SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-K

                                   (Mark One)

[X] Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange Act
               of 1934 For the fiscal year ended December 31, 1998

[ ] 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 0-26806

                            SHERIDAN HEALTHCARE, INC.
             (Exact name of registrant as specified in its charter)

        Delaware                                             04-3252967
(State or other jurisdiction of                       (IRS Employer ID Number)
 incorporation or organization)

            4651 Sheridan Street, Suite 400, Hollywood, Florida 33021
          (Address of principal executive offices, including zip code)

                                  954/987-5822
              (Registrant's telephone number, including area code)

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

          Securities registered under Section 12(g) of the Act:
                          Common Stock, par value $ .01
                                (Title of Class)

Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 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 ___

Indicate by check mark if disclosure of delinquent  filers  pursuant to Item 405
of Regulation  S-K is not contained  herein,  and will not 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-K or any amendment to this
Form 10-K. [ ]

The  aggregate  market value of the voting stock held by  non-affiliates  of the
Registrant was approximately $22.9 million as of March 16, 1999. For purposes of
this  determination,  shares held by  non-affiliates  includes  all  outstanding
shares except for shares of  non-voting  Class A common stock and shares held by
officers,  directors  and  shareholders  beneficially  owning 10% or more of the
Registrant's  outstanding  common stock. The aggregate market value was computed
based on the closing  sale price of the  Registrant's  common stock on March 16,
1999, as reported on the NASDAQ National Market.

As of March 16, 1999,  there were 6,290,178  shares of the  Registrant's  voting
common stock,  $.01 par value per share  outstanding  and 296,638  shares of the
Registrant's  non-voting  Class  A  common  stock,  $.01  par  value  per  share
outstanding.

                       DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Registrant's  Proxy Statement  relating to the Registrant's 1999
Annual Meeting of  Stockholders  are  incorporated by reference into Part III of
this Form 10-K.


<PAGE>

<TABLE>
<CAPTION>

                          Index to Financial Statements
                          -----------------------------


                                                                                        Page  
 <S>        <C>                                                                          <C>
 Item 1.    Business............................................................         3
 Item 2.    Properties..........................................................        15
 Item 3.    Legal and Administrative Proceedings................................        16
 Item 4.    Submission of Matters to a Vote of Security Holders.................        16
 Item 5.    Market for the Registrant's Common Equity and Related
              Stockholder Matters...............................................       16-17
 Item 6.    Selected Financial Data.............................................        18
 Item 7.    Management's Discussion and Analysis of Financial Condition
              and Results of Operations.........................................       19-29
 Item 8.    Financial Statements and Supplementary Data.........................       30-59
 Item 9.    Changes in and Disagreements with Accountants on Accounting
              and Financial Disclosure..........................................        60
 Item 10.   Directors and Executive Officers of the Registrant..................        60
 Item 11.   Executive Compensation..............................................        60
 Item 12.   Security Ownership of Certain Beneficial
              Owners and Management.............................................        60
 Item 13.   Certain Relationships and Related Transactions......................        60
 Item 14.   Exhibits, Financial Statement Schedules and Reports on Form 8-K.....       60-65

</TABLE>



                                       2
<PAGE>



                                     PART I

     This Form 10-K contains  forward-looking  statements  within the meaning of
Section 27A of the  Securities  Act of 1933 and  Section  21E of the  Securities
Exchange Act of 1934. The Company's actual results could differ  materially from
those set forth in the  forward-looking  statements.  Certain factors that might
cause such a difference  are discussed in the section  entitled  "Risk  Factors"
under Item 1 of this Form 10-K and "Certain  Factors  Affecting Future Operating
Results" under Item 7 of this Form 10-K.

ITEM 1.  BUSINESS
-----------------

GENERAL

The Company  provides  physician  services  to  hospitals,  ambulatory  surgical
facilities  and in  office-based  settings  in a variety of medical  specialties
including   anesthesia,   emergency  medicine,   general  surgery,   gynecology,
gynecology-oncology,    infertility,    neonatology,   obstetrics,   pediatrics,
perinatology and primary care. The Company also provides  management services to
physician  practices  that employ  physicians  practicing  in generally the same
medical specialties as the Company's physicians. The Company derives its revenue
from the medical  services  provided by the  physicians  who are employed by the
Company and from management fees earned from the managed practices. For the year
ended  December 31, 1998,  approximately  97% of the  Company's  net revenue was
derived  from  physician  services and  approximately  3% of the  Company's  net
revenue was  generated  under  management  services  agreements.  References  to
physician  services  provided  by the  Company  include  services  performed  by
physicians  employed by the Company and services provided by physicians in whose
practices the Company has a controlling  financial  interest (the  "Consolidated
Practices").  The financial results of the Consolidated  Practices are presented
on a  consolidated  basis with those of the  Company  because  the Company has a
controlling financial interest in these practices based on the provisions of its
purchase agreements, voting trust agreements or management agreements with these
entities.

Four of the Consolidated Practices, Sheridan Medical Healthcorp, P.C. ("Sheridan
NY"), Sheridan Healthcare of Texas, P.A. ("Sheridan TX"), Sheridan Healthcare of
California  Medical  Group,  Inc.   ("Sheridan  CA")  and  Sheridan   Children's
Healthcare  Services of  Pennsylvania,  P.C.  ("Sheridan  PA") have entered into
long-term  management  agreements  with the  Company  and are  owned by  Gilbert
Drozdow,  M.D. who is an executive officer and a stockholder of the Company.  In
addition,  the  Consolidated  Practices  include twelve practices with which the
Company executed long-term management  agreements and purchase option agreements
from March 1997 through  September  1998.  One of these  practices is located in
Texas, the remainder are located in Florida.

The Company  generates  revenue from its physician  services by directly billing
third-party   payors   or   patients   on  a   fee-for-service   or   discounted
fee-for-service basis, through subsidies paid by hospitals to supplement billing
from third party payors and pursuant to capitation arrangements,  which included
shared-risk capitation  arrangements with managed care organizations until April
1,  1998.  The  Company  generates  management  services  revenue  from  managed
practices through a variety of reimbursement  arrangements.  Reimbursement terms
under management  agreements in place with unconsolidated  practices during 1998
required the practice to pay the Company a management  fee that was either based
on a  percentage  of net  revenues or based on expenses  incurred by the Company
plus a flat fee that does not fluctuate  based on  performance.  Management fees
that are based on a percentage  of net revenue range from 35% to 65% and are not
subject to adjustment.

The Company's  objective is to expand its business by  increasing  the number of
hospitals  and other  health  care  facilities  at which it  provides  physician
services,  providing  physician  services in additional  specialties to existing
hospital customers,  acquiring additional physician practices, adding physicians
to existing practices and entering into additional management agreements. One of
the  Company's  key  strategies is to create  integrated  multi-specialty  group
physician  practices  providing  women's  and  children's  healthcare  services,
consisting  of  both  hospital-based  and  office-based  physicians  in  various
complementary  specialties that support the Company's hospital customers.  As of
March 12, 1999, the Company employed, or managed the practices of, approximately
237  full-time  equivalent  physicians  practicing  under 55  specialty  service
contracts with 38 health care facilities and at 28 office locations.



                                       3
<PAGE>




OPERATIONS

The Company and its predecessors  have been providing  hospital-based  physician
services for more than 40 years. All of the Company's physician services were in
the area of anesthesia  until 1994, when the Company began to deliver  emergency
physician  services  (see  "Hospital  Outsourcing").  In March 1996 the  Company
further  expanded  its  hospital-based  services  through the  acquisition  of a
43-physician  neonatology  practice  that  delivered  physician  services  at 11
hospitals in Florida and Virginia.  The Company also commenced its  office-based
services business in 1994 by acquiring a four-location primary care practice and
completed an  additional  eleven  acquisitions  of  office-based  primary  care,
obstetrical and  rheumatology  practices during the period from December 1994 to
October 1996. All of these practices were located in South Florida.  In November
1996, the Company  announced a change in its strategic  direction and its intent
to sell  non-strategic  office-based  primary  care and  rheumatology  physician
practices.  At that time the Company believed  obstetrical,  and other practices
with a focus on women's health services,  provided the greatest  opportunity for
integration   of  patients   served  by  these   practices  with  the  Company's
hospital-based  physician  services  which in turn  supports our  hospital-based
customers.

As a result of its change in strategic direction and the desire to further focus
on women's health the Company entered into long-term management  agreements with
and purchased  options to acquire,  four  obstetrical  practices and one general
surgical  practice from January 1997 through  November  1997. In addition,  from
January 1998 through  September 1998 the Company  completed four acquisitions of
obstetrical  practices and entered into long-term management agreements with and
purchased options to acquire, two obstetrical  practices,  a gynecology-oncology
practice,  an infertility practice and a general surgical practice all providing
office-based  services.  In  January  and June  1998 the  Company  entered  into
long-term  management  agreements  with and  purchased  options  to  acquire,  a
hospital-based  anesthesia  practice and a neonatology  practice.  Each of these
practices  is located in South  Florida.  In March 1998 the Company also entered
into a long term management agreement with, and purchased an option to acquire a
perinatology  practice  located in Dallas,  Texas  which is  intended  to be the
Company's next area of development of a multi-specialty  group of practices.  In
addition to acquisitions,  the Company also expands  internally by being awarded
new  contracts  for its services and the addition of new  physicians to existing
office-based practices.  Substantially all of the Company's office-based revenue
has been derived from the acquired physician practices.

In most of its arrangements  with hospitals and ambulatory  surgery  facilities,
the Company is responsible  for  recruiting  and employing  physicians and other
health care  professionals who provide health care services at the facility.  By
entering into a contract with the Company, a hospital  substantially reduces its
responsibilities  related  to  the  contracted  specialty,  and  eliminates  the
administrative  burdens  related to providing  physician  coverage,  because the
Company  provides  the  contracted  services on a 24-hour a day,  365-day a year
basis.  Office-based  physicians seek affiliation with the Company to access the
Company's management  expertise,  capital resources and managed care contracting
assistance.  The Company  provides a comprehensive  range of support services to
its   hospital-based   physicians  and   office-based   practices  that  include
contracting with third-party payors,  billing and collections,  malpractice risk
management, quality assurance, and physician recruiting and credentialling.

For each hospital,  ambulatory surgical facility,  or office-based  practice the
Company appoints a supervising  physician who assumes an on-site leadership role
with respect to all aspects of the services provided by the Company. In addition
to providing physician services,  this physician supervises the other physicians
and  other  health  care  professionals  at the  facility,  participates  in the
recruitment,  promotion and  compensation  of  physicians  and other health care
professionals  employed by the Company,  and serves as a coordinator between the
Company and other personnel at the facility.

Since its  inception,  and  unlike  many of its  competitors,  the  Company  has
directly  employed most of its physicians  and other health care  professionals.
The Company currently has employment  agreements with most of its hospital-based
physicians, which generally provide for terms of between one and seven years and
include non-competition provisions. The Company also employs advanced registered
nurse  practitioners,  certified  nurse midwives and physician  assistants.  The
compensation  structure for  physicians and other health care  professionals  is
intended  to be  competitive  within  the  geographic  market in which  they are
employed.



                                       4
<PAGE>

As a result of its  change in its  strategic  direction,  the  Company  sold one
primary care office  location in December  1996 and one in February  1997,  four
rheumatology  office  locations in April 1997 and one primary  care  location in
December 1997.  The remaining  practices to be sold had been  consolidated  from
five office  locations  into three office  locations,  which employ five primary
care  physicians.  Two of these primary care office locations were sold in April
1998.

MULTI-SPECIALTY  INTEGRATED GROUP PRACTICES.  The Company's  principal  business
strategy is to develop  multi-specialty  group  physician  practices  around key
hospitals to meet women and  children's  health care needs in select  geographic
areas. The Company's multi-specialty group physician practices currently provide
a  range  of  services   including   hospital-based   anesthesia,   neonatology,
pediatrics,  and  obstetrics,  and  office-based  obstetrics,  general  surgery,
gynecology,  gynecology  oncology,  perinatology and infertility.  The Company's
multi-specialty  group physician  practices in South Florida provide services to
15  hospitals  and 5  ambulatory  surgical  facilities  and  operate  25  office
locations. These services are provided by approximately 151 physicians. Of these
physicians 67 are anesthesiologists,  38 are neonatologists or pediatricians,  3
are in-house obstetricians,  31 are obstetricians, 3 are perinatologists,  4 are
general  surgeons,  4 are  gynecologists-oncologists  and  1 is  an  infertility
specialist.  The Company  has also begun the  development  of a  multi-specialty
group  physician  practice in the Dallas area  through  its  affiliation  with a
perinatology  practice in March 1998 which presently  employs 3  perinatologists
providing services at 3 office locations.

Hospital Outsourcing.  The Company provides hospital-based physician services in
the  areas  of  anesthesia,  neonatology,  pediatrics,  emergency  medicine  and
obstetrics to hospitals and ambulatory  surgical facilities in markets where the
Company has not established  multi-specialty  group practices.  Many markets are
not suitable for the development of  multi-specialty  group physician  practices
due to the  significant  amount of  capital  and  management  expertise  that is
required to construct and manage these practices.  In addition, the Company also
provides  emergency  services  within  markets that the Company has  established
multi-specialty  group  practices.  Emergency  services  in  these  markets  are
excluded from the Company's  multi-specialty group practice because they are not
focused on the area of  women's  health.  The  Company  provides  hospital-based
physician  services  to 10  hospitals  located  in  Florida,  New  York,  Texas,
Virginia,  West  Virginia  and  Pennsylvania.  These  services  are  provided by
approximately 70 physicians employed by the Company. Of these physicians, 22 are
anesthesiologists,  13 are  neonatologists or pediatricians and 35 are emergency
room  physicians.  The Company also provides  management  services to a practice
with one neonatologist  providing  physician services to three hospitals in Ohio
and a practice with eight  physicians  providing  anesthesia and pain management
services to five ambulatory surgical facilities in Florida. The Company also has
entered  into an  agreement  to  provide  management  services  relating  to the
operation of anesthesia departments at six hospitals located in California.

The Company began providing  hospital-based  services  outside the South Florida
market in 1993 and has expanded  those  services by being  awarded new contracts
for its services,  through the  acquisition  in March 1996 of a neonatology  and
pediatric  practice which delivered  physician  services in Virginia and through
the  execution  of long  term  management  agreements  in  December  1997 with a
hospital-based neonatology practice and in January 1998 through the execution of
a  long-term  management  agreement  with,  and an  option  to  acquire,  a pain
management  practice providing  physician  services to 5 surgical  facilities in
Florida.

The Company  provides the same  support  services to  hospital-based  physicians
providing services under its hospital outsourcing  contracts as those that are a
part of its  multi-specialty  group  practices.  In connection with a management
services  agreement,  the Company  typically manages all aspects of the practice
other  than the  provision  of  medical  services,  which is  controlled  by the
practice.  The Company  typically is responsible for all leases for office space
and   equipment,   hires  all   non-clinical   office   personnel  and  provides
comprehensive   management   services,   including   physician   recruiting  and
credentialling,   managed  care   contracting,   malpractice   risk  management,
utilization review, billing and collections, and management information systems.
In exchange for these  services,  the practice pays the Company a management fee
that is  either  based on a  percentage  of net  revenues  or based on  expenses
incurred  by the  Company  plus a flat fee  that  does  not  fluctuate  based on
performance. Management fees that are based on a percentage of net revenue range
from 35% to 65% and are not subject to adjustment.

Acquisitions  And  Management  Agreements.  The  Company  typically  acquires  a
physician  practice  by paying  the owners of the  practice  a  multiple  of the
earnings of the practice, and entering into long-term employment agreements with
the former physician owners of the practice.  These employment  agreements range
from three to ten years in length and  typically  provide for base  compensation
and  employee  benefits,  contain  non-competition  provisions  and may  contain
incentive  compensation  provisions  based  on  increases  in  productivity  and
efficiency.



                                       5
<PAGE>



In some cases, as an alternative to acquiring a physician practice,  the Company
enters into a long-term management agreement with the practice.  Concurrent with
the  execution of a management  agreement  the Company may purchase the accounts
receivable,  furniture and equipment of the practice and may pay for  additional
intangible rights, including restrictive covenant agreements with the practice's
affiliated  physicians.  In addition, the Company may also purchase an option to
acquire the outstanding  stock of the physician  practice by paying the owner of
the practice a multiple of expected earnings under the management agreement. The
practice  will  typically  be  required  to  enter  into  long  term  employment
agreements  with the physicians of the practice which  typically range from five
to seven  years  and  typically  provide  for  base  compensation  and  employee
benefits,   contain   non-competition   provisions  and  may  contain  incentive
compensation provisions based on increases in productivity and efficiency.

Those practices whose  management  agreements  include terms that  demonstrate a
controlling  financial  interest  by the  Company for  accounting  purposes  are
included in the Company's  consolidated  financial  statements,  and the related
management fees are eliminated.  These practices are referred to as Consolidated
Practices  and the  transactions  with these  practices  are treated as business
combinations  and  the  financial  results  of the  Consolidated  Practices  are
presented on a  consolidated  basis with those of the Company.  Those  practices
whose management  agreements do not demonstrate a controlling financial interest
by the Company are included in the Company's  consolidated  financial statements
only to the extent of  management  fees  received and  expenses  incurred by the
Company under the respective agreement.

Divestitures.  Pursuant to the  Company's  announced  intention to divest of its
non-strategic office-based physician practices the Company sold one primary care
office  location in December 1996 and one in February  1997,  four  rheumatology
office  locations in April 1997 and one primary care location in December  1997.
The Company  consolidated  the  remaining  practices to be sold from five office
locations  into  three  office  locations.  Two of  these  primary  care  office
locations were sold in April 1998. In addition,  as noted above, the Company has
terminated  two  long-term  management  agreements  with primary care  practices
entered  into  during  1996  that  included  five  office   locations  and  four
physicians.  The  office-based  practices  which have been  sold,  and which the
Company currently intends to sell, include a four-facility primary care practice
acquired on September 1, 1994, two primary care  practices  acquired in February
1995,  a  three-facility  primary  care  practice  acquired in June 1995 and two
rheumatology  practices acquired in 1996. The office-based practices sold during
1997 and 1998  generated  approximately  $1.9  million  and $9.9  million in net
revenue  for the year  ended  December  31,  1998 and  1997,  respectively.  The
practices sold did not generate significant operating income for those periods.

MANAGED CARE

Approximately  55.1% of the Company's  patient  service  revenue is derived from
third-party  payors under various managed care  arrangements.  Such arrangements
include negotiated discounted fee-for-service  arrangements which are based on a
percentage  of the  Company's  billed  charges or a  percentage  of Medicare and
Medicaid  allowables,  as well as capitation  arrangements  which are based on a
flat fee or a fixed fee per managed care member.  The composition of net revenue
of  practices  managed by the  Company is  substantially  similar to that of the
Company.

As a result of its change in strategic  direction the Company has  experienced a
shift in the  composition of its patient  service  revenue away from  capitation
arrangements.  The primary care practices sold generated a substantial  majority
of the Company's  capitation revenue during 1997 and the year ended December 31,
1998.

Revenue under shared-risk  capitation  arrangements  accounted for approximately
1.6% and 7.8% for year ended  December 31, 1998 and 1997,  respectively,  of the
Company's net revenue. Under shared-risk capitation the Company receives a fixed
monthly amount from a managed care  organization  in exchange for providing,  or
arranging  the  provision  of,  substantially  all of the health  care  services
required  by members of the managed  care  organization.  The Company  generally
provides all of the primary care services required under such arrangements,  and
refers its patients to unaffiliated specialist physicians,  hospitals, and other
health care  providers  which deliver the remainder of the required  health care
services. The Company's  profitability under such arrangements is dependent upon
its ability to effectively manage the use of specialist physician,  hospital and
other health care services by its patients.  In each of the above fiscal periods
amounts received from managed care  organizations  under shared-risk  capitation
arrangements  exceeded  the cost of services  provided  to  patients  under such
arrangements. However, the profitability of the Company's shared-risk capitation
arrangements  had  declined  each  year as a result  of a  decline  in  patients
enrolled  with the managed  care  organization  and  assigned  to the  Company's
practices.  The  Company  completed  the  sale of a two  facility  primary  care
practice  on April 1, 1998 which  eliminated  all of the  Company's  shared-risk
capitation revenue.



                                       6
<PAGE>




INFORMATION SYSTEMS

The Company has  developed  and  continues to develop  sophisticated  management
information  systems to support  both its current  level of  operations  and its
growth  strategy.  The Company has physician  billing and collection  systems it
utilizes in connection with its hospital-based physician services. These billing
and collection systems, which have been tailored to the Company's  requirements,
enable the Company to accommodate numerous and diverse payment arrangements with
third-party payors.

The office-based  practices owned and managed by the Company presently utilize a
variety of information  systems for billing and collections which vary depending
on the size and medical  specialty of the practice.  These systems are primarily
supported through contractual arrangements with third party vendors. The Company
has selected a single third-party product for implementation in its office-based
practices which began in September 1998.

The  Company's  Year 2000  preparedness  plan for its systems is scheduled to be
completed by the fourth quarter of 1999.

See "ITEM 7.  MANAGEMENT'S  DISCUSSION  AND ANALYSIS OF FINANCIAL  CONDITION AND
RESULTS OF  OPERATIONS--Year  2000" for a complete  discussion  of the Company's
preparedness for the Year 2000.

CONTRACTUAL ARRANGEMENTS

The  Company  uses a variety of  contractual  arrangements  with  respect to the
physicians which it employs,  manages, or with which it is otherwise affiliated.
The  particular  contractual  arrangement  used in each case is  influenced by a
number of factors  including the desires of physicians,  the type of practice in
which  the  physicians   are  engaged,   financial   considerations,   statutory
limitations on the corporate practice of medicine and other regulatory concerns,
and, with respect to newly-affiliated  practices,  the terms of any pre-existing
contracts.

The Company has structured its acquisitions of, or affiliations with,  physician
practices  as  asset   purchases,   mergers,   stock  purchases  and  management
agreements. In connection with any of these transactions,  the Company typically
pays the owners of the  practice a multiple of earnings  of the  practice,  or a
multiple of expected earnings from a management agreement, as applicable. In the
case  of  some  management   agreements,   the  Company  acquires  the  accounts
receivable, furniture, fixtures and equipment of the practice and pays the owner
of the practice the estimated  fair market value of these assets.  In connection
with certain management  agreements,  the Company purchases an option to acquire
the practice being managed that may be exercised for a nominal amount.

In  connection  with  the  acquisition  of a  physician  practice,  the  Company
typically enters into employment  agreements with the physician owners and other
key management personnel.  These agreements typically provide for a base salary,
incentive compensation,  terms of between one and ten years, and non-competition
provisions.  The  compensation  structure  for  physicians  is  intended  to  be
competitive  within the  geographic  market in which each physician is employed.
The Company also has employment agreements with nearly all of the hospital-based
and  office-based  physicians  which  it  employs  outside  the  context  of  an
acquisition of a practice.

In  connection  with a  management  services  agreement,  the Company  typically
manages  all  aspects  of the  practice  other  than the  provision  of  medical
services,  which is  controlled  by the  physician.  The  Company  typically  is
responsible   for  all  leases  for  office  space  and  equipment,   hires  all
non-clinical office personnel and provides  comprehensive  management  services,
including  physician  recruiting and  credentialling,  managed care contracting,
malpractice risk management,  utilization review,  billing and collections,  and
management  information  systems.  In exchange for these services,  the practice
pays the Company a management fee.



                                       7
<PAGE>




The Company has management  services  agreements with four practices  considered
Consolidated  Practices,  Sheridan NY,  Sheridan TX, Sheridan CA and Sheridan PA
that are owned by Gilbert  Drozdow,  M.D.,  who is an  executive  officer  and a
stockholder of the Company.  The Company also has management services agreements
with four  obstetrical  practices,  and a general surgery  practice entered into
during 1997 and an anesthesia practice,  gynecologic-oncology  practice, general
surgery  practice,   infertility   practice,   two  obstetrical   practices  and
perinatology  practice  entered  into  during  1998  that  are  also  considered
Consolidated  Practices.  Concurrent  with the  execution  of  these  management
agreements the Company also purchased an option to acquire the outstanding stock
of these practices. The terms of the management services agreements with each of
these Consolidated Practices demonstrate a controlling financial interest by the
Company for accounting purposes and these Consolidated Practices are included in
the Company's consolidated financial statements, and the related management fees
are  eliminated.  Factors which  demonstrate a  controlling  financial  interest
include the  fluctuation  of the  Company's  management  fee  together  with the
performance  of the practice and the exercise of control by the Company over the
administrative  operations,   recruitment  and  physician  compensation  of  the
practice.  See Note 1(b) to the Company's  consolidated financial statements for
more information. The Company typically requires Consolidated Practices to enter
into employment agreements with the physicians providing medical services. These
employment  agreements  provide  for  compensation  based on a  guaranteed  base
salary. These agreements are typically for terms of five to seven years, contain
non-competition provisions and may provide for incentive compensation.

The Company also entered into long-term management agreements with a neonatology
practice in December 1997 and a pain  management  practice in February 1998. The
terms of these agreements,  as well as two management agreements entered into in
1996 and  terminated  in  December  1997 and April  1998,  respectively,  do not
demonstrate a controlling  financial  interest by the Company either because the
Company's management fee does not fluctuate together with the performance of the
practice  or because the  Company's  interest  is not  unilaterally  saleable or
transferable. Therefore, the Company's consolidated financial statements reflect
only the management  fees earned and expenses  incurred by the Company under the
management  agreement.  These practices pay the Company a management fee that is
based on expenses  incurred by the Company plus either a percentage fee based on
net revenues or a flat fee, depending upon local laws or regulations, subject to
a  limitation  that the fee not  exceed the  amount  that  would be charged  for
similar  services by an  unaffiliated  third party.  The Company  exercised  its
option to acquire the pain  management  practice to which it had been  providing
management services on December 31, 1998. Therefore,  the Company's consolidated
balance  sheet as of  December  31,  1998  includes  the  balance  sheet of this
practice.

The  responsibility  for  the  provision  of  physician  services  by  physician
practices  with which the Company has long-term  management  agreements  remains
with the physician practice  regardless of whether the Company has a controlling
financial interest.

The Company has contractual  arrangements with hospitals and ambulatory  surgery
centers  which govern its delivery of  hospital-based  physician  services.  The
agreements  governing such operations are generally for terms of between one and
five years and provide for termination upon 60 to 180 days notice,  although the
Company  has some  agreements  which  have  terms of at least five years and are
terminable  only for cause.  These  agreements  generally  grant the Company the
exclusive right to provide certain  physician  services at the particular health
care facility and directly bill third-party payors for its services,  subject to
a requirement  that the Company's  fees be approved by the health care facility.
The Company has agreed with certain  facilities to charge third-party payors the
same rates for services  delivered  at such  facilities  as the Company  charges
those  third-party  payors for  services  delivered at other  facilities  within
designated geographic areas. A number of these contractual  arrangements are not
in writing,  were established either through a course of conduct or through oral
understandings, and are terminable by either party at will.

In addition to contracts  pursuant to which the Company is  responsible  for the
provision  of medical  services,  the Company has a  five-year  contract  with a
hospital company to provide  consulting and management  services relating to the
operation of anesthesia departments at six hospitals located in California.  The
Company is paid a fixed monthly fee for these services.

The Company is paid for its physician services by third-party payors pursuant to
a number of arrangements, including discounted fee-for-service and global fee or
per diem  arrangements.  In addition,  the Company has arrangements with several
hospitals  under  which the  Company  receives a  contractual  subsidy or income
guarantee  from the hospital to supplement  revenue from billings to third-party
payors.



                                       8
<PAGE>



CORPORATE LIABILITY AND INSURANCE

The  risk of  physician  malpractice  liability  is  inherent  in the  Company's
business.  In order to mitigate this risk,  the Company  maintains  professional
liability   insurance  on  a  claims-made  basis.  The  Company  has  a  primary
malpractice insurance policy which covers losses incurred by the Company up to a
limit of $1.0  million per  individual  claim.  In  addition,  the Company has a
secondary  malpractice  insurance  policy which  covers  losses in excess of the
primary policy limits,  up to a limit of $5.0 million per individual claim and a
limit of $5.0  million  per  calendar  year for all claims  combined.  Under the
primary policy,  the Company is required to pay a self-insured  retention amount
equal to the first $250,000 of losses for each individual  claim up to a maximum
aggregate  self-insured  retention  amount of  $1,000,000  for all claims in one
calendar year. Defense costs in excess of these  self-insured  retention amounts
are paid by the Company's  insurer.  The Company also  maintains  directors' and
officers'  liability  insurance and general liability insurance on a claims-made
basis.

TRADEMARKS

The  Company  has  rights  to a  trademark  and a  service  mark  for  "Sheridan
Healthcare,  Inc." and  "Sheridan  Healthcorp,  Inc."  registered  with the U.S.
Patent and Trademark  Office.  The Company also has a pending  application for a
trademark and a service mark for "Sheridan Children's Healthcare Services, Inc."

EMPLOYEES

As of March 16, 1999, the Company had approximately 920 employees,  of which 760
were  full-time.  Of the  total  number  of  employees,  approximately  310 were
physicians and approximately 610 were non-physician  clinical and administrative
support  personnel.  Of the total  physicians  employed by the Company,  64 were
physicians  employed by the  Consolidated  Practices.  The Company  believes its
relationship with its employees is favorable.

RECENT DEVELOPMENTS

On March 25,  1999 the Company  announced  the  signing of a  definitive  merger
agreement  between  the  Company  and an  investor  group led by Vestar  Capital
Partners and the Company's senior management.

Under the  terms of the  agreement,  the  investor  group  will  offer  Sheridan
Healthcare, Inc. shareholders $9.25 per share in cash for all outstanding common
shares in a tender offer.  Including debt and other  obligations of the Company,
and costs expected to be incurred in connection with the acquisition,  the total
value of the transaction is approximately  $155 million.  NationsBank,  N.A. and
its affiliates,  the Company's  existing  lender,  have committed to provide $75
million  in bank  financing  to fund the  acquisition.  Through  Vestar  Capital
Partners  III,  L.P.,  Vestar has  committed  to  provide  the  remaining  funds
necessary to complete the transaction. NationsBank has also committed to provide
a $50 million credit facility to fund the Company's  long-term future growth and
expansion.

The  Company   entered   into  the  merger   agreement   following  a  unanimous
recommendation by the Company's Board of Directors.  The Board received fairness
opinions from Bowles Hollowell Conner, a division of First Union Capital Markets
Corp., and Salomon Smith Barney Inc., which, as previously  announced,  had been
retained to assist the Company in exploring  strategic  alternatives.  Following
completion of the tender offer,  Vestar will be entitled to designate a majority
of the Board of Directors of Sheridan Healthcare, Inc. The parties will complete
a  second-step  cash  merger  at $9.25  per  share as  promptly  as  practicable
following  completion  of the  tender  offer.  The  transaction  is subject to a
variety of  conditions,  including  receipt of at least a majority of the voting
stock in the tender offer,  shareholder approval of the second-step cash merger,
financing and regulatory approvals.



                                       9
<PAGE>




RISK FACTORS

Risks Associated With the Company's Growth Strategy

A key element of the Company's  strategy involves growth through  acquisition of
physician  practices.  The Company is subject to various risks  associated  with
this  strategy,  including  the risk that the Company will be unable to identify
and  recruit  suitable  acquisition  candidates  in the  future.  The growth and
profitability of the Company is also largely  dependent on the Company's ability
to  effectively  integrate  the  acquired  practices  to  maintain  or  increase
reimbursement  levels,  to manage and control costs, and to realize economies of
scale.  Any  failure  of  the  Company  to  consummate   economically   feasible
acquisitions,  effectively  integrate  acquired  practices or price its services
appropriately  could have a material  adverse effect on the Company's  financial
condition or results of operations.

Risks From Concentration of Revenue

A  significant  portion of the Company's  revenue is derived from  delivering or
managing hospital-based  physician services from hospitals that are under common
ownership by a limited number of entities. Of the Company's total net revenue in
1998,  approximately  $22.9  million,  or 20.3%,  was derived  from  anesthesia,
obstetrics  and  neonatology  services  delivered at three  hospitals  owned and
operated by the South  Broward  Hospital  District.  In addition,  approximately
$28.9 million,  or 25.6% of the Company's total net revenue in 1998, was derived
from anesthesia,  neonatology,  pediatric and emergency services delivered at 13
hospitals  and  two  ambulatory   surgical  facilities  owned  and  operated  by
Columbia/HCA  Healthcare  Corp.  The loss of  either  of these  arrangements  or
relationships  would have a material  adverse effect on the Company's  financial
condition or results of operations.

Risks Related to Limitations On Reimbursement

Substantially all of the Company's revenues are derived from third party payors,
such  as  governmental  programs  (primarily  Medicare  and  Medicaid),  private
insurance plans and managed care organizations. Reflecting current trends in the
health care industry, these third party payors increasingly are negotiating with
health care  providers  such as the Company  concerning  the prices  charged for
medical services by its owned and managed  practices,  with the goal of lowering
reimbursement  and utilization  rates.  The  profitability of the Company may be
adversely  affected  by changes in Medicare  and  Medicaid  reimbursement,  cost
containment decisions of third party payors and other payment factors over which
the Company has no control.

A  significant  portion of the  Company's  revenue is  derived  from  delivering
medical services to patients who are covered under various Medicare and Medicaid
health care programs.  Approximately 10.4% of the Company's total net revenue in
1998 was derived from the  assignment  of Medicare and Medicaid  benefits to the
Company  by  patients  of the  Company's  affiliated  physicians.  In  addition,
approximately  4.4% of the Company's  total net revenue in 1998 was derived from
capitation  payments from health maintenance  organizations for patients who had
assigned  their  Medicare  or  Medicaid  benefits  to  the  health   maintenance
organizations.  Medicare  and  Medicaid  reimbursement  policies  are subject to
sweeping change and those programs are under significant  pressure to reduce the
costs of providing health care services.

The federal  Medicare  program  adopted a system of  reimbursement  of physician
services, known as the resource based relative value scale ("RBRVS"), which took
effect in 1992 and was  implemented  on December 31, 1996.  The Company  expects
that the RBRVS fee schedule and other future changes in Medicare  reimbursement,
for the  services it  provides,  will  increase at or above the overall  rate of
inflation  throughout  the U.S.  economy,  though there can be no assurance that
these increases will occur.

On August 5, 1997, the President signed into law a number of Medicare provisions
as part of the  Balanced  Budget  Act of  1997.  When  compared  with  projected
Medicare  levels  under  current  law, the  legislation  could  reduce  Medicare
spending by $115 billion over 5 years.  The vast majority of these savings would
come  from  reductions  in  payments  for  services  of  healthcare  facilities,
practitioners  and other providers.  The legislation  eliminated  disparities in
payment  rates for  similar  services by  physicians  in  different  specialties
effective  January 1,  1998.  Beginning  in 1998,  inflation  increases  will be
adjusted  based on a  "sustainable  growth rate"  defined with  reference to the
change in (i) the  number of  Medicare  beneficiaries,  (ii) the gross  domestic
product per capita, and (iii) the level of expenditures for physician  services.
The Company has  experienced a reduction in  reimbursement  for certain  medical
services  provided by its  physicians  with a  specialty  in surgery due to this
legislation.  This reduction has not been significant. The legislation will also
revise  Medicare  payments for  practice  expense  costs and change  payments to

                                       10
<PAGE>

managed care plans from the current rate of 95% of fee-for-service  rates in the
area,  to a  nationwide  average  per capita fee for service  spending,  with an
adjustment  factor for local area wage rates. Any further  reductions in payment
for the  services  offered by the  Company  could have an adverse  effect on the
Company's financial condition or results of operations.

Some  private  insurance  plans and managed  care  organizations  with which the
company has  contracts or to whose  members it provides  medical  services  have
limited  operating  histories.  A default of a third-party payor and non-payment
for the Company's medical services could have an adverse effect on the Company's
financial condition or results of operations.

Risks From Exposure to Professional Liability

Due to the  nature  of its  business,  the  Company  from  time to time  becomes
involved  as a  defendant  in medical  malpractice  lawsuits,  some of which are
currently  ongoing,  and is subject to the attendant risk of substantial  damage
awards. The most significant source of potential liability in this regard is the
negligence of physicians  employed or contracted by the Company or the practices
it manages.  To the extent such  physicians are employees of the Company or were
regarded as agents of the Company in the practice of medicine, the Company could
be held liable for their negligence.  In addition, the Company could be found in
certain  instances to have been negligent in performing its management  services
under contractual arrangements even if no agency relationship with the physician
were found to exist.  The  Company's  contracts  with  hospitals and third party
payors generally  require the Company to indemnify such other parties for losses
resulting  from the  negligence of physicians who were employed or managed by or
affiliated  with the Company.  The Company  maintains  professional  and general
liability  insurance  on a claims made basis in amounts  deemed  appropriate  by
management,  based  upon  historical  claims  and  the  nature  and  risk of its
business.  There can be no assurance,  however, that an existing or future claim
or claims will not exceed the limits of available insurance  coverage,  that any
insurer will remain solvent and able to meet its obligations to provide coverage
for any such claim or claims or that such coverage will continue to be available
or available  with  sufficient  limits and at reasonable  cost to adequately and
economically insure the Company's  operations in the future. A judgement against
the Company in excess of such coverage  could have a material  adverse effect on
the Company's financial condition or results of operations.

Risks Associated With Government Regulation

Because the Company is a participant in the health care industry, its operations
and relationships are subject to extensive and increasing regulation by a number
of governmental entities at the federal,  state and local levels. The Company is
also  subject to laws and  regulations  relating  to  business  corporations  in
general.  The Company  believes its operations are in material  compliance  with
applicable laws.  Nevertheless,  because the Company is involved in many aspects
of the health care industry,  much of the Company's business operations have not
been the subject of state or federal regulatory  interpretation and there can be
no assurance  that a review of the  Company's  business by courts or  regulatory
authorities  will not result in a determination  that could adversely affect the
operations of the Company or that the health care  regulatory  environment  will
not  change  so as to  restrict  the  Company's  existing  operations  or  their
expansion.

A  significant  portion of the  Company's  revenue is  derived  from  delivering
medical services to patients who are covered under various Medicare and Medicaid
health care programs.  Approximately 10.4% of the Company's total net revenue in
1998 was derived from the  assignment  of Medicare and Medicaid  benefits to the
Company  by  patients  of the  Company's  affiliated  physicians.  In  addition,
approximately  4.4% of the Company's  total net revenue in 1998 was derived from
capitation  payments from health maintenance  organizations for patients who had
assigned  their  Medicare  or  Medicaid  benefits  to  the  health   maintenance
organizations.  As a result, any change in reimbursement regulations,  policies,
practices,  interpretations or statutes could adversely affect the operations of
the Company.

The laws of many states prohibit business  corporations such as the Company from
practicing  medicine and employing  physicians to practice  medicine and certain
self-referral laws and regulations restrict the activities of physicians who are
employed by entities in which they have  ownership  interests.  The structure of
the Company's operations in certain states is influenced by the laws prohibiting
business  corporations  from  practicing  medicine  and  the  structure  of  the
Company's  arrangements with physicians,  who may be restricted by self-referral
laws, is influenced by those self-referral laws and regulations.


                                       11
<PAGE>

Sheridan NY, Sheridan TX, Sheridan CA and Sheridan PA, are each  wholly-owned by
Gilbert  Drozdow,  M.D.,  who is an executive  officer and a stockholder  of the
Company. The Company has a management services arrangement with each of Sheridan
NY,  Sheridan  TX,  Sheridan  CA and  Sheridan  PA,  under  which  each of those
companies  delegates to the Company  responsibility for the provision to them of
all management services,  personnel,  bookkeeping and accounting  services,  and
billing and collection  services,  to the extent  permitted by law. In exchange,
the Company  receives a management  fee. This management  services  agreement is
terminable  by a party (i) if the other party  fails to perform in any  material
respect any material obligation, which failure is not cured within 60 days after
notice or (ii) upon the  application  for, or consent to, the  appointment  of a
receiver,  trustee  or  liquidator  of all or a  substantial  part of the  other
party's  assets,  the  filing of a  petition  in  bankruptcy  or  consent  to an
involuntary petition in bankruptcy by the other party and certain other events.

Expansion of the operations of the Company to certain other  jurisdictions could
require additional structural and organizational  modifications of the Company's
form of relationship with hospitals or physician  practices.  Those changes,  if
any,  could  have an  adverse  effect on the  Company.  The laws in most  states
regarding  the  corporate   practice  of  medicine  and  the  laws  relating  to
self-referral   have  been   subject  to   limited   judicial   and   regulatory
interpretation and, therefore,  no assurances can be given that if the Company's
activities are challenged  that they will be found to be in compliance  with all
applicable laws and regulations.

In addition to prohibiting  the practice of medicine,  numerous  states prohibit
entities  like  the  Company  from  engaging  in  certain  health  care  related
activities such as fee-splitting with physicians. Florida, for instance, enacted
in April  1992 a  Patient  Self-Referral  Act that  severely  restricts  patient
referrals  for  certain  services,  prohibits  mark-ups  of certain  procedures,
requires  disclosure of ownership in  businesses to which  patients are referred
and places other regulations on health care providers. The Company believes that
its Florida practices fit within the group practice  exemption  contained in the
Patient  Self-Referral  Act. However,  investments or contractual  relationships
with businesses not  specifically  operated by the Company would, in some cases,
be  prohibited.  The Company  believes  that it is likely that other states will
adopt  similar  legislation.  Accordingly,  expansion of the  operations  of the
Company  to  certain   jurisdictions   may   require  it  to  comply  with  such
jurisdictions'  regulations  which could lead to structural  and  organizational
modifications of the Company's form of relationship  with hospitals or physician
practices in those states.  Those changes,  if any, could have an adverse effect
on the Company.

Certain  provisions  of the Social  Security  Act,  commonly  referred to as the
"Anti-kickback Statute," prohibit the offer, payment, solicitation or receipt of
any form of  remuneration in return for the referral of Medicare or state health
program  patients  or  patient  care   opportunities,   or  in  return  for  the
recommendation, arrangement, purchase, lease, or order of items or services that
are covered by Medicare or state health programs.  The Anti-kickback  Statute is
broad in scope and has been broadly interpreted by courts in many jurisdictions.
Read  literally,   the  statute  places  at  risk  many  business  arrangements,
potentially  subjecting such arrangements to lengthy,  expensive  investigations
and prosecutions  initiated by federal and state  governmental  officials.  Many
states have adopted similar  prohibitions  against  payments  intended to induce
referrals of Medicaid and other third-party payor patients. The Company believes
that  it  has  not  violated  the  Anti-kickback   Statute.   Violation  of  the
Anti-kickback  Statute  is a  felony,  punishable  by  fines up to  $25,000  per
violation and imprisonment for up to five years. In addition,  the Department of
Health and Human Services may impose civil  penalties  excluding  violators from
participation in Medicare or state health programs.

The federal  government has published  regulations that provide  exceptions,  or
"safe  harbors,"  for  transactions  that  will be  deemed  not to  violate  the
Anti-kickback  Statute.  Among the safe harbors included in the regulations were
provisions  relating  to the  sale of  practitioner  practices,  management  and
personal services agreements,  and employee relationships.  Although the Company
believes that it is not in violation of the Anti-kickback  Statute,  some of its
operations do not fit within any of the existing or proposed safe harbors,  and,
accordingly,  there can be no assurance that the Company's practices will not be
found to be in  violation  of the  statute,  and any such  finding  could have a
material adverse effect on the Company.



                                       12
<PAGE>




Significant prohibitions against physician referrals were enacted by Congress in
the Omnibus Budget  Reconciliation  Act of 1993.  These  prohibitions,  commonly
known as "Stark II," amended prior physician self-referral  legislation known as
"Stark  I"  by   dramatically   enlarging  the  field  of   physician-owned   or
physician-interested entities to which the referral prohibitions apply. Stark II
prohibits,  subject  to  certain  exemptions,  a  physician  or a member  of his
immediate  family from  referring  Medicare  or  Medicaid  patients to an entity
providing  "designated  health services" in which the physician has an ownership
or  investment  interest,  or  with  which  the  physician  has  entered  into a
compensation  arrangement  including the  physician's  own group  practice.  The
designated  health services  include  radiology and other  diagnostic  services,
radiation therapy services,  physical and occupational therapy services, durable
medical  equipment,  parenteral  and  enteral  nutrients,  equipment,  supplies,
prosthetics, orthotics, outpatient prescription drugs, home health services, and
inpatient and outpatient hospital services. The penalties for violating Stark II
include  a  prohibition  on  payment  by these  government  programs  and  civil
penalties  of as much as $15,000 for each  violative  referral  and $100,000 for
participation in a  "circumvention  scheme." While the Company believes it is in
compliance  with the Stark  legislation,  there can be no assurance  this is the
case.  Moreover,  the  violation of Stark I or II by the Company could result in
significant fines or penalties and exclusion from  participation in the Medicare
and Medicaid programs.  Such penalties or exclusion,  if applied to the Company,
could result in significant loss of  reimbursement  which would adversely affect
the Company.

On March 27, 1996,  the United States  Department  of Health and Human  Services
promulgated  regulations  pursuant to the  requirements  of the  Omnibus  Budget
Reconciliation Act of 1990 concerning physician incentive plans. The regulations
provide that physician  incentive plans may operate only if no specific  payment
is made  directly or  indirectly  under the plan as an  inducement  to reduce or
limit  medically  necessary  services  furnished to a specific  enrollee.  These
regulations  only apply to  enrollees  who are  entitled to Medicare or Medicaid
benefits  under a prepaid  health  plan.  The  Company  does not  believe  these
regulations  will have a material  effect on the Company's  current  operations,
including its  contractual  arrangements  with its physicians and prepaid health
plans.

Because the Company  intends to  maintain  certain of the health care  practices
that it acquires  as separate  legal  entities,  they may be deemed  competitors
subject to a range of antitrust  laws which prohibit  anti-competitive  conduct,
including price fixing,  concerted  refusals to deal and division of market. The
Company  intends to comply  with such state and  federal  laws as may affect its
operations,  but there is no assurance that the review of the Company's business
by courts or  regulatory  authorities  will not result in a  determination  that
could adversely affect the operation of the Company.

There  are  also  state  and  federal  civil  and  criminal   statutes  imposing
substantial penalties,  including civil and criminal fines and imprisonment,  on
health care providers  which  fraudulently  or wrongfully  bill  governmental or
other third-party  payors for health care services.  The federal law prohibiting
false  billings  allows a private  person to bring a civil action in the name of
the United  States  government  for  violations of its  provisions.  The Company
believes it is in material  compliance with such laws, but there is no assurance
that  the  Company's  activities  will  not  be  challenged  or  scrutinized  by
governmental authorities.  Moreover,  technical Medicare and other reimbursement
rules  affect the  structure  of  physician  billing  arrangements.  The Company
believes it is in material  compliance  with such  regulations,  but  regulatory
authorities  may  differ and in such  event the  Company  may have to modify its
physician  billing   arrangements.   Noncompliance  with  such  regulations  may
adversely  affect the  operation of the Company and subject it to penalties  and
additional costs.

Laws in all states regulate the business of insurance and the operation of HMOs.
Many states also regulate the  establishment and operation of networks of health
care  providers.  While  these  laws do not  generally  apply to the  hiring and
contracting of physicians by other health care  providers or to companies  which
participate in capitated arrangements, there can be no assurance that regulatory
authorities  of the states in which the Company  operates  would not apply these
laws to require licensure of the Company's  operations as an insurer,  as an HMO
or as a provider  network.  The Company  believes that it is in compliance  with
these  laws in the  states  in  which  it does  business,  but  there  can be no
assurance that future  interpretations of insurance laws and health care network
laws by the  regulatory  authorities in these states or in the states into which
the Company may expand will not require  licensure or a restructuring of some or
all of the Company's operations.



                                       13
<PAGE>




Risks Relating to the Year 2000

The Company uses  computer  software  and related  technologies  throughout  its
business that are likely to be affected by the date change in the Year 2000. The
Company's  personnel may not discover and remediate all potential  problems with
our systems in a timely manner.  Presently, the Company's Year 2000 preparedness
plan for its systems is  scheduled  to be  completed  by the fourth  quarters of
1999.  In  addition,   computer  software  and  related   technologies  used  by
third-party  payors and  vendors are also likely to be affected by the Year 2000
date change.  Failure of any of these parties to properly  process dates for the
Year 2000 and thereafter  could result in  unanticipated  expenses and delays to
the Company, including delays in the payment for services provided and delays in
our ability to conduct  normal  banking  operations.  See "ITEM 7.  MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL  CONDITION AND RESULTS OF  OPERATIONS--Year
2000."

Risks Associated With Growth From New Contracts and Physician Services

The Company's  growth  strategy is also based on obtaining new contracts for the
provision of  hospital-based  physician  services and adding  physicians  to its
existing   office-based   practices.   There  is  substantial   competition  for
hospital-based   contracts  and  the  Company  is  increasingly  involved  in  a
competitive  bidding  process that  requires the Company to  accurately  project
revenues  and  expenses  on  a  forward  basis  with  limited  information.  The
integration of new contracts,  as well as the maintenance of existing contracts,
is made more difficult by increasing pressures from health care payors to reduce
reimbursement  rates  at a time  when  the cost of  providing  medical  services
continues to increase. Significant competition for new patients and managed care
contracts also exists among office-based  practices within the Company's market.
Any failure of the  Company to  identify  opportunities  for new  contracts  and
services,  effectively integrate new contracts, price its services appropriately
and increase  patient  volume for new physicians  could have a material  adverse
effect on the Company's financial condition or results of operations.

Risks Relating to Capital Requirements

The Company's  acquisition of physician  practices requires  substantial capital
investment.  Capital is  typically  needed not only for the  acquisition  of the
physician  practices,  but also for the  effective  integration,  operation  and
expansion  of the  practices  as  well  as the  start-up  of new  contracts  for
hospital-based  physician  services  and  start-up  of  new  physicians  in  its
office-based  practices.  The practices may require  capital for  renovation and
expansion and for the addition of medical  equipment and technology.  Therefore,
the  Company may need to raise  capital  through the  issuance of  long-term  or
short-term  indebtedness or the issuance of its equity  securities in private or
public  transactions in order to complete  further  acquisitions  and expansion.
This could  result in  dilution  of  existing  equity  positions  and  increased
interest expense. There can be no assurance that acceptable financing for future
acquisitions  or  for  the  integration  and  expansion  of  existing  physician
practices can be obtained on suitable terms, if at all.

Risks From Dependence On Key Management

The Company is highly dependent on its senior and middle management. The Company
has entered into employment  agreements with senior management that includes Dr.
Mitchell  Eisenberg,  President  and Chief  Executive  Officer,  Dr. Lewis Gold,
Executive Vice President of Business  Development,  Dr.  Gilbert  Drozdow,  Vice
President of Hospital Based Services, Jay Martus, Vice President,  Secretary and
General  Counsel  and  Michael  Schundler,  Chief  Operating  Officer  and Chief
Financial Officer. The employment  agreements with Dr. Eisenberg,  Dr. Gold, Mr.
Martus and Mr. Schundler end on July 31, 2003 and the employment  agreement with
Dr. Drozdow ends on December 31, 1999.  The loss of key management  personnel or
inability  to  attract,  retain  and  motivate  sufficient  number of  qualified
management personnel could adversely affect the Company's business. In addition,
the  Company  may enter  into  employment  agreements  with key  physicians  and
administrative  personnel of acquired practices. The loss of these key personnel
could adversely affect the performance of the acquired practice and the Company.



                                       14
<PAGE>




Risks Associated With Expansion Into New Geographic Markets

In pursuing its growth strategy, the Company intends to expand its presence into
new  geographic  markets.  Expansion of the  operations  of the Company to other
jurisdictions   could   require   additional   structural   and   organizational
modifications of the Company's form of relationship  with hospitals or physician
practices.  Those changes,  if any, could have an adverse effect on the Company.
The laws in most states  regarding  the  corporate  practice of medicine and the
laws  relating  to  self-referral  have been  subject  to limited  judicial  and
regulatory interpretation and, therefore, no assurances can be given that if the
Company's  activities are challenged that they will be found to be in compliance
with all applicable laws and regulations.  The Company may also face competitors
with  greater  knowledge  of such  markets  than the  Company.  There  can be no
assurance that the Company will be able to  effectively  establish a presence in
these new markets.

Risks From Competition

The provision of health care services and physician practice management services
are both competitive  businesses in which the Company competes for contracts and
patients with numerous  entities in the health care  industry.  The Company also
competes with traditional providers and managers of health care services for the
recruitment  of employed or managed  physicians.  In addition,  the Company,  in
pursuing its growth strategy,  faces  competitive  pressures for the acquisition
of, and the provision of management  services to, additional  hospital-based and
office-based physician practices. Several companies, both publicly and privately
held, that have greater  resources than the Company are pursuing the acquisition
of the assets of physician  practices and  management  contracts  with physician
practices.  There can be no assurance  that the Company will be able to continue
to compete effectively with such competitors,  that additional  competitors will
not enter the market,  or that such  competition will not make it more difficult
to acquire  the  assets  of,  and  provide  management  services  to,  physician
practices on terms beneficial to the Company.

Risks Related to Volatility of Stock Price

Historically  there has been and  there may  continue  to be  volatility  in the
market price for the Company's common stock.  Quarterly operating results of the
Company and their  relationship  to  analysts'  projections,  changes in general
conditions in the economy, the financial markets or the healthcare industry,  or
other  developments  affecting the Company or its  competitors,  could cause the
market  price of the common stock to fluctuate  substantially.  In addition,  in
recent  years,  the stock market and, in  particular,  the  healthcare  industry
segment,  has  experienced  significant  price  and  volume  fluctuations.  This
volatility has affected the market prices of securities issued by many companies
for reasons unrelated to their operating performance.

Risks Related to Anti-takeover Effect of Delaware Law and Charter and By-law 
Provisions

Certain  provisions of the Company's  certificate of incorporation,  by-laws and
Delaware law could,  together or separately,  discourage  potential  acquisition
proposals,  delay or prevent a change in control  of the  Company  and limit the
price that certain investors might be willing to pay in the future for shares of
the common stock.  These provisions  include a classified Board of Directors and
the ability of the Board of Directors to authorize the issuance, without further
stockholder  approval, of preferred stock with rights and privileges which could
be senior to the common  stock.  The Company also is subject  Section 203 of the
Delaware  General  Corporation  Laws  which,   subject  to  certain  exceptions,
prohibits  a  Delaware  corporation  from  engaging  in any of a broad  range of
business  combinations  with any "interested  stockholder" for a period of three
years following the date that stockholder became an interested stockholder.

ITEM 2.  PROPERTIES
-------------------

The  Company  leases  substantially  all of the  office  space  required  by its
operations,  including its corporate headquarters in Hollywood,  Florida and its
physician  office   locations,   at  an  aggregate  monthly  rental  expense  of
approximately $186,000. The Company currently leases approximately 31,000 square
feet of office space for its corporate headquarters. This lease is for a term of
ten years,  which expires in 2005,  and provides for a monthly rental payment of
approximately  $56,000  (adjusted for certain operating  expenses).  The Company
also leases office space for its physician practices under leases with remaining
terms  which  expire at various  dates  from 1998 to 2007,  and  monthly  rental
payments ranging from $1,200 to $12,000.  In addition,  the Company owns a 3,000
square foot  one-story  building in Miami,  Florida.  The Company  considers its
facilities to be adequate and suitable for its current needs.

                                       15
<PAGE>

ITEM 3.  LEGAL PROCEEDINGS
--------------------------

From time to time, the Company is party to various claims, suits and complaints.
In  October  1996,  the  Company  and  certain  of  its   directors,   officers,
stockholders  and legal  advisors were named as defendants in a lawsuit filed in
the Circuit Court of the Seventeenth Judicial Circuit in and for Broward County,
Florida by certain former physician  stockholders of the Company's  predecessor,
which was formerly named Southeastern Anesthesia Management Associates, Inc. The
claim alleges that the defendants engaged in a conspiracy of fraud and deception
for personal gain in connection with inducing the plaintiffs to sell their stock
in the Predecessor to the Company,  as well as legal  malpractice and violations
of Florida  securities laws. The claim seeks damages of at least $10 million and
the imposition of a  constructive  trust and  disgorgement  of stock and options
held by certain members of the Company's management. The litigants are presently
engaged in the course of discovery.  The Company  continues to vigorously defend
against the lawsuit, believes the lawsuit is without merit and also believes the
lawsuit's  ultimate  resolution  will not have a material  adverse impact on the
financial position, operations and cash flow of the Company.

In December 1998,  the buyer of two medical  practices  previously  owned by the
Company,  filed suit against the Company in the Circuit Court of the Seventeenth
Judicial  Circuit in and for Broward  County,  Florida.  The complaint  seeks to
recover money damages and rescind the sale of the medical practices,  based upon
alleged  misrepresentations  and  concealment by the Company with respect to its
relationship  with a third  party  payor  in  regards  to these  practices.  The
practices  were sold by the Company to the buyer in April 1998 in  exchange  for
the  execution  of a  promissory  note in the  amount  of  $3,550,000  which  is
presently  in default.  The Company  believes  the lawsuit is without  merit and
intends to vigorously  defend against it while  vigorously  pursuing its counter
claim which has been filed for recovery on its  unsecured  purchase  money note.
The Company also  believes the  lawsuit's  ultimate  resolution  will not have a
material adverse impact on the financial position,  operations and cash flows of
the Company.

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

None.

                                     PART II

ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
------------------------------------------------------------------------------

The common  stock of the Company is traded on the Nasdaq  National  Market under
the symbol  "SHCR".  There is no  established  trading  market for the Company's
non-voting  Class A common stock. The high and low sales prices of the Company's
common stock each calendar  quarter,  as reported by the Nasdaq National Market,
were as follows:

<TABLE>
<CAPTION>

                                                  1999                  1998                   1997       
                                          --------------------  --------------------  --------------------
                                             High        Low       High        Low      High        Low   
                                          ---------    -------  ---------    -------  ---------    -------

         <S>                                 <C>        <C>        <C>        <C>      <C>         <C>
         First Quarter (1)..............     91/2       65/8       171/2      123/4    101/16      55/8
         Second Quarter.................      ---        ---        17         11       111/4        7
         Third Quarter..................      ---        ---       121/2      81/2      135/8      101/8
         Fourth Quarter.................      ---        ---       91/4       61/2      161/2      121/4
<FN>
(1)  Through March 16, 1999.
</FN>
</TABLE>


On March 16,  1999,  the closing  sale price of the  Company's  common stock was
$7.625.  As of March 16, 1999,  there were 46 holders of record of the Company's
voting common stock and one holder of record of non-voting Class A common stock.
The Company has not declared or paid any cash dividends on its common stock. The
Company's  revolving  credit  facility  prohibits the payment of cash  dividends
prior to repayment of the outstanding balance under the credit facility in full.

During the fourth  quarter of 1997,  the  Company  issued  approximately  14,000
shares of its common stock as partial  consideration  for the  acquisition of an
office-based  physician  practice.  From January  1998  through  June 1998,  the

                                       16
<PAGE>

Company  issued  approximately  1,428,000  shares of its common stock as partial
consideration   in  the  acquisition  of  several   physicians   practices.   No
underwriters  or  underwriting  discounts or  commissions  were  involved.  Such
transactions  were exempt from the  registration  requirements of the Securities
Act of 1933, as amended, by reason of Section 4(2) thereof, based on the private
nature of the  transaction and the financial  sophistication  of the purchasers,
each of whom had access to  complete  information  concerning  the  Company  and
acquired the securities  for investment and not with a view to the  distribution
thereof.

From July 1998  through  December  1998 the  Company  repurchased  approximately
425,000  shares of its common  stock on the open  market  pursuant  to the Stock
Repurchase  Plan approved by its Board of Directors in July 1998.  The shares of
common stock repurchased have been retired and cancelled.

From January 1999 through March 16, 1999 the Company  repurchased  approximately
1,275,000  shares issued to physicians in  connection  with the  acquisition  of
their  physician  practices by the Company from January 1998 through March 1998.
Shares  were  repurchased  in  accordance  with  the  terms  of each  respective
acquisition agreement, retired and cancelled.



                                       17
<PAGE>
ITEM 6.  SELECTED FINANCIAL DATA
--------------------------------

The  following  selected  financial  data have  been  derived  from the  audited
financial  statements  of the  Company and its  Predecessor.  (See Note 1 to the
Company's   consolidated   financial   statements  for  an  explanation  of  the
Predecessor.)  The financial  statements of the  Predecessor for the period from
January 1, 1994 to November 28, 1994 and of the Company as of December 31, 1994,
1995,  1996, 1997 and 1998 and for the period from November 29, 1994 to December
31, 1994 and the years ended  December 31, 1995,  1996,  1997 and 1998 have been
audited by Arthur  Andersen LLP. The combined  statement of operations  data for
1994  combines the audited  results of  operations  of the  Predecessor  for the
period  from  January 1, 1994 to  November  28,  1994 and of the Company for the
period from November 29, 1994 to December 31, 1994. This combined information is
presented to provide meaningful period to period comparisons. The financial data
set forth below should be read in conjunction with "Management's  Discussion and
Analysis of Financial  Condition and Results of Operations" and the consolidated
financial  statements of the Company and the notes thereto included elsewhere in
this report.

<TABLE>
<CAPTION>
                                                       Company                   Combined    Company    Predecessor
                                     ----------------------------------------  ----------- -----------  ----------- 
                                                                                           Period from  Period from
                                                                                           November 29  January 1,
                                                       Year Ended              Year Ended    1994 to      1994 to
                                                     December 31,              December 31,December 31, November 28,
Statement of Operations                1998      1997      1996       1995        1994         1994         1994    
                                     -------- --------- --------- -----------  ----------- -----------  -----------
   Data (in thousands):
Revenue:
   <S>                               <C>      <C>       <C>       <C>          <C>         <C>          <C>        
   Patient service revenue.........  $109,580 $  95,418 $  89,753 $    64,665  $    38,624 $     5,129  $    33,495
   Management fee revenue..........     3,410     3,198     3,014         ---          ---         ---          ---
                                     -------- --------- --------- -----------  ----------- -----------  -----------
Net revenue........................   112,990    98,616    92,767      64,665       38,624       5,129       33,495
Operating expenses:
   Direct facility expenses........    76,350    68,919    66,125      47,477       26,531       4,089       22,442
   Provision for bad debts.........     5,592     4,066     3,605       2,324        1,909         159        1,750
   Salaries and benefits...........     7,722     7,424     6,967       5,398        3,127         452        2,675
   General and administrative......     4,177     4,900     4,561       3,976        2,581         297        2,284
   Write-down of office-based net
     assets........................       ---       ---     17,30         ---          ---         ---          ---
   Physician stockholders' payroll in
     excess of base salary (1).....       ---       ---       ---         ---        1,949         ---        1,949
   Transaction costs...............       ---       ---       ---         ---          372         372          ---
   Amortization....................     3,572     2,096     2,491       2,630          270         173           97
   Depreciation....................       807       689     1,023         559          177          65          112
                                     -------- --------- --------- -----------  -----------   ---------  -----------
Operating income (loss)............    14,770    10,522    (9,365)      2,301        1,708        (478)       2,186
Interest expense, net..............     3,955     2,461     2,572       4,254          634         341          293
Other (income) expense.............      (628)      ---       ---         ---          ---         ---          ---
                                     -------- --------- --------- -----------  -----------  ----------  -----------
Income (loss) before income
   taxes and extraordinary item....    11,443     8,061   (11,937)     (1,953)       1,074        (819)       1,893
Income tax expense (benefit).......     5,070     2,894       189        (456)         460        (177)         637
                                     -------- --------- --------- -----------  -----------  ----------  -----------
Income (loss) before
  extraordinary item...............     6,373     5,167   (12,126)     (1,497)         614        (642)       1,256
Extraordinary item.................       ---       ---       ---      (2,184)         ---         ---          ---
                                     -------- --------- --------- -----------  -----------  ----------  -----------
   Net income (loss)...............  $  6,373 $   5,167 $ (12,126) $   (3,681) $       614  $     (642)  $    1,256
                                     ======== ========= =========  =========== ===========  ==========  ===========

Income (loss) before extraordinary
   item per share..................  $   0.80 $    0.77 $   (1.84) $    (1.05)              $     (.36)
Net income (loss) per share:
   Basic...........................      0.80      0.77     (1.84)      (1.86)                    (.36)
   Diluted.........................      0.78      0.73     (1.84)      (1.86)                    (.36)
 
                                                            Company                                   
                                                         December 31,                                 
                                       1998      1997      1996       1995                     1994   
                                     -------- --------- --------- -----------              -----------
Balance Sheet Data (in thousands):
Working capital ...................  $ 21,079    13,650 $   8,336 $     4,299              $     1,338
Total assets.......................   139,810    87,035    73,408      64,373                   54,127
Long-term debt, net................    56,994    29,833    21,367      11,365                   30,581
Stockholders' equity...............    67,547    41,350    35,958      42,669                   13,261
<FN>
 (1) Physician stockholders' payroll in excess of base salary represents amounts
     paid to physician  stockholders  of the Predecessor in excess of the market
     compensation rate for the physician services provided to the Predecessor by
     those stockholders.  Such payments ceased upon the Company's acquisition of
     the Predecessor on November 28, 1994.
</FN>
</TABLE>
                                       18
<PAGE>


  
ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS
         -----------------------------------------------------------------------

CERTAIN FACTORS AFFECTING FUTURE OPERATING RESULTS

This Form 10-K contains forward-looking statements within the meaning of Section
27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act
of 1934. All  forward-looking  statements included in this document are based on
information available to the Company on the date hereof, and the Company assumes
no  obligation  to update any such  forward-looking  statements.  The  Company's
actual   results   could  differ   materially   from  those  set  forth  in  the
forward-looking  statements.  Certain factors that might cause such a difference
include the following:  fluctuation  in the volume of services  delivered by the
Company's  affiliated  physicians,  changes  in  reimbursement  rates  for those
services  from third party  payors  including  government  sponsored  healthcare
programs,  uncertainty  about the  ability to collect the  appropriate  fees for
those  services,   the  loss  of  significant   hospital  or  third-party  payer
relationships,  the ability to recruit and retain qualified physicians,  changes
in the number of patients using the Company's  physician services and legislated
changes  to the  Company's  structural  relationships  with its  physicians  and
practices.

GENERAL

The Company  provides  physician  services  to  hospitals,  ambulatory  surgical
facilities  and in  office-based  settings  in a variety of medical  specialties
including   anesthesia,   emergency  medicine,   general  surgery,   gynecology,
gynecology-oncology,    infertility,    neonatology,   obstetrics,   pediatrics,
perinatology and primary care. The Company also provides  management services to
physician  practices  that employ  physicians  practicing  in generally the same
medical specialties as the Company's physicians. The Company derives its revenue
from the medical  services  provided by the  physicians  who are employed by the
Company and from management fees earned from the managed practices. For the year
ended  December 31, 1998,  approximately  97% of the  Company's  net revenue was
derived  from  physician  services and  approximately  3% of the  Company's  net
revenue was  generated  under  management  services  agreements.  References  to
physician  services  provided  by the  Company  include  services  performed  by
physicians  employed by the Company and services provided by physicians in whose
practices the Company has a controlling  financial  interest (the  "Consolidated
Practices").  The financial results of the Consolidated  Practices are presented
on a  consolidated  basis with those of the  Company  because  the Company has a
controlling financial interest in these practices based on the provisions of its
purchase agreements, voting trust agreements or management agreements with these
entities.

Four of the Consolidated  Practices,  Sheridan NY, Sheridan TX, Sheridan CA, and
Sheridan PA. have entered into long-term management  agreements with the Company
and are  owned by  Gilbert  Drozdow,  M.D.  who is an  executive  officer  and a
stockholder of the Company.  In addition,  the  Consolidated  Practices  include
twelve practices with which the Company executed long-term management agreements
and purchase option  agreements  from March 1997 through  September 1998. One of
these practices is located in Texas, the remainder are located in Florida.

The Company provides  management  services to a neonatology  practice and a pain
management practice which entered into long-term management  agreements with the
Company's  in  December  1997 and  February  1998.  The  Company  also  provided
management  services during 1997 to two primary care practices whose  agreements
have been terminated.

The Company  generates  revenue from its physician  services by directly billing
third-party   payors   or   patients   on  a   fee-for-service   or   discounted
fee-for-service basis, through subsidies paid by hospitals to supplement billing
from third party payors and pursuant to capitation arrangements,  which included
shared-risk capitation  arrangements with managed care organizations until April
1,  1998.  The  Company  generates  management  services  revenue  from  managed
practices through a variety of reimbursement  arrangements.  Reimbursement terms
under management  agreements in place with unconsolidated  practices during 1998
required the practice to pay the Company a management  fee that was either based
on a  percentage  of net  revenues or based on expenses  incurred by the Company
plus a flat fee that does not fluctuate  based on  performance.  Management fees
that are based on a percentage  of net revenue range from 35% to 65% and are not
subject to adjustment.



                                       19
<PAGE>


BUSINESS COMBINATIONS AND OTHER TRANSACTIONS

Transactions with acquired physician  practices were accounted for as purchases.
Transactions with managed physician  practices whose agreements with the Company
have terms that demonstrate a controlling financial interest by the Company were
also  accounted  for as  purchases.  The  operations  of  acquired  and  managed
practices whose  transactions are accounted for as purchases are included in the
Company's financial statements beginning on each respective transaction date.

The Company  provided  management  services during 1998 to three practices whose
management  agreements did not meet the criteria for demonstrating a controlling
financial interest. One of these practices had been managed by the Company since
1996 until the Company  terminated  its management  services  agreement in April
1998,  and  was  obligated  to pay the  Company  a  management  fee  based  on a
percentage  of net  revenues.  The Company was unable to establish a controlling
financial interest in this practice because its interest in the practice was not
unilaterally  salable or transferable  and the agreements were terminable by the
practice in instances other than due to gross negligence,  fraud,  bankruptcy or
illegal acts committed by the Company. The other two practices were obligated to
pay the Company a management fee based on expenses  incurred by the Company plus
a flat fee which does not  fluctuate  based on  performance.  This  violates the
financial interest criteria for establishing a controlling financial interest.

On November 28, 1994, the Company  acquired all of the outstanding  common stock
of Sheridan Healthcorp, Inc. (the "Predecessor") for approximately $43.3 million
(the "1994 Acquisition").  As a result of this transaction, the Company incurred
significant  interest expense in 1995, which was related to the debt incurred to
finance the  transaction,  and has incurred  significant  goodwill  amortization
expense since November 28, 1994.

On September 1, 1994,  the  Predecessor  acquired a  four-facility  primary care
practice  for  approximately  $7.5  million in cash and $1.2 million in deferred
payments.  From December 1, 1994 to March 1, 1995,  the Company  completed  five
acquisitions  of primary  care and  obstetrical  practices  for an  aggregate of
approximately $3.7 million in cash and $800,000 in deferred payments. On June 5,
1995,  the Company  acquired a  three-facility  primary  care  practice for $3.0
million in cash. In a transaction  related to the June 1995 acquisition,  one of
the  principal  physicians  operating  the  acquired  practice  assigned a panel
services  agreement with a health  maintenance  organization  to the Company for
approximately  $1.3  million  in cash and  approximately  $300,000  in  deferred
payments and  approximately  35,000  shares of common  stock of the Company.  In
another transaction related to the June 1995 acquisition,  the Company agreed to
make a deferred  payment of  $700,000 to a  physician  employed by the  acquired
practice,  which was paid during the fourth  quarter of 1995.  This  payment was
treated as a bonus for  accounting  purposes,  and  accordingly,  was charged to
expense in its entirety  during  1995.  From January 1, 1996 to October 4, 1996,
the  Company  completed  five  acquisitions  of primary  care,  obstetrical  and
rheumatology  practices for an aggregate cost of  approximately  $8.2 million in
cash and $765,000 in deferred payments. Deferred payments incurred in connection
with  practice  acquisitions  represent  the  difference  between the  Company's
contractual  obligation for compensation pursuant to the physician's  employment
agreement  with the  Company and an  estimate  of the  replacement  cost for the
physician  services  provided or amounts due under  promissory notes between the
Company and certain physicians.  These payments are included in "Amounts due for
acquisitions" in the Company's consolidated balance sheets.

From  January 1, 1997 to  November 4, 1997 the Company  entered  into  long-term
management  agreements with, and purchased options to acquire,  four obstetrical
practices  and  one  general   surgical   practice  at  an  aggregate   cost  of
approximately  $11  million in cash and 14,000  shares of the  Company's  common
stock which had a value of approximately $170,000 on the date of closing.

In January 1998 and June 1998 the Company  entered  into a long-term  management
agreement with, and purchased an option to acquire, a hospital-based  anesthesia
practice  and  acquired  the  outstanding  shares  of  a  neonatology  practice,
respectively,  for approximately $6.9 million in cash and approximately  204,000
shares of the Company's common stock which had a value on the date of closing of
approximately  $2.9  million.  During the period  from  January 6, 1998  through
September  9,  1998 the  Company  completed  four  acquisitions  of  obstetrical

                                       20
<PAGE>

practices and entered into long-term  management  agreements  with and purchased
options to  acquire  two  obstetrical  practices,  a  perinatology  practice,  a
gynecology-oncology  practice,  an infertility  practice and a general  surgical
practice at an aggregate cost of $12.5 million in cash and 937,000 shares of the
Company's common stock which had a value of  approximately  $13.9 million on the
date of closing.  The Company's  consolidated  financial  statements include the
operations of these practices from the date of their respective transaction.

In December 1997, the Company  entered into a twenty-year  management  agreement
with a hospital-based  neonatology practice at a cost of $435,000.  In addition,
in February 1998 the Company executed a forty-year  management  agreement with a
pain  management  practice at a cost of $5.9  million in cash and  approximately
287,000  shares of the  Company's  common stock which had a value on the date of
closing  of  approximately   $3.9  million.   The  operations  under  management
agreements  entered into with the practices in which the Company does not have a
controlling  financial  interest  are  included  in the  Company's  consolidated
financial  statements  beginning  on the  date of each  agreement.  The  Company
exercised  its option to acquire  the pain  management  practice to which it had
been  providing  management  services  on  December  31,  1998.  Therefore,  the
Company's  consolidated  balance  sheet as of  December  31, 1998  includes  the
balance sheet of this practice.

On November 4, 1996, the Company announced a change in its strategic  direction,
which was to place more  emphasis on its  hospital-based  business and to reduce
its  emphasis  on the  primary  care  business,  and its  intent to  dispose  of
non-strategic  office-based physician practices. Due to this change in strategic
direction,  the Company wrote down certain  assets  related to its  office-based
operations to their estimated realizable values, and accrued certain liabilities
for commitments  that no longer have value to the Company's  future  operations.
These  adjustments  resulted in a $17.4 million  charge to earnings in 1996. See
Note  1(j)  to  the  Company's   consolidated   financial  statements  for  more
information.

As a result of its change in strategic  direction the Company has  experienced a
shift in the  composition  of its patient  service  revenue.  The  primary  care
practices  held for sale  generated  a  substantial  majority  of the  Company's
capitation revenue during 1998 and preceding years.

As a result of its change in strategic  direction,  the Company sold one primary
care  office   location  in  December  1996  and  one  in  February  1997,  four
rheumatology  office  locations in April 1997 and one primary  care  location in
December 1997.  The remaining  practices to be sold had been  consolidated  from
five office  locations  into three office  locations,  which employ five primary
care  physicians.  Two of these primary care office locations were sold in April
1998. In addition,  the Company terminated two long-term  management  agreements
with primary care  practices  entered into during 1996 that included five office
locations and four physicians.  The office-based practices which have been sold,
and which the  Company  currently  intends to sell,  include  the  four-facility
practice  acquired on September 1, 1994, two primary care practices  acquired in
February 1995, a three-facility  primary care practice acquired in June 1995 and
two rheumatology  practices  acquired in 1996. The  office-based  practices sold
during 1997 and the remaining  practices held for sale  generated  approximately
$1.9 in net revenue for the year ended December 31, 1998. The practices held for
sale did not  generate  significant  operating  income in 1998.  Therefore,  the
Company has experienced a slight increase in operating income as a percentage of
net revenue.

Under  shared-risk  capitation  arrangements,  which accounted for approximately
1.6%,  7.8% and  14.8% of the  Company's  net  revenue  in 1998,  1997 and 1996,
respectively,  the Company  receives a fixed monthly  amount from a managed care
organization  in  exchange  for  providing,   or  arranging  the  provision  of,
substantially all of the health care services required by members of the managed
care  organization.  The Company  generally  provides  all of the  primary  care
services  required  under  such   arrangements,   and  refers  its  patients  to
unaffiliated specialist physicians,  hospitals,  and other health care providers
which deliver the remainder of the required health care services.  The Company's
profitability   under  such  arrangements  is  dependent  upon  its  ability  to
effectively  manage the use of specialist  physician,  hospital and other health
care services by its patients.  In each of the years 1996, 1997 and 1998 amounts
received  from  managed  care   organizations   under   shared-risk   capitation
arrangements  exceeded  the cost of services  provided  to  patients  under such
arrangements. However, the profitability of the Company's shared-risk capitation
arrangements  has  declined  each  year as a result  of a  decline  in  patients
enrolled  with the managed  care  organization  and  assigned  to the  Company's
practices.  The  Company  completed  the  sale of a two  facility  primary  care
practice  on April 1, 1998 which  eliminated  all of the  Company's  shared-risk
capitation revenue.



                                       21
<PAGE>




In order to effectively manage the Company's growth generated by the acquisition
of physician practices,  the Company made significant  investments in personnel,
computer  equipment,  computer software and other  infrastructure  costs.  These
investments resulted in significant increases in salaries and benefits,  general
and  administrative  expenses,  and capital  expenditures  during 1996 and 1995,
compared to prior years.

As a result of the 1994  Acquisition  and several  transactions  with  physician
practices  completed  by the  Company  and its  Predecessor,  intangible  assets
constitute a substantial  percentage of the total assets of the Company, and the
Company's   results  of  operations   include   substantial   expenses  for  the
amortization of intangible assets.  Intangible assets are excess of the purchase
price of acquired  businesses or cost of management services agreements over the
fair  value of the net  assets of those  acquired  businesses  (which net assets
include any separately identifiable intangible assets). As of December 31, 1998,
the  Company's  total  assets  were  approximately   $139.8  million,  of  which
approximately  $96.8 million,  or 69.2%,  were intangible  assets.  Of the total
goodwill at December 31, 1998, $27.8 million is related to the 1994 Acquisition,
$25.8  million  is  related  to  several  acquisitions  of  physician  practices
completed by the Predecessor and the Company and $43.2 million is related to the
cost of obtaining several management agreements with physician practices.

The goodwill related to the 1994 Acquisition  represents the going concern value
of the Company,  which consists of the Company's market position and reputation,
its   relationships   with  its  customers  and   affiliated   physicians,   the
relationships  between its affiliated  physicians and their patients,  and other
similar intangible assets.  Management  believes its role as a long-term service
provider to its hospital customers and the fact its relationships with hospitals
are not tied to a single  physician  or group of  physicians  contribute  to the
indefinite  length of this  goodwill,  and since the Company is not aware of any
facts or circumstances  that would limit the useful lives of these assets,  this
goodwill is being  amortized  over 40 years.  The Company  also  acquired  other
intangible  assets as part of the 1994  Acquisition,  including the value of the
Company's physician employee workforce,  management team, non-physician employee
workforce  and  computer  software.  These  other  intangible  assets  have been
capitalized  separately  from  goodwill  and  are  being  amortized  over  their
estimated useful lives, which range from five to seven years.

The goodwill  included in intangible  assets that is related to the acquisitions
of  physician  practices  also  represents  the  going  concern  value  of those
practices.  However,  since the going concern  value of an individual  physician
practice,  or a small group practice, is subject to a higher degree of risk than
the  Company  as a whole and may be more  adversely  affected  by changes in the
health care  industry,  this goodwill is being  amortized  over shorter  periods
ranging from 20 to 25 years.

The cost of long-term  management  services  agreements  included in  intangible
assets  that is related  to the  acquisition  of  options  to acquire  physician
practices  and the  simultaneous  execution of  management  agreements  with the
practices represents the going concern value of those management agreements. The
going concern value of these long-term management services agreements is related
to the  general  reputation  of the  practices  in the  communities  they serve,
contracts  with  third-party  payors,  relationships  between the physicians and
their patients,  patient lists, the Company's  ability to integrate the practice
into its existing network of hospital-based  and office-based  practices and the
term  and  enforceability  of the  management  services  agreement.  The cost of
management  services  agreements is being amortized over the shorter of the term
of the management agreement or 25 years.

The Company continuously evaluates all components of intangible assets and other
intangible  assets to determine  whether  there has been any  impairment  of the
carrying  value of intangible  assets or such other  intangible  assets or their
useful  lives.  The Company is not aware of any such  impairment  at the current
time,  except for the  impairment  included in the $17.4  million  write-down of
office-based net assets in 1996 discussed above,  which resulted  primarily from
the Company's change in strategic direction.

The  Securities  and  Exchange  Commission  (the "SEC"),  has recently  provided
guidance  in  regards  to the  appropriate  amortization  periods  to be used in
connection  with the  amortization  of  intangible  assets  within the physician
practice management industry. The guidance provided has caused several companies
within the  industry  that were  amortizing  intangible  assets over  periods in
excess of 25 years to  prospectively  change  the  amortization  period of their

                                       22
<PAGE>

intangible  assets to 25 years.  This  change in  estimate  has  resulted  in an
increase in the amortization expense reported by those companies. Effective July
1998,  the Company  reduced the maximum  amortization  period of its  intangible
assets related to physician  practice  acquisitions and affiliations to 25 years
on a prospective basis. This resulted in an increase in amortization expense for
the year ended  December  31,  1998 of  approximately  $60,000  compared  to the
amortization  that  would  have  been  recorded.  A  significant  change  in the
estimated useful lives of certain intangible assets of the Company could have an
adverse impact on its future net income and reported earnings per share. Such an
accounting  change,  if made, would have no impact on the Company's cash flow or
operations nor would it reflect a change in  management's  estimate of the value
and expected duration of such intangible assets.

Results of Operations

The following  table shows certain  statement of operations  data expressed as a
percentage of net revenue:
<TABLE>
<CAPTION>


                                                                            Year Ended December 31,       
                                                                   ---------------------------------------
                                                                      1998           1997          1996   
                                                                   -----------   -----------   -----------

         Revenue:
            <S>                                                           <C>           <C>           <C>  
            Patient services revenue.............................         97.0%         96.8%         96.8%
            Management fees......................................          3.0           3.2           3.2
                                                                   -----------   -----------   -----------
              Net revenue........................................        100.0         100.0         100.0
         Operating expenses:
            Direct facility expenses.............................         67.6          69.9          71.3
            Provision for bad debts..............................          4.9           4.1           3.9
            Salaries and benefits................................          6.8           7.5           7.5
            General and administrative...........................          3.7           5.0           4.9
            Write-down of office-based net assets................          ---           ---          18.7
            Amortization.........................................          3.2           2.1           2.7
            Depreciation.........................................          0.7           0.7           1.1
                                                                   -----------   -----------   -----------
               Total operating expenses..........................         86.9          89.3         110.1
                                                                   -----------   -----------   -----------
         Operating income (loss).................................         13.1%         10.7%        (10.1)%
                                                                   ===========   ===========   =========== 
</TABLE>

Year Ended December 31, 1998 Compared to Year Ended December 31, 1997

Patient service revenue increased $14.2 million, or 14.9%, from $95.4 million in
1997 to $109.6  million in 1998.  Patient  service  revenue within the Company's
multi-specialty  group practices increased  approximately  $15.8 million,  while
patient  service  revenue  in  the  Company's  hospital   out-sourcing  business
decreased   approximately  $1.6  million.  Of  the  increase  in  the  Company's
multi-specialty  group  practices,  approximately  $14.9  million was due to the
acquisitions of hospital-based and office-based physician practices from January
1998 through September 1998,  approximately $5.4 million was due to office-based
acquisitions  completed  during 1997 and  approximately  $4.2 million was due to
growth in the  Company's  existing  hospital-based  contracts  and  office-based
contracts  as a  result  of  volume  and  reimbursement  rate  increases.  These
increases  were  offset by a  decrease  in net  revenue  from  primary  care and
rheumatology  practices  that  were sold  during  1997 and 1998  which  caused a
decrease  in net  revenue of  approximately  $8.7  million.  Net  revenue in the
Company's  hospital  out-sourcing  business  declined due to the  termination of
existing  hospital-based   contracts.   Net  revenue  from  management  services
increased  approximately  $200,000,  or 6.6%,  from $3.2 million in 1997 to $3.4
million in 1998.  An increase  in  management  fees  generated  from  management
agreements with two  hospital-based  practices entered into in December 1997 and
February 1998, respectively, were mostly offset by a decrease in management fees
earned from two primary care  practices  whose  agreements  were  terminated  in
December 1997 and April 1998.

Direct facility expenses increased $7.4 million, or 10.7%, from $68.9 million in
1997 to $76.4 million in 1998.  Direct facility  expenses  include all operating
expenses that are incurred at the location of the physician practice,  including
salaries,  employee  benefits,  referral  claims  (in the  case  of  shared-risk
capitation  business),  office expenses,  medical supplies,  insurance and other
expenses. The increase in direct facility expenses was primarily a result of the

                                       23
<PAGE>

acquisitions  discussed  in the  preceding  paragraph  and  increases  in direct
facility  expenses of the Company's  existing  hospital-based  and  office-based
practices  offset by a decline in direct facility  expenses  associated with the
practices  sold.  As a  percentage  of net  revenue,  direct  facility  expenses
decreased  from  69.9%  in 1997 to 67.6% in 1998.  The  decrease  of the  direct
facility  expense  percentage is due to a shift in the Company's  revenue in its
office-based  services  from  shared risk  capitation  to  fee-for-service.  The
Company's  practices that generate revenue on a  fee-for-service  basis have had
lower direct facility expenses associated with their operation.

The provision for bad debts increased approximately $1.5 million, or 36.6%, from
$4.1 million in 1997 to $5.6 million in 1998.  This  increase was due to a 14.9%
increase in net revenue,  as discussed  above,  and an increase in the Company's
overall bad debt  percentage  which increased from 4.1% in 1997 to 4.9% in 1998.
The increase in the Company's  bad debt  percentage is due to an increase in the
Company's  net  revenue  derived  from   fee-for-service   revenue  rather  than
capitation revenue,  which was substantially  eliminated with the divestiture of
two primary care locations in April 1998.  Capitated practices incur minimal bad
debt expense.

Salaries and benefits increased $298,000,  or 4.0%, from $7.4 million in 1997 to
$7.7 million in 1998. This increase was  attributable to the Company's hiring of
personnel  necessary  to  support  the growth  that  occurred  in the  Company's
multi-specialty  group practices.  As a percentage of net revenue,  salaries and
benefits decreased from 7.5% in 1997 to 6.8% in 1998.

General and  administrative  expense  decreased  $723,000,  or 14.7%,  from $4.9
million in 1997 to $4.2  million in 1998.  General  and  administrative  expense
includes  expenses  incurred at the Company's  central office,  including office
expenses,  accounting  and legal  fees,  insurance,  travel  and  other  similar
expenses.  The  decrease  in general  and  administrative  expense  was due to a
decrease of $500,000 in legal fees incurred in connection with malpractice cases
which are now reflected as a direct facility expense, a decrease in rent expense
of $180,000 at the  corporate  office and a decrease in  advertising  expense of
$40,000.  As a percentage  of net revenue,  general and  administrative  expense
decreased from 5.0% in 1997 to 3.7% in 1998.

Amortization expense increased $1.5 million, or 71.4%, from $2.1 million in 1997
to $3.6 million in 1998.  This increase was related to several  acquisitions  of
physician  practices  and  management   agreements  with  physician   practices,
completed  from  March  1997  to  September  1998,  which  are  included  in the
transactions  discussed  in Note 2 to the  accompanying  consolidated  financial
statements.

Operating  income increased  approximately  $4.2 million,  or 39.6%,  from $10.6
million in 1997 to $14.8  million in 1998.  This increase was due to growth from
acquisitions and new contracts. As a percentage of net revenue, operating income
increased  from 10.7% in 1997 to 13.1% in 1998.  This increase was primarily due
to the fact that net  revenue  increased  at a greater  rate than  salaries  and
benefits or general and  administrative  expense and the reduction in the direct
facility expense percentage from 69.9% in 1997 to 67.6% in 1998 as noted above.

Other income recognized was $628,000 for 1998. Other income primarily represents
an amount recognized by the Company pursuant to a favorable  judgement  received
by the Company in connection with certain litigation.

Interest  expense  increased  from $2.5 million in 1997 to $4.0 million in 1998.
This increase was primarily related to borrowings under the Company's  revolving
credit facility to fund the acquisitions discussed above.

Year Ended December 31, 1997 Compared to Year Ended December 31, 1996

Patient service revenue  increased $5.7 million,  or 6.3%, from $89.8 million in
1996 to $95.4  million in 1997.  Patient  service  revenue  from  hospital-based
services increased $6.6 million,  from $63.9 million in 1996 to $70.5 million in
1997. Of this increase, $800,000 was due to growth from existing contracts, $3.1
million was due to the addition of new  contracts for  hospital-based  services,
and $2.7 million was due to the acquisition of a hospital-based  neonatology and
pediatric  practice in March 1996,  as described  in Note 2 to the  accompanying
consolidated  financial  statements.  Patient service revenue from  office-based
services decreased $1.1 million,  from $27.2 million in 1996 to $26.1 million in
1997 Of this  decrease,  $7.2  million,  was due to the sale of two primary care
practices and two rheumatology practices during the period from December 1996 to
April 1997,  which was offset by an increase in net revenue of $6.1 million from
acquisitions  which  occurred  throughout  1997,  as  described in Note 2 to the
accompanying  consolidated  financial  statements.   Management  fees  increased
$184,000,  or 6.1%  from $3.0  million  in 1996 to $3.2  million  in 1997 due to
management agreements added with office-based practices during 1996.

                                       24
<PAGE>

Direct facility expenses increased $2.8 million,  or 4.2%, from $66.1 million in
1996 to $68.9 million in 1997.  Direct facility  expenses  include all operating
expenses that are incurred at the location of the physician practice,  including
salaries,  employee  benefits,  referral  claims  (in the  case  of  shared-risk
capitation  business),  office expenses,  medical supplies,  insurance and other
expenses.  The increase in direct  facility  expenses was  primarily  due to the
acquisition of a  hospital-based  neonatology  and pediatrics  practice in March
1996 and the growth in new and existing contracts for  hospital-based  services,
as discussed in the preceding  paragraph  offset by a decline in direct facility
expenses  associated  with the  practices  sold. As a percentage of net revenue,
direct  facility  expenses  decreased  from 71.3% in 1996 to 69.9% in 1997.  The
decrease  of the direct  facility  expense  percentage  is due to a shift in the
Company's  revenue in its  office-based  services from shared risk capitation to
fee-for-service.   The  Company's   practices   that   generate   revenue  on  a
fee-for-service  basis have had lower direct facility  expenses  associated with
their operation.

The provision for bad debts increased  $461,000,  or 12.8%, from $3.6 million in
1996 to $4.1 million in 1997.  This  increase was due to a 6.3%  increase in net
revenue,  as  discussed  above,  and  an  additional  allowance  for  bad  debts
associated with the office-based  practices sold or held for sale. In some cases
the  Company  has  retained,  and  anticipates  retaining,  the right to collect
accounts  receivable on practices sold or held for sale.  Collection efforts are
impaired  subsequent to the sale of a practice due to reduced  accessability  to
the  practices'  books and records.  The  additional  allowances is based on the
Company's  estimate of uncollectable  accounts that will result from an impaired
collection  ability on accounts  receivable in existence at the time of sale and
retained by the Company.  As a percentage of net revenue,  the provision for bad
debts increased slightly from 3.9% in 1996 to 4.1% in 1997.

Salaries and benefits increased $457,000,  or 6.6%, from $7.0 million in 1996 to
$7.4 million in 1997. This increase was  attributable to the Company's hiring of
personnel  necessary  to  support  the growth  that  occurred  in the  Company's
hospital-based  services. As a percentage of net revenue,  salaries and benefits
was constant from 1996 to 1997 at 7.5%.

General  and  administrative  expense  increased  $339,000,  or 7.4%,  from $4.6
million  in  1996  to  $4.9  million  in  1997.  The  increase  in  general  and
administrative  expenses was  primarily  due to an increase in legal fees due to
the litigation  discussed in Note 7 to the accompanying  consolidated  financial
statements,  and increases in various office expenses to support the increase in
the number of employees indicated in the preceding paragraph. As a percentage of
net revenue,  general and administrative expense increased slightly from 4.9% in
1996 to 5.0% in 1997.

Due to a change in the Company's strategic  direction,  as discussed above under
"General,"  the Company wrote down certain  assets  related to its  office-based
operations to their estimated realizable values, and accrued certain liabilities
for commitments  that no longer have value to the Company's  future  operations.
These  adjustments  resulted in a $17.4 million  charge to earnings in 1996. See
Note  1(j)  to the  accompanying  consolidated  financial  statements  for  more
information.

Amortization expense decreased $395,000,  or 15.8%, from $2.5 million in 1996 to
$2.1  million  in 1997.  This  decrease  was due to a decrease  in  amortization
expense  related to goodwill  and  intangible  assets that were  written down to
their  estimated  realizable  values during the fourth  quarter of 1996, and the
sale of four  office-based  practices  during 1997,  partially offset by several
acquisitions of physician practices during 1997.

Operating  income  increased  from an operating  loss of $9.4 million in 1996 to
operating income of $10.5 million in 1997. The increase was primarily due to the
$17.4 million write-down discussed above.  Excluding this write-down,  operating
income increased from $8.0 million in 1996 to $10.5 million in 1997, an increase
of $2.5  million  or 31.3%.  This  increase  in  operating  income is due to the
acquisition of a  hospital-based  neonatology  and pediatrics  practice in March
1996 as  discussed  above,  improved  operating  performance  in 1997  from  the
Company's  office-based  practices and a decrease in  amortization  expense,  as
discussed above.

Interest  expense  decreased  from $2.6 million in 1996 to $2.5 million in 1997.
This decrease was primarily due to a lower interest rate on the revolving credit
facility established in March 1997 as compared to the previous credit facility.



                                       25
<PAGE>




LIQUIDITY AND CAPITAL RESOURCES

At December 31, 1998 the Company had $21.1 million in working  capital,  up from
$13.7  million as of December  31,  1997.  At December  31,  1998,  net accounts
receivable of $28.3 million amounted to 91 days of net revenue compared to $21.6
million  and  80  days  at  December  31,  1997.   This  increase  is  primarily
attributable  to growth in fee-for service revenue and a decline in revenue from
shared-risk capitation which has no associated accounts receivable.

On March 12, 1997, the Company  established a new $35 million  revolving  credit
facility with NationsBank, National Association ("NationsBank"),  which was used
to repay the outstanding  balance under the previous  facility,  which was $25.2
million. On December 17, 1997, the Company amended its existing revolving credit
facility with NationsBank, which increased the total revolving credit commitment
from $35 million to $50 million.  On April 30, 1998 the Company  further amended
its revolving  credit  facility  which  increased the amount  available from $50
million to $75 million.  This amendment  included the  syndication of the credit
facility  with a group of banks led by  NationsBank,  N.A.  The credit  facility
bears interest at the London  interbank  offered rate plus an applicable  margin
which is subject to quarterly  adjustment  based on a leverage  ratio defined in
the credit agreement. The revolving credit facility was further amended on March
10, 1999 to increase the  Company's  maximum  borrowing  availability  under the
credit facility by increasing the maximum allowable leverage ratio. Based on the
increased  leverage ratio the Company's  applicable  margin as of March 10, 1999
was 2.5%.  The Company is also  required to pay a commitment  fee on a quarterly
basis based on the unused portion of the total  commitment.  The fee ranges from
0.25% to 0.50% and is subject to quarterly adjustments based on a leverage ratio
defined in the credit agreement.  There are no principal  payments due under the
new credit facility until the maturity date of April 30, 2001.

The amount that can be borrowed  under the credit  facility is  restricted  by a
leverage ratio defined in the credit  agreement.  The outstanding  balance under
the credit facilities increased from $29.0 million at December 31, 1997 to $56.6
million at December 31, 1998, primarily due to several acquisitions of physician
practices  completed during 1998. The outstanding  balance  increased from $56.6
million at December  31,  1998 to $72.9  million at March 25,  1999,  due to the
acquisition  of a  physician  practice  in January  1999 and the  repurchase  of
approximately  1,275,000 shares held by physicians whose practices were acquired
by  the  Company  from  January  1998  through   March  1998.   Based  on  these
transactions,  the Company has maximized its  borrowing  availability  under the
credit facility.  Certain  conditions must be met,  including the maintenance of
certain  financial  ratios,  and  in  certain  circumstances,  the  approval  of
NationsBank  must be  obtained,  in order to use the credit  facility to finance
acquisitions of physician practices.  There can be no assurance that the Company
will be able to satisfy such  conditions in order to use its credit  facility to
finance any future acquisitions.

The  Company's  principal  uses of cash during the year ended  December 31, 1998
were  to  finance  acquisitions  of  physician  practices  ($26.4  million),  to
repurchase  shares of the Company's common stock ($3.7 million),  and to finance
increases in accounts  receivable  ($5.5 million).  The $5.5 million increase in
accounts  receivable,  net of the provision for bad debts,  was due to growth in
existing contracts for hospital-based  services and the acquisition of physician
practices during 1998 which had a concentration of  fee-for-service  revenue and
replaced  the  Company's  practices  which had a  concentration  of shared  risk
capitation revenue.  The Company met its cash needs during this period primarily
through  borrowings under its revolving credit facility with NationsBank  ($27.6
million)  and its net income,  excluding  non-cash  expenses  (amortization  and
depreciation) ($10.8 million).

In March 1996, the Company issued  approximately  658,000 shares of common stock
as  partial  consideration  for an  acquisition  of a  hospital-based  physician
practice  completed in March 1996,  as  discussed in Note 2 to the  accompanying
consolidated  financial  statements.   In  November  1997,  the  Company  issued
approximately  14,000  shares of common  stock as partial  consideration  for an
acquisition  of an  office-based  physician  practice.  During the  period  from
January 1998 through June 1998 the Company issued approximately 1,428,000 shares
of common stock as partial consideration for the acquisition of five practices.

Pursuant  to a stock  repurchase  program  approved  by the  Company's  Board of
Directors,  the Company repurchased  approximately  425,000 shares of its common
stock from July 1998 through December 1998 for approximately $3.7 million.

                                       26
<PAGE>


In  order  to  provide  funds  necessary  for  the  Company's  future  expansion
strategies,  it will be necessary  for the Company to incur,  from time to time,
additional   long-term  bank  indebtedness   and/or  to  issue  equity  or  debt
securities,  depending on market and other conditions. There can be no assurance
that such  additional  financing  will be available on terms  acceptable  to the
Company.

The  Company,  as directed  by its Board of  Directors,  had engaged  investment
advisors  to  assist  the  Company  in  evaluating  its  strategic  alternatives
including the procurement of additional capital. Possible strategic alternatives
included an expansion of the company's existing credit facility, merger, sale or
an equity  investment by a private capital firm or other similar party. On March
25, 1999 the Company  announced  the signing of a  definitive  merger  agreement
between the Company and an investor group led by Vestar Capital Partners and the
Company's senior management. See "ITEM 1. BUSINESS - Recent Developments".

Net cash provided by operating  activities  was $4.8 million in 1998 compared to
$1.1 million of cash provided by operating  activities in 1997.  The increase in
cash provided by operating activities is due to an increase in the Company's net
income,  excluding  non-cash  expenses and a decrease in amounts paid for income
taxes during 1998.

Net cash used by  investing  activities  increased  from $8.5 million in 1997 to
$27.6  million in 1998,  primarily due to an increase in cash used for physician
practice  acquisitions from $10.9 million in 1997 to $26.4 million in 1998. Cash
used for capital expenditures  increased from $934,000 to $1.2 million primarily
due to the Company's expenditures associated with preparing for the Year 2000.

Net cash provided by financing activities increased from $7.8 million in 1997 to
$23.4 million in 1998.  Net  borrowings on long-term  debt  increased  from $9.0
million in 1997 to $27.6 million in 1998. The net borrowings were used primarily
to finance acquisitions in 1998.

The Company's  professional  liability  insurance  requires the Company to pay a
self-insured  retention  amount equal to the first $250,000 and $150,000 in 1998
and 1997,  respectively,  of losses  for each  individual  claim up to a maximum
aggregate  self-insured  retention  amount of  $1,000,000  and  $900,000 for all
claims in 1998 and 1997,  respectively.  On an ongoing basis the Company reviews
reported  claims  by  calendar  year,  amounts  incurred  for  the  defense  and
settlement of reported claims and estimated additional amounts to be incurred on
reported  claims.  The  Company  records,  as part of direct  facility  expenses
amounts  estimated to be incurred on reported  claims  under the  self-insurance
provisions of its professional  liability policy. The Company paid approximately
$1.7 million in 1998 under the  self-insurance  provisions  of its  professional
liability  insurance  policy.  As of December 31, 1998 the Company's reserve for
self-insurance on reported claims is approximately $1.2 million.

YEAR 2000 ISSUES

The Company has conducted a review of its computer  systems,  telecommunications
equipment,  medical  equipment and other devices to identify  those systems that
may be affected  by the Year 2000 issue and has  developed a plan to address the
issue.  The Year 2000 issue is the result of  computer  programs  being  written
using two  digits  rather  than four to define  the  applicable  year.  Computer
programs  that have time  sensitive  software may recognize a date using "00" as
the year 1900 rather than the Year 2000.  This could result in system failure or
miscalculations  causing  disruptions  of  operations,  including,  among  other
things, a temporary inability to process  transactions,  send invoices or engage
in similar business activities.

The Company's  information systems have been internally developed and maintained
for its  hospital-based  operations  and developed and maintained by third-party
vendors for its office-based  operations and administrative support departments.
Beginning in 1997 the  Company's  personnel  began  reprogramming  the Company's
internal systems for Year 2000 compliance. These modifications were completed by
December 31, 1998 and testing of those modifications is expected to be completed
by June 1999. The Company has begun the process of standardizing the information

                                       27
<PAGE>

systems used by its office-based practices. A single third-party product that is
Year 2000  compliant  has been  selected  for  implementation  in the  Company's
office-based  practices  throughout  1998  and  1999.  The  Company  anticipates
implementation  in  its  existing  office-based  practices  to be  completed  by
September 1999. Additional practices acquired by the Company during 1999 will be
evaluated for Year 2000 readiness and an action plan determined  based upon that
evaluation.  Information  systems used by the Company's  administrative  support
departments  are being  upgraded  during 1998 and 1999 to be Year 2000 compliant
and are expected to be completed by the fourth  quarter of 1999.  The Company is
presently upgrading other equipment affected by the Year 2000 issue or obtaining
certification  of its  Year  2000  readiness  from the  appropriate  third-party
vendors.  The Company  expects to complete this process by September  1999.  The
Company does not presently  have a contingency  plan to respond to the Year 2000
issue if future  events  prevent it from  completing  its Year 2000 project on a
timely basis.

Computer  software  and  related  technologies  used by  third-party  payors and
vendors are also likely to be affected by the Year 2000 date change.  Failure of
any of these parties to properly  process dates for the Year 2000 and thereafter
could result in  unanticipated  expenses  and delays to the  Company,  including
delays in the payment for services provided and delays in our ability to conduct
normal  banking  operations.   The  Company  will  begin  surveying  significant
third-party  payors and  vendors  in  regards  to their  Year 2000  preparedness
beginning  in the  second  quarter of 1999 and  expects  this  assessment  to be
completed during the fourth quarter of 1999. The Company presently does not have
a contingency plan to respond to problems that may arise with third-party payors
who are not prepared for the Year 2000.

The Company has employed  additional  personnel to support the Year 2000 project
and incurred additional expense for software and hardware. The Company estimates
that it will  incur  approximately  $100,000  to  $150,000  for the next year in
operating  expenses  and total  capital  expenditures  of between  $500,000  and
$700,000 for the Year 2000 project.  These  expenditures  will be funded through
the Company's  operating cash flow and its credit  facility and are not expected
to have a material adverse effect on the Company's results of operations or cash
flow. The Company estimates that to date it has incurred  approximately $100,000
in operating expenses and $300,000 in capital expenditures for the project.

The costs of this  effort  and the date on which the  Company  believes  it will
complete its Year 2000 project are based on  management's  best estimate,  which
was derived  utilizing  numerous  assumptions  of future  events,  including the
continued availability of certain resources,  third party modification plans and
other factors.  There can be no assurance that those  estimates will be achieved
and actual  results could differ  materially  from those  anticipated.  Specific
factors that might cause such material  differences include, but are not limited
to, the  availability  and cost of personnel  trained and resources  utilized in
this area,  the  ability to locate and  correct  all  relevant  computer  codes,
reliance  on  third  party  payors  to  modify  their  systems  to be Year  2000
compliant,   reliance  on  the   accuracy  of   third-party   vendor  Year  2000
certifications and similar  uncertainties.  The Company's  inability to complete
its Year 2000 project on a timely basis or the lack of compliance of third party
payor systems could have an adverse impact on the Company's operating cash flow,
the impact of which cannot be estimated.

NEW ACCOUNTING PRONOUNCEMENTS

In June 1997,  the  Financial  Accounting  Standards  Board issued  Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income", ("SFAS
No. 130"), which was adopted in the first quarter of fiscal 1998. This statement
established  standards for the reporting and display of comprehensive income and
its  components  in a full set of  general-purpose  financial  statements.  This
statement requires that an enterprise (a) classify items of other  comprehensive
income by their nature in financial  statements and (b) display the  accumulated
balance of other  comprehensive  income  separately  from retained  earnings and
additional  paid-in  capital in the equity  section of  statements  of financial
position.  Comprehensive  income is defined  as the change in equity  during the
financial  reporting  period of a business  enterprise  resulting from non-owner
sources.  The Company  currently  does not have other  comprehensive  income and
therefore the adoption of SFAS No. 130 did not have a significant  impact on its
financial statement presentation as comprehensive income is equal to net income.

In June 1997,  the  Financial  Accounting  Standards  Board issued  Statement of
Financial  Accounting  Standards  No.  131,  "Disclosures  about  Segments of an
Enterprise and Related  Information",  ("SFAS No. 131"), which is required to be
adopted  in  fiscal  1998.  This  statement  requires  that  a  public  business
enterprise  report  financial and descriptive  information  about its reportable
operating segments including, among other things, a measure of segment profit or
loss, certain specific revenue and expense items, and segment assets. Generally,
financial  information  is  required to be reported on the basis that it is used
internally  for  evaluating  segment  performance  and  deciding how to allocate
resources to  segments.  SFAS No. 131 requires  that a public  company  report a

                                       28
<PAGE>

measure of segment profit or loss,  certain  specific  revenue and expense items
and segment  assets.  The Company  adopted SFAS No. 131  effective  December 31,
1998.  Management  does not conduct its business in a manner that  indicates the
existence of segments or allocate  its  management  services by  distinguishable
business segments. As a result, no additional disclosure was required.

In February 1998, the Financial  Accounting  Standards Board issued Statement of
Financial  Accounting Standards No.132,  "Employers'  Disclosures about Pensions
and Other  Postretirement  Benefits",  ("SFAS No. 132") which is  effective  for
fiscal  years ending after  December 15, 1997.  SFAS No. 132 revises  employers'
disclosures about pension and other  postretirement  obligations of those plans.
The Company adopted SFAS No. 132 effective  December 31, 1998 which did not have
a significant impact on its financial statement disclosures.

In March 1998, the American Institute of Certified Public Accountants  ("AICPA")
issued  Statement  of  Position  98-1,  "Accounting  for the  Costs of  Computer
Software  Developed  or Obtained  for  Internal  Use",  ("SOP  98-1").  SOP 98-1
requires  computer  software costs  associated  with internal use software to be
expensed as incurred until certain capitalization  criteria are met. The Company
will adopt SOP 98-1 beginning  January 1, 1999.  Adoption of this statement will
not have a material impact on the Company's  consolidated  financial position or
results of operations.

In April 1998, the AICPA issued  Statement of Position  98-5,  "Reporting on the
Costs of  Start-Up  Activities",  ("SOP  98-5").  SOP 98-5  requires  all  costs
associated with  pre-opening,  pre-operating  and organization  activities to be
expensed  as  incurred.  The  Company's  accounting  policies  conform  with the
requirements of SOP 98-5,  therefore  adoption of this statement will not impact
the Company's consolidated financial position or results of operations.

In June 1998,  the  Financial  Accounting  Standards  Board issued  Statement of
Financial Accounting  Standards No. 133, "Accounting for Derivative  Instruments
and Hedging Activities",  ("SFAS No. 133"). SFAS No. 133 establishes  accounting
and reporting  standards requiring that every derivative  instrument  (including
certain derivative  instruments  embedded in other contracts) be recorded in the
balance sheet as either and asset or liability  measured at its fair value. SFAS
No. 133  requires  that  changes in the  derivative's  fair value be  recognized
currently in earnings  unless specific hedge  accounting  criteria are met. SFAS
No. 133 cannot be applied  retroactively.  The  Company  will adopt SFAS No. 133
beginning  January 1, 2000.  The Company  does not believe  that the adoption of
this  statement  will  have a  material  impact  on the  Company's  consolidated
financial position or results of operations.

ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
--------------------------------------------------------------------

The Company's  revolving credit facility with NationsBank  bears interest at the
London  interbank  offered  rate plus an  applicable  margin which is subject to
quarterly  adjustment based on a leverage ratio defined in the credit agreement.
Accordingly,   the  Company's   interest  expense  related  to  the  outstanding
indebtedness  under the credit  facility  is subject  to  fluctuations  based on
changes in the interest rate environment.

To mitigate this risk, the Company  entered into an interest rate swap agreement
in August  1998  with  NationsBank  N.A.,  the  notional  amount of which is $40
million at December 31, 1998. The Company  entered into the agreement to fix the
interest  expense paid on a portion of the amount  outstanding  under its credit
facility with NationsBank  N.A. Under the terms of the agreement,  which matures
in  August  2001,  the  Company's  borrowing  rate is fixed  at  5.54%  plus the
applicable margin due under the terms of the revolving credit facility.  The net
effect of this agreement on the Company's interest expense in 1998 was nominal.





                                       29
<PAGE>




ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
----------------------------------------------------

<TABLE>
<CAPTION>

                                    INDEX TO FINANCIAL STATEMENTS
                                    -----------------------------


                                                                                               Page
                                                                                              ------
         <S>                                                                                    <C>
         Report of Independent Certified Public Accountants.............................        30
         Consolidated Balance Sheets as of December 31, 1998 and 1997...................        31
         Consolidated Statements of Operations for the Years ended December 31,
           1998, 1997 and 1996..........................................................        32
         Consolidated Statements of Stockholders' Equity for the Years ended
           December 31, 1998, 1997 and 1996.............................................        33
         Consolidated Statements of Cash Flows for the Years ended December 31,
           1998, 1997 and 1996..........................................................        34
         Notes to Consolidated Financial Statements.....................................       35-57


</TABLE>


                                       30
<PAGE>














               REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
               --------------------------------------------------



To Sheridan Healthcare, Inc.:


We have  audited  the  accompanying  consolidated  balance  sheets  of  Sheridan
Healthcare,  Inc. (a Delaware  corporation)  and subsidiaries as of December 31,
1998  and  1997,  and  the  related   consolidated   statements  of  operations,
stockholders'  equity and cash flows for each of the three years ended  December
31, 1998.  These financial  statements are the  responsibility  of the Company's
management.  Our  responsibility  is to express  an  opinion on these  financial
statements based on our audits.

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

In our opinion, the consolidated  financial statements referred to above present
fairly, in all material respects, the financial position of Sheridan Healthcare,
Inc. and subsidiaries as of December 31, 1998 and 1997, and the results of their
operations  and their cash flows for each of the three years in the period ended
December 31, 1998, in conformity with generally accepted accounting principles.


ARTHUR ANDERSEN LLP



Miami, Florida,
  February 18, 1999 (except for the matter discussed in Note 11, as to which the
  date is March 25, 1999).



                                       31
<PAGE>

<TABLE>
<CAPTION>



                            SHERIDAN HEALTHCARE, INC.
                           CONSOLIDATED BALANCE SHEETS
                      (in thousands, except per share data)


                                                                                                 December 31,  
                                                                                           ------------------------    
                                                                                               1998         1997
                                                                                           ----------   -----------
                                                    

                                     ASSETS
Current assets:
   <S>                                                                                     <C>          <C>        
   Cash and cash equivalents..........................................................     $    1,102   $       427
   Accounts receivable, less allowances of $2,346 and $1,828..........................         28,300        21,588
   Income tax refunds receivable......................................................          1,097         1,280
   Deferred income taxes..............................................................            ---         1,417
   Other current assets...............................................................          3,316         2,814
                                                                                           ----------   -----------
     Total current assets.............................................................         33,815        27,526
Property and equipment, net...........................................................          4,041         3,538
Intangible assets, net of accumulated amortization of $6,113 and $15,798..............         96,802        54,168
Other intangible assets, net of accumulated amortization of $1,958 and $1,712.........          1,501         1,803
Other assets..........................................................................          3,651           ---
                                                                                           ----------   -----------
     Total assets.....................................................................     $  139,810   $    87,035
                                                                                           ==========   ===========

                      LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
   Accounts payable...................................................................     $    1,440   $       591
   Amounts due for acquisitions.......................................................            288           527
   Accrued salaries and benefits......................................................          1,016         2,686
   Self-insurance accruals............................................................          4,319         3,973
   Refunds payable....................................................................          2,555         2,674
   Accrued physician incentives.......................................................            934           744
   Other accrued expenses.............................................................          1,735         2,235
   Current portion of long-term debt..................................................            449           446
                                                                                           ----------   -----------
     Total current liabilities........................................................         12,736        13,876
Long-term debt, net of current portion................................................         56,994        29,833
Amounts due for acquisitions..........................................................          1,364         1,976
Other long-term liabilities...........................................................          1,169           ---
Commitments and contingencies (Note 8)
Stockholders' equity:
   Preferred stock, par value $.01; 5,000 shares authorized; none issued..............            ---           ---
   Common stock, par value $.01; 21,000 shares authorized
     Voting; 7,535 and 6,509 shares issued and outstanding............................             75            66
     Class A non-voting; 297 shares issued and outstanding............................              3             3
   Additional paid-in capital.........................................................         73,626        53,811
   Accumulated deficit................................................................         (6,157)      (12,530)
                                                                                           ----------    ----------
     Total stockholders' equity ......................................................         67,547        41,350
                                                                                           ----------   -----------
     Total liabilities and stockholders' equity.......................................     $  139,810   $    87,035
                                                                                           ==========   ===========


</TABLE>







                             See accompanying notes.

                                       32
<PAGE>
<TABLE>
<CAPTION>

                            SHERIDAN HEALTHCARE, INC.
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                      (in thousands, except per share data)




                                                                                     Year Ended December 31,       
                                                                             --------------------------------------
                                                                                 1998         1997         1996    
                                                                             -----------  -----------   -----------

Revenue:
   <S>                                                                       <C>          <C>           <C>        
   Patient service revenue...............................................    $   109,580  $    95,418   $    89,753
   Management fees.......................................................          3,410        3,198         3,014
                                                                             -----------  -----------   -----------
     Net revenue.........................................................        112,990       98,616        92,767
                                                                             -----------  -----------   -----------
Operating expenses:
   Direct facility expenses..............................................         76,350       68,919        66,125
   Provision for bad debts...............................................          5,592        4,066         3,605
   Salaries and benefits.................................................          7,722        7,424         6,967
   General and administrative............................................          4,177        4,900         4,561
   Write-down of office-based net assets.................................            ---          ---        17,360
   Amortization..........................................................          3,572        2,096         2,491
   Depreciation..........................................................            807          689         1,023
                                                                             -----------  -----------   -----------
     Total operating expenses............................................         98,220       88,094       102,132
                                                                             -----------  -----------   -----------
Operating income (loss)..................................................         14,770       10,522        (9,365)
                                                                             -----------  -----------   -----------
Other (income) expense:
   Interest expense, net.................................................          3,955        2,461         2,572
   Other income..........................................................           (628)         ---           ---
                                                                             -----------  -----------   -----------
     Total other expense.................................................          3,327        2,461         2,572
                                                                             -----------  -----------   -----------
     Income (loss) before income taxes...................................         11,443        8,061       (11,937)
Income tax expense ......................................................          5,070        2,894           189
                                                                             -----------  -----------   -----------
     Net income (loss)...................................................    $     6,373  $     5,167   $   (12,126)
                                                                             ===========  ===========   ===========

Net income (loss) per share
     Basic...............................................................    $      0.80  $       0.77  $     (1.84)
     Diluted.............................................................           0.78          0.73        (1.84)
Weighted average shares of common stock
   and common stock equivalents outstanding
     Basic...............................................................          7,947        6,722         6,587
     Diluted.............................................................          8,219        7,035         6,587




</TABLE>













                             See accompanying notes.



                                       33
<PAGE>
<TABLE>
<CAPTION>


                                                                SHERIDAN HEALTHCARE, INC.
                                                    CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                                                                      (in thousands)


                                                           Convertible Preferred Stock
                           Voting           Class A       ------------------------------  
                        Common Stock      Common Stock       Class A       Class B      Additional
                      ---------------   ---------------   --------------  -------------- Paid-in   Accumulated
                       Shares  Amount    Shares  Amount   Shares  Amount  Shares  Amount  Capital     Deficit      Total
                      ------- -------   ------- -------   -----   ------  ------  ------ ---------  -----------  ---------
<S>                     <C>   <C>           <C>  <C>       <C>    <C>        <C>  <C>    <C>        <C>          <C>
Balance, 
  January 1, 1996      5,773  $   58        297  $    3    ---    $ ---      ---  $  --- $  48,179  $    (5,571) $  42,669
Issuance of
  common stock in
  acquisition ......     658       6        ---     ---    ---      ---      ---     ---     5,417                   5,423
Treasury shares
  purchased and
  retired...........     (13)    ---        ---     ---    ---      ---      ---     ---        (8)         ---         (8)
Net loss............     ---     ---        ---     ---    ---      ---      ---     ---       ---      (12,126)   (12,126)
                      ------ -------    ------- -------  -----    -----   ------  ------ ---------  -----------  ---------
Balance, 
  December 31,1996..   6,418      64        297       3    ---      ---      ---     ---    53,588      (17,697)    35,958
Issuance of common
  stock upon exercise
  of employee stock
  options ..........      77       1        ---     ---    ---      ---      ---     ---        53          ---         54
Issuance of common
  stock in
  acquisition.......      14       1        ---     ---    ---      ---      ---     ---       170          ---        171
Net income..........     ---     ---        ---     ---    ---      ---      ---     ---       ---        5,167      5,167
                     ------- -------    ------- ------- ------    -----   ------ ------- ---------  -----------  ---------
Balance, 
  December 31, 1997    6,509      66        297       3     ---     ---      ---     ---    53,811      (12,530)    41,350
Issuance of common
  stock upon exercise
  of employee stock
  options...........      23     ---        ---     ---     ---     ---      ---     ---        92          ---         92
Issuance of common
  stock in 
  acquisitions......   1,428      14        ---     ---     ---     ---      ---     ---    23,410          ---     23,424
Treasury shares
  purchased and
  retired...........    (425)     (5)       ---     ---     ---     ---      ---     ---    (3,687)         ---     (3,692)
Net Income..........     ---     ---        ---     ---     ---     ---      ---     ---       ---        6,373      6,373
                     ------- -------    ------- ------- -------  ------   ------ -------  --------  -----------  ---------
Balance, 
  December 31, 1998    7,535 $    75        297 $     3     ---  $  ---      --- $   ---  $ 73,626  $    (6,157) $  67,547       
                     ======= =======    ======= ======= =======  ======   ====== =======  ========  ===========  =========


</TABLE>

























                                                See accompanying notes.
              


                                       34
<PAGE>
<TABLE>
<CAPTION>



                            SHERIDAN HEALTHCARE, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (in thousands)


                                                                                     Year Ended December 31,       
                                                                             --------------------------------------
                                                                                 1998         1997         1996    
                                                                             -----------  -----------   -----------
Cash flows from operating activities:
   <S>                                                                       <C>          <C>           <C>        
   Net income (loss).......................................................  $     6,373  $     5,167   $  (12,126)
   Adjustments to reconcile net income (loss) to
     net cash provided by operating activities:
     Write-down of office-based net assets.................................          ---          ---        17,360
     Amortization..........................................................        3,572        2,096         2,491
     Depreciation..........................................................          807          689         1,023
     Provision for bad debts...............................................        5,592        4,066         3,605
     Deferred income taxes.................................................        1,417         (263)       (1,154)
   Changes in operating assets and liabilities:
     Accounts receivable, net..............................................      (11,140)      (7,997)       (7,076)
     Income tax refunds receivable.........................................         (101)        (710)          190
     Other current assets..................................................         (736)      (1,125)         (486)
     Other assets..........................................................          238         (655)          207
     Accounts payable and accrued expenses.................................       (1,221)        (215)        1,229
                                                                             -----------  -----------   -----------
     Net cash provided by operating activities.............................        4,801        1,053         5,263
                                                                             -----------  -----------   -----------
Cash flows from investing activities:
   Investments in management agreements and
     acquisitions of physicians practices..................................      (26,428)     (10,929)      (13,762)
   Sale of physician practices.............................................           49        3,388           193
   Capital expenditures....................................................       (1,192)        (934)       (1,245)
                                                                             -----------  -----------   -----------
     Net cash used by investing activities.................................      (27,571)      (8,475)      (14,814)
                                                                             -----------  -----------   -----------
Cash flows from financing activities:
   Borrowings on long-term debt............................................       27,600        9,005        13,997
   Payments on long-term debt..............................................         (555)      (1,210)       (4,438)
   Treasury shares purchased and retired...................................       (3,692)         ---            (8)
   Exercise of employee stock options......................................           92           54           ---
                                                                             -----------  -----------   -----------
     Net cash provided by financing activities.............................       23,445        7,849         9,551
                                                                             -----------  -----------   -----------
Increase in cash and cash equivalents......................................          675          427           ---
Cash and cash equivalents, beginning of year...............................          427          ---           ---
                                                                             -----------  -----------   -----------
Cash and cash equivalents, end of year.....................................  $     1,102  $       427   $       ---
                                                                             ===========  ===========   ===========

Supplemental disclosures of cash flow information:
Cash paid for interest.....................................................  $     3,898  $     2,338   $     2,588
Cash paid for income taxes.................................................        2,350        3,867         2,110
Capital leases entered into................................................          ---          ---           ---



</TABLE>











                             See accompanying notes.



                                       35
<PAGE>



                            SHERIDAN HEALTHCARE, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


(1)  SIGNIFICANT ACCOUNTING POLICIES
     -------------------------------

(a) Organization

Sheridan  Healthcare,  Inc. (the  "Company")  was  established  in November 1994
concurrently with its purchase of the common stock of Sheridan Healthcorp,  Inc.
(formerly,   Southeastern   Anesthesia   Management   Associates,   Inc.)   (the
"Predecessor")   (the  "1994  Acquisition")  for  $43.3  million  in  cash.  The
acquisition was accounted for as a purchase, and accordingly, the purchase price
was allocated to the net assets  acquired  based on their  estimated fair market
values at the date of acquisition.  The management group of the Predecessor held
approximately  20% of its outstanding  common stock prior to the acquisition and
became the management  group of the Company,  holding  approximately  18% of its
outstanding common stock and equivalents after the acquisition. Accordingly, 18%
of the purchase price was considered a distribution  to management  stockholders
in excess  of their  basis in the  common  stock of the  Predecessor,  which was
approximately  $249,000.  Such  excess was  recorded  as excess  purchase  price
distributed to management stockholders and included as a reduction to additional
paid in capital in the accompanying  balance sheets and was not allocated to the
net  assets  acquired.  As a result  of the  allocation,  $31.2  million  of the
purchase price was allocated to goodwill.

<TABLE>
<CAPTION>

         <S>                                                                                   <C>        
         Purchase price......................................................................  $    43,275
         Excess purchase price distributed to management  stockholders.......................       (7,541)
                                                                                               -----------
           Purchase price to be allocated....................................................       35,734
                                                                                               -----------

         Net assets acquired:
           Working capital...................................................................        4,365
           Property and equipment............................................................        1,236
           Other intangible assets (see Note (g))............................................        1,880
           Unamortized goodwill related to previous acquisition .............................        7,316
           Other assets......................................................................          609
           Long-term debt....................................................................       (9,580)
           Deferred income taxes.............................................................       (1,247)
                                                                                               -----------
              Total net assets acquired......................................................        4,579
                                                                                               -----------

         Goodwill related to the 1994 Acquisition............................................  $    31,155
                                                                                               ===========
</TABLE>

(b) Principles of Consolidation

The consolidated  financial  statements  include the accounts of the Company and
its majority  owned  subsidiaries  and other entities in which the Company has a
controlling financial interest.

In November 1997, the Emerging Issues Task Force ("EITF") reached a consensus on
when  a  physician  practice   management  company  ("PPM")  has  established  a
controlling  financial  interest in a physician  practice  through a contractual
management  service agreement  ("MSA").  A controlling  financial  interest must
exist  in  order  for a PPM  to  consolidate  the  operations  of an  affiliated
physician practice. The consensus is addressed in EITF Issue 97-2,  "Application
of FASB Statement No. 94 and APB Opinion No. 16 to Physician Practice Management
Entities".



                                       36
<PAGE>




                            SHERIDAN HEALTHCARE, INC.
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)


A  controlling  financial  interest  exists  between  a PPM  and  an  affiliated
physician practice if all of the following six requirements are met; (i) the MSA
has a term that is either  the  entire  remaining  legal  life of the  physician
practice  entity or a period of 10 years or more; (ii) the MSA is not terminable
by the physician practice except in the case of gross negligence, fraud or other
illegal acts by the PPM or  bankruptcy  of the PPM;  (iii) the PPM has exclusive
authority  over all  decision  making  relating  to  ongoing  major  or  central
operations  of the  physician  practice,  except for the  dispensing  of medical
services;  (iv) the PPM has exclusive authority over all decision making related
to total practice  compensation of the licensed medical professionals as well as
the ability to establish and implement guidelines for the selection,  hiring and
firing of them; (v) the PPM must have a significant  financial  interest that is
unilaterally  salable or  transferable  by the PPM; and (vi) the PPM must have a
significant  financial  interest  that  provides  it with the  right to  receive
income,  both as on-going  fees and as proceeds from the sale of its interest in
the physician practice, in an amount that fluctuates based on the performance of
the operations (a net profit interest) of the physician  practice and the change
in the fair value thereof.

The Company is following the above controlling  financial interest provisions of
EITF Issue 97-2 in its  determination of whether the operations of an affiliated
physician  practice  qualify  for  consolidation.   The  Company's   controlling
financial  interest is demonstrated by means other than direct record  ownership
of voting stock based on the provisions of its purchase agreements, voting trust
agreements or management agreements with these entities.

In  accordance  with  EITF  Issue  97-2  the  Company's  consolidated  financial
statements  include four practices that are affiliates of the Company,  Sheridan
Medical   Healthcorp,   P.C.,  Sheridan  Healthcare  of  Texas,  P.A.,  Sheridan
Children's Healthcare Services of Pennsylvania,  P.C. and Sheridan Healthcare of
California  Medical  Group,  Inc.  Each of these  affiliates is owned by Gilbert
Drozdow, as a nominee  shareholder,  who is an executive officer and stockholder
of the Company.  These entities have long-term  management  agreements  with the
Company whose terms demonstrate a controlling financial interest by the Company.
The practices provide  hospital-based  physician  services to four hospitals and
have been included in the Company's  consolidated financial statements since the
date of their  inception.  In addition,  the  Company's  consolidated  financial
statements  also include eleven  office-based  practices and one  hospital-based
practice with which the Company has long-term management services agreements and
purchase option agreements whose terms also demonstrate a controlling  financial
interest, (the "Consolidated  Practices").  These agreements entered into during
1997 and 1998, have been accounted for in the Company's  consolidated  financial
statements in accordance  with EITF 97-2 and have been included in the Company's
financial statements since the date of their inception.

The Company provides  management  services to a neonatology  practice and a pain
management practice which entered into long-term  management services agreements
with the Company in December 1997 and February 1998,  respectively.  The Company
also provided management services to a primary care practice whose agreement was
terminated in December 1997 and to a primary care practice  whose  agreement was
terminated  in April  1998.  The Company  did not have a  controlling  financial
interest in these practices.  These management  services agreements are included
in the  Company's  consolidated  financial  statements  only  to the  extent  of
management fees earned and expenses incurred by the Company.

The Company  exercised  its purchase  option on December 31, 1998 to acquire the
pain  management  practice to which it had been  providing  management  services
during  1998.  The  practice  has been  included in the  Company's  consolidated
balance  sheet as of December  31,  1998 and will be  included in the  Company's
consolidated financial statements beginning January 1, 1999.



                                       37
<PAGE>




                            SHERIDAN HEALTHCARE, INC.
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)


The table below sets forth the components of the Company's net revenue:

<TABLE>
<CAPTION>

                                                                          Year Ended
                                                                         December 31,                       
                                                         1998                1997                1996       
                                                  ------------------   ----------------    -----------------
                                                     Total      %        Total      %        Total      %   
                                                  --------- --------   -------- --------   --------- -------
<S>                                               <C>           <C>    <C>           <C>   <C>           <C>  
The Company....................................   $  72,070     63.8%  $ 76,850     77.9%  $  77,833    83.9%
Affiliates.....................................      13,309     11.8     12,511     12.7      11,920    12.8
Consolidated Practices.........................      24,201     21.4      6,057      6.2         ---     ---
                                                  --------- --------   -------- --------   --------- -------
   Patient service revenue.....................     109,580     97.0     95,418     96.8      89,753    96.7
                                                  --------- --------   -------- --------   --------- -------
Management fees................................       3,410      3.0      3,198      3.2       3,014     3.3
                                                  --------- --------   -------- --------   --------- -------
     Total.....................................   $ 112,990    100.0%  $ 98,616    100.0%  $  92,767   100.0%
                                                  ========= ========   ======== =========  ========= ========
</TABLE>

(c) Accounting Estimates

The preparation of financial  statements in conformity  with generally  accepted
accounting principles requires management to make estimates and assumptions that
affect the reported  amounts of assets and  liabilities  and the  disclosure  of
contingent assets and liabilities at the date of the financial  statements,  and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.

(d) Accounts Receivable and Net Revenue

The Company generates revenue from the provision of physician and services which
is  referred  to as patient  service  revenue and the  provision  of  management
services which are referred to as management fees.

The Company  derives  substantially  all of its  patient  service  revenue  from
various  third-party  payors including  Medicare and Medicaid  programs,  health
maintenance  organizations,  commercial  insurers  and  others.  The  amount  of
payments  received  from such  third-party  payors is  dependent  upon  mandated
payment rates in the case of the Medicare and Medicaid programs,  and negotiated
payment rates in the case of other  third-party  payors, as well as the specific
benefits included in each patient's applicable health care coverage. The Company
records its revenues  net of an  allowance  for  contractual  adjustments  which
represents the difference  between billed charges and expected  collections from
third-party  payors.  Accordingly,  net  revenue  and  accounts  receivable  are
reflected  in  the   consolidated   financial   statements  net  of  contractual
allowances.

The  Company  received a portion of its  patient  service  revenue  pursuant  to
shared-risk   capitation    arrangements   with   certain   health   maintenance
organizations until April 1998, at which time it sold its only remaining primary
care  practice  providing   services  under  such   arrangements.   Under  these
arrangements,  the  Company  generally  agreed to provide  certain  health  care
services to enrollees of the health  maintenance  organization in exchange for a
fixed amount per enrollee per month. The Company directly  provided primary care
services to the enrollees and subcontracted  directly,  or through a third-party
payor, with specialist physicians,  hospitals and other health care providers to
provide  the  remainder  of the  health  care  services  to the  enrollees.  The
Company's  profitability  under such arrangements was dependent upon its ability
to effectively manage the use of specialist physician, hospital and other health
care services by its patients.  In each of the fiscal  periods  presented in the
Company's   statements  of  operations,   amounts  received  from  managed  care
organizations  under shared-risk  capitation  arrangements  exceeded the cost of
services provided to patients under such arrangements.



                                       38
<PAGE>



                            SHERIDAN HEALTHCARE, INC.
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)


The Company  derives  its  management  fees  pursuant  to  long-term  management
services  agreements with physician  practices which require the practice to pay
the Company a management  fee that is based on expenses  incurred by the Company
plus either a percentage  fee based on net revenues or a flat fee. The Company's
management fee may be increased  under a flat fee arrangement if the net revenue
of the practice exceeds established thresholds, but may not be reduced.

(e) Charity Care

The  Company  has agreed  with  certain  hospitals  to provide  charity  care to
patients who are unable to pay or is required by law, in some cases,  to provide
such  care in  emergency  situations.  Such  patients  are  identified  based on
financial information obtained from the patients and subsequent analysis.  Since
management does not expect payment for such charity care, the estimated  charges
related to such  patients  are  included in the  provision  for bad debts in the
accompanying financial statements, the amounts which are immaterial.

(f) Intangible Assets

The  Company  acquires  or  affiliates  with  physician  practices  through  the
acquisition  of  their  net  assets,  the  acquisition  of  their  stock  or the
acquisition of an option to acquire their stock concurrent with the execution of
a long-term  management  services  agreement.  In each of these transactions the
Company  allocates  the  purchase  price to the  tangible  assets  acquired  and
liabilities  assumed.  The excess of the  purchase  price over the fair value of
assets  acquired and  liabilities  assumed is allocated to intangible  assets as
goodwill  when the Company  acquires  the net assets or  outstanding  stock of a
physician  practice  and to  intangible  assets  as the  cost of  obtaining  the
management   services  agreement  when  the  Company  enters  into  a  long-term
management   services   agreement  and  purchases  the  option  to  acquire  the
outstanding stock of a physician practice.

Approximately  $27.8  million  of the  total  amount  of  intangible  assets  is
goodwill, net of accumulated amortization, at December 31, 1998, that is related
to the 1994 Acquisition.  Such goodwill represents the Company's market position
and reputation,  its  relationships  with its hospital  customers and affiliated
physicians,  the  relationships  between  its  affiliated  physicians  and their
patients, and other similar intangible assets. Management believes its role as a
long-term  service  provider  to  its  hospital   customers  and  the  fact  its
relationships  with  hospitals  are not tied to a single  physician  or group of
physicians   contribute  to  the  indefinite   length  of  this  goodwill,   and
accordingly,  such goodwill is being amortized on a straight-line  basis over 40
years.

Approximately  $25.8  million  of the  total  amount  of  intangible  assets  is
goodwill,  net of  accumulated  amortization,  at December 31, 1998,  related to
several  acquisitions of physician practices by the Company and its Predecessor.
Such  goodwill  represents  the  general  reputation  of  the  practices  in the
communities  they serve,  the collective  experience of the management and other
employees of the  practices,  contracts with health  maintenance  organizations,
relationships  between the physicians  and their  patients,  patient lists,  and
other similar  intangible assets. The Company evaluates the underlying facts and
circumstances  related  to  each  acquisition  and  establishes  an  appropriate
amortization  period for the related  goodwill.  The  goodwill  related to these
physician practice acquisitions is being amortized on a straight-line basis over
periods ranging from 20 to 25 years.



                                       39
<PAGE>



                            SHERIDAN HEALTHCARE, INC.
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)


Approximately  $43.2 million of the total amount of intangible assets represents
the  cost  of  obtaining  management  services  agreements,  net of  accumulated
amortization  at December 31, 1998.  The cost of obtaining  management  services
agreements with practices is related to the general  reputation of the practices
in the communities they serve, contracts with third-party payors,  relationships
between the physicians and their patients,  patient lists, the Company's ability
to  integrate  the  practice  into  its  existing  group of  hospital-based  and
office-based  specialists  and the term  and  enforceability  of the  management
services agreement. The Company evaluates the underlying facts and circumstances
related to each agreement and  establishes an  appropriate  amortization  period
related to the cost of obtaining the management services agreement.  The cost of
obtaining  these  management  services  agreements is being  amortized  over the
shorter of the term of the agreement or 25 years.

The components of the Company's  intangible  assets  segregated by  amortization
period are as follows:

Physician Practice Acquisitions and Affiliations:

<TABLE>
<CAPTION>

                             Amortization                Original                  Balance
                                Period                    Amount              December 31, 1998 
                         -------------------       --------------------     --------------------
                               <S>                             <C>                       <C>
                               20 years                         3,121                    2,185
                               25 years                        68,834                   66,818
                                                     ----------------         ----------------
                               Sub-Total                       71,955                   69,003

1994 Acquisition:

                               40 years                        30,960                   27,799
                                                     ----------------         ----------------
                                 Total               $        102,915         $         96,802
                                                     ================         ================
</TABLE>


The  SEC  has  recently   provided   guidance  in  regards  to  the  appropriate
amortization  periods  to  be  used  in  connection  with  the  amortization  of
intangible  assets  within  the  physician  practice  management  industry.  The
guidance  provided has caused  several  companies  within the industry that were
amortizing intangible assets over periods in excess of 25 years to prospectively
change the  amortization  period of their  intangible  assets to 25 years.  This
change in estimate  has  resulted in an  increase  in the  amortization  expense
reported  by those  companies.  Effective  July 1998,  the  Company  reduced the
maximum  amortization  period of its  intangible  assets  related  to  physician
practice  acquisitions and affiliations to 25 years on a prospective basis. This
resulted in an increase in amortization  expense for the year ended December 31,
1998 of approximately  $60,000 compared to the amortization that would have been
recorded.  A  significant  change  in the  estimated  useful  lives  of  certain
intangible  assets of the Company could have an adverse impact on its future net
income and reported  earnings per share.  Such an  accounting  change,  if made,
would  have no impact on the  Company's  cash  flow or  operations  nor would it
reflect a change in management's  estimate of the value and expected duration of
such intangible assets.

The Company continuously evaluates whether events have occurred or circumstances
exist  which  impact the  recoverability  of the  carrying  value of  intangible
assets,  pursuant  to  Statement  of  Financial  Accounting  Standards  No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of, ("SFAS No. 121")."  Recoverability of assets to be held and used
is measured by a  comparison  of the  carrying  amount of an asset to future net
cash flows expected to be generated by the asset.  If such assets are considered
to be impaired,  the  impairment  to be  recognized is measured by the amount by
which the carrying  amount of the assets  exceeded the fair value of the assets.
See Note (j) below for a  description  of an  adjustment  to reduce the carrying
values of certain  components of goodwill to their net realizable  values during
1996.



                                       40
<PAGE>



                            SHERIDAN HEALTHCARE, INC.
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)


Separately  identifiable  intangible  assets related to the 1994 Acquisition and
the physician  practice  acquisitions are included in other  intangible  assets,
separate from intangible assets, and are discussed in Note (g) below.

(g) Other Intangible Assets

Other intangible assets consist primarily of the physician  employee  workforce,
non-physician employee workforce, management team and computer software acquired
in the 1994 Acquisition,  deferred  acquisition  costs,  deferred loan costs and
non-compete  covenants related to certain  acquisitions of physician  practices.
These  intangible  assets are being  amortized  over the lives of the underlying
assets or agreements,  which range from five to seven years.  See Note (j) below
for a  description  of an  adjustment  to reduce the carrying  values of certain
other intangible assets to their net realizable values during 1996.

(h) Amounts Due for Acquisitions

Amounts due for acquisitions  includes obligations to the former stockholders of
certain physician  practices acquired by the Company.  The obligations to former
stockholders arose at the time of acquisition as a result of negotiation between
the Company and the former stockholders of the practices acquired by the Company
who desired ongoing compensation in excess of a reasonable market rate for their
physician services. These payments are being made to former stockholders who are
employed by the Company over the terms of their  employment  agreements with the
Company  which  range  from  three to five  years.  These  payments  cease  upon
termination of the  physicians'  employment  with the Company.  It also includes
termination benefits payable to the former stockholders of an acquired practice,
which are payable  beginning in 2001 or upon  termination of their employment by
the Company,  whichever is later. These termination  benefits were an obligation
of the practice prior to acquisition by the Company and were included as part of
the purchase  price  allocation  at the time of  acquisition.  Also  included in
amounts due for  acquisitions  is a  promissory  note  payable to the owner of a
physician practice with which the Company has a management  services  agreement.
The note bears interest at 7.5%, is payable in monthly  installments and matures
in December 2000.

(i) Fair Value of Financial Instruments

Statement of Financial  Accounting  Standards No. 107,  "Disclosures  About Fair
Value of  Financial  Instruments,"  requires  disclosure  of the  fair  value of
certain financial instruments.  Accounts receivable, other current assets, other
assets,  accounts payable,  accrued expenses and long-term debt are reflected in
the accompanying  consolidated  financial  statements at cost which approximates
fair value.

(j) Write-down of Office-based Net Assets

In October  1996,  the  Company's  Board of  Directors  approved a change in the
Company's   strategic  direction  which  was  to  place  more  emphasis  on  its
hospital-based business and to reduce its emphasis on the primary care business,
and its intent to dispose of non-strategic office-based physician practices. Due
to this change in strategic  direction,  the Company  wrote down certain  assets
related to its office-based  operations to their estimated  realizable values in
accordance  with SFAS No. 121 and accrued  certain  liabilities  for commitments
that no longer have value to the Company's future operations.  The impairment of
intangible assets was calculated based on a comparison of the carrying amount of
those assets compared to the undiscounted  cash flows of the operations over the
remaining  amortization  period.  The write-down  pertained to two  rheumatology
practices acquired in January and February of 1996, a four-facility primary care
practice  acquired in September  1994,  two primary care  practices  acquired in
February 1995, and a primary care practice  acquired in June 1995 which included
the assignment of a panel services  agreement.  These adjustments  resulted in a
$17.4 million  charge to earnings in 1996,  which is comprised of adjustments to
the following assets and liabilities (in thousands):



                                       41
<PAGE>

                            SHERIDAN HEALTHCARE, INC.
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

<TABLE>
<CAPTION>

<S>                                                                                            <C>        
         Goodwill............................................................................  $    13,878
         Property and equipment..............................................................        1,045
         Intangible assets...................................................................          430
         Accrued expenses....................................................................        2,007
                                                                                               -----------
            Total write-down.................................................................  $    17,360
                                                                                               ===========
</TABLE>

(k) Cash and Cash Equivalents

The Company considers all highly liquid investments with an original maturity of
three months or less to be cash equivalents.

(L) NET INCOME (LOSS) PER SHARE
    ---------------------------

In February 1997, the Financial  Accounting  Standards Board issued Statement of
Financial Accounting Standards No. 128, "Earnings Per Share",  ("SFAS No. 128").
SFAS No. 128 simplifies the current  standards for computing  earnings per share
("EPS") under  Accounting  Principles Board Opinion No. 15, "Earnings per Share"
by  replacing  the  existing  calculation  of  primary  EPS  with  a  basic  EPS
calculation.  It requires a dual presentation for complex capital  structures of
basic  and  diluted  EPS on the face of the  income  statement  and  requires  a
reconciliation  of basic EPS  factors  to  diluted  EPS  factors.  The impact of
adopting SFAS No. 128 in 1997 was immaterial.  Common stock  equivalents,  which
consist of stock options issued to employees and directors,  are not included in
the  determination  of the net loss per  diluted  share in 1996 since they would
have the effect of reducing the net loss per share.

         RECONCILIATION OF BASIC EPS FACTORS TO DILUTED EPS FACTORS:
<TABLE>
<CAPTION>

                                                                        1998         1997         1996    
                                                                     -----------  -----------  -----------
            <S>                                                            <C>          <C>          <C>
            Weighted average shares of common stock and
              common stock equivalents for basic earnings
              per share.........................................           7,947        6,722        6,587
            Impact of dilutive employee stock options...........             272          313          ---
                                                                     -----------  -----------  -----------
            Weighted average of shares of
              common stock equivalents for
              diluted earnings per share........................           8,219        7,035        6,587
                                                                     ===========  ===========  ===========
            Options outstanding which are not
              included in the calculation of
              diluted earnings per share because
              their impact is anti-dilutive.....................             518           73          223
                                                                     ===========  ===========  ===========
</TABLE>

(n) New Accounting Standards

In June 1997,  the  Financial  Accounting  Standards  Board issued  Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income", ("SFAS
No. 130"), which was adopted in the first quarter of fiscal 1998. This statement
established  standards for the reporting and display of comprehensive income and
its  components  in a full set of  general-purpose  financial  statements.  This
statement requires that an enterprise (a) classify items of other  comprehensive
income by their nature in financial  statements and (b) display the  accumulated
balance of other  comprehensive  income  separately  from retained  earnings and
additional  paid-in  capital in the equity  section of  statements  of financial
position.  Comprehensive  income is defined  as the change in equity  during the
financial  reporting  period of a business  enterprise  resulting from non-owner
sources.  The Company  currently  does not have other  comprehensive  income and
therefore the adoption of SFAS No. 130 did not have a significant  impact on its
financial statement presentation as comprehensive income is equal to net income.


                                       42
<PAGE>



                            SHERIDAN HEALTHCARE, INC.
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)


In June 1997,  the  Financial  Accounting  Standards  Board issued  Statement of
Financial  Accounting  Standards  No.  131,  "Disclosures  about  Segments of an
Enterprise and Related  Information",  ("SFAS No. 131"), which is required to be
adopted  in  fiscal  1998.  This  statement  requires  that  a  public  business
enterprise  report  financial and descriptive  information  about its reportable
operating segments including, among other things, a measure of segment profit or
loss, certain specific revenue and expense items, and segment assets. Generally,
financial  information  is  required to be reported on the basis that it is used
internally  for  evaluating  segment  performance  and  deciding how to allocate
resources to  segments.  SFAS No. 131 requires  that a public  company  report a
measure of segment profit or loss,  certain  specific  revenue and expense items
and segment  assets.  The Company  adopted SFAS No. 131  effective  December 31,
1998.  Management  does not conduct its business in a manner that  indicates the
existence of segments or allocate  its  management  services by  distinguishable
business segments. As a result, no additional disclosure was required.

In February 1998, the Financial  Accounting  Standards Board issued Statement of
Financial  Accounting Standards No.132,  "Employers'  Disclosures about Pensions
and Other  Postretirement  Benefits",  ("SFAS No. 132") which is  effective  for
fiscal  years ending after  December 15, 1997.  SFAS No. 132 revises  employers'
disclosures about pension and other  postretirement  obligations of those plans.
The Company adopted SFAS No. 132 effective  December 31, 1998 which did not have
a significant impact on its financial statement disclosures.

In March 1998, the American Institute of Certified Public Accountants  ("AICPA")
issued  Statement  of  Position  98-1,  "Accounting  for the  Costs of  Computer
Software  Developed  or Obtained  for  Internal  Use",  ("SOP  98-1").  SOP 98-1
requires  computer  software costs  associated  with internal use software to be
expensed as incurred until certain capitalization  criteria are met. The Company
will adopt SOP 98-1 beginning  January 1, 1999.  Adoption of this statement will
not have a material impact on the Company's  consolidated  financial position or
results of operations.

In April 1998, the AICPA issued  Statement of Position  98-5,  "Reporting on the
Costs of  Start-Up  Activities",  ("SOP  98-5").  SOP 98-5  requires  all  costs
associated with  pre-opening,  pre-operating  and organization  activities to be
expensed  as  incurred.  The  Company's  accounting  policies  conform  with the
requirements of SOP 98-5,  therefore  adoption of this statement will not impact
the Company's consolidated financial position or results of operations.

In June 1998,  the  Financial  Accounting  Standards  Board issued  Statement of
Financial Accounting  Standards No. 133, "Accounting for Derivative  Instruments
and Hedging Activities",  ("SFAS No. 133"). SFAS No. 133 establishes  accounting
and reporting  standards requiring that every derivative  instrument  (including
certain derivative  instruments  embedded in other contracts) be recorded in the
balance sheet as either an asset or liability  measured at its fair value.  SFAS
No. 133  requires  that  changes in the  derivative's  fair value be  recognized
currently in earnings  unless specific hedge  accounting  criteria are met. SFAS
No. 133 cannot be applied  retroactively.  The  Company  will adopt SFAS No. 133
beginning  January 1, 2000.  The Company  does not believe  that the adoption of
this  statement  will  have a  material  impact  on the  Company's  consolidated
financial position or results of operations.



                                       43
<PAGE>

                            SHERIDAN HEALTHCARE, INC.
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)


(2)  ACQUISITIONS
     ------------

In  September  1994,  the  Predecessor  acquired a  four-facility  primary  care
practice  for  cash  and  notes  and  the   assumption  of  certain   contingent
obligations. The aggregate purchase price was $8.7 million, including the effect
of  certain  adjustments  to the  purchase  price  recorded  in  1995  based  on
subsequent  information.  The acquisition  was accounted for as a purchase,  and
accordingly,  the purchase price was allocated to the net assets  acquired based
on their  estimated fair market  values.  As a result of this  allocation,  $8.2
million of the purchase  price was  allocated to goodwill,  which was  amortized
over 20 years until the sale of the  practice by the Company and is shown below,
(in thousands):

<TABLE>
<CAPTION>

         <S>                                                                                   <C>        
         Purchase price.....................................................................   $     8,723
                                                                                                ----------
         Net assets acquired:
           Working capital (deficit)........................................................          (355)
           Property and equipment...........................................................           868
                                                                                               -----------
              Net assets acquired...........................................................           513
                                                                                               -----------
         Goodwill related to the acquisition................................................   $     8,210
                                                                                               ===========
</TABLE>

In  connection  with the  write-down  of  office-based  net  assets in 1996,  as
discussed in Note 1(j), the carrying value of the goodwill  associated with this
acquisition  was reduced by  approximately  $5.3 million to  approximately  $2.1
million.

In December 1994, the Company acquired an obstetrical  practice for $1.4 million
in cash and deferred payments.  The acquisition was accounted for as a purchase,
and  accordingly,  the purchase  price was allocated to the net assets  acquired
based on their  estimated  fair market values.  As a result of this  allocation,
$841,000 of the  purchase  price was  allocated  to goodwill  which,  net of the
reduction  in  carrying  value,  is being  amortized  over 20 years and in shown
below, (in thousands):

<TABLE>
<CAPTION>

         <S>                                                                                   <C>        
         Purchase price.....................................................................   $     1,437
                                                                                                ----------
         Net assets acquired:
           Working capital..................................................................           118
           Property and equipment...........................................................            78
           Intangible assets................................................................           400
                                                                                               -----------
              Net assets acquired...........................................................           596
                                                                                               -----------
         Goodwill related to the acquisition................................................   $       841
                                                                                               ===========
</TABLE>


In  connection  with the  write-down  of  office-based  net  assets in 1996,  as
discussed in Note 1(j), the carrying value of the goodwill  associated with this
acquisition was reduced by approximately $170,000 to approximately $583,000.

During the period from February to June 1995, the Company made five acquisitions
of office-based physician practices for an aggregate of $6.1 million in cash and
deferred payments. In a transaction related to one of those acquisitions, one of
the  principal  physicians  operating  the acquired  practices  assigned a panel
services  agreement with a health  maintenance  organization  to the Company for
$400,000 in cash plus  deferred  payments of $935,000 and  approximately  35,000
shares  of  common  stock of the  Company  which  had a value  of  approximately
$450,000  on  the  date  of  acquisition.  These  acquisitions,   including  the
assignment of the panel services agreement, were accounted for as purchases, and
accordingly, the purchase prices were allocated to the net assets acquired based
on their fair market values. As a result of these  allocations,  $7.3 million of
the  aggregate  purchase  price was  allocated  to  goodwill  which,  net of the
reduction in carrying value, is being amortized over 20 years on a straight line
basis and is shown below, (in thousands):

                                       44
<PAGE>
                            SHERIDAN HEALTHCARE, INC.
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

<TABLE>
<CAPTION>

         <S>                                                                                   <C>        
         Aggregate purchase price...........................................................   $     7,880
                                                                                                ----------
         Net assets acquired:
           Working capital..................................................................           144
           Property and equipment...........................................................           358
           Intangible assets................................................................            30
                                                                                               -----------
              Net assets acquired...........................................................           532
                                                                                               -----------

         Goodwill related to the acquisitions...............................................   $     7,348
                                                                                               ===========
</TABLE>

In  connection  with the  write-down  of  office-based  net  assets in 1996,  as
discussed in Note 1(j), the carrying value of the goodwill associated with these
acquisitions  was reduced by approximately  $5.0 million to  approximately  $1.0
million.

In March 1996, the Company acquired a hospital-based physician practice for $4.2
million in cash and  approximately  658,000 shares of the Company's common stock
which had a value of approximately $5.4 million on the date of acquisition.  The
acquisition was accounted for as a purchase, and accordingly, the purchase price
was allocated to the net assets acquired based on their fair market values. As a
result of this  allocation,  $9.8 million of the purchase price was allocated to
goodwill which is being  amortized over 25 years on a straight line basis and is
shown below (in thousands):

<TABLE>
<CAPTION>

         <S>                                                                                   <C>        
         Aggregate purchase price...........................................................   $     9,644
                                                                                                ----------
         Net assets acquired:
           Working capital..................................................................         1,407
           Property and equipment...........................................................            78
           Accrued termination benefits.....................................................        (1,100)
           Long-term debt...................................................................          (500)
                                                                                               -----------
              Net assets acquired...........................................................          (115)
                                                                                               -----------

         Goodwill related to the acquisition................................................   $     9,759
                                                                                               ===========
</TABLE>

During  the  period  from  January  to  October  1996,  the  Company  made  five
acquisitions  of  office-based  physician  practices  for an  aggregate  of $8.2
million in cash and deferred payments.  These acquisitions were accounted for as
purchases, and accordingly, the purchase price of each acquisition was allocated
to the net assets  acquired based on their  estimated  fair market values.  As a
result of these  allocations,  $6.8 million of the aggregate  purchase price was
allocated to goodwill  which,  net of the reduction in carrying  value, is being
amortized  over 20  years on a  straight  line  basis  and is  shown  below  (in
thousands):

<TABLE>
<CAPTION>

         <S>                                                                                   <C>        
         Aggregate purchase price...........................................................   $     8,210
                                                                                                ----------
         Net assets acquired:
           Working capital..................................................................           830
           Property and equipment...........................................................           670
           Intangible assets................................................................            60
           Long-term debt...................................................................          (130)
                                                                                               -----------
              Net assets acquired...........................................................         1,430
                                                                                               -----------

         Goodwill related to the acquisitions...............................................   $     6,780
                                                                                               ===========
</TABLE>



                                       45
<PAGE>
                            SHERIDAN HEALTHCARE, INC.
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)


In  connection  with the  write-down  of  office-based  net  assets in 1996,  as
discussed in Note 1(j), the carrying value of the goodwill associated with these
acquisitions  was reduced by approximately  $3.4 million to  approximately  $1.2
million.

During  the period  from March 1997 to  December  1997,  the  Company  purchased
options to acquire five office-based  physician practices and one hospital-based
physician  practice for an aggregate of $10.8 million in cash and  approximately
14,000 shares of the Company's  common stock which had a value of  approximately
$200,000 on the date of  acquisition.  Concurrent  with each  acquisition  of an
option the Company entered into a long-term  management  services agreement with
each  practice.   These  transactions  were  accounted  for  as  purchases,  and
accordingly,  the purchase  price of each option was allocated to the net assets
acquired  based on their  estimated  fair  market  values.  As a result of these
allocations,  $11.1 million of the aggregate purchase price was allocated to the
cost of the management  services  agreements  which is being  amortized over the
shorter  of the  term of the  agreement  or 25  years  and is  shown  below  (in
thousands):

<TABLE>
<CAPTION>
         <S>                                                                                   <C>        
         Aggregate purchase price...........................................................   $    11,012
                                                                                                ----------
         Net assets acquired:
           Working capital..................................................................          (390)
           Property and equipment...........................................................           218
           Intangible assets................................................................           111
                                                                                               -----------
              Net assets acquired...........................................................           (61)
                                                                                               -----------
         Net cost of management services agreements.........................................   $    11,073
                                                                                               ===========
</TABLE>

During the period from  January  1998 to  September  1998 the Company  completed
thirteen  transactions with physician  practices for aggregate  consideration of
approximately  $49.1  million of which  approximately  $25.5 million was paid in
cash  and  approximately   $23.6  million  was  paid  through  the  issuance  of
approximately 1,428,000 shares of the Company's common stock. Approximately $5.2
million was paid for the  acquisition  of  practices'  net assets or  practices'
stock and  approximately  $43.9  million was paid for the purchase of options to
acquire the practices' stock for a nominal amount  concurrent with the execution
of  long-term   management  services  agreements.   In  each  transaction,   the
consideration  was allocated to the net assets acquired based on their estimated
fair  market  values.  As a result of these  allocations,  $43.1  million of the
aggregate  consideration  was  allocated  to the  cost  of  management  services
agreements  which  are  being  amortized  over 25  years  and $5.3  million  was
allocated to goodwill which is also being amortized over 25 years as shown below
(in thousands):
<TABLE>
<CAPTION>
         <S>                                                                                   <C>        
         Aggregate purchase price...........................................................   $    49,050
                                                                                                ----------
         Net assets acquired:
           Working capital..................................................................           159
           Property and equipment...........................................................           452
           Intangible assets................................................................            80
                                                                                               -----------
              Net assets acquired...........................................................           691
                                                                                               -----------
         Goodwill and net cost of management services agreements............................   $    48,359
                                                                                               ===========
</TABLE>

The  value  of the  Company's  common  stock  issued  in  connection  with  each
transaction is based on the higher of the closing market price for the Company's
common stock on the date each  transaction is completed or the price  guaranteed
by the Company on some  future  date.  In  connection  with the  issuance of the
Company's common stock as consideration for the acquisition of certain physician
practices,  the Company is obligated to make additional  payments to the sellers
of the  practices  which are  contingent  on the market  price of the  Company's
common stock upon a specified  date  following the date of the  transaction.  In
most cases,  the Company  has the option to satisfy  the  contingent  obligation
either by making an  additional  cash payment or by the  issuance of  additional
shares of the Company's  common  stock.  Such shares have been excluded from the
calculation of diluted earnings per share


                                       46
<PAGE>



                            SHERIDAN HEALTHCARE, INC.
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

because of management's  ability to fund the additional  purchase price, if any,
through cash  payments  rather than through the issuance of  additional  shares.
Based on the closing market price of the Company's  common stock on December 31,
1998 the total value of the contingencies was approximately $12.0 million.

The following table summarizes the pro forma consolidated  results of operations
of the Company as though the  transactions  with physician  practices  discussed
above had  occurred  at the  beginning  of the period  presented.  The pro forma
consolidated results of operations shown below do not necessarily represent what
the  consolidated  results of operations of the Company would have been if these
acquisitions had actually occurred at the beginning of the period presented, nor
do they  represent a forecast of the  consolidated  results of operations of the
Company for any future period.

<TABLE>
<CAPTION>

                                                                                   Year Ended December 31,
                                                                                   -----------------------
                                                                                      1998         1997   
                                                                                   ----------  ----------- 
                                                                                    (in thousands, except
                                                                                       per share data)
         
         Pro Forma Results of Operations:
         <S>                                                                      <C>          <C>        
         Net revenue..........................................................    $   119,224  $   123,924
         Income before income taxes...........................................         12,163       11,816
         Net income...........................................................          6,756        7,103
         Net income per share - basic.........................................           0.83         0.90
         Net income per share - diluted.......................................           0.80         0.87
</TABLE>


In connection with the change in the Company's strategic direction, as discussed
in Note 1(j), the Company sold one primary care office location in December 1996
and one in February 1997, four  rheumatology  office locations in April 1997 and
one primary  care  location  in December  1997.  The  Company  consolidated  the
remaining  practices  to be sold from five office  locations  into three  office
locations,  which employ five primary care physicians. Two of these primary care
office locations were sold in April 1998. The office-based  practices which have
been  sold,  and  which the  Company  currently  intends  to sell,  include  the
four-facility practice acquired on September 1, 1994, two primary care practices
acquired in February 1995, a  three-facility  primary care practice  acquired in
June 1995 and two rheumatology practices acquired in 1996.

The sale of the  rheumatology  offices in 1997 generated a gain of approximately
$75,000 based on the adjusted  carrying value of the practices' net assets.  The
sale  of  the  primary  care  practices  in  April  1998  generated  a  gain  of
approximately  $240,000  based on the adjusted  carrying value of the practice's
net  assets,  offset by a similar  loss on the sale of net assets in  connection
with the Company's termination of a management services agreement in April 1998.
The sale of primary care practices in December 1996,  February 1997 and December
1997 did not generate  significant  gains or losses as these practices were sold
for the approximate book value of their net assets.

(3)  PROPERTY AND EQUIPMENT
     ----------------------

Property and equipment is stated at cost less accumulated  depreciation,  and is
depreciated  using  straight-line  and  accelerated  methods over the  estimated
useful lives of the assets.  Maintenance and repairs are charged to expense when
incurred  and  improvements  are  capitalized.  Upon the sale or  retirement  of
assets, the cost and accumulated depreciation are removed from the balance sheet
and any gain or loss is recognized currently.



                                       47
<PAGE>

                            SHERIDAN HEALTHCARE, INC.
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

Property and equipment consists of the following (in thousands):

<TABLE>
<CAPTION>
                                                                                         December 31,     
                                                                                  ------------------------
                                                                                     1998         1997   
                                                                                  -----------  -----------

         <S>                                                                      <C>          <C>        
         Equipment, computer hardware and software............................    $     3,704  $     3,486
         Furniture............................................................          2,341        1,919
         Building and improvements............................................          1,138        1,083
                                                                                  -----------  -----------
           Total..............................................................          7,183        6,488
         Accumulated depreciation and amortization............................        (3,142)       (2,950)
                                                                                  -----------  -----------
           Property and equipment, net........................................    $     4,041  $     3,538
                                                                                  ===========  ===========
</TABLE>

At December  31, 1998 the net book value of property  and  equipment  related to
capital lease obligations was $867,000.

(4)  OTHER ASSETS
     ------------

Other assets consist  primarily of notes  receivable  entered into in connection
with the sale of certain  physician  practices  during 1998.  The  components of
other assets are as follows (in thousands):

<TABLE>
<CAPTION>
                                                                                               December 31,
                                                                                               ------------
                                                                                                   1998    
                                                                                               ------------

         <S>                                                                                   <C>                    
         Promissory note including  accrued  interest of $86, payable in monthly
             installments of $28 including interest at 7.5%
             with a final payment due in April 2003......................................      $     3,555
         Promissory note, payable in monthly installments of $3, ........................
            including interest at 10.73%, maturing in December 2001......................               90
         Promissory note including accrued interest of $12, payable
            in monthly installments of $12 including interest at 9.0%,
            maturing in April 2001.......................................................              308
                                                                                               -----------
            Total notes receivable.......................................................            3,953
         Security deposits...............................................................               90
                                                                                               -----------
            Total other assets...........................................................            4,043
         Less-Current portion............................................................             (392)
                                                                                               -----------
            Total non-current other assets...............................................      $     3,651
                                                                                               ===========
</TABLE>

Annual maturities of notes receivable as of December 31, 1998 are as follows (in
thousands):
<TABLE>
<CAPTION>

         <S>                                                                                           <C>
         1999...............................................................................           392
         2000...............................................................................           244
         2001...............................................................................           138
         2002...............................................................................           103
         2003...............................................................................         3,076
                                                                                               -----------
           Total............................................................................   $     3,953
                                                                                               ===========
</TABLE>

The borrower  under the  promissory  note which  matures in April 2003, of which
approximately  $3.6  million  is  outstanding  including  accrued  interest,  is
presently in default under the terms of the promissory note and the terms of the
asset purchase agreement entered into in April 1998,  pursuant to which the note
was issued. See Note 8(d) for further disclosure of ongoing litigation regarding
the promissory note.


                                       48
<PAGE>



                            SHERIDAN HEALTHCARE, INC.
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)


(5)      LONG-TERM DEBT
         --------------

Long-term debt consists of the following (in thousands):

<TABLE>
<CAPTION>

                                                                                         December 31,     
                                                                                  ------------------------
                                                                                      1998         1997    
                                                                                  -----------  -----------

         <S>                                                                      <C>          <C>
         Revolving  credit  facility,  maturing in April 2001,  at Libor plus an
            applicable margin (6.9% at December 31, 1998),
            secured by substantially all assets of the Company ...............    $    56,600  $    29,000
         Capital lease obligations, payable in aggregate monthly installments
            of $45 as of December 31, 1998,  including  interest ranging from 4%
            to 10%, maturing at various dates through 2001, secured by
            property and equipment............................................            843        1,279
                                                                                  -----------  -----------
            Total debt........................................................         57,443       30,279
         Less - Current portion...............................................           (449)        (446)
                                                                                  -----------  -----------
            Total long-term debt..............................................    $    56,994  $    29,833
                                                                                  ===========  ===========
</TABLE>


Annual  maturities of long-term  debt as of December 31, 1998 are as follows (in
thousands):

<TABLE>
<CAPTION>

         <S>                                                                                           <C>
         1999...............................................................................           449
         2000...............................................................................           388
         2001...............................................................................        56,606
                                                                                               -----------
           Total............................................................................   $    57,443
                                                                                               ===========
</TABLE>


On March 12, 1997, the Company  established a new $35 million  revolving  credit
facility,  which was used to pay the  outstanding  balance  under  the  previous
credit facility. On December 17, 1997 the Company amended its existing revolving
credit  facility  which  increased the amount  available from $35 million to $50
million.  On April 30, 1998 the Company  further  amended its  revolving  credit
facility which  increased the amount  available from $50 million to $75 million.
This amendment  included the  syndication of the credit facility with a group of
banks led by NationsBank, N.A. There are no principal payments due under the new
credit  facility  until the maturity  date of April 30, 2001.  The new revolving
credit facility contains various restrictive covenants that include, among other
requirements,  the maintenance of certain financial ratios, various restrictions
regarding  acquisitions,  sales of assets, liens and dividends,  and limitations
regarding investments,  additional indebtedness and guarantees.  The Company was
in compliance  with the loan covenants in the new credit facility as of December
31, 1998. The additional amount that could be borrowed under the credit facility
is potentially  restricted by a leverage ratio defined in the credit  agreement.
Based on the value of this leverage  ratio at December 31, 1998, the Company had
the ability to borrow an additional  amount of approximately  $8.0 million as of
December 31, 1998.

The Company  entered  into an interest  rate swap  agreement in August 1998 with
NationsBank  N.A.,  the notional  amount of which is $40 million at December 31,
1998. The Company entered into the agreement to fix the interest expense paid on
a portion of the amount  outstanding  under its credit facility with NationsBank
N.A.  Under the terms of the  agreement,  which  matures  in  August  2001,  the
Company's  borrowing rate is fixed at 5.54% plus the applicable margin due under
the terms of the  revolving  credit  facility.  Hedge  accounting  treatment  is
applied  to  the  interest  rate  swap  agreement  with  interest  differentials
currently payable or receivable under the agreement recognized each period as an
adjustment  to  interest  expense.  The  net  effect  of this  agreement  on the
Company's interest expense in 1998 was nominal.



                                       49
<PAGE>

                            SHERIDAN HEALTHCARE, INC.
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)


(6)  401(K) PROFIT SHARING PLANS
     ---------------------------

The Company  maintains  401(k)  Profit  Sharing Plans (the  "Plans"),  which are
defined contribution plans covering substantially all employees who meet certain
age and service  requirements.  For the three years ended December 31, 1998, the
Company made discretionary profit sharing  contributions to the Plans equal to a
percentage  of  the  eligible  employees'  salaries,  and  made  other  employer
contributions  to the Plans.  There was no expense  related to the Plans for the
years ended December 31, 1998,  1997 and 1996 as  contributions  were covered in
each year by the Plans' forfeitures.

(7)  INCOME TAXES
     ------------

Current  income tax  expense  represents  the income tax payable for the period.
Deferred  income tax expense  (benefit)  represents the change in the balance of
deferred  income  taxes  during the period.  In  accordance  with  Statement  of
Financial  Accounting  Standards  No. 109,  "Accounting  for Income  Taxes," the
Company  recognizes  deferred  income taxes for the tax  consequences  in future
years of differences  between the tax basis and the financial reporting basis of
assets and liabilities  based on the enacted tax rates expected to be applicable
to the future periods in which such tax consequences will occur.

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

<TABLE>
<CAPTION>

                                                                            Year Ended December 31,       
                                                                     -------------------------------------
                                                                        1998         1997         1996    
                                                                     -----------  -----------  -----------

         <S>                                                         <C>          <C>          <C>        
         Current................................................     $     3,653  $     3,157  $     1,343
         Deferred...............................................           1,417         (263)      (1,154)
                                                                     -----------  -----------  -----------
            Total...............................................     $     5,070  $     2,894  $       189
                                                                     ===========  ===========  ===========

         Federal................................................     $     4,245  $     2,454  $       (27)
         State..................................................             825          440          216
                                                                     -----------  -----------  -----------
           Total................................................     $     5,070  $     2,894  $       189
                                                                     ===========  ===========  ===========
</TABLE>

A  reconciliation  of the tax provision at the statutory  federal rate of 34% to
the actual income tax expense  (benefit) is as follows (in thousands):

<TABLE>
<CAPTION>
                                                                            Year Ended December 31,       
                                                                     -------------------------------------
                                                                        1998         1997         1996    
                                                                     -----------  -----------  -----------
         <S>                                                         <C>          <C>          <C>   
         Tax provision (benefit) at the
            federal statutory rate..............................     $     3,891  $     2,741  $    (3,721)
         State income taxes.....................................             453          319         (433)
         Increase (decrease) in valuation allowance for
            deferred tax assets.................................             ---        (828)        2,122
         Non-deductible portion of write-down
            of office-based net assets..........................             ---          ---        1,279
         Non-deductible goodwill amortization...................             830          621          516
         Capital gain to be offset against unrecognized
            capital loss carryover..............................           (190)          ---          ---
         Income of affiliates that cannot be
            offset against net operating
            losses of the Company...............................             ---          ---          296
         Other, net.............................................              86           41          130
                                                                     -----------  -----------  -----------
            Total...............................................     $     5,070  $     2,894  $       189
                                                                     ===========  ===========  ===========
</TABLE>


                                       50
<PAGE>



                            SHERIDAN HEALTHCARE, INC.
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)


Deferred  income  taxes were  related to the  following  timing  differences  at
December 31, 1998 and 1997 (in thousands):
<TABLE>
<CAPTION>


                                                                                         December 31,     
                                                                                  -------------------------
                                                                                      1998         1997    
                                                                                  -----------  ------------

         <S>                                                                      <C>          <C>        
         Goodwill and other intangible assets................................     $       924  $     2,378
         Accrual basis income of cash basis affiliates.......................            (487)        (327)
         Self-insurance accruals.............................................           1,290        1,420
         Conversion to accrual basis by cash basis taxpayers.................            (374)        (388)
         Bad debt reserve....................................................             ---         (300)
         Property and equipment..............................................            (378)         ---
         Original issue discount interest....................................             321          ---
         Other, net..........................................................              (2)         (72)
                                                                                  -----------  -----------
            Total............................................................           1,294        2,711
         Valuation allowance.................................................          (1,294)      (1,294)
                                                                                  -----------  -----------
            Net deferred income taxes........................................     $         0  $     1,417
                                                                                  ===========  ===========
</TABLE>


The Company  records a valuation  allowance to reflect net deferred income taxes
at their estimated realizable value.

(8)  COMMITMENTS AND CONTINGENCIES
     -----------------------------

(a) Major Customers

A  significant  portion of the Company's  revenue is derived from  delivering or
managing hospital-based physician services at multiple hospitals which are under
common  ownership.  Of the  Company's  total net revenue in 1998,  approximately
$22.9 million, or 20.3%, was derived from anesthesia, obstetrics and neonatology
services  delivered at three  hospitals  owned and operated by the South Broward
Hospital District.  In addition,  approximately  $28.9 million,  or 25.6% of the
Company's total net revenue in 1998, was derived from  anesthesia,  neonatology,
pediatric and emergency  services  delivered at 13 hospitals and two  ambulatory
surgical  facilities  owned and operated by  Columbia/HCA  Healthcare  Corp.  In
addition, approximately $9.3 million, or 8.3% of the Company's total net revenue
in 1998,  was derived from  anesthesia,  neonatology,  pediatric,  emergency and
management  services  delivered at three  hospitals  owned and operated by Tenet
Healthcare Corporation.

A  significant  portion of the  Company's  revenue is  derived  from  delivering
medical services to patients who are covered under various Medicare and Medicaid
health care programs.  Approximately 10.4% of the Company's total net revenue in
1998 was derived from the  assignment  of Medicare and Medicaid  benefits to the
Company  by  patients  of the  Company's  affiliated  physicians.  In  addition,
approximately  4.4% of the Company's  total net revenue in 1998 was derived from
capitation  payments from health maintenance  organizations for patients who had
assigned  their  Medicare  or  Medicaid  benefits  to  the  health   maintenance
organizations.  In each year the amounts received from managed care organization
under  the  Company's  capitation  arrangements  exceeded  the cost of  services
provided to patients under those arrangements.

In addition,  the Company derived 8.2%, 14.3% and 20.8% of its total net revenue
in 1998, 1997 and 1996, respectively,  from a single third-party payor. No other
third-party  payor or other customer  accounted for 10% or more of the Company's
net revenue in 1998.



                                       51
<PAGE>



                            SHERIDAN HEALTHCARE, INC.
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)


(b) Employment Agreements

The  Company  and  its  affiliates  have   employment   contracts  with  certain
executives,  physicians and other clinical and administrative employees.  Future
annual minimum payments under such employment agreements as of December 31, 1998
are as follows (in thousands):

<TABLE>
<CAPTION>

         <S>                                                                                   <C>        
         1999...............................................................................   $    16,117
         2000...............................................................................        13,722
         2001...............................................................................        11,283
         2002...............................................................................         9,898
         2003...............................................................................         7,533
         Thereafter.........................................................................         4,324
                                                                                               -----------
           Total  ..........................................................................   $    62,877
                                                                                               ===========
</TABLE>


 (c) Self-insurance

Due to the nature of its business,  the Company becomes  involved as a defendant
in medical  malpractice  lawsuits,  some of which are currently ongoing,  and is
subject  to the  attendant  risk  of  substantial  damage  awards.  The  Company
maintains  professional and general liability  insurance on a claims-made basis.
The Company has a primary  malpractice  insurance  policy  which  covers  losses
incurred by the Company up to a limit of $1.0 million per individual  claim.  In
addition,  the Company has a secondary malpractice insurance policy which covers
losses in excess of the primary policy limits, up to a limit of $5.0 million per
individual  claim and a limit of $5.0 million per  calendar  year for all claims
combined.   Under  the  primary  policy,  the  Company  is  required  to  pay  a
self-insured  retention  amount equal to the first $250,000 and $150,000 in 1998
and 1997,  respectively,  of losses  for each  individual  claim up to a maximum
aggregate  self-insured  retention  amount of  $1,000,000  and  $900,000 for all
claims  in 1998  and  1997,  respectively.  Defense  costs  in  excess  of these
self-insured  retention amounts are paid by the Company's insurer.  There can be
no  assurance,  that an existing  or future  claim or claims will not exceed the
limits of available insurance coverage, that any insurer will remain solvent and
able to meet its obligations to provide coverage for any such claim or claims or
that such coverage will continue to be available with sufficient limits and at a
reasonable cost to adequately and economically  insure the Company's  operations
in the future.  A judgment  against the Company in excess of such coverage could
have a material adverse effect on the Company.

The liability for  self-insurance  accruals in the  accompanying  balance sheets
includes  estimates of the ultimate  costs related to both  reported  claims and
claims  incurred  but not  reported.  The  estimate of claims  incurred  but not
reported was  $3,165,000,  $2,522,000 and $2,095,000 at December 31, 1998,  1997
and 1996, respectively, which represents an estimate of the aggregate cost to be
incurred by the Company on unreported  claims. An analysis of the self-insurance
accrual is as follows (in thousands):

<TABLE>
<CAPTION>


                                                                            Year Ended December 31,       
                                                                     -------------------------------------
                                                                        1998         1997         1996    
                                                                     -----------  -----------  -----------

         <S>                                                         <C>          <C>          <C>        
         Balance, beginning of year..............................    $     3,973  $     3,170  $     1,615
         Provision for self-insurance............................          1,159          378        1,252
         Self-insurance accruals related to
            acquired physician practices.........................            892          626          439
         Payments made for claims................................         (1,705)        (201)        (136)
                                                                     -----------  -----------  -----------
              Balance, end of year...............................    $     4,319  $     3,973  $     3,170
                                                                     ===========  ===========  ===========
</TABLE>


                                       52
<PAGE>



                            SHERIDAN HEALTHCARE, INC.
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)


Payments  made for  claims  increased  in 1998 as a  result  of an  increase  in
reported claims during 1997,  many of which are incurring  ongoing legal defense
costs  or were  settled  during  1998.  The  increase  in  reported  claims  was
anticipated due to the growth in the Company's  overall business and addition of
medical  specialties that  historically  have demonstrated a higher frequency of
malpractice  claims.  Historically,  the malpractice claims asserted against the
Company have not exceeded the limits of its professional liability insurance and
the  Company's  cost of  self-insurance  has been limited to the maximum  annual
aggregate retention amount.

(d) Litigation

In October 1996,  the Company and certain of its  directors,  officers and legal
advisors were named as defendants in a lawsuit filed in the Circuit Court of the
Seventeenth  Judicial  Circuit  in and for  Broward  County,  Florida by certain
former physician  stockholders of the Company's  Predecessor.  The claim alleges
that the defendants  engaged in a conspiracy of fraud and deception for personal
gain in  connection  with  inducing  the  plaintiffs  to sell their stock in the
Predecessor  to the Company,  as well as legal  malpractice  and  violations  of
Florida securities laws. The claim seeks damages of at least $10 million and the
imposition of a constructive trust and disgorgement of stock and options held by
certain members of the Company's management. The Company believes the lawsuit is
without merit and continues to  vigorously  defend  against it and also believes
the lawsuit's  ultimate  resolution  and ongoing  professional  fees incurred as
defense costs will not have a material adverse impact on the financial position,
operations and cash flows of the Company.

In December 1998,  the buyer of two medical  practices  previously  owned by the
Company,  filed suit against the Company in the Circuit Court of the Seventeenth
Judicial  Circuit in and for Broward  County,  Florida.  The complaint  seeks to
recover money damages and rescind the sale of the medical practices,  based upon
alleged  misrepresentations  and  concealment by the Company with respect to its
relationship  with a third  party  payor  in  regards  to these  practices.  The
practices  were sold by the Company to the buyer in April 1998 in  exchange  for
the  execution  of a  promissory  note in the  amount  of  $3,550,000  which  is
presently  in default.  The Company  believes  the lawsuit is without  merit and
intends to  vigorously  defend  against it while  vigorously  pursuing a counter
claim for  recovery  on its  unsecured  purchase  money note.  The Company  also
believes  the  lawsuit's  ultimate  resolution  and  ongoing  professional  fees
incurred  as  defense  costs  will not have a  material  adverse  impact  on the
financial position,  operations and cash flows of the Company.  See Note (2) for
further disclosure  regarding the sale of the primary care practices referred to
in this paragraph.

(e) Lease Commitments

The Company  leases  office space and  furniture and equipment for its physician
practice  locations  and  administrative  office under  various  non-cancellable
operating leases. Rent expense under operating leases was $2,230,733, $2,475,000
and  $2,399,000 in 1998,  1997 and 1996,  respectively.  Future  annual  minimum
payments under  non-cancellable  operating leases as of December 31, 1998 are as
follows (in thousands):
<TABLE>
<CAPTION>

         <S>                                                                                   <C>        
         1999..............................................................................    $     2,231
         2000..............................................................................          2,044
         2001..............................................................................          1,857
         2002..............................................................................          1,593
         2003..............................................................................          1,264
         Thereafter........................................................................          2,282
                                                                                               -----------
            Total..........................................................................    $    11,271
                                                                                               ===========
</TABLE>




                                       53
<PAGE>



                            SHERIDAN HEALTHCARE, INC.
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)


(f) Government Regulation

The healthcare  industry in general,  and the services that the Company provides
are subject to extensive federal and state laws and regulations. Additionally, a
significant   portion  of  the   Company's   net  revenue  is  from  payment  by
government-sponsored  health care programs,  principally  Medicare and Medicaid,
and is subject  to audit and  adjustments  by  applicable  regulatory  agencies.
Failure  to  comply  with any of  these  laws or  regulations,  the  results  of
regulatory  audits and  adjustments,  or changes in the amounts  payable for the
Company's  services under these programs could have a material adverse effect on
the Company's financial position and results of operations

Federal  and state laws  regulate  the  healthcare  industry,  the  relationship
between practice  management  companies such as the Company and physicians,  and
the relationship  among  physicians and other providers of healthcare  services.
Several laws, including fee-splitting, anti-kickback laws and prohibition of the
corporate practice of medicine,  have civil and criminal penalties and have been
subject to limited judicial and regulatory interpretation.  They are enforced by
regulatory  agencies  vested with broad  discretion in  interpreting  them.  The
Company's  agreements and proposed  activities have not been examined by federal
or state  authorities  under these laws and  regulations.  Although  the Company
believes  that its  operations  are  conducted  so as to comply  with all of the
applicable  laws,  there  can  be no  assurance  such  operations  will  not  be
challenged as in violation of one or more of such laws. In addition,  these laws
and their  interpretation vary from state to state. The regulatory  framework at
certain  jurisdictions  may limit the  Company's  expansion  into or  ability to
continue  operations  within such  jurisdictions,  if the Company's is unable to
modify its operational  structure to conform to such regulatory  framework.  Any
limitation  on the Company's  ability to expand could have an adverse  effect on
the Company.

There  have been  numerous  initiatives  at the  federal  and state  levels  for
comprehensive   reforms   affecting  the   availability  of,  and  payment  for,
healthcare.  The Company believes that such initiatives will continue during the
foreseeable future.  Certain reforms previously proposed could, if adopted, have
a material effect on the Company.

(9)   STOCKHOLDERS' EQUITY
      --------------------

At January 1, 1995, the issued and outstanding stock of the Company consisted of
409,900  shares of the Company's  Class A voting common stock held by management
of the Company and 350,000 and 78,572  shares of Class A and Class B Convertible
Preferred  Stock,  respectively.  Each share of Class A and Class B  Convertible
Preferred Stock was convertible, at the option of the holder, into one-fourth of
a share of Class A voting and Class B non-voting common stock, respectively, and
three-fourths of a share of Redeemable  Preferred Stock. The Class A and Class B
Convertible  Preferred Stock accrued dividends on a cumulative basis at 7.5% per
annum, and had a liquidation value of $50 per share.

In June 1995, the Company issued a convertible promissory note for $5.0 million,
which was convertible  into 181,671 shares of common stock.  The noteholder also
received  a  warrant  to  purchase  up to an  additional  45,410  shares  of the
Company's  common  stock at an exercise  price of $0.58 per share which  becomes
exercisable in three  installments  if, through the  substantial  efforts of the
noteholder,  the  Company  consummates  transactions  with  physician  practices
(generally  either by acquiring  such  practices or entering into  agreements to
manage such practices)  which  collectively  result in certain  increases in the
Company's  earnings  during certain  measurement  periods.  The first and second
installments,  which  consisted of 15,146 shares each,  expired  unexercised  in
December 1996 and 1997, respectively. The remaining installment of 15,132 shares
expired unexercised in June 1998.



                                       54
<PAGE>



                            SHERIDAN HEALTHCARE, INC.
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)


The Company completed an initial public offering of its common stock on November
3,  1995,  in which it issued  3,825,000  shares  of common  stock at a price of
$13.00  per  share.  In  connection  with the public  offering  (i) the  Company
increased  the amount of  authorized  preferred  stock to  5,000,000  shares and
increased the amount of authorized common stock to 31,000,000  shares,  (ii) all
of the outstanding Class A and Class B Convertible Preferred Stock was converted
into 1,321,377 shares of Class A common stock,  296,638 shares of Class B common
stock,  and  321,429  shares of  Redeemable  Preferred  Stock,  (iii) all of the
Redeemable  Preferred Stock was redeemed by the Company for an aggregate  amount
of $16.1  million,  (iv) the Class A voting  common  stock was  redesignated  as
"common stock" and the Class B non-voting common stock was redesignated as

"Class A common  stock," and (v) a  15.10-to-one  stock split was  effected as a
stock dividend. The 15.10 to one stock split has been retroactively reflected in
the accompanying consolidated financial statements.

The  initial  public  offering  generated  net  proceeds to the Company of $44.8
million.  Of the total proceeds,  $16.1 million was used to redeem the Company's
redeemable preferred stock, $26.1 million was used to repay long-term debt, $1.5
million was used to pay accrued  dividends on convertible  preferred  stock, and
$1.1 million was used to pay certain  deferred  payments in connection  with the
acquisition of a physician practice in June 1995.

In March 1996,  the Company  issued  approximately  658,000 shares of its common
stock as partial consideration for an acquisition of a hospital-based  physician
practice, as discussed in Note 2.

In May 1997,  the Company  reduced the amount of  authorized  common  stock from
31,000,000  shares to 21,000,000  shares.  In November  1997, the Company issued
approximately 14,000 shares of its common stock as partial  consideration for an
acquisition of an office-based physician practice.

During the  period  from  January  1998  through  June 1998 the  Company  issued
approximately  1,428,000 shares of its common stock as partial  consideration in
the acquisition of seven  physician  practices.  Pursuant to a stock  repurchase
program  approved by the Company's Board of Directors,  the Company  repurchased
approximately 425,000 shares of its common stock from July 1998 through December
1998 for approximately  $3.7 million.  The shares  repurchased have been retired
and  cancelled.   Employees  of  the  Company   exercised   options  to  acquire
approximately 23,000 and 77,000 shares of the Company's common stock during 1998
and 1997, respectively.

(10)  STOCK OPTIONS
      -------------

The  Company  adopted  Statement  of  Financial  Accounting  Standards  No. 123,
"Accounting  for  Stock-Based  Compensation,"  ("SFAS  No.  123")  in  1996.  As
permitted  under  SFAS  No.  123 the  Company  has  elected  to  continue  using
Accounting  Principles  Board  Opinion No. 25,  "Accounting  for Stock Issued to
Employees," in accounting for employee stock options. Each employee stock option
has an  exercise  price  equal to the  market  price  on the date of grant  and,
accordingly,  no  compensation  expense has been  recorded  for any stock option
grants to employees.

In 1995 the Company  adopted the 1995 Stock  Option  Plan,  under which  750,000
shares of common stock were reserved for  issuance.  An amendment to the plan in
1997 and second  amendment in 1998 increased the shares of common stock reserved
for issuance to 1,350,000 which was subsequently amended in 1998 to increase the
shares of common stock reserved for issuance to 1,750,000. Options granted under
the 1995 Stock  Option Plan  become  exercisable  either over time,  or upon the
attainment of defined  operating  goals.  All stock options  granted  expire ten
years after the date of grant. Stock option activity has been as follows:



                                       55
<PAGE>



                            SHERIDAN HEALTHCARE, INC.
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

<TABLE>
<CAPTION>
                                                  1998                  1997                   1996       
                                          --------------------  --------------------  --------------------
                                                      Weighted             Weighted               Weighted
                                                       Average              Average                Average
                                            Number    Exercise     Number   Exercise   Number     Exercise
                                           of Shares   Price     of Shares   Price    of Shares    Price
                                          ----------  --------   --------- ---------  ---------  ---------


         <S>                                 <C>      <C>          <C>     <C>          <C>      <C>      
         Balance, beginning of year.....     937,084  $   7.91     553,911 $    5.73    321,461  $    8.82
         Granted during year............     522,675     13.18     471,500      9.27    608,071       7.17
         Terminated during year.........         ---                   ---       ---   (335,071)     10.51
         Exercised......................     (23,475)     3.92     (77,190)     0.58        ---        ---
         Forfeited during year..........     (34,105)     8.97     (11,137)     6.65    (40,550)     12.32
                                          ----------             ---------            ---------
            Balance, end of year......     1,402,179  $   9.92     937,084 $    7.91    553,911  $    5.73
                                          ==========             =========            =========

         Exercisable at end of year.....     397,223 $    8.13    151,716  $    6.25    131,283  $    3.38
</TABLE>

The  weighted  average  fair  value per share as of the grant date was $6.78 for
stock options granted in 1998,  $6.11 for stock options  granted in 1997,  $4.15
for stock options  granted in 1996 and $6.82 for stock options  granted in 1995.
The  determination of the fair value of all stock options granted in 1998, 1997,
1996  and  1995  was  based  on (i)  risk-free  interest  rates of 6.2% to 6.5%,
depending on the expected life of each option,  (ii) expected  option lives of 3
to 6 years,  depending on the vesting provisions of each option,  (iii) expected
volatility  in the market price of the  Company's  common stock from 50% to 78%,
and (iv) no expected  dividends on the  underlying  common stock.  Stock options
outstanding at December 31, 1998 consisted of the following:

<TABLE>
<CAPTION>
                                                     Total Outstanding                   Exercisable     
                                            ------------------------------------  ------------------------ 
                                                                                                
                                                              Weighted Average                  Weighted
                           Range of          Number      -----------------------    Number       Average
                           Exercise            of        Exercise     Remaining       of        Exercise
                            Prices           Shares        Price        Life        Shares        Price   
                      ----------------     ----------  -----------     ---------  -----------  -----------
<S>                          <C>               <C>     <C>             <C>             <C>     <C>        
                             $.58              22,508  $       .58     6.2 years       22,508  $       .58
                        $5.75 to $8.13        326,746         6.48     7.1 years      245,382         6.64
                        $8.75 to $9.50        520,250         9.22     8.3 years       39,334         8.70
                      $10.00 to $14.25        532,675        13.12     9.3 years       89,999        13.85
                                          -----------                             -----------
                             Total          1,402,179  $      9.92     8.3 years      397,223  $      8.13
                                          ===========                             ===========
</TABLE>

The following table summarizes the pro forma consolidated  results of operations
of the Company as though the fair value based accounting  method in SFAS No. 123
had been used in accounting for stock options.
<TABLE>
<CAPTION>
                                                                                     Year Ended December 31,
                                                                                   ---------------------------       
                                                                                       1998           1997      
                                                                                   ------------   ------------
                                                                                       (in thousands, except
                                                                                         per share data)
         As reported results of operations:
         <S>                                                                       <C>            <C>         
         Net income...........................................................     $      6,373   $      5,167
         Net income per share - basic.........................................     $       0.80   $       0.77
         Net income per share - diluted.......................................     $       0.78   $       0.73

         Pro forma results of operations:
         Net income...........................................................     $      4,113   $      3,495
         Net income per share - basic.........................................     $       0.52   $       0.52
         Net income per share - diluted.......................................     $       0.50   $       0.50
</TABLE>

                                       56
<PAGE>



                            SHERIDAN HEALTHCARE, INC.
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)


(11)  SUBSEQUENT EVENT
      ----------------

In January 1999 the Company  completed the  acquisition of a physician  practice
for approximately $1.9 million which was paid in cash. From January 1999 through
March 16, 1999 the Company  repurchased  approximately  1,275,000  shares of its
common  stock for  approximately  $10.6  million  from  certain  physicians  who
received the Company's common stock as partial consideration for the acquisition
of their practices by the Company from January 1998 through March 1998, see Note
(2).   Concurrent   with  such   repurchases,   the  Company  made  payments  of
approximately  $5.6  million  in  connection  with the  stock  price  guarantees
associated with the stock issued and repurchased in those acquisitions.

On March 25,  1999 the Company  announced  the  signing of a  definitive  merger
agreement  between  the  Company  and an  investor  group led by Vestar  Capital
Partners and Sheridan Healthcare, Inc. senior management. Under the terms of the
agreement, the investor group will offer Sheridan Healthcare,  Inc. shareholders
$9.25 per share in cash for all  outstanding  common  shares in a tender  offer.
Including debt and other  obligations  of the Company,  and costs expected to be
incurred in connection with the acquisition,  the total value of the transaction
is approximately  $155 million.  The transaction was unanimously  recommended by
the  Company's  Board of  Directors  and is subject to a variety of  conditions,
including  receipt  of at least a  majority  of the  voting  stock in the tender
offer, shareholder approval, financing and regulatory approvals.




                                       57
<PAGE>














         REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS ON SCHEDULE
         --------------------------------------------------------------



To Sheridan Healthcare, Inc.:

We have audited in accordance with generally  accepted auditing  standards,  the
financial statements of Sheridan  Healthcare,  Inc. and subsidiaries for each of
the three years in the period ended  December  31,  1998,  included in this Form
10-K, and have issued our report thereon dated February 18, 1999 (except for the
matter discussed in Note 11, as to which the date is March 25, 1999). Our audits
were  made  for the  purpose  of  forming  an  opinion  on the  basic  financial
statements taken as a whole. The accompanying  Schedule II is the responsibility
of the Company's  management and is presented for purposes of complying with the
Securities  and  Exchange  Commission's  rules  and is  not  part  of the  basic
financial  statements.   This  schedule  has  been  subjected  to  the  auditing
procedures  applied in the audits of the basic financial  statements and, in our
opinion, fairly states, in all material respects, the financial data required to
be set forth therein in relation to the basic  financial  statements  taken as a
whole.




ARTHUR ANDERSEN LLP



Miami, Florida,
  February 18, 1999. (except for the matter discussed in
  Note 11, as to which the date is March 25, 1999).




                                       58
<PAGE>


<TABLE>
<CAPTION>



                            SHERIDAN HEALTHCARE, INC.

                                   SCHEDULE II

                        VALUATION AND QUALIFYING ACCOUNTS

              For the Years Ended December 31, 1998, 1997 and 1996
                                 (in thousands)





                                                        Balance at    Charged to                Balance at
                                                       Beginning of   Costs and                   End of
                                                          Period      Expenses    Deductions      Period   
                                                       -----------   -----------  ----------   -----------
Accounts receivable allowances:

   <S>                                                 <C>           <C>          <C>          <C> 
   Year ended December 31, 1998....................    $     1,828   $     5,592  $     5,074  $     2,346
                                                       ===========   ===========  ===========  ===========

   Year ended December 31, 1997....................    $     1,277   $     4,066  $     3,515  $     1,828
                                                       ===========   ===========  ===========  ===========

   Year ended December 31, 1996....................    $       737   $     3,605  $     3,065  $     1,277
                                                       ===========   ===========  ===========  ===========
</TABLE>







                                       59
<PAGE>




ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
         FINANCIAL DISCLOSURE
------------------------------------------------------------------------

None.

                                    PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
------------------------------------------------------------

    The Proxy  Statement for the Company's 1999 Annual Meeting of  Stockholders,
which Proxy Statement is to be filed with the Securities and Exchange Commission
pursuant to Rule 14a-6(b),  contains under the captions  "Proposal One: Election
of  Directors"  and  "Compliance   with  Section  16(a)  of  the  Exchange  Act"
information  required  by Item  10 of Form  10-K  as to  directors  and  certain
executive officers of the Company and is incorporated herein by reference.

ITEM 11.  EXECUTIVE COMPENSATION
--------------------------------

    The Proxy  Statement for the Company's 1999 Annual Meeting of  Stockholders,
which Proxy Statement is to be filed with the Securities and Exchange Commission
pursuant to Rule 14a-6(b), contains under the caption "Compensation of Directors
and  Executive  Officers"  information  required  by Item 11 of Form 10-K and is
incorporated herein by reference.

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
------------------------------------------------------------------------

    The Proxy  Statement for the Company's 1999 Annual Meeting of  Stockholders,
which Proxy Statement is to be filed with the Securities and Exchange Commission
pursuant to Rule  14a-6(b),  contains under the caption  "Security  Ownership of
Management and Certain  Beneficial  Owners"  information  required by Item 12 of
Form 10-K and is incorporated herein by reference.

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
--------------------------------------------------------

    The Proxy  Statement for the Company's 1999 Annual Meeting of  Stockholders,
which Proxy Statement is to be filed with the Securities and Exchange Commission
pursuant to Rule  14a-6(b),  contains under the caption  "Certain  Transactions"
information  required  by Item 13 of Form  10-K and is  incorporated  herein  by
reference.


                                     PART IV

ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
-------------------------------------------------------------------------

(a) 1.  Financial Statements:  See Item 8.

    2.  Financial Statement Schedules:  See Item 8.

(b) No  reports on Form 8-K have been filed  during the last  quarter  for which
this report is filed.



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<PAGE>



3.  Exhibits (cont'd):

   EXHIBIT
   NUMBER                                    DESCRIPTION
   -------                                   -----------

     3.1          Third Amended and Restated  Certificate of  Incorporation,  as
                  amended  effective  May  27,  1997  (incorporated   herein  by
                  reference to such exhibits  filed as exhibits to the Company's
                  Quarterly  Report on Form 10-Q for the quarter ended September
                  30, 1995 and to the  Company's  Quarterly  Report on Form 10-Q
                  for the quarter ended June 30, 1997) .

     3.2          Amended and Restated By-laws (incorporated herein by reference
                  to such exhibit filed as an exhibit to the Company=s Quarterly
                  Report on Form 10-Q for the quarter ended September 30, 1995).

     4.1          Specimen certificate for shares of Common stock of the Company
                  (incorporated  herein by reference to such exhibit filed as an
                  exhibit to the  Company=s  Registration  Statement on Form S-1
                  (File No.  33-93290)  filed on June 8, 1995,  as amended  (the
                  A Registration Statements).

     4.2          Amended and Restated Stockholders= Agreement by and among SAMA
                  Holdings,  Inc. and the TA Investors,  as defined therein, the
                  NationsBank  Investors,  as defined  therein,  Summit Hospital
                  Corporation  and the  additional  parties listed on Schedule B
                  thereto,  amended  and  restated  as  of  June  5,  1995,  and
                  effective  as of  November  28, 1994  (incorporated  herein by
                  reference  to  such  exhibit   filed  as  an  exhibit  to  the
                  Registration Statement).

     4.3          Amendment  to  Stockholders=   Agreement  by  and  among  SAMA
                  Holdings,  Inc. and the TA Investors,  as defined therein, the
                  NationsBank  Investors,  as defined  therein,  Summit Hospital
                  Corporation  and the  additional  parties listed in Schedule B
                  thereto,  as amended  and  restated  as of June 5,  1995,  and
                  effective  as of November  28,  1994,  dated as of October 27,
                  1995 (incorporated  herein by reference to such exhibits filed
                  as exhibits to the Registration Statement and to the Company's
                  Quarterly  Report on Form 10-Q for the quarter ended September
                  30, 1995).

     10.1         Employment  Agreement  of Lewis  Gold,  M.D.  effective  as of
                  November   28,  1994  by  and  among  SAMA   Holdings,   Inc.,
                  Southeastern Anesthesia Management Associates,  Inc. and Lewis
                  Gold,  as  amended  July  28,  1995  (incorporated  herein  by
                  reference   to  such   exhibits   filed  as  exhibits  to  the
                  Registration Statement).

     10.2         Employment Agreement of Mitchell Eisenberg,  M.D. effective as
                  of  November  28,  1994  by and  among  SAMA  Holdings,  Inc.,
                  Southeastern   Anesthesia  Management  Associates,   Inc.  and
                  Mitchell  Eisenberg,  as amended  July 28, 1995  (incorporated
                  herein by reference to such exhibits  filed as exhibits to the
                  Registration Statement).

     10.3         Executive  Employment  Agreement of Jay Martus effective as of
                  January 1, 1995 by and among SAMA Holdings, Inc., Southeastern
                  Anesthesia  Management  Associates,  Inc.  and Jay Martus,  as
                  amended  August 1, 1995  (incorporated  herein by reference to
                  such   exhibits   filed  as  exhibits   to  the   Registration
                  Statement).

     10.4         Executive   Employment  Agreement  of  Gilbert  Drozdow  dated
                  January 1, 1995 by and among SAMA Holdings, Inc., Southeastern
                  Anesthesia Management Associates, Inc. and Gilbert Drozdow, as
                  amended  August 1, 1995  (incorporated  herein by reference to
                  such   exhibits   filed  as  exhibits   to  the   Registration
                  Statement).



                                       61
<PAGE>



3.  Exhibits (cont'd):

   EXHIBIT
   NUMBER                                    DESCRIPTION
   -------                                   -----------

     10.5         Agreement  and  License of Packaged  Software  dated April 10,
                  1989, as amended, by and between Medical Software Specialties,
                  Inc. and Southeastern Anesthesia Management Associates,  P.A.,
                  as amended  (incorporated  herein by reference to such exhibit
                  filed as an exhibit to the Registration Statement).

     10.6         Participation  Agreement by and between Health  Options,  Inc.
                  and Southeastern Anesthesia Management Associates, dated as of
                  February 8, 1995, as amended,  including the attached schedule
                  of  participating  physicians  who have  signed the  agreement
                  (form of  agreement  incorporated  herein by reference to such
                  exhibit filed as an exhibit to the Registration Statement).

     10.7         Participation  Agreement by and between Health  Options,  Inc.
                  and Southeastern  Anesthesia  Management Associates P.A. dated
                  as of September 30, 1991 (incorporated  herein by reference to
                  such  exhibit   filed  as  an  exhibit  to  the   Registration
                  Statement).

     10.8         Form of Health Options Participation  Agreement by and between
                  Health Options, Inc. and Individual  Physician,  including the
                  attached schedule of participating  physicians who have signed
                  the  Agreement,  and including a  reimbursement  change letter
                  (form of  agreement  incorporated  herein by reference to such
                  exhibit filed as an exhibit to the Registration Statement).

     10.9         Physician  Agreement  dated  April  1,  1990  by  and  between
                  Pavilack,  Karch,  Lipton Barran & Ast, P.A. d/b/a  Anesthesia
                  Associates  of Hollywood  and Humana  Medical  Plan,  Inc. and
                  Humana  Plan of  Florida,  Inc.  and Humana  Health  Insurance
                  Company of Florida, Inc.  (incorporated herein by reference to
                  such  exhibit  filed  as  and  exhibit  to  the   Registration
                  Statement).

     10.10        Preferred Patient Care Agreement by and between Blue Cross and
                  Blue Shield of Florida, Inc. and Individual  Physicians,  with
                  attached schedule of physicians who have signed the agreement,
                  and including a reimbursement change letter (form of agreement
                  incorporated  herein by reference to such exhibit  filed as an
                  exhibit to the Registration Statement).

     10.11        Form of Blue  Cross  and Blue  Shield of  Florida  Traditional
                  Program  Participating  Physician  Agreement,   with  attached
                  schedule of signatories,  and including a reimbursement change
                  letter (form of agreement  incorporated herein by reference to
                  such  exhibit   filed  as  an  exhibit  to  the   Registration
                  Statement).

     10.12        Management Services Agreement,  dated as of November 28, 1994,
                  between    AMSA,    Inc.,   a   Florida    corporation,    and
                  Anesthesiologists  Management Services Associates, P.C., a New
                  York  professional  corporation,  as amended September 1, 1995
                  (incorporated  herein by reference to such  exhibits  filed as
                  exhibits to the  Registration  Statement  and to the Company's
                  Annual  Report on Form 10-K for the year  ended  December  31,
                  1996).

     10.13        Master  Equipment Lease Agreement dated as of June 12, 1995 by
                  and between  NationsBanc  Leasing  Corporation and the Company
                  (incorporated  herein by reference to such exhibit filed as an
                  exhibit to the Registration Statement).





                                       62
<PAGE>



3.  Exhibits (cont'd):

   EXHIBIT
   NUMBER                                    DESCRIPTION
   -------                                   -----------

     10.14        Agreement   and  Plan  of  Merger,   by  and  among   Sheridan
                  Healthcare,    Inc.,   Sheridan   Acquisition   Corp.,   Inc.,
                  Neonatology Certified, Inc., and the additional parties listed
                  on  Exhibit C  attached  thereto,  dated as of March 14,  1996
                  (incorporated  herein by reference to such exhibit filed as an
                  exhibit to the Company's  Report on Form 8-K filed as of March
                  14, 1996).

     10.15        Stock Purchase  Agreement,  by and among Sheridan  Healthcare,
                  Inc.,  Children's  Hospital  Services,  Inc.,  and the parties
                  listed on  Exhibit C attached  thereto,  dated as of March 14,
                  1996  (incorporated  herein by reference to such exhibit filed
                  as an exhibit to the Company's  Report on Form 8-K filed as of
                  March 14, 1996).

     10.16        Investment and Stockholders=  Agreement, by and among Sheridan
                  Healthcare,  Inc.,  and  the  parties  listed  on  Schedule  A
                  attached  thereto,  dated as of March 14,  1996  (incorporated
                  herein by reference to such exhibit filed as an exhibit to the
                  Company's Report on Form 8-K filed as of March 14, 1996).

     10.17        Executive Employment Agreement, dated as of August 9, 1996, by
                  and between Sheridan  Healthcorp,  Inc., Sheridan  Healthcare,
                  Inc.  and  Michael  F.  Schundler   (incorporated   herein  by
                  reference to such exhibit filed as an exhibit to the Company's
                  Annual  Report on Form 10-K for the year  ended  December  31,
                  1996).

     10.18        Anesthesiology Agreement by and between South Broward Hospital
                  District, a special taxing district doing business as Memorial
                  Healthcare  System and  Sheridan  Healthcorp,  Inc., a Florida
                  corporation,  dated as of January 1, 1997 (incorporated herein
                  by  reference  to such  exhibit  filed  as an  exhibit  to the
                  Company's  Quarterly Report on Form 10-Q for the quarter ended
                  March 31, 1997).

     10.19        Real  Property  Lease  Agreement,  by and among ACP  Venture I
                  Limited  Partnership,  a  Delaware  limited  partnership,  and
                  Sheridan Healthcorp, Inc., a Florida corporation,  dated as of
                  January 11, 1997  (incorporated  herein by  reference  to such
                  exhibit filed as an exhibit to the Company's  Quarterly Report
                  on Form 10-Q for the first quarter ended March 31, 1997).

     10.21        Investment  and  Stockholders=  Agreement,  by and between the
                  Company and Frederick N. Herman, M.D., dated as of November 3,
                  1997  (incorporated  herein by reference to such exhibit filed
                  as an exhibit to the Company's  Annual Report on Form 10-K for
                  the year ended December 31, 1997).

     10.22        Investment  and  Stockholders=  Agreement,  by and  among  the
                  Company and Rafael D. Arango, M.D., Stuart J. Leaderman, M.D.,
                  Eduardo  H.  Marti,   M.D.,   Charles  Merson,   M.D.,  Ramiro
                  Rodriguez,  M.D., Tirso J. Rojas, M.D., Laurence Skolnik, M.D.
                  and  Joaquin  C.  Taranco,  M.D.,  dated as of January 9, 1998
                  (incorporated  herein by reference to such exhibit filed as an
                  exhibit to the Company's Quarterly Report on Form 10-Q for the
                  quarter ended March 31, 1998).

     10.23        Investment  and  Stockholders=  Agreement,  by and  among  the
                  Company and Jeffrey L. Buchalter, M.D., Kurt A. Krueger, M.D.,
                  Davie E. Fairleigh, M.D., and Ruben B. Timmons, M.D., dated as
                  of January 28, 1998 (incorporated  herein by reference to such
                  exhibit filed as an exhibit to the Company's  Quarterly Report
                  on Form 10-Q for the quarter ended March 31, 1998).



                                       63
<PAGE>


3.  Exhibits (cont'd):

   EXHIBIT
   NUMBER                                    DESCRIPTION
   -------                                   -----------

     10.24        Investment  and  Stockholders=  Agreement,  by and  among  the
                  Company and Michael R.  Cavenee,  M.D. and Kenneth J. Trimmer,
                  M.D.,  dated as of  March  4,  1998  (incorporated  herein  by
                  reference to such exhibit filed as an exhibit to the Company's
                  Report on Form 8-K filed as of March 19, 1998).

     10.25        Investment  and  Stockholders=  Agreement,  by and between the
                  Company and Nord  Capital  Group,  Inc.,  dated as of March 4,
                  1998  (incorporated  herein by reference to such exhibit filed
                  as an exhibit to the Company's  Quarterly  Report on Form 10-Q
                  for the quarter ended March 31, 1998).

     10.26        Investment  and  Stockholders=  Agreement,  by and  among  the
                  Company,  Staffan R. B.  Nordqvist,  M.D.  and Laurel A. King,
                  M.D.,  dated as of  March  6,  1998  (incorporated  herein  by
                  reference to such exhibit filed as an exhibit to the Company's
                  Quarterly  Report on Form 10-Q for the quarter ended March 31,
                  1998).

     10.27        Second  Amended and Restated  Credit  Agreement by and between
                  NationsBank,  N.A.  as Agent and  Lender and the  Company,  as
                  Borrower, dated as of April 30, 1998.

     10.28        Sheridan  Healthcare,  Inc.  Third  Amended and Restated  1995
                  Stock Option Plan, effective as of April 27, 1995, amended and
                  restated  as of  July  27,  1995  and  further  amended  as of
                  February 26, 1997, as of May 15, 1997, and as of June 24, 1998
                  (incorporated  herein by reference to such  exhibits  filed as
                  exhibits to the Company's  Quarterly  Reports on Form 10-Q for
                  the quarters ended March 31, 1997 and June 30, 1997).

     10.29        Investment  and  Stockholders=  Agreement,  by and  among  the
                  Company and Odalis  Sijin  Engel,  M.D.,  dated as of June 16,
                  1998  (incorporated  herein by reference to such exhibit filed
                  as an exhibit to the Company's  Quarterly  Report on Form 10-Q
                  for the quarter ended June 30, 1998).

     10.30        Investment  and  Stockholders=  Agreement,  by and  among  the
                  Company and  Santiago H.  Triana,  M.D.,  dated as of June 23,
                  1998  (incorporated  herein by reference to such exhibit filed
                  as an exhibit to the Company's  Quarterly  Report on Form 10-Q
                  for the quarter ended June 30, 1998).

     10.31        Investment  and  Stockholders=  Agreement,  by and  among  the
                  Company and Felix  Estrada,  M.D.,  Ian  Jeffries,  M.B.,  and
                  Andrew Kairalla, M.D., dated as of June 26, 1998 (incorporated
                  herein by reference to such exhibit filed as an exhibit to the
                  Company's  Quarterly Report on Form 10-Q for the quarter ended
                  June 30, 1998).

     10.32        Amendment No. 3, dated and effective as of August 15, 1998, to
                  the  Employment  Agreement  by and among SAMA  Holdings,  Inc.
                  n/k/a  Sheridan  Healthcare,  Inc. ,  Southeastern  Anesthesia
                  Management Associates, Inc. n/k/a Sheridan Healthcorp,Inc. and
                  Mitchell Eisenberg.

     10.33        Amendment No. 3, dated and effective as of August 15, 1998, to
                  the Executive Employment Agreement by and among SAMA Holdings,
                  Inc. n/k/a Sheridan Healthcare,  Inc., Southeastern Anesthesia
                  Management  Associates,  Inc. n/k/a Sheridan Healthcorp,  Inc.
                  and Lewis Gold.

     10.34        Amendment No. 2, dated and effective as of August 15, 1998, to
                  the Executive Employment Agreement by and among SAMA Holdings,
                  Inc. n/k/a Sheridan Healthcare,  Inc., Southeastern Anesthesia
                  Management  Associates,  Inc. n/k/a Sheridan Healthcorp,  Inc.
                  and Jay A. Martus.




                                       64
<PAGE>






              

3.  Exhibits (cont'd):

   EXHIBIT
   NUMBER                                    DESCRIPTION
   -------                                   -----------

     10.35        Amendment No. 1, dated and effective as of August 15, 1998, to
                  the  Executive  Employment  Agreement  by and  among  Sheridan
                  Healthcare,   Inc.,  Sheridan  Healthcorp,  Inc.  and  Michael
                  Schundler.

     10.36        Amendment  No. 3, dated and  effective as of October 12, 1998,
                  to  the  Executive  Employment  Agreement  by and  among  SAMA
                  Holdings,  Inc. n/k/a Sheridan Healthcare,  Inc., Southeastern
                  Anesthesia   Management   Associates,   Inc.   n/k/a  Sheridan
                  Healthcorp, Inc. and Jay A. Martus.

     10.37        Amendment  No. 1, to the Second  Amended and  Restated  Credit
                  Agreement,  by and  among  NationsBank,  N.A.,  as  Agent  and
                  Lender,  and the Company,  as Borrower,  dated as of September
                  23, 1998.

     21.1         Schedule of Subsidiaries.

     23.1         Consent of Independent Certified Public Accountants

      27          Financial Data Schedule.



                                       65
<PAGE>



                                   SIGNATURES



      Pursuant  to the  requirements  of Section  13 or 15(d) of the  Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.



                                                  Sheridan Healthcare, Inc.
                                                          (Registrant)



Date:  March 30, 1999                             By:  /s/  Michael F. Schundler
                                                       -------------------------
                                                       Michael F. Schundler
                                                       Chief Financial Officer
                                                   (principal financial officer)

         Pursuant to the  requirements  of the Securities  Exchange Act of 1934,
this  report has been  signed  below by the  following  persons on behalf of the
Registrant and in the capacities and on the dates indicated.


         Signature                           Title                     Date

/s/ Mitchell Eisenberg, M.D.      Chairman of the Board,          March 30, 1999
----------------------------      President, Chief Executive
Mitchell Eisenberg, M.D.          Officer (Principal Executive
                                  Officer)
                                         

/s/ Lewis D. Gold, M.D.           Executive Vice President,       March 30, 1999
----------------------------      Director
Lewis D. Gold, M.D.         

/s/ Henry E. Golembesky, M.D.     Director                        March 30, 1999
-----------------------------
Henry E. Golembesky, M.D.

/s/ Jamie Hopping                 Director                        March 30, 1999
-----------------------------
Jamie Hopping

/s/ Neil A. Natkow, D.O.          Director                        March 30, 1999
-----------------------------
Neil A. Natkow, D.O.

/s/ Michael F. Schundler          Chief Financial Officer         March 30, 1999
-------------------------         (Principal Financial and
Michael F. Schundler               Accounting Officer)



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<PAGE>