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, 1999          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 share outstanding of each of the registrant's classes of
common stock as of the latest practicable date (224,837 at December 31,1999).

Total number of pages, including cover - 41

                                       -2-
<PAGE>

PART 1

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

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

                  Over the last several years the Company has expanded the scope
                  of services offered by the Hospital to include advanced
                  ancillary service departments used by physicians practicing in
                  the rural service area. As a result of the ongoing expansion
                  of facilities and services, the Hospital continues to recruit
                  new physicians to provide the added care as well as to replace
                  physicians who are retiring from active practice. The
                  Hospital's service area on the north coast is experiencing the
                  highest rate of growth in the county and is especially
                  attractive to physicians who want to live and work in a
                  community with high family values.

                  The nearest competition to the Hospital is in Eureka
                  (approximately 12 miles south) where two acute care facilities
                  are 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 facilities located in Eureka will
                  have less of a negative impact on Hospital use or occupancy.
                  For this reason, the Hospital organized out-patient clinics in
                  the outlying communities thereby maintaining the Hospital's
                  presence in the service area. New buildings are planned for
                  those departments still housed in mobile facilities adjacent
                  to the Hospital. In addition, a cath-lab was opened in the
                  spring of 1998 and a M.R.I. is currently under construction.

                  Another positive factor supporting Hospital use is community
                  involvement. As the largest private employer in Arcata, the
                  Hospital provides employment to approximately 520 local
                  residents and, through its Home Health and Adult Day Health
                  Care departments, is highly visible in the community served.
                  The Hospital continues to try to build on this strength by
                  maintaining a strong image through the media and a helping
                  hand in the community, while providing personalized quality
                  services. The Hospital is a strong advocate for a community
                  health care plan involving the medical staff, employers and
                  the area's hospitals and health care providers wherein they
                  will work together to provide a locally based alternative to
                  out of the area managed care.

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


                                       -3-
<PAGE>

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

                  The main facility operated by the Company is Mad River
                  Community Hospital in Arcata, California. This single-level
                  structure is licensed as a 78-bed acute hospital in Northern
                  Humboldt County, California, where it provides full hospital
                  services to a population of approximately 55,000. Since
                  opening in 1972, the Hospital has maintained a program of
                  expansion and improvements. It is located on 12 acres (part of
                  a 48 acre site) adjacent to an expanded medical office complex
                  owned by staff doctors which leaves sufficient open area for
                  further expansion of medical services as needed.

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

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

                  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 will be 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 400 shareholders at June 30, 1999. No dividends
                  were paid on common stock during the three years ended June
                  30, 1999. The Company is current on paying all cumulative
                  preferred stock dividends.

                                       -6-
<PAGE>

Item 6.           Selected Financial Data
-------           -----------------------

<TABLE>
<CAPTION>
                                                                              Year ended June 30
                                           --------------------------------------------------------------------------------------
                                           1999                  1998                1997                1996                1995
                                           ----                  ----                ----                ----                ----
<S>                                    <C>                  <C>                 <C>                 <C>                 <C>
Total operating
revenue, net                           $ 24,089,600         $ 22,992,958        $ 22,096,357        $ 22,895,801        $ 21,148,254

Net income                                 (164,824)             350,874             200,588             223,815             593,342

Primary earnings
per share                                     (1.15)                1.12                 .45                 .52                2.06

Fully diluted
earnings per share                             --                   1.09                 .62                 .67                1.75

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

Total assets                             22,302,627           22,411,941          20,342,679          20,557,286          19,800,615

Long-term debt                              741,865              206,265             206,932             403,581             803,248

Working capital                           8,553,820            8,905,761           8,542,725           7,851,133           7,165,927

Redeemable
preferred stock                              47,442               47,690              48,334              50,850              51,623

Stockholders'
equity                                   15,416,989           15,891,443          15,060,535          14,633,038          14,077,102

</TABLE>

                                       -7-

<PAGE>

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

                                      1999
                                      ----

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

                  Hospital revenues increased slightly during 1999 as the
                  Hospital continues to expand services to encourage use. Use of
                  outpatient services increased, and there was a small rate
                  increase. Patient revenue totaled $46,721,000 in 1999 compared
                  to $44,682,000 in 1998, a 4.6% increase of $2,039,000.

                  Contractual allowances totaled $23,808,000 in 1999 compared to
                  $21,690,000 in 1997, a 9.8% increase. Government regulatory
                  agencies attempt to reimburse the Hospital based on cost of
                  services. But, as the government continues its efforts to cut
                  back on rising health care payments, the actual reimbursement
                  to the Hospital continues to decrease as evidenced by the
                  large increase in contractual allowances. For the five years
                  ended June 30, 1999, contractual allowances and provisions for
                  bad debts have amounted to approximately $104,000,000 or 49%
                  of gross revenue. At times the Hospital is unable to even
                  recoup costs on Medicare patients under the current
                  methodology of reimbursement. Medi-Cal has also imposed
                  certain limitations that negatively impacted the amount the
                  Hospital is reimbursed for Medi- Cal patients.

                  Operating costs and expenses were $25,459,000 compared to
                  $23,984,000 in 1998, a 6.2% increase. Operating costs actually
                  increased $1,416,000 while the provision for bad debts
                  increased by $59,000, resulting in the combined increase of
                  $1,475,000. The increase in accounts written off is indicative
                  of the industry wide difference between standard rates and the
                  amount actually collected.

                  The continued reduction in third-party reimbursement is the
                  major contributing factor to the 1999 operating loss of
                  $980,000. The Hospital is still dealing with third-party
                  payors to finalize cost reports under audit. Management is
                  actively appealing various adjustments made by the
                  intermediary, and, even though, it appears the Hospital will
                  prevail on various issues, no amount will be booked as a
                  receivable until the ultimate outcome of the appeal is known.
                  Net loss, after investment income was $165,000 in 1999
                  compared to net income of $350,874 in 1998. In addition to the
                  negative impact of write offs and contractual allowances on
                  operations, for 1999, the Hospital, under its self insurance
                  program had to pay for various catastrophic claims that
                  resulted in maximum reimbursement. Management feels these
                  types of claims will not be recurring cost in the future.

                                       -8-
<PAGE>

                                 1999 continued
                                 ----

                  Over the years, as the Company incurs more contractual
                  allowances and uncollectible accounts, results from operations
                  have suffered. The Company continues to enjoy good returns on
                  its investments to help maintain a net profit. For the current
                  year, sales of investments resulted in gains of $433,000,
                  while total investment income was $863,000. As discussed in
                  Item 1, the Company continues to expand operations to maintain
                  a competitive edge in a continuing ever changing health care
                  environment. All construction projects, considered necessary
                  to maintain operations, will be completed without negative
                  impact on the financial statements

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

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

                  The Company's financial condition remains very strong with
                  substantial investments, strong liquidity and minimal debt.
                  The cash and liquid investments are being maintained to
                  subsidize Hospital operations, finance needed construction and
                  increased services at Mad River Community Hospital. Currently,
                  the Company has approximately $6,070,000 in cash and
                  short-term investments. Included in this amount are $3,055,000
                  in unrealized holding gains.

                  Cash provided by operating and investing activities continue
                  to fund investing activities, the largest of which is the
                  purchase of real estate, property and equipment, which totaled
                  $1,258,000 in 1999. As the long-term debt relates only to the
                  acquisition of major equipment, cash required for financing
                  activities remains relatively low.

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

                  Inflation
                  ---------

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

                                       -9-
<PAGE>

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

                                      1998
                                      ----

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

                  Hospital revenues increased slightly during 1998 as the
                  Hospital continues to expand services to encourage use. Use of
                  outpatient services increased, and there was a small rate
                  increase. Patient revenue totaled $44,682,000 in 1998 compared
                  to $41,030,000 in 1997, a 8.9% increase of $3,652,000.

                  Contractual allowances totaled $21,690,000 in 1998 compared to
                  $18,934,000 in 1997, a 14.6% increase. Government regulatory
                  agencies attempt to reimburse the Hospital based on cost of
                  services. But, as the government continues its efforts to cut
                  back on rising health care payments, the actual reimbursement
                  to the Hospital continues to decrease as evidenced by the
                  large increase in contractual allowances. For the five years
                  ended June 30, 1998, contractual allowances and provisions for
                  bad debts have amounted to approximately $111,000,000 or 48%
                  of gross revenue. At times the Hospital is unable to even
                  recoup costs on Medicare patients under the current
                  methodology of reimbursement. Medi-Cal has also imposed
                  certain limitations that negatively impacted the amount the
                  Hospital is reimbursed for Medi- Cal patients.

                  Operating costs and expenses were $23,984,000 compared to
                  $23,358,000 in 1997, a 2.7% increase. Operating costs actually
                  increased $219,000 while the provision for bad debts also
                  increased by $407,000, resulting in the combined increase of
                  $626,000. The increase in accounts written off is indicative
                  of the industry wide difference between standard rates and the
                  amount actually collected.

                  The continued reduction in third-party reimbursement is a
                  major contributing factor to the 1998 operating loss of
                  $594,000. During the current operating year, the Hospital
                  charged to operations approximately $967,000 of cost as a
                  result of the audit finalization of prior years' cost reports.
                  Management intends to appeal various adjustments made by the
                  intermediary, but no amount as been booked as a receivable for
                  ultimate outcome of the appeal. Net income, after investment
                  income was $351,000 in 1998 compared to $224,000 in 1997.

                  Over the years, as the Company incurs more contractual
                  allowances and uncollectible accounts, results from operations
                  have suffered. The Company continues to enjoy good returns on
                  its investments to help maintain a net profit. For the current
                  year, sales of investments resulted in gains of $517,000,
                  while total investment income was $1,049,000. 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.

                                      -10-
<PAGE>

                                 1998 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 cash and liquid investments are being maintained to
                  subsidize Hospital operations, finance needed construction and
                  increased services at Mad River Community Hospital. Currently,
                  the Company has approximately $7,251,000 in cash and
                  short-term investments. Included in this amount are $2,055,000
                  in unrealized holding gains. Subsequent to year end, the
                  market had an approximately 15% decrease in market value which
                  will affect the fair value of equity securities held by the
                  Company As previously noted, some of these investments, as
                  determined by management, will be used to fund needed
                  expansion.

                  Cash provided by operating and investing activities continue
                  to fund investing activities, the largest of which is the
                  purchase of real estate, property and equipment, which totaled
                  $1,258,000 in 1998. As the long-term debt relates only to the
                  acquisition of major equipment, cash required for financing
                  activities remains relatively low.

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

                  Inflation
                  ---------

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

                                      -11-
<PAGE>


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

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

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

Independent Auditors' Report                                          14

Financial Statements:

         Balance Sheets - June 30, 1999 and 1998                     15-16

         Statements of Income -
           Years ended June 30, 1999, 1998 and 1997                    17

         Statements of Comprehensive Income
           Years ended June 30, 1999, 1998 and 1997                    18

         Statements of Stockholders' Equity
           Years ended June 30, 1999, 1998 and 1997                    19

         Statements of Cash Flows -
           Years ended June 30, 1999, 1998 and 1997                   20-21

         Notes to Financial Statements                                22-32

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


                                      -12-

<PAGE>

                    AMERICAN HOSPITAL MANAGEMENT CORPORATION

                   Annual Report for Corporations - Form 10-K
                       Years ended June 30, 1999 and 1998

                              Financial Statements,
                     Supplementary Data and Auditors' Report

                                      -13-
<PAGE>

                          Independent Auditors' Report
                          ----------------------------

The Board of Directors and Stockholders:
American Hospital Management Corporation

We have audited the accompanying balance sheets of American Hospital Management
Corporation as of June 30, 1999 and 1998, and the related statements of income,
comprehensive income, stockholders' equity, and cash flows and the supporting
financial statement schedules as listed in the accompanying index at Item 14,
for the years ended June 30, 1999, 1998 and 1997. These financial statements and
financial statement schedules are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and financial statement schedules based on our audits.

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

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of American Hospital Management
Corporation at June 30, 1999 and 1998, and the results of its operations and its
cash flows for the years ended June 30, 1999, 1998 and 1997 in conformity with
generally accepted accounting principles, and the supporting financial statement
schedules as listed in the accompanying index at Item 14, when considered in
relation to the basic financial statements taken as a whole, in our opinion,
present fairly in all material respects, the information set forth therein.


                                                             /s/ K.C. Miller
                                                             ---------------
                                                             K.C. Miller, CPA

West Covina, California
September 30, 1998

                                     -14-

<PAGE>

                    AMERICAN HOSPITAL MANAGEMENT CORPORATION
                                 Balance Sheets
                             June 30, 1999 and 1998
<TABLE>
<CAPTION>
                           Assets
                           ------
                                                                                                      1999                   1998
                                                                                                      ----                   ----
<S>                                                                                               <C>                    <C>
Current assets:
  Cash and cash equivalents                                                                       $   103,244            $   209,652
  Restricted cash, held as security for letter of credit                                                 --                  326,336
 Marketable securities                                                                              5,966,623              7,040,973
  Receivables:
    Patients, net of estimated uncollectibles of $230,699
      and $292,723, in 1999 and 1998, respectively                                                  7,097,948              6,373,188
    Other                                                                                             347,203                282,012
    Refundable income tax                                                                             174,800                   --
  Supplies, at lower of cost (first-in, first-out) or market                                        1,031,050                974,566
  Prepaid expenses                                                                                     76,436                 77,087
                                                                                                  -----------            -----------
          Total current assets                                                                     14,797,304             15,283,814
Property and equipment, net                                                                         4,456,871              3,970,061

Real estate held for investment, net                                                                2,045,578              2,091,247

Deferred income taxes                                                                                 397,236                436,515

Other assets                                                                                          605,638                630,304
                                                                                                  -----------            -----------
                                                                                                  $22,302,627            $22,411,941
                                                                                                  ===========            ===========

(continued)
</TABLE>

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

                                      -15-
<PAGE>

                    AMERICAN HOSPITAL MANAGEMENT CORPORATION
                                 Balance Sheets
                             June 30, 1999 and 1998
<TABLE>
<CAPTION>
               Liabilities and Stockholders' Equity
               ------------------------------------
                                                                                                     1999                   1998
                                                                                                     ----                   ----
<S>                                                                                               <C>                    <C>
Current Liabilities:
  Current maturities of long-term debt                                                            $    99,711            $    63,820
  Accounts payable and accrued expenses:
    Trade                                                                                           2,068,082                810,740
    Accrued liabilities                                                                             1,723,938              1,667,944
    Estimated third-party payor settlements                                                           577,572              1,761,121
    Income taxes:
      Current                                                                                            --                  115,574
      Deferred                                                                                      1,774,181              1,958,854
                                                                                                  -----------            -----------

                  Total current liabilities                                                         6,243,484              6,378,053
                                                                                                  -----------            -----------

Long-term debt, less current maturities                                                               642,154                142,445
                                                                                                  -----------            -----------

Stockholders' equity:
    $2 cumulative preferred stock, par value $1 per share;
    authorized 100,000 shares; issued 65,270.82 shares;
    reacquired 17,828.68 and 17,580.96 shares; outstanding
    47,442.14 and 47,689.86 shares; aggregate redemption and
    liquidating value of $1,304,659
    and$1,311,471 at June 30, 1999 and 1998, respectively                                              47,442                 47,690
  Common stock, par value $1.00 per share;
    authorized 400,000 shares, issued 249,051 shares,
    reacquired 24,024 and 22,894 shares; outstanding - 225,027
    and 226,157 shares at June 30, 1999 and 1998, respectively                                        225,027                226,157
  Additional paid-in capital                                                                          148,783                163,769
  Unrealized holdings gains, net, for investments                                                   1,838,505              2,055,054
  Retained earnings                                                                                13,157,232             13,398,773
                                                                                                  -----------            -----------

                  Total Stockholders' equity                                                       15,416,989             15,891,443
                                                                                                  -----------            -----------

                                                                                                  $22,302,627            $22,411,941
                                                                                                  ===========            ===========
</TABLE>

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

                                      -16-
<PAGE>

                    AMERICAN HOSPITAL MANAGEMENT CORPORATION
                              Statements of Income
                    Years ended June 30, 1999, 1998, and 1997
<TABLE>
<CAPTION>
                                                                      1999               1998             1997
                                                                      ----               ----             ----
<S>                                                                <C>               <C>              <C>
Net patient service revenue                                        $24,089,600       $22,992,958      $22,096,357
Other revenue                                                          389,879           396,746          456,549
                                                                  ------------      ------------      ------------

                  Total operating revenue                           24,479,479        23,389,704       22,552,906
                                                                  ------------      ------------      ------------

Operating costs and expenses:
     Professional care of patients                                  14,819,559        14,552,630        13,730,083
General services                                                     2,456,966         2,485,699         2,588,394
Administrative services                                              3,583,756         3,227,783         3,388,734
     Employee health and welfare                                     2,084,133         1,210,164         1,459,831
     Medical malpractice insurance                                     323,546           395,630           382,619
     Interest                                                           74,966            16,327            48,775
     Depreciation and amortization                                     939,858           979,028         1,050,221
     Provision for bad debts                                         1,176,463         1,116,908           709,204
                                                                  ------------      ------------      ------------
                  Total operating costs and expenses                25,459,247        23,984,169        23,357,681
                                                                  ------------      ------------      ------------
                  Loss from operations                                (979,768)         (594,465)         (804,775)
                                                                  ------------      ------------      ------------
Other income:
     Investment income                                                 627,759         1,049,449           990,102
     Other                                                              12,385            13,391            36,418
                                                                  ------------      ------------      ------------
                                                                       640,144         1,062,840         1,026,520
                                                                  ------------      ------------      ------------
(Loss) income before income taxes                                     (339,624)          468,375           221,745
     Provision for income tax benefit expense                          174,800           117,501            21,157
                                                                  ------------      ------------      ------------

                  Net (loss) income                               $   (164,824)     $    350,874      $    200,588
                                                                  ============      ============      ============

Primary (loss) earnings per common share                          $      (1.15)     $       1.12      $       .45
                                                                  ============      ============      ============

Fully diluted (loss) earnings per common share                                      $       1.09      $        .62
                                                                                    ============      ============

</TABLE>

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

                                      -17-
<PAGE>

                    AMERICAN HOSPITAL MANAGEMENT CORPORATION
                       Statements of Comprehensive Income
                    Years ended June 30, 1999, 1998, and 1997
<TABLE>
<CAPTION>
<S>                                                                            <C>
1999
----

Net loss                                                                       $(164,824)
         Other comprehensive income, net of tax
           Unrealized gains on securities
             Unrealized holding gains arising during tax period   $  71,776
               Less: reclassification entry for gains included
                  in net income                                    (432,691)    (360,915)
                                                                  ---------    ---------
Comprehensive loss                                                             $(525,739)
                                                                               ==========


1998
----

Net income                                                                     $ 350,874
         Other comprehensive income, net of tax
           Unrealized gains on securities
             Unrealized holding gains arising during tax period   $ 987,020
               Less: reclassification entry for gains included
                  in net income                                    (387,510)     599,510
                                                                  ---------    ---------
Comprehensive income                                                           $ 950,384
                                                                               =========


1997
----

Net income                                                                      $ 350,874
         Other comprehensive income, net of tax
           Unrealized gains on securities

             Unrealized holding gains arising during tax period   $ 477,535
               Less: reclassification entry for gains included

                  in net income                                    (112,708)     364,827
                                                                  ---------    ---------
Comprehensive income                                                           $ 715,701
                                                                               =========
</TABLE>

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

                                      -18-
<PAGE>
<TABLE>
<CAPTION>

                    AMERICAN HOSPITAL MANAGEMENT CORPORATION
                       STATEMENTS OF STOCKHOLDERS' EQUITY
                    Years ended June 30, 1999, 1998 and 1997

                                                            1999             1998          1997
                                                            ----             ----          ----
<S>                                                     <C>             <C>             <C>
Stockholders' Equity:

     Cumulative Preferred Stock

       Beginning balance                                $     47,690    $     48,334    $     50,850
          Reacquired stock                                       268             644           2,516
                                                        ------------    ------------   -------------
       Ending balance                                         47,422          47,690          48,334
                                                        ------------    ------------   -------------

     Common Stock

       Beginning balance                                     226,157         228,057         233,213
          Reacquired stock                                     1,130           1,900           5,156
                                                        ------------    ------------   -------------
       Ending balance                                        225,027         226,157         228,057
                                                        ------------    ------------   -------------

     Additional paid-in-capital

       Beginning balance                                     163,769         194,427         296,210
          Reacquired stock                                    14,986          30,658         101,783
                                                        ------------    ------------   -------------
       Ending balance                                        148,783         163,769         194,427
                                                        ------------    ------------   -------------

     Unrealized holdings gains, net, for investments

       Beginning balance                                   2,055,054       1,455,544       1,026,809
          Change in unrealized holdings gains, net          (216,549)        599,510         428,735
                                                        ------------    ------------   -------------
       Ending balance                                      1,838,505       2,055,054       1,455,544
                                                        ------------    ------------   -------------

     Retained Earnings

       Beginning balance                                  13,398,773      13,134,173      13,025,956
          Net (loss) income                                 (164,824)        350,874         200,588
          Cash dividends paid on preferred stock             (76,717)        (86,274)        (92,371)

       Ending balance                                     13,157,252      13,398,773      13,134,173
                                                        ------------    ------------   -------------

         Total Stockholders' equity                     $ 15,486,989    $ 15,891,443    $ 15,060,535
                                                        ============    ============   =============
</TABLE>

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

                                      -19-


<PAGE>
<TABLE>
<CAPTION>

                    AMERICAN HOSPITAL MANAGEMENT CORPORATION
                            Statements of Cash Flows
                    Years ended June 30, 1999, 1998 and 1997

                                                             1999              1998             1997
                                                             ----              ----             ----
<S>                                                       <C>             <C>             <C>
Cash flows from operating activities:
     Cash received from patients
       and third-party payors                             $ 21,394,707    $ 22,985,273    $ 20,927,495
     Cash paid to employees and suppliers                  (22,010,456)    (22,342,220)    (21,256,175)
     Investment income received                                232,119         565,439         934,579
     Interest paid                                       (      74,966)   (     16,327)  (      48,775)
     Income taxes, net change                            (     116,602)   (     52,147)         20,332
                                                          ------------    ------------    ------------
              Net cash (used in) provided by
                operating activities                     (     578,199)      1,140,018         577,456
                                                          ------------    ------------    ------------
Cash flows from investing activities:
     Purchase of real estate held for investment                    --     (   198,387)             --
     Purchase of property and equipment, net             (   1,380,999)    ( 1,258,401)  (     706,159)
     Proceeds from sale of short-term investments            3,719,961       3,189,509       2,433,022
     Purchase of short-term investments                     (2,247,503)     (2,691,389)     (2,691,259)
     Other                                               (      65,191)         68,417   (      60,401)
                                                          ------------    ------------    ------------
              Net cash provided by (used in)
                investing activities                            26,268     (   890,251)     (1,024,797)
                                                          ------------    ------------    ------------
Cash flows from financing activities:
     Proceeds from issuance of long-term debt                  679,699         251,216         121,216
     Principal reductions of long-term debt              (     144,099)    (   251,882)  (     317,865)
     Dividends paid                                      (      76,713)    (    86,274)  (      92,371)
     Payments for reacquired stock                       (      16,364)    (    33,202)  (     109,455)
                                                          ------------    ------------    ------------
              Net cash provided by (used in)
                financing activities                           442,523     (   120,142)        398,575)
                                                          ------------    ------------    ------------

Net (decrease) increase in cash and cash equivalents     (     106,408)        129,625   (     845,816)
Cash and cash equivalents, beginning of year                   209,652          80,027         925,843
                                                          ------------    ------------    ------------
Cash and cash equivalents, end of year                    $    103,244    $    209,652    $     80,027
                                                          ============    ============   =============
Supplemental schedule of non-cash investing
 activities:

     (Decrease ) increase in fair value of investments    $   (360,915)   $    714,559    $    714,559
     Change in deferred taxes                                  144,366    (    285,824)   (    285,824)
                                                          ------------    ------------    ------------

     (Decrease) increase in unrealized holding gains      $(   216,549)   $    428,735    $    428,735
                                                          ============    ============   =============

</TABLE>

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

                                      -20-
<PAGE>
<TABLE>
<CAPTION>

                    AMERICAN HOSPITAL MANAGEMENT CORPORATION
                      Statements of Cash Flows (concluded)
                    Years ended June 30, 1999, 1998 and 1997

                                                          1999           1998          1997
                                                          ----           ----          ----
<S>                                                   <C>            <C>           <C>
Reconciliation of net income to net cash
  provided by operating activities:
Net (loss) income                                     $  (164,824)   $   350,874   $   200,588
Adjustments to reconcile net income to net
     cash provided by operating activities:

         Depreciation and amortization                    964,524      1,046,223     1,083,162
         Partnership income                                    --    (     4,688)  (       343)
         Gain on sale of investments                  (   432,691)   (   517,370)  (   124,539)
         Increase in cash surrender value                      --    (   162,300)  (    60,000)

Change in assets and liabilities:
    (Increase) decrease in patient receivables, net   (   724,760)   (   326,890)      185,008
    (Decrease) increase in third-party payors, net     (1,183,549)     1,039,367   ( 1,101,395)
    Change in income taxes, net                       (   291,402)        65,354        41,489
    (Increase) decrease in supplies                   (    56,484)   (   121,912)        2,680
     Decrease (increase) in prepaid expenses                  651         31,120   (    23,226)
    Increase (decrease) in trade accounts payable       1,257,342    (   163,204)      411,638
    Increase (decrease) in accrued expenses, net           55,994    (    96,556)  (    37,606)
                                                      -----------    -----------   -----------
Net cash (used in) provided by
     operating activities                             $  (575,199)   $ 1,140,018   $   577,456
                                                      ===========    ===========   ===========


</TABLE>


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

                                      -21-
<PAGE>

                    AMERICAN HOSPITAL MANAGEMENT CORPORATION
                          Notes to Financial Statements
                          June 30, 1999, 1998 and 1997

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

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

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

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

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

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

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

Property and Equipment
----------------------
Property and equipment acquisitions are recorded at cost. Depreciation is
provided over the estimated useful life of each class of depreciable asset and
is computed on the straight-line method. Equipment under capital leases is
amortized on the straight-line method over the shorter period of the lease term
or the estimated useful life of the equipment. Such amortization is included in
depreciation and amortization in the financial statements.

Statements of Income
--------------------
Transactions deemed by management to be ongoing, major or central to the
provision of health care services are reported as revenues and expenses.
Peripheral or incidental transactions are reported as other income, net.

                                      -22-


<PAGE>

                    AMERICAN HOSPITAL MANAGEMENT CORPORATION
                    Notes to Financial Statements, continued

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

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

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

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

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

                                      -23-


<PAGE>

                    AMERICAN HOSPITAL MANAGEMENT CORPORATION
                    Notes to Financial Statements, continued

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

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

      *  Medicare. Inpatient acute care services rendered to Medicare program
         beneficiaries are paid at prospectively determined rates per discharge.
         These rates vary according to a patient classification system that is
         based on clinical, diagnostic, and other factors. Inpatient nonacute
         services, certain outpatient services, and defined capital and medical
         education costs related to Medicare beneficiaries are paid based on a
         cost reimbursement methodology. The Hospital is reimbursed for cost
         reimbursable items at a tentative rate with final settlement determined
         after submission of annual cost reports by the Hospital and audits
         thereof by the Medicare fiscal intermediary. The Hospital's
         classification of patients under the Medicare program and the
         appropriateness of their admission are subject to an independent review
         by a peer review organization under contract with the Hospital. The
         Hospital's Medicare cost reports have been audited by the Medicare
         fiscal intermediary through June 30, 1996.

      *  Medicaid. Inpatient and outpatient services rendered to Medicaid
         program beneficiaries are reimbursed under a cost reimbursement
         methodology. The Hospital is reimbursed at a tentative rate with final
         settlement determined after submission of annual cost reports by the
         Hospital and audits thereof by the Medicaid fiscal intermediary. The
         Hospital records supplies cost acquired and used by the operating room
         department as operating cost of that department. The intermediary
         disagreed with the classification of cost in the operating department
         and reclassified the revenue relating to the cost to Central Supply.
         Therefore, the Hospital has included cost in 1998 of approximately
         $967,000 relating to audit adjustments made by the intermediary for
         prior years' cost reports. Management of the Hospital feels this
         reclassification was made in error and is appealing the decision made
         by the intermediary. Until a final decision is reached, the Hospital
         will not include the effect of including the supplies cost in the
         operating department as part of the revenues of the Hospital. The
         Hospital's Medicaid cost reports have been audited by the Medicaid
         fiscal intermediary through June 30, 1996.

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

                                      -24-


<PAGE>

                    AMERICAN HOSPITAL MANAGEMENT CORPORATION
                    Notes to Financial Statements, continued

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

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

                                                       1999          1998             1997
                                                       ----          ----             ----
<S>                                               <C>             <C>            <C>
         Gross patient service revenue            $46,721,049     $44,682,474    $41,030,222
              Less contractual allowances          22,241,570      21,689,516     18,933,865
                                                  ------------    -----------    -----------
         Net patient service revenue              $24,479,479     $22,992,958    $22,096,357
                                                  ===========     ===========    ===========
</TABLE>

At June 30, 1999 and 1998, accounts receivable are primarily concentrated in
federal and state governmental entities and other patients in which the Company
does not believe there is any undue credit risk.

For the three years ended June 30, 1999, contractual allowances and provisions
for bad debts has totaled $66,257,405, approximately 50% of gross revenue.

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

Cost and fair value of marketable equity securities at June 30, 1999 and 1998,
are as follows:
<TABLE>
<CAPTION>
                                                                     1999                       1998
                                                                     ----                       ----
<S>                                                              <C>                          <C>
                           Available for sale:
                               Cost                              $2,911,876                   $3,625,311
                               Fair Value                         5,966,623                    7,040,973
                               Unrealized Gain                    3,085,653                    3,459,682
                               Unrealized Loss                      (30,906)                     (44,020)
</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 $(360,915), $599,510 and $364,827 for the years ended June 30, 1999,
         1998 and 1997 have been charged to comprehensive income. For the years
         ended June 30, 1999, 1998 and 1997, realized gains and realized losses
         were $606,848 and $(174,157), $578,111 and $( 60,741), and $327,314 and
         $(202,775), respectively.

                                      -25-


<PAGE>


                    AMERICAN HOSPITAL MANAGEMENT CORPORATION
                    Notes to Financial Statements, continued

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

At June 30, 1999 and 1998, property and equipment is comprised of the following:
<TABLE>
<CAPTION>

                                                                            1999          1998
                                                                            ----          ----

<S>                                                                      <C>           <C>
         Land and improvements                                           $    44,500   $    44,500
         Buildings                                                         4,814,668     4,678,975
         Equipment                                                         7,969,647     6,867,846
         Construction in progress                                            562,247       418,741
                                                                         -----------   -----------
                                                                          13,391,062    12,010,062

         Accumulated depreciation and amortization                         8,934,191     8,040,001
                                                                         -----------   -----------
         Net property and equipment                                      $ 4,456,871   $ 3,970,061
                                                                         ===========   ===========
</TABLE>


Property and equipment include certain capitalized leases, as follows:
<TABLE>
<CAPTION>
                                                                             1999          1998
                                                                         -----------   -----------
<S>                                                                      <C>           <C>
         Equipment                                                       $ 2,308,972   $ 1,629,274
           Less accumulated amortization                                   1,499,472     1,363,655
                                                                         -----------   -----------
                                                                         $   809,500   $   265,619
                                                                         ===========   ===========

</TABLE>
Amortization expense on capitalized leases for the years ended June 30, 1999,
1998 and 1997 totaled $136,087, $301,767 and $287,038, respectively.

Annual future minimum lease payments under capitalized leases at June 30, 1999
are as follows:
<TABLE>
<CAPTION>
<S>                                                  <C>                                <C>
                                                     2000                               $  152,919
                                                     2001                                  145,979
                                                     2002                                  145,979
                                                     2003                                  145,979
                                                     2004                                  184,936
                                                                                       -----------
                  Total minimum lease payments                                             775,792
                  Less amount representing interest (6.75% to 16%)                       ( 170,395)
                                                                                       -----------
                  Present value of minimum lease payments                                  605,397
                  Less current maturity                                                     97,743
                                                                                       -----------
                                                                                        $  507,654
                                                                                       ===========
</TABLE>

                                      -26-


<PAGE>


                    AMERICAN HOSPITAL MANAGEMENT CORPORATION
                    Notes to Financial Statements, continued

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

Real estate held for investment consists of 14 properties, 9 of which have a
building on its lot. These are itemized as follows:
<TABLE>
<CAPTION>
<S>                                                                                       <C>
                  Property Location:
                    McKinleyville, California                                             $1,475,472
                    Willow Creek, California                                                 335,608
                    Lakeport, California                                                     333,521
                    Arcata, California                                                       161,750
                    Eureka, California                                                       134,908
                                                                                          ----------
                                                                                           2,441,259

                      Less accumulated depreciation for rented property                      395,681
                                                                                          ----------
                                                                                          $2,045,578
                                                                                          ==========
</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, 1999 and 1998, other assets include cash surrender value of four
life insurance polices totaling $449,570, and investment in partnerships of
$92,117.

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

         Long-term debt at June 30, 1999 and 1998, consists of the following:
<TABLE>
<CAPTION>

                                                                               1999          1998
                                                                               ----          ----
<S>                                                                          <C>          <C>
           Bank note, secured by investment property, interest rate of 2.25%
           above bank index (6.812% at June 30, 1999), payable in monthly
           installments, maturing in 2021                                    $136,468     $138,386
           Lease obligations, payable in installments
           through 2004 with a weighted average
           interest rate of 10.2%                                             605,397       67,878
                                                                             --------    ---------
                                                                              741,865      206,264
             Less current maturities                                           99,711       63,820
                                                                             --------    ---------
                                                                             $642,154     $142,445
                                                                             ========    =========
</TABLE>

         The maturities of long-term debt for each of the succeeding five years
         subsequent to June 30, 1999, are as follows: 2000-$99,711;
         2001-$100,138; 2002-$100,988; 2003-$114,270; 2004-$183,262 and 2005 and
         beyond-$122,483.

                                      -27-


<PAGE>


                    AMERICAN HOSPITAL MANAGEMENT CORPORATION
                    Notes to Financial Statements, continued

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

At June 30, income tax expense consisted of the following:
<TABLE>
<CAPTION>

                                                                       1998
                                            ------------------------------------------------------------
                                             Federal                 California                  Total
                                             -------                 ----------                  -----
<S>                                         <C>                     <C>                        <C>
                  Current                   $ 82,505                $   33,069                 $ 115,574
                  Deferred                     4,743                (    2,816)                    1,927
                                            --------                ----------                 ---------
                                            $ 87,248                $   30,253                 $ 117,501
                                            ========                ==========                 =========
</TABLE>

<TABLE>
<CAPTION>

                                                                       1997
                                            -------------------------------------------------------------
                                              Federal                California                  Total
                                              -------                ----------                  -----
<S>                                         <C>                     <C>                       <C>
                  Current                   $ 48,502                $    33,995               $    82,497
                  Deferred                  ( 38,344)                 (  22,996)                (  61,340)
                                           ---------                -----------               -----------
                                            $ 10,158                $    50,626               $    21,157
                                           =========                ===========               ===========
</TABLE>

Deferred tax expenses (credits) for 1998, and 1997 result from the following
temporary differences:
<TABLE>
<CAPTION>

                                                                    1998                      1997
                                                                    ----                      ----
<S>                                                            <C>                        <C>
         California franchise tax                              $     8,921                $   16,095
         Depreciation and amortization                             (31,277)                  (67,878)
         Allowance for bad debts                                  (  3,067)                  (35,681)
         Vacation accrual                                           39,391                    33,937
         Other                                                     (12,041)               (   7,813)
                                                               -----------                ----------
                                                               $     1,927                $  (61,340)
                                                               ===========                ==========
</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, 1999 and 1998 was $(144,367)
and $390,246, respectively.

                                      -28-
<PAGE>
                    AMERICAN HOSPITAL MANAGEMENT CORPORATION
                    Notes to Financial Statements, continued

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

Recorded income tax expense differs from that computed by applying the statutory
income tax rates for the following reasons:
<TABLE>
<CAPTION>

                                                                          1998               1997
                                                                          ----               ----
<S>                                                                    <C>              <C>
         Computed tax at statutory rate                                $ 186,574        $    95,866
         Increases (decreases) resulting from:
            California franchise tax                                   (   1,365)       (     5,691)
            Domestic dividend exclusion
               allowance                                               (  27,335)       (    37,056)
            Cash surrender value                                       (  60,958)       (    22,260)
            Entertainment deduction                                       11,438              6,000
            Prior year (over) under accrual                                9,147        (    15,702)
                                                                      ----------        -----------

                                                                       $ 117,501        $    21,157
                                                                      ==========        ===========
</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 at June 30, 1999 and 1998, was $1,304,659 and $1,311,471, respectively.
In the event of redemption, two shares of common stock can be issued for each
share of preferred stock redeemed (if option is exercised by preferred
stockholder). Redemption of the preferred stock, in total only, is at the option
of the Company.

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

Income per common share, assuming no dilution, was computed by dividing the net
income after deduction of preferred stock dividend requirements of $94,884,
$95,380 and $96,667, by the weighted average number of common shares outstanding
(225,592, 227,332 and 230,635) for 1999, 1998 and 1997, respectively.

Income per common share, assuming full dilution, was computed by dividing net
income by the weighted average number of common shares outstanding, after
redemption of preferred stock, (321,537 and 324,724) for 1998 and 1997,
respectively. For 1999, there was an anti-dilutive effect for all shares,
assuming full dilution.

                                      -29-


<PAGE>

                    AMERICAN HOSPITAL MANAGEMENT CORPORATION
                    Notes to Financial Statements, continued

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

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

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

The Plan is a defined contribution plan to which all employees are permitted to
make salary deferrals under the 401(k) provision. Such contributions are
credited directly to their accounts. Based on the Plan document, the Employer
can make discretionary contributions for the participants. No contribution was
made for any of the three years ended June 30, 1999.

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

The Hospital grants credit without collateral to its patients, most of whom are
local residents and are insured under third-party payor agreements. The mix of
receivables from patients and third-party payors at June 30, 1999 and 1998, was
as follows:

                                                        1999           1998
                                                        ----           ----
                  Medicare                               38.4%         37.5%
                  Medi-Cal                               15.1          16.2
                  Other third-party payors               33.8          33.4
                  Patients                               12.7          12.9
                                                       ------        ------
                                                          100%          100%
                                                       ======        ======


                                      -30-
<PAGE>

                    AMERICAN HOSPITAL MANAGEMENT CORPORATION
                    Notes to Financial Statements, continued

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

The Hospital has elected to self-insure for health care benefits to its
employees. Amounts charged to expense and transferred monthly to a trust fund to
cover such claims are estimated using rates comparable to actual rates in the
industry. Management believes that amounts provided are sufficient to cover
claims and costs incurred through June 30, 1999. The rates used to determine the
amounts charged to expense for claims and costs are adjusted periodically, as
appropriate, to reflect actual experience. The Hospital has 100 percent
insurance coverage for individual claim expenses in excess of $50,000 and for
aggregate claim expenses in excess of $1,365,218.

Health care benefit expense was approximately $2,084,133, $1,210,164 and
$1,459,831 for the years ended June 30, 1999, 1998 and 1997, respectively.

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

Commitments.

The Company had one operating lease with monthly payments of $2,450 with a
remaining term of 23 months. Total rental expense for the years ended June 30,
1999, 1998 and 1997 was $380,325, $227,486 and $201,118, respectively

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

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

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

                                      -31-
<PAGE>


                    AMERICAN HOSPITAL MANAGEMENT CORPORATION
                    Notes to Financial Statements, concluded

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

Fair value estimates are made at a specific point in time and are based on
relevant market information and information about the financial instrument; they
are subjective in nature and involve uncertainties, 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, 1999, the amounts that will
actually be realized or paid at settlement of the instruments could be
significantly different.

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

                                      -32-
<PAGE>

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

                  None.














                                      -33-

<PAGE>

PART III

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

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

Lawrence V. Blashaw               1970     73    Director          President of
                                                                   Freight For-
                                                                   warding Co.

Charles F. Forbes, Attorney       1968     69    Secretary &       Attorney
Musick, Peeler & Garrett                         Director

Allen E. Shaw, President          1960     81    President &       President of
of the Company                                   Director          Company

Douglas A. Shaw, Vice President   1981     48    Vice President    Hospital
Administrator                                    & Director        Administrator

Richard J. Stanczak               1977     73    Director          Business
Business Consultant                                                Consultant

Michael Young, Controller         1978     51    Treasurer         Hospital
Administrator                                                      Controller

Donald J. Krpan, D.O.             1988     63    Director          President of
                                                                   the American
                                                                   Osteopath
                                                                   Association

John Aryanpur, M.D.               1998     39    Director          Neurosurgent


                                      -34-


<PAGE>


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

          The following table sets forth the aggregate direct remuneration paid
          or accrued by the Company for services in all capacities for the
          fiscal year ended June 30, 1999, to each director and officer of the
          Company whose aggregate direct remuneration exceeded $100,000 and to
          all directors and officers (as a group) who were such at any time
          during the last fiscal year.

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

Allen E. Shaw              President and Chairman of         $ 100,000
                           the Board

Douglas A. Shaw            Vice President, Administrator        41,000

Michael Young              Treasurer and Controller of          75,904
                           Mad River Community Hospital

All other directors
  and officers as a
  group (5 persons)                                              6,600
                                                             ---------

(8 persons)                                                  $ 223,504
                                                             =========

Note:     There was no contractual agreement with any directors regarding
          compensation, pensions or stock options. Directors, from time to time,
          are compensated for attendance at meetings for their general
          administrative duties although there is no required payment. Total
          director compensation for 1999 was $6,600. There have not been any
          payments made to officers or directors for severance of relationship.




                                      -35-

<PAGE>


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

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

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

Allen E. Shaw Family                   Common          118,079         52.47%
San Clemente, California               Preferred         1,970          4.15%

Arcata Hospital Corporation*           Common           20,898          9.28%
Palos Verdes Estates, California       Preferred        11,481         24.20%

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

All directors and officers as          Common          120,579         53.58%
  a group
All directors and officers             Preferred         1,970          4.15%
  a group


Security ownership of management is as follows:

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

         Lawrence V. Blashaw                   2,500               --
         Allen E. Shaw Family                118,079            1,970
                                            --------           ------
                                             120,579            1,970
                                            ========           ======

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



                                      -36-


<PAGE>


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

          None.






                                      -37-


<PAGE>


PART IV

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

Page
----
(a) (1)         The following financial statements are included in
                  Part II, Item 8:

                     Report of Independent Auditors'

                     Financial Statements:
                         Balance Sheets
                           June 30, 1999 and 1998

                         Statements of Income
                           Years ended June 30, 1999, 1998 and 1997

                         Statements of Comprehensive Income
                           Years ended June 30, 1999, 1998 and 1997

                         Statements of Stockholders' Equity
                           Years ended June 30, 1999, 1998 and 1997

                         Statements of Cash Flows
                           Years ended June 30, 1999, 1998 and 1997

                         Notes to Financial Statements

     (2)        The following financial schedules for the Years 1999, 199
                8 and 1997 are submitted herewith:

                         Schedule II - Valuation and Qualifying Accounts

                         Schedule III - Real Estate and Accumulated Depreciation

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

     (3)        Exhibits included herein:
                None

(b)             Registrant did not file any reports on Form 8-K during the
                quarter ended June 30, 1999



                                      -38-

<PAGE>


                                   Schedule II

                    AMERICAN HOSPITAL MANAGEMENT CORPORATION

                        Valuation and Qualifying Accounts
                    Years ended June 30, 1999, 1998 and 1997

<TABLE>
<CAPTION>

                          Balance,      Charged     Charged                   Balance,
                         beginning        to        to other                    end
                          of year       income      accounts  Deductions      of year
                          -------       ------      --------  ----------      -------
<S>                       <C>         <C>            <C>     <C>            <C>

Allowance for
doubtful receivables:

         1999            $  285,055  $  1,176,463            $  1,230,819   $  230,699
         1998              285,055      1,116,908               1,109,240      292,723
         1997              202,650        709,204                 626,799      285,055



</TABLE>




                                      -39-

<PAGE>


                                  Schedule III

                    AMERICAN HOSPITAL MANAGEMENT CORPORATION

                    Real Estate and Accumulated Depreciation
                    Years ended June 30, 1999, 1998 and 1997
<TABLE>
<CAPTION>

                                 Related                                             Accumulated       Useful
         Description              debt           Land        Buildings     Total     Depreciation       Life
--------------------------------------------------------------------------------------------------------------------
<S>                             <C>            <C>          <C>          <C>           <C>               <C>
     Rental property            $136,124       $482,346     $1,126,725   $1,609,071    $350,013          25

     Investment                  None           832,189                     832,189
                                -----------------------------------------------------------------
                                $136,124     $1,314,535     $1,126,725   $2,441,260    $350,013
                                =================================================================

    Cost:

         Balance at June 30, 1999, 1998 and 1997                       $2,241,260


    Accumulated Depreciation:

         Balance at June 30, 1997                                      $  307,476
           Depreciation during period                                      42,537
                                                                       ----------
         Balance at June 30, 1998                                         350,013
              Depreciation during period                                   45,669
                                                                       ----------
         Balance at June 30, 1999                                      $  395,682
                                                                       ==========


</TABLE>



                                      -40-

<PAGE>


                                   SIGNATURES


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

                                      AMERICAN HOSPITAL MANAGEMENT CORPORATION

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

                                       Date:  Oct. 30, 1999
                                            ------------------------------------


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          10-30-99
----------------------                                          ------------
Allen E. Shaw


/s/ Charles F. Forbes             Secretary and Director          10-30-99
----------------------                                           -----------
Charles F. Forbes


/s/ Michael J. Young               Treasurer and Chief            10-30-99
----------------------             Accounting Officer            -----------
Michael J. Young

/s/ Donald J. Krpan                Director                       10-30-99
----------------------                                           -----------
Donald J. Krpan


/s/ Doug Shaw                       Director                      10-30-99
----------------------                                           -----------
Doug Shaw

                                       41