UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                   FORM 10-K/A

[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

                                       OR

[ ]      TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
         THE SECURITIES EXCHANGE ACT OF 1934
         For the transition period from        to

                           COMMISSION FILE NO. 0-21684

                       THE WELLCARE MANAGEMENT GROUP, INC.
             (Exact name of Registrant as specified in its charter)

     NEW YORK                                          14-1647239
(State of other jurisdiction of                        (I.R.S. Employer
 incorporation or organization)                        Identification Number)

PARK WEST/HURLEY AVENUE EXTENSION, KINGSTON, NEW YORK 12401
(Address of principal executive offices)               (Zip Code)

                                 (914) 338-4110
              (Registrant's telephone number, including area code)

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

           Securities registered pursuant to Section 12(g) of the Act:
                          COMMON STOCK, $.01 PAR VALUE
                                (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 requirements for the past 90 days.
                                                       YES [ ]        NO [X]

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 this 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 (common stock, $.01 par value)
held by non-affiliates of the Registrant on July 1, 1999 was $5,018,031 based on
the closing sales price of the common stock on such date.

The aggregate number of Registrant's shares outstanding on July 1, 1999 was
7,196,944 of common stock, $.01 par value and 352,448 shares of Class A common
stock, $.01 par value.

                       DOCUMENTS INCORPORATED BY REFERENCE
                                      None

<PAGE>

                                     PART I

ITEM 1.  BUSINESS

         The WellCare Management Group, Inc. ("WellCare" or the "Company") is a
managed health care company whose direct and indirect wholly-owned subsidiaries,
WellCare of New York, Inc. ("WCNY") and WellCare of Connecticut, Inc. ("WCCT"),
are health maintenance organizations ("HMOs"). WCCT, which is a wholly-owned
subsidiary of WCNY, is modeled on WCNY and operates in the State of Connecticut.
As of December 31, 1998, WCNY membership consisted of commercial members as well
as those covered by governmental programs (Medicare, Medicaid and Child Health
Plus). WCCT services only commercial members. Until June 1999, WellCare provided
management services to each of its subsidiaries. In June 1999, the Company
entered into a number of transactions which will significantly change the future
operations of the Company. These transactions are described below under Recent
Events.

         Certain statements in this Annual Report on Form 10-K are
forward-looking statements and are not based on historical facts but are
management's projections or best estimates. Actual results may differ from these
projections due to risks and uncertainties. These risks and uncertainties
include a variety of factors, including but not limited to the following: the
Company's ability to continue as a going concern; that Dr. Patel will not obtain
Connecticut regulatory approval of the change in control of WCCT contemplated by
the Patel transaction; the inability to meet HMO statutory net worth requirement
for WCNY or WCCT; the absence of a commercial line of business in WCNY for at
least one year; that increased regulation will increase health care expenses;
that increased competition in the Company's markets or change in product mix
will unexpectedly reduce premium revenue; that the Company will not be
successful in increasing membership growth; that there may be adverse changes in
Medicare and Medicaid premium rates set by federal and state governmental
agencies; that health care cost in any given period may be greater than expected
due to unexpected incidence of major cases, natural disasters, epidemics,
changes in physician practices, and new technologies; that the Company will be
unable to successfully expand its operations into New York City, Westchester
County and the State of Connecticut; and that major health care providers will
be unable to maintain their operations and reduce or eliminate their accumulated
deficits.

         Legislative and regulatory proposals have been made at the federal and
state government levels related to the health care system, including but not
limited to limitations on managed care organizations (including benefit
mandates) and reform of the Medicare and Medicaid programs. Such legislative or
regulatory action could have the effect of reducing the premiums paid to the
Company by governmental programs or increasing the Company's medical costs or
both. The Company is unable to predict the specific content of any future
legislation, action or regulation that may be enacted or when any such future
legislation or regulation will be adopted. Therefore, the Company cannot predict
the effect of such legislation, action or regulation on the Company's business.

RECENT EVENTS

         In March 1998, the Company engaged Bear, Stearns & Co. Inc. to assist
the Company in exploring its strategic opportunities, which could include joint
venture, merger or sale of all or a portion of the Company. At December 31,
1998, the Company had a working capital deficiency of approximately $26.1
million, had incurred operating losses in each of the last three years, and was
not in compliance with the statutory net worth requirements for New York State
and Connecticut HMOs. The New York requirements call for WCNY to maintain a
contingent reserve of $6.7 million at December 31, 1998, compared to its
statutory-basis financial statement negative net worth of ($14.6) million. The
New York State Insurance Department ("NSYID") has the authority to allow an HMO
to maintain a net worth of 50% to 100% of the contingent reserve. WCNY had been
operating within the 50%-100% discretionary contingent reserve requirement
during 1997 and through the first quarter of 1998 with the full knowledge of
NYSID. In April 1999, WCNY agreed to a consent to rehabilitation in which the
State of New York has the right to commence court proceedings and have an order
entered into that would give the State of New York the right assume the
operation of WCNY. Failure to come into compliance with the reserve requirement
could cause NYSID to take action which could include restriction or revocation
of WCNY's license. The Connecticut requirements call for a minimum statutory net
worth of $1 million, whereas WCCT statutory net worth at December 31, 1998 was
approximately $.6 million, including an account receivable from the Company of
approximately $.9 million. As a result, on June 2, 1999, the State of
Connecticut Insurance Department issued an order requiring WCCT to submit to
administrative supervision by the State's Insurance Commissioner until WCCT
meets its statutory net worth (without including the account receivable from the
Company) and other requirements.

         The Company's financial statements as of December 31, 1998, and for the
year then ended, have been prepared assuming that the Company will continue as a
going concern. The auditors' report states that "the Company's recurring losses
from operations, working capital deficit, deficiency in assets and failure to
maintain 100% of the contingent reserve requirement of the New York State
Department of Insurance raise substantial doubt about its ability to continue as
a going concern." (See Consolidated Financial Statements).

         On June 11, 1999, WellCare closed on two separate transactions. Kiran
C. Patel, M.D. ("Patel"), the principal of Well Care HMO, Inc., a Florida
corporation, an entity unrelated to WellCare, purchased a 55% ownership interest
in the Company for $5 million. In a second transaction, Group Health
Incorporated ("GHI") purchased WCNY's commercial business (approximately 25,000
members) for approximately $5 million, effective June 1, 1999. The consummation
of these transactions, along with other concurrent settlements, is expected to:
reduce the Company's working capital deficit by approximately $18.0 million;
improve the ability to bring WCNY within the 50% to 100% revised contingent
reserve requirement, as permitted by NYSID; retire substantially all of the
Company's long-term debt; significantly reduce WCNY's obligations to its
providers; reduce the number of employees from 236 at December 31, 1998 to 105;
and change the configuration and focus of the Company. Thereafter, WellCare's
operations in New York will consist solely of its governmental programs
(Medicare, Medicaid, and Child Health Plus), with WCNY's revised statutory cash
reserve decreased to $2.9 million, and its revised statutory contingent reserve
decreased to $3.7 million. WCCT will continue its commercial business in
Connecticut, subject to a public hearing and regulatory approval of the
acquisition of control of WCCT. Management believes that the consummation of
these transactions will improve WellCare's ability to continue as a going
concern.

         In June 1999, Dr. Patel purchased shares of a newly authorized series
of senior convertible preferred stock for $5 million, which provides Dr. Patel
with 55% of WellCare's voting power. The preferred stock is subject to mandatory
conversion into common stock upon the amendment to WellCare's certificate of
incorporation to increase the number of authorized shares of common stock from
20 million to 75 million. The shares will be convertible into 55% of the then
outstanding common stock (after giving effect to such conversion) and will be
subject to anti-dilution rights under which Dr. Patel will generally preserve
his 55% interest in WellCare until there are 75 million shares of common stock
issued and outstanding. The investment by Dr. Patel in WellCare was approved by
New York State regulators on June 11, 1999. Pending a public hearing in
Connecticut and regulatory approval of the acquisition of control of WCCT, Dr.
Patel is precluded from exercising influence in directing the management and
policies of WCCT. There can be no assurance that approval of the change in
control will be granted nor that the order of supervision will be lifted.

         In the GHI transaction, WCNY sold its commercial business, including
approximately 25,000 members, to GHI for $5 million, effective June 1 1999.
WellCare received $4 million at closing, and $1 million was placed in escrow
pending a determination of the total number of WCNY commercial members at June
1, 1999. If the commercial membership is at least 25,000 members, all of the
proceeds will be released from escrow. WELLCARE AND WCNY HAVE AGREED NOT TO
ENGAGE IN COMMERCIAL HMO BUSINESS IN NEW YORK FOR A PERIOD OF ONE YEAR FOLLOWING
THE CLOSING.

         As a condition to the closing of the Patel and GHI transactions, more
than 75 hospitals and physicians and other health care providers have entered
into settlement agreements to settle claims for services provided to WCNY HMO
members through April 30, 1999. These claims will be settled from a provider
pool consisting of at least $10 million, comprised of all of the proceeds from
the GHI and Patel transactions and 80% of WCNY's premium receivables at April
30, 1999, with WCNY able to utilize the amount in the provider pool in excess of
$10 million, up to $2.5 million, to meet statutory reserves. These providers may
receive additional payments in an amount of up to 15% of the settled claims,
spread over the next three years, should they continue to provide health care
services to WCNY members.

         In June 1999, the Company loaned WCNY $5 million under the provisions
of Section 1307 of the New York State Insurance Law. Under Section 1307, the
principal and interest are treated as equity capital for regulatory purposes and
are repayable out of the free and divisible surplus, subject to the prior
approval of the Superintendent of Insurance of the State of New York.

         As a condition to the closing of the Patel transaction, The 1818 Fund
II, L.P. (the "Fund"), the general partner of which is Brown Brothers Harriman &
Co., converted the $15 million 8% subordinated promissory note issued by
WellCare into a second newly authorized series of senior convertible preferred
stock. The preferred stock is non-voting and is subject to mandatory conversion
(subject to regulatory approval) into 10,000,000 shares of common stock of
WellCare upon the amendment to WellCare's certificate of incorporation to
increase the number of authorized shares of common stock from 20 million to 75
million.

         As a further condition to the closing of the Patel transaction, the
holders of 644,287 shares of Class A common stock, which has ten votes per
share, agreed to convert their shares into shares of common stock on a
share-for-share basis. Robert W. Morey, the holder of the remaining 281,956
shares of Class A common stock outstanding, has given a two-year proxy in favor
of Dr. Patel to vote Mr. Morey's shares of Class A common stock.

         After giving effect to conversion of these shares of Class A common
stock, and assuming conversion of the preferred shares held by Dr. Patel and the
Fund, there would be 38,716,693 shares of common stock and 281,956 shares of
Class A common stock issued, with Dr. Patel owning 21,449,257 shares of common
stock, and 55% of the aggregate number of shares outstanding in the combined
classes.

         As a further condition to the closing of the Patel transaction, in June
1999, the Company reached a settlement with Key Bank (the "Bank"), whereby the
Company will transfer ownership of the real property securing two mortgages to
the Bank in lieu of foreclosure. The net book value of the real property was
approximately $6.5 million compared to the outstanding mortgage balances of
approximately $4.4 million. The Company also reached a settlement with Premier
National Bank ("Premier"), whereby the Company will transfer ownership to
Premier of the real property securing two mortgages, in lieu of foreclosure. The
net book value of the real property was approximately $1.8 million compared to
the outstanding mortgage balances of approximately $1 million. The aggregate
balance of these mortgages ($5.6 million at December 31, 1998), as well an equal
amount of mortgaged assets, have been classified as current in the Company's
December 31, 1998 balance sheet.

         In connection with the Patel transaction, the WellCare HMOs entered
into separate and identical management agreements with Comprehensive Health
Management, Inc. ("Comprehensive"), an affiliate of Dr. Patel. The agreements
are for a term of five years, effective June 1, 1999. The management fee ranges
from 7.5% of an HMO's premium revenue when there are more than 80,000 members,
to 9.5% of an HMO's premium revenues when there are less than 40,000 members.
Comprehensive will cover services for claims, customer service, utilization
review, data processing/MIS (including Y2K compliance expenses and costs),
credentialing, communication, provider relations, and day to day accounting.
Comprehensive will also provide financial reports to the HMOs and the
appropriate regulatory agencies. The fee does not cover other costs, such as
marketing functions, legal costs, extraordinary accounting and audit costs,
directors and officers liability insurance, other insurance costs, and any
extraordinary costs. The management agreement with WCNY was approved by New York
State regulators on June 11, 1999. Pending a public hearing in Connecticut and
regulatory approval of the acquisition of control of WCCT, Dr. Patel is
precluded from exercising influence in directing the management and policies of
WCCT. State regulators, however, have authorized the performance of the WCCT
management agreement, with certain limitations.

         In May 1999, the Company entered into a settlement agreement of the
Class Action Securities Litigation for $2.5 million, all of which is being
funded by the insurance carrier which provided coverage to the individual
defendants. The settlement agreement is subject to Federal Court approval. The
Company expects to recoup from the insurance carrier the expenses related to
fees it paid to the attorneys representing the individual defendants, less the
Company's insurance deductible.

         THE DESCRIPTION OF WELLCARE'S BUSINESS, ITS HISTORIC RESULTS OF
OPERATIONS, AND MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS ARE BASED UPON THE OPERATIONS OF THE COMPANY AS THEY
EXISTED ON OR THROUGH DECEMBER 31, 1998, AND DOES NOT GIVE EFFECT TO
TRANSACTIONS DISCUSSED IN THIS "RECENT EVENTS" SECTION, UNLESS SPECIFICALLY
REFERRED TO.

THE MANAGED CARE INDUSTRY

         Health care costs in the United States have escalated dramatically from
$324 billion in 1982 to an estimated $1 trillion in 1998, or approximately 12.5%
of the gross national product. As a result, employers, insurers, governmental
entities and health care providers have sought effective cost containment
measures, contributing to the development of the managed care industry. Further,
the inability of a significant portion of the population to obtain health care
coverage has resulted in health care reform measures proposed both at the
federal and state levels, many of which focus on managed care as a means for
providing quality health care services on a cost-effective basis for this
population.

         COMMERCIAL. An HMO provides or arranges for the provision of
comprehensive health care services, including physician and hospital care, to a
voluntarily enrolled population for a fixed, prepaid premium. Except in the case
of a medical emergency, the member receives care from participating primary care
physicians who, in turn, refer the members to participating specialists and
hospitals as required. HMOs provide medical management controls designed to
encourage efficient and economic utilization of health care services. These
controls include monitoring physician services, the level of hospital admissions
and the lengths of hospital stay, and promoting the use of non-hospital based
medical services.

         Initially, managed care was provided primarily through HMOs, but has
expanded to the provision of an increasing variety of products and services,
including preferred provider organizations ("PPO"), utilization review services,
third-party claims administrators and specialty benefit programs, which are
marketed to self-insured employer plans, unions, indemnity insurers and other
groups.

         A number of government-sponsored health care programs have begun to
encourage the enrollment of their beneficiaries into managed care plans,
particularly HMOs, as a means of controlling escalating health care costs. The
largest of these programs are Medicare and Medicaid, which service the elderly
and the poor, respectively.

         MEDICARE. Medicare is a federal government-sponsored entitlement
program administered by the Health Care Financing Administration ("HCFA"),
providing health care coverage to individuals, primarily over 65 years of age.
In 1998, Medicare accounted for approximately $214.6 billion in health benefits
for 38.4 million aged and disabled enrollees. This represents an amount which is
7.2% higher than fiscal year 1997 and reflects growth in beneficiary enrollment,
service utilization and medical inflation.

         The federal government, through HCFA, has contracted with HMOs since
1985 and, currently, approximately 6.7 million Medicare beneficiaries are
enrolled in managed care. Of that number, approximately 6 million are covered
under plans that assume risk in the delivery of health care services to Medicare
beneficiaries ("Medicare Risk Contracts"). In contracting with HMOs pursuant to
Medicare Risk Contracts, HCFA bases payment rates on 95% of the average Medicare
medical costs, determined by county and adjusted for age, sex, and institutional
status. In addition to the 5% cost savings, the financial risk and most of the
administrative burdens of health care service delivery are shifted to the HMO,
and the administrative efficiency practices of managed care are integrated into
the Medicare program. At December 31, 1998, there were 346 Medicare Risk Plans
nationwide (including multiple plans by single HMOs), and approximately 33
contracts applications pending. On January 1, 1999, Medicare Risk HMOs will
transition to Medicare+Choice contract under provisions enacted by the Balanced
Budget Act of 1997.

         MEDICAID. The Medicaid program, sponsored by individual state
governments, provides health care services to low income individuals in the
United States, receiving significant financial support from the federal
government. In 1997, approximately $20.9 billion was spent on Medicaid programs
in New York State, which is estimated to increase 4.8% to approximately $21.9
billion in 1998. State governments have increasingly contracted with managed
care companies, including HMOs, to provide health care services to their
Medicaid recipients. In contracting with private managed care companies,
Medicaid shifts most of the financial risk of covered health care services
delivery to the HMO and allows the Medicaid program to benefit from the
cost-efficiency practices of the managed care industry. Several states,
including New York and Connecticut, have received federal approval to mandate
that all Medicaid beneficiaries enroll with managed care companies to receive
medical services. At December 31, 1998, only approximately 28.7% of the
estimated 2.2 million eligible Medicaid recipients in New York State are
enrolled in HMO plans.

         CHILD HEALTH PLUS. Child Health Plus, a newly expanded subsidized
program, provides comprehensive primary and preventive health insurance to
uninsured and underinsured children under age 19. The program covers children in
low income families that do not have similar coverage through the workplace and
who are not eligible for Medicaid. For most families, the program is currently
free or requires a low monthly contribution.

         The New York State dollar expenditure will increase from $150 million
in 1998 to approximately $207 million in 1999. These funds will be used as a
match to the new federal State grant program, State's Children Health Insurance
Program providing $256 million to New York State in 1999.

         As of December 31, 1998, approximately 271,000 of the State's uninsured
children were enrolled in the program, less than half of the uninsured children
statewide. Beginning in 1998, education, outreach and facilitated enrollment
strategies have been developed to recruit children to enroll in the program.

THE WELLCARE HMOS

         WCNY and WCCT (the "WellCare HMOs") provide comprehensive health care
services to their members for a fixed monthly premium, plus a co-payment as
applicable, by the member to the physician for each office visit generally, and
a dispensing fee or copayment to the pharmacy for each prescription filled. The
basic benefits, provided within a member's benefit plan consist of primary and
specialty physician care, inpatient and outpatient hospital services, emergency
and preventive health care, laboratory and radiology services, ambulance
services, eye care, physical and rehabilitative therapy services, chiropractic
services, mental health care, and alcohol and substance abuse counseling. For an
increased monthly premium, members have the option to receive prescription drugs
and vision care and other supplemental benefits.

         The WellCare HMOs arrange for the provision of inpatient and outpatient
hospital health care services by contracting with hospitals. Prior to 1997, New
York hospitals were paid primarily on a diagnostic related group ("DRG") basis
under New York State law rather than by length of hospital stay (although New
York HMOs were permitted to negotiate lower DRG or per diem rates with
regulatory approval). Effective January 1, 1997, the New York State regulated
DRG rate setting system expired and was replaced by a largely unregulated free
market system whereby payors and hospitals are free to negotiate the best rates
possible. WCNY's contracting efforts were focused on converting DRG and risk
bearing arrangements to a per diem methodology, and most of WCNY's significant
contracts with NY hospitals are based on a negotiated per diem rates across all
product lines. To the extent DRG rates apply, a member's length of hospital stay
does not affect the WellCare HMOs costs. Hospital costs can best be controlled
through managing hospital admissions and utilizing the most effective treatment
methods. When a per diem contract is in effect, utilization management reduces
medical costs to the WellCare HMOs by minimizing length of hospital stay as well
as maximizing the utilization of the most effective treatment methods.

         WCCT contracts with its network of hospitals using various payment
methodologies, including per diem, case rates, and discounts from charges, with
more steering of members to participating hospitals. Currently, efforts are
underway to convert discount contracts to per diem rates. Hospital costs are
controlled when medical management assures that hospital care is appropriate,
proceeds in an efficient manner, and hospitalized members are moved to more
appropriate care settings as soon as clinically sound. New contracts have been
developed for home care and skilled nursing facilities, and competitive skilled
nursing facility level rates have been included in hospital contracts for use
when members do not require hospital-level care.

         The WellCare HMOs also arrange for the provision of health care
services in the case of primary care services, on a capitated fee basis, and
with other health care providers, generally on a discounted fee-for-service
basis.

         Members are allowed to select any primary care physician or group
practice participating in the WellCare HMO provider network and are allowed to
switch from one primary care physician or practice to another within the
network. All medical care received by the member, including specialist and
hospital care, is coordinated by the primary care physician. Hospitalization for
members requiring non-emergency treatment generally takes place in hospitals,
which either are under contract or have arrangements with the WellCare HMOs.
Emergency treatment may be obtained in any hospital.

         Premiums are generally fixed for a twelve-month period under contracts
with each subscriber group. WellCare considers a variety of factors in
determining HMO community rated premiums, including anticipated health care
utilization rates, projected medical expenses, community rating requirements
(applicable in both New York and Connecticut) and competitive conditions.
Premiums are subject to state regulation (See "Business - Government
Regulation").

MEMBERSHIP

         The following table reflects membership and employer groups for plans
owned, managed or administered by WellCare during the five years ended December
31, 1998. In addition, the pro forma column for 1998 shows the impact of
excluding the WCNY commercial members sold to GHI, effective June 1, 1999, and
the Medicare members in the four counties in which WCNY did not renew its risk
contracts, effective January 1, 1999, as if it had occurred at December 31,
1998:

                                        At December 31,
                          Pro forma -------------------------------
                          1998    1998     1997      1996    1995     1994
                          ----    ----     ----      ----    ----     ----
Commercial Members (1)(3)  16,000  46,700  48,400   69,700   78,900   71,100
Medicaid Members           20,700  20,700  20,800   18,300   19,100   10,000
Medicare Members (2)        6,600  10,600  10,000    5,500    2,000    1,400

Total Members              43,300  78,000  79,200   93,500  100,000   82,500
Number of Employer Groups   4,800   6,600   2,300    2,600    2,500    1,900
-------------------------
(1)  Includes HMO commercial members, members enrolled in the Child Health Plus
program, and members enrolled under non-HMO specialty programs.
(2)  Includes Medicare beneficiaries and Medicare supplement members.
(3)  Includes 8,900, 1,800, 900 and 400 WCCT members for 1998, 1997, 1996 and
1995, respectively.

         At December 31, 1998, the five largest employer groups accounted for
approximately 9% of total membership, with no one group accounting for more than
4% of such membership.

         Prior to June 1, 1999, the membership of the WellCare HMOs was
comprised of the following:

         * Members enrolled through subscribing private or public sector
           employers or unions, and members unaffiliated with subscriber groups
           enrolling individually (collectively, "commercial members") (sold to
           GHI, effective June 1 1999);

         * Recipients of public aid whose eligibility is determined by the local
           departments of social services and the New York State Department of
           Health ("Medicaid members");

         * Members enrolled in the New York State Child Health Plus program
           (included under "commercial members");

         * Medicare beneficiaries covered under Full Risk program ("Medicare
           beneficiaries"); and

         * Medicare beneficiaries receiving HMO supplemental coverage for
           medical services not covered by Medicare ("Medicare supplement
           members").

         All five classes of membership were enrolled in WCNY. WCCT has approval
to offer coverage only to commercial members.

         When a subscriber group agrees to offer a WellCare HMO to its
employees, enrollment is voluntary by the individual, who must be accepted for
enrollment by WellCare regardless of health status. Employers generally pay all
or part of the monthly health care premiums for their employees, deducting the
portion not so paid from the employee's salary. Upon leaving a subscriber group,
an individual may elect to continue as an HMO member by paying a monthly COBRA
premium.

         Individuals may be enrolled as Medicaid members in WCNY through its
Healthy Choice product ("Healthy Choice") only if they are eligible recipients
of Medicaid. Medicaid members are enrolled on an individual basis pursuant to
agreements with county social services departments and approval by the New York
State Department of Health ("DOH") and must be enrolled regardless of health
status. The premiums for Medicaid members is funded 25% by the applicable
county, 25% by the State of New York and the balance by the federal government.
In the event the contracts are terminated or not renewed, the Company's
operating results would be adversely affected. Medicaid Managed Care legislation
was enacted in 1996 authorizing New York State, pursuant to federal waiver, to
require most Medicaid recipients to enroll in managed care plans. The Company
believes it is well positioned in the marketplace to enroll and provide services
to these individuals under New York State's federally approved mandatory waiver.

         Medicare beneficiaries are enrolled pursuant to annual contracts with
the federal government under which WCNY provides health care services. These
contracts provide for the federal government to pay WCNY a fixed monthly premium
per member equal to approximately 95% of the average medical costs by county
adjusted for age, sex, and institutional status. Premiums are subject to
periodic unilateral revision by the federal government. Under the basic plan,
beneficiaries pay no monthly premiums or deductibles, although there are
co-payments for office visits, prescriptions, and certain other services and
there are annual limits on prescription benefits received per member. Medicare
members are able to disenroll for any reason effective the first of any month
with prior written notice. Effective January 1997, WellCare's Medicare Risk
program ("Senior Health") expanded from 8 counties with approximately 240,000
eligible individuals to 12 counties with a total of over 300,000 eligible
individuals. Effective November 1997, WellCare's Medicare Risk program expanded
to 17 counties with approximately 1.5 million eligible individuals. In October
1998, WCNY announced that WCNY would not renew Medicare Risk contracts in four
counties, effective January 1999. Approximately 4,000 Medicare members were
affected by this reduction. The decision was made following a review of the
medical loss ratio in each of these counties. WCNY currently participates in 13
counties.

         Medicare supplement members may enroll in WCNY on a group basis through
their present or past employers to supplement medical coverage received from
Medicare. Under the supplemental coverage, in return for a fixed monthly
premium, WCNY pays the cost of most medical services not covered by Medicare,
provided the Medicare beneficiary uses the HMO provider network for such
services, other than for emergency care there are also copayments for certain
services received by members.

MEDICAL COST CONTROL

         The Company's success depends to a significant degree upon its ability
to control health care costs. WellCare controls such costs through (i)
capitation arrangements with the independent practice associations ("IPAs") and
with non-IPA primary care physicians, (ii) discounted fee-for-service
arrangements with specialists and other health care providers, (iii) capitation
arrangements with providers of certain specialty services, (iv) medical
management review programs, and (v) co-payments by members for office visits and
other services. Notwithstanding such cost control measures, health care costs in
any given period may be greater than expected due to unexpected incidence of
major cases, legislative changes, broadening member entitlements, natural
disasters, epidemics, changes in physician practices and new technologies. These
factors which impact health care costs are beyond the Company's control and may
adversely affect its operations.

PHYSICIAN ARRANGEMENTS

         In October 1994, WCNY entered into contracted arrangements with a
majority of its primary care physicians and specialists through contracts with
regional health care delivery networks (the "Alliances") for the provision of
health care services to the Plan's commercial and Medicaid members. Initially,
each Alliance was a professional corporation that then contracted with
individual primary care physicians and specialists to provide health care
services. At inception, there were four Alliances with different equity owners.
In 1995, the four Alliances were combined into two Alliances, with the same
equity owner. Effective June 1997, the Alliances converted into independent
practice associations ("IPAs") by establishing new corporations. WCNY's initial
agreement with each of the Alliances, for the period October 1994 through
September 1995, required payment to the Alliances based on a percentage of
premium revenue for effected members. Effective October 1995, WCNY entered into
three year agreements with each of the Alliances to capitate them at specified
per member per month ("PMPM") rates designated to cover the cost of all health
care services provided to the HMO members. These agreements originally provided
for periodic increases, ranging from 1% to 6% for the period from October 1995
through December 1998.

         In an effort to improve the profitability of WCNY and the Alliances,
WCNY entered into a letter of understanding with the Alliances in September 1996
to restructure its capitation arrangements. Pursuant to the terms of the
restructured arrangement, WCNY reassumed the risk for certain previously
capitated services, and reduced the capitation rate paid for certain services
which continued to be provided by the IPAs. WCNY capitated the Alliances for
physician services, both primary care and specialty services, on a PMPM basis
for each HMO member except for physician services in the areas of certain
diagnostics and mental health substance abuse, which WCNY capitated through
contracts with certain other regional integrated delivery systems.

         Each Alliance/IPA, in turn, capitates its Alliance/IPA primary care
physician from the monthly payments received from WCNY with a fixed monthly
payment for each HMO member designating the Alliance/IPA physician as their
primary care provider, retaining and allocating the balance to a group risk pool
for payment to specialists. Specialists are compensated on a fee-for-service
basis by each Alliance/IPA which disburses payments to these specialists. To the
extent the risk pools are insufficient to cover the specialists' fees, the
amounts paid to the specialists as a group can be proportionately reduced, up to
a maximum of 30%. To the extent the risk pools are still insufficient to cover
the specialists' fee after a maximum reduction, a portion of the capitation
payments to primary care physicians can be withheld to cover the specialists'
fees after the reduction. Primary care physicians and specialists are furnished
with periodic utilization reports and the IPAs' accounts are reconciled
periodically.

         In April 1998, WCNY entered into service agreements with four IPAs
wholly owned by Primergy, Inc. ("Primergy"). These agreements amended and
restated the prior agreements with two professional corporations managed by
Primergy. Consistent with the prior agreements, the new agreements grant the
IPAs the exclusive right to contract with primary care physicians in a six
county geographic region in the mid-Hudson Valley. The term of the agreements is
ten years, subject to earlier termination under certain conditions, including
following a failure of the parties to renegotiate rates in the event that a
potential investor (the "Investor") did not exercise its right to acquire
Primergy. In July 1998, following expiration of the Investor's option to
purchase Primergy, WCNY notified Primergy of its intent to renegotiate rates. If
a new agreement is not reached within 120 days after June 30, 1998, either the
Company or the respective IPA can thereafter exercise its option to terminate
the contract. The parties continue to negotiate the terms of the new agreement
and there can be no assurance that the contracts will be successfully
renegotiated and not terminated by either the Company or the respective IPAs.

         In October 1998, WCNY entered into a service agreement with a fifth IPA
owned by Primergy to provide non-exclusive service in the Capital District
region. Subsequently, the Company entered into discussions with Primergy and
another potential investor ("New Investor") whereby the New Investor expressed
an interest in acquiring Primergy, repaying certain of the debt owed to the
Company by Primergy, amending certain terms of the IPA service agreements, and
obtaining the right to manage certain aspects of WCNY's business relating to its
relationships with the IPAs owned by Primergy. These discussions have not
resulted in the consummation of any transaction involving the Company, nor can
there be any assurance that a transaction will be consummated in the future.

         In January 1999, WCNY amended the service agreements with the IPAs
owned by Primergy to add Medicare risk as a product for which the IPAs would
arrange for the provision of physician primary care and specialty services and
certain other agreed upon health care services.

         After the GHI transaction, the existing IPA service agreements between
Primergy and WCNY no longer encompass WCNY commercial members.

         WCNY intends to remain integrally involved in assisting primary care
physicians to efficiently manage their practices.

         During 1998, Alliance/IPA primary care physicians provided medical care
to approximately 68% of WCNY's commercial and Medicaid members; the balance of
WCNY's members were provided services by primary care physicians who are
directly contracted by WCNY, as described in the following paragraph.

         WCNY also contracts directly with primary care physicians and
specialists, with many primary care physicians being capitated with a fixed
monthly payment for each HMO member selecting the physician. Specialists are
generally paid on a discounted fee-for- service basis.

         WCCT contracts directly with some of its physician network. A
significant number of all primary care physicians and specialists are contracted
through an IPA or a physician hospital organization ("PHO") that contracts
directly with WCCT.

HOSPITAL AND OTHER PROVIDER ARRANGEMENTS

         Third-party reimbursement for most inpatient hospital care in New York
State, prior to 1997, was required to be paid on a DRG basis, pursuant to which
hospital charges as established by the State were based on the diagnosis of the
patient's condition, generally notwithstanding the length of hospitalization.
New York HMOs have been permitted, subject to regulatory approval, to negotiate
lower DRG or per diem rates with hospitals. To the extent DRG rates apply, a
member's length of hospital stay does not affect an HMO's costs. Hospital costs
can best be controlled through managing hospital admissions and utilizing the
most effective treatment methods. When a per diem contract is in effect,
utilization management reduces medical costs to the HMO by minimizing length of
hospital stay as well as maximizing the utilization of the most effective
treatment methods. Currently, most of WCNY's significant contracts with NY
hospitals are based on per diem rates across all product lines.

         As of January 1, 1997, the New York State regulated DRG rate setting
system expired and was replaced by a largely unregulated free market system
whereby payors and hospitals are free to negotiate the best rates possible.
Another significant change is in the area of funding for various public goods
and Graduate Medical Education. Under the state-run DRG system, these add-on
costs had been built directly into the rates set by the state, and were not
subject to negotiation. However, as of January 1, 1997, the responsibility for
public goods and Graduate Medical Education has shifted from hospitals to the
payors. To account for this new cost, payors have been renegotiating their
hospital contracts in order to remain on a cost-neutral basis.

         In Connecticut, WCCT initially developed a network of hospitals using
various payment methods, including per diem, case rates, and discount from
charges. As WCCT experienced significant growth in 1998, the hospital network
was expanded to a more comprehensive list with more aggressive steering of
members to participating hospitals. Currently, efforts are underway to convert
discount contracts to per diem rates, and to contract with non-participating
hospitals. Hospital costs can best be controlled when medical management assures
that hospital care is appropriate, proceeds in an efficient manner, and
hospitalized members are moved to more appropriate care settings as soon as
clinically sound. New contracts have been developed for home care and skilled
nursing facilities, and competitive skilled nursing facility level rates have
been included in hospital contracts for use when members do not require
hospital- level care.

         At December 31, 1998, the WellCare HMOs contract with 92 hospitals.
Pursuant to its contract, the hospital is paid for all authorized inpatient and
outpatient services and all emergency room services provided to members. In
addition, the WellCare HMOs require the hospitals to participate in utilization
management and quality improvement programs. In general, the WellCare HMOs
contracts with hospitals are terminable upon 90 to 120 days' prior notice by
either party.

         In order to obtain high quality services at cost-effective rates, the
WellCare HMOs have contracted with other providers for, among other things,
mental health, diagnostic services, physical therapy, outpatient surgery,
laboratory services and home health care, on either a capitated or negotiated
fee basis. The Company also has an agreement with an unrelated pharmacy benefits
manager which covers all of the service areas of the WellCare HMOs, including,
at December 31, 1998, a network of approximately 1,360 pharmacies.

CLAIMS RESERVES AND IBNR

         The development of the claims management system that tracks claims on a
current basis has been an ongoing priority of the Company. The results of
operations depends in large part on the Company's ability to predict, quantify,
and manage medical expenses. During 1997, the Company instituted procedures
which it continually reviews, modifies and enhances to allow it to measure and
project medical costs on a timely basis. The expense is based in part on
estimates, including an accrual for medical services incurred but not yet billed
("IBNR"). A daily inventory of hospital days and patient stays by product line
is maintained and reviewed by medical management. Claims are entered and scanned
to the claims system and are then available for examiners to either process,
review and approve for payment, pend for additional information from the
provider or deny. All claims are entered into the system at charges and
evaluated. Ongoing studies conducted for the three product lines provide the
Company with the tools to estimate the percentage of pended claims to be paid
relative to submitted charges. All claims paid, payable and pended are evaluated
weekly and a projection of ultimate payables is estimated. Moreover, procedures
are in place whereby the actual runoff of claims for each of the last twelve
months versus the reserve for IBNR and the paid, pended, and payable claims are
reviewed for accuracy as compared to the original projections. This procedure is
intended to allow the Company to estimate its IBNR more effectively.

         The Company believes that the process of trending the ultimate
resolution of paid, pended and payable claims allows the Company to analyze
trends and changes in payments and utilization patterns and, therefore, react to
medical costs on a proactive versus a reactive basis. The Company's recording of
IBNR during 1997 and the first three quarters of 1998 has, in retrospect, been
for amounts less than ultimately incurred based on the actual settlement of
claims. Although the Company continues its efforts to make this estimating
process more accurate, there can be no assurance that IBNR reserve currently
recorded will be sufficient to cover medical expenses ultimately incurred.

UTILIZATION MANAGEMENT

         Utilization of health care services by members and physicians is
monitored under WellCare's health care utilization management programs. In cases
of excessive utilization, WellCare counsels the provider with respect to
possible unnecessary or duplicate services or medications. In addition, under
the direction of local physicians and the WellCare HMOs medical directors,
health care service utilization data are analyzed.

EDUCATIONAL PROGRAMS

         The WellCare HMOs believe that educating their members and health care
providers with respect to health care is a critical component in health care
cost containment. The Company's quarterly newsletter to its members contains,
among other items, information on preventive health care. The Company also
publishes newsletters which it distributes to its physicians.

QUALITY OF CARE PROGRAMS

         WellCare's quality of care programs, consisting of disease management
programs, periodic peer reviews and outcome studies, assist the Company in
controlling costs and improving quality by identifying cost-effective treatment
procedures (See "Business - Quality Improvement"). In 1996, WCNY received a
certificate of one year accreditation from the National Committee for Quality
Assurance ("NCQA"). The NCQA performed its subsequent annual review in 1997 and,
in February 1998, again awarded WCNY with its one-year certificate of
accreditation. The NCQA completed another review in March 1999, and WCNY is
awaiting the results of this most current review.

CO-PAYMENTS

         To promote member participation in controlling health care costs, the
WellCare HMOs require co-payments by its members for most office visits and some
other services. These co-payments are made by the member directly to the
physician or other provider and, for WCNY, range from $3 to $20 per office
visit, and $25, $35 or $50 for emergency room treatment. WCCT is approved for a
$3 to $20 co-payment for office visits and a $35 co-payment for emergency room
treatment. Certain contracts also require members to pay co-payments for
inpatient hospital services.

POINT-OF-SERVICE AND PPO PRODUCT

         The HMOs offer a point-of-service ("POS") product to its commercial
members, allowing them to select providers outside of the HMOs' provider
network. When a member uses a POS product, the member is required to make a
higher co-payment and satisfy a deductible. In addition, WellCare has
established a PPO network, using principally its HMO provider network, to
provide vision care and pharmacy benefit programs as stand-alone products for
self-insured employer and other groups.

MARKETING

         At December 31, 1998, WellCare maintained a marketing staff of
approximately 65 full time equivalent staff ("FTEs") dedicated to selling
WellCare's various products and benefit plans. Those 65 FTEs were allocated as
follows: 25 for commercial group products, 32 for Medicaid and Child Health Plus
and 8 for Medicare+Choice. As a result of the sale in June 1999 of WCNY's
commercial business to GHI, all of the marketing staff dedicated to the
commercial product have become GHI employees.

         Medicaid managed care marketing has become a highly regulated and
supervised activity. All Healthy Choice marketing must be conducted consistent
with a pre-approved marketing plan and, all Healthy Choice marketing materials
must receive approval prior to their use, from both the County Departments of
Social Services and the New York DOH. Additionally, the Company monitors its
Plan marketing staff to insure that all marketing is performed consistent with
applicable rules and guidelines.

         Healthy Choice utilizes a variety of marketing approaches including:
direct marketing at County Social Services offices, direct mail when approved
and supervised by the Counties; provider-assisted outreach; community-based
organization partnerships; and advertising in targeted community publications.

         The Child Health Plus program is a state-subsidized commercial product
regulated and supervised by both the State Departments of Health and Insurance.
Marketing plans, including enrollment activities and all materials, must be
approved by the Department of Health prior to their use. Marketing activities,
consistent with applicable rules and guidelines, include direct mail, provider
assisted outreach, community-based organization partnerships, health fairs, and
media campaigns.

         Marketing of WCNY's Full Risk Medicare program involves a labor
intensive one-on-one process. Marketing efforts focus on informational
presentations/seminars, community outreach programs, direct mail and
telemarketing activities.

         WCNY also offers a supplemental coverage plan for Medicare
beneficiaries through existing employer groups who provide contributed benefit
programs to retirees. Marketing takes place through on-site meetings and direct
mailings to such retirees.

QUALITY IMPROVEMENT

         All physicians in the WellCare HMOs' provider network are required to
participate in quality improvement and utilization review programs. WCNY has
received a one-year accreditation from the NCQA in each of the last two years.
The quality improvement program is designed not only to maintain but to
continually improve the delivery of proper medical care and includes:

         * Utilization reviews, management programs and outcome studies, which
           evaluate statistical information with respect to services used by
           members and prescribed by participating physicians and include such
           topics as preventive care services, prescription drugs, physician
           visits, emergency room use, hospital admissions and referrals made by
           primary care physicians to specialists; and

         * Quality of care reviews, which identify issues affecting HMO members,
           including physician availability, physician treatment patterns and
           the structure and content of medical records;

         * Periodic peer reviews, which evaluate the quality and appropriateness
           of medical care provided by a particular physician and review, among
           other things, diagnoses, tests, prescription drug usage and the
           utilization level of the physician by the HMO members;

         * A physician committee infrastructure to oversee medical policy and
           the quality improvement program.

         The quality improvement program utilizes computerized claims
information as well as medical records which are maintained by the physicians
and to which WCNY has access. In addition, participating hospitals maintain
quality improvement programs. As required by state law, WCNY has an established
complaints procedure for HMO members and providers to formally register concerns
with the HMO. These concerns are then investigated and resolved pursuant to the
procedures established by the HMO.

COMPETITION

         Throughout 1998, WellCare maintained a presence in four distinct New
York managed-care markets, as well as the state of Connecticut. WellCare's four
New York markets are defined as Greater Hudson Valley, Capital District,
Southern Tier and New York City/Westchester County. The Connecticut service area
covers the entire state and is considered WellCare's fifth regional market.
WellCare's Medicaid, Child Health Plus, and Medicare products are sold in New
York exclusively.

         Each of these markets presents distinct challenges and opportunities to
establish a competitive selling edge and create revenue growth. WellCare
competes in its five markets, which encompass over 300,000 businesses, 15
million people and more than 40 managed-healthcare competitors. These
competitors range in size from a start-up of 20,000 covered members to large
market leaders like Cigna, Aetna and Blue Cross & Blue Shield with millions of
covered lives. Each market has different primary competitors for WellCare and,
therefore, requires a different strategic approach relative to price, network
and product in order to succeed. In connection with the GHI transaction,
WellCare and WCNY have agreed to not engage in commercial HMO business in New
York for a period of one year following the closing.

MANAGEMENT INFORMATION SYSTEMS/THE YEAR 2000 ("Y2K")

         In connection with the "Patel" and "GHI" transactions, the Company sold
or assigned substantially all of its computer hardware and software to GHI. The
plan is for all data processing/MIS requirements to ultimately be provided under
the terms of the newly executed management agreements with Comprehensive Health
Management, Inc. ("Comprehensive"), an affiliate of Dr. Patel. Under the terms
of the GHI transaction, the Company will continue to use the existing computer
systems and software a transition period. The computer hardware and software
that was not sold or assigned to GHI is in the process of being upgraded so that
it will be Y2K compliant. The Company anticipates these modifications will be
completed by September 1999.

         With respect to the efforts undertaken to date by Comprehensive and
affiliates to address the Y2K issues, Comprehensive has upgraded its computer
hardware and software systems, and has expended approximately $430,000 in
software related costs and $235,000 in hardware related costs.

         The inability of Comprehensive or the Company to complete timely any of
its Year 2000 modifications, or the inability of other companies with which
Comprehensive or the Company does business to complete timely their Year 2000
modifications, could potentially have a material adverse effect on the Company's
operations.

         Prior to the Patel and GHI transaction, the Company had assessed the
requirements of modifying its computer systems to accommodate the Year 2000 and
anticipated that required modifications would be completed in advance of the
Year 2000 so as to not adversely affect its operations. In most cases, the
Company was dependent on outside vendors whose software the Company uses. These
vendors had advised the Company that the required modifications were being made,
and would be available to the Company in the form of software release upgrades.
The Company had developed plans for implementing these release upgrades in a
timely fashion, and estimated that the hardware and software costs would
approximate $1.6 million. The Company expensed noncapital associated costs
incurred to make these modifications. The core processing system, AMISYS, was
upgraded to the Y2K compliant version in February 1999. The MAS90 system, the
Company's financial software, was upgraded in March 1999. Both of these systems
are now Y2K compliant. The Company had incurred costs of approximately $550,000
in 1998 and $410,000 in 1999. Except for hardware costs of approximately
$60,000, the Company has expensed these costs as incurred.

GOVERNMENT REGULATION

STATE REGULATION

         The WellCare HMOs are subject to extensive state regulation. Applicable
state statutes and regulations require an HMO to file periodic reports with the
relevant state agencies, and contain requirements relating to the operation of
the HMO, the HMO's rates and benefits applicable to its products and the HMO's
financial condition and practices. In addition, state regulations require each
of the WellCare HMOs to maintain restricted cash or available cash reserves, a
minimum net worth and impose restrictions on the WellCare HMOs abilities to make
dividend payments, loans or other transfers of cash to the Company. State
regulatory authorities exercise oversight regarding the provider networks,
medical care delivery and quality assurance programs, contract forms and
financial condition of the WellCare HMOs. The WellCare HMOs are also subject to
periodic examination by the relevant state regulatory authorities. New York
State certified HMOs are required to maintain a cash reserve equal to the
greater of 5% of expected annual medical costs or $100,000. Additionally, except
as described in the following paragraph, WCNY is required to maintain a
contingent reserve which must be increased annually by an amount equal to at
least 1% of statutory premiums earned limited, in total, to a maximum of 5% of
statutory premiums earned for the most recent calendar year and which may be
offset by the cash reserve. The cash reserve is calculated at December 31 of
each year and is maintained throughout the following calendar year. At December
31, 1998, WellCare had required cash reserves of approximately $5.3 million and
a contingent reserve of approximately $6.7 million. In the event the contingent
reserve exceeds the required cash reserve, the excess of the contingent reserve
over the required cash reserve is required to be maintained.

         Notwithstanding the above, NYSID has the authority to allow an HMO to
maintain a net worth of 50% to 100% of the contingent reserve. WCNY executed a
Section 1307 loan in March 1998, which retroactively brought WCNY's December 31,
1997 statutory net worth above the permitted 50% contingent reserve requirement.
(Under the provisions of Section 1307 of the New York State Insurance Law, the
principal and interest are treated as equity capital for regulatory purposes and
are repayable out of the free and divisible surplus, subject to the prior
approval of the Superintendent of Insurance of the State of New York). WCNY had
been operating within the 50-100% discretionary contingent reserve requirement
during 1997, and through the first quarter of 1998, with the full knowledge of
NYSID. In 1998, the Company forgave the management fees for WCNY for 1998 in the
amount of approximately $1.4 million. In June 1997 and November 1997, the
Company loaned $3.1 and $1.3 million, respectively, to WCNY under the provisions
of Section 1307. However, after giving effect to the reported results for 1998,
at December 31, 1998 WCNY had a negative statutory net worth of approximately
($14.6) million. Failure to come into compliance with the reserve requirement
could cause NYSID to take action which could include restriction or revocation
of WCNY's license.

         Management has had ongoing discussions and meetings with NYSID
regarding WCNY's operating results and compliance with various statutory
requirements and has updated NYSID of the Company's plans to obtain additional
funds. This includes a remedial action plan based upon capital to be contributed
to WCNY following the consummation of a strategic opportunity with respect to
which, in March 1998, the Company engaged the assistance of Bear, Stearns & Co.,
Inc., and WCNY's ultimate return to profitability. In April 1999, WCNY agreed to
a consent to rehabilitation in which the State of New York has the right to
commence court proceedings and have an order entered into that would give the
State of New York the right to assume the operations of WCNY. In May and June
1999, the Company consummated a number of transactions which will bring WCNY
within the 50% to 100% revised contingent reserve requirement, as permitted by
NYSID. The transactions include: an equity investment of $5 million; sale of
WCNY's commercial enrollment for approximately $5 million; settlement of
provider claims at amounts significantly lower than the estimated liability of
approximately $30.5 million; renegotiation and settlement of approximately $5.4
million of mortgage debt; and the conversion of the $15 million subordinated
convertible note into senior convertible preferred stock of the Company (see
Note 24 of "Notes to Consolidated Financial Statements"). As a result of these
transactions, WellCare anticipates that the State of New York would not exercise
that right.

         WCCT is subject to similar regulatory requirements with respect to its
HMO operations in Connecticut. The Connecticut Department of Insurance requires
that WCCT maintain a statutory reserve of $1 million. In June and November 1997,
the Company made capital contributions of $350,000 and $425,000, respectively,
to WCCT to bring its statutory net worth to the required minimum of $1 million.
In March 1998, the Company made an additional capital contribution of $368,000
to WCCT to bring its statutory net worth above the $1 million requirement. At
December 31, 1998, WCCT is not in compliance with the statutory net worth
requirement having a statutory net worth of approximately $.6 million, including
an account receivable from the Company of approximately $.9 million. As a
result, on June 2, 1999 the State of Connecticut Insurance Department issued an
order requiring WCCT to submit to administrative supervision by the State's
Insurance Commissioner until WCCT meets its statutory net worth (without
including the account receivable from the Company) and other requirements.
Management has been meeting with the Connecticut Department of Insurance
regarding the statutory net worth deficiency to develop a mutually agreeable
plan to bring WCCT into compliance with the statutory net worth requirement.

         In January 1997, WCNY received the final report on its biennial
statutory examination for the years ended December 31, 1994 and 1995 from NYSID.
In 1996, during the course of the audit, the Company had recorded two
non-recurring medical charges (see Note 3g of "Notes to Consolidated Financial
Statements") based on the interim findings and instructions of NYSID.
Additionally, NYSID determined that WCNY was not in compliance with all
pertinent New York State regulation sections relating to WCNY's underwriting and
rating procedures and the requirements governing approval of policy forms. These
matters were referred to NYSID's Office of General Counsel for disciplinary
action. In December 1997, WCNY entered into a Stipulation Agreement whereby it
agreed to pay a penalty of $91,000 and to correct past violations. An additional
penalty of $66,000 may be assessed if NYSID subsequently determines that WCNY
has not made a good faith effort to recoup undercharges from incorrectly rated
groups. WCNY believes it has directed its best efforts at recouping these
undercharges, and believes it will not be assessed an additional penalty.

         As a result of the examination, WCNY's statutory net worth at December
31, 1995, was deficient by approximately $1.1 million. In March 1996, the
Company made a capital contribution of $3 million to WCNY and, in October 1996,
the Company loaned WCNY $3 million under the provisions of Section 1307. These
two cash infusions more than offset the examination's adjustment to WCNY's net
worth.

         Legislation by both New York State and Connecticut requires HMOs to pay
undisputed claims within 45 days of receipt. WCNY and WCCT continue to pay
claims later than required. The Company has recorded as an expense the estimated
interest it may be required to pay on these late payments, which management
believes is not material to the Company's operations.

         Applicable New York statutes and regulations require the prior approval
of the New York Commissioner of Health and the New York Superintendent of
Insurance for any change of control of WCNY or the Company. A similar law in
Connecticut requires the approval of the Insurance Commissioner of Connecticut
for any change in control of WCCT or the Company. Effective February 2, 1999,
the Company transferred all of the outstanding capital stock of WCCT to WCNY.
The Insurance Commissioner of Connecticut granted an exemption to this
requirement because the ultimate control of WCCT remains with WellCare through
its wholly-owned subsidiary, WCNY, and WellCare asserted its intention to fund
and maintain WCCT's statutory net worth at a level equal or greater than the
minimum levels currently required. The approval of the acquisition of control of
WCCT by Dr. Patel, in June 1999, is pending a public hearing in Connecticut and
regulatory approval. Until such approval is granted, Dr. Patel is precluded from
exercising influence in directing the management and policies of WCCT. There can
be no assurance that approval of the change in control will be granted. Under
New York law, transactions between a holding company and a controlled HMO must
be fair and equitable. Any transaction that involves 5% or more of WCNY's assets
requires prior approval. The investment by Dr. Patel in WellCare was approved by
the New York State regulators on June 11, 1999.

         Hospital charges in Connecticut are based on a per diem per patient
system rather than a DRG system. Eligible HMOs are permitted to directly
negotiate for a different rate and method of reimbursement with a Connecticut
hospital.

         Connecticut legislation pertaining to managed care organizations (the
"MCO Act") became effective October 1, 1997. With respect to providers, the MCO
Act, except in limited circumstances, provides that contracts with participating
providers must require that each party give at least 60 days' advance written
notice to the other in order to withdraw from or terminate the agreement. The
MCO Act also provides that an HMO may not threaten or take action against a
participating provider in retaliation for such provider: (i) seeking expedited
review by a utilization review company; or (ii) assisting an enrollee during an
enrollee's appeals process. An HMO may neither prohibit a participating provider
from disclosing to an enrollee the method of compensation the HMO utilizes, nor
prohibit a participating provider from discussing with an enrollee any treatment
options and service available in or out of network, including experimental
treatments.

         With respect to HMO members, the MCO Act requires HMOs to have an
internal grievance procedure permitting enrollees to seek a review of any
grievance that may arise from an HMO's action or inaction, excluding an action
or inaction based on utilization review. The MCO Act and implementing
regulations also created an external appeals process. Enrollees who exhaust
their appeals with the HMO or the utilization review company may file an
external appeal with the Connecticut Insurance Department. The external appeals
are conducted by an external appeals entity which may accept the grievance for
full review. If the grievance receives full review, the Insurance Commissioner
shall accept the decision of the external appeals entity, and the decision is
binding. External review does not apply to Medicaid, Medicare or Medicare Risk
health plans.

         The MCO Act also requires an HMO to comply with the federal Health
Insurance Portability and Accountability Act of 1996 ("HIPAA"). The MCO Act
further requires that benefit policies provide that members receive benefits for
biologically-based mental or nervous conditions that are at least equal to
coverage for any other medical or surgical conditions.

RECENT NEW YORK STATE LEGISLATION

         In 1998, New York enacted a law which carves out pharmaceutical
benefits provided to eligible Medicaid recipients enrolled in managed care plans
from the contracted approved Medicaid benefit package. Medicaid eligible members
will receive pharmacy benefits through the Medicaid program by using their fee-
for-service Medicaid card. The law was effective August 1, 1998.

         New York also enacted a new law establishing a right for health care
consumers to obtain an external review of determinations made by HMOs and
insurers when coverage of health care has been denied on the grounds that the
service is not medically necessary or that such service is experimental or
investigational and establishing standards for the certification of the external
review agents. In addition, the law requires provider contracts to include an
explanation of provider payment methodologies; the time periods for provider
payments; the information to be relied upon to calculate payments and
adjustments; and the process to be employed to resolve disputes concerning
provider payments. The law will become effective July 1, 1999.

         New York also enacted a law expanding the Child Health Plus program for
eligible children up to age 19 by increasing covered services, beginning early
in 1999, to provide emergency, preventive and routine dental care; speech and
hearing services; emergency, preventive and routine vision care including
eyeglasses; inpatient mental health, alcohol and substance abuse services; and
durable medical equipment, hearing devices, wheelchairs and leg braces. In
addition, the measure provides free coverage for children in families with
incomes less than 160% of the federal poverty level; lowers monthly premium
contributions for families between 160% and 222% of the federal poverty level;
eliminates co-payments for services; and provides for the development of local
public education and outreach. The legislation expands Medicaid coverage by
increasing Medicaid coverage for children from birth through age 18 with a
family income of up to 133% of the net federal poverty level; provides Medicaid
eligible children with 12 months of continuous coverage; and increases income
eligibility for children from 100% to 133% of the net federal poverty level. The
federally funded Child Health Plus program will provide $256 million to New York
annually. This measure authorizes the use of these federal funds combined with
the $164 million state funds appropriated for the FY 1998-99.

         The measure also includes fraud and abuse provisions for Medicaid and
Child Health Plus by providing for a tax refund intercept to collect adjudicated
overpayments; an increase in penalties for repeat violations for filing false
Medicaid claims; and the expansion of anti-kickback provisions to include
individuals as well as Medicaid providers. Lastly, the law requires HMOs with
more than 60,000 members including Child Health Plus or Medicaid members to
implement a compliance program (State Public Health Law - ss.4414) to prevent,
detect and address instances of fraud and abuse. The legislation provides a
waiver of this requirement if the HMO has established an anti-fraud compliance
program pursuant to the State Insurance Law ss.409. In 1998, New York enacted a
law requiring the current Consumer Guide published by the State Insurance
Department-- which ranks health plans based on the ratio of complaints found to
be valid and the ratio of appeals made through the grievance and Utilization
Review process, including the number of times a health plan reverses a decision
-- to also include, effective September 1, 1999, the rate of physician board
certification; provider turnover rates; the percentage of enrollees who have
been seen for ambulatory or preventive care visits during the previous three
years of enrollment; methods used to compensate providers; accreditation status
of plans and indices of quality, including rates of mammography, prostate and
cervical cancer screening, prenatal care, immunization; other information
collected through the Health Plan Employer Data Information Set (HEDIS); and the
results of a consumer satisfaction survey conducted by the State Superintendent
of Insurance.

         Insurers and HMOs are required to pay providers within 45 calendar days
of receipt of undisputed ("clean") claims submitted for services provided. In
the event a claim is not undisputed, the insurer or HMO must notify the provider
within 30 calendar days of receipt and request additional information if
necessary. In addition to charging interest on late claims, penalties of up to
$500 per day per claim may be imposed.

         Penalties of up to $10,000 may be imposed on insurers and HMOs which
fail to respond to the New York State Insurance Department inquiries in a timely
manner and in good faith.

         Effective January 1, 1998, New York laws also require coverage of the
following benefits:

         * HMOs are required to cover individuals undergoing mastectomies for a
           duration to be determined by the attending physicians and the
           patient. Out-of-network second opinions for cancer are required to be
           covered. Coverage is also required for all stages of reconstruction
           of the breast on which the mastectomy has been performed. In
           addition, coverage for surgery and reconstruction of the other breast
           to produce a symmetrical appearance is now mandated.

         * Chiropractic care coverage by a licensed doctor chiropractic upon
           referral by a PCP is also now mandated. HMOs and non-managed care
           plans are subject to different requirements.

         Effective January 4, 1998, coverage for enteral formulas is required
for all plans which provide a pharmacy benefit. The modified food component of
this mandated coverage is capped at $2,500 per member per year.

         New York State's excess medical malpractice program has been extended
for one year. The extension of the program is on a self-funded basis based upon
the existing surplus, with no contribution from payors and insurers. Premiums
will be returned to insurers under certain circumstances. Effective January 1,
1997, the Health Care Reform Act ("HCRA") allowing, for the first time, all
private health care payers to negotiate payment rates for inpatient hospital
services expires on December 31, 1999. Previously, only HMOs could negotiate
rates for these services. A soon to be issued State Report evaluating the
implementation of HCRA will include recommendations regarding this Act. As this
Act expires in 1999, action regarding HCRA will be under review and
consideration by the New York State Legislature in the 1999 Legislative Session.

RECENT CONNECTICUT STATE LEGISLATION

         Connecticut enacted legislation in 1998 that requires HMOs to pay
health care providers' claims (i) within 45 days of the provider filing claim
for payment in accordance with the HMO's practices or procedures or (ii) as
stipulated by contract between the HMO and the provider. If the claim is not
legitimately disputed as to coverage, liability or damages or fraudulent, as
determined by the Insurance Commissioner, and the HMO fails to pay it, the HMO
must pay the claim plus interest at the rate of 15% per year. In addition,
failure to pay claims as required by the statute constitutes an unfair method of
competition and an unfair and deceptive act or practice in the business of
insurance, for which the Insurance Commissioner may impose penalties including
(i) issuing a cease and desist order; (ii) requiring the HMO to pay a penalty of
$1,000 to $5,000 per act, up to an aggregate of $50,000; or (iii) surrender of
the HMO's license. This "prompt pay" legislation took effect on January 1, 1999,
and applies to all contracts begun or revised after that date.

         New legislation also extends by two months the filing deadline for HMOs
to submit to the Insurance Commissioner that data required by the National
Committee for Quality Assurance (NCQA) for its Health Plan Employer Data and
Information Set (HEDIS). This data must now be filed by July 1 of each year,
rather than May 1 as previously required.

FEDERAL REGULATION

         The WellCare HMOs are not federally qualified and neither they nor
WellCare's managed health care operations currently are subject to federal
regulation other than those operations relating to Medicaid and Medicare
products and as otherwise described below.

         WCNY's Full Risk Medicare product is subject to regulation by the
Health Care Financing Administration ("HCFA"). Regulations also cover, among
other things, quality care, limitations on enrollment and compliance with
requirements established by peer review organizations contracting with HCFA.

         WCNY's Medicaid contracts are subject to both federal and state
regulation regarding services to be provided to Medicaid enrollees, payment for
those services and other aspects of the Medicaid program. The New York State
Department of Health is responsible for oversight of WCNY's compliance with such
regulation.

         Medicare+Choice (Part C) Legislation and the Balanced Budget Act of
1997 have impacted current Risk contractors. Beginning in 1999, Medicare
beneficiaries will have more options for health care coverage (PSO, PPO, MSAs),
and HCFA is undertaking an educational effort paid for by Medicare managed care
plans. Another major impact will be the changes to the rate methodology, and new
time frames for submitting rate and benefit filings.

RECENT FEDERAL LEGISLATION

         The Women's Health and Cancer Rights Act of 1998 (the "Act") mandates
coverage of reconstructive surgery and other treatments associated with
mastectomy and required plans to notify enrollees before the effective date of
January 1, 1999. New York State's mastectomy and reconstruction mandates enacted
in 1997 and in effect since January 1,1998, match or exceed the federal Act's
requirements with the exception of the federal requirement for coverage of
prostheses in group market products.

         Also the Act prohibits the Federal Employees Health Benefits Program
from using federal funds to contract with any health plan that provides coverage
for prescription drugs unless that plan also provides coverage for
contraceptives, including devices.

         The Act also increases the tax deduction for health insurance expense
of self employed individuals to 60% in 1999, 70% in 2002, and 100% in 2003,
accelerating the phase-in which was enacted in the Balanced Budget Act of 1997.

<PAGE>

ITEM 2.  PROPERTIES

         At December 31, 1998, WellCare's executive offices were located in two
adjacent buildings, Park West I and Park West II, at Hurley Avenue in Kingston,
New York. Park West I provides approximately 27,000 square feet of office space.
Park West II, which provides approximately 11,600 square feet of office space,
has been used for storage since 1997. The Company also owned four other
buildings through its wholly-owned subsidiary, WellCare Development,
Inc.("WCD"). Three of the buildings are located in Kingston and, combined,
provide approximately 40,000 square feet of office space utilized by the
Company's communication, information and member service divisions. The fourth
building is located in Saugerties, New York and provides approximately 10,000
square feet of office suites that are leased to three unrelated health care
providers and a medical laboratory at annual rental incomes of approximately
$45,500, $33,400, $29,300 and $6,000, respectively.

         In June 1999, WCD agreed to transfer ownership of all of the Company's
real property to the mortgagees of those properties in consideration for the
mortgagees relieving the Company of any liability under the mortgages.

         The Company leases the following properties for WCNY: approximately
14,100 square feet in Newburgh, New York, approximately 1,800 square feet in
Albany, New York, and approximately 1,250 square feet in Binghamton, New York,
at an annual expenses of approximately $335,500, $30,300 and $16,800,
respectively. In turn, the Company subleases approximately 4,100 square feet in
Newburgh, to an unrelated health care provider annual rental of approximately
$109,900. The Company also leases 10,000 square feet in Tarrytown, New York, at
an annual expense of $191,500, which lease was terminated in June 1999.

         The Company leases approximately 5,000 square feet of office space in
North Haven, Connecticut, for WCCT, at an annual rental expense of approximately
$73,000.

         As a result of the Patel and GHI transactions, the Company believes its
current and future needs will be significantly reduced. The Company is in the
process of consolidating its administrative functions and will be vacating
substantially all of the space previously occupied in the owned facilities. The
Company continues to evaluate its needs, and believes sufficient space is
available for its current and future requirements.

ITEM 3.  LEGAL PROCEEDINGS

CLASS ACTION SECURITIES LITIGATION

         Between April and June 1996, the Company, its former President and
Chief Executive Officer (Edward A. Ullmann), and its former Vice President of
Finance and Chief Financial Officer (Marystephanie Corsones) were named as
defendants in twelve separate actions filed in Federal Court (the "Securities
Litigations"). An additional three directors were also named in one of these
actions. Plaintiffs sought to recover damages allegedly caused by the Company's
defendants' violations of federal securities laws with regard to the preparation
and dissemination to the investing public of false and misleading information
concerning the Company's financial condition.

         In July 1996, the Securities Litigations were consolidated in the
United States District Court for the Northern District of New York, and an
amended consolidating complaint (the "Complaint") was served in August 1996. The
Complaint did not name the three additional directors. The Company's auditor,
however, was named as an additional defendant. In October 1996, the Company
filed a motion to dismiss the consolidated amended complaint against the Company
as well as the individual defendants. The Company's auditor likewise filed its
own motion to dismiss. By Memorandum Decision and Order (the "Order"), entered
in April 1997, the Court (i) granted the auditor's motion to dismiss and ordered
that the claims against the auditors be dismissed with prejudice; and (ii)
denied the motion to dismiss brought by the individual defendants. Because the
Order did not specifically address the Company's motion to dismiss, in May 1997,
the Company moved for reconsideration of its motion to dismiss and dismissal of
all claims asserted against it. On reconsideration, the judge clarified his
previous ruling expanding it to include a denial of the Company's motion as
well. Following the Court's decision, the Company filed its answer and defense
to the Complaint. In September 1997, the plaintiffs' class was certified and the
parties thereafter commenced the discovery process of the litigation.

         In May 1999, the Company entered into a settlement agreement for $2.5
million, all of which is being funded by the insurance carrier which provided
coverage to the individual defendants. The settlement agreement is subject to
Federal Court approval. The Company expects to recoup from the insurance carrier
the expenses related to fees it paid to the attorneys representing the
individual defendants, less the Company's insurance deductible.

OTHER MATTERS

         The Company and certain of it subsidiaries, including WCNY, have
responded to subpoenas issued in April and August 1997 from the United States
District Court for the Northern District of New York through the office of the
United States Attorney for that District. These subpoenas sought the production
of various documents concerning financial and accounting systems, corporate
records, press releases and other external communications. While the United
States Attorney has not disclosed the purpose of its inquiry, the Company has
reason to believe that neither its current management nor its current directors
are subjects or targets of the investigation. The Company has informed the
government that it will continue to cooperate fully in any way that it can in
connection with the ongoing investigation.

         On July 31, 1996 and October 3, 1996, the Securities and Exchange
Commission issued subpoenas to the Company for the production of various
financial and medical claims information. The Company fully complied with both
of these subpoenas on August 21, 1996 and October 31, 1996, and with subsequent
requests for supplementation. It is management's understanding that the
Securities and Exchange Commission investigation is continuing.


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

         None.

<PAGE>

                                     PART II

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

         The Company's common stock began trading on the Nasdaq Bulletin Board
system, effective September 9, 1998, under the symbol "WELL". Previously, the
common stock had been listed on the Nasdaq Small Cap Market, since October 30,
1997, and prior to that on the Nasdaq National Market. The following table sets
forth the closing high and low sale prices for the common stock for each quarter
of the last two calendar years. There is no trading market for the Company's
Class A common stock.

                                   HIGH              LOW
                                   ----              ---
1998
----

First Quarter                    3 7/16                2 5/32

Second Quarter                   3 1/8                 1 29/32

Third Quarter                    2 1/2                    1/2

Fourth Quarter                   1 11/16                  1/4

1997
----

First Quarter                   10 5/8                 6 1/2

Second Quarter                   8 7/8                 3 7/8

Third Quarter                    6 7/8                 2 5/8

Fourth Quarter                   5 15/16               1 3/8


         On July 1, 1999, there were approximately 225 and 7 holders of record
of the Company's common stock and Class A common stock, respectively, which did
not include beneficial owners of shares registered in nominee or street name.

         WellCare has not paid cash dividends on its capital stock and does not
anticipate paying any cash dividends on its common stock or Class A common stock
in the foreseeable future (See "Business - Government Regulation" for
restrictions on the payment of dividends by the WellCare HMOs, wholly-owned
subsidiaries of the Company).

         On June 11, 1999, Kiran C. Patel, M.D. ("Patel"), the principal of Well
Care HMO, Inc., a Florida corporation, an entity unrelated to WellCare,
purchased a 55% ownership interest in the Company for $5 million. Dr. Patel
purchased 100,000 shares (the "Shares") of a newly authorized series of senior
convertible preferred stock ("Series A Convertible Preferred Stock") of
WellCare, which will provide him with 55% of WellCare's voting power. The Series
A Convertible Preferred Stock is subject to mandatory conversion into common
stock upon the amendment to WellCare's certificate of incorporation to increase
the number of authorized shares of common stock from 20 million to 75 million.
The Shares will be convertible into 55% of the then outstanding common stock
(after giving effect to such conversion) and will be subject to anti-dilution
rights under which Dr. Patel will generally preserve his 55% interest in
WellCare until there are 75 million shares of common stock issued and
outstanding. In order to preserve his 55% interest, Dr. Patel will be required
to pay the par value ($0.1 per share) for each common share subsequently
purchased. The Shares were purchased for investment and the issuance of those
securities was exempt from the registration requirements of the Securities Act
of 1933, as amended, by virtue of Section 4(2) thereof. The certificate
representing the Shares was appropriately legended to reflect that the Shares
have not been registered under said Act.

         On June 11, 1999, the 1818 Fund II, L.P. converted a $15 million 8%
subordinated convertible promissory note, plus accrued and unpaid interest of
approximately $0.7 million, into 100,000 shares of a second newly authorized
series of senior convertible preferred stock ("Series B Convertible Preferred
Stock") of WellCare. The Series B Convertible Preferred Stock is non-voting and
is subject to mandatory conversion (subject to regulatory approval) into
10,000,000 shares of WellCare's common stock upon the amendment to WellCare's
certificate of incorporation to increase the number of authorized shares from 20
million to 75 million. The shares were purchased for investment and the issuance
of those securities was exempt from the registration requirements of the
Securities Act of 1933, as amended, by virtue of Section 4(2) thereof. The
certificate representing the shares of Series B Convertible Preferred Stock was
appropriately legended to reflect that the shares have not been registered under
said Act.

ITEM 6.  SELECTED CONSOLIDATED FINANCIAL DATA

         The following selected financial data have been derived from the
Company's audited consolidated financial statements and should be read in
conjunction with the consolidated financial statements, related notes and other
financial information included elsewhere herein.

         The selected financial data in the table as of December 31, 1998 and
1997, and for the periods ended December 31, 1998, 1997 and 1996, are derived
from the consolidated financial statements of the Company which have been
audited by Deloitte & Touche, LLP, independent auditors, as indicated in their
report included elsewhere in this Form 10-K. The audit report includes an
explanatory paragraph regarding certain conditions which raise substantial doubt
about the Company's ability to continue as a going concern. (See "Consolidated
Financial Statements").

STATEMENT OF OPERATIONS DATA:
(in thousands, except per share data)

<TABLE>
<CAPTION>

                                                              Year Ended December 31,
                                               ------------------------------------------------
                                               1998           1997          1996          1995          1994
                                               -----          -----         -----         -----         -----
<S>                                            <C>            <C>           <C>          <C>            <C>
Revenue:
   Premiums earned                             $142,742       $142,115      $157,156     $144,518       $120,411
   Interest and other income                      1,707          1,755         3,930        8,031          2,171
                                               --------       --------      --------     --------       --------

Total revenue                                   144,449        143,870       161,086      152,549        122,582
                                               --------       --------      --------     --------       --------
Expenses:
   Medical expenses                             129,494        126,251       135,957      115,560         98,411
   General and administrative
     expenses                                    32,641         34,485        39,334       30,279         15,599
   Depreciation and
     amortization expenses                        6,001          3,624         3,254        2,292          1,611
   Interest and other expenses                    1,730          1,652         2,361        1,629          1,099
                                               --------       --------      --------     --------       --------
Total expenses                                  169,866        166,012       180,906      149,760        116,720
                                               --------       --------      --------     --------       --------
(Loss)/income before
   income taxes                                 (25,417)       (22,142)      (19,820)       2,789          5,862
Provision/(benefit) for
   income taxes (1)                               5,441             --        (8,038)       1,116          2,403
                                               --------       --------      --------     --------       --------
Net (Loss)/income                              $(30,858)      $(22,142)     $(11,782)    $  1,673       $  3,459
                                               ========       ========      ========     ========       ========
(Loss)/earnings per share-
   Basic:                                      $  (4.36)      $  (3.52)     $  (1.87)    $   0.27       $   0.56
                                               ========       ========      ========     ========       ========
     Weighted average shares
     of common stock outstanding                  7,081          6,299         6,296        6,250          6,224

   Diluted:                                    $  (4.36)      $  (3.52)     $  (1.87)    $   0.26       $   0.54
                                               ========       ========      ========     ========       ========
     Weighted average shares
     of common stock and
     common stock equivalents
     outstanding                                    (2)             (2)           (2)       6,396          6,354
-------------------------
</TABLE>
<TABLE>
<CAPTION>
Balance Sheet Data:
(in thousands)

                                                                 December 31,
                                               ------------------------------------------------
                                               1998           1997          1996          1995          1994
                                               -----          -----         -----         -----         -----
<S>                                            <C>            <C>           <C>           <C>           <C>
Working capital/(deficiency)                   $(26,055)      $(5,115)      $11,172       $12,733       $ 4,776
Total assets                                     29,939        52,538        71,340        72,011        57,793
Long-term debt                                   15,078        25,852        26,467        19,209         6,336
Total liabilities                                57,647        54,389        51,066        40,207        28,486
(Deficiency in assets)/
 Shareholders' equity                           (27,708)       (1,851)       20,274        31,804        29,307
</TABLE>
-------------------------
(1)  Continuing operating losses during 1998 and 1997 resulted in additional
     deferred tax benefits of approximately $8.7 and $7.8 million respectively.
     The Company has provided a 100% valuation allowance, in each year, with
     respect to these additional deferred tax assets in view of their size and
     length of the expected recoupment period. In addition, in 1998, the Company
     provided a 100% valuation allowance with respect to deferred tax assets of
     $5.4 million relating to periods prior to 1997. (See Note 14 of Notes to
     Consolidated Financial Statements).
(2)  Weighted average shares of common stock and common stock equivalents are
     not shown as the effect on per share would be anti-dilutive.

<PAGE>

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

         The following discussion and analysis should be read in conjunction
with the Consolidated Financial Statements and Notes thereto included elsewhere
herein.

         The Company's financial statements have been prepared assuming that the
Company will continue as a going concern. The auditors' report states that "the
Company's recurring losses from operations, cash used in operations, deficiency
in assets at December 31, 1998, and failure to maintain 100% of the contingent
reserve requirement for the New York State Department of Insurance at December
31, 1998, raise substantial doubt about its ability to continue as a going
concern." (See Consolidated Financial Statements).

         Certain statements in this Annual Report on Form 10-K are
forward-looking statements and are not based on historical facts but are
management's projections or best estimates. Actual results may differ from these
projections due to risks and uncertainties. These risks and uncertainties
include a variety of factors, including but not limited to the following: the
Company's ability to continue as a going concern; that Dr. Patel will not obtain
Connecticut regulatory approval of the change in control of WCCT contemplated by
the Patel transaction; the inability to meet HMO statutory net worth requirement
for WCNY or WCCT; the absence of a commercial line of business in WCNY for at
least one year; that increased regulation will increase health care expenses;
that increased competition in the Company's markets or change in product mix
will unexpectedly reduce premium revenue; that the Company will not be
successful in increasing membership growth; that there may be adverse changes in
Medicare and Medicaid premium rates set by federal and state governmental
agencies; that health care cost in any given period may be greater than expected
due to unexpected incidence of major cases, natural disasters, epidemics,
changes in physician practices, and new technologies; that the Company will be
unable to successfully expand its operations into New York City, Westchester
County and the State of Connecticut; and that major health care providers will
be unable to maintain their operations and reduce or eliminate their accumulated
deficits.

         Legislative and regulatory proposals have been made at the federal and
state government levels related to the health care system, including but not
limited to limitations on managed care organizations (including benefit
mandates) and reform of the Medicare and Medicaid programs. Such legislative or
regulatory action could have the effect of reducing the premiums paid to the
Company by governmental programs or increasing the Company's medical costs or
both. The Company is unable to predict the specific content of any future
legislation, action or regulation that may be enacted or when any such future
legislation or regulation will be adopted. Therefore, the Company cannot predict
the effect of such future legislation, action or regulation on the Company's
business.

GENERAL OVERVIEW

         The Company has sustained operating losses in each of the last three
years and, at December 31, 1998, has a working capital deficiency of $26.1
million. At December 31, 1998, WCNY and WCCT are not in compliance with the
statutory net worth requirements in New York and Connecticut, respectively. The
Company's ability to continue as a going concern is dependent upon the
consummation of a transaction or transactions which would provide capital
sufficient to meet its financial obligations, including statutory compliance,
and its return to profitability.

         In March 1998, the Company engaged Bear, Stearns & Co., to assist the
Company in exploring its strategic opportunities, which could include joint
venture, capital contributions, merger or sale of all or a portion of the
Company. In May and June 1999, the Company consummated a number of transactions
which are expected to reduce the Company's working capital deficit by
approximately $18.0 million; bring WCNY within the 50% to 100% revised
contingent reserve requirement, as permitted by NYSID; substantially retire all
of the Company's long-term debt; significantly reduce WCNY's obligation to its
providers; and change the configuration and focus of the Company ("ongoing
WellCare"). Thereafter, ongoing WellCare's operations in New York will consist
solely of its governmental programs (Medicare, Medicaid, and Child Health Plus),
with WCNY's revised statutory cash reserve decreased to $2.9 million, and its
revised statutory contingent reserve decreased to $3.7 million. WCCT will
continue its commercial business in Connecticut, subject to a public hearing and
regulatory approval of the acquisition of control of WCCT. Management believes
the consummation of these transactions will improve ongoing WellCare's ability
to continue as a going concern.

         WellCare's principal source of revenue is premiums earned from the
WellCare HMOs. Other revenue consists principally of interest and rental income.
Premiums earned represented 98.8% of the Company's total revenue for the year
ended December 31, 1998, and were equal to 1997, after having declined in 1997
by 9.6%. In 1998, the increase in WCCT commercial membership and Child Health
Plus membership was offset by the decrease in WCNY commercial membership.

         The Company's ability to achieve profitability is dependent principally
on reducing its medical expenses as a percentage of its premium revenue (the
"medical loss ratio" or "MLR"). Although WellCare has initiated programs to
reduce the MLR, the actions have not yet generated improvements sufficient to
return the Company to profitability. Effective January 1999, WCNY did not renew
its Medicare Risk contract in four counties (approximately 4,000 members) after
reviewing its medical loss ratio in each of these counties. Effective June 1,
1999, WCNY sold its commercial business, including approximately 25,000 members,
to GHI.

         The results of operations depend in large part on the Company's ability
to predict, quantify and manage medical costs. Medical expenses consist of
hospital charges, physician fees and related health care costs for its members.
Medical expenses also include estimates for medical services incurred but not
yet reported ("IBNR") to the Company, based on a number of factors, including
hospital admission data and prior claims experience; adjustments, if necessary,
are made to medical expenses in the period the actual claims costs are
ultimately determined. A daily inventory of hospital days and patient stays by
product line is maintained by medical management. Claims are entered and scanned
into the claims system and then available for examiners to either process,
review and approve for payment, pend for additional information from the
provider or deny. All claims are a entered into the system at charges and
evaluated.

         Ongoing studies for the three product lines provide the Company with
the tools to estimate the percentage of pended claims to be paid relative to
submitted charges. All claims paid, payable and pended are evaluated weekly and
a projection of ultimate payables is estimated. Moreover, procedures are in
place whereby the actual runoff of claims for each of the last twelve months
versus the reserve for IBNR and the paid, pended, payable claims are reviewed
for accuracy as compared to the original projections. This procedure is intended
to allow the Company to continually estimate its unknown claims reserves and
IBNR more effectively.

         The Company believes that the process of trending the ultimate
resolution of paid, payable, and pended claims allows the Company to analyze
trends and changes in payments and utilization patterns and, therefore, react to
medical costs on a proactive versus a reactive basis. The Company's recording of
IBNR during 1997 and the first three quarters of 1998 has, in retrospect, been
for amounts less than subsequently incurred based on the actual settlement of
claims. Although the Company continues its efforts to make this estimating
process more accurate, and believes the IBNR estimates in the December 31, 1998
consolidated financial statements are adequate, there can be no assurance that
IBNR reserve currently recorded will be sufficient to cover medical expenses
ultimately incurred.

         The Company seeks to control medical expenses through capitation
arrangements with the Alliances/IPAs and with non-Alliance/IPA primary care
physicians, capitation arrangements with certain specialty providers, and
through its quality improvement programs, utilization management and review of
hospital inpatient and outpatient services, and educational programs on
effective managed care for its providers.

RESULTS OF OPERATIONS

         The following table provides certain statement of operations data
expressed as a percentage of total revenue and other statistical data for the
years indicated:

                                                YEAR ENDED DECEMBER 31,
                                         --------------------------------------
                                          1998            1997           1996
                                          ----            ----           ----
Statement of Operations Data:

Revenue:
     Premiums earned                      98.8%           98.8%          97.5%
     Interest and other income             1.2             1.2            2.5
                                         -----           -----          -----
         Total revenue                   100.0           100.0          100.0

Expenses:
     Hospital services                    29.2            25.1           23.1
     Physician services                   57.9            58.5           59.5
     Other medical services                2.6             4.2            1.7
                                         -----           -----          -----

        Total medical expenses            89.7            87.8           84.3
General and administrative                22.6            24.0           24.4
Depreciation and amortization              4.1             2.5            2.0
Interest and other expenses                1.2             1.1            1.6
                                         -----           -----          -----
         Total expenses                  117.6           115.4          112.3

Loss before income taxes                 (17.6)          (15.4)         (12.3)
Provision/(benefit) for
 income taxes                              3.8              --           (5.0)
                                         -----           -----          -----
Net loss (21.4)%                         (15.4)%          (7.3)%
                                         =====           =====          =====

Statistical Data:

 HMO member months enrollment          854,909         901,295      1,077,774
 Medical loss ratio(1)                    90.7%           88.8%          86.5%
 General and administrative
  ratio(2)                                22.6%           24.0%          24.4%
-------------------------
(1)  Total medical expenses as a percentage of premiums earned; reflects the
     combined rates of commercial, Medicaid, Full Risk Medicare and Medicare
     supplemental members. Medical expenses in 1998 include $730,216 of interest
     expense relating to "Prompt Pay" payments.
(2)  General and administrative expenses as a percentage of total revenue.


YEAR ENDED DECEMBER 31, 1998 COMPARED TO
YEAR ENDED DECEMBER 31, 1997

         Premiums earned in 1998 increased by 0.4%, or $0.6 million, to $142.7
from $142.1 million in 1997. Commercial premium revenue decreased 17.8%, or
$14.8 million, because of a 16.2%, or $13.5 million, decrease in membership and
a 1.9% decrease in average rates. Medicaid premium revenue increased 7.3%, or
$2.1 million, because of a 5.3%, or $1.5 million, increase in member months, and
a 1.9% increase in average rates. The 1998 Medicaid premium revenue is net of a
reduction of approximately $1.2 million to reflect retroactive reductions
attributable to 1997 ($0.4 million) and 1996 ($0.8 million). Medicare premium
revenue increased 45.6% or $13.3 million, because of a 39% or $11.4 million
increase in member months and an increase in average member rates of 4.7%.

         Interest income remained relatively consistent, and is primarily on
amounts due the Company by Primergy, as more fully discussed in Note 5 of "Notes
to the Consolidated Financial Statements", which amounts have been fully
reserved.

         Medical expense increased 2.6%, or $3.2 million, to $129.5 million in
1998, increased 8.1% on a PMPM basis, and increased as a percentage of premiums
earned (the "medical loss ratio") from 88.8% in 1997 to 90.7% in 1998. The 1998
medical expense includes a $3.7 million charge for adverse development relating
to 1997 and 1996 medical claims, less a credit of $0.8 million relating to the
New York State distribution of surplus market stabilization pool funds relating
to years 1993 to 1996. Medical expense for 1997 included a charge of $2.5
million for adverse development relating to medical claims reserves for 1996; a
$1.7 million charge for the estimated liability related to NYSID's audit of the
demographic pool payments and assessments for the years 1993-1996; and a
reduction of $0.4 million for various adjustments related to prior periods. The
1997 medical expense does not reflect the $3.5 million of adverse development
expense recorded in subsequent periods.

         General and administrative ("G&A") expenses decreased 5.3% or $1.9
million, to $32.6 million in 1998 from $34.5 million IN 1997, and decreased as a
percentage of total revenue (the G&A ratio") to 22.6% in 1998 from 24.0% in
1997. Included in G&A in 1998 is an expense of $2.8 million to reduce Property &
Equipment to its net realizable value. The decrease resulted primarily from
reductions in the provision for doubtful receivables ($3.1 million), marketing
related costs ($1.9 million), and payroll and payroll related costs resulting
from staff reductions in January 1998 ($0.6 million), partially offset by
increases relating to Y2K compliance ($0.5 million) and broker commissions for
WCCT ($0.5 million).

         Depreciation and amortization increased approximately $2.4 million, or
65.6%, primarily because the Company amortized the remaining preoperational
costs ($0.4 million), and amortized additional goodwill ($2.3 million). This
reflects the Company's assessment of the value of these assets at December 31,
1998. Interest expense increased 4.7% to $1.7 million due to the increased
interest on the Note.

YEAR ENDED DECEMBER 31, 1997 COMPARED TO
YEAR ENDED DECEMBER 31, 1996

         Premiums earned in 1997 decreased by 9.6%, or $15.1 million, to $142.1
million from $157.2 million in 1996. Commercial premium revenue decreased 29.6%,
or $35.1 million, primarily because of a decrease in member months attributable
to the loss in membership. The decline in commercial membership is attributable
to WellCare's more stringent application of its credit standards, pursuant to
which contracts for non-paying or slow-paying groups were canceled or not
renewed, as well as to customers' adverse reaction to the negative publicity
received by the Company related to the restatement of its 1994 financial
results. The loss of commercial membership in 1997 was also affected by WCNY's
non-competitive rates relative to other companies operating within WCNY's
marketplace. The rates in effect during 1996 and in the first half of 1997
caused a decline in renewing membership for 1997. During 1997, the Company
adjusted its premium rates to be competitive within the principal markets where
WCNY operates. Medicaid premium revenue increased 11.3%, or $3 million,
primarily as a result of a 10.4% increase in member months. Medicare premium
revenue increased 139.8%, or $17 million, due to a 159% increase in member
months, partially offset by a reduction in average per member rates of 7.4%, or
$2.3 million. Total member months decreased 16.4% in 1997 to 901,295.

         Interest and other income decreased by 53.8%, or $2.1 million, to $1.8
million in 1997. This decrease is primarily due to reductions in management
fees, insurance reimbursements and interest income.

         Medical expenses decreased 7.1% or $9.7 million, to $126.3 million in
1997, from $136.0 million in 1996. There was a 11.1% increase on a PMPM basis
and increase as a percentage of premiums earned (the "medical loss ratio") from
86.5% in 1996 to 88.8% in 1997. The decrease in medical expenses from 1996 is
primarily due to decreased commercial membership partially offset by increases
attributable to a change in product mix. Beginning in the third quarter of 1996
and throughout 1997, the Company made a major effort to improve the medical cost
economics of the business. These initiatives principally revolved around
renegotiated provider contracts and an improved effort in utilization
management. The shift in the percentage of member months attributable to
Medicare versus commercial has also affected medical costs. Medical expenses as
a percentage of premiums in the commercial and Medicaid lines of business have
decreased during the quarters, however; these gains were offset by higher than
anticipated medical costs associated with the expansion of the Medicare business
occurring principally in the fourth quarter of 1997.

         The 1997 medical expenses include the following accrual items: a $2.5
million charge for adverse development relating to 1996 medical claims and a
$1.7 million charge for the estimated liability related to NYSID's audit of the
1993-1995 demographic pool ($1.2 million) and the 1996 demographic pool, and a
$435,000 credit relating to the 1994 restatement. The 1996 medical expenses
include the recording, as instructed by NYSID, of medical expense of (i)
approximately $3.7 million relating to unpaid inpatient hospital claims; and
(ii) approximately $2.9 million relating to unpaid claims for the period prior
to October 1994. Both of these charges represent obligations which had
previously been assumed by the Alliances and for which the Company had no
contractual obligation to pay. A percentage of the increase in 1996 medical
expenses is also due to a restructuring of the contractual capitation
arrangements with the Alliances. As a result of the 1994 prior period
restatement, medical expenses in 1996 were reduced approximately $2,423,000 (See
Note 3b of "Notes to Consolidated Financial Statements").

         The decision to expand into the Medicare product line recognized that
the early stages of expansion would generate a medical loss ratio in excess of
100% until sufficient membership was achieved. As a result of the renegotiation
of many provider contracts from a DRG to a per diem basis and the efforts to
improve utilization management, it appeared that the third quarter medical loss
ratio for Medicare would generate an adequate profit margin before G&A costs.
Expected utilization improvements in the fourth quarter were based on the
favorable results of the third quarter, and led management to anticipate a
fourth quarter Medicare loss ratio in the range of 90-92%. In late January and
early February 1998, additional Medicare claims were received for the third
quarter of 1997, beyond the time frame within which the Company had been
experiencing with its commercial product. The Company had been receiving greater
than 90% of its Medicare claims within 12 weeks of the date of service. The
receipt of these additional late claims beyond the 12 week period created a
situation whereby the updated third quarter medical loss ratio is approximately
5% higher than originally estimated. Additionally, higher than expected fourth
quarter Medicare utilization (together with the third quarter adverse
development) generated medical costs approximately $2.2 million above
projections.

         General and administrative expenses decreased 11.2%, or $4.4 million,
to $34.9 million from $39.3 million in 1996 and decreased as a percent of total
revenue (the "G&A ratio") to 24.0% from 24.4% in 1996. The decrease in G&A is
the net result of a decrease of $3.2 million in the provision for doubtful trade
and other receivables; an increase of $0.3 million in advertising, promotional
and communication costs; a decrease of $.9 million in payroll and labor related
expenses because of reduced staffing levels; and a decrease of $1.0 million in
extraordinary legal and other professional services primarily related to class
action litigation.

         Depreciation and amortization increased by 11.4%, or $.4 million, in
1997 due primarily to amortization of preoperational costs associated with
service area and product line expansion. Interest and other expenses decreased
by 32.1%, or $.8 million, in 1997 due primarily to retirement of bank debt
during the fourth quarter of 1996, and the reduction of the annual interest
rate, in February 1997, on the Subordinated Convertible Note.

LIQUIDITY AND CAPITAL RESOURCES

         At December 31, 1998, the Company had a working capital deficiency of
$26.1 million, excluding the cash reserve of $5.3 million required by New York
State which is classified as a non-current asset, compared to a working capital
deficiency of $5.1 million at December 31, 1997, excluding the cash reserve of
$5.8 million. The increased deficiency is attributable primarily to the cash
operating loss in 1998. The Company's requirements for working capital are
principally to meet current obligation, to fund HMO operations and to maintain
necessary regulatory reserves. In order to eliminate this deficiency, and to
continue as a going concern, the Company is dependent upon the successful
consummation of a transaction or transactions which would provide capital
sufficient to meet its financial obligations, including statutory compliance,
and its achieving a return to profitability. In March 1998, the Company engaged
Bear, Stearns & Co., Inc. to assist the Company in exploring its strategic
opportunities. In May and June 1999, the Company consummated a number of
transaction which are expected to reduce the Company's working capital deficit
by approximately $18.1 million. The transactions include: an equity investment
of $5 million (the "Patel transaction"); sale of WCNY's commercial business for
approximately $5 million (the "GHI transaction"); settlement of provider claims
at amounts significantly lower than the estimated liability of approximately
$30.5 million; renegotiation and settlement of approximately $5.4 million of
mortgage debt; and the conversion of the $15 million subordinated convertible
note into senior convertible preferred stock of the Company (see Note 24). After
the conclusion of these transaction, the Company's ongoing cash requirements
will be less as substantially all long-term debt will have been retired, the
Company will no longer provide commercial health care coverage in New York, its
space needs will have been reduced substantially, and it will have 105 employees
compared to 236 at December 31, 1998. Management believes that the consummation
of these transactions will improve WellCare's ability to continue as a going
concern.

         Net cash provided by operating activities in 1998 was approximately
$3.4 million as compared to approximately $4.8 million used in 1997. Cash
provided by 1998 operating activities was the net result of increase in medical
costs payable of approximately $9.1 million, reductions of advances to providers
of $2.8 million and trade and other receivables of $8.1 million, less a cash
operating loss of $16.6 million. Cash used for capital expenditures was
approximately $.7 million in 1998 as compared to $.3 million in 1997.

         In January, 1996, the Company completed a private placement of a
subordinated convertible note in the principal amount of $20 million (the
"Note"), due December 31, 2002, with The 1818 Fund II, L.P. (the "Fund"), a
private equity fund managed by Brown Brothers Harriman & Co. The Company
utilized a part of the net proceeds of this private placement to retire a
portion of its debt. The Note was amended in February 1997, and subsequently in
January 1998, and is convertible into shares of WellCare common stock. In
January 1998, the Fund agreed to convert $5 million of the Note into 1,250,000
shares of common stock of the Company at a conversion price of $4 per share,
subject to the anti-dilution adjustment. The conversion was completed in May
1998. The Note initially accrued interest at 6.0% per annum, amended to 5.5% per
annum in 1997 and amended to 8% per annum in 1998. In June 1999, the Fund
converted the remaining $15 million Note, plus accrued and unpaid interest of
approximately $0.7 million, into newly authorized senior convertible preferred
stock (Series B) of the Company. The preferred stock is non-voting and is
subject to mandatory conversion (subject to regulatory approval) into 10,000,000
shares of WellCare's common stock upon the amendment to WellCare's certificate
of incorporation to increase the number of authorized shares from 20 million to
75 million (see Note 24).

         Legislation by both New York State and Connecticut requires HMOs to pay
undisputed claims within 45 days of receipt. WCNY and WCCT continue to pay
claims later than required. The Company has recorded as an expense the estimated
interest it will be required to pay on these late payments, which management
believes is not material to the Company's operations.

         New York State certified HMOs are required to maintain a cash reserve
equal to the greater of 5% of expected annual medical costs or $100,000.
Additionally, except as described in the following paragraph, WCNY is required
to maintain a contingent reserve which must be increased annually by an amount
equal to at least 1% of statutory premiums earned limited, in total, to a
maximum of 5% of statutory premiums earned for the most recent calendar year and
which may be offset by the cash reserve. The cash reserve is calculated at
December 31 of each year and is maintained throughout the following calendar
year. At December 31, 1998 and 1997, WellCare had required cash reserves of
approximately $5.3 and $5.8 million, respectively, and a contingent reserve of
approximately $6.7 and $6.7 million, respectively. In the event the contingent
reserve exceeds the required cash reserve, the excess of the contingent reserve
over the required cash reserve is required to be maintained.

         Notwithstanding the above, NYSID has the authority to allow an HMO to
maintain a net worth of 50% to 100% of the contingent reserve. WCNY executed a
Section 1307 loan in March 1998, which retroactively brought WCNY's December 31,
1997 statutory net worth above the permitted 50% contingent reserve requirement.
WCNY had been operating within the 50-100% discretionary contingent reserve
requirement during 1997, and through the first quarter of 1998, with the full
knowledge of NYSID. In 1998, the Company forgave the management fees for WCNY
for 1998 in the amount of approximately $1.4 million. In June 1997 and November
1997, the Company loaned $3.1 and $1.3 million, respectively, to WCNY under the
provisions of Section 1307. However, after giving effect to the reported results
for 1998, at December 31, 1998 WCNY had a negative statutory net worth of
approximately ($14.6) million. Failure to come into compliance with the reserve
requirement could cause NYSID to take action which could include restriction or
revocation of WCNY's license. Management has had ongoing discussions and
meetings with NYSID regarding WCNY's operating results and compliance with
various statutory requirements and has updated NYSID of the Company's plans to
obtain additional funds. This includes a remedial action plan based upon capital
to be contributed to WCNY and WCNY's ultimate return to profitability. In April
1999, WCNY agreed to a consent to rehabilitation in which the State of New York
has the right to commence court proceedings and have an order entered into that
would give the State of New York the right to assume the operations of WCNY. In
May and June 1999, the Company consummated the aforementioned transactions,
which are intended to bring WCNY within the 50% to 100% revised contingent
reserve requirement, as permitted by NYSID. In connection with the Patel and GHI
transactions, the Company loaned WCNY $5 million under the provisions of Section
1307. As a result of these transactions, WellCare anticipates that the State of
New York would not exercise that right. In addition, as a result of WCNY's sale
of its commercial business, the statutory cash reserve required will decrease to
$2.9 million, and the statutory contingent reserve will decrease to $3.7
million. Management believes that the consummation of these transactions will
improve WellCare's ability to continue as a going concern.

         WCCT is subject to similar regulatory requirements with respect to its
HMO operations in Connecticut. The Connecticut Department of Insurance requires
that WCCT maintain a statutory reserve of $1 million. In June and November 1997,
the Company made capital contributions of $350,000 and $425,000, respectively,
to WCCT to bring its statutory net worth to the required minimum of $1 million.
In March 1998, the Company made an additional capital contribution of $368,000
to WCCT to bring its statutory net worth above the $1 million requirement. At
December 31, 1998, WCCT is not in compliance with the statutory net worth
requirement having a statutory net worth of approximately $.6 million, including
an account receivable from the Company of approximately $.9 million. As a
result, on June 2, 1999 the State of Connecticut Insurance Department issued an
order requiring WCCT to submit to administrative supervision by the State's
Insurance Commissioner until WCCT meets its statutory net worth (without
including the account receivable from the Company) and other requirements.
Management has been meeting with the Connecticut Department of Insurance
regarding the statutory net worth deficiency to develop a mutually agreeable
plan to bring WCCT into compliance with the statutory net worth requirement.

         In January 1997, WCNY received the final report on its biennial
statutory examination for the years ended December 31, 1994 and 1995 from NYSID.
In 1996, during the course of the audit, the Company had recorded two
non-recurring medical charges (See Note 3g of "Notes to Consolidated Financial
Statements") based on the interim findings and instructions of NYSID.
Additionally, the examiners determined that WCNY was not in compliance with all
pertinent New York State regulation sections relating to WCNY's underwriting and
rating procedures and referred the matter to NYSID's Office of General Counsel
for disciplinary action. In December 1997, WCNY entered into a Stipulation
Agreement whereby it agreed to pay a penalty of $91,000 and to correct past
violations. An additional penalty of $66,000 may be assessed if NYSID,
subsequently determines that WCNY has not made a good faith effort to recoup
undercharges from incorrectly rated groups. WCNY believes it has directed its
best efforts at recouping these undercharges, and believes it will not be
assessed any additional penalty.

         As a result of the examination, WCNY's statutory net worth at December
31, 1995, was deficient by approximately $1.1 million. In March 1996, the
Company made a capital contribution of $3 million to WCNY, and in October 1996,
the Company loaned WCNY $3 million under the provisions of Section 1307 of the
New York State Insurance Law. Under Section 1307, the principal and interest are
treated as equity capital for regulatory purposes and are repayable out of the
free and divisible surplus, subject to the prior approval of the Superintendent
of Insurance of the State of New York. These two cash infusions more than offset
the examination's adjustment to WCNY's net worth.

         In June 1999, the Company reached a settlement with Key Bank (the
"Bank"), whereby the Company will execute deeds in favor of the Bank on the real
property securing two mortgages, in lieu of foreclosure. The net book value of
the real property was approximately $6.5 million compared to the outstanding
mortgage balances of approximately $4.4 million. In June 1999, the Company
reached a settlement with Premier National Bank ("Premier"), whereby the Company
will execute deeds in favor of Premier on the real property securing two
mortgages, in lieu of foreclosure. The net book value of the real property was
approximately $1.8 million compared to the outstanding mortgage balances of
approximately $1 million. At December 31, 1998, the Company had total mortgage
indebtedness of $5.5 million outstanding on five of its office buildings, of
which approximately $0.7 million is due February 1, 1999, approximately $3.8
million is due January 1, 2000, approximately $0.7 million is due March 1, 2000,
and approximately $0.3 million is due March 1, 2001. At December 31, 1998, the
Company has classified the entire mortgage debt as current, to reflect the June
1999 settlements with the Bank and Premier.

         Between April and June 1996, the Company, its former President and
Chief Executive Officer (Edward A. Ullmann), and its former Vice President of
Finance and Chief Financial Officer (Marystephanie Corsones) were named as
defendants in twelve separate actions filed in Federal Court (the "Securities
Litigations"). An additional three directors were also named in one of these
actions. Plaintiffs sought to recover damages allegedly caused by the Company's
defendant's violations of federal securities laws with regard to the preparation
and dissemination to the investing public of false and misleading information
concerning the Company's financial condition. (See Item 3, Legal Proceedings,
for additional detail).

         In May 1999, the Company entered into a settlement agreement for $2.5
million, all of which is being funded by the insurance carrier which provided
coverage to the individual defendants. The settlement agreement is subject to
Federal Court approval. The Company expects related to fees it paid to the
attorneys representing the individual defendants, less the Company's insurance
deductible.

         The amount of legal fees incurred with respect to the defense of the
former President and Chief Executive Officer and Chief Financial Officer in the
Securities Litigations, and included in G&A expenses, is as follows:

                  1998              1997             1996             Total
                  ----              ----             ----            ------
                                     (in thousands)

CEO               $188              $163             $360            $  711
CFO                151               190              159               500
                  ----              ----             ----            ------
                  $339              $353             $519            $1,211
                  ====              ====             ====            ======


THE YEAR 2000 ("Y2K")

         In connection with the "Patel" and "GHI" transactions, the Company sold
or assigned substantially all of its computer hardware and software to GHI. The
plan is for all data processing/MIS requirements to ultimately be provided under
the terms of the newly executed management agreements with Comprehensive Health
Management, Inc. ("Comprehensive"), an affiliate of Dr. Patel. Under the terms
of the GHI transaction, the Company will continue to use the existing computer
systems and software a transition period. The computer hardware and software
that was not sold or assigned to GHI is in the process of being upgraded so that
it will be Y2K compliant. The Company anticipates these modifications will be
completed by September 1999.

         With respect to the efforts undertaken to date by Comprehensive and
affiliates to address the Y2K issues, Comprehensive has upgraded its computer
hardware and software systems, and has expended approximately $430,000 in
software related costs and $235,000 in hardware related costs.

         The inability of Comprehensive or the Company to complete timely any of
its Year 2000 modifications, or the inability of other companies with which
Comprehensive or the Company does business to complete timely their Year 2000
modifications, could potentially have a material adverse effect on the Company's
operations.

         Prior to the Patel and GHI transaction, the Company had assessed the
requirements of modifying its computer systems to accommodate the Year 2000 and
anticipated that required modifications would be completed in advance of the
Year 2000 so as to not adversely affect its operations. In most cases, the
Company was dependent on outside vendors whose software the Company uses. These
vendors had advised the Company that the required modifications were being made,
and would be available to the Company in the form of software release upgrades.
The Company had developed plans for implementing these release upgrades in a
timely fashion, and estimated that the hardware and software costs would
approximate $1.6 million. The Company expensed noncapital associated costs
incurred to make these modifications. The core processing system, AMISYS, was
upgraded to the Y2K compliant version in February 1999. The MAS90 system, the
Company's financial software, was upgraded in March 1999. Both of these systems
are now Y2K compliant. The Company had incurred costs of approximately $550,000
in 1998 and $410,000 in 1999. Except for hardware costs of approximately
$60,000, the Company has expensed these costs as incurred.

INFLATION

         Medical costs have been rising at a higher rate than that for consumer
goods as a whole. The Company believes its premium increases, capitation
arrangements and other cost control measures mitigate, but do not wholly offset,
the effects of medical cost inflation on its operations and its inability to
increase premiums could negatively impact the Company's future earnings.

QUANTITIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

         The Company is exposed to interest rate risk primarily through its
borrowing activities and minimally through its short-term investments. All of
the Company's borrowings are in US dollar debt and, at December 31, 1998,
approximately 77% of its debt is at fixed rates. In June 1999, the Company
retired its long-term debt. This includes conversion into equity by The 1818
Fund II, L.P., and the settlement by the Company of its mortgages with Key Bank
and Premier National Bank, whereby the Company will transfer ownership of real
property securing the mortgages to the banks in lieu of foreclosure. There were
no fluctuations in interest rates for these obligations between December 31,
1998 and the date of retirement. Although there is inherent risk for any
replacement borrowings, the extent of this is not quantifiable or predictable
because of the restructuring of the Company as a result of the June
transactions, as more fully discussed under Recent Events in Item 1.


         "At December 31, 1997 the Company did not provide a valuation allowance
for these net deferred tax assets. This was based upon the Company's internal
projections of future profitable operations and based on the available tax
planning strategy of selling its subsidiary, Wellcare of New York, Inc. and/or
Wellcare of Connecticut, Inc. At that time, the Company had engaged Bear Stearns
& Co. to explore its strategic opportunities and believed that a possible sale
would have resulted in gains which would have been sufficient to realize the net
deferred tax asset which had been recorded. During 1998, the Company continued
to incur operating losses, the amounts of which were substantial and increasing.
Further, the Company's consideration of its strategic opportunities resulted in
the series of transactions described in Note 24 to the financial statements.
These transactions included a sale of the Company's commercial HMO business in
New York, with the Company's continuing business consisting primarily of the
Company's Medicare and Medicaid business in New York State and commercial
business in Connecticut. Both Companies were under close scrutiny by the state
regulatory authorities at this time. Also, the proceeds to the Company from the
sale of its commercial HMO business in New York was substantially lower than had
been anticipated in the prior year from the sale of Wellcare of New York, Inc.
Thus, based on the inability to realize a significant gain on the sale of assets
and the continuation of business lines which had not historically been
profitable, the Company determined that it was no longer possible to conclude
that the use of the net deferred asset was "more likely than not" to be realized
and therefore recorded a full valuation allowance at December 31, 1998 for these
net deferred tax assets.


ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA

         See Index to Financial Statements and Schedules elsewhere herein.

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

         Not Applicable.

<PAGE>

                                    PART III

ITEM 10. EXECUTIVE OFFICERS AND DIRECTORS

AS OF JUNE 1, 1999, THE EXECUTIVE OFFICERS AND DIRECTORS OF THE COMPANY ARE:

NAME                                  AGE        POSITION
----                                  ---        --------

Kiran C. Patel, M.D.                  50        Chairman of the Board, President
                                                and Chief Executive Officer(2)

Mark D. Dean, D.D.S.                  58        Vice Chairman of the Board(1)(2)

Craig S. Dupont                       44        Vice President/Chief Financial
                                                Officer and Director

Mary Lee Campbell-Wisley              49        Secretary; President, Chief
                                                Executive Officer and
                                                Executive Director(WCNY);
                                                and Director

Henry Suarez                          32        Treasurer and Director(2)

Sandip I. Patel                       32        General Counsel

Charles E. Crew, Jr.                  47        Director(1)

Pradip C. Patel                       47        Director

Rupesh R. Shah                        37        Director

Hitesh P. Adhia                       35        Director(1)
-------------------------
(1)  Member, Audit Committee
(2)  Member, Compensation Committee

         KIRAN C. PATEL, M.D., age 50, was named as the Chairman of the Board,
President and Chief Executive Officer of the Company, and became a director of
the Company effective June 11, 1999. He was also named as the Chairman of the
Board, Chief Executive Officer and a director of WellCare of New York, Inc.
("WCNY") as of June 11, 1999. Dr. Patel has been a practicing physician
(cardiologist) from 1982 to the present, and currently continues to practice in
Tampa, Florida. Additionally, Dr. Patel is the majority shareholder and since
1988 to the present, shoulders the administrative responsibilities of Well Care
HMO, Inc., an unrelated State of Florida licensed Health Maintenance
Organization. Dr. Patel is a graduate of SMT, N.H.L. Municipal Medical College,
India, and did his Internal Medicine Residency and Cardiology Fellowship in the
New York, New Jersey area. Dr. Patel is the brother of Pradip C. Patel.

         MARK D. DEAN, D.D.S., age 58, has been a director of the Company and
Vice Chairman of the Board since 1984. Dr. Dean has been a dentist in private
practice since 1966.

         CRAIG S. DUPONT, age 44, was named, effective January 16, 1999, to the
additional positions of: Acting President/Chief Executive Officer (until June
11, 1999) and director of the Company; President (until February 16, 1999),
Chairman (until June 11, 1999) and director of WCNY; and President, Executive
Director, Treasurer and director of WellCare of Connecticut, Inc.("WCCT"). Mr.
Dupont has been Vice President/Chief Financial Officer and Treasurer (until June
11, 1999) of the Company. He has also been Treasurer of WCNY (until June 11,
1999) and WCCT since May 1, 1998. Mr. Dupont has over twenty years experience in
the health care industry. Previously, Mr. Dupont was Vice President, Finance of
Physicians Health Services, Inc. since January 1997, Controller and Corporate
Secretary of Qualmed Health & Life Insurance Co. from September 1995 to January
1997, Director of Financial and Medical Analysis of Aetna Health Plans from 1993
to 1995, and Chief Financial Officer and Treasurer for Aetna Health Plan of
Southern California from 1990 to 1993. He is a graduate of California State
University/Long Beach with a B.S. in Business Administration. He is a Certified
Public Accountant in California and Connecticut.

         MARY LEE CAMPBELL-WISLEY, age 49, became director of the Company,
effective February 25, 1999, and Secretary of the Company, effective March 25,
1999; President and Chief Executive Officer (until June 11, 1999) of WCNY,
effective February 16, 1999; and Vice President of Operations of WCCT, effective
May 12, 1998. She had been Executive Director/COO of WCNY, since January 1997
and director of WCCT since December 1997. Ms. Campbell-Wisley has over 15 years
experience in the health care industry. Ms. Campbell-Wisley joined WellCare from
Mercy Health System of Western New York where, since 1995, she had been
Executive Director of the Physician Hospital Organizations. Ms. Campbell-Wisley
had been associated with Blue Cross and Blue Shield of Western New York, Inc.,
from 1991 to 1995, as Executive Director of Community Blue, a 200,000-member
HMO. Ms. Campbell-Wisley earned a B.A. from SUNY at Fredonia, a B.S.N. from
D'Youville College in Buffalo and an M.B.A. from St. Bonaventure University.

         HENRY SUAREZ, age 32, was named as Treasurer and became a director of
the Company effective June 11, 1999. He was also named as Treasurer and a
director of WCNY, as of June 11, 1999. Mr. Suarez has been in the banking and
finance industry for the past 10 years. He is currently the President of Suarez
Financial Group, Inc., a banking and financial consulting firm. Previously, Mr.
Suarez was Senior Vice President, Private Client Group - Tampa Manager, for
NationsBank from February 1996 to February 1999; Vice President, Commercial
Lending for SouthTrust Bank from March 1995 to February 1996; Senior Financial
Accountant for Soloman Brothers from January 1992 to March 1995; and a
Commercial Lending Officer with Citizens and Southern Bank from May 1989 to
January 1992. He is a graduate of Florida State University with a degree in
accounting and finance.

         SANDIP I. PATEL, age 32 became the General Counsel of the Company
effective June 11, 1999. He was also named as the General Counsel of WCNY, as of
June 11, 1999. Mr. Patel has been a practicing attorney for the past 6 years,
being employed throughout this time by Patel, Moore & O'Connor, P.A. He is a
graduate of the University of Georgia with a degree in finance and accounting,
and received his Juris Doctorate from Stetson University College of Law.

         CHARLES E. CREW, JR., age 47, has been a director of the Company since
1987. Mr. Crew has been employed with General Electric since 1977, where he has
been Vice President of Commercial Operations for the Plastics Business since
1994.

         PRADIP C. PATEL, age 47 became a director of the Company effective June
11, 1999. He was also named as a director of WCNY as of June 11, 1999. Mr. Patel
has been in the health care industry, in a management position, for over 10
years and is currently a shareholder in and since 1986 the President of Well
Care HMO, Inc., an unrelated State of Florida licensed Health Maintenance
Organization. He is a graduate of the Gujaret University, India and received his
MBA from Eastern Michigan University. Mr. Patel is the brother of Dr. Kiran C.
Patel.

         RUPESH R. SHAH, age 37, became a director of the Company effective June
11, 1999. Mr. Shah has been in the health care industry, in a management
position, for over 10 years and is currently a shareholder in and the, since
1994, Chief Executive Officer of Well Care HMO, Inc., an unrelated State of
Florida licensed Health Maintenance Organization. He is graduate of St. Xavier's
College, Gujaret University, India and Rollwala Computer Science, Gujaret
University, India. Mr. Shah is the brother-in-law of Dr. Kiran C. Patel.

         HITESH P. ADHIA, age 35, became a director of the Company effective
June 11, 1999. Mr. Adhia has been in the finance and accounting industry for the
past 9 years. He has been an accountant in private practice since 1993.
Previously, Mr. Adhia was a financial accountant with Florida Farm Bureau
Insurance Company from February 1991 to January 1996; and a systems analyst with
Arthur Andersen & Company, from August 1990 to October 1990. He is a graduate of
the University of South Florida with a degree in Business Administration and a
Masters in Accounting. Mr Adhia is a CPA licensed in the State of Florida.

         THE FOLLOWING WERE EXECUTIVE OFFICERS AND DIRECTORS OF THE COMPANY AT
DECEMBER 31, 1998, BUT SUBSEQUENTLY RESIGNED:

NAME                                  AGE        POSITION
----                                  ---        --------

Robert W. Morey, Jr.                  62         Chairman of the Board (1)

Joseph R. Papa                        55         President, Chief Executive
                                                 Officer, Chief Operating
Officer                                          and Director (1)

Adele B. Reiter                       45         Vice President of Legal and
                                                 Governmental Affairs

John E. Ott, M.D.                     62         Executive Vice President and
                                                 Director (2)(3)

Thomas A. Curtin                      36         Vice President of Sales and
                                                 Marketing

Alan B. Bernstein, M.D.               47         Chief Medical Director

Walter W. Grist                       58         Director (2)

Lawrence C. Tucker                    56         Director (1)(3)
-------------------------
(1)  Member, Executive Committee
(2)  Member, Audit Committee
(3)  Member, Compensation Committee

         ROBERT W. MOREY, JR., age 62, who was Chairman of the Board since April
30, 1996, resigned as Chairman and director, effective February 25, 1999, which
resignation was accepted by the Board of Directors on February 23, 1999. He
continues as a consultant to the Company on an advisory basis. Previously, he
was also Chief Executive Officer from April 1996 until he resigned in August
1997. Since 1972, Mr. Morey has served as President and Chairman of RWM
Management Company, Inc., a management firm founded by Mr. Morey which is
engaged in, among other things, financial counseling and reinsurance
underwriting of catastrophic health coverage for the managed care industry. Mr.
Morey was engaged in corporate banking, investment banking and the institutional
brokerage business from 1962 to 1972. Mr. Morey received a B.A. in Economics
from Yale University in 1958 and an M.B.A. from Harvard Graduate School of
Business in 1962.

         JOSEPH R. PAPA, age 55, had been Chief Executive Officer of the Company
since August 1997, a director since June 1997, and also President and Chief
Operating Officer since September 1996. Mr. Papa resigned all of these
positions, effective January 15, 1999, and continues as a consultant to the
Company through July 1999. Mr. Papa's resignation as director was accepted by
the Board of Directors on January 12, 1999. From 1989 to 1996, Mr. Papa was
President of Healthcare Resources International, Inc. a managed care consulting
company he founded. From 1986 to 1989, Mr. Papa was President and Chief
Operating Officer of Healthways, Inc., an individual practice association model
health maintenance organization licensed in the State of New Jersey and then a
wholly-owned subsidiary of Healthways Systems, Inc., a publicly-traded company
that was sold to Aetna Life Insurance Company, a wholly-owned subsidiary of
Aetna Life and Casualty Company. Mr. Papa earned his C.P.A. after receiving a
B.S. in Accounting at St. Joseph's University in 1965.

         ADELE A. REITER, age 45, had been Vice President of Legal and
Governmental affairs since March 1998 and until her resignation, effective
February 21, 1999. Ms. Reiter joined the Company in April 1995 as part-time
in-house legal counsel, became full-time in-house legal counsel in August 1996,
and was appointed as a Vice President in July 1997. Previously, Ms. Reiter was
employed by a Kingston, New York cardiology medical practice and served on the
Board of Directors of several local non-profit organizations. She received her
B.A. from State University of New York at Stony Brook in 1993 and a Juris Doctor
from Temple University School of Law in May 1976.

         JOHN E. OTT, M.D., age 62, had been Executive Vice President of the
Company since June 1996 and a director since October 1995 and until his
resignation, effective June 11, 1999. Dr. Ott is the former Chief Executive
Officer of The George Washington University Health Plan, and from 1977 to 1996
was a Professor in Health Care Sciences, Health Services Management and Policy
and Pediatrics at George Washington University, having retired in 1996 as
Emeritus Professor. He is a board certified in Pediatrics and Medical
Toxicology. Dr. Ott received his B.S. and M.D. degrees at the University of
Pittsburgh, and completed a pediatric residency and fellowship in clinical
genetics and biophysics at the University of Colorado Medical Center.

         THOMAS A. CURTIN, age 36, had been the Vice President of Sales and
Marketing for WellCare since October, 1997 and Secretary and director of WCCT,
since March 1, 1999. Mr. Curtin resigned all of these positions, effective June
7, 1999. Previously, for the prior twelve years, Mr. Curtin has been involved in
sales management in the managed care industry. Prior to WellCare, he was with
from Cigna Health Care (January 1997 - September 1997), HealthSource (September
1994 - December 1996), and Blue Cross and Blue Shield of Massachusetts (1992 -
September 1994). He is a graduate of St. Anselm College with a B.S. in Business
and Economics.

         ALAN B. BERNSTEIN, M.D., age 47, had been Chief Medical Officer of
WellCare since September, 1998 and until his resignation, effective May 21,
1999. He has over ten years of managed care experience serving in senior medical
and administrative positions. Previously, he was Chief Medical Officer of
UtiliMED, Inc. in Chicago since 1997, Senior Vice President for Medical
Affairs/Chief Medical Officer with NYLCare Health Plans from May 1995 to October
1996, and Chairman, Department of Pediatrics at The Newton-Wellesley Hospital,
Massachusetts from October 1993 until May 1995. Dr. Bernstein graduated from the
University of Rochester, New York, earning a B.A. in Biology. He graduated from
New York University School of Medicine earning his M.D., and received his M.P.H.
from University of California, Berkeley.

         WALTER W. GRIST, age 58, had been a director of the Company since
February 1997. He resigned effective January 20, 1999, which resignation was
accepted by the Board of Directors on January 20, 1999. For more than the past
five years, Mr Grist has been a Senior Manager of Brown Brothers Harriman & Co.,
a company engaged in providing financial advisory and merger and acquisition
related services, which is the general partner of The 1818 Fund II, L.P., a New
York limited partnership which is the holder of the 6% subordinated convertible
note due December 31, 2002 in the principal amount of $20 million issued by the
Company (see "Certain Relationships and Related Transactions"). Mr. Grist serves
on the Board of Directors of Computerized Medical Systems, Inc., Steri-Oss, Inc.
and VAALCO Energy , Inc. Mr. Grist graduated with a B.S. degree in Business
Administration from New York University in 1965.

         LAWRENCE C. TUCKER, age 56, had been a director of the Company since
January 1996. He resigned effective January 20, 1999, which resignation was
accepted by the Board of Directors on January 20, 1999. For more than the past
25 years, Mr. Tucker has been employed by Brown Brothers Harriman & Co., a
company engaged in providing financial advisory and merger and acquisition
related services, having served as general partner of that firm since 1979.
Brown Brothers Harriman & Co., is the general partner of The 1818 Fund II, L.P.,
a New York limited partnership which is the holder of the 6% subordinated
convertible note due December 31, 2002 in the principal amount of $20 million
issued by the Company. (See "Certain Relationships and Related Transactions.")
Mr. Tucker also serves as director of WorldCom, Inc., Riverwood Holding, Inc.,
National Healthcare Corporation and VAALCO Energy, Inc. Mr Tucker received a
B.S. degree in Engineering from Georgia Institute of Technology in 1964 and an
M.B.A. from the Wharton School of the University of Pennsylvania in 1996.

ITEM 11. EXECUTIVE COMPENSATION

         The following table sets forth a summary of the compensation for 1998,
1997 and 1996 earned by (i) the Company's Chief Executive Officer during 1998;
(ii) each of the four most highly compensated executive officers who were
serving as an executive officer at the end of 1998, other than the Chief
Executive Officer, and whose compensation during 1998 exceeded $100,000; and
(iii) the Company's Acting President/Chief Executive Officer, who commenced
employment on May 1, 1998, whose compensation on an annual basis would have
required disclosure in the table below:

                           SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>

                                                                              LONG- TERM COMPENSATION
                                                                             --------------------------
                                      ANNUAL COMPENSATION                      AWARDS
                                 ----------------------------                -----------
NAME AND                                                  OTHER ANNUAL       COMMON STOCK      ALL OTHER
PRINCIPAL                   YEAR      SALARY    BONUS     COMPENSATION       UNDERLYING        COMPENSATION
POSITION                                ($)       ($)          ($)            OPTIONS (#)            ($)
-----------------           ----     -------    ------     ------------      ------------      ------------
<S>                         <C>      <C>      <C>         <C>                  <C>               <C>
JOSEPH R. PAPA              1998     $311,538       --          *              130,000(2)        $5,457(7)
President, Chief            1997     $300,000       --          *              200,000(3)        $5,457(7)
Executive Officer,          1996       92,308       --          *              200,000              195(7)
Chief Operating
Officer and Director(1)

CRAIG S. DUPONT             1998      $97,298       --          *               50,000               --
Acting President/Chief      1997           --       --         --                   --               --
Executive Officer,          1996           --       --         --                   --               --
Vice President and
Chief Financial
Officer, Treasurer and
Director(4)

JOHN E. OTT, M.D.           1998     $239,715 $105,116          *                   --            2,800(7)
Executive Vice              1997     $200,000      --           *                5,000            2,800(7)
President and               1996      111,538      --     $11,500(8)            40,000               --
Director(10)

MARY LEE CAMPBELL-WISLEY    1998     $164,423  $45,000          *                   --            1,085(7)
Secretary; President        1997     $129,942       --     19,050(9)            45,000              688(7)
and Chief Executive         1996           --       --         --                   --
Officer of WellCare of
New York, Inc. and
Director(5)

THOMAS A. CURTIN            1998     $145,385  $38,602          *                   --               51(7)
Vice President of           1997     $ 33,923       --          *               25,000               --
Sales and Marketing(11)     1996           --       --         --      --           --

ADELE B. REITER             1998     $134,230  $35,000          *                   --              407(7)
Vice President of           1997     $104,058       --          *                   --               72(7)
Legal and                   1996     $ 70,661  $10,316         --                   --               --
Governmental Affairs(6)
</TABLE>
-------------------------
*    Represents less than 10% of annual salary and bonus.
(1)  Mr. Papa resigned as President, Chief Executive Officer and director,
     effective January 15, 1999.
(2)  Includes the grant of 30,000 options in September 1997, for which the
     exercise price was repriced in February 1998.
(3)  Represents 200,000 options awarded in 1996 for which the exercised price
     was amended in December 1997; excludes 30,000 options granted in September
     1997 for which the exercise price was repriced in February 1998.
(4)  Mr. Dupont was named Acting President/Chief Executive Officer, and
     director, effective January 16, 1999.
(5)  Ms. Campbell-Wisley was appointed as President and Chief Executive Officer
     of WellCare of New York, Inc., effective February 16, 1999; elected
     director of the Company, effective February 25, 1999; and elected Secretary
     of the Company, effective March 25, 1999.
(6)  Ms. Reiter resigned as Vice President of Legal and Governmental Affairs,
     effective February 21, 1999.
(7)  Represents group life insurance premium payment.
(8)  Represents the amount WellCare paid for a condominium rental.
(9)  Represents $13,000 one time reimbursement for moving expenses and $6,050
     auto allowance.
(10) Dr. Ott resigned as Executive Vice President and director, effective June
     11, 1999.
(11) Mr. Curtin resigned as Vice President of Sales and Marketing, effective
     June 7, 1999.

         The following table sets forth certain information concerning options
granted in 1998 to the individuals named in the Summary Compensation Table.

                              OPTION GRANTS IN 1998
                                INDIVIDUAL GRANTS
<TABLE>
<CAPTION>
                           POTENTIAL                                                    REALIZABLE VALUE
                           NUMBER OF        % OF TOTAL                                  AT ASSUMED ANNUAL
                           SECURITIES       OPTIONS         EXERCISE                 RATES OF STOCK PRICE
                           UNDERLYING       GRANTED TO      OR BASE                     APPRECIATION FOR
                           OPTIONS          EMPLOYEES       PRICE        EXPIRATION        OPTION TERM
NAME                       GRANTED (#)      IN 1998         ($/SHARE)     DATE    5%          10%
--------------------       -----------      -----------     ---------    ----------     -------  --------
<S>                        <C>                  <C>         <C>          <C>    <C>     <C>       <C>
JOSEPH R. PAPA             100,000(3)           45.5%       $ 5.02       01-Sep-01        (4)       (4)
                            30,000(1)(2)        13.6%       $ 4.51       01-Sep-02      $42,000   $88,400

CRAIG S. DUPONT             50,000(5)           22.7%       $1.91        13-May-03       26,400    58,300
</TABLE>
-------------------------
(1)  Represents an amendment to options previously awarded in 1997
(2)  Fully exercisable on date of grant.
(3)  Mr. Papa's employment with WellCare terminated January 15, 1999, and 90,000
     options expired April 15, 1999.
(4)  The potential realizable value at assumed annual rates of stock price
     appreciation is less than the exercise price of the applicable option.
     Therefore, the options have no potential realizable value at the assumed
     annual rates of stock appreciation over the balance of the options term.
(5)  One fifth of the assigned number of underlying shares are exercisable
     commencing on the date of grant, and an additional one fifth on each of the
     next four anniversaries of the date of grant.

         No options were exercised in 1998 by the individuals named in the
Summary Compensation Table. The following table sets forth the number of
unexercised options held at December 31, 1998, by the individuals named in the
Summary Compensation Table, none of which options were in-the-money at such
date:

                       OPTION VALUES AT DECEMBER 31, 1998

                                      NUMBER OF UNEXERCISED OPTIONS
                                           AT DECEMBER 31,1998
           NAME                       EXERCISABLE(E)/UNEXERCISABLE(U)
     -------------------       --------------------------------------

     JOSEPH R. PAPA                        263,333 (E)/ 66,667 (U)

     JOHN E. OTT, M.D.                      45,240 (E)/  2,500 (U)

     CRAIG S. DUPONT                        10,000 (E)/ 40,000 (U)

     MARY LEE CAMPBELL-WISLEY               30,000 (E)/ 15,000 (U)

     THOMAS A. CURTIN                       10,000 (E)/ 15,000 (U)


EMPLOYMENT AGREEMENTS

         MR. PAPA was employed under a three-year agreement with the Company
effective September 1, 1996, which provided for an annual base salary of
$300,000, until his resignation effective January 15, 1999. Additionally, under
the agreement, the Company provided Mr. Papa with an automobile allowance in the
amount of $550 per month, as well as making available the use of an apartment
leased by the Company. On September 6, 1996, Mr. Papa was granted five-year
incentive options to purchase 29,628 shares of common stock of the Company at
$10.125 per share and five-year non-incentive options to purchase 170,372 shares
of common stock of the Company at $10.125 per share. In December 1997, the
Company amended the exercise price on such options from $10.125 to $3.01 per
share. Additionally, Mr. Papa received non-incentive options to purchase 30,000
shares of the Company's common stock on September 1, 1997, at an exercise price
of $15 per share. In February 1998, the Company amended the exercise price of
such options to $4.51 per share and granted additional incentive options for
90,000 shares and non-incentive options for 10,000 shares, each at an exercise
price of $5.02 per share.

         Under the agreement, in the event of termination of employment by the
Company without cause, the Company shall pay Mr. Papa a lump sum payment in an
amount equal to, if the date of termination is subsequent to August 31, 1997 but
on or prior to August 31, 1998, one year's base salary and benefits; and if the
termination is subsequent to August 31, 1998 but on or prior to August 31, 1999,
one-half year's base salary and benefits.

         Effective January 15, 1999, Mr. Papa resigned as President and Chief
Executive Officer, and simultaneously entered into a Consulting Agreement with
the Company. Under the terms of the Consulting Agreement, Mr. Papa received a
monthly fee of $24,000, through April 15, 1999, and then a monthly fee of
$12,000 through July 15, 1999.

         MR. DUPONT was employed under an agreement with the Company, effective
May 1, 1998, which provides an annual base salary of $150,000, amended to
$200,000 per annum, effective January 16, 1999 upon his assuming the additional
duties of Acting President/ Chief Executive Officer. Additionally, the Company
provides Mr. Dupont with an automobile allowance of $550 per month. In addition,
on May 13, 1998, Mr. Dupont was granted five-year incentive options to purchase
50,000 shares of common stock of the Company at $1.91 per share. Under the
agreement, in the event of termination of employment by the Company without
cause prior to May 16, 2000, the Company shall continue to pay Mr. Dupont his
base salary for six months.

         MS. CAMPBELL-WISLEY is employed under a three-year agreement with the
Company effective January 29, 1997, which provides for an annual base salary of
$145,000. Effective February 16, 1999, the annual base salary was increased to
$190,000. Ms. Campbell-Wisley is entitled to a bonus of $47,500 if she remains
in the employ of the Company until September 1, 1999. Additionally, under the
agreement, the Company provides Ms. Campbell-Wisley with an automobile allowance
of $550 per month. Under the agreement, on January 29, 1997, Ms. Campbell-Wisley
was granted five-year incentive options to purchase 34,285 shares of the
Company's common stock at $8.75 per share and five-year non-incentive options to
purchase 10,715 shares of the Company's common stock at an exercise price equal
to $8.75.

         Under the agreement, in the event of termination of employment by the
Company without cause prior to November 1, 1999, the Company shall pay Mrs.
Campbell-Wisley a lump sum payment in an amount equal to three months' base
salary and benefits.

         DR. OTT was employed under a five-year agreement with the Company
effective June 1, 1996, amended on June 1, 1998. The original contract provided
an annual base salary of $200,000, plus an annual incentive bonus equal to ten
percent (10%) of the earnings before income taxes of the greater New York City
division of WCNY, assuming general and administrative expenses of 15% of premium
revenue. Dr. Ott had waived his 1997 and 1996 bonus in view of the Company's
financial condition. Under the agreement, on June 1, 1996, Dr. Ott was granted
non-incentive options to purchase 35,000 shares of the Company's common stock.
Additionally, Dr. Ott is entitled to receive non-incentive options to purchase
5,000 shares of the Company's common stock on June 1 of each year during his
term of employment at an exercise price equal to the fair market value on the
date of grant.

         Effective June 1, 1998, the agreement was amended to delete the
incentive bonus in exchange for a lump sum payment of $75,000 and a revision of
the annual compensation to $220,000, $200,000 and $197,723, respectively, for
the three years ending May 31, 2001, and to require 75%, 50% and 25%
respectively, of Mr. Ott's business time for each of the three years.

         Dr. Ott resigned as Executive Vice President and director, effective
June 11, 1999. In connection with his resignation, the Company will make a lump
sum payment of $50,000, twelve monthly payments aggregating $50,000, and will
issue common stock with a value of $80,000.

         MR. CURTIN was employed under an agreement with the Company, effective
September 24, 1997, which provides an annual base salary of $140,000 per annum
and is eligible to receive an annual bonus ($20,000) plus an annual incentive
bonus of up to 0.5% of the annual increase in commercial member revenue.
Additionally, under the agreement, the Company provides Mr. Curtin with an
automobile allowance of $550 per month. In addition, Mr. Curtin was granted
five-year incentive options to purchase 25,000 shares of the Company's common
stock at $6.00 per share. Under the agreement, in the event of termination of
employment by the Company without cause, the Company shall continue to pay Mr.
Curtin his base salary for six months. Mr. Curtin resigned, effective June 7,
1999, concurrent with the GHI transaction.

         MS. REITER was employed under an agreement with the Company under her
resignation, effective February 21, 1999. Under the agreement, Mr. Reiter's
annual base salary was $130,000 and the Company provided her with an automobile
allowance of $550 per month.

SECTION 16 PROXY STATEMENT DISCLOSURE

         Section 16 of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires that officers, directors and holders of more than 10%
of the Common Stock (collectively, the "Reporting Persons") file reports of
their trading in the Company's equity securities with the Securities and
Exchange Commission. Based upon a review of Section 16 forms filed by the
Reporting Persons during the last fiscal year, the company believes that the
Reporting Persons complied with the applicable Section 16 filing requirements,
except as follows (i) Dr. Dean has not filed a Form 4 for the sale of 116,672
shares of common stock and 68,059 shares of Class A common stock disposed of by
Pine Street Dental Association, P.C. ("Pine Street"), a retirement plan in which
the Reporting Person has a 48% interest; (ii) Dr. Patel is currently filing his
Form 3; (iii) Mr. Suarez is currently filing his Form 3; (iv) Mr. P.C. Patel is
currently filing his Form 3; (v) Mr. Shah is currently filing his Form 3; and
(vi) Mr. Adhia is currently filing his Form 3.

DIRECTOR COMPENSATION

         During 1998, all directors who were not employees of the Company,
received a fee of $500 for each meeting of the Board of Directors attended, plus
reimbursement of their expenses, and an additional $500 for each meeting of the
Audit Committee or Compensation Committee attended.

MEETINGS AND COMMITTEES

         The Executive Committee has all of the powers of the Board not
otherwise delegated to the Audit or Compensation Committees and, until their
resignation as directors subsequent to December 31, 1998, was comprised of
Messrs. Morey, Papa and Tucker. There were no meetings of the Executive
Committee in 1998.

         The Audit Committee, currently comprised of Mr. Crew and Drs. Dean and
Ott, meets with the Company's independent auditors to review the scope of their
annual audit, the adequacy of the Company's system of internal controls, and the
sufficiency of its financial reporting. There was one (1) meeting of the Audit
Committee during 1998. Mr. Grist was on the committee until his resignation as a
director, effective January 20, 1999. Mr. Ott was appointed to the committee,
effective March 12, 1999.

         The Compensation Committee, comprised of Mr. Crew and Drs. Dean and
Ott, establishes the compensation program for the Chief Executive Officer,
recommends to the Board of Directors, in consultation with the Chief Executive
Officer, a general compensation program for all officers and administers the
Company's 1993 Incentive and Non-Incentive Stock Option Plan and the Company's
1996 Non-Incentive Executive Stock Option Plan. There were three (3) meetings of
the Compensation Committee during 1998. Mr. Tucker was on the committee until
his resignation, effective January 20, 1999. Dr. Ott was appointed to the
Committee, effective March 12, 1999.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION IN COMPENSATION
DECISIONS

         Lawrence C. Tucker served on the Compensation Committee during 1998.
Mr. Tucker is a general partner of Brown Brothers Harriman & Co., the general
partner of The 1818 Fund II, L.P. the holder of a $20 million subordinated
convertible note. (See "Certain Relationships and Related Transactions"). Mr.
Tucker did not participate in the actions taken by the Compensation Committee
relating to the repricing of options previously granted in 1997 and 1996 to
Messrs. Morey and Papa or the grant of additional options to purchase 100,000
shares to Mr. Papa in February 1998. Mr. Tucker did not participate in light of
the potential conflict of interest arising out of the concurrent negotiations to
amend the Note, which negotiations were consummated in an amendment to the Note
in January 1998.

INDEMNIFICATION OF OFFICERS AND DIRECTORS

         Through December 31, 1998, the Company has incurred legal fees for
Edward A. Ullmann and Marystephanie Corsones, the Company's former Chief
Executive Officer and former Chief Financial Officer, respectively, in the
aggregate of $711,000 and $500,000, respectively, to indemnify such individuals
for legal fees and expenses incurred in connection with their defense of the
Class Action Securities Litigation in which the Company and such individuals are
defendants. The litigation, which is described in Item 3, Legal Proceedings, was
settled in May 1999, subject to Court approval. The Company expects to recoup
the related fees it paid to the attorneys representing these individuals, from
the insurance carrier which provided coverage to the individual defendants, less
the Company's insurance deductible.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

         The following table sets forth, as of July 1, 1999, certain information
with regard to the beneficial ownership of the common stock of the Company as of
the date hereof by (i) each shareholder who is known by the Company to
beneficially own in excess of five percent (5%) of the outstanding shares of
common stock or Class A common stock, (ii) each director, (iii) each of the
executive officers named in the Summary Compensation Table, and (iv) all
executive officers and directors as a group. The percent of total has been
calculated assuming the conversion of both Series A and Series B senior
convertible preferred stock into common shares, as well as the conversion of all
Class A into common stock, except for 281,956 shares owned by Robert W. Morey.
In connection with the Patel closing, Mr. Morey has given a two-year proxy in
favor of Dr. Patel to vote Mr. Morey's shares of Class A common stock.

<TABLE>
<CAPTION>
                                                                           PERCENT OF TOTAL
                                                               --------------------------------------
                                         SERIES A                         SERIES A
                                          SENIOR                           SENIOR
                                        CONVERTIBLE  CLASS A             CONVERTIBLE  CLASS A   TOTAL
     NAME                      PREFERRED  COMMON    COMMON(11)  PREFERRED  COMMON     COMMON    VOTE
     ----                      ---------  ------    ----------  --------    ------    -------  -------
<S>                              <C>     <C>      <C>              <C>       <C>         <C>     <C>
Kiran C. Patel, M.D. (1)(2)      100,000      -   21,449,257       100.0%      -          5.4%   58.4%
Robert W. Morey, Jr.(3)(4)         -     281,956     515,021           -     100.0%       1.3%    1.2%
Mark D. Dean, D.D.S. (5)(6)        -          -       72,921           -       -          *       *
Joseph R. Papa                     -          -      203,703           -       -          *       *
John E. Ott, M.D.                  -          -       47,470           -       -          *       *
Craig S. Dupont                    -          -       50,000           -       -          *       *
Mary Lee Campbell-Wisley           -          -       45,000           -       -          *       *
Thomas A. Curtin                   -          -          -             -       -          -
Adele B. Reiter, Esq.              -          -          -             -       -          -
Charles E. Crew, Jr.               -          -       92,546           -       -          1.3%    *
Lawrence C. Tucker(8)(9)           -          -   11,250,000           -       -         29.1%   27.1%
Edward A. Ullmann (7)(10)          -          -      411,045           -       -          1.1%    *
Henry Suarez                       -          -          -             -       -          -       -
Pradip C. Patel                    -          -          -             -       -          -       -
Rupesh R. Shah                     -          -          -             -       -          -       -
Hitesh P. Adhia                    -          -          -             -       -          -       -
The 1818 Fund II, L.P. (8)(9)      -          -   11,250,000           -       -         29.1%   27.1%
Brown Brothers Harriman & Co.      -          -   11,250,000           -       -         29.1%   27.1%
(8)(9)
T. Michael Long (8)(9)             -          -   11,250,000           -       -         29.1%   27.1%
All current executive officers
 and directors as a group
 (10 persons)(2)(6)(11)          100,000      -   21,709,724       100.0%      -         56.1%   59.1%
</TABLE>
-------------------------
*    Less than 1%
(1)  Address is 6800 North Dale Mabry Highway, Suite 268, Tampa, FL 33614
(2)  In June 1999, Dr. Patel purchased shares of a newly authorized series of
     senior convertible preferred stock (Series A) for $5 million, which
     provides Dr. Patel with 55% of WellCare's voting power. The preferred stock
     is subject to mandatory conversion into common stock upon the amendment in
     WellCare's certificate of incorporation to increase the number of
     authorized shares of common stock from 20 million to 75 million. The shares
     will be convertible into 55% of the then outstanding common stock (after
     giving effect to such conversion) and will be subject to anti-dilution
     rights under which Dr. Patel will generally preserve his 55% interest in
     WellCare until there are 75 million shares of common stock issued and
     outstanding. The investment by Dr. Patel in WellCare was approved by New
     York State regulators on June 11, 1999. Pending a public hearing in
     Connecticut and regulatory approval of the acquisition of control of WCCT,
     Dr. Patel is precluded from exercising influence in directing the
     management and policies of WCCT. There can be no assurance that approval of
     the change in control will be granted nor that the order of supervision
     will be lifted.
(3)  Address is Box 1, 134 Lyford Drive, Tiburon, California 94920.
(4)  Includes 12,000 shares of common stock owned by RWM Management Co. Defined
     Benefit Pension Plan for which Mr. Morey is trustee. Mr. Morey disclaims
     beneficial ownership.
(5)  Address is 62 Riverview, Port Ewen, New York 12466.
(6)  Includes 19,446 shares of common stock owned by Dr. Dean's wife, and 4,862
     shares of common stock owned by Dr. Dean's son. Dr. Dean disclaims
     beneficial ownership of the shares owned by his wife and son.
(7)  Address is P.O. Box 133, Miller Road, Mount Tremper, New York 12457.
(8)  Address is 59 Wall Street, New York, New York 10005.
(9)  Includes 10,000,000 common shares issuable upon mandatory conversion of
     100,000 shares of the newly authorized senior convertible preferred stock
     (Series B) (the "shares") received upon the conversion of the $15,000,000
     8.0% Subordinated Convertible Note due December 31, 2002 (the "Note").
     Brown Brothers Harriman & Co. ("BBH & Co."), a general partner of The 1818
     Fund II, L.P. (the "Fund"), have designated Messrs. T. Michael Long and
     Lawrence C. Tucker, either individually or jointly, as the sole and
     exclusive partners of BBH & Co. having voting and investment power with
     respect to the Note and the common stock issued upon conversion of the
     shares. By virtue of BBH & Co.'s relationship with the Fund, BBH & Co. may
     be deemed to beneficially own 11,250,000 shares of common stock. By virtue
     of the resolution adopted by BBH & Co. designating Messrs. Long and Tucker,
     either individually or jointly, as the sole and exclusive partners of BBH &
     Co. having voting and investment power with respect to the shares, and the
     common stock issuable upon conversion of the Notes, Messrs. Long and Tucker
     may each be deemed to beneficially own 11,250,000 shares of common stock.
(10) Includes 11,045 shares of common stock owned by a not-for-profit
     corporation of which Mr. Ullmann is President. Mr. Ullmann disclaims
     beneficial ownership of the shares owned by the not-for-profit corporation.
(11) Includes shares of common stock from stock options exercisable on or before
     September 1, 1999 as follows:

               NAME                                  NUMBER OF SHARES
               ----                                  ----------------

               Craig S. Dupont                              50,000
               Mary Lee Campbell-Wisley                     45,000
                                                            ------
               All current executive officers
               and directors as a group
               (10 persons)                                 95,000
                                                            ======

<PAGE>

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         In June 1999, Kiran C. Patel, MD ("Patel), the principal of Well Care
HMO, Inc., a Florida corporation, an entity unrelated to WellCare, purchased a
55% ownership interest in the Company for $5 million. Dr. Patel purchased a
newly authorized series of senior convertible preferred stock (Series A)("the
shares") of WellCare, which will provide him with 55% of WellCare's voting
power. The preferred stock is subject to mandatory conversion into common stock
upon the amendment to WellCare's certificate of incorporation to increase the
number of authorized shares of common stock from 20 million to 75 million. The
shares will be convertible into 55% of the then outstanding common stock (after
giving effect to such conversion) and will be subject to anti-dilution rights
under which Dr. Patel will generally preserve his 55% interest in WellCare until
there are 75 million shares of common stock issued and outstanding. WCNY and
WCCT also entered into management agreements with Comprehensive Health
Management, Inc. (Comprehensive") an affiliate of Dr. Patel, to manage their HMO
operations (excluding the commercial business of WCNY sold to GHI in June 1999).
The investment by Dr. Patel in WellCare and the related management agreement
with WCNY were approved by New York State regulators on June 11, 1999. Pending a
public hearing in Connecticut and regulatory approval of the acquisition of
control of WCCT, Dr. Patel in precluded from exercising influence in directing
management and policies of WCCT. State regulators, however, have authorized the
performance of the management agreement, with certain limitations. WCCT remains
under an order of supervision by the Connecticut Department of Insurance.

         The management agreements with Comprehensive are for a term of five
years, effective June 1, 1999. The management fee to each HMO ranges from 7.5%
of the premium revenue when there are more than 80,000 members, to 9.5% of the
premium revenues when there are less than 40,000 members. Comprehensive will
cover services for claims, customer service, utilization review, data
processing/MIS (including Y2K compliance expenses and costs), credentialing,
communication, provider relations, and day to day accounting. Comprehensive will
provide financial reports to the HMOs and the appropriate regulatory agencies.
The fee does not cover other costs, directors and officers liability insurance,
other insurance costs, and any extraordinary costs.

         Pursuant to the terms of the Note Purchase Agreement dated January 19,
1996, (the "Agreement") entered into between the Company and The 1818 Fund II,
L.P., (the "Fund"), a private equity fund managed by Brown Brothers Harriman &
Co. ("BBH & Co."), the Company issued a Note dated January 19, 1996, in the
principal amount of $20,000,000, due December 31, 2002, payable to the order of
the Fund or its registered assignees. On February 28, 1997, the Fund and the
Company amended the Agreement and the Note and on January 14, 1998, the
Agreement and Note were further amended. In June 1999, the Fund converted the
remaining $15 million, plus accrued and unpaid interest of approximately $0.7
million, into newly authorized senior convertible preferred stock (Series B) of
the Company. The preferred stock is non-voting and is subject to mandatory
conversion (subject to regulatory approval) into 10,000,000 shares of WellCare's
common stock upon the amendment to WellCare's certificates of incorporation to
increase the number of authorized shares from 20 million to 75 million.

         Under the January 1998 amendment, subject to regulatory approval, the
Fund agreed to convert $5 million of indebtedness under the Note into 1,250,00
shares of common stock, which conversion occurred on May 15, 1998, after the New
York State Department of Health advised the Company that such approval was not
required. The holder of the Note has the right to convert the remaining
$15,000,000 outstanding principal amount of the Note at a conversion price of $8
per share, subject to adjustment for certain dilutive events. Under the Note,
the conversion price is subject to adjustment, inter alia, if the Company issues
shares of its common stock or options, warrants or other rights to acquire
shares of common stock of the Company at a price per share less than the current
market price or, pursuant to the Amendment, the conversion price at the time.

         The remaining $15,000,000 of indebtedness under the Note is due on
December 31, 2002 and interest accrues thereon at an interest rate of eight
percent (8%) per annum, payable quarterly. The Note is subject to certain
mandatory redemption at the option of the holder of the Note upon a Change of
Control (as defined in the Note) of the Company. In addition, subject to certain
conditions, the Note is subject to optional redemption at the option of the
Company on or after January 19, 2000. The Note is subordinated to all senior
indebtedness of the Company. The holder of the Note also has the right to
require redemption of the Note following a Change of Control of the company at a
redemption price equal to 150% of the outstanding principal amount of the Note
together with all accrued and unpaid interest thereon. If a change of control
occurs within 24 months of a redemption of the Note, the Company may also be
required to pay the holder of the Note an amount equal to 30% of the principal
amount of the redeemed Note.

         Pursuant to the terms of the Agreement, the Fund may designate two
directors to the Board. Effective January 1996, Lawrence C. Tucker became a
director. Effective February 1997, Walter W. Grist became a director. Messers,
Tucker and Grist resigned as directors, effective January 20, 1999.

         Pursuant to the Agreement, the Fund may purchase shares of common stock
of the Company (in addition to the shares issuable upon conversion of the Note),
provided that such purchases do not, in total, exceed ten million dollars
($10,000,000). Finally, provided the Fund holds at least fifty percent (50%) of
the shares issued or issuable upon conversion of the Note, the Fund, under
certain conditions, may sell shares issuable upon conversion of the Note in
certain private placements of common stock by the Company.

         Pursuant to the January 1998 amendment, if the Company's consolidated
earnings before income taxes are positive for either the second or third quarter
of 1998, the Company will have the right, exercisable after the filing of the
Form 10-Q relating to such quarter, and prior to December 31, 1998, to purchase
50% of the aggregate outstanding principal amount and 50% of the conversion
shares for an aggregate purchase price of $12 million plus all accrued and
unpaid interest on the Note to the date of purchase. The Company reported a
consolidated loss before taxes for each of these quarters.

         Pursuant to the terms of the Registration Rights Agreement dated
January 19, 1996, between the Company and the Fund, as amended, the holder of
the Note and the holder of the shares issued upon conversion of Note have been
granted three (3) demand registration rights and unlimited incidental
registration rights. The Company was also required, in 1997, to file with the
Securities and Exchange Commission, an "evergreen" shelf registration statement
with respect to the Note and any shares issued upon conversion of the Note.

         In connection with the February 1997 and January 1998 amendments, the
Company has reimbursed the Fund $94,348 for fees and expenses incurred by the
Fund in connection with the preparation, negotiation and execution of the
Amendment and related matters.

         In June 1999, as a condition to the closing of the Patel transaction,
the holders of 644,287 shares of Class A common stock, which has ten votes per
share, agreed to convert their shares into shares of common stock on a
share-for-share basis. Robert W. Morey, the holder of the remaining 281,956
shares of Class A common stock outstanding, has given a two-year proxy in favor
of Dr. Patel to vote Mr. Morey's share of Class A common stock.

         After giving effect to conversion of these shares of Class A common
stock, and assuming conversion of the preferred shares held by Dr. Patel and the
Fund, there would be 38,716,693 shares of common stock and 281,956 shares of
Class A common stock outstanding with Dr. Patel owning 21,449,257 shares of
common stock, and 55% of the aggregate number of shares outstanding in the
combined classes.

         Effective July 1996, WCNY entered into an Agreement with Bienestar,
Inc. ("Bienestar"), an unconsolidated affiliate whereby Bienestar provided
consulting and educational services related to wellness and integrated health
services. In November 1997, the Company decided not to renew the agreement.
WellCare had acquired 70% of Bienestar in 1996 and, in December 1996, sold its
entire interest to Mr. Ullmann, the Company's former Chief Executive Officer and
President, for $84,000. This amount was payable in three equal annual
installments, commencing in November 1996, with interest at the rate of 8% per
annum. In June 1999, the Company forgave the remaining unpaid balance of
$56,000.

         Until the cancellation of coverage, effective November 30, 1998, the
Company had reinsured at negotiated arms length premium amounts the risk of its
commercial, Medicaid and Medicare Risk members with affiliated companies of
Allianz Life Insurance Company of North America and subsidiaries ("Allianz").
The Company received $1,250,000 from Allianz in 1997 with respect to its
previous contribution commitment to WellCare University. RWM Management Company,
Inc., is a company wholly-owned by Mr. Robert Morey, the Company's former
Chairman of the Board. A significant portion of the revenues earned by RWM
Management Company, Inc., is associated with a long-term business relationship
between Mr. Morey and Allianz.

<PAGE>

                                     PART IV


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

I.       LIST OF DOCUMENTS FILED AS PART OF THIS REPORT.

A.       FINANCIAL STATEMENTS
         Independent Auditors' Report
         Consolidated Balance Sheets as of December 31, 1998 and 1997
         Consolidated Statements of Operations for the years ended
         December 31, 1998, 1997 and 1996
         Consolidated Statements of Shareholders' Equity for the
         years ended December 31, 1998, 1997 and 1996
         Consolidated Statements of Cash Flows for the years ended
         December 31, 1998, 1997 and 1996
         Notes to Consolidated Financial Statements

B.       SCHEDULES
         Schedule I - Condensed Financial Information of Registrant
         Schedule II - Valuation and Qualifying Accounts

C.       EXHIBITS REQUIRED BY ITEM 601 OF REGULATION S-K
         See Index to Exhibits

II.      REPORTS ON FORM 8-K.

         None

III.     EXHIBITS

         See Index to Exhibits

<PAGE>


                                   SIGNATURES

         Pursuant to the requirements of Section 13 of 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, on the 18th day of
May, 2000.

                                   The WellCare Management Group, Inc.

                                   By:  /s/  Kiran C. Patel
                                        ------------------------------
                                   Name:     Kiran C. Patel
                                   Title:    Chairman of the Board, President
                                             and Chief Executive Officer

         Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been signed by the following persons on behalf of the Registrant
and, in the capacities indicated on May 18, 2000.

Signature                                            Title
---------                                            -----

/s/ Kiran C. Patel, M.D.                Chairman of the Board, President
------------------------------          and Chief Executive Officer
Kiran C. Patel, M.D.


/s/ Mark D. Dean, D.D.S.                Director
------------------------------
Mark D. Dean, D.D.S.


/s/ Ken Roseman                         Chief Accounting Officer
------------------------------
Ken Roseman


<PAGE>

                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

CONSOLIDATED FINANCIAL STATEMENTS
 OF THE COMPANY:                                                       PAGE
                                                                       ----

Report of Deloitte & Touche LLP, Independent Auditors                    64

Consolidated Balance Sheets as of December 31, 1998                      65
 and 1997

Consolidated Statements of Operations for the years
 ended December 31, 1998, 1997 and 1996                                  67

Consolidated Statements of Shareholders' Equity for
 the years ended December 31, 1998, 1997 and 1996                        68

Consolidated Statements of Cash Flows for the years
 ended December 31, 1998, 1997 and 1996                                  72

Notes to Consolidated Financial Statements                               74

<PAGE>

INDEPENDENT AUDITORS' REPORT

To the Board of Directors and Shareholders of
The WellCare Management Group, Inc.
Kingston, New York


We have audited the accompanying consolidated balance sheets of The WellCare
Management Group, Inc. and Subsidiaries (the "Company") as of December 31, 1998
and 1997, and the related consolidated statements of operations, shareholders'
equity (deficiency in assets) and cash flows for each of the three years in the
period ended December 31, 1998. Our audits also included the financial statement
schedules listed in the Index at Item 14. These consolidated financial
statements and financial statement schedules are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements and financial statement schedules based on our
audits.

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

In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of the Company, as of December 31,
1998 and 1997, and the results of its operations and its cash flows for each of
the three years in the period ended December 31, 1998 in conformity with
generally accepted accounting principles. Also, in our opinion, such financial
statement schedules, when considered in relation to the basic consolidated
financial statements taken as a whole, present fairly in all material respects
the information set forth therein.

The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Notes 1m and
20 to the consolidated financial statements, the Company's recurring losses from
operations, working capital deficit, deficiency in assets and failure to
maintain 100% of the contingent reserve requirement of the New York State
Department of Insurance raise substantial doubt about its ability to continue as
a going concern. Management's plans concerning these matters are also described
in Notes 1m and 20. The consolidated financial statements do not include any
adjustments that might result from the outcome of this uncertainty.

/s/ Deloitte & Touche, LLP
---------------------
Deloitte & Touche, LLP
New York, New York
May 11, 1999

<PAGE>

              THE WELLCARE MANAGEMENT GROUP, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                        (in thousands, except share data)

                                                  DECEMBER 31,      DECEMBER 31,
                                                      1998              1997
                                                  -----------       -----------
ASSETS
CURRENT ASSETS:
   Cash                                           $   6,393         $   3,368
   Short-term investments -
    available for sale                                    2               103
   Accounts receivable (net of
    allowance for doubtful
    accounts of $2,808 in 1998
    and $2,422 in 1997)                               2,240             6,802
   Notes receivable (net of
    allowance for doubtful
    accounts of $7,774 in 1998
    and $5,441 in 1997)                                  56               679
   Advances to participating providers                   56             2,860
   Other receivables                                  1,378             4,873
   Taxes receivable                                     284               284
   Prepaid expenses and other
    current assets                                      541               522
   Property and equipment disposed
    of in 1999                                        5,564                --
   Deferred tax asset                                    --             3,927
                                                  ---------          --------
   TOTAL CURRENT ASSETS                              16,514            23,418

PROPERTY AND EQUIPMENT - net                          2,145            11,094

OTHER ASSETS:
   Restricted cash                                    5,286             5,771
   Notes receivable (net of
    allowance for doubtful accounts
    of $1,108 in 1998 and $2,655
    in 1997)                                             --               122
   Preoperational costs (net of
    accumulated amortization of
    $1,350 in 1998 and $2,562 in 1997)                   --             1,440
   Goodwill (net of accumulated
    amortization of $5,299 in 1998
    and $2,339 in 1997)                               4,431             7,391
   Other non-current assets (net of
    allowance for doubtful accounts
    of $1,376 in 1998 and $1,133 in 1997
    and accumulated amortization of
    $1,241 in 1998 and $869 in 1997)                  1,563             3,302
                                                  ---------          --------
   TOTAL                                          $  29,939          $ 52,538
                                                  =========          ========

LIABILITIES AND (DEFICIENCY IN ASSETS)/
 SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
   Current portion of long-term debt              $   5,791          $    618
   Medical costs payable                             26,404            17,321
   Accounts payable                                   1,321             1,188
   Accrued expenses and other                         2,286             3,722
   Unearned income                                    6,767             5,684
                                                  ---------          --------
   TOTAL CURRENT LIABILITIES                         42,569            28,533

LONG-TERM LIABILITIES:
   Long-term debt and other                          15,078            25,856
                                                  ---------          --------
   TOTAL LIABILITIES                                 57,647            54,389
                                                  ---------          --------

COMMITMENTS AND CONTINGENCIES                            --                --

(DEFICIENCY IN ASSETS)/
 SHAREHOLDERS' EQUITY:
   Class A common stock ($.01 par value;
     1,109,292 and 1,199,015 shares authorized;
     994,302 and 1,084,025 shares issued and
     outstanding in 1998 and 1997, respectively)         10                11
   Common stock ($.01 par value; 20,000,000
     shares authorized, 6,567,940 and
     5,228,217 shares issued in 1998 and 1997,
     respectively)                                       65                52
   Additional paid-in capital                        31,612            26,624
   Accumulated deficit                              (65,884)          (34,987)
   Accumulated other comprehensive income                 1                --
   Statutory reserve                                  6,695             6,656
                                                  ---------          --------
                                                    (27,501)           (1,644)
   Less:
    Notes receivable from shareholders                    5                 5
    Treasury stock (at cost; 12,850
     shares of common stock in
     1998 and 1997)                                     202               202
                                                  ---------          --------
   TOTAL (DEFICIENCY IN ASSETS)/
   SHAREHOLDERS' EQUITY                             (27,708)           (1,851)
                                                  ---------          --------
   TOTAL                                          $  29,939          $ 52,538
                                                  =========          ========

          See accompanying notes to consolidated financial statements.

<PAGE>

              THE WELLCARE MANAGEMENT GROUP, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                    (in thousands, except per share amounts)

<TABLE>
<CAPTION>
                                                                YEARS ENDED DECEMBER 31,
                                                     -------------------------------------------
                                                       1998              1997             1996
                                                     --------          --------         --------
<S>                                                  <C>               <C>              <C>
REVENUE:
     Premiums earned                                 $142,742          $142,115         $157,156
     Administrative fee income                             21                --            1,592
     Interest and investment income                     1,189             1,234            1,338
     Other income - net                                   497               521            1,000
                                                     --------          --------         --------
         TOTAL REVENUE                                144,449           143,870          161,086
                                                     --------          --------         --------
EXPENSES:
     Medical expenses                                 129,494           126,251          135,957
     General and
       administrative expenses                         32,641            34,485           39,334
     Depreciation and
       amortization expense                             6,001             3,624            3,254
     Interest expense                                   1,730             1,652            2,185
     Expenses to affiliates - net                          --                --              176
                                                     --------          --------         --------
         TOTAL EXPENSES                               169,866           166,012          180,906
                                                     --------          --------         --------
LOSS BEFORE INCOME TAXES                              (25,417)          (22,142)         (19,820)
PROVISION/(BENEFIT) FOR
   INCOME TAXES                                         5,441                --           (8,038)
                                                     --------          --------         --------
NET LOSS                                             $(30,858)         $(22,142)        $(11,782)
                                                     ========          ========         ========
LOSS PER SHARE -
     BASIC                                           $  (4.36)         $  (3.52)        $  (1.87)
                                                     ========          ========         ========
Weighted average shares of
  common stock outstanding                              7,081             6,299            6,296
                                                     ========          ========         ========
LOSS PER SHARE -
   DILUTED                                           $  (4.36)         $  (3.52)        $  (1.87)
                                                     ========          ========         ========
Weighted average shares of common
 stock and common stock equivalents
  outstanding                                           7,081             6,299            6,296
                                                     ========          ========         ========
</TABLE>

          See accompanying notes to consolidated financial statements.

<PAGE>

              THE WELLCARE MANAGEMENT GROUP, INC. AND SUBSIDIARIES
                 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
                  YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
                                 (in thousands)

<TABLE>
<CAPTION>
                                                                 (ACCUMULATED        ACCUMULATED
                           CLASS A                 ADDITIONAL      DEFICIT)/            OTHER
                           COMMON       COMMON      PAID-IN        RETAINED          COMPREHENSIVE
                           STOCK        STOCK       CAPITAL        EARNINGS          INCOME/(LOSS)
                           -------      ------     ---------      ----------         ------------
<S>                           <C>         <C>       <C>             <C>                   <C>
BALANCE,
DEC 31, 1995                  15          48        26,371            1,233                 5
Conversion of
 Class A Common
 shares to
 Common shares                (1)          1            --               --                --
Exercise of
 stock options                --          --           252               --                --
Issuance of
 treasury stock               --          --             1               --                --
Repayments/re-
 classification
 of shareholders'
 notes - net                  --          --            --               --                --
Net loss                      --          --            --          (11,782)               --
Other comprehensive
(loss) - unrealized
 holding (loss)               --          --            --               --               (16)
Comprehensive
 income/(loss)                --          --            --               --                --
Transfer to
 statutory reserve            --          --            --           (1,572)               --
                            ----        ----        ------          -------            ------
BALANCE,
DEC 31, 1996                  14          49        26,624          (12,121)              (11)
                            ----        ----        ------          -------            ------
Conversion of
 Class A Common
 shares to
 Common shares                (3)          3            --               --                --
Adjustment to
 treasury Stock               --          --            --               --                --
Repayments/re-
 classification
 of shareholders'
 notes - net                  --          --            --               --                --
Net loss                      --          --            --          (22,142)               --
Other comprehensive
 income - unrealized
 holding gains                --          --            --               --                11
Comprehensive
 income/(loss)                --          --            --               --                --
Transfer to
 statutory reserve            --          --            --             (724)               --
                            ----        ----        ------          -------            ------
BALANCE,
DEC 31, 1997                 $11         $52        $26,624        $(34,987)           $   --
                            ----        ----        -------         -------            ------
BALANCE,
DEC 31, 1997                 $11         $52        $26,624        $(34,987)           $   --
Conversion of
 Subordinated
 Convertible Note
 into Common shares           --          12          4,988              --                --
Conversion of
 Class A Common
 shares to
 Common shares                (1)          1             --              --                --
Net loss                      --          --             --         (30,858)               --
Other comprehensive
 income - unrealized
 holding gains                --          --             --              --                 1
Comprehensive
 income/(loss)                --          --             --              --                --
Transfer to
 statutory reserve            --          --             --             (39)               --
                            ----        ----        -------         -------            ------
BALANCE,
DEC 31, 1998                 $10         $65        $31,612         $(65,884)          $    1
                            ====        ====        =======         ========           ======
</TABLE>
<TABLE>
<CAPTION>
                                                                                         TOTAL
                                                                                     (DEFICIENCY IN
                                                     NOTES                               ASSETS)/
                               STATUTORY           RECEIVABLE-        TREASURY       SHAREHOLDERS'
                               RESERVE             SHAREHOLDERS         STOCK            EQUITY
                               -----------         ------------        --------       ------------
<S>                               <C>                 <C>                <C>            <C>
BALANCE,
DEC 31, 1995                      4,360               (17)               (211)          31,804
Conversion of
 Class A Common
 shares to
 Common shares                       --                --                  --               --
Exercise of
 stock options                       --                --                  --              252
Issuance of
 treasury stock                      --                --                   4                5
Repayments/re-
 classification
 of shareholders'
 notes - net                         --                11                  --               11
Net loss                             --                --                  --          (11,782)
Other comprehensive
(loss) - unrealized
 holding (loss)                      --                --                  --              (16)
Comprehensive                                                                          -------
 income/(loss)                       --                --                  --          (11,798)
Transfer to                                                                            -------
 statutory reserve                1,572                --                  --               --
                                -------            ------              ------          -------
BALANCE,
DEC 31, 1996                      5,932                (6)               (207)          20,274
                                -------            ------              ------         --------
Conversion of
 Class A Common
 shares to
 Common shares                       --                --                   --              --
Adjustment to
 treasury stock                      --                --                    5               5
Repayments/re-
 classification
 of shareholders'
 notes - net                         --                 1                   --               1
Net loss                             --                --                   --         (22,142)
Other comprehensive
 income - unrealized
 holding gains                       --                --                   --              11
Comprehensive                        --                                               --------
 income/(loss)                       --                --                   --         (22,131)
Transfer to                                                                           --------
 statutory reserve                  724                --                   --              --
                                -------            ------               ------        --------
BALANCE,
DEC 31, 1997                    $ 6,656            $   (5)              $ (202)       $ (1,851)                     -------------
                                -------            ------               ------        --------
BALANCE,
DEC 31, 1997                    $ 6,656            $   (5)              $ (202)       $ (1,851)
Conversion of
Subordinated
Convertible Note
into Common shares                   --                --                   --           5,000
Conversion of
 Class A Common
 shares to
 Common shares                       --                --                   --              --
Net loss                             --                --                   --         (30,858)
Other comprehensive
 income - unrealized
 holding gains                       --                --                   --               1
Comprehensive
 income/(loss)                       --                --                   --         (30,857)
Transfer to
 statutory reserve                   39                --                   --              --
                                -------            ------               ------        --------
BALANCE,
DEC 31, 1998                    $ 6,695            $   (5)              $ (202)       $(27,708)
                                =======            ======               ======        ========
</TABLE>

          See accompanying notes to consolidated financial statements.

<PAGE>

              THE WELLCARE MANAGEMENT GROUP, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (in thousands)

<TABLE>
<CAPTION>
                                                                 YEARS ENDED DECEMBER 31,
                                                     --------------------------------------------
                                                        1998              1997             1996
                                                     ---------         ---------        ---------
<S>                                                  <C>               <C>              <C>
CASH FLOWS FROM OPERATING
     ACTIVITIES:

Net loss $(30,858)                                   $(22,142)         $(11,782)
Adjustments to reconcile
 net loss to net cash
 (used)/ provided by operating
 activities:
     Depreciation and amortization                      6,001             3,624            3,254
     Decrease/(increase) in
    deferred taxes                                      5,441                --           (1,711)
     Loss on impaired assets                            2,812                --               --
     Loss/(gain) on sale of
      assets and other                                      1               103              (71)
Changes in assets and
 liabilities:
     Decrease in accounts
      receivable - net                                  4,562             1,331            5,808
   Increase in medical
      costs payable                                     9,083             1,356            1,935
     Decrease/(increase) in due
      from affiliates - net                                --                --              223
   Decrease/(increase) in accounts
      receivable - non-current - net                      225               530             (644)
   Decrease/(increase) in other
      receivables - net                                 3,328               732             (148)
     Increase/(decrease) in accounts
      payable and accrued expenses                     (1,303)            1,230            1,531
     Decrease/(increase) in taxes
      receivable/payable                                   --             6,885           (5,021)
  (Increase)/decrease in prepaid
      expenses and other                                  (19)             (122)              19
     Increase in unearned income                        1,083             1,436            1,187
     Decrease in restricted cash                          485               896            1,574
   Decrease/(increase) in advances
      to participating providers                        2,804              (540)             757
  (Increase) in other non-current
      assets - excluding preoperational
      costs and accounts and other
      receivables                                        (205)              (89)            (983)
                                                     --------          --------         --------
     NET CASH PROVIDED BY /(USED IN)
         OPERATING ACTIVITIES                           3,440            (4,770)          (4,072)
                                                     --------          --------         --------
CASH FLOWS FROM INVESTING
         ACTIVITIES:

Purchase of equipment                                    (657)             (314)            (538)
Decrease in
 notes receivable                                         745               653              613
Sale of investments                                       101               811            6,841
Purchase of investments                                    --                --           (6,500)
Increase in preoperational costs                           --                --             (420)
Other investing activities - net                            1                11              (16)
                                                     --------          --------         --------
NET CASH PROVIDED BY/(USED IN)
     INVESTING ACTIVITIES                                 190             1,161              (20)
                                                     --------          --------         --------

CASH FLOWS FROM FINANCING
         ACTIVITIES:

Repayment of notes payable and
 long-term debt                                          (605)             (898)         (15,002)
Proceeds from exercise of
 stock options                                             --                --              254
Proceeds from issuance of stock
 and treasury stock - net                                  --                 5                3
Proceeds from notes payable and
 long-term debt                                            --                --           21,239
Other financing activities - net                           --                 1               11
                                                     --------          --------         --------
NET CASH (USED IN)/PROVIDED BY
          FINANCING ACTIVITIES                           (605)             (892)           6,505
                                                     --------          --------         --------

NET INCREASE/(DECREASE) IN CASH                         3,025            (4,501)           2,413

CASH, BEGINNING OF PERIOD                               3,368             7,869            5,456
                                                     --------          --------         --------
CASH, END OF PERIOD                                  $  6,393          $  3,368         $ 7,869
                                                     ========          ========         ========
</TABLE>

          See accompanying notes to consolidated financial statements.

<PAGE>

              THE WELLCARE MANAGEMENT GROUP, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                  YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996

1.       ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

A. DESCRIPTION OF OPERATIONS - The WellCare Management Group, Inc. ("WellCare"
or the "Company"), a New York corporation, owns, operates and provides
management services to health maintenance organizations ("HMOs"). An HMO is an
organization that accepts contractual responsibility for the delivery of a
stated range of health care services to its enrollees for a predetermined,
prepaid fee.

WellCare of New York, Inc. ("WCNY"), a wholly-owned subsidiary, operates as an
HMO in New York State. WCNY has a certificate of authority under Article 44 of
the New York State Public Health Law to operate in 25 counties in the Hudson
River Valley, Mohawk River Valley, Albany and Leatherstocking regions of New
York State, Westchester County and in four counties in New York City. WCNY is a
mixed IPA/Direct Contract model HMO. Under this type of arrangement, agreements
are entered into with regional health care delivery networks currently organized
as independent practice associations ("IPAs" or "Alliances"), which in turn
contract with providers to render health care services to an HMO's enrollees,
and directly with individual primary care physicians or physician groups for the
provision of such medical care.

In October 1994, WCNY entered into contracted arrangements with a majority of
its primary care physicians and specialists through contracts with the Alliances
to provide health care services to WCNY's commercial and Medicaid members.
Initially, each Alliance was a professional corporation that then contracted
with individual primary care physicians and specialists to provide health care
services. At inception, there were four Alliances with different equity owners.
In 1995, the four Alliances had combined into two Alliances, with the same
equity owner. Effective June 1997, the Alliances converted into IPAs by
establishing new corporations. WCNY's initial agreement with each of the
Alliances, for the period from October 1994 through September 1995, required
payment to the Alliances based on a percentage of premium revenue for effected
members. Effective October 1995, WCNY entered into three year agreements with
each of the Alliances to capitate them at specified per member per month
("PMPM") rates designated to cover the cost of all health care services provided
to HMO members. These agreements originally provided for periodic increases,
ranging from 1% to 6% for the period from October 1995 through December 1998.

In an effort to improve the profitability of WCNY and the Alliances, WCNY
entered into a letter of understanding with the Alliances in September 1996 to
restructure its capitation arrangements. Pursuant to the terms of the
restructured arrangement, WCNY reassumed the risk for certain previously
capitated services, and reduced the capitation rate paid for certain services
which continued to be provided by the IPAs. WCNY capitated the Alliances for
physician services, both primary care and specialty services, on a PMPM basis
for each HMO member except for physician services in the areas of certain
diagnostics and mental health substance abuse, which WCNY capitated through
contracts with certain other regional integrated delivery systems.

Each Alliance/IPA, in turn, capitates its Alliance/IPA primary care physician
from the monthly payments received from WCNY with a fixed monthly payment for
each HMO member designating the Alliance/IPA physician as their primary care
provider, retaining and allocating the balance to a group risk pool for payment
to specialists. Specialists are compensated on a fee-for-service basis by each
Alliance/IPA which disburses payments to these specialists. To the extent the
risk pools are insufficient to cover the specialists' fees, the amounts paid to
the specialists as a group can be proportionately reduced, up to a maximum of
30%. To the extent the risk pools are still insufficient to cover the
specialists' fee after a maximum reduction, a portion of the capitation payments
to primary care physicians can be withheld to cover the specialists' fees after
the reduction. Primary care physicians and specialists are furnished with
periodic utilization reports and the IPAs' accounts are reconciled periodically.

In April 1998, WCNY entered into service agreements with four IPAs wholly owned
by Primergy, Inc. ("Primergy") (see Note 5). These agreements amended and
restated the prior agreements with two professional corporations managed by
Primergy. Consistent with the prior agreements, the new agreements grant the
IPAs the exclusive right to contract with primary care physicians in a six
county geographic region in the mid-Hudson Valley. The term of the agreements is
ten years, subject to earlier termination under certain conditions, including
following a failure of the parties to renegotiate rates in the event that a
potential investor (the "Investor") did not exercise its right to acquire
Primergy. In July 1998, following expiration of the Investor's option to
purchase Primergy, WCNY notified Primergy of its intent to renegotiate rates. If
a new agreement is not reached within 120 days after June 30, 1998, either the
Company or the respective IPA can thereafter exercise its option to terminate
the contract. The parties continue to negotiate the terms of the new agreement
and there can be no assurance that the contracts will be successfully
renegotiated and not terminated by either the Company or the respective IPAs.

In October 1998, WCNY entered into a service agreement with a fifth IPA owned by
Primergy to provide non-exclusive service in the Capital District region.
Subsequently, the Company entered into discussions with Primergy and another
potential investor ("New Investor") whereby the New Investor expressed an
interest in acquiring Primergy, repaying certain of the debt owed to the Company
by Primergy, amending certain terms of the IPA service agreements, and obtaining
the right to manage certain aspects of WCNY's business relating to its
relationships with the IPAs owned by Primergy. These discussions have not
resulted in the consummation of any transaction involving the Company, nor can
there be any assurance that a transaction will be consummated in the future.

In January 1999, WCNY amended the service agreements with the IPAs owned by
Primergy to add Medicare risk as a product for which the IPAs would arrange for
the provision of physician primary care and specialty services and certain other
agreed upon health care services.

WellCare of Connecticut, Inc. ("WCCT"), a wholly-owned subsidiary of WCNY,
operates as an IPA model HMO in the state of Connecticut. Under this type of
arrangement, agreements are entered into with IPAs and PHOs and individual
physicians for the provision of all medical care to WCCT's enrollees for a
specified fee for services rendered. WCCT is approved to operate State-wide in
Connecticut.

WCNY and WCCT are collectively referred to as the "WellCare HMOs."

WellCare Administration, Inc. ("WCA") (formerly Agente Benefit Consultants, Inc.
("ABC")) is a wholly-owned subsidiary that administers the Company's pharmacy,
vision care, dental care and other specialty care benefit programs as
stand-alone products to self-insured employer and other groups.

WellCare Development, Inc. ("WCD") is a wholly-owned subsidiary formed to
acquire, own and develop real estate.

WellCare Medical Management, Inc. ("WCMM"), is a wholly-owned subsidiary formed
to provide managerial, administrative and financial services to physicians. The
assets and certain liabilities were sold in June 1995 (see Note 5) and WCMM is
dormant.

WellCare University ("WCU"), a division of WellCare, was formed to focus on:
strategic planning, training and research and development for WellCare and
others within the managed care/health care arena. WCU's operations were
eliminated during 1997 and WCU is dormant as of December 31, 1998. Bienestar,
Inc. ("Bienestar"), was an unconsolidated affiliate until December 17, 1996, at
which time WellCare sold its interest in Bienestar to the Company's former Chief
Executive Officer and President. In July 1996, WCNY entered into an agreement
for Bienestar to provide consulting and educational services regarding wellness
and integrated health services. The Company terminated its arrangement with
Bienestar in November 1997.

B. PRINCIPLES OF CONSOLIDATION - The consolidated financial statements include
the accounts of the Company and all majority owned subsidiaries. All significant
intercompany accounts and transactions have been eliminated.

C. REVENUE RECOGNITION - Premiums from subscribers are recorded as income in the
period that subscribers are entitled to service. Premiums received in advance
are deferred. Subscriber premiums, for both WCNY and WCCT, are determined on an
annual basis using community rating principles as required by the Insurance
Department of each state. Although the rate filing requests and approval process
are performed on an annual basis, the HMOs are allowed to contract with
subscribers throughout the year based upon a "guaranteed" rate which
incorporates an estimated community rate. The WellCare HMOs are required to
remit or collect any difference between the community rate ultimately approved
and the guaranteed rate in the subsequent twelve-month contract period. In
connection with its biennial audit, The New York State Insurance Department
("NYSID") determined that WCNY was not in compliance with the requirement to
settle these differences within twelve months (see Note 20). Accounts receivable
include approximately $198,000 and $729,000 at December 31, 1998 and 1997,
respectively, which represented the excess of subscriber premiums accrued based
on approved community rates over amounts actually billed under guaranteed rates,
net of an allowance for doubtful amounts of approximately $1,376,000 and
$1,133,000, respectively. Approximately $225,000, has been classified as
non-current at December 31, 1997 (see Note 10).

Administrative and management fees received in advance are deferred and
recognized as income over the period in which services are rendered.

Accounts receivable, other receivables, notes receivable and other non-current
assets are reported net of reserves for doubtful accounts of approximately
$15,023,000 and $12,788,000 at December 31, 1998 and 1997, respectively.

D. MEDICAL COSTS PAYABLE AND MEDICAL EXPENSES - Medical expenses for primary
care, hospital inpatient services, outpatient specialty care and pharmacy
services, including those for which advances have been made to providers, are
recorded as expenses in the period in which services are provided. The expense
is based in part on estimates, including an accrual for medical services
incurred but not yet billed ("IBNR"), which accrual is included in medical costs
payable. The IBNR accrual is based on a number of factors, including hospital
admission data and prior claims experience. Adjustments, as necessary, are made
to medical expenses in the period the actual claims costs are ultimately
determined. The Company believe the IBNR estimates in the Consolidated Financial
Statements are adequate; however, there can be no assurance that actual health
care claims costs will not exceed such estimates.

E. REINSURANCE - The WellCare HMOs insure excess loss for health care claims
under policies with a reinsurance company. Premiums for these policies are
reported as medical expense and insurance recoveries are recorded as a reduction
of medical expense. Under the excess loss reinsurance policies, recoveries are
made for annual claims of each enrollee or each covered dependent of each
enrollee in excess of the deductible established in the policy, subject to
certain limitations. Effective December 1, 1998, the deductibles for commercial,
Medicaid and Medicare Full-Risk products are $85,000, $115,000, and $100,000,
respectively. From November 1995 through October 1996, the deductible for
commercial health care claims was $115,000 decreased to $85,000 in November
1996.

Effective September 1995, WCNY initially reinsured a portion of its Medicare
Full Risk program with a reinsurance company under a quota share agreement and,
effective November 1996, supplemented this agreement with a separate excess loss
reinsurance policy. Effective for 1998, the quota share arrangement with its
reinsurer was terminated.

Effective August 1996, WCNY's Medicaid claims were covered under an excess loss
reinsurance policy. Previously, this coverage had been provided by New York
State.

Reinsurance premiums charged to medical expenses in the accompanying
consolidated financial statements amounted to approximately $573,000, $585,000,
and $560,000, in 1998, 1997, and 1996, respectively. Reinsurance recoveries of
approximately $563,000, $1,747,000, and $524,000, in 1998, 1997, and 1996,
respectively, have been recognized as a reduction in medical expenses.

Included in other receivables at December 31, 1998 and 1997, were amounts
recoverable from the reinsurers of approximately $354,000 and $2,687,000,
respectively.

F. SHORT-TERM INVESTMENTS - The Company has determined that the securities
included in short-term investments might be sold prior to maturity to support
its cash requirements. Such investments have, therefore, been classified as
available for sale. The basis for available for sale securities is market value.

G. ADVANCES TO PARTICIPATING PROVIDERS - Advances to participating medical
providers consist of amounts advanced to providers, principally hospitals, which
are under contract with the Company to provide medical services to plan members.
Such advances help provide funding to these providers for claims incurred but
not yet reported or claims in the process of adjudication.

H. PROPERTY AND EQUIPMENT - Property and equipment is stated at cost, less
accumulated depreciation. Depreciation is computed by the straight-line method
based upon the estimated useful lives of the assets which range from 5 to 39
years.

I. PREOPERATIONAL COSTS - Preoperational costs, which include service area and
product line expansion costs, consist of certain incremental separately
identifiable costs directly associated with building a provider base of network
physicians in service areas in which the Company is applying for licensure and
expanding the Company's Medicare managed care program. Such costs are deferred
until the related licensure approval is received at which time the costs are
amortized on a straight-line basis over a 36-month period. Preoperational costs
are reported net of accumulated amortization. Effective December 31, 1998, the
Company expensed all previously unamortized preoperational costs.

J. GOODWILL - Goodwill represents the excess of the purchase price over the fair
value of the net assets of acquired entities and is amortized on the
straight-line method over a 15-year period.

The Company evaluates the recoverability of goodwill by monitoring, among other
things, reenrollment trends of membership acquired as well as the inherent
profitability of such membership as determined in connection with annual rate
filings. As a result of its evaluation, and in light of the June 1999
transaction with an unrelated party (see Note 24b), the Company increased 1998
amortization approximately $2,323,000 to reduce the remaining unamortized
goodwill to its net realizable value.

K. ADVERTISING COSTS - Advertising costs, which include costs for certain
marketing materials and development/implementation of public relations and
marketing campaigns, are expensed as incurred. Advertising costs expensed in
1998, 1997, and 1996, were approximately $978,000, $2,226,000, $2,046,000,
respectively.

L. INCOME TAXES - The Company recognizes deferred tax liabilities and assets for
the expected future tax consequences of events that have been included in the
consolidated financial statements or tax returns. Accordingly, deferred tax
liabilities and assets are determined based on the difference between the
financial statement and tax bases of assets and liabilities using enacted tax
rates in effect for the year in which the differences are expected to reverse
and the benefits of operating loss carryforwards. A valuation allowance is
required to reduce net deferred tax assets unless management believes it is more
likely than not that such deferred tax assets will be realized. M. CASH FLOWS -
For purposes of the statements of cash flows, the Company considers all highly
liquid debt instruments purchased with a maturity of three months or less to be
cash equivalents. The Company considers all other instruments to be short-term
investments. Cash equivalents are carried at cost which approximates market
value.

At December 31, 1998, the Company had a working capital deficiency of $26.1
million, excluding the $5.3 million cash reserve required by New York State
which is classified as a non-current asset, compared to a working capital
deficiency of $5.1 million, excluding the $5.8 million cash reserve, at December
31, 1997. The working capital deficiency is attributable primarily to the cash
operating losses incurred by the Company during 1996, 1997 and 1998. In March
1998, the Company engaged Bear, Stearns & Co. Inc., to assist the Company in
exploring its strategic opportunities. This could include joint venture, merger
or sale of all or a portion of the Company.

The Company's financial statements have been prepared assuming the Company will
continue as a going concern. The auditors' report states that "the Company's
recurring losses from operations, working capital deficit, deficiency in assets,
and failure to maintain 100% of the contingent reserve requirements for the New
York State Department of Insurance raise substantial doubt about its ability to
continue as a going concern."

In May 1999, the Company agreed to a number of significant transactions, which
were consummated in June 1999 (Note 24). Management believes that the
consummation of these transactions will improve ongoing WellCare's ability to
continue as a going concern.

N. STOCK-BASED COMPENSATION - The FASB issued SFAS No. 123, "Accounting for
Stock-Based Compensation" ("SFAS 123"), which defines a fair value method of
accounting for the issuance of stock options and other equity instruments,
effective for fiscal years beginning after December 15, 1995. Under the fair
value method, compensation cost is measured at the grant date based on the fair
value of the award and is recognized over the service period, which is usually
the vesting period. Pursuant to SFAS 123, companies are permitted to continue to
account for such transactions under Accounting Principles Board Opinion ("APB")
No. 25, "Accounting for Stock Issued to Employees", ("APB 25")but would be
required to disclose in a note to the consolidated financial statements pro
forma net incomes, and per share amounts as if the company has applied the new
method of accounting. The Company has elected to continue to account for such
transactions under APB 25 and disclose per SFAS 123 the pro-forma effects (See
Note 16).

O. EARNINGS PER SHARE - Net income/(loss) per share - Basic is computed using
weighted average number of common shares outstanding for the applicable period.
Net income/(loss) per share - Diluted is computed using the weighted average
number of common shares plus common equivalent shares outstanding, except if the
effect on the per share amounts of including equivalents would be anti-dilutive.

P. CURRENT ACCOUNTING PRONOUNCEMENTS - In April 1998, the FASB adapted Statement
of Position No. 98-5, "Reporting on the Costs of Start-Up Activities" ("SOP No.
98-5") which requires that costs previously capitalized as start-up will be
expenses as incurred. SOP No. 98-5 becomes effective for fiscal years beginning
after December 15, 1998, with earlier application encouraged. Management does
not expect the adoption of SOP No. 98-5 to have a material effect on the
Company's consolidated financial statements.

During 1998, the FASB issued Statement of Financial Accounting Standards (SFAS
No. 133), "Accounting for Derivative Instruments and Hedging Activities", and
(SFAS No. 134), "Accounting for Mortgage-Backed Securities." The Company does
not expect the adoption of these new accounting pronouncements to have a
material effect, if any, on its financial condition or results of operations.

Q. USE OF ESTIMATES - The preparation of consolidated 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 disclosure of contingent assets and liabilities at the date of
the consolidated financial statements and the reported amounts of revenues and
expenses during the reporting period. The amounts of IBNR medical expenses, the
reserve for uncollectible receivables, recoveries from third parties for
coordination of benefits, final determinations of medical cost adjustment pools
by New York State, and medical premiums subject to retrospective adjustment,
require the significant use of estimates. Actual results could differ from those
estimates used by management in the preparation of these consolidated financial
statements.

R. RECLASSIFICATIONS - Certain amounts in the 1997 and 1996 consolidated
financial statements have been reclassified to conform to the 1998 presentation.

2.       PREMIUM REVENUE

A. In 1998, the Company reduced premium revenue approximately $1.2 million to
reflect retroactive Medicaid premium revenue adjustments attributable to fiscal
1997 ($0.4 million) and fiscal 1996 ($0.8 million). Approximately $0.8 million
is for rate adjustments; the additional approximately $0.4 million is an
adjustment of the estimates recorded in prior periods for the collectibility of
premiums under the guaranteed enrollment provisions afforded to Certified
Medical Plans.

B. Effective January 1, 1999, WCNY did not renew Medicare Risk contracts in four
counties in New York. The Medicare Risk enrollment in these counties was
approximately 4,000.

3.       MEDICAL EXPENSE

A. Medical expense includes estimates for IBNR based on a number of factors,
including hospital admissions data and prior claims experience; adjustments, if
necessary, are made to medical expenses in the period the actual claims costs
are ultimately determined. The Company believes the IBNR estimates in the
consolidated financial statements are adequate; however, there can be no
assurances that actual health care claims will not exceed such estimates.

In 1998, the Company recorded medical expense of approximately $3.7 million
relating to 1997 ($3.5) and 1996 ($0.2) medical claims in excess of the IBNR
estimates previously recorded. In 1997, the Company recorded medical expense of
approximately $1.9 million for 1996 medical expenses in excess of the IBNR
estimates previously recorded.

B. In April 1998, NYSID announced the distribution of approximately $110 million
in accumulated New York State market stabilization pool funds to health plans to
help offset losses resulting from adverse selection of its products by high cost
enrollees. These pools had been established five years ago to reimburse health
plans that covered a higher than average number of sick people. The surplus
relates to the years 1993 to 1996. WCNY recorded an $800,000 reduction in
medical expense in 1998, with a corresponding reduction in liability to the New
York State demographic pool. As part of this distribution, NYSID indicated its
intent to limit 1998 individual and small group rate increases to less than ten
percent (10%).

C. During 1997, the Company expensed approximately $1.7 relating to NYSID's
audit of the New York State market stabilization pool for the audit years 1993,
1994 and 1995 and for additional amounts due for the year 1996.

D. In 1994, two entities which were predecessors to the regional health care
delivery networks (the "Alliances"/"IPAs") with which WCNY contracted to provide
health care services to WCNY's members, made payments of approximately
$2,879,000 to providers in connection with the close out of the 1993 group risk
accounts and to resolve certain disputed amounts between the Company and certain
providers, which payments might otherwise have been made by the Company.
Additionally, these entities paid approximately $1,833,000 directly to the
Company in payment of 1993 provider deficits which would otherwise have been due
to the Company directly from the providers. As originally reported in its 1994
consolidated financial statements, the Company recorded the $1,833,000 received
as a reduction of medical expense, and the Company did not record as medical
expense, the $2,879,000 paid directly to the providers by these entities.

Subsequently, in 1996, the Company's accounting personnel were informed that
Edward A. Ullmann, then Chairman of the Board, Chief Executive Officer and
President of the Company, had guaranteed, in his individual capacity, two loans
each in the amount of $2,700,000, made by banks to these two entities, the
proceeds of which were used to fund the aggregate payments of $4,712,000
referred to above.

The Company subsequently restated its 1994 consolidated financial statements to
reflect the higher medical expenses, and established a medical expense accrual.
As there were no specific accounts payable by the Company, this accrual is being
reduced concurrently with the pay down of the bank loans, with a simultaneous
reduction in medical expense. A reduction of medical expense of approximately
$435,000 and $2,423,000 was recorded in 1997 and 1996, respectively. The
remaining principal balance, which is in default, is approximately $116,000 at
December 31, 1998.

The Company's ability to reduce future medical expense by the remaining $116,000
is contingent on this amount being paid.

E. WCNY had arrangements with several medical practices (the "medical sites")
owned by the principal shareholder of Primergy (see Note 5) for the promotion of
WCNY's access to primary care medical services at these medical sites. WCNY had
made advances to the practices ($150,000 in 1997, $2,388,763 in 1996 and
$710,000 in 1995), and as a result of operating losses at the practices and the
uncertainty of their ability to repay these advances, WCNY had previously fully
reserved these receivables.

During the second half of 1997, the principal shareholder of Primergy entered
negotiations to sell these medical sites to unrelated third parties. Due to the
continuing losses at these medical sites and their importance in providing
medical services to a significant number of WCNY members, WellCare determined
that it was in the best interests of WCNY's members and WellCare to continue to
subsidize the medical sites to avoid service disruptions to WCNY's members. As a
result, WellCare made additional advances to these medical sites, to meet
operating expenses, of approximately $583,000 in the second half of 1997, and
approximately $166,000 in the first quarter of 1998, which amounts have been
expensed in 1997 and 1998, respectively, as bad debt expense. The medical sites
were subsequently sold in 1998 and 1999.

As of December 31, 1998, WCNY also has unpaid notes receivable from these
medical sites of approximately $1,417,000, which have also been fully reserved
(see Note 9).

F. The Alliances described in Notes 1a and 19a commenced operations in 1994.
Based on information provided to the Company by the Alliances/IPAs, the
Alliances/IPAs have operated at an accumulated deficit, from inception through
December 31, 1998, of approximately $15 million, although the Alliances/IPAs
have instituted measures designed to reduce this deficit, and achieve
profitability. The deficit is the result of medical expense obligations assumed
from WellCare upon the formation of the Alliances, actual and estimated but not
yet incurred medical losses in excess of the amounts initially estimated, and
operating losses. The Alliances/IPAs have financed the deficit through a
combination of borrowings from Primergy and the Investor referred to in Note 5;
lags inherent in the receipt, adjudication and payment of claims; and the
deferral of claim payments to providers. In addition, a $3,000,000 bank
line-of-credit was entered into by Primergy in December 1995, which was
guaranteed by the former Chairman of the Board of Directors, Chief Executive
Officer and President in his personal capacity.

In August 1996, the Alliances implemented a fee withhold program, as permitted
under the contracts with its physicians, to withhold payments otherwise payable
to referral physicians by approximately 15% to 22% depending on the geographic
location of the physician. Management of the Alliances/IPAs and WellCare
believed that this withhold program, together with general changes in the
management of the Alliances/IPAs, and the introduction of new provider
reimbursement schedules should enable the Alliances/IPAs to maintain their
operations and reduce their accumulated deficit.

The Company has been advised by counsel that it would have no financial
liability to providers with whom the Alliances/IPAs had contracted for services
rendered in the event the Alliances/IPAs were unable to maintain their
operations. Further, the Company has direct contracts with providers which would
require the providers to continue medical care to members on the financial terms
similar to those in the Alliances/IPAs' agreement with providers, in the event
that the Alliances/IPAs were unable to maintain their operations. Although there
is no contractual obligation, in the event of continuing losses or increasing
deficit by the Alliances/IPAs, the Alliances/IPAs may request increased
capitation rates from the Company.

Management of the Company does not believe that such additional financial or
increased contractual capitation rates should be required by the Alliances/IPAs
and has no intention to agree to such terms if requested by the Alliances/IPAs
beyond the contractual increases described in Note 1a. However, as outlined in
Note 3g, the Company agreed to record charges to medical expense based on the
instructions of NYSID.

G. In connection with a comprehensive review of its arrangements with the
Alliances, NYSID accelerated its normal statutory audit of WCNY. In 1996, NYSID
instructed the Company to assume certain medical expenses of prior periods and
to assume responsibility for unpaid inpatient hospital claims at June 30, 1996,
which had been contractually assumed by the Alliances. This resulted in
additional medical expense in 1996 of approximately $3.7 million. NYSID
instructed the Company to record additional medical expense for medical claims
for the period prior to October 1, 1994, which had been contractually assumed by
the Alliances. This resulted in additional medical expense of $2.9 million in
1996. Both of these changes represent obligations which had previously been
assumed by the Alliances.

4.       ACQUISITION OF MANAGED CARE ADMINISTRATORS, INC.

In March 1995, the Company acquired the assets and assumed certain liabilities
of MCA, a company engaged in managing a network of primary care physicians who
provide health care services to Medicaid recipients in New York City. Part of
the purchase price was an annual payment to MCA, equal to twenty percent (20%)
of the pre-interest, pre-tax income generated by the acquired assets. There was
no earn out in any of the years subsequent to the purchase and, in 1998, the
Company paid MCA $75,000 in settlement of any future payments.

5.       SALE OF WELLCARE MEDICAL MANAGEMENT, INC.

In June 1995, the Company contributed approximately $5.1 million to its
wholly-owned subsidiary, WCMM, which was then engaged in managing physician
practices, and then sold the assets of WCMM for cash of $.6 million and a note
receivable of $5.1 million. The buyer, Primergy, Inc.("Primergy"), which had
been newly formed to acquire WCMM, is in the business of managing medical
practices and providing related consultative services, and entered into
agreements to manage the Alliances. The Company also received a five-year option
to acquire Primergy, which option was canceled in 1996. The note receivable
bears interest at a rate equal to prime plus 2% (9.75% at December 31, 1998),
with interest payable monthly through July 31, 2000. Primergy has paid only
interest through January 1996 (see Note 7).

The Company also advanced $3.4 million to Primergy ($.6 million in 1997, $2.1
million in 1996 and $.7 million in 1995) for operating expenses and unpaid
interest, which obligations are documented by notes of $215,000 and $2.1 million
and interest receivable of $1.1 million. The note for $215,000, which is dated
February 26, 1996, bears interest at a rate equal to prime plus 2% (9.75% at
December 31, 1998) and was due December 31, 1996. No payments of principal have
been made on this note, nor payments of interest beyond May 1996.

In February 1997, Primergy executed the promissory note for $2.1 million,
bearing interest at the rate of prime plus 2% (9.75% at December 31, 1998), with
repayment of the principal over 36 months, starting upon the occurrence of
certain events explained below (no interest has been paid on this obligation).
Subsequently, in February 1997, Primergy entered into an Option Agreement with a
potential investor (the "Investor"), whereby the Investor loaned Primergy
$4,000,000 and received an option to merge with Primergy, exercisable through
June 30, 1998. Concurrently, WellCare entered into an agreement with Primergy
whereby WellCare agreed to forebear on the collection of principal and interest
on the note for $5.1 million, and on the collection of principal of the $2.1
million note, in exchange for the right to convert the $5.1 million note into
43% of the common stock of the company if the Investor were to exercise its
option to merge and immediate repayment of the $2.1 million note upon
effectiveness of such merger. At June 30, 1998, the Investor's option to merge
expired without being exercised. As a result forbearance of the debt has been
rescinded and the original payment terms of the $5.1 million note reinstated.
Primergy is obligated to continue paying monthly interest on the $2.1 million
note with principal payments over a thirty-six month period, commencing July 1,
1998. Primergy has not made any of the principal or interest payments due under
the $2.1 million note. The notes are subordinated to the Investor's security
interest.

In view of Primergy's operating losses and advances to the Alliances, the
Company had obtained from certain of Primergy's equity holders personal
guarantees of the original note and pledges of collateral to secure these
guarantees. In April 1997, the Company's Board of Directors agreed to release
these guarantees and related collateral pledged by the guarantors to secure the
guarantees in exchange for Primergy's stock options that such guarantors
originally received from Primergy and a release from the guarantors for any
potential claims against WellCare associated with the transactions. In view of
Primergy's financial condition and difficulties inherent in the collection of
personal guarantees and realization of collateral, and Primergy's default on the
payments of the notes, the Company had fully reserved in 1995 the original $5.1
million note receivable, plus the $.7 million advanced in 1995. In 1996, the
Company established an additional net reserve of $1.9 million for the $215,000
note, interest accrued on the notes, and advances receivable, net of the
deferred gain of $144,000 on the original sale. In 1997, the Company established
a reserve of $.8 million for 1997 accrued interest not paid by Primergy and for
advances made in 1997. In 1998, the Company established a reserve of $.8 million
for 1998 accrued interest not paid at December 31, 1998. All amounts due to the
Company from Primergy, net of the deferred gain on the original sale, are fully
reserved.

In February 1999, the Company entered into a letter of intent to settle its
outstanding indebtedness with Primergy and to amend the five IPA service
agreements with the IPA's owned by Primergy. A transaction was not consummated.

6.       SHORT-TERM INVESTMENTS

The value of short-term investments is as follows:

                                                         GROSS
                                                  ----------------------
                                                  UNREALIZED UNREALIZED
                                      MARKET
                                       COST         GAINS    LOSSES     VALUE
                                    ----------     ------    ------     -----
At December 31, 1998:
Equity securities                       1,264         787        --    $  2,051
                                     --------     -------    ------    ---=----
TOTAL                                $  1,264     $   787    $   --    $  2,051
                                     ========     =======    ======    ========

At December 31, 1997:
Fixed income securities -
  States and
   municipalities                    $101,587     $   --     $ (813)   $100,774
Equity securities                       1,449       1,073        --       2,522
                                     --------     -------    ------    --------
TOTAL                                $103,036     $ 1,073    $ (813)   $103,296
                                     ========     =======    ======    ========

7.       OTHER RECEIVABLES

Other receivables at December 31, 1998 and 1997 consist of the following (in
thousands):

                                               1998              1997
                                            ----------        ----------
Current portion of:
  Receivable from third-party
    insurers                               $      154         $      112
  Reinsurance receivable                          354              2,687
  New York State Pools receivable                 433                377
  Pharmacy rebate receivable                      188                524
  Contributions receivable - WCU                   24                640
  Interest receivables from Primergy
    (Note 5) - net of allowance
    for doubtful accounts of $1,957
    and $1,137                                     --                 --
  Other                                           225                533
                                           ----------         ----------
TOTAL                                      $    1,378         $    4,873
                                           ==========         ==========

8.       PROPERTY AND EQUIPMENT

Property and equipment at December 31, 1998 and 1997, consists of the following
(in thousands):

                                               1998              1997
                                            ----------        ----------
Land                                        $      888        $      888
Land improvements                                  448               448
Buildings and building improvements              6,389             9,189
Leasehold improvements                             444               434
Computer equipment                               5,613             5,118
Furniture, fixtures and equipment                1,685             1,545
                                            ----------        ----------
                                                15,467            17,622
Less accumulated depreciation
 and amortization                                7,758             6,528
                                            ----------        ----------
                                                 7,709            11,094
Less amounts classified as current               5,564                --
                                            ----------        ----------
TOTAL                                       $    2,145        $   11,094
                                            ==========        ==========

In June 1999, the Company agreed to transfer ownership of certain real property
to the mortgagees of those properties in consideration of the mortgagees
relieving the Company of any liability for any deficiency between the amount of
the mortgage balances and the value of the property (see Notes 12 and 24). In
1998, the Company recorded a loss on impairment of assets of approximately $2.8
million, with a corresponding reduction in buildings and building improvements,
to adjust the net carrying value of the assets to the amount of the mortgage
balances. At December 31, 1998, the adjusted net carrying value of the mortgaged
assets, and the corresponding mortgage balance, have been classified as current.

Included in computer equipment and furniture, fixtures and equipment is
equipment financed through capital leases aggregating approximately $2,574 at
December 31, 1998 and 1997, respectively. Accumulated amortization relating to
assets financed through capital leases was approximately $2,272 and $2,016 at
December 31, 1998 and 1997, respectively.

9.       NOTES RECEIVABLE

Notes receivable of approximately $1,417,000 and $1,370,000 at December 31, 1998
and 1997, respectively, represent advances made to six medical sites to enhance
WCNY's provider network (see Note 3e). The notes are collateralized by first
liens on all cash, accounts receivable, inventory, and all office and medical
equipment owned by each of the medical sites. The notes require monthly
principal and interest payments, at a rate of 7.5% per annum and mature on
January 1, 2001. As no payments have been received since March 1997, a reserve
of $793,000 in 1998 and $624,000 in 1997 was established for unpaid principal
and interest and, at December 31, 1998, the notes are fully reserved. The owner
of the medical sites sold the practices in 1998 and 1999, with the proceeds in
escrow. The net proceeds, if any, from such sales will be used to repay the
notes. 10. OTHER NON-CURRENT ASSETS

Other non-current assets at December 31, 1998 and 1997, consist of the following
(in thousands):

                                                        1998            1997
                                                     ----------      ----------
Capitalized costs incurred in
    connection with placement
    of subordinated convertible
    note - net                                       $     624       $     743

Long term portion of:
  Receivables from third-party
    insurers                                               616             449
  Deferred taxes - net                                      --           1,514
  Accounts receivable - net                                 --             225

Deposits and other - net                                   323             371
                                                     ---------       ---------
TOTAL                                                $   1,563       $   3,302
                                                     =========       =========

11.      LIABILITY FOR MEDICAL COSTS PAYABLE

Activity in the medical costs payable liability is summarized as follows:

                                                         1998          1997
                                                         ----          ----
                                                           (in thousands)

Balance, beginning of year                             $ 17,321       $ 15,965

Incurred related to:
  Current year                                          126,137        122,367
  Prior years                                             3,357          3,884
                                                       --------       --------
Total incurred                                          129,494        126,251
                                                       --------       --------


Paid related to:
  Current year                                          100,663        107,075
  Prior years                                            19,748         17,820
                                                       --------       --------
Total paid                                              120,411        124,895
                                                       --------       --------

Balance, end of year                                   $ 26,404       $ 17,321
                                                       ========       ========
-------------------------

The liability for accrued medical costs payable includes management's estimate
of amounts required to settle known claims, claims which are in the process of
adjudication and claims incurred but not reported ("IBNR.")

The 1998 medical expenses include a $3.7 million charge for adverse development
relating to 1997 and 1996 medical claims and a credit of $0.8 million for the
New York State distribution of surplus market stabilization pool funds relating
to years 1993 to 1996 (see Note 3b).

The 1997 medical expenses include a $2.5 million charge for adverse development
relating to 1996 medical claims and a $1.7 million charge for the estimated
liability related to NYSID's audit of the 1993-1995 demographic pool and the
1996 demographic pool (see Note 3c) and a $0.4 credit relating to the 1994
restatement (see Note 3d).

12.      LONG-TERM DEBT

Long-term debt, at December 31, consists of the following:

                                                         1998           1997
                                                       --------       ---------
                                                            (in thousands)
Subordinated Convertible Note -
   The 1818 Fund II, L.P.;
   principal due December 31, 2002;
   interest at 8% per annum,
   payable quarterly (see Note 13).                    $ 15,000       $  20,000

Mortgage Payable - Key Bank of New York;
   $4,610,000; interest at base rate
   (7.75% at December 31, 1998); payable
   monthly with a balloon of $3,574,000
   due January 1, 2000. Secured by real
   estate, buildings, fixtures and assignment
   of all leases.                                         3,834           4,060

Mortgage Payable - Key Bank of
   New York; first mortgage of
   $862,500; interest at base rate
   (7.75% at December 31, 1998); payable
   monthly with a balloon of $631,000
   due March 1, 2000.  Secured by property
   located in Saugerties.                                   699             748

Mortgage Payable - Premier National Bank;
   first mortgage of $820,000; interest
   at 7.25%; balloon payment of $727,000 due
   February 1, 1999.                                        731             755

Mortgage Payable - Premier National
   Bank; first mortgage of
   $335,000; interest at prime rate (7.75%
   at December 31, 1998); payable monthly
   with a balloon of $260,500 due
   March 1, 2001.                                           300             314

Capitalized Lease Obligations; due through
   2002; monthly payments ranging from
   $3,100 to $9,100 with interest ranging
   from 6.5% to 10.9%; secured by equipment                 298             593
                                                       --------       ---------
Total debt                                               20,862          26,470

Less current portion                                      5,791             618
                                                       --------       ---------
Long-term portion                                      $ 15,071       $  25,852
                                                       ========       =========


In July 1997, Key Bank (the "Bank") notified the Company that it considered the
Company not in compliance with the Target Loan to Value Ratio provided for in
two of its mortgages, with outstanding balances, at that time, of approximately
$4.9 million (approximately $4.5 million at December 31, 1998.) According to the
Bank's calculations, the outstanding Loan Amount exceeded the corresponding
Lendable Property Value, as defined, based on appraisals prepared for Key Bank,
by approximately $1.7 million. The Bank had requested that the Company either
reduce the outstanding obligation, or provide additional collateral for $1.7
million, otherwise the Bank would consider the Company in default of the
mortgage notes. A default would require the Company to pay a higher interest
rate on the outstanding obligations, among other potential penalties. The
Company disagreed with the Bank's valuation methodology and informed the Bank of
this disagreement.

At December 31, 1998, the Company is not in compliance with certain financial
covenants contained in the loan documents.

The Bank has expressed a willingness to pursue a resolution, and has not
exercised its rights or remedies. The Company is and has been current in the
payments of its obligations with the Bank. Although there can be no assurances
that the Bank will grant the Company a waiver, the Company continues to classify
the debts in accordance with their original terms in anticipation of a waiver.

In June 1999, the Company reached separate settlements with the Bank and Premier
National Bank ("Premier"), whereby the Company agreed to transfer ownership of
the mortgaged properties to the Bank and Premier, respectively, in settlement of
the outstanding mortgages (see Notes 8 and 24d).

Maturities of long-term debt (in thousands), as of December 31, 1998, excluding
capital lease obligations, future minimum lease payments under capital leases,
and the aforementioned settlement of the mortgages, for each of the next five
years are as follows:

                                                             FUTURE
                                                             MINIMUM
                                    LONG-TERM                 LEASE
                                      DEBT                   PAYMENTS
                                   ----------                --------
  Year:
  ----

   1999                               1,433                      227
   2000                               4,263                       67
   2001                                 267                       20
   2002                              15,000                       --
   2003                                  --                       --
   Thereafter                            --                       --
                                    -------                  -------
                                     20,963                      314
Less amount
   representing interest                399                       16
                                    -------                  -------
                                    $20,564                  $   298
                                    =======                  =======


13.      SUBORDINATED CONVERTIBLE NOTE

In January 1996, The Company completed a private placement of a subordinated
convertible note in the principal amount of $20 million (the "Note"), with The
1818 Fund II, L.P. (the "Fund"), a private equity fund managed by Brown Brothers
Harriman & Co. ("BBH & Co"). The Note and underlying terms were amended on
February 28, 1997 (the "1997 Amendment") by the Company and the Fund. In January
1998, The Fund agreed to convert $5 million of the Note into common stock of the
Company, at a conversion price of $4 per share (the "1998 Amendment"), subject
to approval by the New York State Department of Health ("DOH"). In May 1998, the
DOH advised the Company that such approval was not required, and the conversion
into 1,250,000 shares was effected on May 15, 1998.

The remaining $15 million principal is payable on December 31, 2002. Interest
was initially at the rate of 6% per annum, amended in 1997 to 5.5% per annum,
and amended in 1998 to 8% per annum, and is payable quarterly, The Note is
subordinated to all senior indebtedness. The Company is in arrears of the
January 1 and April 1, 1999 interest payments of $300,000 each, and is also in
default of certain provisions of the Note. The Company continues to classify the
Note as long term as it is currently negotiating the conversion of the $15
million obligation into equity.

The Note is subject to certain mandatory redemption at the option of the Fund
upon a Changes in Control (as defined in the Note) of the Company. The
redemption price was initially equal to 115% of the principal amount of the
Note, amended to 130% by the 1997 Amendment and to 150% by the 1998 Amendment,
together with all accrued and unpaid interest. If a Change of Control occurs
within 24 months of a redemption of the Note, the Company may also be required
to pay the Fund an amount equal to 50% of the principal amount of the redeemed
Note. Under certain conditions, the Note is redeemable at the option of the
Company on or after January 19, 2000. After the 1998 Amendment, the Fund has the
right to convert the outstanding principal into shares of common stock of the
Company at a conversion price of $8 per share, subject to the anti-dilution
adjustment. Previously, pursuant to the 1997 Amendment, the conversion price had
been $10.37 per share, subject to adjustment for certain dilutive events.
Initially, the conversion price was $29 per share. The conversion price granted
to the holder of the Note is adjusted, if the Company issues shares of its
common stock or options, warrants or other rights to acquire shares of common
stock of the Company at a price per share less than the current market price, or
the conversion price at the time.

Pursuant to the terms of the Note, in January 1996, the Company caused one
vacancy to be created on its Board of Directors and caused a designee of the
Fund to be appointed to the Board. Under the 1997 Amendment, as of February 28,
1997, the Company caused one vacancy to be created on its Board of Directors and
a second designee of the Fund to be appointed as a director. Both designee
resigned as directors, effective January 20, 1999.

As part of the 1998 Amendment, the Fund agreed to waive any existing defaults
known to it at that time. The Company also had the right to purchase one half of
the shares of the common stock and the debt held by the Fund, for $12 million
plus accrued interest, if consolidated earnings before taxes were positive for
either the second or third quarter of 1998. The Company reported a consolidated
loss before taxes for each of these quarters.

In June 1999, the Fund converted the $15 million Note, plus accrued and unpaid
interest of approximately $0.7 million, into newly authorized senior convertible
preferred stock (Series B) of the Company. The preferred stock is non-voting and
is subject to mandatory conversion (subject to regulatory approval) into
10,000,000 shares of WellCare's common stock upon the amendment to WellCare's
certificate of incorporation to increase the number of authorized shares from 20
million to 75 million (see Note 24).

14.      INCOME TAXES

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

                                        YEAR ENDED DECEMBER 31,
                               --------------------------------------
                                 1998            1997          1996
                               --------        --------      --------
Current:
   Federal                     $     --        $    --       $ (6,388)
   State                             --             --             62
                               --------        -------       --------
                               $     --        $    --       $ (6,326)
                               ========        =======       ========

Deferred:
   Federal                     $     --        $    --       $   (351)
   State                             --             --         (1,361)
                               --------        -------       --------

                               $     --        $    --       $ (1,712)
                               ========        =======       ========

A reconciliation of the Federal statutory rate to the Company's effective income
tax rate is as follows:

                                               YEAR ENDED DECEMBER 31,
                                    ------------------------------------------
                                      1998             1997             1996
                                    --------         --------         --------

Federal statutory rate                  34.0%            34.0%            34.0%
State income taxes -
 Net of federal benefit                  6.4              6.4              6.6
                                    --------         --------         --------

Effective rate                          40.4%            40.4%            40.6%
                                    ========         ========         ========

At December 31, 1996, the Company recorded a deferred tax asset of approximately
$5.4 million giving recognition to the tax benefit of reversing temporary
differences and net operating loss carryovers ("NOL"). No valuation allowance
was established for the deferred tax asset since realization was determined by
management to be more likely than not based upon the Company's internal budget.
The amounts of these NOLS, related to state tax benefits, are approximately $897
and $129 for New York and Connecticut, respectively. Additionally, the maximum
utilization period for these NOLS is fifteen (15) and five (5) years for New
York and Connecticut, respectively.


"At December 31, 1997 the Company did not provide a valuation allowance for
these net deferred tax assets. This was based upon the Company's internal
projections of future profitable operations and based on the available tax
planning strategy of selling its subsidiary, Wellcare of New York, Inc. and/or
Wellcare of Connecticut, Inc. At that time, the Company had engaged Bear Stearns
& Co. to explore its strategic opportunities and believed that a possible sale
would have resulted in gains which would have been sufficient to realize the net
deferred tax asset which had been recorded. During 1998, the Company continued
to incur operating losses, the amounts of which were substantial and increasing.
Further, the Company's consideration of its strategic opportunities resulted in
the series of transactions described in Note 24 to the financial statements.
These transactions included a sale of the Company's commercial HMO business in
New York, with the Company's continuing business consisting primarily of the
Company's Medicare and Medicaid business in New York State and commercial
business in Connecticut. Both Companies were under close scrutiny by the state
regulatory authorities at this time. Also, the proceeds to the Company from the
sale of its commercial HMO business in New York was substantially lower than had
been anticipated in the prior year from the sale of Wellcare of New York, Inc.
Thus, based on the inability to realize a significant gain on the sale of assets
and the continuation of business lines which had not historically been
profitable, the Company determined that it was no longer possible to conclude
that the use of the net deferred asset was "more likely than not" to be realized
and therefore recorded a full valuation allowance at December 31, 1998 for these
net deferred tax assets.


Continuing operating losses during 1998 and 1997 resulted in additional deferred
tax benefits of approximately $8.7 and $7.8 million, respectively. The ability
to realize the tax benefits associated with these losses is dependent upon the
Company's ability to generate future taxable income from operations and/or to
effectuate successful tax planning strategies. Although management believes that
profitable operations may be achieved in the future, in view of their size and
length of the expected recoupment period, the Company provided a 100% valuation
allowance in 1998 and 1997, respectively, with respect to the deferred tax
assets for 1998 and 1997.

Management had not provided a valuation allowance for the 1996 deferred tax
assets as of December 31, 1997, in the belief that it was more likely than not
that the deferred tax assets would be realized as a result of future taxable
income from operations through reductions in the cost of medical services,
improved medical utilization controls, reductions in administrative expenses,
increases in enrollment and/or the successful implementation of tax strategies.
Further, at such time the Company had engaged Bear, Stearns Co. Inc., to review
available strategic alternatives. The successful completion of a transaction
could have been a source of future taxable income.

Deferred income taxes reflect the net tax effects of (a) temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes, and (b) operating loss
and tax credit carryforwards. The tax effects of significant items comprising
the Company's deferred tax balance as of December 31, 1998 and 1997 are as
follows:

                                                      DECEMBER 31,
                                             ----------------------------
                                                1998             1997
                                             ----------       ----------
                                                     (in thousands)
Deferred tax assets:
   Accounts and other
    receivables - bad
    debt reserves                            $   6,070        $   5,167
    Other                                           47               61
   Net operating loss carry forward
      Federal                                   12,486            7,434
      State                                      3,623            1,466
                                             ---------        ---------
  Total                                         22,226           14,128
                                             ---------        ---------
Deferred tax liabilities:
   Depreciable assets                              258              258
   Capitalized pre-
     operational costs                              --              588
                                             ---------        ---------
  Total                                            258              846
                                             ---------        ---------
   Net before valuation allowance               21,968           13,282
   Less: valuation allowance                    21,968           (7,841)
                                             ---------        ---------
Net deferred tax asset                       $      -0-       $   5,441
                                             =========        =========

The Company's effective tax rate during 1998, 1997 and 1996 was 40.4%, 40.4%,
and 40.6%, respectively. The fluctuation in the effective rate is primarily
attributable to the amount of nondeductible expenses and tax exempt income, and
the reduction in 1997 of the New York State tax surcharge.

15.      COMMON STOCK

The Class A common stock and the common stock are identical in all respects
except for voting rights, conversion rights and the non-transferability of the
Class A common stock. Holders of Class A common stock are entitled to ten (10)
votes per share and holders of common stock to one (1) vote per share. Class A
common stock is not transferable and must be converted to common stock to be
sold. Holders of Class A common stock may, at their option, convert their shares
to common stock on a share-for-share basis.

In January 1998, The Fund agreed to convert $5 million of the Company's Note
into 1,250,000 shares of the Company's common stock (see Note 13).

The Company has 1,000,000 shares of preferred stock authorized, no shares
issued.

An aggregate of 900,000 shares of common stock are reserved under the Company's
1993 Incentive and Non-Incentive Stock Option Plan (the "Plan"). In addition, an
aggregate of 650,000 shares of common stock are reserved under the Company's
1996 Non-Incentive Executive Stock Option Plan.

16.      STOCK OPTIONS

During 1998, 1997 and 1996, the Company granted stock options to certain
individuals to purchase common stock at the fair market value of the stock on
the date of the grant. Following is a summary of the transactions:


                                              SHARES UNDER OPTION
                                          -----------------------------
                                          1998         1997        1996
                                          ----         ----        ----

Outstanding,
 beginning of year                      650,179      556,455     388,012

Exercised during the year                    --           --     (20,398)

Terminated during the year             (275,438)    (106,368)   (148,159)

Granted during the year                 224,000      200,092     337,000
                                        -------      -------     -------
Outstanding, end of year                598,741      650,179     556,455
                                        =======      =======     =======
Eligible, end of year, for
 exercise currently                     463,005      338,921     175,938
                                        =======      =======     =======

Option price per share               $1.25-$24.50  $3.01-$24.50  $7.22-$24.50

In December 1997, the Company amended the exercise price on the 200,000 options
previously granted to the President in 1996, from $10.125 to $3.01 per share. In
September 1997, the Company granted the President options for 30,000 shares, at
an exercise price of $15.00 per share. In February 1998, the Company amended the
exercise price for the 30,000 options to $4.51 per share, and granted additional
options for 100,000 shares, at an exercise price of $5.02 per share. The
President resigned, effective January 15, 1999, and his qualified options
terminated April 15, 1999.

In December 1996, the Company created the 1996 Non-Incentive Executive Stock
Option Plan (the "NIE Plan") to acknowledge exceptional services to the Company
by senior executives and to provide an added incentive for such senior
executives to continue to provide such services and to promote the best
interests of the Company. An aggregate of 650,000 shares of the Company's common
stock, par value $0.01 per share, are reserved under to this plan with options
to purchase granted to any one senior executive limited to 600,000 shares or
less. All options have a term of five years from the date of grant but shall
terminate, lapse and expire at such earlier time or times as provided in the
Option Agreement governing such option. Options granted are not subject to
review and are conclusive, although in no event shall such purchase price be
less than the fair market value (as defined in the Agreement). The following is
a summary of the transactions under the NIE Plan:

Non-incentive Executive Stock
 Option Plan:                          1998         1997        1996
                                       ----         ----        ----
Outstanding, beginning of year       600,000      600,000           --

Exercised during the year                 --           --           --

Terminated during the year                --           --           --

Granted during the year                   --           --      600,000
                                     -------       -------     -------

Outstanding, end of year             600,000       600,000     600,000
                                     =======       =======     =======

Eligible, end of year, for
   exercise currently                400,000       200,000          --
                                     =======       =======     =======

Option price per share             $4.00-$6.25   $4.00-$6.25  $10.00-$15.00

In December 1997, the Company amended the exercise prices on the 600,000
options, granted, in 1996, to the Chairman of the Board. The options terminated,
effective February 25, 1999, upon the Chairman's resignation as Chairman and
Director.

The Company has adopted the disclosure-only provisions of SFAS 123 (See Note
1n). Accordingly, no compensation cost has been recognized for grants of stock
options. Had compensation cost for grants made under the Company's two stock
option plans been determined based on the fair market value at the grant dates
in a manner consistent with the provisions of SFAS 123, the Company's net loss
and net loss per share for the years ended December 31, 1998, 1997 and 1996
would have been adjusted to the pro forma amounts below:

                                       YEAR ENDED DECEMBER 31,
                           -----------------------------------------------
                             1998             1997               1996
                           -----------    ------------        -----------
                               (in thousands, except per share amounts)
Net loss:

   As reported             $ (30,858)      $ (22,142)         $ (11,782)
   Pro forma               $ (33,272)      $ (23,840)         $ (12,587)

Net loss
  per share:

   As reported             $   (4.36)      $   (3.52)         $   (1.87)
   Pro forma               $   (4.70)      $   (3.78)         $   (2.00)

The fair value of options at the date of grant was estimated using the
Black-Scholes option-pricing model with the following weighted-average
assumptions:

                                       YEAR ENDED DECEMBER 31,
                           -----------------------------------------------
                             1998             1997               1996
                           -----------    ------------        -----------

Dividend yield                  0.0%            0.0%               0.0%
Expected
  volatility                  144.1%           70.3%              47.0%
Risk-free
  interest rate
    (per annum)                 7.0%            6.2%               6.2%
Expected lives
   (in years)                   3.7             3.1                4.3


17.      RETIREMENT SAVINGS PLAN

The Company sponsors a retirement plan designed to qualify under Section 401(k)
of the Internal Revenue Code of 1986, as amended. All employees over age
twenty-one (21) who have been employed by the Company for at least one year with
one thousand (1,000) hours of service are eligible to participate in the plan.
Employees may contribute to the plan on a tax deferred basis generally up to 18%
of their total annual salary, but in no event more than $10,000 in 1998. Under
the plan, the Company makes matching contributions at the rate of 50% of the
amount contributed by the employees up to a maximum of 2% of the employee's
total annual compensation. The employer contributions vest to the employee after
five (5) years of an employee's service with the Company. At December 31, 1998,
89 employees were enrolled in the plan. The Company contributed approximately
$58,000, $85,000 and $86,000 for 1998, 1997 and 1996, respectively.

18.      CONCENTRATIONS OF CREDIT RISK

Financial instruments which potentially subject the Company to concentration of
credit risk consist primarily of investments in short-term investments in
obligations of certain state and municipal entities and premiums receivable.
Short-term investments are managed by professional investment managers within
the guidelines established by the Board of Directors, which, as a matter of
policy, limit the amounts which may be invested in any one issuer.
Concentrations of credit risk with respect to premiums receivable are limited
due to the large number of employer groups comprising the Company's customer
base. As of December 31, 1998, management believes that the Company has no
significant concentrations of credit risk.

19.      COMMITMENTS AND CONTINGENCIES

A. In October 1994, WCNY entered into contracted arrangements with the majority
of its primary care physicians and specialists through contracts with regional
health care delivering networks with attendant risk-sharing to capitating the
IPAs comprised of the specialists and previously-capitated primary care
physicians. The Alliances have operated at an accumulated deficit since
inception but have instituted measures designed to reduce this deficit and
achieve profitability. The IPAs could request additional funding beyond the
contractual increases from the Company, which management does not believe should
be required and, if requested, by the IPAs the Company does not intend to
provide such funding. As described in Note 5, in 1997, the IPAs received a $4.0
million cash infusion from an unrelated third-party.

In an effort to improve profitability of WCNY and the Alliances, WCNY entered
into a letter of understanding with the Alliances in September 1996 to
restructure its capitation arrangement. In April 1998, formal contracts were
finalized and executed. WCNY reassumed risk for certain previously capitated
services, with a corresponding reduction in rates. WCNY capitated the Alliances
for all physician services, both primary care and specialty services, on a PMPM
basis for each HMO member associated with an Alliance except for physician
services for certain diagnostics and mental health substance abuse, which are
capitated through contracts with certain other regional integrated delivery
systems. Management of the Alliances and WCNY believe that the these measures
will enable the Alliances to achieve profitability and reduce their accumulated
deficits.

The Company has been advised by counsel that it would have no financial
liability to providers with whom the Alliances/IPAs had contracted for services
rendered in the event the Alliances/IPAs were unable to maintain their
operations. Further, the Company has direct contracts with providers which would
require the providers to continue to provide medical care to members on
financial terms similar to those in the Alliances'/IPAs' agreement with
providers, in the event that the Alliances/IPAs were unable to maintain their
operations.

Nevertheless, in the event of continuing losses or increasing deficits by the
Alliances/IPAs, the Alliances could request increased capitation rates from the
Company.

Management of the Company does not believe that such additional financial or
increased contractual capitation rates should be required by the Alliances/IPAs
and has no intention to agree to such terms if requested by the Alliances/IPAs
beyond the negotiated contractual increases. However, as described in Note 3g
the Company agreed to record charges to medical expense based on the
instructions of NYSID. Effective September 1996, the Company entered into a
letter of understanding with the Alliances/IPAs to restructure its capitation
arrangement. Under this understanding, the Company reassumed risk for certain
previously capitated services with a corresponding reduction in rates.

On July 31, 1998, the Company notified four (4) major IPAs of its intent to
renegotiate the contracts between the Company and the respective IPAs because
the Investor's option to merge with Primergy, which owns and manages the IPAs,
expired on June 30, 1998. If a new agreement is not reached within 120 days
after June 30, 1998, either the Company or the respective IPA can thereafter
exercise its option to terminate the contract. The parties continue to negotiate
the terms of the new agreement and there can be no assurance that the contracts
will be successfully renegotiated and not terminated by either the Company or
the respective IPAs.

b. Between April and June 1996, the Company, its former President and Chief
Executive Officer (Edward A. Ullmann), and its former Vice President of Finance
and Chief Financial Officer (Marystephanie Corsones) were named as defendants in
twelve separate actions filed in Federal Court (the "Securities Litigations").
An additional three directors were also named in one of these actions.
Plaintiffs sought to recover damages allegedly caused by the Company's
defendants' violations of federal securities laws with regard to the preparation
and dissemination to the investing public of false and misleading information
concerning the Company's financial condition.

In July 1996, the Securities Litigations were consolidated in the United States
District Court for the Northern District of New York, and an amended
consolidating complaint (the "Complaint") was served in August 1996. The
Complaint did not name the three additional directors. The Company's auditor,
however, was named as an additional defendant. In October 1996, the Company
filed a motion to dismiss the consolidated amended complaint against the Company
as well as the individual defendants. The Company's auditor likewise filed its
own motion to dismiss. By Memorandum Decision and Order (the "Order"), entered
in April 1997, the Court (i) granted the auditor's motion to dismiss and ordered
that the claims against the auditors be dismissed with prejudice; and (ii)
denied the motion to dismiss brought by the individual defendants. Because the
Order did not specifically address the Company's motion to dismiss, in May 1997,
the Company moved for reconsideration of its motion to dismiss and dismissal of
all claims asserted against it. On reconsideration, the judge clarified his
previous ruling expanding it to include a denial of the Company's motion as
well. Following the Court's decision, the Company filed its answer and defense
to the Complaint. In September 1997, the plaintiffs' class was certified and the
parties thereafter commenced the discovery process of the litigation.

In May 1999, the Company entered into a settlement agreement for $2.5 million,
all of which is being funded by the insurance carrier which provided coverage to
the individual defendants. The settlement agreement is subject to Federal Court
approval. The Company expects to recoup from the insurance carrier the expenses
related to fees it paid to the attorneys representing the individual defendants,
less the Company's insurance deductible.

C. The Company and certain of its subsidiaries, including WellCare of New York,
Inc. have responded to subpoenas issued in April and August 1997 from the United
States District Court for the Northern District of New York through the office
of the United States Attorney for that District. These subpoenas sought the
production of various documents concerning financial and accounting systems,
corporate records, press releases and other external communications. While the
United States Attorney has not disclosed the purpose of its inquiry, the Company
has reason to believe that neither its current management nor its current
directors are subjects or targets of the investigation. The Company has,
however, informed the government that it will continue to cooperate fully in any
way that it can in connection with the ongoing investigation.

D. On July 31, 1996 and October 3, 1996 the Securities and Exchange Commission
issued subpoenas to the Company for the production of various financial and
medical claims information. The Company fully complied with both of these
subpoenas on August 21, 1996 and October 31, 1996, and with subsequent requests
for supplementation. It is management's understanding that the Securities and
Exchange Commission investigation is continuing.

E. Other - The Company is involved in litigation and claims which are considered
normal to the Company's business. In the opinion of management, the amount of
loss, if any, that might be sustained, either individually or collectively, from
these actions would not have a material effect on the Company's consolidated
financial statements.

F. Leases - Future minimum rental payments (in thousands) required under
operating leases that have initial or remaining noncancellable lease terms in
excess of one year as of December 31, 1997, are approximately as follows:

            YEAR                       AMOUNT
         ------------                 --------
           1998                          1,416
           1999                          1,205
           2000                          1,060
           2001                            489
           2002                            288
           Thereafter                    1,215
                                       -------
           TOTAL                       $ 5,673
                                       =======

20.      STATUTORY REQUIREMENTS AND DIVIDEND RESTRICTIONS

New York State certified HMOs are required to maintain a cash reserve equal to
the greater of 5% of expected annual medical costs or $100,000. Additionally,
except as described in the following paragraph, WCNY is required to maintain a
contingent reserve which must be increased annually by an amount equal to at
least 1% of statutory premiums earned limited, in total, to a maximum of 5% of
statutory premiums earned for the most recent calendar year and which may be
offset by the cash reserve. The cash reserve is calculated at December 31 of
each year and is maintained throughout the following calendar year. At December
31, 1998 and 1997, WellCare had required cash reserves of approximately $5.3 and
$5.8 million, respectively, and a contingent reserve of approximately $6.7 and
$6.7 million, respectively. In the event the contingent reserve exceeds the
required cash reserve, the excess of the contingent reserve over the required
cash reserve is required to be maintained.

Notwithstanding the above, NYSID has the authority to allow an HMO to maintain a
net worth of 50% to 100% of the contingent reserve. WCNY executed a Section 1307
loan in March 1998, which retroactively brought WCNY's December 31, 1997
statutory net worth above the permitted 50% contingent reserve requirement. WCNY
had been operating within the 50-100% discretionary contingent reserve
requirement during 1997 and through the first quarter of 1998, with the full
knowledge of NYSID. In 1998, the Company forgave the management fees for WCNY
for 1998 in the amount of approximately $1.4 million. In June 1997 and November
1997, the Company loaned $3.1 and $1.3 million, respectively, to WCNY under the
provisions of Section 1307. However, after giving effect to the reported results
for 1998, at December 31, 1998, WCNY had a negative statutory net worth of
approximately ($14.6) million. Failure to come into compliance with the reserve
requirement could cause NYSID to take action which could include restriction or
revocation of WCNY's license.

Management has had ongoing discussions and meetings with NYSID regarding WCNY's
operating results and compliance with various statutory requirements and has
updated NYSID of the Company's plans to obtain additional funds. This includes a
remedial action plan based upon capital to be contributed to WCNY following the
consummation of a strategic opportunity with respect to which, in March 1998,
the Company engaged the assistance of Bear, Stearns & Co., Inc., and WCNY's
ultimate return to profitability. In April 1999, WCNY agreed to a consent to
rehabilitation in which the State of New York has the right to commence court
proceedings and have an order entered into that would give the State of New York
the right to assume the operations of WCNY. In May and June 1999, the Company
consummated a number of transactions which will bring WCNY within the 50% to
100% revised contingent reserve requirement, as permitted by NYSID. The
transactions include: an equity investment of $5 million; sale of WCNY's
commercial enrollment for approximately $5 million; settlement of provider
claims at amounts significantly lower than the estimated liability of
approximately $30.5 million; renegotiation and settlement of approximately $5.4
million of mortgage debt; and the conversion of the $15 million subordinated
convertible note into senior convertible preferred stock of the Company (see
Note 24). As a result of these transactions, WellCare anticipates that the State
of New York would not exercise that right. In addition, as a result of WCNY's
sale of its commercial business in June 1999, the statutory cash reserve
required will decrease to $2.9 million, and the statutory contingent reserve
required will decrease to $3.7 million.

WCCT is subject to similar regulatory requirements with respect to its HMO
operations in Connecticut. The Connecticut Department of Insurance requires that
WCCT maintain a statutory reserve of $1 million. In June and November 1997, the
Company made capital contributions of $350,000 and $425,000, respectively, to
WCCT to bring its statutory net worth to the required minimum of $1 million. In
March 1998, the Company made an additional capital contribution of $368,000 to
WCCT to bring its statutory net worth above the $1 million requirement. At
December 31, 1998, WCCT is not in compliance with the statutory net worth
requirement having a statutory net worth of approximately $600,000. As a result,
on June 2, 1999, the State of Connecticut Insurance Department issued an order
requiring WCCT to submit to administrative supervision by the State's Insurance
Commissioner until WCCT meets its statutory net worth and other requirements.
Management has been meeting with the Connecticut Department of Insurance
regarding the statutory net worth deficiency to develop a mutually agreeable
plan to bring WCCT into compliance with the statutory net worth requirement.

In January 1997, WCNY received the final report on its biennial statutory
examination for the years ended December 31, 1994 and 1995 from NYSID. In 1996,
during the course of the audit, the Company had recorded two non-recurring
medical charges (See Note 3g) based on the interim findings and instructions of
NYSID. Additionally, NYSID determined that WCNY was not in compliance with all
pertinent New York State regulation sections relating to WCNY's underwriting and
rating procedures and referred the matter to NYSID's Office of General Counsel
for disciplinary action. In December 1997, WCNY entered into a Stipulation
Agreement whereby it agreed to pay a penalty of $91,000 and to correct past
violations. An additional penalty of $66,000 may be assessed if NYSID
subsequently determines that WCNY has not made a good faith effort to recoup
undercharges from incorrectly rated groups. WCNY believes it has directed its
best efforts at recouping these undercharges, and believes it will not be
assessed any additional penalty.

As a result of the examination, WCNY's statutory net worth was impaired by
approximately $1.1 million. In March 1996, the Company made a capital
contribution of $3 million to WCNY, and in October 1996, the Company loaned WCNY
$3 million under the provisions of Section 1307 of the New York State Insurance
Law. Under Section 1307, the principal and interest are treated as equity
capital for regulatory purposes and are repayable out of the free and divisible
surplus, subject to the prior approval of the Superintendent of Insurance of the
State of New York. These two cash infusions more than offset the examination's
adjustment to WCNY's net worth.

As a holding company, WellCare's ability to declare and pay dividends is
dependent upon cash distributions from its subsidiaries which, with respect to
WCNY, are limited by state regulations. Although such regulations do not
specifically restrict WCNY from paying dividends, they require WCNY to be
financially sound as determined by the New York State Departments of Health and
Insurance, and thereby may preclude WCNY from paying dividends. Any transaction
that involves five percent (5%) or more of WCNY's assets requires notice to the
Commissioner and Superintendent of the Departments of Health and Insurance,
respectively, and any transaction that involves ten percent (10%) or more of
WCNY's assets requires prior approval. Any decision to pay dividends in the
future will be made by WellCare's Board of Directors and will depend upon the
Company's earnings, capital requirements, financial condition and such other
factors as the Board of Directors may deem relevant.

21.      SUPPLEMENTAL CASH FLOW DISCLOSURES

Cash paid during the year for:

                                   1998      1997      1996
                                   ----      ----      ----
                                        (in thousands)

Income taxes                       $   --    $  --     $1,792

Interest                           $1,131    $1,101    $1,951

During 1998 and 1997, no capital loans for equipment were entered into by
WellCare. During 1996, WellCare entered into capital leases for equipment in the
amount of approximately $176,000.

22.      FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying amounts of financial instruments including short-term investments,
advances to participating providers, other receivables - net, restricted cash,
other non-current assets - net, accounts payable and accrued expenses,
approximate their fair values.

The fair value of notes receivables consisting primarily of advances to medical
practices, is not materially different from the carrying value of financial
statement purposes. In making this determination, the Company used interest
rates based on an estimate of the credit worthiness of each medical practice.

The Subordinated Convertible Note was issued in a private placement in January
1996, and amended with the holder in February 1997, and January 1998 (see Note
13). There is no public market for this instrument or other debt of the Company
and management believe it is not practicable to estimate its fair value at this
time. The carrying amount of other long-term debt, the majority of which bears
interest of floating rates, are assumed to approximate their fair value.

23.      QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)

Selected unaudited data reflecting the Company's consolidated results of
operations for each of the last eight quarters are shown in the following table
(in thousands, except per share amounts):

                                                  1998
                              ---------------------------------------------
                                1ST        2ND          3RD        4TH
                                ---        ---          ---        ---

Total revenue                 $35,564   $38,477(3)    $36,191    $34,217(1)

Total expenses                 36,782(2) 40,959        39,140     52,985(1)

Loss from operations           (1,218)   (2,482)       (2,949)   (18,768)

Net loss                       (1,218)   (2,482)       (2,949)   (24,209)

Net loss per share              (0.19)    (0.36)        (0.39)     (3.21)

                                                  1997
                              --------------------------------------------
                                1ST        2ND          3RD        4TH
                                ---        ---          ---        ---

Total revenue                 $34,278   $36,976       $35,537    $37,078

Total expenses                 47,280    36,871        39,959     41,901

Income/(loss) from
  operations                  (13,002)      105        (4,422)    (4,823)

Net income/(loss)             (13,002)      105        (4,422)    (4,823)

Net income/(loss)
  per share                     (2.06)      .01         (0.70)     (0.77)


Each quarter is calculated as a discrete period and the sum of the four quarters
may not equal the full year amount.

1)   The following unusual items occurred in the fourth quarter of 1998: a)
     additional IBNR of approximately $4.3 million relating to prior quarters;
     b) reversal of approximately $2.9 million of previously recorded Medicaid
     revenues; c) additional amortization of Goodwill (approximately $2.3
     million) and Preoperating Costs (approximately $0.4 million); d) expenses
     of approximately $0.5 million for estimated 1998 Prompt Pay exposure; e)
     additional reserve for doubtful accounts of approximately $0.8 million; f)
     approximately $5.4 million valuation allowance for deferred tax assets; and
     g) an expense of approximately $2.8 million to write down Property &
     Equipment to its net realizable value.

(2)  Reflects $0.8 million reduction relating to NYSID market stabilization pool
     distribution attributable to 1993-1996 (see Note 3b).

(3)  Includes the recording of approximately $1.1 million of retroactive
     Medicaid premium revenues attributable to pre 1998, which revenue was
     reversed in the fourth quarter of 1998 (see 1 above and Note 2).

24.      SUBSEQUENT EVENTS (UNAUDITED)

The accompanying financial statements are based upon the financial condition and
operations of the Company as they existed on or through December 31, 1998, and
do not give effect to transaction described in this Note 24 unless specifically
referred to.

A. In June 1999, Kiran C. Patel, MD ("Patel), the principal of Well Care HMO,
Inc., a Florida corporation, an entity unrelated to WellCare, purchased a 55%
ownership interest in the Company for $5 million. The investment was dependant
on the closing of the transactions described in Note 24c, d, e, and f. Dr. Patel
purchased a newly authorized series of senior convertible preferred stock
(Series A)("the shares") of WellCare, which will provide him with 55% of
WellCare's voting power. The preferred stock is subject to mandatory conversion
into common stock upon the amendment to WellCare's certificate of incorporation
to increase the number of authorized shares of common stock from 20 million to
75 million. The shares will be convertible into 55% of the then outstanding
common stock (after giving effect to such conversion) and will be subject to
anti-dilution rights under which Dr. Patel will generally preserve his 55%
interest in WellCare until there are 75 million shares of common stock issued
and outstanding. WCNY and WCCT also entered into management agreements with
Comprehensive Health Management, Inc. ("Comprehensive") an affiliate of Dr.
Patel, to manage their HMO operations, excluding the commercial business of WCNY
sold to GHI (see Note 24b).

The management agreements with Comprehensive are for a term of five years,
effective June 1, 1999. The management fee to each HMO ranges from 7.5% of the
premium revenue when there are more than 80,000 members, to 9.5% of the premium
revenues when there are less than 40,000 members. Comprehensive will cover
services for claims, customer service, utilization review, data processing/MIS
(including Y2K compliance expenses and costs), credentialing, communication,
provider relations, and day to day accounting. Comprehensive will provide
financial reports to the HMOs and the appropriate regulatory agencies. The fee
does not cover other costs, such as marketing functions, legal costs,
extraordinary accounting and audit costs, directors and officers liability
insurance, other insurance costs, and any extraordinary costs. The management
agreement with WCNY was approved by New York State regulators on June 11, 1999.
Pending a public hearing in Connecticut and regulatory approval of the
acquisition of control of WCCT, Dr. Patel is precluded from exercising influence
in directing the management and policies of WCCT. State regulators, however,
have authorized the performance of the WCCT management agreement, with certain
limitations.

B. In June 1999, WCNY sold its commercial business, including approximately
25,000 members, to Group Health Incorporated ("GHI") for $5 million, effective
June 1, 1999. WellCare received $4 million at closing, and $1 million was placed
in escrow pending a determination of the total number of WCNY commercial members
at June 1, 1999. If the commercial membership is at least 25,000 members, all of
the proceeds will be released from escrow. WellCare and WCNY have agreed not to
engage in commercial HMO business in New York for a period of one year following
the closing.

C. As a condition to the closing of the Patel and GHI transactions, more than 75
hospitals and physicians and other health care providers have entered into
settlement agreements to settle claims for services provided to WCNY HMO members
through April 30, 1999. Theses claims will be settled from a provider pool
consisting of at least $10 million, comprised of all of the proceeds from the
GHI and Patel transactions and 80% of WCNY's premium receivables at April 30,
1999, with WCNY able to utilize the amount in the provider pool in excess of $10
million, up to $2.5 million, to meet statutory reserves. These providers may
receive additional payments in an amount of up to 15% of the settled claims,
spread over the next three years, should they continue to provide health care
services to WCNY members.

D. In June 1999, the Company reached a settlement with Key Bank (the "Bank"),
whereby the Company will transfer ownership of the real property securing two
mortgages to the Bank in lieu of foreclosure. The net book value of the real
property was approximately $6.5 million compared to the outstanding mortgage
balances of approximately $4.4 million. In June 1999, the Company reached a
settlement with Premier National Bank ("Premier"), whereby the Company will
transfer ownership to Premier of the real property securing two mortgages, in
lieu of foreclosure. The net book value of the real property was approximately
$1.8 million compared to the outstanding mortgage balances of approximately $1
million.

The Company recorded an expense for impaired assets of approximately $2.8
million in 1998 to reduce the net carrying value of the mortgaged properties to
its respective mortgage balance. E. As a condition to the closing of the Patel
transaction, in June 1999, the Fund converted the $15 million Note, plus unpaid
interest of approximately $0.7 million, into newly authorized senior convertible
preferred stock (Series B) of the Company. The preferred stock is non-voting and
is subject to mandatory conversion (subject to regulatory approval) into
10,000,000 shares of common stock of WellCare upon the amendment to WellCare's
certificate of incorporation to increase the number of authorized shares of
common stock from 20 million to 75 million.

F. As a further condition to the closing of the Patel transaction, the holders
of 644,287 shares of Class A common stock, which has ten votes per share, agreed
to convert their shares into shares of common stock on a share-for-share basis.
Robert W. Morey, the holder of the remaining 281,956 shares of Class A common
stock outstanding, has given a two-year proxy in favor of Dr. Patel to vote Mr.
Morey's share of Class A common stock.

After giving effect to conversion of these shares of Class A common stock, and
assuming conversion of the preferred shares held by Dr. Patel and the Fund,
there would be 38,716,693 shares of common stock and 281,956 shares of Class A
common stock outstanding with Dr. Patel owning 21,449,257 shares of common
stock, and 55% of the aggregate number of shares outstanding in the combined
classes.

G. In May 1999, the Company entered into a settlement agreement of the Class
Action Securities Litigation for $2.5 million, all of which is being funded by
the insurance carrier which provided coverage to the individual defendants. The
settlement agreement is subject to Federal Court approval. The Company expects
to recoup from the insurance carrier approximately $700,000 in expenses related
to fees it paid to the attorneys representing the individual defendants, less
the Company's insurance deductible.

H. The Company's consolidated balance sheet at December 31, 1998, after giving
pro forma effect (unaudited) to reflect the aforementioned transactions as if
they had occurred at December 31, 1998, is as follows:

                                         December 31, 1998
                                   ---------------------------------
                                          (in thousands)

                                                     (Unaudited)
                                        Actual         Proforma
                                        ------         --------

Current assets                         $ 16,514        $ 23,344
                                       --------        --------
Total assets                           $ 29,939        $ 28,983
                                       ========        ========

Current liabilities                    $ 42,569        $ 31,374
                                       --------        --------
(Deficiency in assets)/
  Shareholders' equity                 $(27,708)       $ (2,455)
                                       --------        --------
Total liabilities and
  Shareholders' equity                 $ 29,939        $ 28,983
                                       ========        ========

Working capital (deficiency)           $(26,055)       $ (8,030)
                                       ========        ========

In addition, after the consummation of the above transactions, management
anticipates that WCNY'S statutory-basis net worth would be at least 50% of the
revised contingent reserve requirement of approximately $3.7 million.

<PAGE>

                       THE WELLCARE MANAGEMENT GROUP, INC.
                                   SCHEDULE I
                  CONDENSED FINANCIAL INFORMATION OF REGISTRANT
                            CONDENSED BALANCE SHEETS
                        AS OF DECEMBER 31, 1998 AND 1997
                                 (in thousands)

<TABLE>
<CAPTION>
                                                                    1998              1997
                                                                  --------          --------
<S>                                                               <C>               <C>
ASSETS
CURRENT ASSETS:
     Cash                                                         $    58           $   356
     Short-term investments                                            2                103
     Accounts and other receivables - net                             214             1,473
     Prepaid expenses and other
       current assets - net                                           510             4,629
                                                                  -------           -------
     TOTAL CURRENT ASSETS                                             784             6,561

PROPERTY AND EQUIPMENT - net                                          134               205
NOTES RECEIVABLE - LONG-TERM - net                                 12,177            10,670
OTHER ASSETS - net                                                  2,041             3,796
                                                                  -------           -------
     TOTAL                                                        $15,136           $21,232
                                                                  =======           =======

LIABILITIES AND DEFICIENCY IN ASSETS
CURRENT LIABILITIES:
     Account and notes payable                                    $ 2,014           $   329
     Current portion of long-term debt                                 36                34
     Accrued expenses and other                                     2,026             2,968
                                                                  -------           -------
     TOTAL CURRENT LIABILITIES                                      4,076             3,331

INVESTMENT IN AND ADVANCES FROM
     SUBSIDIARIES                                                  23,711              (341)
LONG-TERM DEBT                                                     15,057            20,093
                                                                  -------           -------
     TOTAL LIABILITIES                                             42,844            23,083
                                                                  -------           -------
DEFICIENCY IN ASSETS:
     Common stock                                                      75                63
      Additional paid-in capital                                   31,612            26,624
     Accumulated deficit                                          (65,884)          (34,987)
     Accumulated other comprehensive income                             1                --
     Statutory reserve                                              6,695             6,656
                                                                  -------           -------
                                                                  (27,501)           (1,644)
     Less:
     Notes receivable from shareholders                                 5                 5
     Treasury stock - at cost                                         202               202
                                                                  -------           -------
     TOTAL (DEFICIENCY IN ASSETS)/
     SHAREHOLDERS' EQUITY                                         (27,708)           (1,851)
                                                                  -------           -------
     TOTAL                                                        $15,136           $21,232
                                                                  =======           =======
</TABLE>

<PAGE>

                       THE WELLCARE MANAGEMENT GROUP, INC.
                                   SCHEDULE I
                CONDENSED FINANCIAL INFORMATION OF THE REGISTRANT
                       CONDENSED STATEMENTS OF OPERATIONS
              FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
                                 (in thousands)

<TABLE>
<CAPTION>
                                           1998             1997              1996
                                        ---------        ---------         ---------
<S>                                     <C>              <C>               <C>
REVENUE:
     Fee income                         $ 11,896         $ 14,098          $ 16,248
     Interest income                       1,697            2,502             1,588
     Other income                             52              137               151
                                        --------         --------          --------

              TOTAL REVENUE               13,645           16,737            17,987
                                        --------         --------          --------

EXPENSES:
     General and administrative
       expenses                           17,842           18,483            22,642
     Interest expense                      1,221            1,123             1,223
     Other expense - net                       1              369               270
                                        --------         --------          --------

              TOTAL EXPENSES              19,064           19,975            24,135
                                        --------         --------          --------

LOSS FROM OPERATIONS                      (5,419)          (3,238)           (6,148)
PROVISION/(BENEFIT) FOR
     INCOME TAX                            2,961               --            (2,485)
                                        --------         --------          --------

     LOSS BEFORE
       EQUITY IN LOSS
       OF SUBSIDIARIES                   (8,380)           (3,238)           (3,663)

EQUITY IN LOSS OF
  SUBSIDIARIES-NET OF TAXES              (22,478)         (18,904)           (8,119)
                                        --------         --------          --------

     NET LOSS                           $(30,858)        $(22,142)         $(11,782)
                                        ========         ========          ========
</TABLE>

<PAGE>

                       THE WELLCARE MANAGEMENT GROUP, INC.
                                   SCHEDULE I
                CONDENSED FINANCIAL INFORMATION OF THE REGISTRANT
                       CONDENSED STATEMENTS OF CASH FLOWS
              FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
                                 (in thousands)

<TABLE>
<CAPTION>
                                                   1998             1997              1996
                                                 ---------        ---------         ---------
<S>                                              <C>              <C>               <C>
CASH FLOWS FROM OPERATING
  ACTIVITIES:
     Net loss                                    $(8,380)         $(3,238)          $(3,663)
     Depreciation and
       amortization                                1,671              353               341
     Loss/(gain) on sale of assets                     1               16               (71)
     Decrease/(increase) in accounts
       receivable                                  1,543              107              (300)
     Increase in advances
       from subsidiaries                           1,942              172                --
     Other - net                                     816              483               109
                                                 -------          -------           -------
  NET CASH USED IN
    OPERATING ACTIVITIES                          (2,407)          (2,107)           (3,584)
                                                 -------          -------           -------
CASH FLOWS FROM INVESTING
  ACTIVITIES:
     Decrease/(increase) in notes
       receivable                                    730           (2,021)           (5,103)
     Capital contributions to
       subsidiaries - net                           (368)            (775)           (4,100)
     Sale of investments - net                       101              817               342
   Purchase of equipment                              (5)              (9)               (8)
                                                 -------          -------           -------
  NET CASH PROVIDED BY/
   (USED IN)INVESTING ACTIVITIES                     458           (1,988)           (8,869)
                                                 -------          -------           -------
CASH FLOWS FROM FINANCING
  ACTIVITIES:
  (Decrease)/increase in
       long-term debt                                (34)             (70)           16,158
     Increase in accounts and
       notes payable                               1,685                2               282
     Proceeds from issuance of
       stock and treasury
       stock - net                                    --               --                 3
     Proceeds from exercise of
       stock options                                  --               --               254
     Other - net                                      --                1                (5)
                                                 -------          -------           -------
  NET CASH PROVIDED BY/
       (USED IN) FINANCING
        ACTIVITIES                                 1,651              (67)           16,692
                                                 -------          -------           -------
NET (DECREASE)/INCREASE IN
  CASH AND CASH EQUIVALENTS                         (298)          (4,162)            4,239

CASH AND CASH EQUIVALENTS,
  BEGINNING OF YEAR                                  356            4,518               279
                                                 -------          -------           -------
CASH AND CASH EQUIVALENTS,
  END OF YEAR                                    $    58          $   356           $ 4,518
                                                 =======          =======           =======
</TABLE>

<PAGE>

                       THE WELLCARE MANAGEMENT GROUP, INC.
                                   SCHEDULE II
                        VALUATION AND QUALIFYING ACCOUNTS
              FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
                                 (in thousands)

<TABLE>
<CAPTION>
                              BALANCE AT BALANCE AT
                             BEGINNING LESS: END OF
                      OF PERIOD ADDITIONS DEDUCTIONS PERIOD
                                   --------        --------          --------       --------
<S>                                <C>             <C>               <C>            <C>
YEAR ENDED
DECEMBER 31, 1998

Allowance for
 doubtful accounts -
     Trade receivables             $  3,555        $    795         $   166         $  4,184

Allowance for
 doubtful accounts -
     Other receivables                1,137             987             167            1,957

Allowance for
 doubtful accounts -
     Notes receivable                 8,096             793                 7          8,882
                                   --------        --------          --------       --------
Total                              $ 12,788        $  2,575          $    340       $ 15,023
                                   ========        ========          ========       ========

YEAR ENDED
DECEMBER 31, 1997

Allowance for
 doubtful accounts -
     Trade receivables             $  3,365        $  3,462          $  3,292       $  3,555

Allowance for
 doubtful accounts -
     Other receivables                5,048           1,755             5,666          1,137

Allowance for
 doubtful accounts -
     Notes receivable                 5,345           2,755                 4          8,096
                                   --------        --------          --------       --------
Total                              $ 13,758        $  7,992          $  8,962       $ 12,788
                                   ========        ========          ========       ========

                              BALANCE AT BALANCE AT
                             BEGINNING LESS: END OF
                      OF PERIOD ADDITIONS DEDUCTIONS PERIOD
                                   --------        --------          --------       --------

YEAR ENDED
DECEMBER 31, 1996

Allowance for
 doubtful accounts -
     Trade receivables             $  1,514        $  3,937          $  2,086       $  3,365

Allowance for
 doubtful accounts -
     Due from affiliates                 --             216               216             --

Allowance for
 doubtful accounts -
     Other receivables                  744           4,321                17          5,048

Allowance for
 doubtful accounts -
     Notes receivable                 5,130             535               320          5,345
                                   --------        --------          --------       --------
Total                              $  7,388        $  9,009          $  2,639       $ 13,758
                                   ========        ========          ========       ========
</TABLE>

<PAGE>

                                INDEX TO EXHIBITS

EXHIBIT NO.
-----------

3.1       Copy of Registrant's Restated Certificate of Incorporation         (1)

3.1a      Copy of Certificate of Amendment to Restated Certificate
          of Incorporation filed June 5, 1995                                (4)

3.1b      Copy of Certificate of Amendment to Restated Certificate
          of Incorporation (As Amended June 10, 1997)                       (12)

3.1c      Copy of Certificate of Amendment of the Certificate
          of Incorporation of The WellCare Management Group, Inc.
          filed June 20, 1999                                                 **

3.2c      Copy of Registrant's Amended By-Laws (As Amended June 10, 1997)   (11)

10.2d     Copy of Voluntary Separation and Release dated October 16, 1996,
          between Registrant and Edward A. Ullmann*                          (8)

10.2e     Copy of letter agreement, from Robert L. Plotz dated
          June 7, 1999, whereby Registrant cancels Promissory Note
          issued by Edward A. Ullman                                          **

10.14     Form of Medicaid Contract between WellCare of New York, Inc.
          ("WCNY")and various counties of the New York State
          Department of Social Services                                      (1)

10.16a    Copy of Reinsurance Agreement effective November 1, 1993,
          between Registrant and Preferred Life Insurance Company of
          New York                                                           (3)

10.16b    Copy of Reinsurance Agreement Renewal between Preferred
          Life Insurance Company of New York and WCNY for Commercial
          and Point of Service Enrollees effective November 1, 1996         (15)

10.16c    Copy of Reinsurance Agreement Renewal between Preferred
          Life Insurance Company of New York and WCNY - Medicaid            (15)

10.16d    Copy of Reinsurance Agreement Renewal between Preferred
          Life Insurance Company of New York and WellCare of
          Connecticut, Inc. ("WCCT") effective November 1, 1996             (15)

10.16e    Copy of Reinsurance Agreement Renewal between Preferred
          Life Insurance Company of New York and WCNY - Medicare
          effective November 1, 1996                                        (15)

10.16f    Copy of Amendment to Reinsurance Agreement Renewal
          between Preferred Life Insurance Company of New York and
          WCNY for Commercial and Point of Service Enrollees effective
          November 1, 1996 and Reinsurance Agreement Renewal between
          Preferred Life Insurance Company of New York and WCNY - Medicare
          effective November 1, 1996                                        (15)

10.16g    Copy of Amendment to Reinsurance Agreement Renewal between
          Preferred Life Insurance Company of New York and WCNY - Medicaid  (15)

10.16h    Copy of Amendment to Reinsurance Agreement Renewal between
          Preferred Life Insurance Company of New York and WCCT effective
          November 1, 1996                                                  (15)

10.16i    Copy of Letter dated October 29, 1998 terminating coverage
          under Reinsurance Agreement Renewal between Preferred Life
          Insurance Company of New York and WCNY for Commercial and
          Point of Service Enrollees effective November 1, 1996,
          Reinsurance Agreement Renewal between Preferred Life
          Insurance Company of New York and WCNY - Medicare effective
          November 1, 1996 and Reinsurance Agreement Renewal between
          Preferred Life Insurance Company of New York and WCNY - Medicaid  (15)

10.16j    Copy of Letter dated October 29, 1998 terminating coverage
          under Reinsurance Agreement Renewal between Preferred Life
          Insurance Company of New York and WCCT, effective
          November 1, 1996                                                  (15)

10.22     Copy of Lease dated February 1, 1993, between WCNY, as
          Tenant, and Huntington Associates, as Landlord, relating to
          lease of office space in Albany, New York                          (1)

10.26a    Copy of Full Risk Capitation Agreement between Hudson
          Valley Family Health, P.C. and WCNY dated October 1, 1995          (6)

10.27a    Copy of Full Risk Capitation Agreement between Valley
          Medical Services, P.C. and WCNY dated October 1, 1995              (6)

10.27b    Copy of Letter of Understanding between WCNY and the
          contracted Alliances (Valley Medical Services, P.C. and
          Hudson Valley Family Medical Health, P.C.) dated
          September 23, 1996                                                 (9)

10.27c    Copy of Letter of Intent between Registrant, WCNY,
          Primergy, Inc., Valley Medical Services, P.C., and
          Hudson Valley Family Health, P.C. dated January 7,1997             (9)

10.33b    Copy of Employment and Consulting Agreement dated
          March 3, 1997, between Registrant and Marystephanie Corsones*      (9)

10.37     Copy of Lease Agreement dated October 14, 1994, between
          Richard Bulger and WellCare Development, Inc.("WCD")               (3)

10.38     Copy of Management Agreement dated July 1, 1994, between
          Registrant and its Wholly-Owned Subsidiary, WCCT                   (3)

10.40     Copy of Note Purchase Agreement by and between Registrant
          and The 1818 Fund II, L.P.                                         (5)

10.40a    Copy of Letter Agreement dated February 28, 1997, between
          Registrant and The 1818 Fund II, L.P.                              (9)

10.40b    Copy of Letter Agreement dated January 14, 1998 between
          Registrant and The 1818 Fund II, L.P.                             (12)

10.40c    Copy of Amended and Restated 8% Subordinated Convertible
          Note, between Registrant and The 1818 Fund II, L.P.               (14)

10.41     Copy of 6% Subordinated Convertible Note Due December 31,
          2002, between Registrant and The 1818 Fund II, L.P.                (5)

10.41a    Copy of Exchange Agreement between the Registrant and The
          1818 Fund II, L.P.                                                  **

10.42     Copy of Registration Rights Agreement between Registrant
          and The 1818 Fund II, L.P.                                         (5)

10.43     Copy of Asset Purchase Agreement between WellCare Medical
          Management, Inc. ("WCMM")and Primergy, Inc. dated June 30, 1995    (6)

10.44     Copy of Bill of Sale between WCMM and Primergy, Inc.
          dated June 30, 1995                                                (6)

10.45     Copy of Promissory Note in the amount of $5,130,000
          between WCMM Inc. and Primergy, Inc. dated June 30, 1995           (6)

10.45a    Copy of Forbearance Agreement on the terms and conditions
          of a Promissory Note in the amount of $5,130,000 between
          Registrant and Primergy, Inc. dated February 26, 1997              (9)

10.46     Copy of Note Agreement between WCMM and Primergy, Inc.
          dated June 30, 1995                                                (6)

10.49     Copy of Quota Share Reinsurance Agreement between Registrant
          and Allianz Life Insurance Company of North America
          dated September 1, 1995                                            (6)

10.49a    Copy of Amendment to Quota Share Reinsurance Agreement
          between Registrant and Allianz Life Insurance Company of
          North America dated March 20, 1998                                (13)

10.50     Copy of Employment Contract dated May 29, 1996, and
          Stock Option Agreements between Registrant and
          Douglas A. Hayward*                                                (7)

10.50a    Copy of Voluntary Separation Agreement and Release between
          Douglas A. Hayward and the Registrant*                            (12)

10.51     Copy of Employment Contract dated June 1, 1996, and Stock
          Option Agreements between Registrant and John E. Ott, M.D.*        (7)

10.51a    Copy of Amendment to Employment Agreement dated June 1, 1998,
          between Registrant and John E. Ott, M.D.*                         (14)

10.51b    Copy of Voluntary Separation Agreement and Release effective
          June 11, 1999, between Registrant and John E. Ott, M.D.*            **

10.52     Copy of Employment Agreement dated September 1, 1996, between
          Registrant and Joseph R. Papa*                                     (8)

10.52a    Copy of Consulting Agreement dated January 15, 1999, between
          Registrant and Joseph R. Papa Associates                            **

10.53     Copy of Registrant's 1996 Non-Incentive Executive Stock
          Option Plan*                                                       (9)

10.54     Copy of Stock Option Agreement dated December 23, 1996,
          between Registrant and Robert W. Morey, Jr.*                       (9)

10.54a    Copy of Amendment dated December 19, 1997, to Stock Option
          Agreement between Registrant and Robert W. Morey, Jr. for
          options to purchase 450,000 shares of common stock*               (12)

10.55     Copy of Promissory Note in the amount of $2,099,083
          between Primergy, Inc. and Registrant dated
          February 19, 1997                                                  (9)

10.56     Copy of Loan and Security Agreement made by Primergy,
          Inc. in favor of Registrant and WCMM dated as of
          February 19, 1997                                                  (9)

10.58     Copy of Lease Agreement dated July 1, 1996, between
          Candid Associates, as Lessor, and WCD, as Lessee,
          relating to lease of office space in North Haven,
          Connecticut                                                        (9)

10.59     Copy of Loan and Security Agreement dated April 1,
          1997 between Catskill Medical Associates, P.C.,
          WCNY and Registrant                                               (10)

10.60     Copy of Letter of Understanding dated June 30, 1997
          between Primergy, Inc. and Registrant                             (10)

10.61     Copy of Memorandum dated July 23, 1997 between
          Primergy, Inc. and Registrant                                     (10)

10.62     Amendment to Stock Option Agreement between Robert
          W. Morey, Jr. and Registrant for options to purchase
          150,000 share of common stock*                                    (12)

10.63     Copy of an Agreement of Lease between Reckson Operating
          Partnership, LP and WCD for the Tarrytown office                  (12)

10.63a    Copy of Surrender and Acceptance of Lease dated
          May 11, 1999, between Registrant and Reckson Operating
          Partnership, L.P.                                                   **

10.64     Copy of Severance Agreement dated April 3, 1998
          between Registrant and Jack Sizer, M.D.                           (14)

10.65     Copy of IPA Service Agreement dated April 21, 1998,
          between WCNY and Columbia-Greene Health Care Alliance
          IPA, Inc.                                                         (14)

10.66     Copy of IPA Service Agreement dated April 21, 1998,
          between WCNY and Dutchess Health Care Alliance IPA, Inc.          (14)

10.67     Copy of IPA Service Agreement dated April 21, 1998,
          between WCNY and Orange-Sullivan Health Care Alliance
          IPA, Inc.                                                         (14)

10.68     Copy of IPA Service Agreement dated April 21, 1998,
          between WCNY and Ulster Health Care Alliance IPA, Inc.            (14)

10.69     Copy of Employment Agreement dated January 29, 1997,
          between Registrant and Mary Lee Campbell-Wisley*                    **

10.69a    Copy of Amendment to Employment Agreement dated
          February 16, 1999, between Registrant and Mary Lee
          Campbell-Wisley*                                                    **

10.70     Copy of Employment Agreement dated November 5, 1997,
          between Registrant and Thomas A. Curtin*                            **

10.71     Copy of Employment Agreement dated November 17, 1998,
          between Registrant and Adele B. Reiter, Esq.*                       **

10.72     Copy of Employment Agreement dated December 1, 1998,
          between Registrant and Alan Bernstein, M.D.*                        **

10.73     Copy of Employment Agreement dated December 1, 1998,
          between Registrant and Craig S. Dupont*                             **

10.73a    Copy of Amendment to Employment Agreement, dated
          February 11, 1999, between Registrant and Craig S. Dupont*          **

10.74     Copy of Letter of Settlement dated June 9, 1999, between
          KeyBank National Association and KeyCorp. Leasing Ltd.,
          Registrant, WCNY, WCD and GHI HMO Select Inc.                       **

10.76     Copy of Stock Purchase Agreement dated May 19, 1999
          between Registrant and Kiran C. Patel, M.D.                         **

10.76a    Copy of Amendment to Stock Purchase Agreement dated May 19,
          1999 between Registrant and Kiran C. Patel, M.D.                    **

10.77     Form of Hospital Settlement Agreement between Registrant,
          WCNY, Kiran C. Patel, M.D. HealthCare Association of New
          York State, Northern Metropolitan Hospital Association
          and the member hospital of HANYS and/or Normet                      **

10.78     Form of Physician Settlement Agreement between Registrant,
          WCNY, Kiran C. Patel, M.D., and the Provider or Provider Group      **

10.79     Form of May 27, 1999 letter to Class A Shareholders of Registrant   **

10.79a    Copy of Voting Agreement dated June 9, 1999 between Kiran C.
          Patel, M.D., and Robert W. Morey                                    **

10.79b    Copy of Irrevocable Proxy dated June 9, 1999 between Kiran
          C. Patel, M.D., and Robert W. Morey                                 **

10.80     Copy of Asset Purchase Agreement dated May 20, 1999 between
          WCNY and Group Health Incorporated                                  **

10.81     Copy of Escrow and Security Agreement dated June 11, 1999
          by Registrant, WCNY, Garfunkel, Wild & Travis, P.C.,
          Healthcare Association of New York State and Northern
          Metropolitan Hospital Association, The Medical Society of
          the State of New York and United States Trust Company of New
          York                                                                **

10.82     Copy of Management Agreement dated June 11, 1999 between
          Comprehensive Health Management, Inc. and WellCare of New
          York, Inc.                                                          **

10.83     Copy of Management Agreement dated June 11, 1999 between
          Comprehensive Health Management, Inc. and WellCare of
          Connecticut, Inc.                                                   **

11        Computation of Per Share Earnings                                   **

21        List of Subsidiaries                                                **
27        Financial Data Schedule                                             **

-------------------------
(1)  Incorporated by reference to the same exhibit in Registrant's Registration
     Statement on Form S-1 (File No. 33-61012)

(2)  Incorporated by reference to the same exhibit in Registrant's Annual Report
     on Form 10-K for the year ended December 31, 1993.

(3)  Incorporated by reference to the same exhibit in Registrant's Annual Report
     on Form 10-K for the year ended December 31, 1994.

(4)  Incorporated by reference to the same exhibit in Registrant's Report on
     Form 10-Q for the period ended June 30, 1995.

(5)  Incorporated by reference to the same exhibit in Registrant's Report on
     Form 8-K dated January 19, 1996.

(6)  Incorporated by reference to the same exhibit in Registrant's Report on
     Form 10-K for the year ended December 31, 1995.

(7)  Incorporated by reference to the same exhibit in Registrant's Report on
     Form 10-Q for the period ended June 30, 1996.

(8)  Incorporated by reference to the same exhibit in Registrant's Report on
     Form 10-Q for the period ended September 30, 1996.

(9)  Incorporated by reference to the same exhibit in Registrant's Report on
     Form 10-K for the year ended December 31, 1996.

(10) Incorporated by reference to the same exhibit in Registrant's Report on
     Form 10-Q for the period ended June 30, 1997.

(11) Incorporated by reference to the same exhibit in Registrant's Report on
     Form 10-Q for the period ended September 30, 1997.

(12) Incorporated by reference to the same exhibit in Registrant's Report on
     Form 10-K for the year ended December 31, 1997.

(13) Incorporated by reference to the same exhibit in Registrant's Report on
     Form 10-Q for the period ended March 31, 1998.

(14) Incorporated by reference to the same exhibit in Registrant's Report on
     Form 10-Q for the period ended June 30, 1998.

(15) Incorporated by reference to the same exhibit in Registrant's Report on
     Form 10-Q for the period ended September 30, 1998.

*    Denotes Management Contract or compensatory plan or arrangement required to
     be filed as an exhibit to this Annual Report on Form 10-K.

**   Incorporated by reference to the same exhibit in Registrant's Report on
     Form 10-K for the year ended December 31, 1998.