable. In the event this Agreement cannot be modified to the satisfaction
of the parties hereto, then either party may terminate this Agreement upon ten
(10) days written notice.

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7.15 AMENDMENTS AND AGREEMENT. This Agreement and amendments
thereto shall be in writing and executed in multiple copies on behalf of DOCTOR
by its duly authorized representative and on behalf of COMPANY by its duly
authorized representative. Each multiple copy shall be deemed an original, but
all multiple copies together shall constitute one and the same instrument.

7.16 TIME OF ESSENCE. Time shall be of the essence with respect to
this Agreement.

7.18 RULES OF CONSTRUCTION. The parties acknowledge that each party
and its counsel have reviewed and revised this Agreement, and the parties
hereby agree that the normal rule of construction to the effect that any
ambiguities are to be resolved against the drafting party shall not be employed
in the interpretation of this Agreement or any amendments or exhibits,
certificates and schedules hereto. The term " include " or " including " shall
mean without Mutation by reason of enumeration. All references in this
Agreement to Dollars or monetary payment shall be deemed to refer to U.S.
Dollars.

7.19 REPRODUCED COPIES OF DOCUMENTS. This Agreement and all
documents relating hereto other than promissory notes, including without
limitations (a) consents, waivers, and modifications which may hereinafter be
executed, (b) documents received by any party at the Closing, (c) financial
statements, certificates and other information previously or hereafter
furnished may be reproduced by any means or process including electronic or
mechanical means. Any reproduction shall be admissible into evidence as the
original itself in any Litigation without regard to whether the original is in
existence. If a party signs this Agreement and then transmits an electronic
facsimile of the signature page the recipient may rely upon the electronic
facsimile as a signed original of ties Agreement without modification or change
unless same is noted thereon.

7.20 THIRD PARTIES. None of the provisions of this Agreement shall
be for the benefit of third parties or enforceable by any third party except as
otherwise contained herein. Any agreement

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to pay an amount and any assumption of a liability herein contained, expressed
or implied, shall only be for the benefit of the parties hereto and such
agreement or assumption shall not inure to the benefit of the any third party,
including an obligee.

IN WITNESS WHEREOF, DOCTOR AND COMPANY HAVE EXECUTED THIS AGREEMENT IN
MULTIPLE ORIGINALS AS OF THE DATE WRITTEN ABOVE.

DOCTOR:

By: //s// Ronald W. Kirkwood
--------------------------------
Ronald W. Kirkwood, D.O.

COMPANY:
DOCTORS PRACTICE MANAGEMENT, INC.

By: //s// Chiu M. Chan
--------------------------------
Chiu M. Chan, President

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SCHEDULE A

EQUIPMENT LEASES

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SCHEDULE B

EQUIPMENT PURCHASE LISTING

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<PAGE> 1
EXHIBIT 10.27

FULL SERVICE FACILITY
AND
MANAGEMENT AGREEMENT

MILTON KIRKWOOD, D. O.

OCTOBER 1, 1996
<PAGE> 2
FULL SERVICE FACILITY AND MANAGEMENT AGREEMENT

THIS FULL SERVICE FACILITY AND MANAGEMENT AGREEMENT, entered into
effective as of October 1, 1996, is by and between MILTON KIRKWOOD, D.O.
("DOCTOR") and DOCTORS PRACTICE MANAGEMENT, INC., a Texas corporation
("COMPANY").

WITNESSETH:

<PAGE> 3
WHEREAS, DOCTOR and COMPANY mutually desire an arrangement that:

1. facilitates consistency of service in the medical care
provided by Doctor and in the administrative and business
services provided by COMPANY;

2. facilitates effective utilization of DOCTOR'S resources;

3. facilitates appropriate staffing and scheduling of personnel
for and by DOCTOR, as the case may be;

4. facilitates the management and administration of the
day-to-day business operations of DOCTOR;

5. ensures that each party will receive the total revenue
attributable to such party's services, capital investment, and
business risks, and no portion of the revenue attributable to
the services, capital investment, and business risks of the
other party; and

6. ensures that (1) DOCTOR and licensed health care personnel
employed by DOCTOR shall owe their first duty to their
patients; and (b) preserve the confidential nature of the
doctor-patient relationship (2) DOCTOR controls patient care
in the medical and administrative procedures to be followed;
and (3) that COMPANY does not commit any act constituting the
practice of medicine or use any licensed health care
practitioners license to practice medicine all for the benefit
of those seeking services as patients.

ARTICLE I
DEFINITIONS

For the purposes of this Agreement, the following terms shall have the
following meanings ascribed thereto, unless otherwise clearly required by the
context in which such term is used.

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1.2 PROFESSIONAL SERVICES. The term "Professional Services" shall
mean the professional services, specifically including physician services, and
related health care services provided by DOCTOR.

1.3 DOCTOR. The term "DOCTOR" shall mean Milton Kirkwood, D. O.

1.4 DOCTOR'S ACCOUNT. The term "DOCTOR'S Account" shall mean the
bank account of COMPANY established as described in Section 3.12 hereof.

1.5 FACILITY. The term "Facility" shall mean the medical offices
owned or leased by COMPANY where Professional Services are provided by DOCTOR.

1.6 COMPANY. The term "COMPANY" shall mean Doctors Practice
Management, Inc., a Texas corporation.

1.7 MANAGEMENT FEE. The term "Management Fee" shall mean Company's
compensation as described in Article V hereof.

1.8 STATE. The term "State" shall mean the State of Texas.

1.9 TERM. The term "Term" shall mean the initial and any renewal
periods of duration of this Agreement as described in Section 6.1 hereof.

1.10 LOCATION. The term "Location" shall mean the Facility(s) in
the Houston, Texas, Standard Metropolitan Statistical area and such Facility(s)
as may exist in the future.

ARTICLE II
APPOINTMENT AND AUTHORITY

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functions of DOCTOR. To the extent practicable, COMPANY, at its discretion,
shall perform some or all of the services specified hereunder for DOCTOR.

ARTICLE III
COVENANTS OF COMPANY

3.1.4 DISCLAIMER OF WARRANTY. COMPANY MAKES NO WARRANTY,
EITHER EXPRESSED OR IMPLIED, WITH RESPECT TO THE LOCATIONS,

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PREMISES OR ANY EQUIPMENT PROVIDED BY COMPANY PURSUANT TO THIS
AGREEMENT, AND ALL WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A
PARTICULAR PURPOSE ARE HEREBY EXPRESSLY DISCLAIMED.

3.1.5 ASSUMPTION OF EQUIPMENT LEASES. COMPANY will assume
the leases stipulated on SCHEDULE A attached hereto from Fairmont
Family Practice, P.A. Such assumption will be subject to the
conditions stipulated by respective Leasing Company's.

3.2 UTILITIES AND RELATED SERVICES. COMPANY shall, at
COMPANY'S expense arrange for and shall timely pay when due all
charges relating to the provision of necessary electricity, gas,
water, telephone, sewage, cleaning and decorating (interior and
exterior), pest extermination, heating and air-conditioning
maintenance, and similar services reasonably necessary and appropriate
for the provision of Professional Services at the Locations.

3.7 PERSONNEL.

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3.7.1 PROVISION OF COMPANY PERSONNEL. COMPANY shall employ
or otherwise retain, at Company's expense, and shall be responsible
for selecting, training, supervising, and terminating all management,
administrative, clerical secretarial bookkeeping, accounting, payroll,
billing and collection, and other non-professional personnel as
COMPANY deems reasonably necessary and appropriate for COMPANY's
performance of its duties and obligations under this Agreement.
COMPANY shall have the sole responsibility for determining the
salaries and fringe benefits of personnel retained by COMPANY, for
paying such salaries and providing such fringe benefits, or for
withholding, as required by law, any sums of income tax, unemployment
insurance, social security, or any other withholding pursuant to any
applicable law or governmental requirement.

3.7.2 NON-EXCLUSIVITY. In recognition of the fact that the
personnel retained by COMPANY to provide services pursuant to this
Agreement may from time to time perform services for others, this
Agreement shall not prevent COMPANY from performing such services for
others or restrict COMPANY from using its personnel to provide
services to others, provided such activity does not cause any material
detriment to DOCTOR. In recognition of the professional obligations of
DOCTOR, DOCTOR shall have the right and obligation to retain, at
DOCTOR's expense, any additional professional or other personnel as
DOCTOR deems necessary or appropriate for the provision of health care
services.

3.7.3 EQUAL EMPLOYMENT OPPORTUNITY. COMPANY shall abide and
provide assistance to DOCTOR, and abide by any and all applicable
federal and/or State equal employment opportunity statutes, rules, and
regulations, including, without limitation, Title VII of the Civil
Rights Act of 1964, the Equal Employment Opportunity Act of 1972, the
Age Discrimination in Employment Act of 1967, the Equal Pay Act of
1963, the National Labor Relations Act, the Fair Labor Standards Act,
the Rehabilitation Act of 1973, and the Occupational Safety and Health
Act of 1970, all as may from time to time be modified or amended.

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3.9 CONTRACT NEGOTIATIONS. Upon the request of DOCTOR, COMPANY
shall advise with respect to and negotiate on Doctor's behalf, all contractual
arrangements with third parties as are reasonably necessary and appropriate for
DOCTOR's provision of Professional Services, including, without limitations
negotiated price agreements with third party payers, managed care providers, or
the purchasers of group health care services.

3.11 LICENSE TO USE TRADE NAMES AND TRADEMARKS OF COMPANY. COMPANY,
at some time in the future may grant to DOCTOR, but only subject to the terms
and conditions of this Agreement, a license to use certain names in connection
with the provision of Professional Services in combination with such color
schemes, patterns, appearances, characteristics and words as are specifically
approved by COMPANY. DOCTOR'S use of any trademarks, trade names, service
marks, insignia, slogans, emblems, symbols, designs or other identifying
characteristics owned by or associated with COMPANY or any of its subsidiaries
or affiliates (collectively, "COMPANY Marks") shall be subject to the prior
written approval of COMPANY. DOCTOR acknowledges that such names and COMPANY
Marks have acquired a secondary meaning in connection with COMPANY's
operations. DOCTOR may also apply to COMPANY for permission to use any other
COMPANY Marks which permission may or may not be granted in the absolute
discretion of COMPANY. The use of any COMPANY Marks in any signs, advertising
or any promotional material shall be subject to the prior approval of COMPANY.

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3.12 BILLING AND COLLECTION. On behalf of DOCTOR and for the
purpose depositing all receipts arising from DOCTOR's patient activities,
COMPANY shall maintain a DOCTOR'S lockbox account . Such DOCTOR'S account will
be under the COMPANY NAME and be operated by COMPANY. COMPANY shall establish
and maintain credit and billing and collection policies and procedures, and
shall use COMPANY's best efforts to timely bill and collect all professional
and other fees for all billable Professional Services provided by DOCTOR, it
being understood, however that DOCTOR, in his sole discretion shall establish
the fees for all billable Professional Services provided by DOCTOR. DOCTOR
shall timely advise COMPANY of any changes in DOCTOR'S fee schedule to permit
COMPANY to implement such changes. In connection with this Section 3.12 and
throughout the Term, DOCTOR hereby grants a special power of attorney to and
appoints COMPANY as DOCTOR's true and lawful agent and attorney-in-fact, and
COMPANY hereby accepts such special power of attorney and appointment, for the
following purposes:

3.12.1 To bill DOCTOR'S patients, in DOCTOR'S name and on
DOCTOR'S behalf for billable Professional Services provided by DOCTOR.

3.12.3 To collect and receive, in DOCTOR'S name and on
DOCTOR'S behalf, all accounts receivable generated by such billings
and claims for reimbursement or indemnification, and to deposit all
amounts collected in the DOCTOR'S Account, which account shall be and
remain in COMPANY'S name. In connection herewith, DOCTOR covenants to
transfer and deliver to COMPANY all funds received by DOCTOR from
patients or third party payers for Professional Services unless
otherwise provided for within this agreement. Upon receipt by COMPANY
of any funds from patients or third party payers or from DOCTOR
pursuant hereto for Professional Services, COMPANY shall deposit same
into the DOCTOR'S Account.

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<PAGE> 10
special power of attorney and COMPANY hereby accepts such special power of
attorney and appointment, to deposit in the DOCTOR'S Account all funds, fees,
and revenues generated from the provision of Professional Services and
collected by COMPANY, and to make withdrawals and sign checks for disbursements
from DOCTOR'S Account. DOCTOR shall execute any and all additional documents
required by the bank where the DOCTOR'S Account is held to effectuate the power
of attorney and conditions of the account granted herein. Notwithstanding the
limited power of attorney granted to COMPANY hereunder. COMPANY shall furnish
to DOCTOR, on a monthly basis, its normal Cash Receipts and Disbursements
Report.

3.13.1 CASH FLOW AND FUNDING. COMPANY will provide to DOCTOR
a line of Credit in the amount of $______________ interest free, to be
made available upon execution of this agreement and the execution of a
signed note by the DOCTOR. Loan will be all due and payable within the
first Twelve Months (12) months of the term of the FULL SERVICE
FACILITY AND MANAGEMENT AGREEMENT or upon its termination. COMPANY
will take a security interest in the Accounts Receivable of DOCTOR as
evidenced by a signed Security Interest by DOCTOR and the filing of a
signed UCC form.

3.13.2 COLLECTION GUARANTEE. COMPANY guarantees that it will
collect 80% of all billings, including adjustments and excluding any
workers compensation non compensation or personal liability accounts,
within ninety (90) days from insurance claim submission date. COMPANY
will fund any exception occasioned by their failure to perform to this
guarantee.

3.14 FISCAL MATTERS.

3.14.1 PURCHASE OF EQUIPMENT. COMPANY will purchase the
physical assets of Fairmont Family Practice, P.A. as stipulated on
SCHEDULE B, attached hereto. Such purchase will be evidenced by a bill
of sale for the sum of Seventy Five Thousand Dollars and no cents
($75,000.00) payable upon delivery and possession by company. This
purchase commitment is subject to the execution of this agreement.

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<PAGE> 11
as COMPANY may from time to time deem appropriate or DOCTOR may
reasonably from time-to-time request.

3.14.3 ACCESS. DOCTOR shall have the right at all reasonable
times during normal business hours to audit, examine, and make copies
of books of account maintained by COMPANY pursuant to this Agreement.
COMPANY shall maintain such records for DOCTOR's access upon request
for a period of four (4) years following the Term hereof.

3.15 REPORTS AND RECORDS.

3.15.1 PATIENT RECORDS. COMPANY shall establish monitor, and
maintain procedures and policies for the timely filing and maintenance
of all patient records generated by DOCTOR in connection with DOCTOR'S
provision of Professional Services. All patient records shall be
treated in accordance with all applicable State and federal laws
relating to the confidentiality of patient records. All patient
records shall be the property of, maintained by, and in the custody of
DOCTOR, but DOCTOR expressly agrees that COMPANY shall have access to
such patient records, at all reasonable times during normal business
hours, to the extent necessary for COMPANY to fulfill its obligations
under this Agreement and that COMPANY, to the extent lawfully
permitted, shall have access to such patient records, for the purpose
of making necessary copies, in the event this Agreement is terminated.
COMPANY shall maintain the confidentiality of all patient records in
accordance with all applicable laws and shall establish written
policies and procedures for such which are to be approved by DOCTOR
for the protection of confidential information.

3.16 LEGAL ACTIONS. As requested by DOCTOR, COMPANY shall
advise and assist DOCTOR in instituting or defending, in the name of
DOCTOR, all legal actions or proceedings by or against third parties
arising out of DOCTOR'S provision of Patient Care Service, including,
without limitation, those actions to collect fees for billable
Professional Services or other billable services provided to patients
by DOCTOR, and those actions necessary for the protection and
continued operation of DOCTOR.

3.17 INDEMNIFICATION BY COMPANY. DOCTOR, its officers, its
employees, and its agents will incur no liability in connection with the
conduct of COMPANY prior to the effective date of this Agreement. Accordingly,
COMPANY shall and hereby does indemnify, hold harmless, and agrees to defend
DOCTOR and its officers, employees, and agents from and against any claims,
obligations, demands, causes of action, losses, liabilities, damages, costs and
expenses, including reasonable attorney's fees (collectively " Claims ")
arising out of or connected with the conduct of COMPANY prior to the effective
date of this Agreement.

3.19 PATIENT SATISFACTION QUALITY ASSURANCE. COMPANY shall
implement and maintain a patient service satisfaction measurement system
whereby data will be sought from all patients on a consistent basis to
determine the level of patient satisfaction with regard to: Maintenance of
Facility, Professional and Courteous service by company provided personnel
regarding: Patient scheduling, Patient Insurance Billing Assistance and whether
the patient would recommend to others to seek medical attention on the basis of
these issues. It is intended to maintain a 75% patient satisfaction rating at
all times.

ARTICLE IV
COVENANTS OF DOCTOR

4.1 ORGANIZATION/OPERATION. DOCTOR, is a duly licensed Medical
Doctor and shall at all times during the Term (1) be and remain legally
organized to provide Professional Services in a manner consistent with all
State and federal laws (ii) be duly authorized to conduct business in the State
of Texas; and (iii) have and maintain a physician to provide Professional
Services in the Leased Premises and all other locations of Doctor who shall (a)
hold a valid and unlimited license to practice medicine in the State of Texas,
and (b) be engaged principally in the provision of Professional Services at
each such location.

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<PAGE> 13
requirements (collectively, "Professional Compensation"). COMPANY shall, in the
name of and on behalf of DOCTOR, establish and administer (out of funds
available in the DOCTOR'S Account) the compensation with respect to, such
professional personnel and, on behalf of DOCTOR and out of funds available in
the DOCTOR'S Account, ensure that proper tax withholdings from such
compensation are made and timely remitted to the appropriate governmental
entities. Each physician retained by DOCTOR shall at all times hold and
maintain a valid and unlimited license to practice in the State of Texas.
DOCTOR shall enter into and maintain with each such physician a written
agreement which shall include, without Limitation, the provisions of Section
4.3 hereof.

4.4 DOCTOR'S INSURANCE. DOCTOR shall provide, obtain, and maintain
throughout the Term appropriate workers' compensation insurance coverage for
DOCTOR'S employed personnel and shall carry professional Liability insurance
covering DOCTOR and all of DOCTOR'S physician Professional Personnel in the
minimum amount of Two Hundred Thousand Dollars ($200,000) for each occurrence
and Six Hundred Thousand Dollars ($600,000) annual aggregate, and such amounts
as may be reasonable for all other Professional Personnel (collectively,
"Professional Insurance"). Such professional insurance policy or policies
maintained by DOCTOR shall include COMPANY

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<PAGE> 15
ARTICLE V
MANAGEMENT FEE

5.1 AMOUNT OF MANAGEMENT FEE. DOCTOR and COMPANY mutually
recognize and acknowledge that COMPANY will incur substantial costs in
arranging for Doctor's use of the Locations and in providing the equipment,
support services, personnel, marketing office space, management,
administration, and other items and services that are subject matter of this
Agreement. DOCTOR and COMPANY further recognize that certain of such costs and
expenses can vary to a considerable degree, according to the extent of DOCTOR'S
business and services. Furthermore, DOCTOR and COMPANY agree that it will be
impracticable to ascertain and segregate all of the exact costs and expenses
that will be incurred by COMPANY from time to time in performance of his
obligations under ties Agreement. However, it is the intent of the parties that
the fees paid to COMPANY be reasonable and approximate its costs and expenses,
plus a reasonable return, considering the investment and risk taken by COMPANY
and the value of the services provided by COMPANY. DOCTOR agrees to pay a
Management Fee to COMPANY in an amount equal to Fifty percent (50%) of monthly
collected revenue.. An amount equal to THOUSAND AND 00/100 DOLLARS ($3,000)
each year is specifically designated for the provision of data processing and
other taxable services.

5.2 PAYMENT OF MANAGEMENT FEE. Will be paid in full by the 7th day
of the month following each month during the Term of this Agreement.

ARTICLE VI
TERM AND TERMINATION

6.1 INITIAL AND RENEWAL TERMS. This Agreement shall be effective
as October 1, 1996 for a period of five (5) years therefrom.

6.2 TERMINATION. This Agreement may be terminated upon the first
to occur of any of the following events.

6.2.1 TERMINATION BY AGREEMENT. In the event DOCTOR and
COMPANY shall mutually agree in writing, this Agreement may be
terminated on the date specified in such written agreement.

b. twenty-four (24) months of this agreement
such notice is given, by DOCTOR , DOCTOR agrees to pay the
COMPANY an amount equal to Seventy Five Percent (75%) of
DOCTOR'S collected revenue received by and on behalf of, the
DOCTOR, during the immediate prior twelve month (12) period.

c. thirty-six (36) months of this agreement such
notice is given by DOCTOR, DOCTOR agrees to pay the COMPANY an
amount equal to Fifty Percent (50%) of the DOCTOR'S collected
revenue received by and on behalf of, the DOCTOR, during the
immediate prior twelve month (1 2) period.

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<PAGE> 17
6.2.3 DAMAGES OR CONDEMNATION OF PREMISES. In the event the
Leased Premises are totally or substantially destroyed by fire,
explosion, flood, windstorm, hail, earthquake, or other casualty or
act of God, and the owner landlord of the Leased Premises decides not
to repair or rebuild the Leased Premises, or in the event all or a
substantial portion of the Leased Premises and the Facility are taken
or are to be taken by condemnation or eminent domain proceeding, then
either party may by written notice (sent within thirty (30) days of
such event) to the other terminate this Agreement if suitable
alternative premises cannot be secured within sixty (60) days. In the
event the owner/landlord of the Leased Premises decides to repair or
rebuild the Leased Premises to their original size and condition, the
Management Fee and the duties and obligations of COMPANY and DOCTOR
hereunder shall abate until such time as the Leased Premises are
suitable for COMPANY and DOCTOR to resume their respective duties and
obligations hereunder.

6.2.5 SPECIFIC DOCTOR BREACHES. At COMPANY's option, in the
event of Dr. Milton Kirkwood shall die or be involuntarily inducted
into the active military services of the United States, (ii) DOCTOR or
any physician employed or retained by DOCTOR shall fail by omission or
commission in any substantial manner to provide Professional Services
in a competent manner, (iii) DOCTOR shall fail to meet any of the
qualifications set forth in Section 4.1 hereof, (iv) Dr. license to
practice medicine is revoked, suspended, canceled or limited in any
manner, (v) Dr. Milton Kirkwood convicted of a felony or any crime of
moral turpitude, or (vi) Dr. Milton Kirkwood or shall fail to comply
with the terms of his Employment Contract of even date herewith, then
COMPANY may by written notice to DOCTOR immediately terminate this
Agreement.

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<PAGE> 18
6.2.7 ACTION BY BOARD OF MEDICAL EXAMINERS OR OTHER
AUTHORITY WITH LEGAL JURISDICTION. "While both parties believe that
this Agreement is in full compliance with the Texas Medical Practice
Act, the interpretation of the Act may be subject to change. In the
event the Board of Medical Examiners for the State or other authority
with legal jurisdiction shall, solely by virtue of this Agreement,
initiate an action to revoke the license of any physician retained by
DOCTOR to practice medicine in the State, DOCTOR may, by written
notice to COMPANY, immediately request that the Agreement be amended
in a mutually acceptable manner. Any amendment shall be made in the
lawful manner which results in the least changes to the parties'
expectations hereunder. In the event the offending-provisions of the
Agreement cannot be cured as to the legality of such provisions to the
satisfaction of both parties, then either party may terminate this
Agreement upon ten (IO) days written notice, and such termination
shall be conducted as set forth in Section 3 of the Master Agreement.
In the event the Board of Medical Examiners shall, on any other
grounds, including, without limitation, improper medical practice or
improper conduct by any physician retained by DOCTOR, restrict,
suspend or revoke the license of such physician to practice medicine
in the State, the COMPANY may, by written notice to DOCTOR,
immediately terminate this Agreement.

6.2.8 DEFAULT. In the event either party shall give written
notice to the other that such other party has substantially defaulted
in the performance of any material duty or material obligation imposed
upon it by this Agreement, and such default shall not have been cured
within thirty (30) days following the giving of such written notice,
the party giving such written notice shall have the right to
immediately terminate this Agreement unless the defaulting party shall
within said thirty (30) day period, have made a good faith effort to
initiate corrective action and it is contemplated that such corrective
action will be completed within the following (30) day period.

6.3 EFFECTS OF TERMINATION. Upon termination of this Agreement, as
herein above provided, neither party shall have any further obligations
hereunder except for (i) obligations accruing prior to the date of termination,
and (ii) obligations, promises, or covenants set forth herein or in those
collateral agreements of even date herewith that are expressly made to extend
beyond the Term, including, without limitation, indemnities, non-compete and
fees which provisions shall survive the expiration or termination of this
Agreement. All outstanding fee's and loans owed by DOCTOR are to be paid prior
to the termination date.

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<PAGE> 19
DOCTOR will advise all patients of their decision to cease to provide medical
services at all COMPANY provided clinics but will continue to provide continued
medical services at their new location. It is further agreed that such patient
letters will clearly contain information informing the patient that continued
medical services will be available to them at the COMPANY clinic site and as
such it is at the discretion of the patient to determine whether to continue
under DOCTOR's care or to seek medical attention from the succeeding physician
made available to them at COMPANY clinic sites.

ARTICLE VII
MISCELLANEOUS

7.1 EXHIBITS, SCHEDULES AND OTHER INSTRUMENTS. As used herein, the
expression "this Agreement" means the body of this Agreement and all exhibits,
certificates, and schedules- and the expressions " herein, " " hereof, ' and "
hereunder " and other words of similar import refer to this Agreement and such
exhibits, certificates, and schedules as a whole and not to a particular part
or subdivision thereof unless otherwise clearly indicated.

7.2 INDEPENDENT RELATIONSHIP. It is mutually understood and agreed
that DOCTOR and COMPANY, in performing their respective duties and obligations
under this Agreement, are at all times acting and performing as independent
contractors with respect to each other, and nothing in this Agreement is
intended nor shall be construed to create an employer/employee relationship or
a joint venture relationship, or to allow COMPANY to exercise control or
direction of any nature, kind, or description over the manner or method by
which DOCTOR performs Professional Services.

DOCTOR: Milton Kirkwood, D.O.

COMPANY: Doctors Practice Management, Inc.
4301 Vista Road
Pasadena, Texas 77504

or to such other address, and to the attention of such other person or officer
as any party may designate, with copies thereof to the respective counsel
thereof as notified by such party. Rejection

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<PAGE> 20
or other refusal to accept or the inability to deliver because of a changed
address of which no notice was given in accordance with the provisions hereof,
shall be deemed to be receipt of the notice sent.

7.5 CHOICE OF LAW AND VENUE. THIS AGREEMENT HAS BEEN EXECUTED AND
DELIVERED IN AND SHALL BE INTERPRETED, CONSTRUED, ENFORCED AND GOVERNED BY AND
IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS, AND THAT THE COURTS OF THAT
STATE IN TBE COUNTY OF HARRIS, AND THE UNITED STATES DISTRICT COURT FOR
SOUTHERN DISTRICT OF TEXAS SHALL BE THE EXCLUSIVE COURTS OF JURISDICTION AND
VENUE FOR ANY LITIGATION, SPECIAL PROCEEDING OR OTHER PROCEEDING AS BETWEEN THE
PARTIES THAT MAY BE BROUGHT, OR ARISE OUT OF, IN CONNECTION OR BY REASON OF
THIS AGREEMENT. SELLER HEREBY CONSENTS TO THE JURISDICTION OF SUCH COURTS.

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<PAGE> 21
Association in Washington, D.C., within a reasonable time after the dispute has
arisen. In the event either party resorts to legal action to enforce the
arbitration results or any other provision of this Agreement, the prevailing
party shall be entitled to recover the costs of such action so incurred,
including, without limitations reasonable attorneys fees.

7.11 CONSENTS, APPROVALS, AND EXERCISE OF DISCRETION. Except as may
herein specifically provided to the contrary, whenever this Agreement requires
any consent or approval to be given by either party, or either party must or
may exercise discretion, the parties agree that such consent or approval shall
not be unreasonably withheld or delayed, and such discretion shall be
reasonably exercised in good faith.

7.13 SEVERABILITY. In the event any provisions of this Agreement is
held to be invalid, illegal, or unenforceable for any reason and in any
respect, if the extent of such invalidity, legality or unenforceability does
not destroy the basis of the bargain herein such invalidity, illegality, or
unenforceability shall in no event affect, prejudice, or disturb the validity
of the remainder of this Agreement, which shall be in full force and effect,
enforceable in accordance with its term-is as if such provisions had not been
included, or had been modified as provided below, as the case may be. To carry
out the intent of the parties hereto as fully as possible, the invalid, illegal
or unenforceable provision(s), if possible, shall be deemed modified to the
extent necessary and possible to render such provision(s) valid and
enforceable. In the event this Agreement cannot be modified to the satisfaction
of the parties hereto, then either party may terminate this Agreement upon ten
(10) days written notice.

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<PAGE> 22
7.14 DIVISIONS AND HEADINGS. The division of this Agreement into
articles, sections, and subsections and the use of captions and headings in
connection therewith are solely for convenience and shall not affect in any way
the meaning or interpretation of this Agreement.

7.16 TIME OF ESSENCE. Time shall be of the essence with respect to
this Agreement.

7.18 RULES OF CONSTRUCTION. The parties acknowledge that each party
and its counsel have reviewed and revised this Agreement, and the parties
hereby agree that the normal rule of construction to the effect that any
ambiguities are to be resolved against the drafting party shall not be employed
in the interpretation of this Agreement or any amendments or exhibits,
certificates and schedules hereto. The term " include " or " including " shall
mean without Mutation by reason of enumeration. All references in this
Agreement to Dollars or monetary payment shall be deemed to refer to U.S.
Dollars.

7.19 REPRODUCED COPIES OF DOCUMENTS. This Agreement and all
documents relating hereto other than promissory notes, including without
limitations (a) consents, waivers, and modifications which may hereinafter be
executed, (b) documents received by any party at the Closing, (c) financial
statements, certificates and other information previously or hereafter
furnished, may be reproduced by any means or process including electronic or
mechanical means. Any reproduction shall be admissible into evidence as the
original itself in any Litigation without regard to whether the original is in
existence. If a party signs this Agreement and then transmits an

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<PAGE> 23
electronic facsimile of the signature page the recipient may rely upon the
electronic facsimile as a signed original of this Agreement without
modification or change unless same is noted thereon.

7.20 THIRD PARTIES. None of the provisions of this Agreement shall
be for the benefit of third parties or enforceable by any third party except as
otherwise contained herein. Any agreement to pay an amount and any assumption
of a liability herein contained, expressed or implied, shall only be for the
benefit of the parties hereto and such agreement or assumption shall not inure
to the benefit of the any third party, including an obligee.

IN WITNESS WHEREOF, DOCTOR AND COMPANY HAVE EXECUTED THIS AGREEMENT IN
MULTIPLE ORIGINALS AS OF THE DATE WRITTEN ABOVE.

DOCTOR:

By: /s/ Milton Kirkwood
-------------------------------
Milton Kirkwood, D.O.

COMPANY:
DOCTORS PRACTICE MANAGEMENT, INC.

By: /s/ Chiu M. Chan
-------------------------------
Chiu M. Chan, President

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<PAGE> 24
SCHEDULE A

EQUIPMENT LEASES

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<PAGE> 25
SCHEDULE B

EQUIPMENT PURCHASE LISTING

-24-

<PAGE> 1
EXHIBIT 10.28

ASSET PURCHASE AGREEMENT

THIS AGREEMENT by and among DOCTOR'S PRACTICE MANAGEMENT, INC., a
Texas Corporation (the "Purchaser") and MEDTEK MANAGEMENT, INC., a Texas
corporation (the "Seller").

W I T N E S S E T H:

WHEREAS, the parties hereto desire to memorialize the purchase of the
property and assets of the Seller by the Purchaser in exchange for certain
stock of the Purchaser and the assumption of certain liabilities of the Seller
by the Purchaser, all on the terms and conditions herein set forth.

NOW, THEREFORE, the parties hereto agree as follows:

1. TRANSFER OF ASSETS: CONSIDERATION, ASSUMPTION OF LIABILITIES,
AND OTHER MATTERS.

1.1 SALE OF TANGIBLE AND INTANGIBLE ASSETS. The Seller,
at the Closing referred to in Section 2 hereof, will grant, sell,
transfer, convey and deliver to the Purchaser all of the Seller's
furniture, fixtures, leasehold improvements, equipment, signs,
manuals, inventories (including office supplies), accounts receivable,
rights under contracts, "Logo" licensing agreement, agreements,
operating permits, goodwill, inventions, processes, know-how, patient
histories and records, current and prospective client information,
existing clientele, computer equipment, company specific software and
databases, forms, brochures, client relations procedures, practice
development resources and methods, fee schedules, operating systems,
information bases, telephone listings, and all other similar
properties and rights used by the Seller in connection with the
conduct of Seller's business, all as the same shall exist on the
Closing Date (as herein defined,) including but not limited to the
items listed on the attached Schedule 1, excepting, however, (i) all
of the corporate records of the Seller containing records of Seller's
director's, and shareholder's meetings and Seller's stock transfer and
issuance records and any other corporate records of Seller that do not
pertain to the assets, properties and business of the Seller to be
transferred pursuant to this Agreement, (ii) all rights in any fund
relating to unemployment compensation, retirement, pension, profits
sharing, bonus and savings funds, (iii) any of Seller's prepaid
federal and state income taxes on the Closing Date, all of any of
Seller's rights to, and claims for, federal and state income tax
refunds and refunds of other taxes paid, and (iv) Seller's leasehold
interest in and to the premises at 6200 Savoy, Suite 725, Houston,
Texas 77036, which Purchaser expressly is not assuming. The assets,
properties and business of the Seller to be transferred hereunder are
hereinafter sometimes called the "Assets."

1.2 CONSIDERATION. Based upon the terms and subject to
the conditions of this agreement, the total consideration to be paid
by the purchaser for the tangible and intangible assets referred to in
Section 1.1 shall be as follows:
<PAGE> 2
(A) 180,000 restricted common shares of Dynacq
International, Inc. ("the shares"), said
shares to be issued on or before November 14,
1997;

(B) A two-year option (to expire at 11:59 p.m. on
October 22, 1999) to purchase an additional
150,000 restricted shares of Dynacq
International, Inc. stock for the market
price existing at the close of trading on
the date of the closing (said price subject
to future splits, including reverse splits,
and equity changes);

(C) Immediate assumption by the Purchaser of
liability on the Seller's note owed to
Compass Bank, in the approximate current
amount of $63,000;

(D) The assumption by Purchaser of all of
Seller's accounts receivable and only those
accounts payable listed on the attached
Exhibit 2.

1.3 ALLOCATION OF PURCHASE PRICE. The Seller and the
Purchaser both expressly acknowledge and agree that the consideration
to be paid and received for the tangible and intangible Assets and
assumption of liabilities is fair and reasonable and represents
equivalent value given for the transfer and sale of the Assets from
the Seller to the Purchaser. Each of the Seller and Purchaser shall,
for their respective accounting and tax reporting purposes, allocate
the total consideration for the tangible and intangible Assets
(including the Assumed Liabilities) among the tangible and intangible
Assets to be sold and transferred by the Seller to the Purchaser in
accordance with Schedule 4 attached hereto and for all purposes
incorporated herein.

1.4 CONTRACTS, RECORDS. At the Closing, the Seller will
deliver to the Purchaser a copy of the Compass Bank Note Agreement of
the Seller to be assumed by the Purchaser. It is understood that the
Seller has delivered to the Purchaser all books, records and other
data relating to the Assets and the Assumed Liabilities. Seller
agrees to take all such additional steps as may be required to put the
Purchaser in full possession and control of the tangible and
intangible Assets.

1.5 ASSUMPTION OF LIABILITIES. Purchaser assumes
liability only for those accounts payable attached hereto as Exhibit 2
and for the Compass Bank indebtedness referenced above . Purchaser
and Seller expressly agree that Purchaser assumes no other liabilities
of Seller.

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<PAGE> 3
2. THE CLOSING.

2.1 THE CLOSING. The purchase and sale of the Assets
shall take place simultaneously with the execution of this Agreement
as contemplated in Section 1 of this Agreement (herein called the
"Closing") and shall take place at the offices of the Purchaser no
later than on October 22, 1997, unless mutually extended by the
parties hereto. The date of the Closing is referred to in this
Agreement as the "Closing Date."

3. REPRESENTATIONS AND WARRANTIES OF THE SELLER. The Seller
represents and warrants to the Purchaser that:

3.1 ORGANIZATION AND EXISTENCE. The Seller is a
corporation duly organized, validly existing and in good standing
under the laws of the State of Texas and has all requisite legal and
corporate power to carry on its business as now conducted and to enter
into and perform this Agreement. The Seller is not qualified to do
business as a foreign corporation in any state and neither the
character or location of the assets owned by the Seller nor the nature
of the business transacted by the Seller requires any such
qualification. A true and correct copy of the Articles of
Incorporation and Bylaws of the Seller, as in effect at the date
hereof, have been delivered to the Purchaser.

3.2 TAX MATTERS. To the best of Seller's knowledge, all
foreign, federal, state, county, local and other taxes, including
without limitation, income taxes, occupation taxes, corporate
franchise taxes, employment and withholding taxes, and sales and ad
valorem taxes, due and payable by the Seller on or before the date of
this Agreement have been paid and the Seller has filed all tax returns
and reports required to be filled by it, with all such taxing
authorities. Seller has made reasonable and adequate provision for
the payment of all accrued and unpaid foreign, federal, state, county,
local and other taxes of the Seller for all periods ended on or prior
to the date hereof, whether or not disputed. No assessment of
deficiencies has been made against the Seller and no extensions of
time are in effect for the assessment of deficiencies.

3.3 INVENTORIES. Seller has previously delivered to
Purchaser and Purchaser has reviewed and confirmed the list and
description of all inventories of the Seller at the date hereof.

3.4 EQUIPMENT. Seller has previously delivered to
Purchaser and Purchaser has reviewed and confirmed the list setting
forth a description of all items of equipment owned or leased by the
Seller at the date hereof. Seller has also informed Purchaser which,
if any, of the items listed thereon is leased rather than owned by the
Seller.

3.5 COMPLIANCE WITH LAWS. The Seller has complied in all
material respects with all applicable foreign, federal, state,
municipal and other political subdivision or governmental agency
statutes, ordinances and regulations, including, without limitation,
those imposing taxes, in every applicable jurisdiction, in respect of
the ownership of the Seller's properties and conduct of the Seller's
business.

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<PAGE> 4
3.6 BROKERS. The Seller in not a party to or in any way
obligated under any contract or other agreement for, and there are no
outstanding claims against them for, the payment of any broker's or
finder's fee in connection with the origin, negotiation, execution or
performance of this Agreement.

3.7 PATENTS AND TRADE-MARKS. The Seller does not own,
and neither have applied for, any patent, patent application, patent
license, trade-mark, trade-mark application or trade-mark license.
The Seller has no knowledge of any infringement or claimed
infringement by the Seller of any patent right or trade-mark right of
others.

3.8 FINANCIAL STATEMENTS. The Seller has delivered to
the Purchaser all necessary financial statements and related
information and Purchaser has assisted in obtaining such material.
Purchaser has independently verified such financial information.

3.9 SELLER'S AUTHORITY RELATIVE TO THIS AGREEMENT. The
execution, delivery and performance of this Agreement by the Seller
has been duly authorized and approved by the Board of Directors of the
Seller of more than 2/3 of the outstanding shares of the Seller and no
further corporate action is necessary on the part of the Seller to
make this Agreement valid and binding upon the Seller in accordance
with its terms. Evidence of such approvals, satisfactory to the
Purchaser, will be provided on or before November 14, 1997. Neither
the execution, delivery nor performance of this Agreement by the
Seller will result in a violation or breach of any term or provision
under the Articles of Association or Bylaws of the Seller or,
constitute a default or breach of, or accelerate the performance
required under, any indenture, mortgage, deed of trust or other
contract or agreement to which the Seller is a party or by which it or
any of its respective assets are bound, or, violate any order, writ,
injunction or decree of any court, administrative agency or
governmental body.

4. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER. The
Purchaser represents and warrants to and agrees with the Seller that:

4.1 ORGANIZATION AND EXISTENCE. The Purchaser is a
corporation duly organized, validly existing and in good standing
under the laws of the State of Texas and has all requisite legal and
corporate power to enter into and perform this Agreement.

4.2 AUTHORITY RELATIVE TO THIS AGREEMENT. The execution,
delivery and performance of this Agreement by the Purchaser have been
duly authorized by the Board of Directors of the Purchaser, and no
further corporate action is necessary on the part of the Purchaser to
make this Agreement valid and binding upon the Purchaser in accordance
of its terms. The Purchaser will provide to the Seller at the Closing
copies of the resolutions of the Board of Directors of the Purchaser
approving this Agreement, certified by an officer of the Purchaser.
Neither the execution, deliver nor performance of this Agreement by
the Purchaser will result in a violation or breach of any term or
provision under the Articles of Incorporation or Bylaws of the
Purchaser or constitute a default or breach of, or accelerate

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<PAGE> 5
the performance required under any indenture, mortgage, deed of trust
or other contract or agreement to which the Purchaser is a party or by
which it or its properties are bound, or violate any order, writ,
injunction or decree of any court, administrative agency or
governmental body.

4.3 BROKERS. The Purchaser is not a party to or in any
way obligated under any contract or agreement for, and there are no
outstanding claims against it for, the payment of any broker's or
finder's fee in connection with the origin, negotiation, execution, or
performance of this agreement.

4.4 ISSUANCE OF SHARES. The Shares to be delivered
herein as consideration for the acquisition of the Tangible and
Intangible Assets pursuant to this Agreement will, when delivered, be
validly issued and outstanding, fully paid and non-assessable, and
will be delivered on or before November 14, 1997.

5. INFORMATION.

5.1 ACCESS TO INFORMATION. Purchaser, its counsel,
accountants, and other representatives, have been provided full
and free access to all the properties, books, contracts, commitments,
and records of the Seller and the work papers of the Seller's
independent certified public accountants.

5.2 CONFIDENTIAL INFORMATION. The Seller acknowledges
that in the course of its previous involvement with the business
conducted by the Seller, it has had and will continue to have access
to certain know-how, formulae, processes, data, proprietary
information, supplier and patient records and information and other
confidential knowledge of the business and operations of the Seller
and Purchaser. Seller understands that all such information is
confidential and has been or will be conceived or learned by them in
confidence, and it agrees not to reveal any such information to any
third person for any reason or under any circumstances. Seller
further agrees that it will at no time use any such information for
the purpose of competing with or assisting others in competing with
the practice of the Purchaser or for any purpose which may be harmful
or detrimental to the practice or interests of the Purchaser. The
restrictions in this Section 5.2 shall not apply and shall not
prohibit the use or disclosure of such confidential information (I) to
the extent required by law or court order, or other administrative
order in any litigation, arbitration, or similar proceeding; (ii) to
the extent such information becomes publicly available other than
through a breach of this Section 5.2; or (iii) to the extent such
information would become necessary to support any claim arising
between the parties; or (iv) with the written agreement of the
Purchaser. The Seller agrees that any remedy at law for actual or
threatened breach of the provisions of Section 5.2 would be inadequate
and that the Purchaser shall be entitled to specific performance
thereof or injunctive relief by temporary or permanent injunction or
such other appropriate judicial remedy, writ or order as may be
entered by a court of competent jurisdiction. Any such remedy shall
be in addition to any damages which the

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<PAGE> 6
Purchaser may be legally entitled to recover as a result of any breach
by the Seller of the provisions of this Section 5.2, and the Seller
hereby waives any requirement for the securing or posting of any bond
in connection with obtaining any such injunctive or other equitable
relief.

5.3 AGREEMENT CONCERNING EMPLOYEES. It is agreed that
effective the Closing Date, the Purchaser shall not have any
responsibility or obligation to retain any employees employed by the
Seller prior to the Closing Date.

5.4 SUPPLEMENTS TO SCHEDULES. The Seller shall
supplement each schedule attached hereto or delivered herewith as may
be necessary to keep them current and accurate. At the Purchaser's
reasonable request, the Seller shall deliver to the Purchaser copies
of any documents pertaining to the matters listed or described in any
such schedule. The duty to deliver the schedules and any supplements
thereof shall survive the closing.

6. COVENANTS OF THE PURCHASER. The Purchaser covenants with the
Seller that:

6.1 CONFIDENTIALITY OF INFORMATION FURNISHED BY THE
SELLER. The Purchaser has treated all information provided to it
pursuant to Section 5 as confidential.

6.2 ACCESS TO INFORMATION. All books and records of the
Seller delivered to the Purchaser at or after the Closing pursuant to
this Agreement shall be made available to the Seller by the Purchaser
at any reasonable time during regular business hours, or for a period
of not less than two years after the Closing Date, and the Seller may,
at their own expense, make such excerpts therefrom or copies thereof
as they may request, provided, however, that in the event Seller is
audited or required or requested to produce any such records after
such two year period, Purchaser shall upon reasonable notice make any
such existing records available at Seller's expense. Purchaser shall
maintain the confidentiality of the clinical and financial content of
all patient records.

6.3 THIRD PARTY CONSENTS. The Purchaser has used its
best efforts to obtain any necessary consents and approvals of other
persons and governmental authorities to the transactions contemplated
by this Agreement and to the performance by Purchaser of its
obligations under this Agreement.

7. MISCELLANEOUS.

7.1 SALES, TRANSFER AND AD VALOREM TAXES. The Seller
shall pay all sales and transfer taxes which may be payable as a
direct result of the sale of the Assets to Purchaser pursuant to this
Agreement. Ad valorem taxes on the personal property included in the
Assets shall be prorated through the closing, and settlement shall be
made at the closing.

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<PAGE> 7
7.2 SPECIFIC PERFORMANCE. Each party acknowledges that a
remedy at law for any breach or attempted breach of the provisions of
this Agreement will be inadequate, and agrees that each party shall
be entitled to specific performance and injunctive or other equitable
relief in case of any such breach or attempted breach.

7.3 NOTICES. All notices, requests, consents, and other
communications hereunder shall be in writing and shall be deemed to
have been given if personally delivered, telegraphed or telecopied
with receipt confirmed, or mailed, first class, registered or
certified mail, postage prepaid to the following:

If to the Seller: Raja N. Salameh, M.D.
1907 Orchard Country Lane
Houston, Texas 77062
Phone: 281-488-0188
Telefax: 281-488-0147

with a copy to Mr. Jeff C. Lamberth
McConn, Williams & Hanson, L.L.P.
600 Travis, Suite 6700
Houston, Texas 77002
Phone (713) 237-0222
Telefax: (713) 237-0401

If to the Purchaser: Doctors Practice Management, Inc.
4301A Vista
Pasadena, Texas 77504
Phone: (713) 947-0891
Telefax: (713) 944-3334

or to such other address as shall be given in writing by any party to
the others.

7.4 ASSIGNMENT. Except as specifically set forth herein,
this Agreement may not be assigned by any party hereto without the
consent of the other parties hereto.

7.5 SUCCESSORS BOUND. Subject to the provisions of
Section 7.5, this Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective heirs, personal
legal representatives, and assigns.

7.6 SECTION AND PARAGRAPH HEADINGS. The section and
paragraph headings in this Agreement are for reference purposes only
and shall not affect in any way the meaning or interpretation of this
Agreement. The word "This Agreement," "this instrument," "herein,"
"hereto," "hereunder," and words of similar import refer to this
Agreement as a

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<PAGE> 8
whole and not to a particular article, section, paragraph, or other
subdivision of this Agreement. Whenever the context requires, the
gender of all words used in this Agreement shall include the
masculine, feminine, and neuter, and the number of all words shall
include the singular and the plural.

7.7 AMENDMENT; WAIVER. This Agreement may be amended
only by an instrument in writing executed by the parties hereto. The
waiver of any covenant, condition, or breach of any provision of this
Agreement must be in writing and such waiver shall not operate or be
construed as a waiver of any subsequent or continuing condition.

7.8 ENTIRE AGREEMENT. This Agreement is the entire
agreement among the parties hereto with respect to the subject matter
hereof and thereof; and there are no promises, covenants,
undertakings, representations, or warranties with respect to the
subject matter hereof or thereof, written or oral, except those
expressly set forth or referred to herein.

7.9 COUNTERPARTS. This Agreement may be executed in
counterparts, each of which shall be deemed an original, but all of
which shall constitute the same instrument.

7.10 GOVERNING LAW. This Agreement shall be construed in
accordance with and governed by the laws of the State of Texas

7.11 PUBLIC DISCLOSURE. The parties hereto agree that any
disclosure or press release about the transactions contemplated by
this Agreement may only be made in the manner and at the time mutually
determined by the Purchaser and the Seller.

7.12 TIME. Time is of the essence hereof. If the time
for performance of any obligations set forth in this Agreement falls
on Saturday, Sunday, or legal holiday, compliance with such obligation
on the next business day following such Saturday, Sunday or legal
holiday shall be deemed acceptable. For purposes of this agreement, a
"business day" is any day other than a Saturday, Sunday, or legal
holiday in Texas.

7.13 ATTORNEY'S FEES. In the event of any action at law
or in equity between the parties hereto to enforce any provision or
right hereunder or in any way related hereto or arising herefrom, the
unsuccessful party in such litigation covenants and agrees to pay to
the successful party all costs and expenses, including reasonable
attorney's fees, incurred therein by such successful party. If such
successful party shall recover judgment in any such action or
proceeding, such costs and expenses shall be included as part of such
judgment.

7.14 LANGUAGE. The language of this Agreement shall be
construed as a whole and in accordance with the fair meaning of the
language used. The language of this Agreement shall not be strictly
construed for or against either of the parties hereto based upon who
drafted or was principally responsible for drafting the Agreement or
any specific

-8-
<PAGE> 9
term or condition hereof. This Agreement shall be deemed to have been
drafted by each party hereto, and no party may urge otherwise.

7.15 KNOWLEDGE. Any representation, warranty or covenant
herein which is limited to a party's "knowledge" is made with the
understanding that such party has examined whatever sources of
information that are reasonably accessible to such party in order to
verify the truth and accuracy of such representation, warranty or
covenant.

7.16 OTHER DOCUMENTS. The parties agree to execute all
other documents or instruments necessary to effect the transfers of
property set forth herein and otherwise to implement the provisions of
this Agreement.

IN WITNESS WHEREOF, this Agreement has been duly executed by the
parties on October 22, 1997.

SELLER:
MEDTEK MANAGEMENT, INC.

By: /s/ Rajan N. Salameh
-----------------------------------
RAJA N. SALAMEH, M.D., PRESIDENT

PURCHASER:
DOCTORS PRACTICE MANAGEMENT, INC.

By: /s/ Chiu Chan
-----------------------------------
CHIU CHAN, PRESIDENT

-9-
<PAGE> 10
B I L L O F S A L E

STATE OF TEXAS
KNOW ALL MEN BY THESE PRESENTS
COUNTY OF HARRIS

THAT MEDTEK MANAGEMENT, INC., Seller, of Harris County, Texas, for and
in consideration of the sum of TEN DOLLARS ($10.00) and other good and valuable
consideration paid to it by DOCTORS PRACTICE MANAGEMENT, INC., the receipt of
which is hereby acknowledged, has Bargained, Sold, and Delivered and by these
presents does Bargain, Sell and Deliver to DOCTORS PRACTICE MANAGEMENT, INC. of
Harris County, Texas, all of the personal property described in Exhibit 1 which
is attached hereto and incorporated by reference herein for all purposes.

Seller warrants that it is the lawful owner in every respect of all of
the described property and that it is free and clear of all liens, security
agreements, encumbrances, claims, demands, and charges of every kind
whatsoever.

Seller binds Seller, its heirs, executors, administrators, successors
and/or assigns, to forever Warrant and Defend the title to all of the described
property to Buyer, its heirs, successors and assigns, against the lawful claim
or claims of any and all persons whomsoever.

EXECUTED this 22nd day of October, 1997.

MEDTEK MANAGEMENT, INC.

By: /s/ Rajan Salameh
---------------------------------
RAJA N. SALAMEH, M.D., PRESIDENT

STATE OF TEXAS
ACKNOWLEDGMENT
COUNTY OF HARRIS

BEFORE ME, the undersigned authority, on this 22nd of October, 1997,
personally appeared RAJA N. SALAMEH, M.D., known to me to be the person whose
name is subscribed to the foregoing instrument and acknowledged to me that he
had executed the same for the purposes and the consideration and in the
capacity therein expressed.

-----------------------------------
Notary Public, State of TEXAS

<PAGE> 1
EXHIBIT 10.29

ASSET PURCHASE AGREEMENT

THIS AGREEMENT by and among DOCTOR'S PRACTICE MANAGEMENT, INC., a Texas
Corporation (the "Purchaser") and KIRKWOOD MEDICAL ASSOCIATES, P.A., a Texas
professional association, MILTON E. KIRKWOOD, D.O., RON KIRKWOOD, D.O., and
JOHN KIRKWOOD, D.O. (the "Seller")

WITNESSETH:

WHEREAS, the parties hereto desire to memorialize the purchase of the
accounts receivable and billing of the Seller by the Purchaser in exchange for
certain cash consideration and release of indebtedness of the Seller by the
Purchaser, all on the terms and conditions herein set forth.

NOW, THEREFORE, the parties hereto agree as follows:

1. TRANSFER OF ASSETS: CONSIDERATION, AND OTHER MATTERS

1.1 SALE OF TANGIBLE AND INTANGIBLE ASSETS. The Seller,
at the Closing referred to in Section 2 hereof, will grant, sell,
transfer, convey and deliver to the Purchaser all of the Sellers
accounts receivable and billing through October 31, 1997, listed on the
attached Schedule A, excepting, however, (i) attorney accounts; (ii)
automobile insurance accounts; (iii) motor vehicle accident accounts;
(iv) HMO accounts; (v) and capitation accounts; in the total amount of
$120,538.00. The accounts receivable and billing of the Seller to be
transferred hereunder are hereinafter sometimes called the "Assets."

1.2 CONSIDERATION. Based upon the terms and subject to the
conditions of this Agreement, the total consideration to be paid by the
Purchaser for the Assets referred to in Section 1.1 shall be as
follows:

i) $48,000.00 in cash;

ii) $56,197.00 in outstanding advances which have
been made by Purchaser to Seller;

iii) Rent for the month of November, 1997, in the
amount of $13,400.00.

1.3 ALLOCATION OF PURCHASE PRICE. The Seller and the
Purchaser both expressly acknowledge and agree that the consideration
to be paid and received for the Assets is fair and reasonable and
represents equivalent value given for the transfer and sale of the
Assets from the Seller to the Purchaser.

1.4 RECORDS. It is understood that the Seller has
delivered to the Purchaser all books, records, files and other data
relating to the Assets. Seller agrees to take all such additional steps
as may be required to put the Purchaser in full possession and control
of the Assets.
<PAGE> 2
2. THE CLOSING.

2.1 THE CLOSING. The purchase and sale of the Assets
shall take place simultaneously with the execution of this Agreement
as contemplated in Section 1 of this Agreement (herein called the
"Closing") and shall take place at the offices of the Purchaser on
November 6, 1997, unless mutually extended by the parties hereto. The
date of the Closing is referred to in this Agreement as the "Closing
Date."

3. REPRESENTATIONS AND WARRANTIES OF THE SELLER. The Seller
represents and warrants to the Purchaser that:

3.2 TAX MATTERS. To the best of Seller's knowledge, all
foreign, federal, state, county, local and other taxes, including
without limitation, income taxes, occupation taxes, corporate franchise
taxes, employment and withholding taxes, and sales and ad valorem
taxes, due and payable by the Seller on or before the date of this
Agreement have been paid and the Seller has filed all tax returns and
reports required to be filled by it, with all such taxing authorities.
Seller has made reasonable and adequate provision for the payment of
all accrued and unpaid foreign, federal, state, county, local and other
taxes of the Seller for all periods ended on or prior to the date
hereof, whether or not disputed. No assessment of deficiencies has
been made against the Seller and no extensions of time are in effect
for the assessment of deficiencies.

3.3 ASSETS. Seller has previously delivered to Purchaser
and Purchaser has reviewed and confirmed the list and description of
the Assets as set forth on Schedule A.

3.4 LIENS. The Assets listed in Schedule A are not
encumbered, pledged, assigned, or the subject of any UCC lien or filing
statement.

3.5 SELLER'S AUTHORITY RELATIVE TO THIS AGREEMENT. The
execution, delivery and performance of this Agreement by the Seller has
been duly authorized and approved by the officers of the Seller and no
further corporate action is necessary on the part of the Seller to
make this Agreement valid and binding upon the Seller in accordance
with its terms. Neither the execution, delivery nor performance of
this Agreement by the Seller will result in a violation or breach of
any term or provision under the Articles of Association or Bylaws of
the Seller or, constitute a default or breach of, or accelerate the
performance required under, any indenture, mortgage, deed of trust or
other contract or agreement to which the Seller is a party or by which
it or any of its respective assets are bound, or, violate any order,
writ, injunction or decree of any court, administrative agency or
governmental body.

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<PAGE> 3
4. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER. The Purchaser
represents and warrants to and agrees with the Seller that:

4.1 ORGANIZATION AND EXISTENCE. The Purchaser is a
corporation duly organized, validly existing and in good standing under
the laws of the State of Texas and has all requisite legal and
corporate power to enter into and perform this Agreement.

4.2 AUTHORITY RELATIVE TO THIS AGREEMENT. The execution,
delivery and performance of this Agreement by the Purchaser have been
duly authorized by the Board of Directors of the Purchaser, and no
further corporate action is necessary on the part of the Purchaser to
make this Agreement valid and binding upon the Purchaser in accordance
of its terms. Neither the execution, delivery nor performance of this
Agreement by the Purchaser will result in a violation or breach of any
term or provision under the Articles of Incorporation or Bylaws of the
Purchaser or constitute a default or beach of, or accelerate the
performance required under any indenture, mortgage, deed of trust or
other contract or agreement to which the Purchaser is a party or by
which it or its properties are bound, or violate any order, writ,
injunction or decree of any court, administrative agency or
governmental body.

5. INFORMATION.

5.1 CONFIDENTIAL INFORMATION. The Seller acknowledges
that in the course of its previous involvement with the business
conducted by the Seller, it has had and will continue to have access to
certain know-how, formulae, processes, data, proprietary information,
supplier and patient records and information and other confidential
knowledge of the business and operations of the Seller and Purchaser.
Seller understands that all such information is confidential and has
been or will be conceived or teamed by them in confidence, and it
agrees not to reveal any such information to any third person for any
reason or under any circumstances. The restrictions in this Section
shall not apply and shall not prohibit the use or disclosure of such
confidential information (i) to the extent required by law or court
order, or other administrative order in any litigation, arbitration, or
similar proceeding; (ii) to the extent such information becomes
publicly available other than through a breach of this section; or
(iii) to the extent such information would become necessary to support
any claim arising between the parties; or (iv) with the written
agreement of the Purchaser. The Seller agrees that any remedy at law
for actual or threatened breach of the provisions of this section
would be inadequate and that the Purchaser shall be entitled to
specific performance thereof or injunctive relief by temporary or
permanent injunction or such other appropriate judicial remedy, writ or
order as may be entered by a court of competent jurisdiction. Any such
remedy shall be in addition to any damages which the Purchaser may be
legally entitled to recover as a result of any breach by the Seller of
the provisions of this section, and the Seller hereby waives any
requirement for the securing or posting of any bond in connection with
obtaining any such injunctive or other equitable relief.

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<PAGE> 4
6. COVENANTS OF THE PURCHASER. The Purchaser covenants with the
Seller that:

6.1 CONFIDENTIALITY OF INFORMATION FURNISHED BY THE
SELLER. The Purchaser has treated all information provided to it
pursuant to Section 5 as confidential.

6.2 ACCESS TO INFORMATION. All files, accounts, and
records of the Seller delivered to the Purchaser at or after the
Closing pursuant to this Agreement shall be made available to the
Seller by the Purchaser at any reasonable time during regular business
hours, or for a period of not less than two years after the Closing
Date, and the Seller may, at their own expense, make such excerpts
therefrom or copies thereof as they may request, provided, however,
that in the event Seller is audited or required or requested to produce
any such records after such two year period, Purchaser shall upon
reasonable notice make any such existing records available at Seller's
expense. Purchaser shall maintain the confidentiality of the clinical
and financial content of all patient records.

7. MISCELLANEOUS.

7.1 SALES, TRANSFER AND AD VALOREM TAXES. The Seller
shall pay all sales and transfer taxes which may be payable as a direct
result of the sale of the Assets to Purchaser pursuant to this
Agreement. Ad valorem taxes on the personal property included in the
Assets shall be prorated through the Closing, and settlement shall
be made at the Closing.

7.2 SPECIFIC PERFORMANCE. Each party acknowledges that a
remedy at law for any breach or attempted breach of the provisions of
this Agreement will be inadequate, and agrees that each party shall be
entitled to specific performance and injunctive or other equitable
relief in case of any such breach or attempted breach.

7.3 NOTICES. All notices, requests, consents, and other
communications hereunder shall be in writing and shall be deemed to
have been given if personally delivered, telegraphed or telecopied with
receipt confirmed, or mailed, first class, registered or certified
mail, postage prepaid to the following:

If to the Seller: Kirkwood Medical Associates, P.A.
4301 A Vista
Pasadena, Texas 77504
Phone: (713) 941-4444
Telefax: (713) 944-3334

If to the Purchaser: Doctors Practice Management, Inc,
4301 A Vista
Pasadena, Texas 77504
Phone: (713) 941-4444
Telefax: (713) 944-3334

or to such other address as shall be given in writing by any party to
the others.

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<PAGE> 5
7.4 SUCCESSORS BOUND. This Agreement shall be binding
upon and inure to the benefit of the parties hereto and their
respective heirs, personal legal representatives, and assigns.

7.5 SECTION AND PARAGRAPH HEADINGS. The section and
paragraph headings in this Agreement are for reference purposes only
and shall not affect in any way the meaning or interpretation of this
Agreement. The word "this Agreement," "this instrument," "herein,"
"hereto," "hereunder," and words of similar import refer to this
Agreement as a whole and not to a particular article, section,
paragraph, or other subdivision of this Agreement. Whenever the
context requires, the gender of all words used in this Agreement shall
include the masculine, feminine, and neuter, and the number of all
words shall include the singular and the plural.

7.6 AMENDMENT, WAIVER. This Agreement may be amended only
by an instrument in writing executed by the parties hereto. The waiver
of any covenant, condition, or breach of any provision of this
Agreement must be in writing and such waiver shall not operate or be
construed as a waiver of any subsequent or continuing condition.

7.7 ENTIRE AGREEMENT. This Agreement is the entire
agreement among the parties hereto with respect to the subject matter
hereof and thereof; and there are no promises, covenants, undertakings,
representations, or warranties with respect to the subject matter
hereof or thereof, written or oral, except those expressly set forth
or referred to herein.

7.8 COUNTERPARTS. This Agreement may be executed in
counterparts, each of which shall be deemed an original, but all of
which shall constitute the same instrument.

7.9 GOVERNING LAW. This Agreement shall be construed in
accordance with and governed by the laws of the State of Texas

7.10 PUBLIC DISCLOSURE. The parties hereto agree that any
disclosure or press release about the transactions contemplated by this
Agreement may only be made in the manner and at the time mutually
determined by the Purchaser and the Seller.

7.11 TIME. Time is of the essence hereof. If the time for
performance of any obligations set forth in this Agreement falls on
Saturday, Sunday, or legal holiday, compliance with such obligation on
the next business day following such Saturday, Sunday or legal holiday
shall be deemed acceptable. For purposes of this Agreement, a
"business day" is any day other than a Saturday, Sunday, or legal
holiday in Texas.

7.12 ATTORNEY'S FEES. In the event of any action at law or
in equity between the parties hereto to enforce any provision or right
hereunder or in any way related hereto or arising herefrom, the
unsuccessful party in such litigation covenants and agrees to pay to
the successful party all costs and expenses, including reasonable
attorney's fees, incurred therein by such successful party. If such
successful party shall recover judgment in any such action or
proceeding, such costs and expenses shall be included as part of such
judgment.

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<PAGE> 6
7.13 LANGUAGE. The language of this Agreement shall be
construed as a whole and in accordance with the fair meaning of the
language used. The language of this Agreement shall not be strictly
construed for or against either of the parties hereto based upon who
drafted or was principally responsible for drafting the Agreement or
any specific term or condition hereof. This Agreement shall be deemed
to have been drafted by each party hereto, and no party may urge
otherwise.

7.14 KNOWLEDGE. Any representation, warranty or covenant
herein which is limited to a party's "knowledge" is made with the
understanding that such party has examined whatever sources of
information that are reasonably accessible to such party in order to
verify the truth and accuracy of such representation, warranty or
covenant.

7.15 OTHER DOCUMENTS. The parties agree to execute all
other documents or instruments necessary to effect the transfers of
property set forth herein and otherwise to implement the provisions of
this Agreement.

7.16 INDEMNITY. Seller agrees to indemnify and hold the
Purchaser harmless from any claims or offsets resulting from the
accounts receivable or the services upon which they are based, which
are the subject of this transfer agreement. Such indemnification shall
include and apply to reasonable attorneys fees, investigation costs,
and other costs actually incurred by Purchaser in defending against any
such claims or offsets.

IN WITNESS WHEREOF, this Agreement has been duly executed by the
parties on November 13, 1997.

SELLER:
KIRKWOOD MEDICAL ASSOCIATES, P.A.

By: /s/ Milton E. Kirkwood
-----------------------------------
MILTON E. KIRKWOOD, D.O.,
PRESIDENT

By: /s/ Milton E. Kirkwood
-----------------------------------
MILTON E. KIRKWOOD, D.O.

By: /s/ Ron Kirkwood
-----------------------------------
RON KIRKWOOD, D.O.

-6-
<PAGE> 7

By: /s/ John Kirkwood
-----------------------------------
JOHN KIRKWOOD, D.O.

PURCHASER:
DOCTORS PRACTICE MANAGEMENT, INC.

By: /s/ John Moran
-----------------------------------
JOHN MORAN, VICE PRESIDENT

-7-

<PAGE> 1
ORDINANCE NO. __________________

THE STATE OF TEXAS )
)
COUNTY OF HARRIS )

LEASE

1. PARTIES.

THIS LEASE is made between the CITY OF PASADENA, TEXAS, a Home Rule
municipal corporation of the State of Texas ("Lessor") located at 1211 E.
Southmore, Pasadena, Harris County, Texas and DOCTORS PRACTICE MANAGEMENT, INC.
("Lessee") located at 4301A Vista Drive, Pasadena, Texas.

In consideration of the obligations of Lessee to pay rent as herein
provided and in consideration of the other terms, covenants, and conditions
hereof, Lessor hereby leases to Lessee the described premises. By occupying the
leased premises, Lessee shall be deemed to have accepted the same and to have
acknowledged that the same comply fully with the Lessor's covenants and
obligations hereunder.

2. DESCRIPTION OF LEASED PREMISES.

Lessor leases to Lessee and Lessee hires from Lessor the ("Premises") ,
a space of approximately 3,000 square feet at the west corner of the east side
of the center currently known as the "Corrigan Center" ("Center") , 1001 East
Shaw, Pasadena, Harris County, Texas situated on property described at Exhibit
"A", attached hereto.

3. INITIAL TERM OF LEASE.

The space is leased for an initial term of five (5) years, to commence
at a.m. on July 1, 1996, and end at 12:00 o'clock noon one June 30, 2001, or on
such earlier date as this lease may terminate as provided below, except that, if
any such date falls on a Sunday or holiday, then the lease shall end at 12:00
o'clock noon on the business day next preceding the above mentioned date.

4. OPTIONAL ADDITIONAL TERM OF LEASE.

Term: Lessee may at the expiration of the initial lease term have the
option to renew for one (1) additional five (5) year term. Lessee, to effectuate
such additional term, must provide landlord with written notice of such election
to renew no later than one hundred eighty (180) days prior to expiration of the
initial lease term.

<PAGE> 2

5. RENT.

a. Initial term.

The total annual rent for each year of the five (5) year initial lease
term is the sum of Seven Thousand Two Hundred and No/100 ($7,200.00) Dollars
which sum is payable in equal monthly installments of Six Hundred and No/100
($600.00) Dollars each in advance, the first payment payable on or before the
commencement of the lease and thereafter such monthly installment is due and
payable on or before the first day of each calendar month during the initial
term and any additional term of the lease.

b. Optional additional term.

In the event Lessee elects to exercise its option to renew for an
additional term of five (5) years beyond the initial term such rent shall
increase to Ten Thousand Eight Hundred and No/100 ($10,800.00) Dollars annually
and be payable in equal monthly installments of Nine Hundred and No/100
($900.00) Dollars, each installment payable in advance on the first day of each
calendar month during such additional term.

It is understood that the minimum guaranteed rental is payable on or
before the first day of the month without offset or deduction of any nature. In
the event any rent or other amount payable is not received, within ten (10) days
after its due date for any reason whatsoever it is agreed that-the amount thus
due shall bear interest at the maximum contractual rate which could legally be
charged in the event of a loss of such amount to Lessor in the State of Texas
(but in no event to exceed one and one-half percent (1 1/2%) per month) , such
interest to accrue continuously on any unpaid balance due to Lessor by Lessee
during the period commencing with the aforesaid due date and terminating with
the date on which Lessee makes full payment of all amounts owing to Lessor at
the time of said payment. Any such increase shall be payable as additional rent
hereunder, shall not be considered as a deduction from rental, and shall be
payable immediately on demand. Any provision under the Lease which gives Lessor
the right to charge or collect interest on any past due rentals or other amounts
required to be paid under the Lease may be waived by Lessor, and as an
alternative to the payment of such interest and in lieu thereof, Lessor shall
have the right to collect from Lessee a late fee equal to four percent (4%) of
the amount of such past due rental or other amount. Lessee agrees to pay upon
the demand of Lessor for each occasion for which Lessee fails to pay within five
(5) days when due the minimum guaranteed rental or other amount to be paid under
the Lease, such four percent (4%) late fee.

If Lessee fails in two (2) consecutive months to make rental payments
within five (5) days after due, Lessor, in order to reduce its administrative
costs, may require, by giving written notice to Lessee (and in addition to any
interest accruing pursuant to the second paragraph of b. above, as well as any
other rights and remedies accruing to Lessor herein, that minimum guaranteed
rentals are to be paid quarterly in advance, instead of monthly and that all
future rental payments are to be made on or before the due date by cash,
cashier's check, or money order, and that the delivery of

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<PAGE> 3

Lessee's personal or corporate check will no longer constitute a payment of
rental as provided in this Lease. Any acceptance of a monthly rental payment or
of a personal or corporate check thereafter by Lessor shall not be construed as
a subsequent waiver of such rights.

6. PLACE FOR PAYMENT OF RENT.

Lessee shall pay rent, and any additional rent as hereinafter provided,
to Lessor at Lessor's above-stated address, or at such other place as Lessor may
designate in writing, without demand and without counterclaim, deduction, or
setoff.

7. USE AND OCCUPANCY.

Lessee shall use and occupy the premises as an industrial clinic and
for no other purpose.

8. COMMON AREAS.

The term "Common Area" shall mean that part of the Center designed by
Lessor from time to time for the common use of all tenants, including among
other facilities, parking areas, sidewalks, landscaping, curbs, truckways,
delivery passages, malls (if any), loading areas, private streets and alleys,
lighting facilities, drinking fountains, meeting rooms, public toilets and the
like. Lessor has not made any representations as to the identity, type, size,
number of locations of buildings in the Center (other than the Demised Premises)
or the tenants or occupants thereof and nothing contained in this Lease or the
Exhibits and addenda attached hereto shall constitute a representation as to any
such matter. Lessor reserves the right to change from time to time the
dimensions and location of the Common Area as well as the dimensions, identity,
and type of any buildings, parking, and common areas.

9. CARE AND REPAIR OF PREMISES.

Lessee shall commit no act of waste and shall take good care of the
premises and the fixtures and appurtenances on it, and shall, in the use and
occupancy of the premises, conform to all laws, orders, and regulations of the
federal, state, and municipal governments and administrative agencies or any of
their departments. All improvements made by Lessee to the premises which are so
attached to the premises that they cannot be removed without material injury to
the premises, shall become the property of Lessor upon installation.

Not later then the last day of the term Lessee shall, at Lessee's
expense, remove all of Lessee's personal property and those improvements made by
Lessee which have not become the property of Lessor, repair all injury done in
connection with the installation or removal of said property and improvements,
and surrender the premises in as good condition as they were at the beginning of
the term, reasonable wear, and damage by fire, the elements, casualty, or other
cause not due to the misuse or neglect by Lessee or Lessee's agents, servants,
visitors or licensees, excepted. All property of Lessee remaining on the
premises after the last day of the term of this

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Lease shall be conclusively deemed abandoned and may be removed by Lessor, and
Lessee shall reimburse Lessor for the cost of such removal. Lessor may have any
such property stored at Lessee's risk and expense.

10. ALTERATIONS, ADDITIONS OR IMPROVEMENTS.

Lessee takes premises as is and will at Lessee's sole cost make such
interior improvements as deemed necessary after first obtaining the written
consent of Lessor, as to any alterations, additions or improvements in, to or
about the premises.

All construction work done by Lessee within the Demised Premises shall
be performed in a good and workmanlike manner, in compliance with all
governmental requirements, as to cause a minimum of interference with other
construction in progress and with the transaction of business in the Center.
Lessee agrees to indemnify Lessor and hold Lessor harmless against any loss,
liability or damage resulting from such work, and Lessee shall, if requested by
Lessor, furnish bond or other security satisfactory to Lessor against any such
loss, liability or damage. Lessee shall provide Lessor with copies of all
invoices covering any work performed in or on the Demised Premises and shall
provide proof, satisfactory to Lessor, that each invoice has been completely
paid. All such alterations, additions and improvements that become affixed to
the property shall become property of Lessor at termination of this Lease.

11. EXTERIOR MAINTENANCE.

Lessor shall maintain the foundation, the exterior walls (except plate
glass windows, doors, door closure devices, and other exterior openings; window
and door frames, molding, locks and hardware; special store fronts; lighting,
heating, air conditioning, plumbing and other electrical, mechanical, and
electromotive installation, equipment fixtures; signs, placards, decorations or
advertising media of any type; and interior painting or other treatment of
exterior walls) and roof of the Demised Premises in good repair. Lessor,
however, shall not be required to make any repairs occasioned by the acts or
negligence of Lessee, its agents, employees, subtenants, invitees, licensees and
concessionaires; and the provisions of the previous sentence are expressly
recognized to be subject to the provisions of this Lease. In the event that the
Demised Premises should become in need of repairs required to be made by Lessor
hereunder, Lessee shall give immediate written notice thereof to Lessor and
Lessor shall not be responsible in any way for failure to make any such repairs
until a reasonable time shall have elapsed after receipt by Lessor of such
written notice. Lessor's liability hereunder shall be limited to the cost of
such repairs or corrections, and Lessor shall not be liable for any
consequential or incidental damages which may result from any delay or failure
in making such repairs.

Lessor reserves the right to alter or remodel the exterior of the
Demised Premises and building in which the Demised Premises are situated,
including the roof thereof, at any time and from time to time during the term of
this Lease. In connection with any such alteration or remodeling, Lessee shall
permit Lessor and Lessor's contractors, agents and employees such access

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to the Demised Premises as may be reasonably required to complete all
alterations or remodeling undertaken by Lessee. In the event any such remodeling
requires removal of Lessee's exterior sign, Lessee shall promptly remove such
sign at its expense upon request of Lessor. In such event, upon completion of
such alterations or remodeling, if Lessor establishes uniform exterior sign
criteria for all of the premises in the building in which the Demised Premises
are located, Lessee shall erect at its own expense a new sign complying with
such uniform sign criteria.

12. UPKEEP OF PREMISES.

Lessee shall keep the Demised Premises in good, clean, and habitable
condition and shall at its sole cost and expense keep the Demised Premises free
of insects, rodents, vermin and other pests and make all needed repairs and
replacements, including replacement of cracked or broken glass, except for
repairs and replacements required to be made by Lessor. Without limiting the
coverage of the previous sentence, it is understood that Lessee's
responsibilities therein include the repair and replacement of all lighting,
heating, air conditioning, plumbing and other electrical, mechanical and
electromotive installation, equipment and fixtures and also include all utility
repairs in ducts, conduits, pipes and wiring and any sewer stoppage located in,
under and above the Demised Premises. If any repairs required to be made by
Lessee hereunder are not made within ten (10) days after written notice
delivered to Lessee by Lessor, Lessor may at its option make such repairs
without liability to Lessee for any loss or damage which may result to its stock
or business by reason of such repairs; and Lessee shall pay to Lessor upon
demand, as additional rent hereunder the cost of such repairs plus interest at
the maximum contractual rate which could legally be charged in the event of a
loan of such payment to Lessee in the State of Texas (but in no event to exceed
one and one-half (1 1/2%) percent per month) , such interest to accrue
continuously from the date of payment by Lessor until repayment by Lessee. At
the expiration of this Lease, Lessee shall surrender the Demised Premises in
good condition, and deliver up the Demised Premises clean and free of trash and
in good repair, with all equipment situated in the Demised Premises on the
beginning date of this Lease, or replacements thereof, in working order,
excepting reasonable wear and tear and losses required to be restored by Lessor.

13. CONDUCT ON PREMISES.

Lessee shall not, without Lessor's prior written consent, keep anything
within the Demised Premises or use the Demised Premises for any purpose which
increases the insurance premium cost or invalidates any insurance policy carried
on the Demised Premises or other parts of the Center. All property kept, stored
or maintained within the Premises by Lessee shall be at Lessee's sole risk.

Lessee shall not conduct without Lessor's written consent within the
Demised Premises any fire, auction, bankruptcy, "going out -of -business", "lost
- -our- lease", or similar sales or operate within the Demised Premises a
"wholesale" or "factory outlet" store, a cooperative store, a "second hand"
store, a "surplus" store or a store commonly referred to as a "discount house".
Lessee shall not advertise that it sells its products or services at "discount",
"cut-price", or "cut-rate" price. Lessee shall not permit any objectionable or
unpleasant odors to emanate from the premises; nor

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<PAGE> 6

place or permit any radio, television, loudspeaker or amplifier on the roof or
outside the Demised Premises or where the same can be seen or heard from outside
the building; nor place any antenna, awning or other projection on the exterior
of the Demised Premises; nor take any other action which would constitute a
nuisance or would disturb or endanger other tenants of the Center or
unreasonably interfere with their use of their respective premises; nor do
anything which would tend to injure the reputation of the Center.

Lessee shall not mortgage, pledge or otherwise encumber its interest in
this Lease or in the Premises. Lessee shall not do or permit anything which
creates a lien upon the Premises.

Lessee shall take good care of the Demised Premises and keep the same
free from waste at all times. Lessee shall keep the Demised Premises and
sidewalks, service-ways, and loading areas adjacent to the Demised Premises
neat, clean and free from dirt or rubbish at all times, and shall store all
trash and garbage within the Premises, arranging for regular pick-up of such
trash and garbage at Lessee's expense. Receiving and delivery of goods and
merchandise and removal of garbage and trash shall be made only in the manner
and areas prescribed by Lessor. Lessee shall not operate an incinerator or burn
trash or garbage within the Center area.

Lessee shall first obtain the written consent of Lessor for all display
windows in a neat, attractive condition, and shall keep all display windows,
exterior signs and lighting and maintain same in a neat, attractive condition.

Lessee shall include the address and identity of its business
activities in the Demised Premises in all advertisements made by Lessee in which
the address and identity of any similar local business activity of Lessee is
mentioned.

Lessee shall procure at its sole expense any permits and licenses
required for the transaction of business in the Demised Premises and otherwise
comply with all applicable laws, ordinances and governmental regulations.

14. INDEMNITY-AND LIABILITY INSURANCE.

a. Lessor shall not be liable to Lessee or to Lessee's employees,
agents, or visitors or to any other person whomsoever, for any injury to person
or damage to property on or about the Demised Premises or the Common Area caused
by the negligence or misconduct of Lessee, its employees, subtenants, licensees
or concessionaires, or of any other person entering the Center under express or
implied invitation of Lessee, or arising out of the use of the Demised Premises
by Lessee and the conduct of its business therein, or arising out of any breach
or default by Lessee in the performance of its obligations hereunder; and Lessee
hereby agrees to indemnify Lessor and hold Lessor harmless from any loss,
expense or claims arising out of such damage or injury.

Lessee shall procure and maintain throughout the term of this Lease a
policy or policies of commercial general liability insurance, at its sole cost
and expense, insuring both Lessor and Lessee

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<PAGE> 7

against all claims, demands or actions arising out of or in connection with
Lessee's use or occupancy of the Demised Premises, or by the condition of the
Demised Premises, the limits of such policy or policies to be in an amount not
less than Two Hundred Fifty Thousand and No/100 ($250,000.00) Dollars in respect
of personal injuries, bodily injury to or death of any one person, and in an
amount not less than Five Hundred Thousand and No/100 ($500,000.00) Dollars in
respect of any one accident or disaster, and in an amount not less than One
Hundred Thousand and No/100 ($100,000.00) Dollars in respect of property damaged
or destroyed, and to be written by insurance companies satisfactory to Lessor.
Lessee shall obtain a written obligation on the part of each insurance company
to notify Lessor at least ten (10) days prior to cancellation of such insurance.
Such policies or duly executed certificates of insurance shall be promptly
delivered to Lessor and renewals thereof as required shall be delivered to
Lessor at least thirty (30) days prior to the expiration of the respective
policy terms. If Lessee should fail to comply with the foregoing requirements
relating to insurance, Lessor may obtain such insurance and Lessee shall pay to
Lessor on demand as additional rent hereunder the premium cost thereof plus
interest at the maximum contractual rate (but in no event to exceed one and
one-half percent (1 1/2%) per month) from the date of payment by Lessor until
repaid by Lessee.

b. Casualty and fire insurance.

Lessee agrees to purchase and maintain in effect during the term of
this lease, and any extension or renewal of the lease, a policy or policies of
insurance written by a company or companies qualified to write insurance in the
State of Texas, providing casualty and fire insurance coverage against damage to
the building of which the leased premises are a part to the extent of the full
insurable value of the building including the value of all improvements,
alterations, additions and changes made by Lessor or Lessee. Lessee further
agrees that in the event additional improvements are made during the term of
this lease, or any extension or renewal of the lease, additional insurance
coverage will be obtained, as described above, in an amount equal and sufficient
to cover the value of the additional improvements. The cost of premiums for all
policies of insurance as required here shall be paid by Lessee; such policy or
policies shall be in the joint names of Lessor and Lessee, and duplicate copies
shall be delivered to Lessor.

c. Lessor, its officers, agents, and employees shall be named as
additional insured parties on any original insurance policies and all renewals
or replacements.

15. ASSIGNMENT OF SUBLEASE.

Lessee shall not, without first obtaining the written consent of the
Lessor, assign, mortgage, pledge, or encumber this Lease, in whole or in part,
or sublet the premises or any part thereof. This covenant shall be binding upon
the legal representatives of Lessee, and upon every person to whom Lessee's
interest under this Lease passes by operation of law.

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<PAGE> 8

16. UTILITIES.

Lessor agrees to cause to be provided and maintained the necessary
mains, conduits and other facilities necessary to supply water, gas,
electricity, telephone service and sewerage service to the Demised Premises.

Lessee shall promptly pay all charges, including but not limited to any
connection charges or deposits, for electricity, water, gas, telephone service,
sewerage service and other utilities furnished to the Demised Premises. Lessor
may, if it so elects, furnish one or more utility services to Lessee, and in
such event Lessee shall purchase the use of such services as are tendered by
Lessor, and shall pay on demand as additional rental the rates established
therefor by Lessor which shall not exceed the rates which would be charged for
the same services if furnished directly by the local public utility companies.
Lessor may at any time discontinue furnishing any such service without
obligation to Lessee other than to provide a connection from the Demised
Premises to the public utility, if any, furnishing such service.

Lessor shall not be liable for any interruption whatsoever in utility
services not furnished by it, nor for interruptions in utility services
furnished by it which are due to fire, accident, strike, acts of God or other
causes beyond the control of Lessor or in order to make alterations, repairs or
improvements.

17. SIGNS, ETC.

Prior to constructing and installing any signs, Lessee shall submit
drawings to Lessor for approval. Lessee shall not, without Lessor's prior
written consent, (a) make any changes to the store front or (b) install any
exterior lighting, decorations, paintings, awnings, canopies or the like or (c)
erect or install any signs, window or door lettering, placards, decorations or
advertising media of any type which can be viewed from the exterior of the
Demised Premises. All signs, lettering, placards, decorations and advertising
media shall conform in all respects to the sign criteria established by Lessor
for the Center from time to time in the method of attachment, size, shape,
height, lighting, color and general appearance. All signs shall be kept in good
condition and in proper operating order at all times. In addition, any
erections, installation, or display allowed by this Lease shall comply with all
applicable governmental laws, ordinances and regulations. At the expiration of
the Lease, Lessee shall, unless notified otherwise in writing by Lessor, remove
any installation or erection made under (b) or (c) above, and Lessee shall upon
removal repair and make whole any and all holes or damages caused to Center on
account of any installation or erection.

No sign, placard, picture, advertisement, name, or notice shall be
inscribed, displayed, printed or affixed on or to any part of the outside or
inside of the building without the prior written consent of Lessor and Lessor
shall have the right to remove any such sign, placard, picture, advertisement,
name, or notice without notice to and at the expense of the Lessee.

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<PAGE> 9

All approved signs or lettering on doors shall be printed, painted,
affixed or inscribed at the expense of Lessee by a person approved by Lessor.

If the Lessor by a notice in writing to Lessee shall object to any
painting, curtains, blinds, shades, screens or other matters attached to or hung
in or used in connection with any window or door of the premises, such use of
such painting, curtains, blinds, shades, screens or other matters shall be
immediately discontinued by the Lessee. No awning shall be permitted on any part
of the premises.

18. DAMAGES TO BUILDING

If the building is damaged by the fire, the elements or any other
casualty during the lease term to such extent that the cost of restoration, as
reasonably estimated by Lessor, will equal or exceed fifty (50%) per cent of the
replacement value of the building, exclusive of foundations, just prior to the
occurrence of the damage, then Lessor may give Lessee a notice of election to
terminate this Lease. In such event this Lease shall be deemed to terminate on
the thirtieth (30th) day after the giving of notice, and Lessee shall surrender
possession of the premises within a reasonable time thereafter, and the rent,
and any additional rent, shall be apportioned as of the date of surrender and
any rent paid for any period beyond such date shall be repaid to tenant.

In any case in which use of the premises is affected by any damage to
the building, there shall be either an abatement or an equitable reduction in
rent depending on the period for which and the extent to which the premises are
not reasonably usable for the purpose for which they are leased under this
agreement. The words "restoration" and "restore" as used in this section shall
include repairs. If the damage results from the fault of the Lessee, or Lessee's
agents, servants visitors, or licensees, Lessee shall not be entitled to any
abatement or reduction of rent, except to the extent, if any, that Lessor
receives the proceeds of rent insurance in lieu of such rent.

In the event Lessor does not elect to terminate this Lease, Lessor
shall restore the building the premises with reasonable promptness, subject to
delays beyond Lessor's control and delays in the making of insurance adjustments
between Lessor and its insurance carrier, and Lessee shall have no right to
terminate this Lease except as provided in this agreement. Lessor need not
restore fixtures and improvements owned by Lessee.

Lessor shall be entitled to all insurance proceeds in restoration of
the premises.

19. WAIVERS OF SUBROGATION.

Notwithstanding the provisions of this Lease, in any event of loss or
damage to the building, the premises and/or any contents, each party shall look
first to any insurance in its favor before making any claim against the other
party; and, to the extent possible without additional cost, each party shall
obtain, for each policy of such insurance, provisions permitting waiver of any
claim

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against the other party for loss or damage within the scope of such insurance,
and each party, to such extent permitted, for itself and its insurers waives all
such insured claims against the other party.

20. DEFAULT.

If Lessee defaults in the payment of rent, or any additional rent, or
defaults in the performance of any of the other covenants or conditions of this
agreement, Lessor may give Lessee notice of such default. If Lessee does not
cure any rent, or additional rent, default within thirty (30) days, or other
default within thirty (30) days, after the giving of such notice (or if such
other default is of such nature that it cannot be completely cured within such
period, if Lessee does not commence such curing within such thirty (30) days and
thereafter proceed with reasonable diligence and in good faith to cure such
default), then Lessor may terminate this Lease on not less than ten (10) days'
notice to Lessee. On the date specified in the notice the term of this Lease
shall terminate and Lessee shall then quit and surrender the premises to Lessor,
but Lessee shall remain liable as provided herein. If this Lease shall have been
so terminated by Lessor, Lessor may at any time thereafter resume possession of
the premises by any lawful means and remove Lessee or other occupants and their
effects.

The liability of Lessor to Lessee for any default by Lessee under the
terms of this Lease shall be limited to the proceeds of sale on execution of the
interest of Lessee in the Demised Premises; and Lessor shall not be personally
liable for any deficiency, except that Lessor shall, subject to the provisions
hereof, remain personally liable to account to Lessee for any security deposited
hereunder. This clause shall not be deemed to limit or deny any remedies which
Lessee may have in the event of default by Lessor hereunder, which do not
involve the personal liability of Lessor.

21. DEFICIENCY.

In any case where Lessor has recovered possession of the premises by
reason of Lessee's default, Lessor may, at Lessor's option, occupy the premises
or cause the premises to be redecorated, altered, divided, consolidated with
other adjoining premises, or otherwise changed or prepared for reletting, and
may relet the premises or any part thereof as agent of Lessee or otherwise, for
a term or terms to expire prior to, at the same time as, or subsequent to, the
original expiration date of this Lease, at Lessor's option, and receive the rent
therefor. Rent so received shall be applied first to the payment of such
expenses as Lessor may have incurred in connection with the recovery of
possession, redecorating, altering, dividing, consolidating with other adjoining
premises, or otherwise changing or preparing for reletting, and the reletting,
including brokerage and reasonable attorneys' fees, and then to the payment of
damages in amounts equal to the rent under this agreement and to the cost and
expenses of performance of the other covenants of Lessee as provided in this
agreement. Lessee agrees, in any such case, whether or not Lessor has relet, to
pay to Lessor damages equal to the rent and other sums agreed to be paid by
lessee in this agreement, less the net proceeds of the reletting, if any, and
the same shall be payable by Lessee on the several rent days above specified. In
reletting the premises, Lessor may grant rent concessions, and Lessee shall not
be credited with such concessions. No such reletting shall constitute a
surrender and acceptance or

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be deemed evidence of a surrender and acceptance. If Lessor elects, pursuant to
this agreement, actually to occupy and to use the premises or any part during
any part of the balance of the term as originally fixed or since extended, there
shall be allowed against Lessee's obligation for rent or damages as defined in
this agreement, during the period of Lessor's occupance, the reasonable value of
such occupancy, not to exceed in any event the rent herein reserved and such
occupancy shall not be construed as a relief of Lessee's liability under this
agreement.

Lessee waives all right of redemption to which Lessee or any person
claiming under Lessee might be entitled by any law now or hereafter in force.
Lessor's remedies under this agreement are in addition to any other remedies
allowed by law.

22. EFFECT OF FAILURE TO INSIST ON STRICT COMPLIANCE WITH CONDITIONS.

The failure of either party to insist on strict performance of any
covenant or condition or to exercise any option contained in this agreement,
shall not be construed as a waiver of such covenant, condition, or option in any
other instance. This lease cannot be changed or terminated orally.

23. COMPLIANCE WITH REGULATIONS.

Lessor and Lessee acknowledge that there are in effect federal, state,
county, and municipal laws, orders, rules, directives and regulations
(collectively referred to hereinafter as the "Regulations") and that additional
Regulations may hereafter be enacted or go into effect, relating to or affecting
the Demised Premises or the Center, and concerning the impact on the environment
of construction, land use, maintenance and operation of structures, and conduct
of business. Subject to the express rights granted to Lessee under the terms of
this Lease, Lessee will not cause, or permit to be caused, any act or practice,
by negligence, omission, or otherwise, that would adversely affect the
environment, or do anything or permit anything to be done that would violate any
of said laws, regulations, or guidelines. Moreover, Lessee shall have no claim
against Lessor by reason of any changes Lessor may make in the Center or the
Demised Premises pursuant to said Regulations or any charges imposed upon
customers or other invitees pursuant to same.

COMPLIANCE WITH ENVIRONMENTAL LAWS. (a) As used herein, the term
"Hazardous Material" means any pollutant, toxic substance, hazardous waste,
hazardous material, hazardous substance, or oil as defined in or pursuant to the
Resource Conservation and Recovery Act, as amended, the Comprehensive
Environmental Response, Compensation, and Liability Act, the Federal Clean Water
Act, as amended, or any other federal, state or local environmental law,
regulation, ordinance, rule or bylaw, whether existing as of the date hereof,
previously enforced or subsequently enacted.

(b) Lessee, at Lessee's expense, shall comply with all laws, rules,
orders, ordinances, directions, regulations and requirements of federal, state,
county, and municipal authorities pertaining to Lessee's use of the Demised
Premises and with the recorded covenants, conditions, and restrictions,
regardless of when they become effective, including, without limitation, all
applicable federal, state and local laws, regulations or ordinances pertaining
to air and water quality, Hazardous Material waste disposal, air emissions and
other environmental matters, all zoning and other land

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<PAGE> 12

use matters, and utility availability, and with any direction of any public of f
officer or officers, pursuant to law, which shall impose any duty upon Lessor or
Lessee with respect to the use or occupation of the Demised Premises.

(c) Lessee shall not cause or permit any hazardous Material to be
brought upon, kept or used in or about the Demised Premises by Lessee, its
agents, employees, contractors or Invitees without the prior written consent of
Lessor. If Lessee breaches the obligations stated in this paragraph, or if the
presence of Hazardous Material in the Demised Premises caused or permitted by
Lessee results in contamination of the Demised Premises, or if contamination of
the Demised Premises by Hazardous Material otherwise occurs for which Lessee is
legally liable to Lessor for damage resulting therefrom, then Lessee shall
indemnify, defend and hold Lessor harmless from any and all claims, judgments,
damages, penalties, fines, costs, liabilities or loses (including without
limitation, diminution in value of the Demised Premises, damages for the loss or
restriction on use of rentable or usable space or of any amenity of the Demised
Premises, damages arising from any adverse impact on marketing of space, and
sums paid in settlement of claims, attorneys, fees, consultant fees and expert
fees (which arise during or after the Lease term as a result of such
contamination. This indemnification of Lessor by Lessee includes, without
limitation, costs incurred in connection with any investigation of site
conditions or any clean-up, remedial, removal or restoration work required by
any federal, state or local governmental agency or political subdivision because
of Hazardous Material present in the soil or ground water or under the Demised
Premises. Without limiting the foregoing, if the presence of any Hazardous
Material on the Demised Premises caused or permitted by Lessee results in any
contamination of the Demised Premises, Lessee shall promptly take all actions at
its sole expense as are necessary to return the Demised premises to the
condition existing prior to the introduction of any such Hazardous Material to
the Demised Premises, provided that Lessor's approval of such actions shall
first be obtained. The foregoing indemnity shall survive the expiration or
earlier termination of the Lease.

24. SUBORDINATION OF LEASE.

This lease shall be subject and subordinate to all underlying leases
and to mortgages and trust -deeds which may now or later affect such leases or
the real property of which the premises form a part, and also to all renewals,
modifications, consolidations, and replacements of the underlying leases,
mortgages and trust deeds. Although no instrument or act on the part of Lessee
shall be necessary to effectuate such subordination, Lessee will, nevertheless,
execute and deliver further instruments confirming subordination of this Lease
as may be desired by the holders of the mortgages and trust deeds or by any of
the Lessors under such underlying leases. Lessee appoints Lessor attorney in
fact, irrevocably, to execute and deliver any such instrument for Lessee. If any
underlying lease to which this lease is subject terminates, Lessee shall, on
timely request, return to the owner of the reversion.

25. SECURITY DEPOSIT.

Lessee shall deposit with Lessor on the signing of this Lease the sum
of Six Hundred and No/100 ($600.00) Dollars as security for the performance of
Lessee's obligations under this Lease,

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including without limitation the surrender of possession of the premises to
Lessor as provided in this Lease. If Lessor applies any part of the deposit to
cure any default of Lessee, Lessee shall upon demand deposit with Lessor the
amount so applied to that Lessor shall have the full deposit on hand at all
times during the term of this Lease.

In addition to the statutory Lessor's lien, Lessor shall have at all
times a valid security interest to secure payment of all rentals and other sums
of money becoming due hereunder from Lessee, and to secure payment of any
damages or loss which Lessor may suffer f er by reason of the breach by Lessee
of any covenant, agreement or condition contained herein upon all goods, wares,
equipment, fixtures, furniture, improvements, leaseholds and other personal
property of Lessee presently, or which may hereafter be situated on the Demised
Premises, and all other personal property of Lessee presently, or which may
hereafter be situated on the Demised Premises, and all proceeds therefrom, and
such property shall not be removed without the consent of Lessor until all
arrearages in rent as well as any and all other sums of money then due to Lessor
or to become due to Lessor hereunder shall first have been paid and discharged
and all the covenants, agreements and conditions hereof have been fully complied
with and performed by Lessee. Upon the occurrence of an event of default by
Lessee, Lessor may, in addition to any other remedies provided herein, enter
upon the Demised Premises and take possession of any and all goods, wares,
equipment, fixtures, furniture, improvements, leaseholds and other personal
property of tenant situated on the Demised Premises, without breach of peace (or
by force, but only if necessary and allowed by law under the applicable
circumstances) without liability for trespass or conversion and sell the same at
public or private sale, with or without having such property at the sale, after
giving Lessee reasonable notice of the time and place of any public sale or of
the time after which any private sale is to be made, at which sale the Lessor or
its assigns may purchase unless otherwise prohibited by law. Unless otherwise
provided by law, and without intending to exclude any other manner of giving
Lessee reasonable notice, the requirement of reasonable notice shall be met if
such notice is given in the manner prescribed in this Lease at least seven (7)
days before the time of sale. Any sale made pursuant to the provisions of this
paragraph shall be deemed to have been a public sale conducted in a commercially
reasonable manner if held in the above-described premises or where the property
is located after the time, place and method of sale and a general description of
the types of property to be sold have been advertised in a daily newspaper
published in the county in which the property is located for three (3)
consecutive days before the date of the sale. The proceeds from any such
disposition, less any and all expenses connected with the taking of possession,
holding and selling of the property (including reasonable attorneys, fees and
legal expense) , shall be applied as a credit against the indebtedness secured
by the security interest granted in this paragraph. Any surplus shall be paid to
Lessee or as otherwise required by law; the Lessee shall pay any deficiencies
forthwith. Upon request by Lessor, Lessee agrees to execute and deliver to
Lessor a financing statement in form sufficient to perfect the security interest
of Lessor in the aforementioned property and proceeds thereof under the
provision of the Uniform Commercial Code (or corresponding state statute or
statutes) in force in the State of Texas, as well as any other state the laws of
which Lessor may at any time consider to be applicable; provided however, Lessee
agrees that Lessor shall have the right to file a photocopy of this Lease as a
financing statement for the purpose of perfecting the security

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<PAGE> 14

interest of the Lessor created pursuant to the provision of this paragraph. The
statutory lien for rent is expressly reserved; the security interest herein
granted is in addition and supplementary thereto.

26. LESSOR'S RIGHT TO CURE LESSEE'S BREACH.

If Lessee breaches any covenant or condition of this Lease, Lessor may,
on reasonable notice to Lessee (except that no notice need be given in case of
emergency), cure such breach at the expense of Lessee. The reasonable amount of
all expenses, including attorneys, fees, incurred by Lessor in so doing, whether
paid by Lessor or not, shall be deemed additional rent payable on demand.

27. MECHANICS' LIEN.

Lessee shall within ten (10) days after notice from Lessor discharge
any mechanics, liens for materials or labor claimed to have been furnished to
the premises on Lessee's behalf.

28. NOTICES.

Any notice by either party to the other shall be in writing and shall
be deemed to have been duly given only if delivered personally or sent by
registered or certified mail in an addressed postpaid envelope; if to Lessee, at
the above described building; if to Lessor, at Lessor's address as set forth
above; or, to either, at such other address as Lessee or Lessor, respectively,
may designate in writing. Notice shall be deemed to have been duly given, if
delivered personally, if mailed, upon the third (3rd) day after the mailing of
such notice.

29. LESSOR'S RIGHT TO INSPECTION, REPAIR, AND MAINTENANCE.

Lessor may enter the premises at any reasonable time, upon adequate
notice to Lessee (except that no notice need be given in case of emergency) for
the purpose of inspection or the making of such repairs, replacements, or
additions in, to, on and about the premises or the building, as Lessor deems
necessary or desirable. Lessee shall have no claim or cause of action against
Lessor by reason of such entry.

30. INTERRUPTION OF SERVICES OR USE.

Interruption or curtailment of any service maintained in the building,
if caused by strikes, mechanical difficulties, or any causes beyond Lessor's
control whether similar or dissimilar to those enumerated, shall not entitle
Lessee to any claim against Lessor or to any abatement in rent, and shall not
constitute constructive or partial eviction, unless Lessor fails to take such
measure as may be reasonable in the circumstances to restore the service without
undue delay. If the premises are rendered untenantable in whole or in part, -for
a period of thirty (30) business days, by the making of repairs, replacements,
or additions, other than those made with Lessee's consent or caused by misuse or
neglect by Lessee or Lessee's agents, servants, visitors, or licensees, there
shall be a proportionate abatement of rent during the period of such
untenantability.

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<PAGE> 15

31. CONDITIONS OF LESSOR'S LIABILITY.

Lessee shall not be entitled to claim a constructive eviction from the
premises unless Lessee shall have first notified Lessor in writing of the
condition or conditions giving rise to such eviction, and, if the complaints be
justified, unless Lessor shall have failed within a reasonable time after
receipt of such notice to remedy such conditions.

32. EFFECT OF OTHER REPRESENTATIONS.

No representations or promises shall be binding on the parties to this
agreement except those representations and promises contained in this Lease or
in some future writing signed by the party making such representations or
promises.

33. PEACEFUL ENJOYMENT.

Lessor covenants that if, and so long as, Lessee pays the rent, and any
additional rent as provided in this Lease, and performs the covenants of this
Lease, Lessee shall peaceably and quietly have, hold, and enjoy the premises for
the term mentioned in the Lease, subject to the provisions of this Lease.

34. SECTION HEADINGS.

The Section headings in this Lease are intended for convenience only
and shall not be taken into consideration in any construction or interpretation
of this Lease or any of its provisions.

35. BINDING EFFECT ON SUCCESSORS AND ASSIGNS.

The provisions of this Lease shall apply to, bind, and inure to the
benefit of Lessor and Lessee, and their respective heirs, successors, legal
representatives, and assigns. It is understood that the tern "Lessor" as used in
this Lease means only the owner, a mortgagee in possession, or a term Lessee of
the building, so that in the event of any sale of the building or of any Lease
of the building, or if a mortgagee shall take possession of the premises, the
Lessor named in this Lease shall be entirely freed and relieved of all covenants
and obligations of Lessor subsequently accruing under the Lease. It shall be
deemed without further agreement that the purchaser, the term Lessee of the
building, or the mortgagee in possession has assumed and agreed to carry out any
and all covenants and obligations of the Lessor under the Lease.

36. CONDITION OF DEMISED PREMISES

Lessee hereby acknowledges that it has been given an opportunity to
inspect the Demised Premises and the Center, and acknowledges and agrees that
all facilities that are vital to the use of the Demised Premises for Lessee's
intended commercial purpose are present and are in suitable condition. Lessee
covenants and agrees that Lessee shall maintain and keep in good repair the roof

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<PAGE> 16

above and around any marquee or other signage relating to Lessee's business.
Lessor makes no representations or warranties, expressed or implied (Lessee
hereby waiving, to the maximum extend allowed by law, the benefits thereof) , as
to the condition of the Demised Premises or suitability or fitness for any
purpose whatsoever. Lessor shall be under no obligation whatsoever to undertake
any repairs, alterations or other work of any kind with respect to any interior
portion of the Demised Premises or the Center. Lessee also acknowledges the
adequacy of Lessee's opportunity to inspect and investigate both the Demised
Premises and the Center in enabling Lessee to make Lessee's own determination
with respect to the condition and suitability or fitness for any purpose
thereof. The taking of possession of the Demised Premises by Lessee conclusively
establishes that the Demised Premises and the Center were in satisfactory order
and condition.

37. LESSOR'S TERMINATION OPTION.

Lessee agrees that Lessor upon serving Lessee with nine (9) months
written notice may terminate this Lease without cause. In the event that during
the first five (5) years of the Lease term, Lessor exercises its right to
terminate this Lease agreement, Lessee shall not be obligated to pay the monthly
rental for the final month of Lessee's occupancy and Lessor shall pay to Lessee
a pro-rated portion, adjusted for depreciation, of the amount paid by Lessee for
all improvements to the demised premises. The amount expended by Lessee for
improvements to the demised premises shall be verified and agreed to by Lessor
within ten (10) days of occupation of the premises by Lessee and that amount
shall be divided into sixty (60) equal parts for the purpose of computing any
reimbursements due the Lessee as the result of Lessor's termination of this
lease, with each part reduced for normal depreciation.

38. OUTDOOR RESTRICTIONS.

Lessee agrees not to store equipment, fixtures or other merchandise
outside of the Demised Premises overnight and to deposit all trash in a sealed
container. Lessee also agrees that no cars or trucks (Lessee's or customers')
shall be parked on the parking lot or parking areas surrounding the Demised
Premises overnight without the written permission of Lessor.

39. THIRD PARTIES.

The terms provisions and covenants contained in this Lease shall apply
to, inure to the benefit of and be binding upon the parties hereto and their
respective heirs, assigns, successors in interest and legal representatives
except as otherwise herein expressly provided and not extend to third parties.

40. ENTIRE AGREEMENT.

This Lease contains the entire agreement between the parties and no
agreement shall be effective to change, modify or terminate this Lease in whole
or in part unless such is in writing and duly signed by the party against whom
enforcement of such change, modification or termination is

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<PAGE> 17

sought. Lessee hereby acknowledges that it is not relying on any representation
or promise of Lessor or of agent (if any), except as may be expressly set forth
in this Lease.

41. RELATIONSHIP OF PARTIES.

Nothing herein contained shall be deemed or construed by the parties
hereto, nor by any third party, as creating the relationship of principal and
agent or of partnership or of joint venture between the parties hereto, it being
understood and agreed that neither the method of computation of rent, nor any
other provision contained herein, nor any acts of the parties hereto shall be
deemed to create any relationship between the parties hereto other than the
relationship of Lessor and Lessee.

42. GOVERNING LAWS.

The laws of the State of Texas shall govern the interpretation,
validity, performance and enforcement of this Lease. If any provision of this
Lease should be held to be invalid or unenforceable, the validity and
enforceability of the remaining provisions of this Lease shall not be affected
thereby. Venue for any action under this Lease shall be the county in which
rentals are due pursuant to this Lease.

In the event the Lessee hereunder shall be a corporation, the persons
executing this Lease on behalf of Lessee hereby covenant and warrant that Lessee
is a duly qualified corporation and all steps have been taken prior to the date
hereof to qualify Lessee to do business in the State of Texas; all franchise and
corporate taxes have been paid to date; and all future forms, reports, fees and
other documents necessary to comply with applicable laws will be filed when due.

The contents, terms and provisions of all Exhibits and addenda, if any,
which are attached hereto are incorporated herein by reference for all purposes.

IN WITNESS WHEREOF, Lessor and Lessee have executed this lease as of
the day and year first above written, pursuant to lawful authority.

LESSEE LESSOR

DOCTORS PRACTICE MANAGEMENT, INC. CITY OF PASADENA
by its duly authorized representative

/s/ W. Don Holt, Sr. /s/ John Isbell
- ------------------------------------- -------------------------------------
W. DON HOLT, SR. JOHN ISBELL, MAYOR

ATTESTED: ATTESTED:

- ------------------------------------- --------------------------------------
Name: Name:
Title: Title:

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<PAGE> 1
EXHIBIT 10.31

LEASE AGREEMENT

THIS LEASE made this 1st day of November,1997, by and between Doctors
Practice Management, Inc., "Lessor" and Kirkwood Medical Associates, "Lessee."

WITNESSETH:

Lessor leases to Lessee, and Lessee leases from Lessor, approximately
9200 square feet, at 4301 A Vista Road, Pasadena, Texas, as further outlined on
the floor plan attached hereto as Schedule I (the "premises") which are located
in the Vista building (the "building"), on the following terms and conditions:

1. TERM AND RENTAL. The term of this Lease shall
commence on November 1, 1997, and continue until the date one (1) year
thereafter ( such period called the "Initial Term") Thereafter, this Lease
shall automatically renew for four (4) successive one (1) year periods (each
period being called a "Renewal Term"), unless earlier terminated in accordance
with Section 18. Rent shall be payable in monthly installments of Eleven
Thousand Five Hundred Dollars ($11,500.00) during the initial term and any
renewal term of this lease. The monthly installments are payable in advance on
the first of each month to Lessor at 4301A Vista Road, Pasadena, Texas 77504 or
at such other address as Lessor shall designate in writing.

Lessee shall pay a late fee $100 if any monthly installment of rent is
not received by Lessor within ten (10) days after its due date. Lessee shall
pay $50.00 for each returned check in addition to any late fees. Late fees and
returned check charges are strictly enforced and constitute a default if not
paid.

2. UTILITIES. Lessor shall pay for water, electricity
and sewer. Lessee agrees not to hold the Lessor responsible for any
interruption in service or loss or inconvenience due to equipment or utilities
failure.

3. USE OF PREMISES. Lessee shall use the premises
exclusively for medical practice and no other purposes. The use of the
premises is a major condition of this lease no other use may be made of the
premises without prior written consent of the lessor which consent will not be
unreasonably withheld. The Premises (and/or the land upon which, or the
Building in which, the Leased Premises are contained) are not subject to any
form of ground lease.

4. INSURANCE AND LIABILITIES. Lessor and its employees
and agents shall not be liable to Lessee or to Lessee's employees, agents
customers and invitees, or to any other persons for any injury to such persons
or for any damage to personal property caused by an act, omission, or neglect
of Lessee is a part. Lessee agrees to indemnify and hold Lessor and its
employees and its agents harmless from any and all claims for such injury and
damages, whether the injury occurs on or off premises.
<PAGE> 2
Lessee agrees during the term hereof to carry a broad form
comprehensive policy of public liability insurance covering the Demised
Premises in an amount of not less than $500,000 combined single limit personal
injury and property damage insurance with companies satisfactory to Lessor in
the name of Lessee (with Lessor and manager, and, if requested by Lessor, any
mortgagee, trust deed holder, ground lessor or secured party with a substantial
interest in this Lease and/or the building named as additional insurers in the
policy or by endorsement). Lessee also agrees to pay the premiums therefore
and to deliver copies of said policies and/or endorsements thereto to Lessor,
and the failure of Lessee to either obtain said insurance or deliver copies of
said policies or certificates thereof to Lessor shall permit Lessor to procure
said insurance and pay the requisite premiums therefor, which premiums shall be
repayable to Lessor with the next monthly rental payment. Each insurer under
the policies required hereunder shall agree by endorsement on the policy issued
by it or by independent instrument furnished to Lessor that will give Lessor no
less than ten (10) days written notice before the policy or policies in
question shall be altered or canceled. All such insurance policies shall be
primary, noncontributing and shall contain cross-liability coverage or an
endorsement. The amounts of such insurance required hereunder shall be subject
to adjustment from time to time as requested by Lessor based upon Lessor's
determination as to the amounts of such insurance generally required at such
time for comparable tenants, premises and buildings in the general geographical
location of the Property or as requested by any ground lessor or lender with an
interest in the Property or property on which the Property is situated. Lessor
shall, during the term of this Lease, procure and keep in force the following
insurance: (i) "all risk" property insurance, including, without limitation,
boiler and machinery (if applicable); (ii) sprinkler damage; (iii) vandalism,
malicious mischief; and (iv) demolition. Such insurance shall be in the full
amount of the replacement cost of the Land and/or the Building in which the
Leased Premises are situated, and Lessee's improvements and alterations with
reasonable deductible amounts. Such insurance shall also include rental income
insurance as may be required by any mortgagee or any mortgage covering the
Leased Premises, including that one hundred percent (100%) of the rent (as the
same may be adjusted hereunder) will be paid to Lessor for a period of up to
twelve (12) months if the Leased Premises are destroyed or damaged. Further,
Lessor shall procure comprehensive general liability (Lessors Risk) insurance
against any and all claims for bodily injury, death or property damage
occurring in or about the Leased Premises, the Land or the Building. Such
insurance shall have a combined single limit of not less than five hundred
thousand dollars ($500,000) and such other insurance as Lessor reasonably deems
necessary and prudent. It is understood that such insurance shall not cover
Lessee's equipment, trade fixtures, inventory fixtures or personal property
located in the Leased Premises. All such policies shall contain an express
waiver, in favor of Lessee, of any right of subrogation by the insurer.

5. KEYS. Lessor shall provide Lessee with two keys to
each lock. All copies of keys are to be made through Lessor who shall provide
keys at cost. In the event keys are lost, Lessee shall pay the cost of
re-keying the lock and replacing all existing keys. Lessee shall promptly
report any lost keys to Lessor. At the end of the lease all keys shall be
returned to Lessor.

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<PAGE> 3
6. POLICE SECURITY. Lessee has examined the locks on
the premises and knows of no defects. Lessee agrees that protection against
criminal action is not within the power of the Lessor. If Lessor provides
security service, it cannot be relied on by Lessee and such service shall not
constitute a basis for liability in any manner for wrongful actions by others
against Lessee, its employees, agents, customers, and invitees.

LESSEE HEREBY AGREES AND ACKNOWLEDGES THAT LESSOR SHALL HAVE NO DUTY TO PROVIDE
ANY SECURITY SERVICES TO LESSEE. LESSEE SHALL LOOK SOLELY TO THE PUBLIC POLICE
FORCE FOR PROTECTION.

7. MAINTENANCE AND REPAIRS. Lessor shall maintain the
building including the walls, roof, common areas, lighting, and HVAC in good
repair. However, Lessor shall not be required to do any maintenance occasioned
by the acts or negligence of Lessees, its employees, agents, customers, and
invitees, and whenever such damage occurs, the repairs shall be paid by Lessee.
Lessee agrees to give Lessor written notice of any needed repairs and Lessor
agrees to make repairs within a reasonable time. Lessee acknowledges receipt of
the premises in good repair and clean condition. Any exceptions must be
recorded in writing and delivered to Lessor upon execution of this Lease.

8. ALTERATIONS, EQUIPMENT AND FURNISHINGS. Lessee shall
make no alterations without written consent of the Lessor, such consent not to
be unreasonably withheld. Any alterations shall become the property of the
Lessor at the end of the lease. All equipment or other items installed by
Lessee shall remain property of the Lessee. Lessee has the right to remove
same, provided Lessee is not in default. Any damages caused by the removal
shall be paid by Lessee.

9. WAIVER OF BREACH. No assent, expressed or implied,
by the Lessor to any breach of any lease term or condition, shall be deemed to
be a waiver of any succeeding breach.

10. DAMAGE BY FIRE OR OTHER CASUALTIES. If the premises
are made untenantable by fire or casualty not caused by Lessee, its employees,
agents, customers or invitees, the rent shall abate for the affected area(s)
during repairs. The provision shall not extend the term of the lease or render
the Lessor liable for repair. If Lessor decides not to repair, the lease shall
end as of the date of the casualty. If Lessor decides to repair, Lessee may end
this lease if repairs will take longer than 90 days.

11. QUIET ENJOYMENT. Upon performing the terms and
conditions of this lease, Lessee shall peaceably and quietly have and enjoy the
premises during the term hereof.

12. RE-DELIVERY OF PREMISES. At the end of the lease,
Lessee shall peaceably return the premises to the Lessor in broom clean
condition and in good repair, reasonable wear and tear excepted, and in all
respects the same as they were upon delivery by the Lessor to the Lessee,
except for reasonable use. Property which remains in the premises thirty (30)
days after Lessee vacates shall be considered abandoned and at Lessor's option
shall become Lessor's property or removed at

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<PAGE> 4
Lessee's expense. If Lessee has removed all or a substantial portion of
Lessee's property from the premises after a default by Lessee or notification
to Lessor that Lessee is vacating the premises, Lessor may enter the premises
to prepare the premises for re-renting without any allowance to Lessee and such
acts not change or end this lease.

13. INSPECTION OF PREMISES. Lessor, its employees and
agents may enter the premises upon reasonable notice to Lessee at reasonable
times to inspect, make repairs, show the premises or for other reasonable
purposes as long as lessor does not interrupt or interfere with the normal
operation of Lessee's business.

14. SUBORDINATION. Lessor is hereby irrevocably vested
with full power and authority to subordinate this lease to any mortgage, deed
of trust, or other lien hereafter placed on the premises and Lessee agrees on
demand to execute such further instruments subordinating this lease as Lessor
may request, provided any subordination shall be on the condition that this
lease and the rights of Lessee shall remain in full force and effect during the
term of this lease so long as Lessee shall be in compliance with the terms of
this lease. In the event of a subordination of this Lease, Lessor shall obtain
from the holder of any such mortgage, a written agreement with Lessee to the
effect that in the event of a foreclosure or other action taken under the
mortgage by the holder thereof, this Lease and the rights of the Lessee
hereunder shall not be disturbed but shall continue in full force and effect so
long as Lessee shall not be in default hereunder.

15. SIGNS. Lessee shall erect and maintain its signs at
its expense. Signs must be removed by Lessee at the end of this lease. Damage
caused by erection, maintenance, or removal of signs shall be repaired by
Lessee. Lessee agrees that control of signs is essential to maintain aesthetic
consistency. Signs shall be subject to the prior written approval of Lessor as
to design, size, and location. Lessor shall have the option to require uniform
signs in all or a portion of the building. Lessor has the right to remove
improper signs.

16. PARKING AREA. All Lessee employees shall park in
designated employee parking spaces so as to leave the parking spaces closest to
the building available for customers.

17. SUBLEASE OR ASSIGNMENT. This lease may not be sublet
or assigned except to affiliates of Lessee, without the prior written consent
of Lessor, which consent shall not be unreasonably withheld. It is understood
that Lessor has first right of refusal in the event of any sublet.

18. TERMINATION OF LEASE. Lessor shall have the option
to end this lease if Lessee shall become insolvent, makes an assignment for the
benefit of creditors, files a petition in bankruptcy, or fails to use the
premises for a period of more than 30 days. Lessee shall have the option to
terminate this Lease effective upon any anniversary date during the Initial
Term or any Renewal Term upon sixty (60) days advance written notice to Lessor.
Lessor shall have the option to terminate this Lease effective upon any
anniversary date during the Initial Term or any Renewal Term upon sixty (60)
days advance written notice to Lessee.

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<PAGE> 5
19. NOTICES. All notices shall be given by certified
mail, return receipt requested, to Lessee addressed to the Premises:

and to Lessor:

Ms. Sylvia Williams
Vice President
Doctors Practice Management, Inc.
4301A Vista Road
Pasadena, Texas 77504

or at such other address as Lessor shall designate in writing.

20. TAXES. Lessor shall pay the real property taxes on
the building. Lessee shall pay all the taxes on its personal property, fixtures
and any building improvements made by Lessee.

21. DEFAULT. If any amount is not paid when due, or in
the case of any other default by Lessee continuing for more than 30 days after
notice, Lessor may resume possession and all or part of the premises for a term
longer or shorter than Lessee's obligation at a rent higher than stated in
Lessee's lease and recover from Lessee, the difference between the rent in the
lease and the rent received or to be received on the releasing plus any cost of
releasing. Lessor shall also have any other remedy allowed by law for
enforcing performance or for collecting damages. Lessor shall also recover all
expenses incurred by reason of default, including reasonable attorneys' fees
whether suit be brought or not. Upon default by Lessee, the monthly rent
through the end of the lease term shall become due and payable in full.

22. CONDITION OF UNIT. Lessee shall keep the premises
neat and broom clean at all times.

23. COMPLIANCE WITH LAWS AND RULES. Lessee shall, at
it's own expense, comply with all laws, ordered, and requirements of all
government entities with references to the use and occupancy of the premises.
Lessee shall comply with any rules governing the use of the building and the
premises as required by Lessor. Lessor may make reasonable changes in such
rules from time to time as deemed advisable for the safety, care and
cleanliness of the building and premises, provided same are in writing and are
not in conflict with this lease. Lessor agrees to strictly comply with all
pertinent laws, ordinances, statutes and regulations whatsoever, of any
governmental body or subdivision, incident to the Land and the Building,
including, but not limited to, the Americans With Disabilities Act. Lessor
shall indemnify Lessee with regard to violations of the foregoing caused by
Lessor.

24. LIMITATION OF LIABILITY. Any and all covenants,
undertakings, and agreements herein made on the part of Lessor are not personal
covenants, undertakings, or agreements and will not bind Lessor personally or
any assets or Lessor except Lessor's interest in the property in which the

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<PAGE> 6
Demised Premises are located. All covenants, undertakings, and agreements are
made and intended for the purpose of binding only Lessor's interest in such
property. No personal liability or personal responsibility is assumed by, nor
shall at any time be asserted or enforceable against, Lessor or its agents,
beneficiaries, partners, constituent partners, shareholders, officers,
directors, or their respective heirs, administrators, legal representatives,
successors, or assigns on account of this lease or on account of any covenant,
undertaking, or agreement of Lessor in this lease, all such liability being
irrevocable and unconditionally waived by Lessee. Except as may be the result
of the negligence or willful misconduct of Lessee or Lessee's agents, Lessor
shall indemnify, hold harmless, and defend Lessee against all claims, losses or
liabilities for injury or death to any person or for damage to or loss of
property arising out of any occurrence in, on or about the Building. Such
indemnification shall include and apply to reasonable attorneys fees,
investigation costs, and other costs actually incurred by Lessee. Except for
the negligence or willful misconduct of Lessee or Lessee's agents, Lessor shall
further indemnify, defend and hold harmless Lessee from and against any and all
claims arising from any breach or default in the performance of any obligation
on the Lessor's part to be performed under the terms of this Lease. The
provisions of this paragraph shall survive any termination of this Lease with
respect to any damage, injury, death, breach or default occurring prior to such
termination.

25. DISCLAIMER OF IMPLIED WARRANTIES. IT IS EXPRESSLY
AGREED BY LESSEE, AS A MATERIAL CONSIDERATION FOR THE EXECUTION OF THIS LEASE
BY LESSOR, THAT THERE ARE, AND WERE, NO VERBAL REPRESENTATIONS, WARRANTIES,
UNDERSTANDINGS, STIPULATIONS, AGREEMENTS OR PROMISES PERTAINING TO THIS LEASE
OR THE EXPRESSLY MENTIONED WRITTEN EXTRINSIC DOCUMENTS NOT INCORPORATED IN
WRITING IN THIS LEASE AGREEMENT. LESSEE'S AGREEMENT AND COVENANT TO PAY RENT
HEREUNDER SHALL BE AND REMAIN AT ALL TIMES AN INDEPENDENT COVENANT, FULLY
ENFORCEABLE IN ACCORDANCE WITH THE TERMS OF THIS LEASE AGREEMENT. THERE ARE NO
WARRANTIES WHICH EXTEND BEYOND THOSE EXPRESSLY SET FORTH IN THIS LEASE. LESSOR
AND LESSEE HEREBY ACKNOWLEDGE THAT THEY ARE NOT RELYING UPON ANY BROCHURE,
RENDERING, INFORMATION, REPRESENTATION OR PROMISE OF THE OTHER, OR AN AGENT OR
BROKER, IF ANY, EXCEPT AS MAY BE EXPRESSLY SET FORTH IN THIS LEASE AGREEMENT.

26. LIEN. Lessor is granted an express contractual lien,
in addition to any lien provided by law, and a security interest in all
property of Lessee found on the premises to secure the compliance by Lessee
with all terms of this lease. In the event of default, upon thirty (30) days
notice, Lessor or its agents may peaceably enter the premises and remove all
property and dispose of same as Lessor shall see fit.

27. AGREEMENT. This lease constitutes the full agreement
of the parties and supersedes any prior written or verbal understandings. No
amendment or dates subsequent to the date hereof. In case any one or more of
the terms of this lease are held invalid or unenforceable, such invalidity

-6-
<PAGE> 7
or unenforceability shall not affect any other terms and this lease shall be
constructed as if such unenforceable or invalid terms had never been contained
herein.

28. DISPUTE RESOLUTION. In the event of a dispute
between Lessor and Lessee and Lessee as to any provisions of this lease other
than the failure of Lessee to pay rent as provided herein, Lessor and Lessee
agree to resolve such disputes through binding Mediation or alternative Dispute
Resolution procedures. Each party shall be responsible for its own legal fees
and cost.

29. BROKERS. Lessee warrants that it has had no dealings
with any real estate broker or agent in connection with the negotiation of this
lease, excepting only Lessor and that he knows of no other real estate broker
or agent who is or might be entitled to a commission in connection with this
lease.

30. SPECIAL PROVISIONS. The following Exhibits are
attached hereto and incorporated herein by reference:

See Attachments: EXHIBIT A : Equipment, Furniture and Fixtures

EXHIBIT B : Telephone Equipment

EXECUTED as of the date hereinabove first set forth.

LESSOR: LESSEE:
DOCTORS PRACTICE MANAGEMENT, INC. KIRKWOOD MEDICAL ASSOCIATES

By: /s/ Sylvia Williams By: /s/ Ron Kirkwood, D.O.
------------------------------ ---------------------------------
Printed Name: Sylvia Williams Printed Name: Ron Kirkwood, D.O.
Title: Vice President

By: /s/ Milton Kirkwood, D.O.
---------------------------------
Printed Name: Milton E. Kirkwood, D.O.

By: /s/ John Kirkwood, D.O.
---------------------------------
Printed Name: John Kirkwood, D.O.

-7-
<PAGE> 8
EXHIBIT A

EQUIPMENT, FURNITURE AND FIXTURES. In addition to the space defined in this
agreement, Lessor agrees to rent to Lessee and Lessee agrees to rent from
Lessor, the Equipment, Furniture and Fixtures owned by Lessor for the period of
this agreement and subject to the terms contained in this agreement. Lessee
will maintain Equipment, Furniture and fixtures in good condition and upon
termination, return the equipment in good condition and repair less normal wear
and tear. The fee for the rental of Equipment, Furniture and Fixtures will be
One Thousand Four Hundred Dollars ($1,400.00) per month, due along with the
lease payment and subject to the same conditions as the lease payment.
<PAGE> 9
EXHIBIT B

TELEPHONE EQUIPMENT. In addition to the space defined in this agreement,
Lessor agrees to rent to Lessee and Lessee agrees to rent from Lessor,
Telephone Equipment which is currently installed in the "Building" for the
period of this agreement and subject to the terms contained in this agreement.
Lessee will maintain the equipment in good repair and condition and, upon
termination, return the equipment in good condition and repair less normal wear
and tear. The fee for the rental of the existing telephone equipment shall be
Five Hundred Dollars ($500.00) per month due with the lease payment and subject
to the same conditions contained in this agreement.

Lessor will continue to allow lessee reasonable and unmolested use of the
existing telephone service and its number during the term of this agreement.
It shall be understood that the service is not exclusive to the Lessee and that
the main telephone number and branches of it remain the property of the Lessor.

Lessee shall provide the necessary personnel to maintain normal service and
operation of the switchboard (operator service) during Lessees normal business
hours.

Lessee shall be responsible for its own long distance service and be
responsible for the cost of that service. Lessee shall reimburse lessor an
amount equivalent to 25% of the cost of basic telephone service (plus required
fees and taxes) as it currently exists. Changes in the level of telephone
service currently provided may be made with the concurrence of the Lessor and
Lessee.

<PAGE> 1
EXHIBIT 10.32

AMENDMENT NO. 1 TO FULL SERVICE MANAGEMENT AGREEMENT

This Amendment No. 1 to the Full Service Management Agreement (the
"Amendment") is entered into effective September 1, 1996 by and between Vista
Healthcare, Inc. a Texas corporation, ("Vista") and Doctors Practice
Management, Inc., a Texas corporation ("DPMI").

WITNESSETH:

WHEREAS, Vista and DPMI desire to amend the Full Service Management
Agreement dated May 1, 1996 (the "Management Agreement"); and

WHEREAS, Vista and DPMI, following the execution and effectiveness of
this Amendment, desire to continue the Management Agreement in full force and
effect without further amendment thereto;

NOW, THEREFORE, for and in consideration of the premises and other
good and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto agree as follows:

1. AMENDMENT. The parties hereto hereby agree that Section 5.1
of the Management Agreement is hereby amended to increase the management fee
from 28% of collections to 38% of collections.

2. ENTIRE AGREEMENT; NO FURTHER AMENDMENTS. The parties hereto
acknowledge and agree that this Amendment and the Management Agreement
represent the entire agreement of the parties with respect to the subject
matter hereof and thereof and that there exists no other agreements or
understandings between the parties whether oral or written. The Management
Agreement may not be further amended without the written consent of both
parties thereto.

IN WITNESS WHEREOF, the parties hereto have entered into this
Amendment effective as of September 1, 1996.

VISTA HEALTHCARE, INC.

By: /s/ Glenn Rodriguez
-------------------------------------
GLENN RODRIGUEZ, VICE PRESIDENT

DOCTORS PRACTICE MANAGEMENT, INC.

By: /s/ Philip Chan
-------------------------------------
PHILIP CHAN, VICE PRESIDENT

<PAGE> 1
EXHIBIT 10.33

AMENDMENT NO. 1 TO FULL SERVICE MANAGEMENT AGREEMENT

This Amendment No. 1 to the Full Service Management Agreement (the
"Amendment") is entered into effective September 1, 1996 by and between Ping S.
Chu, M. D. an individual residing in Houston, Texas ("Chu") and Doctors
Practice Management, Inc., a Texas corporation ("DPMI").

WITNESSETH:

WHEREAS, Chu and DPMI desire to amend the Full Service Management
Agreement dated March 1, 1996 (the "Management Agreement"); and

WHEREAS, Chu and DPMI, following the execution and effectiveness of
this Amendment, desire to continue the Management Agreement in full force and
effect without further amendment thereto;

NOW, THEREFORE, for and in consideration of the premises and other
good and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto agree as follows:

1. AMENDMENT. The parties hereto hereby agree that Section 5.1
of the Management Agreement is hereby amended to reduce the management fee from
40% of collections to 35% of collections.

2. ENTIRE AGREEMENT; NO FURTHER AMENDMENTS. The parties hereto
acknowledge and agree that this Amendment and the Management Agreement
represent the entire agreement of the parties with respect to the subject
matter thereof and that there exists no other agreements or understandings
between the parties with respect to the subject matter thereof. The Management
Agreement may not be further amended without the written consent of both
parties thereto.

IN WITNESS WHEREOF, the parties hereto have entered into this
Amendment effective as of September 1, 1996.

DOCTORS PRACTICE MANAGEMENT, INC.

By: /s/ Philip Chan
--------------------------------
PHILIP CHAN, VICE PRESIDENT

PING S. CHU, M.D., INDIVIDUALLY

By: /s/ Ping S. Chu
--------------------------------
PING S. CHU, M.D.

<PAGE> 1
EXHIBIT 10.34

AMENDMENT NO. 1 TO FULL SERVICE FACILITY
AND MANAGEMENT AGREEMENT

This Amendment No. 1 to the Full Service Facility and Management
Agreement (the "Amendment") is entered into effective September 1, 1996 by and
between JCW Medical Associates, P.A., a Texas professional association ("JCW")
and Doctors Practice Management, Inc., a Texas corporation ("DPMI").

WITNESSETH:

WHEREAS, JCW and DPMI desire to amend the Full Service Facility and
Management Agreement dated May 1, 1996 (the "Management Agreement"); and

WHEREAS, JCW and DPMI, following the execution and effectiveness of
this Amendment, desire to continue the Full Service Facility and Management
Agreement in full force and effect without further amendment thereto;

NOW, THEREFORE, for and in consideration of the premises and other
good and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto agree as follows:

1. AMENDMENT. The parties hereto hereby agree that Section 5.1
of the Management Agreement is hereby amended to reduce the management fee from
65% of annual collected revenue to 40% of annual collected revenue.

2. ENTIRE AGREEMENT; NO FURTHER AMENDMENTS. The parties hereto
acknowledge and agree that this Amendment and the Management Agreement
represent the entire agreement of the parties with respect to the subject
matter thereof and that there exists no other agreements or understandings
between the parties with respect to the subject matter thereof. The Management
Agreement may not be further amended without the written consent of both
parties thereto.

IN WITNESS WHEREOF, the parties hereto have entered into this
Amendment effective as of September 1, 1996.

DOCTORS PRACTICE MANAGEMENT, INC.

By: /s/ Philip Chan
--------------------------------
PHILIP CHAN, VICE PRESIDENT

JCW MEDICAL ASSOCIATES, P.A.

By: /s/ Jerome Wasserstein
--------------------------------
DR. JEROME WASSERSTEIN

<PAGE> 1
EXHIBIT 10.35

PROMISSORY NOTE

$60,000.00 HOUSTON, TEXAS NOVEMBER 30, 1996

FOR VALUE RECEIVED, the undersigned, DYNACQ INTERNATIONAL, INC.,
("Maker") promises to pay to the order of JCW MEDICAL ASSOCIATES, P.A.
("Payee") of Houston, Harris County, Texas in lawful money of the United States
of America, the sum of SIXTY THOUSAND AND 00/100 DOLLARS ($60,000.00), together
with interest on the unpaid principal balance hereof from date hereof until
maturity at the fixed rate of SIX AND ONE-HALF percent per annum; provided,
however, in no event shall interest hereon ever be charged, paid, collected or
received at a rate in excess of the maximum nonusurious rate from time to time
permitted by applicable Federal or Texas law, whichever shall permit the higher
lawful rate (the "Highest Lawful Rate"). If the interest rate provided for
elsewhere herein at any time would exceed the Highest Lawful Rate but for the
limitation contained herein, the actual rate of interest to accrue on the
unpaid amount of this Note shall be limited to the Highest Lawful Rate.

At all such times, if any, as Texas law shall establish the Highest
Lawful Rate, the Highest Lawful Rate shall be the "monthly ceiling" (as defined
in Chapter One of the Texas Credit Code) from time to time in effect; but the
Payee may from time to time, as to current and future balances, implement any
other ceiling under such Chapter and /or revise the index, formula or provision
of law used to compute the rate on this Note by notice to the Maker, if and to
the extent permitted by, and the manner provided in, such Chapter.

This Note shall be due and payable as follows:

Principal shall be due and payable within a year from the date of this
Note. Interest shall be calculated on the outstanding note principal balance
at a fixed rate of SIX AND ONE-HALF percent on a 365 days basis, and shall be
paid on the maturity of this Note.

All past due principal and interest on this note shall bear interest
at the Highest Lawful Rate, or if applicable law shall not provide for a
maximum nonusurious rate, at a rate per annum equal to rate of interest herein
stated plus five (5%) percent.

The Maker may at any time pay to the full amount or any part of this
Note without the payment of any premium or fee.

Any check, draft, money order or other instrument given in payment of
all or any portion hereof may be accepted by Payee and handled in collection in
the customary manner, but the same shall not constitute payment hereunder or
diminish any rights of Payee except to the extent that actual cash proceeds of
such instrument are unconditionally received by Payee.

Page 1 of 2
<PAGE> 2
$60,000.00 HOUSTON, TEXAS NOVEMBER 30, 1996

EXECUTED this 30th day of November, 1996.

DYNACQ INTERNATIONAL, INC.

By: /s/ Chiu Chan
----------------------------
CHIU CHAN, PRESIDENT

Page 2 of 2

<PAGE> 1
EXHIBIT 10.36

PROMISSORY NOTE

$190,000.00 HOUSTON, TEXAS JANUARY 31, 1997

FOR VALUE RECEIVED, the undersigned, DOCTORS PRACTICE MANAGEMENT,
INC., ("Maker") promises to pay to the order of JCW MEDICAL ASSOCIATES, P.A.
("Payee") of Houston, Harris County, Texas in lawful money of the United States
of America, the sum of ONE HUNDRED NINETY THOUSAND AND 00/100 DOLLARS
($190,000.00), together with interest on the unpaid principal balance hereof
from date hereof until maturity at the fixed rate of SIX AND ONE-HALF percent
per annum; provided, however, in no event shall interest hereon ever be
charged, paid, collected or received at a rate in excess of the maximum
nonusurious rate from time to time permitted by applicable Federal or Texas
law, whichever shall permit the higher lawful rate (the "Highest Lawful Rate").
If the interest rate provided for elsewhere herein at any time would exceed the
Highest Lawful Rate but for the limitation contained herein, the actual rate of
interest to accrue on the unpaid amount of this Note shall be limited to the
Highest Lawful Rate.

This Note shall be due and payable as follows:

The Maker may at any time pay to the full amount or any part of this
Note without the payment of any premium or fee.

Page 1 of 2
<PAGE> 2
$190,000.00 HOUSTON, TEXAS JANUARY 31, 1997

EXECUTED this 31st day of January, 1997.

DOCTORS PRACTICE MANAGEMENT, INC.

By: /s/ Chiu Chan
-----------------------------------
CHIU CHAN, PRESIDENT

Page 2 of 2

<ARTICLE> 5

<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> AUG-31-1997
<PERIOD-END> AUG-31-1997
<CASH> 1,031,981
<SECURITIES> 0
<RECEIVABLES> 4,552,508
<ALLOWANCES> 2,278,500
<INVENTORY> 31,679
<CURRENT-ASSETS> 3,535,762
<PP&E> 5,057,627
<DEPRECIATION> 0
<TOTAL-ASSETS> 8,859,589
<CURRENT-LIABILITIES> 1,711,600
<BONDS> 788,473
0
0
<COMMON> 14,235
<OTHER-SE> 5,323,014
<TOTAL-LIABILITY-AND-EQUITY> 8,859,589
<SALES> 0
<TOTAL-REVENUES> 9,771,949
<CGS> 263,983
<TOTAL-COSTS> 8,616,653
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 2,045,988
<INTEREST-EXPENSE> 117,395
<INCOME-PRETAX> (1,593,285)
<INCOME-TAX> (573,000)
<INCOME-CONTINUING> (1,020,285)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,059,195)
<EPS-PRIMARY> (0.07)
<EPS-DILUTED> (0.07)

</TABLE>