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, 1998          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 valu
--------------------------------------------------------------------------------
                                (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 (225,937 at October 31, 1998).

Total number of pages, including cover - 40













                                       -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 407 shareholders at June 30, 1998. No dividends
                  were paid on common stock during the three years ended June
                  30, 1998. The Company is current on paying all cumulative
                  preferred stock dividends.




































                                       -6-


<PAGE>

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

<TABLE>
<CAPTION>

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

                         1998           1997          1996          1995        1994
                         ----           ----          ----          ----        ----
<S>                  <C>           <C>           <C>           <C>           <C>        
Total operating
revenue, net         $22,992,958   $22,096,357   $22,895,801   $21,148,254   $20,671,387

Net income               350,874       200,588       223,815       593,342       502,956

Primary earnings
per share                   1.12           .45           .52          2.06          1.67

Fully diluted
earnings per share          1.09           .62           .67          1.75          1.47

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

Total assets          22,411,941    20,342,679    20,557,286    19,800,615    18,325,512

Long-term debt           206,265       206,932       403,581       803,248       861,648

Working capital        8,905,761     8,542,725     7,851,133     7,165,927     6,010,324

Redeemable
preferred stock           47,690        48,334        50,850        51,623        51,768

Stockholders'
equity                15,891,443    15,060,535    14,633,038    14,077,102    13,040,598
</TABLE>












                                       -7-


<PAGE>

Item 7            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 MediCal 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.

                                       -8-


<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.



                                       -9-


<PAGE>

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

                                      1997
                                      ----

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

                  Hospital revenues increased slightly during 1997 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 $41,030,000 in 1997 compared
                  to $40,617,000 in 1996, a 1% increase of $413,000.

                  Contractual allowances totaled $15,147,000 in 1997 compared to
                  $13,808,000 in 1996, a 10% 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. 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 MediCal patients.

                  Operating costs and expenses were $27,145,000 compared to
                  $27,928,000 in 1996, a 3% decrease. Operating costs actually
                  increased $524,000 while the provision for bad debts decreased
                  by $1,309,000, resulting in the combined decrease of 3%. The
                  Hospital has concentrated efforts in the collection of
                  receivables resulting in less accounts being written off.

                  The continued reduction in third-party reimbursement is a
                  major contributing factor to the 1997 operating loss of
                  $805,000. Net income, after investment income was $201,000 in
                  1997 compared to $224,000 in 1996.

                  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 $125,000,
                  while total investment income was $990,000. 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.

                                      -10-


<PAGE>




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

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


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

Independent Auditors' Report                                              14

Financial Statements:

         Balance Sheets - June 30, 1998 and 1997                        15-16

         Statements of Income -
           Years ended June 30, 1998, 1997 and 1996                       17

         Statements of Stockholders' Equity
           Years ended June 30, 1998, 1997 and 1996                       18

         Statements of Cash Flows -
           Years ended June 30, 1998, 1997 and 1996                     19-20

         Notes to Financial Statements                                  21-31

Item 14.  Exhibits, Financial Statement, Schedules
            and Reports on Form 8-K                                       37

















                                      -11-


<PAGE>












                    AMERICAN HOSPITAL MANAGEMENT CORPORATION

                   Annual Report for Corporations - Form 10-K
                       Years ended June 30, 1998 and 1997


                              Financial Statements,
                     Supplementary Data and Auditors' Report



























                                      -12-


<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, 1998 and 1997, and the related
         statements of 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, 1998, 1997 and 1996.
         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, 1998 and 1997, and the
         results of its operations and its cash flows for the years ended June
         30, 1998, 1997 and 1996 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, CPA
                                                        --------------------
                                                        K.C. Miller, CPA

         West Covina, California
         September 30, 1998




                                      -13-


<PAGE>

<TABLE>
<CAPTION>


                                     AMERICAN HOSPITAL MANAGEMENT CORPORATION
                                                  Balance Sheets
                                              June 30, 1998 and 1997

                           Assets
                                                                    1998         1997
                                                                    ----         ----
<S>                                                            <C>           <C> 
Current assets:
  Cash and cash equivalents                                    $   209,652   $    80,027
  Restricted cash, held as security for letter of credit           326,336       425,000
 Marketable securities                                           7,040,973     5,933,303
  Receivables:
    Patients, net of estimated uncollectibles of $292,723
      and $285,055, in 1998 and 1997, respectively               6,373,188     6,046,298
    Other                                                          282,012       350,429
  Supplies, at lower of cost (first-in, first-out) or market       974,566       852,654
  Prepaid expenses                                                  77,087       108,207
                                                               -----------   -----------
             Total current assets                               15,283,814    13,795,918

Property and equipment, net                                      3,970,061     3,690,688

Real estate held for investment, net                             2,091,247     1,935,397

Deferred income taxes                                              436,515       432,702

Other assets                                                       630,304       487,974
                                                               -----------   -----------
                                                               $22,411,941   $20,342,679
                                                               ===========   ===========
</TABLE>
















(continued)
The accompanying notes are an integral part of these financial statements.
                                      -14-


<PAGE>
<TABLE>
<CAPTION>



                                     AMERICAN HOSPITAL MANAGEMENT CORPORATION
                                                  Balance Sheets
                                              June 30, 1998 and 1997

                  Liabilities and Stockholders' Equity
                                                                                      1998          1997
                                                                                      ----          ----
<S>                                                                               <C>           <C>  
Current Liabilities:
  Current maturities of long-term debt                                            $    63,820   $   177,981
  Accounts payable and accrued expenses:
    Trade                                                                             810,740       973,944
    Accrued liabilities                                                             1,667,944     1,764,500
    Estimated third-party payor settlements                                         1,761,121       721,754
    Income taxes:
      Current                                                                         115,574        30,502
      Deferred                                                                      1,958,854     1,584,512
                                                                                  -----------   -----------

                  Total current liabilities                                         6,378,053     5,253,193
                                                                                  -----------   -----------

Long-term debt, less current maturities                                               142,445        28,951
                                                                                  -----------   -----------

Stockholders' equity:
  $2cumulative preferred stock, par value $1 per share; authorized 100,000
    shares; issued 65,270.82 shares; reacquired 17,580.96 and 16,937.28 shares;
    outstanding 47,689.86 and 48,333.54 shares; aggregate redemption and
    liquidating value of $1,311,471
    and$1,329,172 at June 30, 1998 and 1997, respectively                              47,690        48,334
  Common stock, par value $1.00 per share;
    authorized 400,000 shares, issued 249,051 shares, reacquired 22,894 and
    20,994 shares; outstanding - 226,157 and 228,507 shares
    at June 30, 1998 and 1997, respectively                                           226,157       228,057
  Additional paid-in capital                                                          163,769       194,427
  Unrealized holdings gains, net, for investments                                   2,055,054     1,455,544
  Retained earnings                                                                13,398,773    13,134,173
                                                                                  -----------   -----------

                  Total Stockholders' equity                                       15,891,443    15,060,535
                                                                                  -----------   -----------

                                                                                  $22,411,941   $20,342,679
                                                                                  ===========   ===========
</TABLE>


(concluded)
The accompanying notes are an integral part of these financial statements.
                                      -15-



<PAGE>

<TABLE>
<CAPTION>


                                     AMERICAN HOSPITAL MANAGEMENT CORPORATION
                                               Statements of Income
                                     Years ended June 30, 1998, 1997, and 1996

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

<S>                                                    <C>           <C>           <C>        
Net patient service revenue                            $22,992,958   $22,096,357   $22,895,801

Other revenue                                              396,746       456,549       417,075
                                                       -----------   -----------   -----------

                  Total operating revenue               23,389,704    22,552,906    23,312,876
                                                       -----------   -----------   -----------

Operating costs and expenses:
     Professional care of patients                      14,552,630    13,730,083    13,462,486
     General services                                    2,485,699     2,588,394     2,734,438
     Administrative services                             3,227,783     3,388,734     2,989,859
     Employee health and welfare                         1,210,164     1,459,831     1,318,048
     Medical malpractice insurance                         395,630       382,619       406,630
     Interest                                               16,327        48,775        76,290
     Depreciation and amortization                         979,028     1,050,221     1,135,152
     Provision for bad debts                             1,116,908       709,204     1,891,169
                                                       -----------   -----------   -----------
                  Total operating costs and expenses    23,984,169    23,357,681    24,014,072
                                                       -----------   -----------   -----------

                  Loss from operations                    (594,465)     (804,775)     (701,196)
                                                       -----------   -----------   -----------
Other income:
     Investment income                                   1,049,449       990,102     1,076,148
     Other                                                  13,391        36,418        31,019
                                                       -----------   -----------   -----------
                                                         1,062,840     1,026,520     1,107,167
                                                       -----------   -----------   -----------
Income before income taxes                                 468,375       221,745       405,971
     Provision for income taxes                            117,501        21,157       182,156
                                                       -----------   -----------   -----------

                  Net income                           $   350,874   $   200,588   $   223,815
                                                       ===========   ===========   ===========


Primary earnings per common share                      $      1.12   $       .45   $       .52
                                                       ===========   ===========   ===========

Fully diluted earnings per common share                $      1.09   $       .62   $       .67
                                                       ===========   ===========   ===========
</TABLE>






The accompanying notes are an integral part of these financial statements.
                                      -16-

<PAGE>

<TABLE>
<CAPTION>


                                     AMERICAN HOSPITAL MANAGEMENT CORPORATION
                                        STATEMENTS OF STOCKHOLDERS' EQUITY
                                     Years ended June 30, 1998, 1997 and 1996

                                                      1998             1997          1996
                                                      ----             ----          ----
Stockholders' Equity:

<S>                                               <C>            <C>             <C>    
Cumulative Preferred Stock
  Beginning balance                               $     48,334    $     50,850    $     51,623
     Reacquired stock                                      644           2,516             773
                                                  ------------    ------------    ------------
  Ending balance                                        47,690          48,334          50,850
                                                  ------------    ------------    ------------

Common Stock
  Beginning balance                                    228,057         233,213         236,479
     Reacquired stock                                    1,900           5,156           3,266
                                                  ------------    ------------    ------------
  Ending balance                                       226,157         228,057         233,213
                                                  ------------    ------------    ------------

Additional paid-in-capital
  Beginning balance                                    194,427         296,210         340,912
     Reacquired stock                                   30,658         101,783          44,702
                                                  ------------    ------------    ------------
  Ending balance                                       163,769         194,427         296,210
                                                  ------------    ------------    ------------

Unrealized holdings gains, net, for investments
  Beginning balance                                  1,455,544       1,026,809         551,933
     Increase in unrealized holdings gains, net        599,510         428,735         474,876
                                                  ------------    ------------    ------------
  Ending balance                                     2,055,054       1,455,544       1,026,809
                                                  ------------    ------------    ------------

Retained Earnings
  Beginning balance                                 13,134,173      13,025,956      12,896,155
     Net income                                        350,874         200,588         223,815
     Cash dividends paid on preferred stock            (86,274)        (92,371)        (94,014)
                                                  ------------    ------------    ------------
  Ending balance                                    13,398,773      13,134,173      13,025,956
                                                  ------------    ------------    ------------

    Total Stockholders' equity                    $ 15,891,443    $ 15,060,535    $ 14,633,038
                                                  ============    ============    ============
</TABLE>








The accompanying notes are an integral part of these financial statements.
                                      -17-



<PAGE>
<TABLE>
<CAPTION>



                                     AMERICAN HOSPITAL MANAGEMENT CORPORATION
                                             Statements of Cash Flows
                                     Years ended June 30, 1998, 1997 and 1996

                                                           1998             1997           1996
                                                           ----             ----           ----
<S>                                                    <C>             <C>             <C>         
Cash flows from operating activities:
     Cash received from patients
       and third-party payors                          $ 22,985,273    $ 20,927,495    $ 22,245,219
     Cash paid to employees and suppliers               (22,342,220)    (21,256,175)    (21,312,243)
     Investment income received                             565,439         934,579       1,025,397
     Interest paid                                         (916,327)        (48,775)       ( 76,290)
     Income taxes, net change                               (52,147)        (20,332        (412,073)
                                                       ------------    ------------    ------------
              Net cash provided by
                operating activities                      1,140,018         577,456       1,470,010
                                                       ------------    ------------    ------------

Cash flows from investing activities:
     Purchase of real estate held for investment           (198,387)           --          (127,135)
     Purchase of property and equipment, net             (1,258,401)       (706,159)       (608,324)
     Proceeds from sale of short-term investments         3,189,509       2,433,022       2,381,529
     Purchase of short-term investments                  (2,691,389)     (2,691,259)     (2,356,870)
     Other                                                   68,417         (60,401)       (110,286)
                                                       ------------    ------------    ------------
              Net cash used in investing activities        (890,251)     (1,024,797)       (821,086)
                                                       ------------    ------------    ------------

Cash flows from financing activities:
     Proceeds from issuance of long-term debt               251,216         121,216            --
     Principal reductions of long-term debt                (251,882)       (317,865)        (399,667)
     Dividends paid                                         (86,274)        (92,371)         (94,014)
     Payments for reacquired stock                          (33,202)       (109,455)         (48,741)
                                                       ------------    ------------     ------------
              Net cash used in financing activities        (120,142)       (398,575)        (542,422)
                                                       ------------    ------------     ------------

Net increase (decrease) in cash and cash equivalents        129,625        (845,816)        106,502
Cash and cash equivalents, beginning of year                 80,027         925,843         819,341
                                                       ------------    ------------     ------------
Cash and cash equivalents, end of year                 $    209,652    $     80,027    $    925,843
                                                       ============    ============     ============
Supplemental schedule of non-cash investing
 activities:
     Increase in fair value of investments             $    714,559    $    714,559    $    791,459
     Increase in deferred taxes                            (285,824)       (285,824)       (316,583)
                                                       ------------    ------------     ------------

     Increase in unrealized holding gains              $    428,735    $    428,735    $    474,876
                                                       ============    ============     ============
</TABLE>



The accompanying notes are an integral part of these financial statements.
                                      -18-


<PAGE>
<TABLE>
<CAPTION>



                                     AMERICAN HOSPITAL MANAGEMENT CORPORATION
                                       Statements of Cash Flows (concluded)
                                     Years ended June 30, 1998, 1997 and 1996


                                                          1998         1997         1996
                                                          ----         ----         ----
<S>                                                   <C>          <C>          <C>       
Reconciliation of net income to net cash
     provided by operating activities:
Net income                                            $  350,874   $  200,588   $  223,815
Adjustments to reconcile net income to net
     cash provided by operating activities:
         Depreciation and amortization                 1,046,223    1,083,162    1,169,924
         Partnership income                               (4,688)        (343)      (2,957)
         Gain on sale of investments                    (517,370)    (124,539)    (113,586)
         Increase in cash surrender value               (162,300)     (60,000)     (18,621)

Change in assets and liabilities:
    (Increase) decrease in patient receivables, net     (326,890)     185,008      (53,082)
    Increase (decrease)in third-party payors, net      1,039,367   (1,101,395)     876,594
    Increase (decrease)  in income taxes, net             65,354       41,489     (229,917)
    (Increase) decrease in supplies                     (121,912)       2,680       31,842
     Decrease (increase) in prepaid expenses              31,120      (23,226)     (19,295)
    (Decrease) increase in trade accounts payable       (163,204)     411,638     (576,265)
    (Decrease) increase in accrued expenses, net         (96,556)     (37,606)     181,558
                                                      ----------   ----------   ----------

Net cash provided by operating activities             $1,140,018   $  577,456   $1,470,010
                                                      ==========   ==========   ==========

</TABLE>
















The accompanying notes are an integral part of these financial statements.
                                      -19-


<PAGE>



                    AMERICAN HOSPITAL MANAGEMENT CORPORATION
                          Notes to Financial Statements
                          June 30, 1998, 1997 and 1996

(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.

                                      -20-


<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.






                                                       -21-


<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, 1997.
              *   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 intends to appeal 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.




                                      -22-


<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>

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

<S>                                                <C>              <C>             <C>        
         Gross patient service revenue             $44,682,474      $41,030,222     $40,617,321
              Less contractual allowances           21,689,516       18,933,865      17,721,520
                                                    ----------       ----------      ----------
         Net patient service revenue               $22,992,958      $22,096,357     $22,895,801 
                                                   ===========      ===========     ===========
</TABLE>

         At June 30, 1998 and 1997, 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, 1998, contractual
         allowances and provisions for bad debts has totaled $62,062,182,
         approximately 48% of gross revenue.

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

         Cost and fair value of marketable equity securities at June 30, 1998
         and 1997, are as follows:
                                                         1998           1997
                                                         ----           ----
                           Available for sale:
                               Cost                  $3,625,311      $3,507,397
                               Fair Value             7,040,973       5,933,303
                               Unrealized Gain        3,459,682       2,466,856
                               Unrealized Loss          (44,020)        (40,950)

         Gain or loss from sale of securities is based on specific
         identification of the securities sold. Net unrealized holding gains on
         securities available for sale, net of the tax effect of $1,360,608 and
         $970,362 for the years ended June 30, 1998 and 1997, are shown as a
         separate component of stockholders' equity. For the years ended June
         30, 1998, 1997 and 1996, realized gains and realized losses were
         $578,111 and $(60,741), $327,314 and $(202,775), and $170,507 and
         $(56,921), respectively.

         The Company intends to implement the provision of FASB No. 130,
         Reporting Comprehensive Income, beginning with the fiscal year ending
         June 30, 1999. The Statement establishes standards for reporting and
         display of comprehensive income and its components in a full set of
         general purpose financial statements. Currently, net unrealized holding
         gains is the only income that would be disclosed as part of
         comprehensive income. For the year ended June 30, 1998, the change in
         net unrealized holding gains on securities available for sale,
         representing comprehensive income, is $989,756, net of $390,246 in
         deferred tax.
                                      -23-



<PAGE>



                    AMERICAN HOSPITAL MANAGEMENT CORPORATION
                    Notes to Financial Statements, continued

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

         At June 30, 1998 and 1997, property and equipment is comprised of the
         following:
<TABLE>
<CAPTION>

                                                                                      1998          1997
                                                                                      ----          ----

<S>                                                                               <C>           <C>        
                  Land and improvements                                           $    44,500   $    44,500
                  Buildings                                                         4,678,975     4,233,728
                  Equipment                                                         6,867,846     6,314,556
                  Construction in progress                                            418,741       158,879
                                                                                   -----------   -----------
                                                                                   12,010,062    10,751,663
                  Accumulated depreciation and amortization                         8,040,001     7,060,975
                                                                                  -----------   -----------
                  Net property and equipment                                      $ 3,970,061   $ 3,690,688
                                                                                  ===========   ===========

         Property and equipment include certain capitalized leases, as follows:

                                                                                      1998          1997
                                                                                      ----          ----   
                  Equipment                                                       $ 1,629,274   $ 1,495,799
                    Less accumulated amortization                                   1,363,655     1,061,888
                                                                                  -----------   -----------
                                                                                  $   265,619   $   433,911
                                                                                  ===========   ===========
</TABLE>

         Amortization expense on capitalized leases for the years ended June 30,
         1998, 1997 and 1996 totaled $301,767, $287,038 and $272,240,
         respectively.

         Annual future minimum lease payments under capitalized leases at June
         30, 1998 are as follows:
<TABLE>

<S>                                                                           <C>       
                                                     1999                     $   63,767
                                                     2000                          6,940
                                                                               ---------
                  Total minimum lease payments                                    70,707
                  Less amount representing interest (5.5% to 10.75%)               2,829)
                                                                               ----------
                  Present value of minimum lease payments                         67,878
                  Less current maturity                                           61,326
                                                                               ----------
                                                                              $    6,552
                                                                               ==========
</TABLE>






                                      -24-


<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>

                  Property Location:
<S>                                                                                     <C>       
                    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                    350,012
                                                                                        ----------
                                                                                        $2,091,247
</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, 1998 and 1997, other assets include cash surrender value of
         four life insurance polices totaling $449,570 and $287,270, and
         investment in partnerships of $$92,117 and $87,429.

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

         Long-term debt at June 30, 1998 and 1997, consists of the following:
<TABLE>
<CAPTION>

                                                                                  1998             1997
                                                                                  ----             ----
<S>                                                                             <C>              <C>  
           Bank note, secured by investment property, interest rate of 2.25%
           above bank index (7.218% at June 30, 1998), payable in monthly
           installments, maturing in 2021                                       $138,386            --
           Lease obligations, payable in installments
           through 2000 with a weighted average
           interest rate of 9.8%                                                  67,878         $206,932
                                                                                --------          -------
                                                                                 206,264          206,932
             Less current maturities                                              63,820          177,981
                                                                                --------          -------
                                                                                $142,445         $ 28,951
                                                                                 =======          =======
</TABLE>

         The maturities of long-term debt for each of the succeeding five years
         subsequent to June 30, 1998, are as follows: 1999-$63,820; 2000-$9,620;
         2001-$2,880; 2002-$3,095; 2003-$3,326 and 2004 and beyond-$123,913.
                                      -25-


<PAGE>



                    AMERICAN HOSPITAL MANAGEMENT CORPORATION
                    Notes to Financial Statements, continued

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

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

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

                                           1997
                                           ----
                              Federal  California   Total
                              -------  ----------   -----
                  Current    $ 48,502   $ 33,995   $ 82,497
                  Deferred    (38,344)   (22,996)   (61,340)
                             --------   --------   --------
                             $ 10,158   $ 10,999   $ 21,157
                             ========   ========   ========

                                           1996
                                           ----
                              Federal  California   Total
                              -------  ----------   -----
                  Current    $139,977   $ 54,424   $194,401
                  Deferred     (8,447)    (3,798)   (12,245)
                             --------   --------   --------
                             $131,530   $ 50,626   $182,156
                             ========   ========   ========

         Deferred tax expenses (credits) for 1998, 1997, and 1996 result from
         the following temporary differences:

                                            1998        1997        1996
                                            ----        ----        ----
         California franchise tax        $  8,921    $ 16,095    $ 19,494
         Depreciation and amortization    (31,277)    (67,878)     26,532
         Allowance for bad debts           (3,067)    (35,681)       (229)
         Vacation accrual                  39,391      33,937     (26,387)
         Other                            (12,041)     (7,813)    (31,655)
                                         --------    --------    --------
                                         $  1,927    $(61,340)   $(12,245)
                                         ========    ========    ========

         In addition, deferred tax liability is recorded in the balance sheet,
         resulting from the change in unrealized holdings for investments. The
         increase in deferred income taxes for the years ended June 30, 1998 and
         1997 was $390,246 and $235,471, respectively.






                                      -26-



<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:

                                                    1998       1997       1996
                                                    ----       ----       ----
         Computed tax at statutory rate          $186,574   $ 95,866   $175,785
         Increases (decreases) resulting from:
            California franchise tax               (1,365)    (5,691)   (13,671)
            Domestic dividend exclusion
               allowance                          (27,335)   (37,056)   (24,661)
            Cash surrender value                  (60,958)   (22,260)     8,063
            Entertainment deduction                11,438      6,000     10,200
            Prior year (over) under accrual         9,147    (15,702)    26,440
                                                 --------   --------    --------

                                                 $117,501   $ 21,157   $182,156
                                                 ========   ========   ========
                                                                               
(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, 1998 and 1997, was
         $1,311,471 and $1,329,172, 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 $95,380, $96,667 and $101,699, by the weighted average number of
         common shares outstanding (227,332, 230,635 and 234,846) for 1998, 1997
         and 1996, 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, 324,724,
         334,912) for 1998, 1997 and 1996, respectively.





                                      -27-


<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, 1998.

(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, 1998 and 1997, was as follows:

                                                     1998                 1997
                                                     ----                 ----
                  Medicare                           37.5%                33.7%
                  Medi-Cal                           16.2                 19.7
                  Other third-party payors           33.4                 32.5
                  Patients                           12.9                 14.1
                                                   ------               ------
                                                     100%                 100%
                                                   =====                ======











                                      -28-


<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,
         1998. 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 $1,210,164, $1,459,831
         and $1,318,370 for the years ended June 30, 1998, 1997 and 1996,
         respectively.

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

         Commitments.

         At June 30, 1998, the Company had an outstanding letter of credit for
         approximately $326,000 to acquire a new MRI machine. The letter of
         credit is secured by restricted cash.

         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, 1998, 1997 and 1996 was $242,124, $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.

                                      -29-


<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, 1998, 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.





















                                      -30-


<PAGE>



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

                  None.







































                                      -31-



<PAGE>



PART III

Item 10.          Directors and Executive Officers of the Registrant
--------          --------------------------------------------------
<TABLE>
<CAPTION>


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

<S>                                         <C>                <C>     <C>                       <C>         
Lawrence V. Blashaw                         1970               72      Director                  President of
                                                                                                 Freight For-
                                                                                                 warding Co.

Charles F. Forbes, Attorney                 1968               68      Secretary &               Attorney
Musick, Peeler & Garrett                                               Director

Allen E. Shaw, President                    1960               80      President &               President of
of the Company                                                         Director                  Company

Douglas A. Shaw, Vice President             1981               47      Vice President            Hospital
(son of president)                                                     & Director                Administrator

Richard J. Stanczak                         1977               72      Director                  Business
Business Consultant                                                                              Consultant

Michael Young, Controller                   1978               50      Treasurer                 Hospital
Administrator                                                                                    Controller

Scott L. Holmes, M.D.                       1988               61      Director                  Physician

Donald J. Krpan, D.O.                       1988               62      Director                  Dean of
                                                                                                 Students
                                                                                                 College of
                                                                                                 Medicine
</TABLE>











                                      -32-


<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, 1998, 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.
<TABLE>
<CAPTION>

                                                                   Cash and cash equivalent
                                                                     forms of remuneration
                                                                     ---------------------

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

<S>                                 <C>                                      <C>      
Allen E. Shaw                       President and Chairman of                $ 100,000
                                    the Board

Douglas A. Shaw                     Vice President, Administrator               52,000

Michael Young                       Treasurer and Controller of                 64,057
                                    Mad River Community Hospital

All other directors
  and officers as a
 group (5 persons)                                                               6,800
                                                                             ---------

(8 persons)                                                                  $ 222,857
                                                                             =========
</TABLE>

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 1998 was $6,800. There have not been any
         payments made to officers or directors for severance of relationship.










                                      -33-


<PAGE>



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

                  Owners of 5% or more of outstanding voting securities at June
                  30, 1998, were as follows:
<TABLE>
<CAPTION>

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

<S>                                        <C>                 <C>                    <C>   
Allen E. Shaw Family                       Common              118,079                52.21%
San Clemente, California                   Preferred             1,970                 4.13%

Arcata Hospital Corporation*               Common               20,898                 9.24%
Palos Verdes Estates, California           Preferred            11,481                24.07%

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

All directors and officers as              Common              120,579                53.32%
  a group
All directors and officers                 Preferred             1,970                 4.13%
  a group
</TABLE>

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.










                                      -34-


<PAGE>



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

                  None.








































                                      -35-


<PAGE>



PART IV
<TABLE>
<CAPTION>

Item 14.          Exhibits, Financial Statement
                  Schedules, and Reports on Form 8-K
--------          ----------------------------------
Page
----
<S>            <C>                              

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

                       Report of Independent Auditors'

                       Financial Statements:
                           Balance Sheets
                             June 30, 1998 and 1997

                           Statements of Income and Retained Earnings Years
                             ended June 30, 1998, 1997 and 1996

                           Statements of Cash Flows -
                             Years ended June 30, 1998, 1997 and 1996

                           Notes to Financial Statements

     (2)          The following financial schedules for the Years 1998, 1997 and 1996 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,
                  1998


</TABLE>


                                      -36-


<PAGE>
<TABLE>
<CAPTION>



                                                    Schedule II

                                     AMERICAN HOSPITAL MANAGEMENT CORPORATION

                                         Valuation and Qualifying Accounts
                                     Years ended June 30, 1998, 1997 and 1996

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

Allowance for
 doubtful receivables:


<S>                           <C>         <C>                                   <C>                <C>       
         1998                 $ 285,055   $   5,903,673                         $ 5,896,005        $  292,723
         1997                   202,650       4,495,864                           4,413,459           285,055
         1996                   217,709       5,804,777                           5,819,836           202,650

</TABLE>























                                      -37-


<PAGE>
<TABLE>
<CAPTION>



                                                   Schedule III

                                     AMERICAN HOSPITAL MANAGEMENT CORPORATION

                                     Real Estate and Accumulated Depreciation
                                     Years ended June 30, 1998, 1997 and 1996


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

<S>                      <C>           <C>         <C>          <C>            <C>               <C>
     Rental property     $138,386      $482,346    $1,126,725   $1,609,071     $350,013          25

     Investment              None       832,189                    832,189
                         --------------------------------------------------------------------
                         $138,386    $1,314,535    $1,126,725   $2,441,260     $350,013
                         ====================================================================
</TABLE>


    Cost:
         Balance at June 30, 1996 and 1997                    $2,242,874
               Purchases                                         198,386
                                                              ----------
         Balance at June 30, 1998                             $2,441,260
                                                              ==========


    Accumulated Depreciation:

         Balance at June 30, 1996                             $  268,071
           Depreciation during period                             39,405
                                                              ---------- 
         Balance at June 30, 1997                                307,476
              Depreciation during period                          42,537
         Balance at June 30, 1998                             $  350,013
                                                              ==========















                                      -38-


<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: November 6, 1998

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

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


/s/ Allen E. Shaw               President and Director          November 6, 1998
---------------------
Allen E. Shaw


/s/ Charles F. Forbes           Secretary and Director          November 6, 1998
---------------------
Charles F. Forbes


/s/ Michael J. Young            Treasurer and Chief             November 6, 1998
---------------------           Accounting Officer
Michael J. Young                


/s/ Donald J. Krpan             Director                        November 6, 1998
---------------------
Donald J. Krpan


/s/ Doug Shaw                   Director                        November 6, 1998
---------------------
Doug Shaw