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

                                    FORM 10-K

[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


                                     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.


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.


                                     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
                                     -----        -----        -----        -----       -----
Revenue:
<S>                                  <C>          <C>          <C>          <C>         <C>
   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
                                 =========    =========    =========    =========   =========
</TABLE>


<TABLE>
<CAPTION>
                                                 Year Ended December 31,
                                   --------------------------------------------------
                                    1998       1997       1996       1995        1994
                                   -----      -----      -----      -----       -----
(Loss)/earnings per share-
<S>                                <C>        <C>        <C>        <C>         <C>
   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>


Balance Sheet Data:
(in thousands)                                   December 31,
                                 ---------------------------------------------
                                  1998      1997      1996       1995     1994
                                 -----     -----     -----      -----    -----

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

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

(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.


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.

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.

                                    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>

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-            1998  $164,423  $ 45,000   *              --       1,085(7)
WISLEY                        1997   129,942        --   19,050(9)  45,000          688(7)
Secretary; President          1996        --        --                  --           --
and Chief Executive
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>

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>
Kiran C. Patel, M.D. (1)(2)    100,000     --  21,449,257     100.0%    --        55.4%   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
                                    ======

     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.

                                     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

                                   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 19th day of
July, 1999.

                                       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 July 19, 1999.

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

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

/s/ Craig S. Dupont                       Director, Vice President
----------------------------              and Chief Financial Officer
    Craig S. Dupont                       (Principal Financial and
                                          Accounting Officer)

/s/ Charles E. Crew, Jr.                  Director
----------------------------
    Charles E. Crew, Jr.

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

/s/ Mary Lee Campbell-Wisely              Director
----------------------------
    Mary Lee Campbell-Wisely

/s/ Henry Suarez                          Director
----------------------------
    Henry Suarez

/s/ Pradip C. Patel                       Director
----------------------------
    Pradip C. Patel

/s/ Rupesh R. Shah                        Director
----------------------------
    Rupesh R. Shah

/s/ Hitesh P. Adhia                       Director
----------------------------
    Hitesh P. Adhia

                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS


CONSOLIDATED FINANCIAL STATEMENTS
OF THE COMPANY:


Report of Deloitte & Touche LLP, Independent Auditors


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

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

              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
                                                  =======          =======


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


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

                                                Years Ended December 31,
                                         --------------------------------------

                                           1998           1997           1996
                                         --------       --------       --------
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
                                        =========     =========       ========


          See accompanying notes to consolidated financial statements.


              THE WELLCARE MANAGEMENT GROUP, INC. AND SUBSIDIARIES
                 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
                  Years Ended December 31, 1998, 1997 and 1996
                                 (in thousands)

                                                       (Accumulated Accumulated
                           Class A           Additional Deficit)/     Other
                           Common    Common  Paid-in    Retained   Comprehensive
                           Stock     Stock   Capital    Earnings   Income/(Loss)
                           -------   ------  ---------  ----------  ------------
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)  $     --
                      --------   --------  --------  --------   --------


                                                      (Accumulated Accumulated
                         Class A           Additional Deficit)/       Other
                         Common    Common  Paid-in    Retained     Comprehensive
                         Stock      Stock  Capital    Earnings     Income/(Loss)
                        -------    ------  ---------  ----------   ---------
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
                      ========   ========  ========  ========   ========


                                                                      Total
                                                                  Deficiency in
                                            Notes                     Assets)/
                           Statutory     Receivable-    Treasury   Shareholders'
                           Reserve       Shareholders    Stock        Equity
                          -----------    ------------   --------    ------------
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)
                          --------      --------       --------       --------


                                            Notes                    Assets)/
                           Statutory      Receivable-    Treasury Shareholders'
                            Reserve       Shareholders    Stock       Equity
                          -----------     ------------   --------   -----------
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)
                          ========      ========       ========       ========


          See accompanying notes to consolidated financial statements.


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

                                                 YEARS ENDED DECEMBER 31,
                                          ------------------------------------

                                              1998         1997          1996
                                          ---------    ---------     ---------

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)
                                           --------     --------     --------


                                            YEARS ENDED DECEMBER 31,
                                     -------------------------------------

                                        1998          1997         1996
                                     ----------    ---------    ----------

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
                                       ========     ========     ========


          See accompanying notes to consolidated financial statements.


              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                 7,758           6,528
 and amortization                                --              --
                                              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.

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                 463,005        338,921    175,938
 exercise currently                        =======        =======    =======

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

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

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.


                               THE WELLCARE MANAGEMENT GROUP, INC.
                                           Schedule I
                          Condensed Financial Information of Registrant
                                    Condensed Balance Sheets
                                As of December 31, 1998 and 1997
                                         (in thousands)
                                                      1998              1997
                                                    --------          --------
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
                                                    =======           =======


                               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)

                                         1998             1997            1996
                                      ---------        ---------       ---------
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)
                                      ========         ========        ========


                               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)

                                            1998          1997         1996
                                          ---------     ---------   ---------
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
                                          =======       =======      =======


                               THE WELLCARE MANAGEMENT GROUP, INC.
                                           Schedule II
                                Valuation and Qualifying Accounts
                      For the years ended December 31, 1998, 1997 and 1996
                                         (in thousands)

                            Balance at                              Balance at
                            Beginning                  Less:          End of
                            of Period     Additions    Deductions     Period
                            ---------     ---------    ----------   ----------

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
                             ======       ======        ======       =======


                                        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)



                                               111

<PAGE>



                                        INDEX TO EXHIBITS

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

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)


                                        INDEX TO EXHIBITS

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

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)


                                        INDEX TO EXHIBITS

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

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)


                                        INDEX TO EXHIBITS

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

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)


                                        INDEX TO EXHIBITS

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

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


                                INDEX TO EXHIBITS

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

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.