UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549

                                    Form 10-K

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

Date of Report  June 30, 2001                      Commission file number 0-2751
                -------------                                             ------

                    AMERICAN HOSPITAL MANAGEMENT CORPORATION
             (Exact name of registrant as specified in its charter)

        CALIFORNIA                                               95-1861243
-------------------------------                              ------------------
(State or other jurisdiction of                              (I.R.S. Employer
incorporation or organization)                               Identification No.)

P.O. Box 1116
Arcata, California                                                      95521
------------------                                                    ---------
(Address of principal executive                                      (Zip Code)
offices)

Registrant's telephone number, including area code: (707) 839-8474 Securities
registered pursuant to Section 12(b) of the Act:

                                                       Name of each exchange on
Title of each class                                        which registered
-------------------                                        ----------------
                                      None
                             ----------------------

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

                          Common Stock $1.00 par value
                   -----------------------------------------
                                (Title of class)

                $2.00 Cumulative Preferred Stock $1.00 par value
            --------------------------------------------------------
                                (Title of class)

Indicate by check mark whether the registrant (1) has filed reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
                            Yes                   No     X
                                -----------          ----------

<PAGE>

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
Yes                 No     X
   -----------        -----------

State the aggregate market value of the voting stock held by nonaffiliates of
the registrant. The aggregate market value shall be computed by reference to the
price at which the stock was sold, or the average bid and asked prices of such
stock, at a specified date within 60 days prior to the date of filing. (See
definition of affiliate in Rule 405, 17 CRF 230.405.)

There is no market for the registrant's stock.

                   (APPLICABLE ONLY TO CORPORATE REGISTRANTS)

Indicate the number of share outstanding of each of the registrant's classes of
common stock as of the latest practicable date (222,615 at June 30,2001).

Total number of pages, including cover - 41





                                       -2-


<PAGE>

PART 1

Item 1.  Business
-------  --------

         The primary business of the Company is the operation and ownership of
         Mad River Community Hospital (the Hospital) and satellite clinics,
         located in the Humboldt County area of Northern California.

         As a result of area growth, the merger of two competing Hospitals in
         Eureka, and as part of a strategic plan, the Company has expanded the
         scope of services offered by the Hospital. As a result of the ongoing
         expansion of facilities and services, the Hospital continues to recruit
         new physicians to provide the added care as well as to replace
         physicians who are retiring from active practice. The Hospital's
         service area on the north coast is experiencing the highest rate of
         growth in the county and is especially attractive to physicians who
         want to live and work in a community with high family values.

         The nearest competition to the Hospital is in Eureka (approximately 12
         miles south) where one acute care facility is located. Management of
         the Hospital feels that as long as it maintains a strong position in
         providing a full scope of health care services, the facility located in
         Eureka will have less of a negative impact on Hospital use or
         occupancy. For this reason, the Hospital organized out-patient clinics
         in the outlying communities thereby maintaining the Hospital's presence
         in the service area. A new medical building is under construction
         adjacent to the Hospital and major renovation has started for Radiology
         and the I.C.U. unit. The Hospital is improving landscaping and the
         overall appearance of the facility every year.

         Another positive factor supporting Hospital use is community
         involvement. As the largest private employer in Arcata, the Hospital
         provides employment to approximately 500 local residents and, through
         its Home Health and recently expanded Adult Day Health Care
         departments, is highly visible in the community served. The Hospital
         continues to try to build on this strength by maintaining a strong
         image through the media and a helping hand in the community, while
         providing personalized quality services. The Hospital is a strong
         advocate for a community health care plan involving the medical staff,
         employers and the area's hospitals and health care providers wherein
         they will work together to provide a locally based alternative to out
         of the area managed care.

         As the health care industry is dependent on government payment of care
         for the elderly and indigent, the Hospital may be negatively impacted
         by new Government regulations. As mentioned above, the Hospital is
         collaborating with other health care professionals to establish a
         community health care plan that could compete with the various outside
         managed care plans.

                                      -3-

<PAGE>

Item 2.  Properties
-------  ----------

         The main facility operated by the Company is Mad River Community
         Hospital in Arcata, California. This single story structure is licensed
         as a 80-bed acute hospital, providing full hospital services to a
         population of approximately 55,000. Since opening in 1972, the Hospital
         has maintained a program of expansion and improvements. It is located
         on 12 acres (part of a 48 acre site) adjacent to an expanded medical
         office complex owned by staff doctors which leaves sufficient open area
         for further expansion of medical services as needed.

         The Company owns 27 acres of land approximately 4 miles from the
         Hospital held for future residential development. A house and barn on
         the property is currently used as an office, guest quarters and storage
         space for the Company. The Company owns a personal residence adjacent
         to the Hospital that had been used as a physician's office. This
         acquisition was made to facilitate a continued favorable occupancy by a
         hospital-related specialty and is presently being leased to an
         unrelated private resident, providing a child day care service to
         hospital employees. The Company also owns residences and commercial
         properties in Eureka and McKinleyville, California. From time to time,
         the Company acquires real estate being held for investment purposes and
         future strategic use.

         As part of its outreach program, the Company owns and operates medical
         office buildings under the name of Willow Creek Six Rivers Medical
         Center in Willow Creek, California (38 miles east of the Hospital). The
         Company also owns and operates real property in McKinleyville which
         provides laboratory and radiology outpatient services.

         Adult Day Health Care of Mad River, a separate not-for-profit
         organization, is operating an adult day health care facility in a
         building adjacent to and owned by Mad River Community Hospital. Michael
         Young, Controller of the Company, is functioning as Adult Day Health
         Care's Administrator and performs minimal accounting services for the
         organization. To meet the growing demands for this service, the
         existing building was expanded. This entity will continue to lease the
         facility from the Hospital.




                                       -4-

<PAGE>

Item 3.  Legal Proceedings
-------  -----------------

         None.

Item 4.  Submission of Matters to Vote of Security Holders
-------  -------------------------------------------------

         There were no matters submitted to a vote by the security holders
         during the fourth quarter of the fiscal year covered by this report.






                                       -5-
<PAGE>

PART II

Item 5.  Market for the Registrant's Common Stock and Related Security
-------  -------------------------------------------------------------
         Holder Matters
         ---------------

         There is no market for the registrant's stock. There are approximately
         386 shareholders at June 30, 2001. No dividends were paid on common
         stock during the three years ended June 30, 2001. The Company is
         current on paying all cumulative preferred stock dividends.





                                       -6-

<PAGE>

Item 6.  Selected Financial Data
-------  -----------------------
<TABLE>
<CAPTION>

                                                 Year ended June 30
                       -----------------------------------------------------------------------

                          2001           2000           1999            1998           1997
                       ----------     ----------     ----------      ----------     ----------
<S>                  <C>            <C>            <C>             <C>            <C>
Total operating
revenue, net         $ 27,663,529   $ 24,759,228   $ 24,089,600    $ 22,992,958   $ 22,096,357

Net income (loss)         382,507        541,259       (164,824)        350,874        200,588

Basic earnings
per share                    1.30           2.00          (1.15)           1.12            .45

Diluted
earnings per share           1.21           1.71          (1.15)           1.09            .62

Cash dividends per
common share                   --             --             --              --             --

Total assets           24,862,687     22,409,022     22,302,627      22,411,941     20,342,679

Long-term debt          1,266,888        676,132        741,865         206,265        206,932

Working capital         8,312,317      8,861,853      8,553,820       8,905,761      8,542,725

Redeemable
preferred stock            46,487         46,829         47,442          47,690         48,334

Stockholders'
equity                 15,641,209     15,690,291     15,416,989      15,891,443     15,060,535
</TABLE>



                                       -7-

<PAGE>

Item 7   Management's Discussion and Analysis of
------   ---------------------------------------
         Financial Condition and Results of Operations
         ---------------------------------------------

                                      2001
                                      ----

         Results of Operations
         ---------------------

         Hospital revenues increased during 2001 as the Hospital continues to
         expand services to encourage use. Use of inpatient and outpatient
         services increased, and there was a rate increase. Patient revenue
         totaled $56,889,000 in 2001 compared to $50,615,000 in 2000, a 12.3%
         increase of $6,274,000.

         Contractual allowances totaled $30,449,000 in 2001 compared to
         $27,579,000 in 2000, a 10.4% increase. Government regulatory agencies
         attempt to reimburse the Hospital based on cost of services. But, as
         the government continues its efforts to cut back on rising health care
         payments, the actual reimbursement to the Hospital continues to
         decrease as evidenced by the large increase in contractual allowances.
         For the three years ended June 30, 2001, contractual allowances and
         provisions for bad debts have amounted to approximately $77,700,000 or
         50% of gross revenue. At times the Hospital is unable to even recoup
         costs on Medicare patients under the current methodology of
         reimbursement. Medi-Cal has also imposed certain limitations that
         negatively impacted the amount the Hospital is reimbursed for Medi-Cal
         patients.

         Operating costs and expenses were $27,895,000 compared to $24,908,000
         in 2000, a 11.9% increase. The main cause of the increase is caused by
         an increase in salaries and related cost to health care providers
         within the facility. These increases were necessary to keep the
         Hospital's wage scale more in line with industry standards. The
         health-care industry is experiencing a serious shortage in nurses and
         ancillary care technicians. In order to stay competitive within the
         market the Hospital must continue to maintain a wage scale that in
         comparable to other facilities in rural areas. The continued reduction
         in third-party reimbursement is the major contributing factor to the
         increase in contractual allowances. The Hospital is still dealing with
         third-party payors to finalize cost reports under audit. Management is
         actively appealing various adjustments made by the intermediary, and,
         even though, it appears the Hospital will prevail on various issues, no
         amount will be booked as a receivable until the ultimate outcome of the
         appeal is known. Net income before income taxes is $557,000 in 2001
         compared to $696,000 in 2000. Even though the Hospital continues to be
         negatively impacted by poor reimbursement contracts with third party
         payers, if the required daily census can be maintained and costs are
         controlled, management anticipates continued profitable operations.



                                       -8-


<PAGE>

                                 2001 continued
                                 ----

         Over the years, as the Company incurs more contractual allowances and
         uncollectible accounts, results from operations have suffered. The
         Company continues to enjoy good returns on its investments to help
         maintain a net profit. For the current year, sales of investments
         resulted in gains of $41,000, while total investment income was
         $772,000. As discussed in Item 1, the Company continues to expand
         operations to maintain a competitive edge in a continuing ever changing
         health care environment. All construction projects, considered
         necessary to maintain operations, will be completed without negative
         impact on the financial statements.

         The purpose of these projects is to keep the users of the Hospital in
         their primary service area when health care is required, thereby
         enhancing the Hospital's inpatient service occupancy. By so doing, it
         is anticipated that operations will improve, even though the continued
         burden of government contractual agreements to provide health care,
         sometimes below cost, is being further complicated by the introduction
         of managed care contracts in the Humboldt County area.

         Liquidity and Capital Resources
         -------------------------------

         The Company's financial condition remains very strong with substantial
         investments, strong liquidity and minimal debt. The cash and liquid
         investments are being maintained to subsidize Hospital operations,
         finance needed construction and increased services at Mad River
         Community Hospital. Currently, the Company has approximately $5,781,000
         in cash and short-term investments. Included in this amount are
         $2,502,000 in unrealized holding gains. The short-term investments are
         collateral for the $2,322,000 line of credit at June 30, 2001

         Cash from operating and investing activities continue to fund investing
         activities, the largest of which is the purchase of real estate,
         property and equipment, which totaled $2,153,000 in 2001. As the
         long-term debt relates only to the acquisition of major equipment, cash
         required for financing activities remains relatively low. The Hospital
         is currently evaluating the need for additional long-term financing to
         finance major renovation and construction projects.

         As discussed in Item I, government regulations, as well as managed care
         contract agreements, may continue to negatively impact operations.
         Management is unable to estimate any potential negative impact of
         forthcoming laws or regulations. Management believes that long-term key
         employees approve of the working conditions at the Hospital and have
         proven their ability to keep the Hospital staffed under difficult
         conditions.

         Inflation
         ---------

         The inflation rate affecting costs has remained relatively low,
         approximately 5%, over the last three years. This moderate rate
         contributes to the Hospital's success in maintaining a moderate
         increase in costs from year to year.

                                      -9-
<PAGE>

Item 7   Management's Discussion and Analysis of
------   ---------------------------------------
         Financial Condition and Results of Operations
         ---------------------------------------------

                                      2000
                                      ----

         Results of Operations
         ---------------------

         Hospital revenues increased during 2000 as the Hospital continues to
         expand services to encourage use. Use of outpatient services increased,
         and there was a rate increase. Patient revenue totaled $50,615,000 in
         2000 compared to $46,721,000 in 1999, a 8.3% increase of $3,894,000.

         Contractual allowances totaled $27,579,000 in 2000 compared to
         $23,808,000 in 1999, a 15.8% increase. Government regulatory agencies
         attempt to reimburse the Hospital based on cost of services. But, as
         the government continues its efforts to cut back on rising health care
         payments, the actual reimbursement to the Hospital continues to
         decrease as evidenced by the large increase in contractual allowances.
         For the three years ended June 30, 2000, contractual allowances and
         provisions for bad debts have amounted to approximately $74,200,000 or
         52% of gross revenue. At times the Hospital is unable to even recoup
         costs on Medicare patients under the current methodology of
         reimbursement. Medi-Cal has also imposed certain limitations that
         negatively impacted the amount the Hospital is reimbursed for Medi-Cal
         patients.

         Operating costs and expenses were $24,908,000 compared to $25,459,000
         in 1999, a 2.2% decrease. Operating costs actually decreased $1,098,000
         while the provision for bad debts increased by $547,000, resulting in
         the combined decrease of $551,000. The increase in accounts written off
         is indicative of the industry wide difference between standard rates
         and the amount actually collected. The decrease in operating cost is
         mainly attributable to a decrease in employee health and welfare
         benefits paid, caused by not incurring a number of catastrophic claims
         that result in maximum reimbursement, as incurred in 1999.

         The continued reduction in third-party reimbursement is the major
         contributing factor to the increase in contractual allowances. The
         Hospital is still dealing with third-party payors to finalize cost
         reports under audit. Management is actively appealing various
         adjustments made by the intermediary, and, even though, it appears the
         Hospital will prevail on various issues, no amount will be booked as a
         receivable until the ultimate outcome of the appeal is known. Net
         income, after investment income was $541,259 in 2000 compared to net
         loss of $164,824 in 1999. Even though the Hospital continues to be
         negatively impacted by poor reimbursement contracts with third party
         payers, if the required daily census can be maintained and costs are
         controlled, management anticipates continued profitable operations.


                                      -10-
<PAGE>

                                 2000 continued
                                 ----

         Over the years, as the Company incurs more contractual allowances and
         uncollectible accounts, results from operations have suffered. The
         Company continues to enjoy good returns on its investments to help
         maintain a net profit. For the current year, sales of investments
         resulted in gains of $168,000, while total investment income was
         $773,000. As discussed in Item 1, the Company continues to expand
         operations to maintain a competitive edge in a continuing ever changing
         health care environment. All construction projects, considered
         necessary to maintain operations, will be completed without negative
         impact on the financial statements

         The purpose of these projects is to keep the users of the Hospital in
         their primary service area when health care is required, thereby
         enhancing the Hospital's inpatient service occupancy. By so doing, it
         is anticipated that operations will improve, even though the continued
         burden of government contractual agreements to provide health care,
         sometimes below cost, is being further complicated by the introduction
         of managed care contracts in the Humboldt County area.

         Liquidity and Capital Resources
         -------------------------------

         The Company's financial condition remains very strong with substantial
         investments, strong liquidity and minimal debt. The cash and liquid
         investments are being maintained to subsidize Hospital operations,
         finance needed construction and increased services at Mad River
         Community Hospital. Currently, the Company has approximately $6,727,000
         in cash and short-term investments. Included in this amount are
         $3,457,000 in unrealized holding gains.

         Cash provided by operating and investing activities continue to fund
         investing activities, the largest of which is the purchase of real
         estate, property and equipment, which totaled $768,647 in 2000. As the
         long-term debt relates only to the acquisition of major equipment, cash
         required for financing activities remains relatively low.

         As discussed in Item I, government regulations, as well as managed care
         contract agreements, may continue to negatively impact operations.
         Management is unable to estimate any potential negative impact of
         forthcoming laws or regulations. Management believes that long-term key
         employees approve of the working conditions at the Hospital and have
         proven their ability to keep the Hospital staffed under difficult
         conditions.

         Inflation
         ---------

         The inflation rate affecting costs has remained relatively low,
         approximately 5%, over the last three years. This moderate rate
         contributes to the Hospital's success in maintaining a moderate
         increase in costs from year to year.


                                      -11-
<PAGE>

Item 8.  Financial Statements and Supplementary Data
-------  -------------------------------------------

                              FINANCIAL STATEMENTS
                              --------------------


                  Description                                           Page
                  -----------                                           ----

Independent Auditors' Reports                                            14

Financial Statements:

         Balance Sheets - June 30, 2001 and 2000                       15-16

         Statements of Operations
           Years ended June 30, 2001, 2000 and 1999                      17

         Statements of Comprehensive Income
           Years ended June 30, 2001, 2000 and 1999                      18

         Statements of Stockholders' Equity
           Years ended June 30, 2001, 2000 and 1999                      19

         Statements of Cash Flows -
           Years ended June 30, 2001, 2000 and 1999                    20-21

         Notes to Financial Statements                                 22-32

Item 14. Exhibits, Financial Statement, Schedules
            and Reports on Form 8-K                                      38





                                      -12-

<PAGE>







                    AMERICAN HOSPITAL MANAGEMENT CORPORATION

                   Annual Report for Corporations - Form 10-K
                       Years ended June 30, 2001 and 2000


                              Financial Statements,
                     Supplementary Data and Auditors' Report









                                      -13-

<PAGE>




                          INDEPENDENT AUDITORS' REPORT


To the Board of Directors
American Hospital Management Corporation

We have audited the accompanying balance sheets of American Hospital Management
Corporation as of June 30, 2001 and 2000 and the related statements of
operations, comprehensive income and loss, stockholders' equity and cash flows
for each of the three years ended June 30, 2001. Our audits also included the
financial statement schedules listed in the Index at Item 14. These financial
statements and financial statement schedules are the responsibility of the
Corporation's management. Our responsibility is to express an opinion on these
financial statements and financial statement schedules based on our audits.

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

In our opinion, such financial statements present fairly, in all material
respects, the financial position of American Hospital Management Corporation as
of June 30, 2001 and 2000, and the results of its operations and its cash flows
for each of the three years ended June 30. 2001, in conformity with accounting
principles generally accepted in the United States of America. Also, in our
opinion, such financial statement schedules, when considered in relation to the
basic financial statements taken as a whole, present fairly, in all material
respects, the information set forth therein



                                                               Hurley & Company




Granada Hills, California
October 15, 2001



                                      -14-
<PAGE>

                    AMERICAN HOSPITAL MANAGEMENT CORPORATION
                                 Balance Sheets
                             June 30, 2001 and 2000

<TABLE>
<CAPTION>

                           Assets
                           ------
                                                                   2001         2000
                                                               -----------   -----------
<S>                                                            <C>           <C>
Current assets:
  Cash and cash equivalents                                    $   256,995   $   769,953
  Marketable securities                                          5,524,003     5,957,315
  Receivables:
    Patients, net of estimated uncollectibles of $4,769,817
      and $3,709,870, in 2001 and 2000, respectively             8,196,500     6,716,586
    Other                                                          115,904       236,216
    Estimated third-party payor settlements                      1,259,087       336,129
  Supplies, at lower of cost (first-in, first-out) or market     1,012,915       913,690
  Prepaid expenses                                                 101,203        87,750
                                                               -----------   -----------
                  Total current assets                          16,466,607    15,017,639

Property and equipment, net                                      5,801,022     4,443,847

Real estate held for investment, net                             1,954,241     1,999,909

Deferred income taxes                                               97,007       354,705

Other assets                                                       543,810       592,922
                                                               -----------   -----------
                                                               $24,862,687   $22,409,022
                                                               ===========   ===========
</TABLE>



(continued)

The accompanying notes are an integral part of these financial statements

                                      -15-
<PAGE>


                    AMERICAN HOSPITAL MANAGEMENT CORPORATION
                                 Balance Sheets
                             June 30, 2001 and 2000

<TABLE>
<CAPTION>

                      Liabilities and Stockholders' Equity
                      ------------------------------------

                                                                  2001          2000
                                                               -----------   -----------
<S>                                                            <C>           <C>
Current Liabilities:
  Current maturities of long-term debt                         $   199,700   $   113,187
 Line of credit                                                  2,321,587       654,363
  Accounts payable and accrued expenses:
    Trade                                                        2,086,732     1,596,078
    Accrued liabilities                                          2,121,092     1,704,211
    Estimated third-party payor settlements                             --       323,364
    Income taxes:
      Current                                                      224,506        77,226
      Deferred                                                   1,200,673     1,687,357
                                                               -----------   -----------

                  Total current liabilities                      8,154,290     6,155,786
                                                               -----------   -----------

Long-term debt, less current maturities                          1,067,188       562,945
                                                               -----------   -----------
Stockholders' equity:
  $2cumulative preferred stock, par value $1
   per share; authorized 100,000 shares;
   issued 65,270.82 shares; reacquired
   18,784.20 and 18,442.26 shares; outstanding
   46,486.62 and 46,828.56 shares; aggregate
   redemption and liquidating value of $1,278,382
   and $1,287,778 at June 30, 2000 and 1999, respectively           46,487        46,829
  Common stock, par value $1.00 per share;
    authorized 400,000 shares, issued
    249,051 shares, reacquired 26,436 and 25,483
    shares; outstanding - 222,615 and 223,568 shares
    at June 30, 2000 and 1999, respectively                        222,615       223,568
  Additional paid-in capital                                       106,554       122,384
  Accumulated other comprehensive income                         1,353,762     1,681,714
  Retained earnings                                             13,911,791    13,615,796
                                                               -----------   -----------

                  Total Stockholders' equity                    15,641,209    15,690,291
                                                               -----------   -----------

                                                               $24,862,687   $22,409,022
                                                               ===========   ===========
</TABLE>


(concluded)

The accompanying notes are an integral part of these financial statements.

                                      -16-

<PAGE>

                    AMERICAN HOSPITAL MANAGEMENT CORPORATION
                            Statements of Operations
                    Years ended June 30, 2001, 2000, and 1999

<TABLE>
<CAPTION>
                                                           2001           2000           1999
                                                       ------------   ------------   ------------
<S>                                                    <C>            <C>            <C>
Net patient service revenue                            $ 27,663,529   $ 24,759,228   $ 24,089,600
Other revenue                                               393,155        346,071        389,879
                                                       ------------   ------------   ------------

                  Total operating revenue                28,056,684     25,105,299     24,479,479
                                                       ------------   ------------   ------------

Operating costs and expenses:
     Professional care of patients                       17,161,899     15,160,791     14,819,559
General services                                          2,527,309      2,357,961      2,456,966
Administrative services                                   3,506,466      3,304,688      3,583,756
     Employee health and welfare                          2,104,678      1,132,846      2,084,133
     Medical malpractice insurance                          415,790        296,639        323,546
     Interest                                               113,714        104,938         74,966
     Depreciation and amortization                          841,117        827,340        939,858
     Provision for bad debts                              1,223,545      1,723,497      1,176,463
                                                       ------------   ------------   ------------
                  Total operating costs and expenses     27,894,518     24,908,700     25,459,247
                                                       ------------   ------------   ------------
                  Income (loss) from operations             162,166        196,599       (979,768)
                                                       ------------   ------------   ------------
Other income:
     Investment income                                      418,911        487,129        627,759
     Other                                                   15,586         12,642         12,385
                                                       ------------   ------------   ------------
                                                            434,497        499,771        640,144
                                                       ------------   ------------   ------------
Income (loss) before income taxes                           596,663        696,370       (339,624)
     Provision for income tax expense (benefit)             214,156        155,111       (174,800)
                                                       ------------   ------------   ------------

                  Net income (loss)                    $    382,507   $    541,259   $   (164,824)
                                                       ============   ============   ============


Basic earnings (loss) per common share                 $       1.30   $       2.00   $      (1.15)
                                                       ============   ============   ============

Diluted earnings (loss) per common share               $       1.21   $       1.71   $      (1.15)
                                                       ============   ============   ============
</TABLE>





The accompanying notes are an integral part of these financial statements.


                                      -17-
<PAGE>

                    AMERICAN HOSPITAL MANAGEMENT CORPORATION
                   Statements of Comprehensive Income and Loss
                    Years ended June 30, 2001, 2000, and 1999
<TABLE>
<CAPTION>


2001
----
<S>                                                                   <C>          <C>
Net income                                                                         $ 382,507
         Other comprehensive income, net of tax:
           Unrealized losses on securities:
             Unrealized holding losses arising during tax period      $(286,678)
             Less: reclassification adjustment for gains realized
                  in net income                                         (41,274)    (327,952)
                                                                      ---------    ---------
Comprehensive income                                                               $  54,555

2000
----

Net income                                                                         $ 541,259
         Other comprehensive income, net of tax:
           Unrealized losses on securities:
             Unrealized holding gains arising during tax period       $  10,799
               Less: reclassification adjustment for gains realized
                  in net income                                        (167,590)    (156,791)
                                                                      ---------    ---------
Comprehensive income                                                               $ 384,468
                                                                                   =========

1999
----

Net loss
                                                                                   $(164,824)
         Other comprehensive income, net of tax:
           Unrealized gains on securities:
             Unrealized holding gains arising during tax period       $ 216,142
               Less: reclassification adjustment for gains realized
                  in net income                                        (432,691)    (216,549)
                                                                      ---------    ---------
Comprehensive loss                                                                 $(381,373)
                                                                                   =========
</TABLE>




The accompanying notes are an integral part of these financial statements.

                                      -18-

<PAGE>


                    AMERICAN HOSPITAL MANAGEMENT CORPORATION
                       Statements of Stockholders' Equity
                    Years ended June 30, 2001, 2000 and 1999
<TABLE>
<CAPTION>

                                                    2001            2000            1999
                                                ------------    ------------    ------------
<S>                                             <C>             <C>             <C>
Stockholders' Equity:

Cumulative Preferred Stock
  Beginning balance                             $     46,829    $     47,442    $     47,690
     Reacquired stock                                    342             613             248
                                                ------------    ------------    ------------
  Ending balance                                      46,487          46,829          47,442
                                                ------------    ------------    ------------

Common Stock
  Beginning balance                                  223,568         225,027         226,157
     Reacquired stock                                    953           1,459           1,130
                                                ------------    ------------    ------------
  Ending balance                                     222,615         223,568         225,027
                                                ------------    ------------    ------------

Additional paid-in-capital
  Beginning balance                                  122,384         148,783         163,769
     Reacquired stock                                 15,830          26,399          14,986
                                                ------------    ------------    ------------
  Ending balance                                     106,554         122,384         148,783
                                                ------------    ------------    ------------

Accumulated other comprehensive income
  Beginning balance                                1,681,714       1,838,505       2,055,054
     Change in unrealized holdings gains, net       (327,952)       (156,791)       (216,549)
                                                ------------    ------------    ------------
  Ending balance                                   1,353,762       1,681,714       1,838,505
                                                ------------    ------------    ------------

Retained Earnings
  Beginning balance                               13,615,796      13,157,232      13,398,773
     Net income (loss)                               382,507         541,259        (164,824)
     Cash dividends paid on preferred stock          (86,512)        (82,695)        (76,717)
                                                ------------    ------------    ------------
      Ending balance                              13,911,791      13,615,796      13,157,232
                                                ------------    ------------    ------------

    Total Stockholders' equity                  $ 15,641,209    $ 15,690,291    $ 15,416,989
                                                ============    ============    ============
</TABLE>


The accompanying notes are an integral part of these financial statements.


                                      -19-
<PAGE>

                    AMERICAN HOSPITAL MANAGEMENT CORPORATION
                            Statements of Cash Flows
                    Years ended June 30, 2001, 2000 and 1999

<TABLE>
<CAPTION>
                                                           2001            2000            1999
                                                       ------------    ------------    ------------
<S>                                                    <C>             <C>             <C>
Cash flows from operating activities:
      Cash received from patients
       and third-party payors                          $ 24,106,903    $ 23,172,826    $ 21,394,707
      Cash paid to employees and suppliers              (24,921,285)    (22,638,608)    (22,010,456)
      Investment income received                            415,137         344,897         232,119
      Interest paid                                        (113,714)       (104,938)        (74,966)
      Income taxes, net change                              (77,227)        147,720        (116,602)
                                                       ------------    ------------    ------------
              Net cash (used in) provided by
                operating activities                       (590,186)        921,897        (575,198)
                                                       ------------    ------------    ------------
Cash flows from investing activities:
      Purchase of property and equipment, net            (2,152,623)       (768,647)     (1,380,999)
     Proceeds from sale of short-term investments         1,030,918       1,844,750       3,719,964
     Cash received from partnership investment               27,197              --              --
     Purchase of short-term investments                  (1,102,919)     (1,919,742)     (2,247,503)
     Other                                                  120,312         110,987         (65,191)
                                                       ------------    ------------    ------------
              Net cash (used in) provided by
                investing activities                     (2,077,115)       (732,652)         26,271
                                                       ------------    ------------    ------------
Cash flows from financing activities:
     Proceeds from issuance of long-term debt               703,071          41,522         679,699
     Principal reductions of long-term debt                (112,315)       (107,255)       (144,099)
     Net proceeds from line of credit                     1,667,224         654,363              --
     Dividends paid                                         (86,512)        (82,695)        (76,717)
           Payments for reacquired stock                    (17,125)        (28,471)        (16,364)
                                                       ------------    ------------    ------------

              Net cash provided by
                financing activities                      2,154,343         477,464         442,519
                                                       ------------    ------------    ------------


Net (decrease) increase in cash and cash equivalents       (512,958)        666,709        (106,408)
Cash and cash equivalents, beginning of year                769,953         103,244         209,652
                                                       ------------    ------------    ------------
Cash and cash equivalents, end of year                 $    256,995    $    769,953    $    103,244
                                                       ============    ============    ============
Supplemental schedule of non-cash investing
 activities:
     Decrease in fair value of investments             $   (546,587)   $   (251,889)   $   (360,915)
     Change in deferred taxes                               218,635          95,098         144,366
                                                       ------------    ------------    ------------

     Decrease in unrealized holding gains              $   (327,952)   $   (156,791)   $   (216,549)
                                                       ============    ============    ============

</TABLE>


The accompanying notes are an integral part of these financial statements.

                                      -20-

<PAGE>


                    AMERICAN HOSPITAL MANAGEMENT CORPORATION
                      Statements of Cash Flows (concluded)
                    Years ended June 30, 2001, 2000 and 1999
<TABLE>
<CAPTION>


                                                            2001          2000           1999
                                                        -----------    -----------    -----------
<S>                                                     <C>            <C>            <C>
Reconciliation of net income to net cash
  (used in) provided by operating
     activities:
Net income (loss)                                       $   382,507    $   541,259    $  (164,824)
Adjustments to reconcile net income to net
     cash (used in) provided by operating activities:
         Depreciation and amortization                      864,128        844,241        964,524
         Partnership income                                  (1,097)        (4,185)            --
         Gain on sale of investments                        (41,274)      (167,590)      (432,691)
Change in assets and liabilities:
    (Increase) decrease in patient receivables, net      (1,479,914)       381,362       (724,760)
    Increase in third-party payors, net                  (1,246,322)      (590,337)    (1,183,549)

    Change in income taxes, net                             136,929        302,831       (291,402)
    (Increase) decrease in supplies                         (99,225)       117,360        (56,484)
    (Increase) decrease in prepaid expenses                 (13,453)       (11,313)           651
    Increase (decrease) in trade accounts payable           490,654       (472,004)     1,257,343
    Increase (decrease) in accrued expenses, net            416,881        (19,727)        55,994
                                                        -----------    -----------    -----------
Net cash (used in) provided by
     operating activities                               $  (590,186)   $   921,897    $  (575,198)
                                                        ===========    ===========    ===========
</TABLE>


The accompanying notes are an integral part of these financial statements.


                                      -21-
<PAGE>


                    AMERICAN HOSPITAL MANAGEMENT CORPORATION
                          Notes to Financial Statements
                          June 30, 2001, 2000 and 1999

(1)      Summary of Significant Accounting Policies
         ------------------------------------------

         Organization
         ------------

         The Corporation owns and operates one acute-care hospital, located in
         Arcata, California. The Hospital provides inpatient, outpatient and
         emergency care services for residents of Humboldt County. It also
         operates other health care related enterprises in the same location.
         Admitting physicians are primarily practitioners in the local area. The
         Company was incorporated as a C-Corporation in California in 1955.

         Use of Estimates
         ----------------

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

         Cash and Cash Equivalents
         -------------------------

         Cash and cash equivalents represent cash in checking and demand savings
         accounts. Cash is held in several banks with no significant
         concentration of risk.

         Investments
         -----------

         Investments in marketable securities with readily determinable fair
         values and all investments in debt securities are measured at fair
         value in the balance sheets. All investments are held for sale.
         Investment income or loss (including realized gains and losses on
         investments, interest and dividends) is included in net income.
         Unrealized gains and losses on investments are excluded from net income
         but are reported as a separate component of stockholders' equity.

         Property and Equipment
         ----------------------

         Property and equipment acquisitions are recorded at cost. Depreciation
         is provided over the estimated useful life of each class of depreciable
         asset and is computed on the straight-line method. Equipment under
         capital leases is amortized on the straight-line method over the
         shorter period of the lease term or the estimated useful life of the
         equipment. Such amortization is included in depreciation and
         amortization in the financial statements. Statements of Income
         Transactions deemed by management to be ongoing, major or central to
         the provision of health care services are reported as revenues and
         expenses. Peripheral or incidental transactions are reported as other
         income, net.

                                      -22-

<PAGE>

                    AMERICAN HOSPITAL MANAGEMENT CORPORATION
                    Notes to Financial Statements, continued

         Net Patient Service Revenue
         ---------------------------

         The Hospital has agreements with third-party payors that provide for
         payments to the Hospital at amounts different from its established
         rates. Payment arrangements include prospectively determined rates per
         discharge, reimbursed costs, discounted charges and per diem payments.
         Net patient service revenue is reported at the estimated net realizable
         amounts from patients, third-party payors, and others for services
         rendered, including estimated retroactive adjustments under
         reimbursement agreements with third-party payors. Retroactive
         adjustments are accrued on an estimated basis in the period the related
         services are rendered and adjusted in future periods as final
         settlements are determined.

         Income Taxes
         ------------

         Deferred income taxes are provided for the estimated income tax effect
         of temporary differences between financial and taxable income.

         Investments in Partnership
         --------------------------

         Investment in a partnership is carried at the Company's equity in the
         partnership's net assets. The partnership was organized in 1968 to
         provide property sites for the hospital and medical centers. The two
         general partners, the Company and its president, own 26% each. The
         limited partners, consisting of local doctors, own the remaining 48%.

         Impairment of Long-Lived Assets
         -------------------------------

         The Company adopted Statement of Financial Accounting Standards No.
         121, "Accounting for the Impairment of Long-Lived Assets and Long-Lived
         Assets to be Disposed Of." This statement requires that long-lived
         assets and certain identifiable intangibles to be held and used by an
         entity be reviewed for impairment whenever events or changes in
         circumstances indicate that the carrying amount of an asset may not be
         recoverable. Also, in general, long-lived assets and certain
         identifiable intangibles to be disposed of should be reported at the
         lower of carrying amount or fair market value less cost to sell.

         Reclassifications
         -----------------

         Certain accounts from prior years financial statements have been
         reclassified to be comparable with disclosure for the current year.



                                      -23-

<PAGE>

                    AMERICAN HOSPITAL MANAGEMENT CORPORATION
                    Notes to Financial Statements, continued

(2)      Net Patient Service Revenue
         ---------------------------

         The Hospital has agreements with third-party payors that provide for
         payments to the Hospital at amounts different from its established
         rates. A summary of the payment arrangements with major third-party
         payors follows:

         *        Medicare. Inpatient acute care services rendered to Medicare
                  program beneficiaries are paid at prospectively determined
                  rates per discharge. These rates vary according to a patient
                  classification system that is based on clinical, diagnostic,
                  and other factors. Inpatient nonacute services, certain
                  outpatient services, and defined capital and medical education
                  costs related to Medicare beneficiaries are paid based on a
                  cost reimbursement methodology. The Hospital is reimbursed for
                  cost reimbursable items at a tentative rate with final
                  settlement determined after submission of annual cost reports
                  by the Hospital and audits thereof by the Medicare fiscal
                  intermediary. The Hospital's classification of patients under
                  the Medicare program and the appropriateness of their
                  admission are subject to an independent review by a peer
                  review organization under contract with the Hospital. The
                  Hospital's Medicare cost reports have been audited by the
                  Medicare fiscal intermediary through June 30, 1998.

         *        Medicaid. Inpatient services rendered to Medicaid program
                  beneficiaries are reimbursed under a cost reimbursement
                  methodology. The Hospital is reimbursed at a tentative rate
                  with final settlement determined after submission of annual
                  cost reports by the Hospital and audits thereof by the
                  Medicaid fiscal intermediary. The Hospital records supplies
                  cost acquired and used by the operating room department as
                  operating cost of that department. The intermediary disagreed
                  with the classification of cost in the operating department
                  and reclassified the revenue relating to the cost to Central
                  Supply. Therefore, the Hospital has included the cost effect
                  of the reclassification of revenue, as required by Medicaid,
                  in its financial statements. Management of the Hospital feels
                  this reclassification was made in error and is appealing the
                  decision made by the intermediary. Until a final decision is
                  reached, the Hospital will not include the effect of including
                  the supplies cost in the operating department as part of the
                  revenues of the Hospital. The Hospital's Medicaid cost reports
                  have been audited by the Medicaid fiscal intermediary through
                  June 30, 1998.

         The Hospital has also entered into payment agreements with certain
         commercial insurance carriers, health maintenance organizations and
         preferred provider organizations. The basis for payment to the Hospital
         under these agreements includes prospectively determined rates per
         discharge, discounts from established charges and prospectively
         determined daily rates.


                                      -24-

<PAGE>

                    AMERICAN HOSPITAL MANAGEMENT CORPORATION
                    Notes to Financial Statements, continued

(2)      Net Patient Service Revenue, continued
         ----------------------------

         Gross patient service revenue and related provision for contractual
         allowances for the years ended June 30, are summarized as follows:
<TABLE>
<CAPTION>
                                                     2001            2000          1999
                                                     ----            ----          ----

<S>                                               <C>             <C>            <C>
         Gross patient service revenue            $56,889,189     $50,615,111    $46,721,019
              Less contractual allowances          29,225,660      25,855,883     22,631,419
                                                  -----------     -----------    -----------
         Net patient service revenue              $27,663,529     $24,759,228    $24,089,600
                                                  ===========     ===========    ===========
</TABLE>

         At June 30, 2001 and 2000, accounts receivable are primarily
         concentrated in federal and state governmental entities and other
         patients in which the Company does not believe there is any undue
         credit risk.

         For the three years ended June 30, 2001, contractual allowances and
         provisions for bad debts has totaled $77,712,962, approximately 50% of
         gross revenue.

(3)      Marketable Securities
         ---------------------

         Cost and fair value of marketable equity securities at June 30, 2001
         and 2000, are as follows:

                                              2001               2000
                                              ----               ----
                 Available for sale:
                     Cost                  $3,267,733          $2,500,094
                     Fair Value             5,524,003           5,957,315
                     Unrealized Gain        2,501,927           3,637,800

                     Unrealized Loss         (245,657)           (180,579)

         Gain or loss from sale of securities is based on specific
         identification of the securities sold. The change in net unrealized
         holding gains on securities available for sale, net of the tax effect,
         of $(327,952), $(156,791) and $(216,549) for the years ended June 30,
         2001, 2000 and 1999 have been charged to comprehensive income. For the
         years ended June 30, 2001, 2000 and 1999, realized gains and realized
         losses were $276,863 and $(235,589), $343,889 and $(176,299), and
         $606,848 and $(174,157), respectively.

         The Company has a line of credit with the Wells Fargo Bank, secured by
         the investment portfolio. The maximum amount available under the line
         of credit at June 30, 2001 is $2,500,000, of which $2,321,587 is
         outstanding. The interest rate at June 30, 2001 was 6.75%.


                                      -25-

<PAGE>

                    AMERICAN HOSPITAL MANAGEMENT CORPORATION
                    Notes to Financial Statements, continued

(4)      Property and Equipment
         ----------------------

         At June 30, 2001 and 2000, property and equipment is comprised of the
         following:
<TABLE>
<CAPTION>
                                                                  2001         2000
                                                              -----------   -----------
<S>                                                           <C>           <C>
                  Land and improvements                       $    44,500   $    44,500
                  Buildings                                     5,832,326     5,575,593
                  Equipment                                     9,527,590     8,302,909
                  Construction in progress                        875,916       204,707
                                                              -----------   -----------
                                                               16,280,332    14,127,709
                  Accumulated depreciation and amortization    10,479,310     9,683,862
                                                              -----------   -----------
                  Net property and equipment                  $ 5,801,022   $ 4,443,847
                                                              ===========   ===========

         Capitalized interest of $58,535 is included in construction in progress
         for the year ended June 30, 2001

         Property and equipment include certain capitalized leases, as follows:

                                                                  2001         2000
                                                              -----------   -----------
                  Equipment                                   $ 1,678,984   $   975,913
                    Less accumulated amortization                 415,360       223,218
                                                              -----------   -----------
                                                              $ 1,263,624   $   752,695
                                                              ===========   ===========
</TABLE>

         Amortization expense on capitalized leases for the years ended June 30,
         2001, 2000 and 1999 totaled $192,142, $138,957 and $136,087,
         respectively.

         Annual future minimum lease payments under capitalized leases at June
         30, 2001 are as follows:

                                 2002                              $   296,430
                                 2003                                  462,906
                                 2004                                  144,635
                                 2005                                  136,373
                                 2006                                  135,656
                                 Thereafter                            271,311
                                                                     ---------
           Total minimum lease payments                              1,447,311
           Less amount representing interest (6.75% to 19.46%)         312,046
                                                                    ----------
           Present value of minimum lease payments                   1,135,265
           Less current maturity                                       197,518
                                                                    ----------
                                                                   $   937,747
                                                                   ===========

                                     -26-
<PAGE>

                    AMERICAN HOSPITAL MANAGEMENT CORPORATION
                    Notes to Financial Statements, continued

(5)      Real Estate Held for Investment
         -------------------------------

         Real estate held for investment consists of 14 properties, 9 of which
         have a building on their lots. These are itemized as follows:

            Property Location:
              McKinleyville, California                               $1,475,472
              Willow Creek, California                                   335,608
              Lakeport, California                                       333,521
              Arcata, California                                         161,750
              Eureka, California                                         134,908
                                                                      ----------
                                                                       2,441,259
                Less accumulated depreciation for rented property        487,018
                                                                      ----------
                                                                      $1,954,241

         The properties with buildings attached are either used temporarily for
         Hospital purposes, or used as rental property. All properties are
         valued at cost as it is not cost effective to determine fair value.
         Based on the property records available, there is no impairment of
         value.

(6)      Other Assets
         ------------

         At June 30, 2001 and 2000, other assets include cash surrender value of
         four life insurance polices totaling $449,570, investment in
         partnerships of $70,202, and $24,038 in other investments.

(7)      Long-Term Debt
         --------------

         Long-term debt at June 30, 2001 and 2000, consists of the following:

                                                              2001       2000
                                                              ----       ----
           Bank note, secured by investment property,
           interest rate of 2.25% above bank index
           (7.448% at June 30, 2001), payable in monthly
           installments, maturing in 2021                 $  131,623    $133,705
           Lease obligations, payable in installments
           through 2004 with a weighted average
           interest rate of 9.48%                          1,135,265     542,427
                                                           ---------    --------
                                                           1,266,888     676,132
             Less current maturities                         199,700     113,187
                                                          ----------   ---------
                                                          $1,067,188    $562,945
                                                          ==========    ========

         The maturities of long-term debt for each of the succeeding five years
         subsequent to June 30, 2001, are as follows: 2002-$199,700;
         2003-$385,959; 2004-$101,311; 2005-$102,025; 2006-$110,682,and
         beyond-$367,211.

                                      -27-

<PAGE>

                    AMERICAN HOSPITAL MANAGEMENT CORPORATION
                    Notes to Financial Statements, continued

(8)      Income Taxes
         ------------

         At June 30, income tax expense (benefit) consisted of the following:

                                                  2001
                                -----------------------------------------------
                                 Federal          California            Total
                                ---------         ----------          ---------
              Current           $ 173,020          $  51,486          $ 224,506
              Deferred             (8,271)            (2,079)           (10,350)
                                ---------          ---------          ---------
                                $ 164,749          $  49,407          $ 214,156
                                =========          =========          =========

                                                  2000
                                -----------------------------------------------
                                 Federal          California            Total
                                ---------         ----------          ---------

              Current           $  69,120          $   9,564          $  78,684
              Deferred             61,486             14,941             76,427
                                ---------          ---------          ---------
                                $ 130,606          $  24,505          $ 155,111
                                =========          =========          =========

                                                  1999
                                -----------------------------------------------
                                 Federal          California            Total
                                ---------         ----------          ---------
              Current           $(175,600)         $     800          $(174,800)
                                =========          =========          =========


         Deferred tax expenses (credits) for 2001, 2000, and 1999 result from
         the following temporary differences:

                                                2001        2000       1999
                                              --------    --------    --------
       California franchise tax               $(15,590)   $ (7,167)   $(11,750)
       Depreciation and amortization            92,708      84,089     (13,667)
       Allowance for bad debts                 (30,623)     29,221     (26,571)
       Vacation accrual                        (31,992)    (32,700)     (2,692)
       Correction of deferred tax liability    (14,996)         --      54,680
       Other                                    (9,857)      2,984          --
                                              --------    --------    --------
                                              $(10,350)   $ 76,427    $      0
                                              ========    ========    ========

         In addition, deferred tax liability is recorded in the balance sheet,
         resulting from the change in unrealized holdings for investments. The
         change in deferred income taxes for the years ended June 30, 2001 and
         2000 was $(218,635) and $(239,465), respectively.



                                      -28-

<PAGE>

                    AMERICAN HOSPITAL MANAGEMENT CORPORATION
                    Notes to Financial Statements, continued

(8)      Income Taxes continued
         ----------------------

         Recorded income tax expense (benefit) differs from that computed by
         applying the statutory income tax rates for the following reasons:

                                              2001          2000        1999
                                            ---------    ---------    ---------
         Computed tax at statutory rate     $ 255,610    $ 298,325    $(115,472)
         Increases (decreases) resulting from:
            California franchise tax          (18,498)      (8,108)        (272)
            Domestic dividend exclusion allo  (18,740)     (18,165)     (22,361)
            Cash surrender value                   --     (112,833)      (4,321)
            Entertainment deduction            10,016       11,093        9,649
            Net operating loss carryover           --      (18,043)          --
            Other                             (14,232)       2,842      (42,023)
                                            ---------    ---------    ---------
                                            $ 214,156    $ 155,111    $(174,800)
                                            =========    =========    =========


(9)      Preferred Stock
         ---------------

         The preferred stock provides for cumulative dividends of $2 per share
         per year. The stock has a redemption and liquidating value of $27.50
         per share, plus dividends in arrears. Total redemption and liquidating
         value of the outstanding shares at June 30, 2001 and 2000, was
         $1,278,382 and $1,287,778, respectively. In the event of redemption,
         two shares of common stock can be issued for each share of preferred
         stock redeemed (if option is exercised by preferred stockholder).
         Redemption of the preferred stock, in total only, is at the option of
         the Company.

(10)     Income per Common Share
         -----------------------

         Basic income per common share was computed by dividing the net income
         after deduction of preferred stock dividend requirements of $92,973,
         $93,657 and $94,884, by the weighted average number of common shares
         outstanding (223,092, 224,298 and 225,592) for 2001, 2000 and 1999,
         respectively.

         Diluted income per common share was computed by dividing net income by
         the weighted average number of common shares outstanding, after
         redemption of preferred stock, (315,588 and 317,255) for 2001 and 2000,
         respectively. For 1999, there was an anti-dilutive effect for all
         shares.



                                      -29-

<PAGE>

                    AMERICAN HOSPITAL MANAGEMENT CORPORATION
                    Notes to Financial Statements, continued


(11)     Malpractice Insurance Arrangements
         ----------------------------------

         The Hospital purchases professional and general liability insurance to
cover medical malpractice insurance claims. The coverage, through a commercial
insurance carrier, is on a claims-made basis. Under claims-made policies, all
accidents reported to the insurer are covered. On the basis of the Hospital's
current experience, neither an accrual for a potential extended period reporting
policy, which could be necessary if the Hospital ceases to purchase claims-made
coverage, nor an accrual for unreported incidents has been made.

(12)     401(k) Plan
         -----------

         The Plan is a defined contribution plan to which all employees are
         permitted to make salary deferrals under the 401(k) provision. Such
         contributions are credited directly to their accounts. Based on the
         Plan document, the Employer can make discretionary contributions for
         the participants. No employer contribution was made for any of the
         three years ended June 30, 2001.

(13)     Concentrations of Credit Risk
         -----------------------------

         The Hospital grants credit without collateral to its patients, most of
         whom are local residents and are insured under third-party payor
         agreements. The mix of receivables from patients and third-party payors
         at June 30, 2001 and 2000, was as follows:

                                                      2001                2000
                                                      ----                ----
                  Medicare                             38.8%             33.4%
                  Medi-Cal                             11.6              18.4
                  Other third-party payors             39.0              41.0
                  Patients                             10.6               7.2
                                                     ------           -------
                                                      100.0%            100.0%
                                                      =====             =====



                                      -30-
<PAGE>


                    AMERICAN HOSPITAL MANAGEMENT CORPORATION
                    Notes to Financial Statements, continued


(14)     Self-insurance Program
         ----------------------

         The Hospital has elected to self-insure for health care benefits to its
         employees. Amounts charged to expense and transferred monthly to a
         trust fund to cover such claims are estimated using rates comparable to
         actual rates in the industry. Management believes that amounts provided
         are sufficient to cover claims and costs incurred through June 30,
         2001. The rates used to determine the amounts charged to expense for
         claims and costs are adjusted periodically, as appropriate, to reflect
         actual experience. The Hospital has 100 percent insurance coverage for
         individual claim expenses in excess of $50,000 and for aggregate claim
         expenses in excess of $1,739,750.

         Health care benefit expense was approximately $1,498,230, $830,022 and
         $2,084,133 for the years ended June 30, 2001, 2000 and 1999,
         respectively.

(15)     Commitments and Contingencies
         -----------------------------

         Total rental expense for the years ended June 30, 2001, 2000, and 1999,
         was $386,346, $388,708 and $380,325, respectively

         The Company has entered into an agreement for approximately $1,140,000
         to construct a medical office building adjacent to the Hospital. There
         will be additional cost, depending on the final occupants' of the
         buildings needs. As of June 30, 2001, approximately $400,000 has been
         paid on the contract.

         Litigation. The Hospital is involved in litigation and regulatory
         investigations arising in the course of business. After consultation
         with legal counsel and insurance carriers, management estimates that
         these matters will be resolved without material adverse effect on the
         Hospital's future financial position or results from operations.

(16)     Risks and Uncertainties
         -----------------------

         The Company's future operating results may be affected by a number of
         factors. The Hospital's operations are in part dependent on
         governmental reimbursement plans. Significant changes in the level of
         governmental reimbursement could have a favorable or unfavorable impact
         on the operating results of the Hospital. Also, as additional managed
         health care plans are introduced into the service area, actual
         admissions to the Hospital could increase or decrease depending on the
         Hospital's ability to contract with the health plans.


                                      -31-

<PAGE>

                    AMERICAN HOSPITAL MANAGEMENT CORPORATION
                    Notes to Financial Statements, concluded



(17)     Fair values of Financial Instruments
         ------------------------------------

         Fair value estimates are made at a specific point in time and are based
         on relevant market information and information about the financial
         instrument; they are subjective in nature and involve uncertainties and
         matters of judgment and, therefore, cannot be determined with
         precision. These estimates do not reflect any premium or discount that
         could result from offering for sale at one time the Company's entire
         holdings of a particular instrument. Changes in assumptions could
         significantly affect the estimates.

         Since the fair value is estimated as of June 30, 2001, the amounts that
         will actually be realized or paid at settlement of the instruments
         could be significantly different.

         The carrying amount of cash and cash equivalents is assumed to be the
         fair value because of the liquidity of these instruments. Accounts
         receivable, accounts payable and accrued expenses approximate fair
         value because of the short maturity of these instruments. The recorded
         balance of notes payable are assumed to be the fair value since the
         rates specified in the notes approximate current market rates.




                                      -32-

<PAGE>

Item 9.  Changes in and disagreements with accountants on
         ------------------------------------------------
         Accounting and Financial Disclosure
         -----------------------------------

                  None.




                                      -33-

<PAGE>

PART III

Item 10. Directors and Executive Officers of the Registrant
-------  --------------------------------------------------

Name and principal occupation
during last five years            Since     Age     Office         Occupation
----------------------            -----     ---     ------         ----------

Lawrence V. Blashaw               1970      75     Director        President of
                                                                   Freight For-
                                                                   warding Co.

Charles F. Forbes, Attorney       1968      71     Secretary &     Retired
                                                   Director
Attorney

Allen E. Shaw, President          1960      83     President &     President of
of the Company                                     Director        Company

Douglas A. Shaw, Vice President   1981      50     Vice President  Hospital
Administrator                                      & Director      Administrator

Richard J. Stanczak               1977      75     Director        Business
Business Consultant                                                Consultant

Michael Young, Controller         1978      53     Treasurer       Hospital
Administrator                                                      Controller

Donald J. Krpan, D.O.             1988      65     Director        President of
                                                                   the American
                                                                   Osteopath
                                                                   Association

John Aryanpur, M.D.               1998      41     Director        Neurosurgeon





                                      -34-
<PAGE>

Item 11. Executive Compensation
-------  ----------------------

         The following table sets forth the aggregate direct remuneration paid
         or accrued by the Company for services in all capacities for the fiscal
         year ended June 30, 2000, to each director and officer of the Company
         whose aggregate direct remuneration exceeded $100,000 and to all
         directors and officers (as a group) who were such at any time during
         the last fiscal year.

                                                        Cash and cash equivalent
                                                          forms of remuneration

Name of individual                                            Salaries, fees,
or number of                  Capacities in which             directors' fees
persons in group           remuneration was received          and bonuses
----------------           -------------------------          -----------

Allen E. Shaw              President and Chairman of            $ 122,802
                           the Board

Douglas A. Shaw            Vice President, Administrator           52,000

Michael Young              Treasurer and Controller of             75,954
                           Mad River Community Hospital

All other directors
  and officers as a
  group (5 persons)                                                 24,131
                                                                  --------

(8 persons)                                                     $  274,887
                                                                ==========

Note:    There was no contractual agreement with any directors regarding
         compensation, pensions or stock options. Directors, from time to time,
         are compensated for attendance at meetings for their general
         administrative duties although there is no required payment. Total
         director compensation for 2001 was $24,131. There have not been any
         payments made to officers or directors for severance of relationship.



                                      -35-

<PAGE>

Item 12. Security Ownership of Certain
-------  -----------------------------
         Beneficial Owners and Management
         --------------------------------

         Owners of 5% or more of outstanding voting securities at June 30, 1999,
         were as follows:

                                                    Amount and
                                                    nature of
                                   Title of         beneficial         Percent
Name of beneficial owner            class            ownership         of class
------------------------            -----            ---------         --------

Allen E. Shaw Family                 Common           118,079           52.80%
San Clemente, California             Preferred          1,970            4.20%

Arcata Hospital Corporation*         Common            20,898            9.38%
Palos Verdes Estates, California     Preferred         11,481           24.51%


Security ownership of management as a group
-------------------------------------------

All directors and officers as        Common           120,579           53.92%
  a group
All directors and officers           Preferred          1,970            4.20%
  a group

Security ownership of management is as follows:

                                                           Number of shares
                                                           ----------------
         Name                                          Common          Preferred
         ----                                          ------          ---------

         Lawrence V. Blashaw                           2,500                 --
         Allen E. Shaw Family                        118,079              1,970
                                                     -------           --------

                                                     120,579              1,970
                                                     =======           ========

* Arcata Hospital Corporation is 98% owned by shareholders of the Company.





                                      -36-
<PAGE>

Item 13. Certain Relations and
-------  ---------------------
         Related Transactions
         --------------------

         None.








                                      -37-

<PAGE>

PART IV

Item 14. Exhibits, Financial Statement
-------  -----------------------------
         Schedules, and Reports on Form 8-K
         ----------------------------------
Page
----
(a) (1)      The following financial statements are included in
               Part II, Item 8:

                  Reports of Independent Auditors'

                  Financial Statements:
                      Balance Sheets
                        June 30, 2001 and 2000

                      Statements of Operations
                        Years ended June 30, 2001, 2000 and 1999

                      Statements of Comprehensive Income
                        Years ended June 30, 2001, 2000 and 1999

                      Statements of Stockholders' Equity
                        Years ended June 30, 2001, 2000 and 1999

                      Statements of Cash Flows
                        Years ended June 30, 2001, 2000 and 1999

                      Notes to Financial Statements

     (2)     The following financial schedules for the Years 2001, 2000 and
             1999 are submitted herewith:

                      Schedule II - Valuation and Qualifying Accounts

                      Schedule III - Real Estate and Accumulated Depreciation

             All other schedules are omitted because they are not
             applicable or not required, or because the required
             information is included in the financial statements or notes
             hereto.

     (3)     Exhibits included herein:

                      None

(b)          Registrant did not file any reports on Form 8-K during the quarter
             ended June 30, 2001.

                                      -38-
<PAGE>

                                   Schedule II

                    AMERICAN HOSPITAL MANAGEMENT CORPORATION

                        Valuation and Qualifying Accounts
                    Years ended June 30, 2001, 2000 and 1999

<TABLE>
<CAPTION>

                          Balance,      Charged         Charged                           Balance,
                         beginning         to           to other                            end
                          of year        income         accounts         Deductions        of year
                          -------       ---------       ---------         -------          -------

Allowance for
 doubtful receivables:


<S>         <C>       <C>             <C>             <C>             <C>
            2001      $  157,532      $1,223,545                        $1,152,064      $  229,013
            2000         230,699       1,723,497                         1,796,664         157,532
            1999         292,723       1,176,463                         1,238,487         230,699

</TABLE>





                                      -39-

<PAGE>

                                  Schedule III

                    AMERICAN HOSPITAL MANAGEMENT CORPORATION

                    Real Estate and Accumulated Depreciation
                    Years ended June 30, 2001, 2000 and 1999

<TABLE>
<CAPTION>


                     Related                                Accumulated                    Useful
Description           debt            Land      Buildings      Total       Depreciation     Life
-----------           ----            ----      ---------      -----       ------------     ----

<S>                  <C>            <C>         <C>          <C>            <C>              <C>
Rental property      $131,623       $482,346    $1,126,725   $1,609,071     $487,018         25

Investment            None           832,189                    832,189
                    ---------------------------------------------------------------------------
                     $131,623     $1,314,535    $1,126,725   $2,441,260     $487,018
                    ===========================================================================
</TABLE>


    Cost:
         Balance at June 30, 2000, 1999 and 1998                 $2,241,260


    Accumulated Depreciation:

         Balance at June 30, 1998                                $   395,682
           Depreciation during period                                 45,669
                                                                 -----------
         Balance at June 30, 1999                                    441,351
              Depreciation during period                              45,667
                                                                 -----------
         Balance at June 30, 2000                                $   487,018
                                                                  ==========





                                      -40-

<PAGE>


                                   SIGNATURES


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


                                        AMERICAN HOSPITAL MANAGEMENT CORPORATION


                                        By: /s/ Allen E. Shaw
                                            ------------------------------------
                                                Allen E. Shaw, President


                                        Date:  November 15, 2001
                                              ----------------------------------

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the principal Executive Officer, principal Financial
Officer, Secretary and majority of Board Members on behalf of the Registrant and
in the capacities and on the dates indicated:

       Signature                         Capacity                    Date
       ---------                         --------                    ----


/s/  Allen E. Shaw                   President and Director   November 15, 2001
----------------------------
Allen E. Shaw


/s/ Michael J. Young                 Treasurer and Chief      November 15, 2001
----------------------------         Accounting Officer
Michael J. Young                     Director


/s/ Donald J. Krpan                  Director                 November 15, 2001
----------------------------
Donald J. Krpan


/s/ Doug Shaw                        Director                 November 15, 2001
----------------------------
Doug Shaw


                                       41