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, 2003     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]

                                       -1-
<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 shares outstanding of each of the registrant's classes of
common stock as of the latest practicable date (216,905 at September 30, 2003).

Total number of pages, including cover - 45

                                       -2-

<PAGE>

PART 1

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

         The primary business of the Company is the ownership and operation 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 and 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. The Hospital's service area
         on the north coast is experiencing the highest rate of growth in the
         county and is especially attractive to healthcare professionals who
         want to work in a community with high family values.

         The nearest competition to the Hospital is in Eureka, (approximately 12
         miles south) where one remaining 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 little or no negative impact on
         Hospital use or occupancy. For this reason, the Hospital organized
         outpatient clinics in the outlying communities thereby maintaining the
         Hospital's presence in the service area. A new two story medical
         building is under construction adjacent to the Hospital for expansion
         of patient services within the Hospital. The anticipated completion
         date in the spring of 2004, of the new 22,000 square foot medical
         building adjacent to the Hospital, is subject to finalizing financing.
         The building will house various health care related services that will
         improve the quality of health care provided to the community.

         Another positive factor supporting Hospital use is community
         involvement. As the largest private employer in Arcata, with expanding
         services being provided through Home Health and Adult Day Health Care
         departments, the Hospital is highly visible in the community served.
         The Hospital continues to try to build on this strength by maintaining
         a solid community provider image through the media and a helping hand
         in the community. The Hospital is an 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 or changes in policy. 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 an 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) which leaves sufficient open area
         for expansion of medical services as needed in the further. The
         Hospital is adjacent to an expanded medical office complex owned by
         staff doctors.

         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 are currently used as an office, guest quarters and
         storage space for the Company. The Company owns a personal residence
         adjacent to the Hospital. 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 who provides a
         child day care service to hospital employees. The Company also owns
         residences and commercial properties in Eureka, Lake County, 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 which include a medical clinic in Willow Creek,
         California (38 miles east of the Hospital). The Company also owns and
         operates real property in McKinleyville which provides clinical
         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
         384 shareholders at September 30, 2003. No dividends were paid on
         common stock during the three years ended June 30, 2003. The Company is
         current on paying all cumulative preferred stock dividends.

                                       -6-
<PAGE>

Item 6.  Selected Financial Data
-------  -----------------------
<TABLE>
<CAPTION>
                                                       Years ended June 30
                         -----------------------------------------------------------------------------
                             2003            2002             2001            2000            1999
                         ------------    ------------     ------------    ------------    ------------
<S>                      <C>             <C>              <C>             <C>             <C>
Total operating
revenue, net             $ 32,360,976    $ 30,547,032     $ 27,663,529    $ 24,759,228    $ 24,089,600

Net income (loss)             321,474        (843,080)         382,507         541,259        (164,824)

Basic earnings (loss)
per share                        1.03           (4.21)            1.30            2.00           (1.15)

Diluted earnings
(loss) per share                 1.02           (4.21)            1.21            1.71           (1.15)

Total assets               25,517,304      25,161,711       24,862,687      22,409,022      22,302,627

Long-term debt              1,907,478       1,861,150        1,067,188         562,945         642,154

Working capital             7,862,818       7,605,491        8,312,317       8,861,853       8,553,820

Redeemable
preferred stock                46,471          46,471           46,487          46,829          47,442

Stockholders'
equity                     14,961,316      14,583,066       15,641,209      15,690,291      15,416,989
</TABLE>

                                       -7-
<PAGE>

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

                                        2003
                                        ----
         Results of Operations
         ---------------------

         Hospital revenues increased during 2003 as the Hospital continued to
         expand services offered to the community. Use of inpatient and
         outpatient services increased approximately 2%. In addition, fees for
         services rendered increased an average of 11%. Patient revenue totaled
         $78,645,000 in 2003 compared to $69,530,000 in 2002, a 13.1% increase
         of $9,115,000.

         Contractual allowances totaled $46,284,000 in 2003 compared to
         $38,983,000 in 2002, a 18.7 increase. Contractual cost continues to
         cause a major concern for providing health as many third-party payers
         reimburse based on fixed contracts which do not take into account the
         ever increasing cost of providing health care. Therefore, as actual
         costs of providing services increase, these amounts may not be
         reimbursed. Medicare and Medi-Cal indicate an attempt to reimburse the
         hospitals' cost of providing 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. For the three
         years ended June 30, 2003, contractual allowances and provisions for
         bad debts have amounted to approximately $119,759,000 or 58.4% of gross
         revenue. As indicated above, much of the time, 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 impact the amount the Hospital is reimbursed for Medi-Cal
         patients.

         Operating costs and expenses were $32,469,000 compared to $32,731,000
         in 2002, a slight decrease. The Hospital made a concerted effort to
         reduce salary cost during the year while maintaining a wage scale in
         line with industry standards. Although the healthcare industry
         continues to experience a serious shortage in nurses and ancillary care
         technicians, the Hospital was able to maintain sufficient staff during
         the year to provide quality healthcare services. The major increase in
         cost was group health insurance cost which increased approximately
         $905,000. The Hospital is self insured for health care claims and even
         though the cost of this benefit for employees is increasing , self
         insurance is still considered less costly than paying premiums to an
         insurance company for health care benefits. In order to stay
         competitive within the market, the Hospital must continue to maintain a
         wage scale and provide benefits that are comparable to other facilities
         in rural areas.

                                       -8-
<PAGE>

         2003 continued
         ----

         The continued reduction in third-party reimbursement and that many
         payers reimbursement based on a fixed contract (even though rates
         increase, they reimburse the same amount per procedure or other basis
         for reimbursement) are the major contributing factors to the increase
         in contractual allowances. The Hospital is still dealing with
         third-party payors to finalize cost reports under audits. 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 $506,869 in 2003,
         compared to a loss in 2002 of $843,000. As previously indicated, the
         2002 loss was mainly caused by a change in the methodology for
         estimating allowances for contractual cost. Even though the Hospital
         continues to be negatively impacted by poor reimbursement contracts
         with third party payors, management anticipates continued profitable
         operations.

         The Company continues to enjoy a large positive current ratio with
         current assets exceeding current liabilities by $7,862,818. The Company
         continues to enjoy good returns on its investments to help maintain
         operations. For the current year, sales of investments resulted in a
         loss of approximately $102,000, while total investment income was
         approximately $426,000. 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.

         The Company will complete construction of a Medical Building adjacent
         to the Hospital in the Spring of 2004. When the building is complete,
         management anticipates that real property rent cost will decrease and
         there will be an increase in outpatient services being provided.

                                       -9-

<PAGE>

         2003 continued
         ----

         Liquidity and Capital Resources
         -------------------------------
         The Company's financial condition remains very strong with substantial
         investments, strong liquidity and minimal debt. The current ratio is
         1.9 to 1. The cash and liquid investments are being maintained to
         subsidize Hospital operations and to finance needed construction and
         increased services at Mad River Community Hospital. Currently, the
         Company has approximately $6,101,000 in cash and short-term
         investments. Included in this amount is $1,998,000 in unrealized
         holding gains. The short-term equity investments are collateral for the
         $2,250,000 line of credit at June 30, 2003.

         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 $910,052 in 2003. As the
         long-term debt relates only to the acquisition of major equipment and
         cash required for operations. The Hospital has signed a commitment
         letter for additional long-term financing of $4,000,000 to finance
         major renovation and construction projects. The debt service relating
         to this new debt will be covered by increased services and a reduction
         in monthly real estate rental cost.

         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
         ---------
         According to the U.S. Department of Labor Statistics Urban Consumer
         Price Index, the inflation factor affecting costs for medical care
         services has averaged approximately 5% over the last three years. This
         moderate rate contributed to the Hospital's success in maintaining a
         moderate increase in costs from year to year.

                                      -10-

<PAGE>

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

                                        2002
                                        ----
         Results of Operations
         ---------------------

         Hospital revenues increased during 2002 as the Hospital continued to
         expand services offered to the community. Use of inpatient and
         outpatient services increased approximately 11%. In addition, fees for
         services rendered increased an average of 7%. Patient revenue totaled
         $69,530,000 in 2002 compared to $56,889,000 in 2001, a 22.2% increase
         of $12,641,000.

         Contractual allowances totaled $40,931,000 in 2002 compared to
         $30,449,000 in 2001, a 34.4% increase. Largely because of the decrease
         in the reimbursement payments by third-party payers, management elected
         to change the methodology for estimating estimated allowances which
         contributed greatly to the large percentage increase in contractual
         allowances. The estimated allowances as a percentage of patient
         receivables increased approximately 11.7%, or approximately $2,576,000.
         This is a non-cash entry as indicated by the statement of cash flows
         that shows $713,000 net cash provided by operations. The change in
         estimate, in large part, was required by third-party payers reimbursing
         based on fixed contracts which do not take into account the ever
         increasing cost of providing health care. Medicare and Medi-Cal
         indicate an attempt to reimburse the hospitals' cost of providing
         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. The majority of reimbursement is based on fixed
         contracts. Therefore, as actual costs of providing services increase,
         these amounts are not reimbursed. For the three years ended June 30,
         2001, contractual allowances and provisions for bad debts have amounted
         to approximately $77,700,000 or 51% of gross revenue. For the year
         ended June 30, 2002, contractual allowances, including the effect of
         changing the methodology for estimating allowances, were 58.9% of gross
         revenues. If the change in estimate had not been made, this percentage
         would have been approximately 54%, a 3% increase over prior years. As
         indicated above, much of the time, 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 impact the amount the Hospital is reimbursed for Medi-Cal
         patients.

         Operating costs and expenses were $32,731,000 compared to $27,895,000
         in 2001, a 17.3% increase. The main cause of the increase is an
         increase in salaries and related costs for health care providers within
         the facility. These increases were necessary to keep the Hospital's
         wage scale in line with industry standards. The healthcare industry is
         experiencing a serious shortage in nurses and ancillary care
         technicians. During the year, as the volume of business increased
         significantly, the Hospital was forced to use outside nursing registry

                                      -11-


<PAGE>

         2002 continued
         ----

         to cover required staffing based on volume. The cost of outside nursing
         registry is more than double the cost of payroll staffing. Therefore,
         not only did payroll cost for nurses and medical technicians increase
         approximately $2,000,000, the Hospital incurred approximately $800,000
         in registry costs. In order to stay competitive within the market, the
         Hospital must continue to maintain a wage scale that is comparable to
         other facilities in rural areas. As of year end, management had been
         successful in hiring the required staff and, therefore, the cost for
         nursing registry will decrease significantly

         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 audits. 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. Mainly
         caused by the lower than expected reimbursement rate effect of the
         change in estimate, the Company recorded a loss of $843,000 compared to
         net income of $383,000 in the prior year. Management feels strongly
         that this loss was caused by the significant increase in the percentage
         of estimated allowances compared to patient receivables, a balance
         sheet adjustment. Even though all hospitals continue to be negatively
         impacted by poor reimbursement contracts with third party payers, if
         the required daily census can be maintained at the increased level
         experienced in the current year and costs are controlled, management
         anticipates continued profitable operations.

         The Company continues to enjoy a large positive current ratio with
         current assets exceeding current liabilities by $7,605,000. As the
         market has been in a down trend, the investment portfolio for equity
         stocks has suffered an approximate $842,000 decrease in fair value.
         This decrease is a large contributing factor to the decrease in current
         assets as well as the decrease in total stockholders' equity.
         Management hopes that this decrease in fair value is a short-term loss
         and will be recovered as the economy improves. The Company continues to
         enjoy good returns on its investments to help maintain operations. For
         the current year, sales of investments resulted in gains of $20,000,
         while total investment income was $462,000. 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.

                                      -12-


<PAGE>

         2002 continued
         ----

         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 current ratio is
         1.87 to 1. The cash and liquid investments are being maintained to
         subsidize Hospital operations and to finance needed construction and
         increased services at Mad River Community Hospital. Currently, the
         Company has approximately $5,798,000 in cash and short-term
         investments. Included in this amount is $1,771,000 in unrealized
         holding gains. The short-term equity investments are collateral for the
         $2,374,000 line of credit at June 30, 2002.

         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 $1,187,000 in 2002. 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 seeking alternatives for additional long-term financing to
         finance major renovation and construction projects. The Hospital is
         seeking $4,000,000 in long-term financing to complete the attached
         medical building under construction. The proceeds from this financing
         will also be used to pay off the $1,074,000 term loan.

         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
         ---------
         According to the U.S. Department of Labor Statistics Urban Consumer
         Price Index, the inflation factor affecting costs for medical care
         services has averaged approximately 5% over the last three years. This
         moderate rate contributed to the Hospital's success in maintaining a
         moderate increase in costs from year to year.

                                      -13-


<PAGE>

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

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


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

Independent Auditors' Reports                                       16

Financial Statements:

         Balance Sheets - June 30, 2003 and 2002                  17-18

         Statements of Operations
           Years ended June 30, 2003, 2002 and 2001                 19

         Statements of Comprehensive Income
           Years ended June 30, 2003, 2002 and 2001                 20

         Statements of Stockholders' Equity
           Years ended June 30, 2003, 2002 and 2001                 21

         Statements of Cash Flows -
           Years ended June 30, 2003, 2002 and 2001               22-23

         Notes to Financial Statements                            24-36

Item 14.  Exhibits, Financial Statement, Schedules
          and Reports on Form 8-K                                   42



                                      -14-
<PAGE>

                    AMERICAN HOSPITAL MANAGEMENT CORPORATION

                   ANNUAL REPORT FOR CORPORATIONS - FORM 10-K
                       YEARS ENDED JUNE 30, 2003 AND 2002


                              FINANCIAL STATEMENTS,
                     SUPPLEMENTARY DATA AND AUDITORS' REPORT




                                      -15-



<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, 2003 and 2002, and the related
         statements of operations, comprehensive income, stockholders' equity
         and cash flows for each of the years in the three-year period ended
         June 30, 2003. 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
         management of American Hospital Management Corporation. 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 audits 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 referred to above present
         fairly, in all material respects, the financial position of American
         Hospital Management Corporation as of June 30, 2003 and 2002, and the
         results of its operations and its cash flows for each of the years in
         the three-year period ended June 30, 2003, in conformity with
         accounting principles generally accepted in the United States of
         America. Also, in our opinion, such financial statement schedules, as
         listed in the accompanying index, 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
September 19, 2003

                                      -16-

<PAGE>

                    AMERICAN HOSPITAL MANAGEMENT CORPORATION
                                 BALANCE SHEETS
                             JUNE 30, 2003 AND 2002
<TABLE>
<CAPTION>
                           Assets
                           ------                                  2003            2002
                                                                -----------    -----------
<S>                                                             <C>            <C>
Current assets:
  Cash and cash equivalents                                     $   957,780    $   805,205
  Marketable securities                                           5,142,849      4,993,239
  Receivables:
    Patients, net of estimated allowances of $9,655,612
      and $7,346,065, in 2003 and 2002, respectively              7,645,492      7,503,722
    Other                                                           630,065        339,335
    Estimated third-party payor settlements                         663,546      1,219,687
  Income tax refund                                                      --        238,944
  Supplies, at lower of cost (first-in, first-out) or market      1,128,184      1,163,683
  Prepaid expenses                                                  343,412         53,171
                                                                -----------    -----------
                  Total current assets                           16,511,328     16,316,986

Property and equipment, net                                       6,281,541      6,187,174

Real estate held for investment, net                              1,869,031      1,909,172

Deferred income taxes                                               144,526        227,938

Other assets                                                        710,878        520,441
                                                                -----------    -----------
                                                                $25,517,304    $25,161,711
                                                                ===========    ===========
</TABLE>

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

                                      -17-
<PAGE>

                    AMERICAN HOSPITAL MANAGEMENT CORPORATION
                                 BALANCE SHEETS
                             JUNE 30, 2003 AND 2002
<TABLE>
<CAPTION>
                  Liabilities and Stockholders' Equity
                  ------------------------------------
                                                                     2003           2002
                                                                  -----------    -----------
<S>                                                               <C>            <C>
Current Liabilities:
  Current maturities of long-term debt                            $   222,712    $   384,693
  Line of credit                                                    1,775,167      2,374,150
  Accounts payable and accrued expenses:
    Trade                                                           2,644,917      2,069,410
    Accrued liabilities                                             2,135,508      2,111,445
    Construction contracts payable                                    544,890        544,890
    Estimated third-party payor settlements                           215,138        161,000
    Income taxes:
      Current                                                         107,769        148,386
      Deferred                                                      1,002,409        917,521
                                                                  -----------    -----------

                  Total current liabilities                         8,648,510      8,711,495
                                                                  -----------    -----------

Long-term debt, less current maturities                             1,907,478      1,867,150
                                                                  -----------    -----------

Stockholders' equity:
  $2 cumulative preferred stock, par value $1 per share;
  authorized 100,000 shares; issued 65,270.82 shares;
  reacquired 18,799.74 shares; outstanding 46,471.08 shares;
  aggregate redemption and liquidating value of $1,277,955 for
  each of the two years ended June 30, 2003                            46,471         46,471
  Common stock, par value $1.00 per share;
  authorized 400,000 shares, issued 249,051 shares,
  reacquired 26,736 shares; outstanding - 222,315 shares for
  each of the two years ended June 30, 2003                           222,315        222,315
  Additional paid-in capital                                          279,407        279,407
  Accumulated other comprehensive income                            1,188,564      1,052,554
  Retained earnings                                                13,224,559     12,982,319
                                                                  -----------    -----------

                  Total Stockholders' equity                       14,961,316     14,583,066
                                                                  -----------    -----------
                                                                  $25,517,304    $25,161,711
                                                                  ===========    ===========
</TABLE>

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

                                      -18-
<PAGE>

                    AMERICAN HOSPITAL MANAGEMENT CORPORATION
                            STATEMENTS OF OPERATIONS
                    YEARS ENDED JUNE 30, 2003, 2002, AND 2001
<TABLE>
<CAPTION>
                                                           2003             2002             2001
                                                       ------------     ------------     ------------
<S>                                                    <C>              <C>              <C>
Net patient service revenue                            $ 32,360,976     $ 30,547,032     $ 27,663,529
Other revenue                                               256,389          389,612          393,155
                                                       ------------     ------------     ------------

                  Total operating revenue                32,617,365       30,936,644       28,056,684
                                                       ------------     ------------     ------------

Operating costs and expenses:
     Professional care of patients                       18,415,367       19,675,123       17,161,899
General services                                          2,439,378        2,686,040        2,527,309
Fiscal and administrative services                        4,244,731        4,180,705        3,506,466
     Employee health and welfare                          3,629,209        2,615,432        2,104,678
     Medical malpractice insurance                          516,464          574,064          415,790
     Interest                                               268,368          205,507          113,714
     Depreciation and amortization                          860,959          846,122          841,117
     Provision for bad debts                              2,094,750        1,947,544        1,223,545
                                                       ------------     ------------     ------------
         Total operating costs and expenses              32,469,226       32,730,537       27,894,518
                                                       ------------     ------------     ------------
         Income (loss) from operations                      148,139       (1,793,893)         162,166
                                                       ------------     ------------     ------------
Other income:
     Investment income                                      323,713          462,259          418,911
     Other                                                   35,017           21,672           15,586
                                                       ------------     ------------     ------------
                                                            358,730          483,931          434,497
                                                       ------------     ------------     ------------

Income (loss) before income tax (provision) benefit         506,869       (1,309,962)         596,663
     Provision for income tax (expense) benefit            (185,395)         466,882         (214,156)
                                                       ------------     ------------     ------------

                  Net income (loss)                    $    321,474     $   (843,080)    $    382,507
                                                       ============     ============     ============


Basic earnings (loss) per common share                 $       1.03     $      (4.21)    $       1.30
                                                       ============     ============     ============

Diluted earnings (loss) per common share               $       1.02     $      (4.21)    $       1.21
                                                       ============     ============     ============
</TABLE>

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

                                      -19-
<PAGE>

                    AMERICAN HOSPITAL MANAGEMENT CORPORATION
                    STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
                    YEARS ENDED JUNE 30, 2003, 2002, AND 2001

<TABLE>
<CAPTION>
2003
----
<S>                                                                    <C>              <C>
Net income                                                                              $    321,474
         Other comprehensive income, net of tax:
           Unrealized losses on securities:
             Unrealized holding gains arising during tax period        $  237,711
               Less: reclassification adjustment for losses
                  realized in net income                                  101,701            136,010
                                                                       ----------       ------------
Comprehensive income                                                                    $    457,484
                                                                                        ============

2002
----

Net loss                                                                                $   (843,080)
         Other comprehensive income, net of tax:
           Unrealized losses on securities:
             Unrealized holding losses arising during tax period       $ (281,667)
             Less: reclassification adjustment for gains realized
                  in net income                                           (19,541)          (301,208)
                                                                       ----------       ------------
Comprehensive loss                                                                       $(1,144,288)
                                                                                        ============

2001
----

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
                                                                                        ============
</TABLE>

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


                                      -20-


<PAGE>


                    AMERICAN HOSPITAL MANAGEMENT CORPORATION
                       STATEMENTS OF STOCKHOLDERS' EQUITY
                    YEARS ENDED JUNE 30, 2003, 2002 AND 2001
<TABLE>
<CAPTION>
                                                    2003              2002             2001
                                                 ------------     ------------     ------------
<S>                                              <C>              <C>              <C>
Stockholders' Equity:

Cumulative Preferred Stock
  Beginning balance                              $     46,471     $     46,487     $     47,829
     Reacquired stock                                      --              (16)            (342)
                                                 ------------     ------------     ------------
  Ending balance                                       46,471           46,471           46,487
                                                 ------------     ------------     ------------

Common Stock
  Beginning balance                                   222,315          222,615          223,568
     Reacquired stock                                      --             (300)            (953)
                                                 ------------     ------------     ------------
  Ending balance                                      222,315          222,315          222,615
                                                 ------------     ------------     ------------

Additional paid-in-capital
  Beginning balance                                   279,407          106,554          122,384
     Stockholder debt                                      --          175,626               --
     Reacquired stock                                      --           (2,773)         (15,830)
                                                 ------------     ------------     ------------
  Ending balance                                      279,407          279,407          106,554
                                                 ------------     ------------     ------------
Accumulated other comprehensive income
  Beginning balance                                 1,052,554        1,353,762        1,681,714
     Change in unrealized holdings gains, net         136,010         (301,208)        (327,952)
                                                 ------------     ------------     ------------
  Ending balance                                    1,188,564        1,052,554        1,353,762
                                                 ------------     ------------     ------------

Retained Earnings
  Beginning balance                                12,982,319       13,911,791       13,615,796
     Net income (loss)                                321,474         (843,080)         382,507
     Cash dividends paid on preferred stock           (79,234)         (86,392)         (86,512)
                                                 ------------     ------------     ------------
Ending balance                                     13,224,559       12,982,319       13,911,791
                                                 ------------     ------------     ------------

    Total Stockholders' equity                   $ 14,961,316     $ 14,583,066     $ 15,641,209
                                                 ============     ============     ============
</TABLE>

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


                                      -21-


<PAGE>

                    AMERICAN HOSPITAL MANAGEMENT CORPORATION
                            STATEMENTS OF CASH FLOWS
                    YEARS ENDED JUNE 30, 2003, 2002 AND 2001
<TABLE>
<CAPTION>

                                                             2003              2002            2001
                                                         ------------     ------------     ------------
<S>                                                      <C>              <C>              <C>
Cash flows from operating activities:
     Cash received from patients
       and third-party payors                            $ 30,763,824     $ 29,596,524     $ 24,106,903
     Cash paid to employees and suppliers                 (29,134,028)     (29,623,120)     (24,921,285)
     Investment income received                               440,271          478,584          415,137
     Interest paid                                           (268,368)        (205,507)        (113,714)
     Income taxes received (paid)                              90,558          (78,126)         (77,227)
                                                         ------------     ------------     ------------
              Net cash provided by (used in)
                operating activities                        1,892,257          168,355         (590,186)
                                                         ------------     ------------     ------------
Cash flows from investing activities:
     Purchase of property and equipment, net                 (910,052)      (1,187,205)      (2,152,623)
     Proceeds from sale of short-term investments             293,579        2,588,137        1,030,918
     Cash received from partnership investment                     --               --           27,197
     Purchase of short-term investments                      (318,206)      (2,514,004)      (1,102,919)
     Other                                                     (5,133)              --          120,312
                                                         ------------     ------------     ------------
              Net cash used in
                investing activities                         (939,812)      (1,113,072)      (2,077,115)
                                                         ------------     ------------     ------------
Cash flows from financing activities:
     Proceeds from issuance of long-term debt                 126,180        1,173,661          703,071
     Principal reductions of long-term debt                  (247,833)        (188,706)        (112,315)
     Net proceeds from line of credit                        (598,983)          52,563        1,667,224
     Increase in construction contracts payable                    --          544,890               --
     Dividends paid                                           (79,234)         (86,392)         (86,512)
Payments for reacquired stock                                      --           (3,089)         (17,125)
                                                         ------------     ------------     ------------
              Net cash (used in) provided
                by financing activities                      (799,870)       1,492,927        2,154,343
                                                         ------------     ------------     ------------

Net increase (decrease) in cash and cash equivalents          152,575          548,210         (512,958)
Cash and cash equivalents, beginning of year                  805,205          256,995          769,953
                                                         ------------     ------------     ------------
Cash and cash equivalents, end of year                   $    957,780     $    805,205     $    256,995
                                                         ============     ============     ============
Supplemental schedule of non-cash investing
 activities:
     Increase (decrease) in fair value of investments    $    226,684     $   (485,347)    $   (546,587)
     Change in deferred taxes                                 (90,674)         184,139          218,635
                                                         ------------     ------------     ------------

     Increase (decrease) in unrealized holding gains     $    136,010     $   (301,208)    $   (327,952)
                                                         ============     ============     ============
</TABLE>

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

                                      -22-
<PAGE>

                    AMERICAN HOSPITAL MANAGEMENT CORPORATION
                      STATEMENTS OF CASH FLOWS (CONCLUDED)
                    YEARS ENDED JUNE 30, 2003, 2002 AND 2001
<TABLE>
<CAPTION>
                                                            2003             2002            2001
                                                         -----------     -----------     -----------
<S>                                                      <C>             <C>             <C>
Reconciliation of net income (loss) to net cash
     provided by (used in) operating activities:
Net income (loss)                                        $   321,474     $  (843,080)    $   382,507
Adjustments to reconcile net (loss) income to net
     cash provided by (used in) operating activities:
         Depreciation and amortization                       862,834         860,985         864,128
         Change in estimated uncollectibles                2,309,547       2,576,248       1,059,947
         Partnership loss (income)                               688            (669)         (1,097)
         Loss (gain) on sale of investments                  101,701         (19,541)        (41,274)
Change in assets and liabilities:
    Increase in receivables                               (2,742,047)     (2,106,901)     (2,539,861)
    Decrease (increase) in third-party payors, net           610,279         200,400      (1,246,322)
    Change in income taxes, net                              275,953        (545,008)        136,929
    Decrease (increase) in supplies                           35,499        (150,768)        (99,225)
    (Increase) decrease in prepaid expenses                 (290,241)         48,032         (13,453)
    Increase in loan-fees                                   (193,000)             --              --
    Increase (decrease) in trade accounts payable            575,507        (294,322)        490,654
    Increase in accrued expenses, net                         24,063         442,979         416,881
                                                         -----------     -----------     -----------
Net cash provided by (used in)
     operating activities                                $ 1,892,257     $   168,355     $  (590,186)
                                                         ===========     ===========     ===========
</TABLE>

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

                                      -23-
<PAGE>

                    AMERICAN HOSPITAL MANAGEMENT CORPORATION
                          NOTES TO FINANCIAL STATEMENTS
                          JUNE 30, 2003, 2002 AND 2001

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

         Organization
         ------------
         The Corporation owns and operates one acute-care hospital, Mad River
         Community 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 accounting
         principles generally accepted in the United States of America 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 substantially held in one financial institution.

         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. An investment in oil and gas properties
         represents approximately 21.4% of the total investment in marketable
         securities. All investments are held for sale. Investment income or
         loss (including realized gains and losses on investments, interest,
         royalties 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. (lives range from
         three to thirty years) Equipment under capital leases is amortized on
         the straight-line method over the estimated useful life of the
         equipment. Such amortization is included in depreciation and
         amortization in the financial statements. Interest cost incurred on
         borrowed funds during the period of construction of capital assets is
         capitalized as a component of the cost of acquiring those assets.

                                      -24-

<PAGE>

                    AMERICAN HOSPITAL MANAGEMENT CORPORATION
                    NOTES TO FINANCIAL STATEMENTS, CONTINUED

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

         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.

         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.

         Estimated Malpractice Costs
         ---------------------------
         The provision for estimated medical malpractice claims includes
         estimates for the ultimate costs for both reported claims and claims
         incurred but not reported.

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

         Investment 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.

                                      -25-
<PAGE>

                    AMERICAN HOSPITAL MANAGEMENT CORPORATION
                    NOTES TO FINANCIAL STATEMENTS, CONTINUED

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

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

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

(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, 2000.
            *  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'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.

                                      -26-
<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>
                                                      2003            2002          2001
                                                  -----------     -----------    -----------
<S>                                               <C>             <C>            <C>
         Gross patient service revenue            $78,645,060     $69,530,413    $56,889,189
              Less contractual allowances          46,284,084      38,983,381     29,225,660
                                                  -----------     -----------    -----------
         Net patient service revenue              $32,360,976     $30,547,032    $27,663,529
                                                  ===========     ===========    ===========
</TABLE>

         At June 30, 2003 and 2002, 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.

         During the year ended June 30, 2002, management elected to make a
         change in the methodology for estimating estimated allowances. This
         decision was a result of the continuing decrease in the amount
         reimbursed by third-party payors. This change, made in the year ended
         June 30, 2002, covers approximately $5,207,700 in billings made over
         the year then ended and prior years. Management does not anticipate
         that an additional adjustment for a change in estimate will be
         necessary in subsequent years.

                                      -27-

<PAGE>

                    AMERICAN HOSPITAL MANAGEMENT CORPORATION
                    NOTES TO FINANCIAL STATEMENTS, CONTINUED

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

         Cost and fair value of marketable equity securities at June 30, 2003
         and 2002, are as follows:
<TABLE>
<CAPTION>
                                                                        2003                         2002
                                                                     ----------                   ----------
<S>                                                                  <C>                          <C>
                           Available for sale:
                                Cost                                 $3,145,241                   $3,222,291
                                Fair Value                            5,142,849                    4,993,239
                                Unrealized Gain                       2,329,854                    2,189,066
                                Unrealized Loss                        (332,246)                    (418,118)
</TABLE>

         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 $ 136,010, $(301,208) and $(327,952) for the years ended June 30,
         2003, 2002 and 2001 have been charged to comprehensive income. For the
         years ended June 30, 2003, 2002 and 2001, realized gains and realized
         losses were $12,113 and $(113,814), $746,065 and $(726,524), and
         $276,863 and $(235,589), respectively.

         The Company has a line of credit with the Wells Fargo Bank, secured by
         the equity investment portfolio. The maximum amount available under the
         line of credit at June 30, 2003 is $2,225,000, of which $1,775,167 is
         outstanding. The interest rate at June 30, 2003 and 2002 was 4.25% and
         4.75%, respectively. The average short-term borrowing rate for the
         Company was 4.43% and 5.25% for 2003 and 2002, respectively.

         Subsequent to year end, the line of credit was transferred from Wells
         Fargo Bank to Smith Barney through Citibank. The interest rate is 1%
         below prime and the borrowing based is 65% of the managed account
         portfolio balance.


                                      -28-
<PAGE>

                    AMERICAN HOSPITAL MANAGEMENT CORPORATION
                    NOTES TO FINANCIAL STATEMENTS, CONTINUED

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

         At June 30, 2003 and 2002, property and equipment is comprised of the
         following:
<TABLE>
<CAPTION>
                                                                   2003           2002
                                                               -----------    -----------
<S>                                                            <C>            <C>
                  Land and improvements                        $    44,500    $    44,500
                  Buildings                                      6,603,386      5,927,297
                  Equipment                                      9,255,938      9,610,007
                  Construction in progress                       1,597,506      1,765,447
                                                               -----------    -----------
                                                                17,501,330     17,347,251
                  Accumulated depreciation and amortization     11,219,789     11,160,077
                                                               -----------    -----------
                  Net property and equipment                   $ 6,281,541    $ 6,187,174
                                                               ===========    ===========
</TABLE>

         Capitalized interest of $85,032 and $89,321 is included in construction
         in progress for the years ended June 30, 2003 and 2002, respectively.

         Property and equipment include certain capitalized leases, as follows:
<TABLE>
<CAPTION>
                                                                   2003           2002
                                                               -----------    -----------
<S>                                                            <C>            <C>
                  Equipment                                    $ 1,784,329    $ 1,678,984
                    Less accumulated amortization                  902,837        657,721
                                                               -----------    -----------
                                                               $   881,492    $ 1,021,263
                                                               ===========    ===========
</TABLE>

         Amortization expense on capitalized leases for the years ended June 30,
         2003, 2002 and 2001 totaled $245,116, $242,361 and $192,142,
         respectively.

         Annual future minimum lease payments under capitalized leases at June
         30, 2003 are as follows:
<TABLE>
<CAPTION>
<S>                                                                           <C>
                                                     2004                     $   280,387
                                                     2005                         272,126
                                                     2006                         164,215
                                                     2007                         156,264
                                                     2008                         134,659
                                                     Thereafter                       602
                                                                              -----------
                  Total minimum lease payments                                  1,008,253
                  Less amount representing interest (5.42% to 19.46%)             164,079
                                                                              -----------
                  Present value of minimum lease payments                         844,174
                  Less current maturity                                           215,705
                                                                              -----------
                                                                              $   628,469
                                                                              ===========
</TABLE>

                                      -29-
<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:
<TABLE>
<CAPTION>
                                                                                     2003          2002
                                                                                  ----------    ----------
<S>                                                                               <C>           <C>
                  Property Location:
                    McKinleyville, California                                     $1,480,605    $1,475,472
                    Willow Creek, California                                         335,608       335,608
                    Lakeport, California                                             333,521       333,521
                    Arcata, California                                               161,750       161,750
                    Eureka, California                                               134,908       134,908
                                                                                  ----------    ----------
                                                                                   2,446,392     2,441,259
                     Less accumulated depreciation for rented property               577,361       532,087
                                                                                  ----------    ----------
                                                                                  $1,869,031    $1,909,172
                                                                                  ==========    ==========
</TABLE>

         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, 2003, other assets include cash surrender value of life
         insurance polices on three executives totaling $449,570, an investment
         in a partnership of $70,183, and unamortized loan fees of $191,125.
         Loan fees are being amortized over the term of the respective loans.
         Amortization for the year ended June 30, 2003, was $1,875.

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

         Long-term debt at June 30, 2003 and 2002, consists of the following:
<TABLE>
<CAPTION>
                                                                                   2003           2002
                                                                                ----------     ----------
<S>                                                                             <C>            <C>
           Bank note, secured by investment property, interest rate of 2.25%
           above bank index (5.01% at June 30, 2003), payable in monthly
           installments, maturing in 2021                                       $  120,780     $  127,307

           Term note, secured by patients' receivables, interest rate of prime
           plus 2%, (6.25% at June 30, 2003), interest only through May, 2007
           when entire principle balance
           will be due.                                                          1,065,236      1,073,660
</TABLE>

                                      -30-
<PAGE>

                    AMERICAN HOSPITAL MANAGEMENT CORPORATION
                    NOTES TO FINANCIAL STATEMENTS, CONTINUED

(7)      Long-Term Debt, continued
         ---------------
<TABLE>
<CAPTION>
                                                                                   2003           2002
                                                                                ----------     ----------
<S>                                                                             <C>            <C>
           Lease obligations, payable in installments
           through 2009 with a weighted average
           interest rate of 9.15%                                                  844,174        950,876
           Shareholder, unsecured, interest only at 7%                             100,000        100,000
                                                                                ----------     ----------
                                                                                 2,130,190      2,251,843
             Less current maturities                                               222,712        384,693
                                                                                ----------     ----------
                                                                                $1,907,478     $1,867,150
                                                                                ==========     ==========
</TABLE>

         The maturities of long-term debt for each of the succeeding five years
         subsequent to June 30, 2003, are as follows: 2004-$222,712;
         2005-$233,857; 2006-$142,350; 2007-$1,212,107; 2008-$137,816,
         thereafter- $181,348.

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

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

<TABLE>
<CAPTION>
                                                            2003
                                                            ----
                                            Federal       California       Total
                                           ---------      ----------     ---------
<S>                                        <C>            <C>            <C>
                  Current                  $  62,961      $ 44,808       $ 107,769
                  Deferred                    75,692         1,934          77,626
                                           ---------      --------       ---------
                                           $ 138,653      $ 46,742       $ 185,395
                                           =========      ========       =========

                                                            2002
                                                            ----
                                            Federal       California       Total
                                           ---------      ----------     ---------

                  Current                  $(238,944)     $    800       $(238,144)
                  Deferred                  (191,358)      (37,380)       (228,738)
                                           ---------      --------       ---------
                                           $(430,302)     $(36,580)      $(466,882)
                                           =========      ========       =========

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

                                      -31-
<PAGE>

                    AMERICAN HOSPITAL MANAGEMENT CORPORATION
                    NOTES TO FINANCIAL STATEMENTS, CONTINUED

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

         Deferred tax expenses (credits) for 2003, 2002, and 2001 result from
         the following temporary differences:
<TABLE>
<CAPTION>
                                                   2003           2002          2001
                                                 ---------     ---------     ---------
<S>                                              <C>           <C>           <C>
         California franchise tax                $ (15,620)    $  16,823     $ (15,590)
         Depreciation and amortization               7,479        53,036        92,708
         Allowance for bad debts                   (11,152)     (214,720)      (30,623)
         Vacation accrual                           14,760         7,178       (31,992)
         Correction of deferred tax liability           --            --       (14,996)
         Net operating loss                         80,438       (96,460)           --
         Other                                       1,721         5,405        (9,857)
                                                 ---------     ---------     ---------
                                                 $  77,626     $(228,738)    $ (10,350)
                                                 =========     =========     =========
</TABLE>

         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, 2003 and
         2002 was $90,674 and $(184,139), respectively.

         Recorded income tax expense (benefit) differs from that computed by
         applying the statutory income tax rates for the following reasons:
<TABLE>
<CAPTION>
                                                       2003           2002          2001
                                                     ---------     ---------     ---------
<S>                                                  <C>           <C>           <C>
         Computed tax at statutory rate              $ 201,908     $(445,387)    $ 255,610
         Increases (decreases) resulting from:
            California franchise tax                   (15,620)         (272)      (18,498)
            Domestic dividend exclusion allowance      (16,329)      (15,850)      (18,740)
            Entertainment deduction                      8,997         8,406        10,016
            Other                                        6,439       (13,779)      (14,232)
                                                     ---------     ---------     ---------
                                                     $ 185,395     $(466,882)    $ 214,156
                                                     =========     =========     =========
</TABLE>

         The Company has a net operating loss carry forward of $479,496 for
         state taxes which expires in the year ending 2023. The state has
         temporarily suspended the use of loss carry forwards.

                                      -32-
<PAGE>

                    AMERICAN HOSPITAL MANAGEMENT CORPORATION
                    NOTES TO FINANCIAL STATEMENTS, CONTINUED

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

         Principal components of the net asset/(liability) representing deferred
         income tax balances are as follows:
<TABLE>
<CAPTION>
                                                         2003          2002
                                                       ---------     ---------
<S>                                                    <C>           <C>
                  Allowance for bad debts              $ 349,525     $ 337,532
                  Vacation accrual                       278,570       285,515
                  Depreciation and amortization         (708,451)     (704,241)
                  Net operating loss                      42,387       127,212
                  Unrealized holding gains              (809,043)     (718,369)
                  Other                                  (10,871)      (17,232)
                                                       ---------     ---------
                  Net deferred income tax liability    $(857,883)    $(689,583)
                                                       =========     =========
</TABLE>

(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 was $1,277,955 for both of the two
         years ended June 30, 2003. 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 is at the option of the Company.

(10)     Earnings (loss) per Common Share
         --------------------------------

         Basic earnings (loss) per common share were computed by dividing the
         net income (loss) after deduction of preferred stock dividend
         requirements of $92,942, $92,942 and $92,973, by the weighted average
         number of common shares outstanding (222,315, 222,465 and 223,092) for
         2003, 2002 and 2001, respectively.

         Diluted earnings per common share were computed by dividing net income
         by the weighted average number of common shares outstanding, after
         redemption of preferred stock, (315,257 and 315,588) for 2003 and 2001,
         respectively. For 2002, there was an anti-dilutive effect for all
         shares.

                                      -33-
<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 Company can make discretionary contributions for the
         participants. The Company made a $34,636 contribution to the plan for
         the year ended June 30, 2002. No Company contribution was made for
         either the year ended neither 2003 nor 2001.

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

         The Hospital grants credit without collateral to its patients, most of
         who are local residents and are insured under third-party payor
         agreements. The mix of receivables from patients and third-party payors
         at June 30, 2003 and 2002, was as follows:
<TABLE>
<CAPTION>
                                                 2003      2002
                                                -----     -----
<S>                                              <C>       <C>
                  Medicare                       41.2%     44.1%
                  Medi-Cal                       19.3      18.9
                  Other third-party payors       34.2      29.1
                  Patients                        5.3       7.9
                                                -----     -----
                                                100.0%    100.0%
                                                =====     =====
</TABLE>

                                      -34-
<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 are based on claims processed and
         approved by a third-party administrator, Capital Administrators. Claims
         incurred but not recorded are estimated and charged to expense.
         Management believes that amounts provided are sufficient to cover
         claims and costs incurred through June 30, 2003. 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 insurance coverage for individual claim expenses in
         excess of $75,000 and for aggregate claim expenses in excess of
         $1,739,750.

         Health care benefit expense was $2,772,349, $1,867,391 and $1,498,230
         for the years ended June 30, 2003, 2002 and 2001, respectively.

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

         Commitments. The Company has entered into an agreement for
         approximately $3,318,000 to construct the a medical building adjacent
         to the Hospital. The Company has a commitment letter for real estate
         financing for $4,000,000, payable monthly based on a 20 year
         amortization including interest a 7%, due and payable in ten years. The
         Company is in the final stages of obtaining the required construction
         financing. It is anticipated that the construction project will be
         complete in the early spring of 2004. As of June 30, 2003,
         approximately $508,000 has been paid on the construction contract for
         the building shell.

         Total rental expense for the years ended June 30, 2003, 2002, and 2001,
         was $300,657, $296,277, and $386,346, respectively. All leases are
         currently month to month obligations. With the completion of the
         medical building, the Company anticipates that certain departments
         currently occupying leased office space will occupy the medical
         building which will result in an approximate $22,500 reduction in
         monthly lease cost.

         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.

         Seismic Regulations. The state of California has passed legislation
         requiring hospitals to perform structural evaluations of their
         buildings and upgrade facilities to meet certain minimum seismic
         standards by 2008. The Hospital has performed the initial evaluations
         and will meet seismic standards by the required date.

                                      -35-
<PAGE>

                    AMERICAN HOSPITAL MANAGEMENT CORPORATION
                    NOTES TO FINANCIAL STATEMENTS, CONCLUDED

(15)     Commitments and Contingencies, CONTINUED
         ------------------------------

         Construction contracts payable. During the year ended June 30, 2003,
         the Company entered into an agreement with the general contractor for
         payment of $235,838 in construction cost. This amount is included in
         construction contracts payable, accrues interest at 5% annually, is due
         August 30, 2003, and is secured by a deed of trust on the property.

(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.

(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, 2003, 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.

                                      -36-
<PAGE>

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

         None.


                                      -37-
<PAGE>

PART III

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

<TABLE>
<CAPTION>
Name and principal occupation
during last five years              Since            Age      Office            Occupation
----------------------              -----            ---      ------            ----------
<S>                                 <C>              <C>      <C>               <C>
Lawrence Senffner, M.D.             2001             63       Director          Physician
                                                                                Internal
                                                                                Medicine

 Allen E. Shaw                      1960             85       Chairman          Chairman of
                                                              Director          the Board of
                                                                                Directors

Douglas A. Shaw,                    1981             52       President         Hospital
Administrator                                                 & Director        Administrator

Christopher Lee, M.D.               2001             56       Director          Physician
                                                                                Internal
                                                                                Medicine

Michael Young, Controller           1978             55       Treasurer         Hospital
                                                              & Director        Controller

Donald J. Krpan, D.O.               1988             67       Secretary &       University
                                                              Director          Provost,
                                                                                Western
                                                                                University of
                                                                                Health
                                                                                Sciences

Steven Paine                        2001             51       Director          Business
                                                                                Owner
</TABLE>

                                      -38-
<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, 2003, to each director and officer of the Company
         whose aggregate direct remuneration exceeded $100,000 (none) and to all
         directors and officers (as a group) who were such at any time during
         the last fiscal year.
<TABLE>
<CAPTION>
                                                        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
----------------           -------------------------          -----------
<S>                                                           <C>
All directors
  and officers as a
  group (7 persons)                                           $226,476
                                                              ========
</TABLE>

Note:    There were no contractual agreements 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. There have
         not been any payments made to officers or directors for severance of
         relationship.

                                      -39-
<PAGE>

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

         Owners of 5% or more of outstanding voting securities at June 30, 2002,
         were as follows:
<TABLE>
<CAPTION>
                                                    Amount and
                                                     nature of
                                   Title of          beneficial                 Percent
Name of beneficial owner            class            ownership                  of class
------------------------            -----            ---------                  --------
<S>                                 <C>               <C>                        <C>
Allen E. Shaw Family                Common            122,489                    55.10%
Arcata, California                  Preferred           1,980                     4.26%

Arcata Hospital Corporation*        Common             20,895                     9.40%
Palos Verdes Estates, California    Preferred          11,481                    24.71%

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

All directors and officers as       Common            124,239                    55.88%
  a group
All directors and officers          Preferred           2,957                     6.36%
  a group
</TABLE>

----------

* Arcata Hospital Corporation is 98% owned by shareholders of the Company,
  principally by the Allen E. Shaw Family.

                                      -40-
<PAGE>

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

         None.

Item 14. Our Controls and Procedures
-------- ---------------------------

         Under the supervision and with the participation of our Chief Executive
         Officer and Chief Financial Officer, we have evaluated the
         effectiveness of the design and operation of our disclosure controls
         and procedures, as defined in Rules 13a-15(e) and 15d--15(e) of the
         Exchange Act, as of the end of the period covered by this report. Based
         on that evaluation, our Chief Executive Officer and Chief Financial
         Officer have concluded that these disclosure controls and procedures
         are effective. There were no changes in our internal control over
         financial reporting during our last fiscal quarter ended June 30, 2003
         that have materially affected, or are reasonably likely to materially
         affect, our internal controls over financial reporting.

                                      -41-


<PAGE>

PART IV

Item 15. 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, 2003 and 2002

                           Statements of Operations
                             Years ended June 30, 2003, 2002 and 2001

                           Statements of Comprehensive Income
                             Years ended June 30, 2003, 2002 and 2001

                           Statements of Stockholders' Equity
                             Years ended June 30, 2003, 2002 and 2001

                           Statements of Cash Flows
                             Years ended June 30, 2003, 2002 and 2001

                           Notes to Financial Statements

    (2)           The following financial schedules for the Years 2003, 2002
                    and 2001 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:

                    Exhibit 31.1 - Certification of Chief Executive Officer
                                   Pursuant to Section 302 of the Sarbanes-Oxley
                                   Act of 2002

                    Exhibit 32.1 - Certification of Chief Executive Officer
                                   Pursuant to Section 906 of the Sarbanes-Oxley
                                   Act of 2002

(b)               Registrant did not file any reports on Form 8-K during the
                  quarter ended June 30, 2003.

                                      -42-
<PAGE>

                                   SCHEDULE II

                    AMERICAN HOSPITAL MANAGEMENT CORPORATION

                        VALUATION AND QUALIFYING ACCOUNTS

                    YEARS ENDED JUNE 30, 2003, 2002 AND 2001
<TABLE>
<CAPTION>
                               Balance,        Charged        Charged                                 Balance,
                              beginning          to           to other                                  end
                                of year        income         accounts         Deductions             of year
                                -------        ------         --------         ----------             -------
<S>                            <C>          <C>                                 <C>                   <C>
Allowance for
 doubtful receivables:

         2003                  $ 787,889    $ 2,094,750                         $  2,066,755          $  815,884
         2002                    229,013      1,947,544                            1,388,668             787,889
         2001                    157,532      1,223,545                            1,152,064             229,013
</TABLE>

                                      -43-
<PAGE>

                                  SCHEDULE III

                    AMERICAN HOSPITAL MANAGEMENT CORPORATION

                    REAL ESTATE AND ACCUMULATED DEPRECIATION
                    YEARS ENDED JUNE 30, 2003, 2002 AND 2001
<TABLE>
<CAPTION>
                    Related                                                 Accumulated     Useful
Description           debt         Land        Buildings       Total        Depreciation     Life
--------------------------------------------------------------------------------------------------
<S>                 <C>          <C>          <C>            <C>              <C>             <C>
Rental property     $120,780     $482,346     $1,131,858     $1,609,071       $532,087        25

     Investment       None        832,188                       832,188
                    ---------------------------------------------------
                    $120,780   $1,314,534     $1,131,858     $2,446,392       $577,361
                    ==================================================================
</TABLE>

<TABLE>
<S>                                                                   <C>
    Cost:
         Balance at June 30, 2002 and 2001                            $2,241,259
           Additions                                                       5,133
                                                                      ----------
                                                                      $2,446,392
                                                                      ==========
    Accumulated Depreciation:

         Balance at June 30, 2002                                     $  487,018
           Depreciation during period                                     45,069
                                                                      ----------
         Balance at June 30, 2002                                        532,087
              Depreciation during period                                  45,274
                                                                      ----------
         Balance at June 30, 2003                                     $  577,361
                                                                      ==========
</TABLE>

                                      -44-
<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:

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            October 15, 2003
----------------------
Allen E. Shaw


/s/ Michael J. Young          Treasurer and Chief               October 15, 2003
----------------------        Accounting Officer
Michael J. Young              Director


/s/ Donald J. Krpan           Director                          October 15, 2003
----------------------
Donald J. Krpan


/s/ Doug Shaw                 Director                          October 15, 2003
----------------------
Doug Shaw

                                      -45-