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                               FORM 10 KSB

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

(Mark One)

[X]    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
       EXCHANGE ACT OF 1934 [FEE REQUIRED] FOR THE FISCAL YEAR ENDED 

       SEPTEMBER 30, 1998

       OR

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

       [NO FEE REQUIRED] for the transition period from

       ____________ to ____________

       Commission file number: 000-28976


                     ACADIA NATIONAL HEALTH SYSTEMS, INC.
                (Name of small business issuer in its charter)

       COLORADO                                          72 1234136
(State or other jurisdiction of                          (I.R.S. Employer
incorporation or organization)                           Identification Number)

       95 Park Street
       Lewiston, Maine                                   04240

(Address of principal executive offices)                 (Zip Code)


       Issuer's telephone number, including area code:  (207) 777-3423

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

       Title of each class           Name of each exchange on which registered
   
                                     NONE

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

       Title of each class           Name of each exchange on which registered

       COMMON STOCK,
       NO PAR VALUE PER SHARE        NASD

Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the
past 90 days.  

Yes     [X]          No     [ ]

Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S B contained in this form, and no disclosure will 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 KSB or any
amendment to this Form 10 KSB 

        [ ]

The aggregate market value of the 3,837,987 shares of Common Stock held by non
affiliates was $1.12 per share as of September 30, 1998.  For purposes of the
foregoing calculation only, each of the issuer's officers and directors is
deemed to be an affiliate.  The market value of the shares was calculated based
on the closing sales of such shares on The OTC: Bulletin Board Market 
on such date.

As of September 30, 1998, 3,837,987 shares of the issuer's Common Stock were
outstanding.

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DOCUMENTS INCORPORATED BY REFERENCE:

See Part III, Item 13, Exhibits and Reports on Form 8-K 

Transitional Small Business Disclosure Format:

        Yes    [ ]    No    [X]


THIS FORM 10 KSB AND OTHER STATEMENTS ISSUED OR MADE FROM TIME TO
TIME BY ACADIA NATIONAL HEALTH SYSTEMS, INC. OR ITS REPRESENTATIVES
CONTAIN STATEMENTS WHICH MAY CONSTITUTE "FORWARD LOOKING
STATEMENTS" WITHIN THE MEANING OF THE SECURITIES ACT OF 1933 AND THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED BY THE PRIVATE SECURITIES
LITIGATION REFORM ACT OF 1995. FIFTEEN U.S.C.A. SECTIONS 77Z 2 AND 78U 5
(SUPP. 1996). THOSE STATEMENTS INCLUDE STATEMENTS REGARDING THE
INTENT, BELIEF OR CURRENT EXPECTATIONS OF ACADIA NATIONAL HEALTH 
SYSTEMS, INC. AND MEMBERS OF ITS MANAGEMENT TEAM AS WELL AS THE
ASSUMPTIONS ON WHICH SUCH STATEMENTS ARE BASED. 

PROSPECTIVE INVESTORS ARE CAUTIONED THAT ANY SUCH FORWARD LOOKING
STATEMENTS ARE NOT GUARANTEES OF FUTURE PERFORMANCE AND INVOLVE
RISKS AND UNCERTAINTIES, AND THAT ACTUAL RESULTS MAY DIFFER
MATERIALLY FROM THOSE CONTEMPLATED BY SUCH FORWARD LOOKING
STATEMENTS. IMPORTANT FACTORS CURRENTLY KNOWN TO MANAGEMENT
THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE IN
FORWARD LOOKING STATEMENTS ARE SET FORTH IN THE SAFE HARBOR
COMPLIANCE STATEMENT FOR FORWARD LOOKING STATEMENTS INCLUDED AS
EXHIBIT 99.1 TO THIS FORM 10 KSB, AND ARE HEREBY INCORPORATED HEREIN
BY REFERENCE. THE COMPANY UNDERTAKES NO OBLIGATION TO UPDATE OR
REVISE FORWARD LOOKING STATEMENTS TO REFLECT CHANGED ASSUMPTIONS,
THE OCCURRENCE OF UNANTICIPATED EVENTS OR CHANGES TO FUTURE
OPERATING RESULTS OVER TIME.

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PART I

ITEM 1. DESCRIPTION OF BUSINESS

EXECUTIVE SUMMARY

Acadia National Health Systems, Inc., a corporation originally organized in 
1971 and re-organized in 1996 under the laws of the State of Colorado 
("Acadia" or the "Company"), provides business management services to 
physicians and hospitals, including data collection, data input, medical 
coding, billing, cash collections and accounts receivable management. These 
services are designed to assist customers with the business management 
functions associated with the delivery of healthcare services, allowing 
physicians and hospital staff to focus on providing quality patient care. 
These services also assist physicians and hospitals in improving cash flows 
and reducing administrative costs and burdens.  The Company also provides 
information technology and consulting services to healthcare markets.
 
Acadia markets its products and services primarily to integrated healthcare 
delivery networks, hospitals, physician practices, long term care facilities 
and home health providers. The Company will also continue to focus on small 
practices in tertiary markets ignored by the major MSO players. Acadia's 
business and marketing plan combines the experiences of its leadership team 
with expanded executive talent.  

The company was formed to become a major national Medical Management Services 
Organization (MSO) over the next five years. MSOs offer billing, consulting, 
software, business systems, related services and financing to physicians and 
other health care providers.  In a growing managed care environment, these 
firms offer business resources to an industry that is traditionally clinically 
oriented.

MSOs offer doctors and other medical providers an alternative that puts them 
at the forefront of health care reform while positioning them to have choices 
regarding their autonomy and profits. 

THE HEALTHCARE INDUSTRY

The healthcare industry is undergoing significant and rapid change. Hospitals 
and other healthcare providers have come under increased scrutiny from 
regulators and third party payers. As a result, providers of healthcare are 
now looking to "outsource" to third parties certain costly or complicated 
functions that are not directly related to core competencies or where they are 

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unable to achieve economies of scale. In particular, billing, and the delivery 
of such service in a timely fashion, has become critical to improving 
productivity, efficiency and cost containment, while maintaining a high level 
of patient care.  For instance, many providers are finding that their medical 
billing departments are inadequate, and to remedy the inadequacies of these 
functions, they are beginning to turn to third party service providers which 
have expertise in managing medical billing and other affiliated departments.

The healthcare industry has recognized the need for improvement in the 
processing of healthcare information, billing and regulatory compliance, and 
to achieve this improvement, there has been a dramatic increase in the 
development of solutions offered by third party vendors.

Advances in telecommunications, Internet technologies and voice recognition 
capabilities are emerging, creating opportunities to apply these technological 
advances to various functions within the medical billing department, including 
medical transcription, abstracting, and coding.  These technologies enable 
cost effective digital movement of voice, images, and data allowing for 
offsite processing of these various functions.  The ability to process offsite 
allows for faster turnaround times, increased availability of skilled 
professionals, and lower costs.

MARKETING MIX

Acadia will become a major national MSO within five years and will accomplish 
this goal by developing and expanding its marketing along three primary 
fronts:

Billing Service

Billing is and will continue to be the cornerstone of Acadia's business, with 
more than 88% of the revenue coming from this source.  Billing is often the 
first service a provider seeks and becomes the entry toward offering other 
services.

Acadia plans to become a leading provider of business management solutions and 
claims processing to physicians in the United States. The Company presently 
serves individual physician clients and physician groups throughout four (4) 
states. Acadia offers clients both revenue and cost management services. 
Revenue management services include medical coding, electronic and manual 
claims submission, automated patient billing, past due and delinquent accounts 
receivable collection, capitation analysis (i.e., an analysis of the price per 
member paid to healthcare providers by managed care health programs for a 

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predetermined set of healthcare services and procedures) and contract 
negotiation with payors, including managed care organizations.  Cost 
management provides comprehensive practice management services including front 
office administration, employee benefit plan design and administration, cash 
flow forecasting and budgeting and general consulting services.

Acadia's current systems support approximately ten (10) different medical and 
surgical specialties. 

Consulting

Acadia plans to develop a dedicated practice management division, led by 
veterans with national exposure to critical medical consulting issues. This 
experience will add significant marketing exposure and enhanced market 
visibility to providers who may need some or all of the multifaceted health 
care services provided by a MSO.

Acadia has developed a broad service selection. Its core services include 
accounts receivable management, fee for service billing, expense accounting, 
practice consulting, analysis of practice statistics, and electronic data 
interchange ("EDI") consulting regarding claims and remittance status.  The 
Company also has developed a variety of emerging services in response to the 
changing business needs of physicians, including: activity based costing 
systems; consulting services regarding alliances and mergers and acquisitions; 
capitation management and analysis; compliance services; consulting regarding 
EDI for eligibility, referrals and authorizations; outcomes reporting; and 
medical guidelines management.  Acadia has expanded its range of services to 
include information management and consulting services for mergers and group 
formations, and has created a distinct operating unit whose exclusive mission 
is to manage specialty networks.

MARKETING PLAN

Mergers and Acquisitions

Planned mergers and acquisitions will add sales volume and continue to enhance 
our in-house software capability and experienced practice management team to 
Acadia's historical strength in medical billing.  The Company will work with a 
secondary stock offering advisor during early 1999 to propel to an accelerated 
growth rate over the next five years.  Funds from the offering will be used to 
merge with or acquire other MSOs, expand leadership and the management team, 
and implement a national marketing and sales program.

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Business combinations will bring one or more top level executives in the 
disciplines of general management, health care finance, billing operations, 
practice management consulting, software development, regulatory compliance, 
business law and investor relations. These executives will have extensive 
sales and marketing experience in their respective credentials. These skills 
and experiences are complimentary with a minimum of overlap.  Acadia continues 
to expand a core management team of company founders, each with extensive 
company experience in their field.

Company Objectives (Short Term)

The combination of billing services, software, consulting, mergers and 
acquisitions, orchestrated by national and regional dynamic sales directors, 
exponentially add to the marketing penetration of our products.  With these 
driving vehicles, Acadia will successfully infiltrate and become a leader in 
the industry.  Mergers and acquisitions will give Acadia the critical mass 
needed to defend this growth methodology.

Acadia will market billing, practice management consulting, systems and other 
physician orientated business services to small medical practices in tertiary 
markets as well as large medical group organizations in urban areas.  Catering 
to these markets will play to small practice strengths inherited from our 
predecessor company, Physician Resources, Inc. and large group practice 
strengths transmitted from the internal growth of our management team.

The company will take advantage of several existing market conditions and 
national trends to achieve accelerated growth:

-Managed care, Medicare reform and other third party payer changes are 
 creating complexity, more rules and new liabilities for medical providers, 
 driving doctor offices and small billing firms out of the medical billing 
 business.  The maximum importance is shifting from that needed to submit a 
 bill to that required to fully document the encounter outcomes, protocols, 
 resource utilization and best practices.

-Many of the current major managed care professionals treat doctors as 
 employees, limiting both their incomes and traditional management role. MSOs 
 give doctors an opportunity to be profitable, active partner in reform rather 
 than its victims.

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-Cutting edge technology changes including computer networking, the Internet, 
 dedicated Intranets, electronic banking, billing and collections, automated 
 scheduling plus distributed data processing leave the doctors office and small 
 billing firms at best inefficient and at worst without access to payment 
 facilities. Discrete systems are giving way to enterprise-wide and automated 
 systems. Acadia already has extensive experience with these new technologies 
 and is currently expanding its state-of-the-art systems.

-Acadia addresses the national trend toward health care organization 
 alliances. Its strengths in medical industry expertise, business leadership, 
 capitalization, computer systems and capital formation will lead to strategic 
 partnerships, joint ventures and other rapid growth mechanisms. Small and 
 medium-sized billing and practice management companies will find that joining 
 Acadia is a good business strategy.

-Developments throughout international markets continue to suggest that Acadia 
 will be able to utilize those markets. Recent studies suggest that China is 
 home to over one hundred thirty million (130,000,000) people who can afford 
 private medical services. India, Mexico, South America and Europe also 
 present attractive markets to secure strategic alliance relationships. 

Acadia will assimilate the operations of future acquisitions and streamlining 
and standardizing of functions.  Lead locations and executives are being 
established for each service.  New positions in marketing and sales have been 
recruited.  Field personnel, including sales, operations managers and systems 
maintenance, report to the head of their particular department.  Thus, the 
Company will continue to have a top level manager in nearly every location 
with each employee reporting to a supervisor who understands his/her 
discipline.

Acadia will implement an aggressive marketing and sales program for services, 
mergers and strategic alliances.  The field sales force will focus on selling 
medical billing clients and identifying opportunities for other services or 
relationships.  These prospects will be referred to high-level, product line 
specialists in:  software, practice management or business combinations. Each 
product line will have a separate marketing program tailored to its particular 
opportunities and needs.  For example, mergers and acquisitions will 
concentrate on trade associations, business brokers and personal 
relationships.

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The following positions were recruited in 1998 and will be completed by first 
quarter of fiscal year ending September 30, l999:

National Marketing and Sales Manager - working with the Chief Executive 
Officer to establish new mergers and acquisitions, strategic alliances, joint 
ventures and clients.  This person will recruit and assist in the training and 
motivation of staff to fully empower them for their role of selling services 
to medical providers.  This individual is a career sales leader and manager 
with extensive prior national experience in the medical and financial services 
industry.  He shares the vision of Acadia to become one of the top Medical 
Management Services Organization in the country within five years.
Compliance Officer - is developing and monitoring a comprehensive written plan 
for meeting state and federal regulatory standards for Acadia and its 
clients.  The compliance function will be a profit center.  It will include 
employee training, procedures for detecting and reporting infractions and for 
responding to violation reports.  The person is thoroughly familiar with 
current regulations and will strive to maintain currency.

Chief Financial Officer - is a CPA with experience in the medical industry.  
The Chief Financial Officer is managing Acadia's balance sheet, budgets and 
cash flows, working with independent auditors, investors and lenders to give 
Acadia the financial platform for rapidly expanding operations. This person 
will participate in due diligence activities on joint ventures, strategic 
alliances, acquisitions, franchising, and provider setup. They are a primary 
liaison with the legal staff in codifying all financial arrangements.  She is 
an entrepreneurial personality with extensive financial management experience, 
excellent analytical skills and prior public accounting experience with a 
prestigious public accounting firm. 

President and Chief Operating Officer - is a seasoned Executive Vice President 
of a large international corporation.  The prospective employee tenured as 
director at the restructuring of his division which resulted in a substantial 
increase in profitability.  He completed a number of national and 
international mergers and acquisitions of the parent company.  He will be 
responsible for the day-to-day operations and strategic development for the 
company under a long term arrangement. 

Senior Vice President and Director of Marketing - has recently completed two 
years as Special Project Director for the Office of the Governor, State of 
Maine.  Previously he was a partner, co-founder and director of a $20 million 
dollar multi-national marketing and communications company with offices around 
the world.  

<PAGE> 10

Vice President of Internal Affairs -  will bring 30 years of healthcare 
senior management experience to Acadia. He led the development of Maine's 
largest and arguably most successful home health agency following the 
implementation of Medicare.  More recently, he has held key positions in both 
acute and long term care.  His primary responsibilities at Acadia, in addition 
to human resources, will be staff development and corporate compliance.  

Company Objectives 

-Data, audit trails and staff to support successful payer audits without 
 disruption of the regular work flow and without penalties for noncompliance

-Electronic filing and electronic funds transfer for faster processing

-More frequent billing for improved cash flow

-Monitoring action on denials and delinquencies to eliminate orphaned claims

-The ability to interface with all payers including Medicare, Medicaid, 
 group insurances, managed care (capitation) and private pay

-Historical databases with reports that will support negotiations

-Separate billing becomes a vital component of Group Practice Without 
 Walls (GPWW).  Volume and comprehensive services give GPWW providers 
 negotiating power with managed care organizations

Specialization, increased capital intensity and technological change are 
leading to increased outsourcing in all areas of human commerce.  The health 
industry is no exception.  Today's communications technology makes it 
practical to deliver medical services in multiple locations, process billing 
data geographically and audit the data at a centralized location.  Increased 
regulatory pressure will replace the office clerk with a highly-trained 
billing specialist who processes services strictly for a medical specialty.  
But because of the need for continuous education and expanding compliance 
management, many small providers will be forced to look at outsourcing this 
critical function.  

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Professional Practice Management

Consulting is a dynamic field in high demand to assist independent physicians 
joining together into large management service organizations (MSO), 
independent practice associations (IPA) and strategic alliances with 
physicians as large group practices.  The professional consulting division 
facilitates not only the growth of these relationships, but acts as a conduit 
for promoting other service products of Acadia, such as billing and 
information systems technology.

Employment of a practice management consultant will allow professional medical 
staff to concentrate on clinical issues.  Acadia will offer an experienced, 
objective outside review of office procedures, practices and staffing.  A 
practice manager can perform special projects, such as a fee schedule review 
and adjustment, that are not within the capacity of in-house staff.  The 
practice manager can also advise principals on business and financial issues 
encountered in benefits, investment and retirement planning, consolidation, 
mergers and contract negotiating.

Hospitals are expanding their operations to include primary care medical 
practices to provide added patient referral flow.  Additionally, hospitals 
offer financing and the security of a steady income to doctors.  Frequently, 
hospital billing systems and staff lack the capacity (or capability) to deal 
with doctor billing and sophisticated practice management issues.  Acadia can 
offer supplemental services to hospitals that will permit them to own 
practices without disrupting themselves or upsetting their providers.  
External billing and practice management can be a win-win situation for all 
parties.

After decades of health care inflation well in excess of general levels, the 
public now demands a more efficient and affordable health care delivery 
system.  This led to the growth of managed care and reducing physician 
autonomy.  Managed care though expected to dominate the market by the end of 
the century, is experiencing public backlash for restraints of  patient 
directed care.  Physicians need avenues to regain their autonomy while 
satisfying the demands of public pressure and managed care.  Close partnership 
with efficient business organizations offers the provider medical control and 
profit incentives.  It also gives the physician accurate and predictable 
business and financial results.

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Health care providers, particularly doctors, frequently experience business 
operations difficulties.  The discipline of practice management has evolved to 
fill this need.  Medical practice managers may be accountants, lawyers, 
business consultants or they may be doctors who have chosen to specialize in 
the business aspect of medicine.  Practice managers work with providers to 
develop procedures and techniques to improve responsiveness to patients' needs 
and increase productivity and profitability.  They often manage special 
projects, such as fee schedule negotiations or new clinician screening.

Software and Information Systems Technology

Acadia, through a Master Software Licensing Agreement, has incorporated 
MEDISENSE, Computer Systems, Inc. as its internal software technology 
engine and will convert each merger and acquisition to this standard 
information system for all operating divisions and facilities.  A vital 
component of Acadia's growth, MEDISENSE, provides a solid foundation for 
communication with medical bill payors and regulators.  Information companies 
must expect that unit service prices will come down steadily as technology 
improves.  Continuous improvement in software for billing, practice management 
and internal communications will keep Acadia ahead of the price curve.

International Strategic Alliance and Business Combinations

Developments throughout international markets continue to suggest that Acadia 
will be able to utilize those markets through implementation of its strategic 
alliance platform.  Members of the Acadia management team possess 
international experience and will assist the Company in establishing the 
strategic  relationships abroad in targeted countries.  Acadia will be 
introduced to representatives from international business development 
associations (i.e. France, Ireland, Sweden, Spain, Germany, Italy, Morocco, 
Puerto Rico, the Caribbean, Columbia, Bolivia, Argentina, Peru, Japan, 
Thailand, Taiwan, China, India and the Middle East), business development 
centers, marketing experts, consulate departments and international business 
expositions.  Acadia will also participate in international trade shows. 

Operations Financing

Acadia National Health Systems, Inc. pioneered financing of waivered foster 
home care operations in 1994.  The waivered foster home program includes 
small, thinly capitalized boarding homes that incur substantial costs in 
providing care, but do not normally receive payment for several weeks. The 
program has been very successful in the last three years and enjoys an 
excellent growth rate.  Revenue from this service is anticipated to grow 

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significantly by the year 2002.

COMPETITION

The MSO and medical billing business is highly competitive. The Company 
competes with national and regional physician reimbursement organizations and 
certain physician groups and hospitals which provide their own business 
management and billing services. Competition among these organizations is 
based upon the relationship with the client or prospective client, the 
efficiency and effectiveness of converting medical services to cash, the 
ability to provide pro-active practice management services and, to the extent 
that service offerings are comparable, upon price.

With the substantial market opportunity, some or all of the following sources 
are likely to enter the market: healthcare information management consultants; 
healthcare information services providers, particularly developers and vendors 
of management software; companies that outsource business office functions; 
and other parties in contract management businesses (for example, business or 
financial management services) desiring to enter the healthcare field. The 
Company expects that distinguishing competitive factors will include 
reputation for expertise in health information management, expertise and 
experience in implementing leading technologies, size and scope of 
referenceable accounts, prior experience in billing, outsourcing, and pricing. 
Additionally, there are national companies that operate in other areas of the 
health information management spectrum, primarily, the business office and 
billing. As the Company expands its scope into other areas of health 
information management, the Company expects to compete with other, 
perhaps better established, better capitalized and larger competitors.

The Company experiences competition with respect to its billing business from 
a variety of sources, including both local and national businesses. The 
medical billing services market is highly fragmented, with thousands of 
medical billing companies nationally.   The Company believes the principal 
competitive factors include reputation, prior experience, technology, 
management, marketing, compliance, pricing, timeliness and accuracy of 
performance.

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OPERATIONS

Service Delivery Methods

Acadia will provide business and financial services to smaller health care 
providers and organizations in suburban and rural areas in addition to 
regional and national clients in urban areas.

Acadia intends to develop its core business units through internal growth, 
mergers and acquisitions. Marketing and area development will concentrate 
around each location with expansion parameters.

Any organization that delivers goods or services over a wide geographic area 
must contend with centralization of functions and identify duties to be 
distributed into the field.  Since Acadia's core activity will be billing, 
these issues are first discussed in billing terms.

Some elements require regimentation and tight controls to satisfy fiduciary 
and regulatory responsibilities.  Others must be conservative to foster 
initiative, creativity and growth.  Development of staff, business systems and 
selection of software to promote this loose/tight approach is a major factor 
for rapidly growing financial services companies in the information age.

Sales always occur at the client site or a regional office.  Sales will be the 
primary responsibility of  the Acadia sales associates.  Each will have the 
latitude to cultivate a variety of relationships with health providers in the 
designated area and the incentives toward building volume.

The growth of third party payment organizations, both public and commercial, 
along with their demands for timeliness, quality and technical capability make 
centralized processing, transactions and quality control essential.  As 
communication costs have fallen, the drawback of processing thousands of miles 
away has disappeared when compared with the advantages of a large, efficient, 
tightly managed "back room" organization.

Methods of Operation (Billing)

Each medical office has a standard protocol that lists all procedures.  The 
listings reference an industry standard CPT code.  Coding errors are among the 
most common causes of claim rejections or charges of misbilling.  After 
performing a procedure, the provider will complete the appropriate steps that 
enable Acadia to correctly gather required patient data.  This information 
will be keyed into a computer network, along with general information and 

<PAGE> 15

third party payment data on each new patient.  Compliance management will 
screen procedures for appropriateness before billing.  

Compliance will screen to verify:

1. Both the provider and the patient were appropriate for the procedure. 
   (Example:  An orthopedic surgeon could not bill for a cesarean section on 
   a male.)

2. The procedure was appropriate at the stage of care and was not included 
   in some broader procedure billed simultaneously.

Charges not passing the compliance screen will be referred to the compliance 
staff for additional review, contact with the clinician and possible 
revisions.

Information will then be stored by payer and invoices generated.  Some payers 
will receive paper invoices by mail and others electronic invoices by 
telecommunications.  Those receiving electronic invoices pay on average 30 
days earlier than those who receive paper invoices.

When payment is received, funds will be deposited in an account owned 
exclusively by the  provider.  Each practice will receive a weekly or monthly 
payment and reconciliation report.  Acadia will perform bookkeeping for some 
practices and provide a full monthly accounting of all activities.
All billing and collection information will be compiled and reported to the 
practice in summary form. This information will be available as a special 
report supporting data for fee for services and capitation negotiations with 
third party payers.

TECHNOLOGY

Software and Systems Technology

Acadia has signed Master Licensing Agreement with a national medical billing 
software and leading edge technology company, MEDISENSE. The Company's 
software operates on a NT network that allows centralized or decentralized 
processing.  Additional considerations are:

-  Windows NT operating system software will have more robust structure, 
   easier maintenance and better cap

<PAGE> 16

REGULATORY CONSIDERATIONS

Healthcare Industry
 
Acadia's business is affected by, among other things, trends in the U.S. 
healthcare industry. As healthcare expenditures have grown as a percentage of 
the U.S. gross national product, public and private healthcare cost 
containment measures have applied pressure to the margins of healthcare 
providers. Historically, some healthcare payors have paid the prices 
established by providers while other healthcare payors, notably government 
agencies and managed care companies, have paid less than established prices 
(in many cases less than the average cost of providing the services). As a 
consequence, prices charged to healthcare payors willing to pay established 
prices have increased in order to recover the cost of services purchased by 
government agencies and others but not paid for by them (i.e., "cost 
shifting"). The increasing complexity in the reimbursement system and 
assumption of greater payment responsibility by individuals have caused 
healthcare providers to experience increased accounts receivable and bad 
debt levels and higher business office costs. 

Healthcare providers historically have addressed these pressures on 
profitability by increasing their prices, by relying on demographic changes to 
support increases in the volume and intensity of medical procedures, and by 
cost shifting. Notwithstanding the providers' responses to these pressures, 
management believes that the revenue growth rate experienced by certain 
Company clients continues to be adversely affected by increased managed care 
and other industry factors affecting healthcare providers in the United 
States.  At the same time, the process of submitting healthcare claims for 
reimbursement to third party payors in accordance with applicable industry and 
regulatory standards continues to grow in complexity and to become more 
costly.  Management believes that these trends have adversely affected and 
could continue to adversely affect the revenues and profit margins of the 
Company's operations.
 
Under Medicare law, physicians and hospitals are only permitted to assign 
Medicare claims to a billing service in certain limited circumstances. The 
Medicare statutes that restrict the assignment of Medicare claims are 
supplemented by Medicare regulations and provisions in the Manual.

<PAGE> 17

The Medicare regulations and the Manual provide that a billing service that 
prepares and sends bills for the provider or physician and does not receive 
and negotiate the checks made payable to the provider or physician does not 
violate the restrictions on assignment of Medicare claims. Management believes 
that its practices do not violate the restrictions on assignment of Medicare 
claims because, among other things, it bills only in the name of the medical 
provider, checks and payments for Medicare services are made payable to the 
medical provider and the Company lacks any power, authority or ability to 
negotiate checks made payable to the medical provider. Acadia's medical 
billing activities are also governed by numerous federal and state civil and 
criminal laws.  In general, these laws provide for various fines, penalties, 
multiple damages, assessments and sanctions for violations, including possible 
exclusion from Medicare, Medicaid and certain other federal and state 
healthcare programs. 

Submission of claims for services or procedures that are not provided as 
claimed may lead to civil monetary penalties, criminal fines, imprisonment 
and/or exclusion from participation in Medicare, Medicaid and other federally 
funded healthcare programs. Specifically, the Federal False Claims Act allows 
a private person to bring suit alleging false or fraudulent Medicare or 
Medicaid claims or other violations of the statute and for such person to 
share in any amounts paid to the government in damages and civil penalties. 
Successful plaintiffs can receive up to 25 30% of the total recovery from the 
defendant. Such qui tam actions or "whistle blower" lawsuits have increased 
significantly in recent years and have increased the risk that a company 
engaged in the healthcare industry, such as Acadia and many of its clients, 
may become the subject of a federal or state investigation or may ultimately 
be required to defend a false claims action, may be subjected to government 
investigation and possible criminal fines, may be sued by private payors and 
may be excluded from Medicare, Medicaid and/or other federally funded 
healthcare programs as a result of such an action. The government on its own 
may also institute a Civil False Claims Act case, either in conjunction with a 
criminal prosecution or as a stand alone civil case. Whether instituted by a 
qui tam plaintiff or by the government, the government can recover triple its 
damages together with civil penalties of $5,000 $10,000 per false claim. Under 
applicable case law, a party successfully sued under the Federal False Claims 
Act may be jointly and severally liable for damages and penalties. Some state 
laws also provide for false claims actions, including actions initiated by a 
qui tam plaintiff. There can be no assurance that Acadia will not be the 
subject of false claims or qui tam proceedings relating to its billing 
activities or that Acadia will not be the subject of further government 
scrutiny or investigations relating to its billing and accounts receivable 
management services operations.   Any such proceeding or investigation 

<PAGE> 18

could have a material adverse effect upon the Company.
 
Governmental Budgetary Constraints and Healthcare Reform
 
The federal government in recent years has placed increased scrutiny on the 
billing practices of healthcare providers and related entities. This 
scrutiny has been directed at, among other things, fraudulent billing 
practices. The Department of Health and Human Services in recent years has 
increased the resources of its Office of the Inspector General ("OIG") 
specifically to pursue both false claims and fraud and abuse violations under 
the Medicare program. This heightened examination has resulted in a number of 
high profile investigations, lawsuits and settlements.

In 1996, Congress enacted the Health Insurance Portability and Accounting Act 
of 1996, Pub. L. No. 104 191, 1996 U.S.C.C.A.N. (110 Stat. 1936) (codified in 
scattered titles of the United States Code, including 18, 26, 29 and 42 
U.S.C.) which includes an expansion of certain fraud and abuse provisions, 
such as expanding the application of Medicare and Medicaid fraud penalties to 
other federal healthcare programs, and creating additional criminal offenses 
relating to healthcare benefit programs, which are defined to include both 
public and private payer programs. The Health Insurance Act also provides for 
forfeitures and asset freezing orders in connection with such healthcare 
offenses. Civil monetary penalties and program exclusion authority available 
to the OIG also have been expanded. The Health Insurance Act contains 
provisions for instituting greater coordination of federal, state and local 
enforcement agency resources and actions through the OIG. There also have 
been several recent healthcare reform proposals which have included an 
expansion of the anti kickback laws to include referrals of any patients 
regardless of payer source.
 
In the 1995 and 1996 sessions of the United States Congress, the focus of 
healthcare legislation was on budgetary and related funding mechanism issues. 
A number of reports, including the 1995 Annual Report of the Board of Trustees 
of the Federal Hospital Insurance Program, projected that the Medicare trust 
fund is likely to become insolvent by the year 2002 if the current growth rate 
of approximately 10% per annum in Medicare expenditures continues. Similarly, 
federal and state expenditures under the Medicaid program are projected to 
increase significantly during the same seven year period. In response to these 
projected expenditure increases, and as part of an effort to balance the 
federal budget, both the Congress and the Clinton Administration have made 
proposals to reduce the rate of increase in projected Medicare and Medicaid 
expenditures and to change funding mechanisms and other aspects of both 

<PAGE> 19

programs. In late 1995, Congress passed legislation that would substantially
reduce projected expenditure increases and would make significant changes in 
the Medicare and the Medicaid programs.  The Clinton Administration has 
proposed alternate measures to reduce, to a lesser extent, projected increases 
in Medicare and Medicaid expenditures.
 
A number of states in which Acadia plans operations either have adopted or are 
considering the adoption of healthcare reform proposals at the state level.  
Acadia cannot predict the effect of proposed state healthcare reform laws on 
its operations.  Additionally, certain reforms are occurring in the healthcare 
market which may continue regardless of whether comprehensive federal or state 
healthcare reform legislation is adopted and implemented. These medical 
reforms include certain employer initiatives such as creating purchasing 
cooperatives and contracting for healthcare services for employees through 
managed care companies (including health maintenance organizations), and 
certain provider initiatives such as risk sharing among healthcare providers 
and managed care companies through capitated contracts and integration among 
hospitals and physicians into comprehensive delivery systems. Consolidation of 
management and billing services by integrated delivery systems may result
in a decrease in demand for Acadia billing services for particular physician 
practices, but this decrease may be offset by an increase in demand for 
Acadia's consulting and comprehensive business management services (including 
billing services) for the new provider systems.
 
INSURANCE
 
The Company maintains director and officer ("D&O") liability insurance on a 
claims made basis for all of its current officers and directors.  Insurance 
coverage under such policies is contingent upon a policy being in effect when 
a claim is made, regardless of when the events which caused the claim 
occurred. The cost and availability of such coverage has varied widely in 
recent years. While the Company believes its insurance policies are adequate 
in amount and coverage for its current operations, there can be no assurance 
that the coverage maintained by the Company is sufficient to cover all future 
claims or will continue to be available in adequate amounts or at a reasonable 
cost.

EMPLOYEES
 
As of September 30, 1998, the Company employed approximately thirty-four (34) 
people. None of the Company's employees is a  member of a labor union, and the 
Company considers its relations with its employees to be excellent.

<PAGE> 20 


IMPORTANT FACTORS RELATED TO 
FORWARD LOOKING STATEMENTS AND ASSOCIATED RISKS

The statements contained in this report that are not purely historical are 
forward looking statements within the meaning of Section 27A of the Securities 
Act of 1933, as amended (the "Securities Act") and Section 21E of the 
Securities Exchange Act of 1934, as amended (the "Exchange Act"), including 
statements regarding the Company's expectations, hopes, intentions or 
strategies regarding the future.  All forward looking statements included 
herein are based on information available to the Company on the date hereof, 
and the Company assumes no obligation to update any such forward looking 
statements.  It is important to note that the Company's actual results could 
differ materially from those in such forward looking statements.  Among the 
factors that could cause actual results to differ materially are the risk 
factors which may be listed from time to time in the Company's reports on Form 
10 QSB, 10 KSB and registration statements filed under the Securities Act.

Forward looking statements encompass the (i) expectation that the Company can 
secure additional capital, (ii) continued expansion of the Company's 
operations through joint ventures and acquisitions, (iii) success of existing 
and new marketing initiatives undertaken by the Company, and (iv) success in 
controlling the cost of services provided and general administrative expenses 
as a percentage of revenues.

The forward looking statements included herein are based on current 
expectations that involve a number of risks and uncertainties. These forward 
looking statements were based on assumptions that the Company would continue 
to expand, that capital will be available to fund the Company's growth at a 
reasonable cost, that competitive conditions within the industry would not 
change materially or adversely, that demand for the Company's services would 
remain strong, that there would be no material adverse change in the Company's 
operations or business, and that changes in laws and regulations or court 
decisions will not adversely or significantly alter the operations of the 
Company.  Assumptions relating to the foregoing involve judgments with respect 
to, among other things, future economic, competitive, regulatory and market 
conditions, and future business decisions, all of which are difficult or 
impossible to predict accurately and many of which are beyond the control of 
the Company.

Although the Company believes that the assumptions underlying the forward 
looking statements are reasonable, any of the assumptions could prove 
inaccurate and, therefore, there can be no assurance that the forward looking 
information will prove to be accurate.  In light of the significant 
uncertainties inherent in the forward looking information included herein, the 

<PAGE> 21

inclusion of such information should not be regarded as a representation by 
the Company or any other person that the objectives or plans of the Company 
will be achieved.


ITEM 2. DESCRIPTION OF PROPERTY

The Company currently leases its headquarters facility at 95 Park Street in 
Lewiston, Maine, which is owned by Fleet Bank FSB.  The space for the 
headquarters facility is leased to the Company.  The following tabulates 
certain information with respect to the lease currently executed between the 
Company and Fleet Bank.

<TABLE>
<CAPTION>

                       Current
                       Square          Monthly                 Lease
Location               Footage         Rental     Lessor       Expiration
                       -------         -------    -------      ----------       
<S>                    <C>             <C>        <C>          <C>

Executive Offices      5,600 sq. ft.   $3,500     Fleet Bank   7/31/03
95 P ark Street
Lewiston, Maine 04240                                                    

</TABLE>  

ITEM 3. LEGAL PROCEEDINGS

No material legal proceedings to which the Company (or any of its directors 
and officers in their capacities as such) is party or to which property of the 
Company is subject is pending and no such material proceeding is known by 
management of the Company to be contemplated.


ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

Not applicable     

<PAGE> 22

PART II


ITEM 5. MARKET FOR COMMON EQUITY AND 
        RELATED STOCKHOLDER MATTERS

The Company's Common Stock has been quoted on the National Association of 
Securities Dealers' ("NASD") National Market System Over-the-Counter ("OTC") 
Bulletin Board under the trading symbol "ACAD" since the NASD cleared the 
Company's Form 211 application, pursuant to Rule 15c2-11(a)(5) of the Exchange 
Act and accompanying Information and Disclosure Statement in May of 1997.  The 
following table sets forth the range of high and low closing prices of the 
Company's Common Stock, as reported by the OTC Bulletin Board Market, from 
June 30, 1998 through September 30, 1998.  The prices set forth below reflect 
inter-dealer quotations, without retail markups, markdowns or commissions, and 
do not necessarily represent actual transactions.

<TABLE>
<CAPTION>

The prices in the table below represent the high and low sales price for the 
Common Stock as reported on the OTC Bulletin Board Market for the periods 
presented. Such prices are based on inter dealer bid and asked prices without 
markup, markdown, commissions or adjustments and may not represent actual 
transactions.

<S>                                        <C>             <C>
YEAR ENDED SEPTEMBER 27, 1997              HIGH            LOW
-----------------------------              ----            ----       

  First Quarter..........................  $               $
  Second Quarter.........................  $               $
  Third Quarter..........................  $               $
  Fourth Quarter.........................  $ 2.500         $ 1.875

<PAGE> 23

YEAR ENDED SEPTEMBER 30, 1998              HIGH            LOW
-----------------------------              ----            ----       

  First Quarter.........................   $2.1875         $1.875
  Second Quarter........................   $2.0000         $1.625
  Third Quarter.........................   $1.875          $1.875
  Fourth Quarter........................   $1.125          $  .50

</TABLE>

The last reported sale price of the Common Stock on September 30, 1998 was 
$1.12 per share. The number of record holders of the Company's Common Stock 
was 351 on September 30, 1998.

Holders of Common Stock are entitled to receive such dividends as may be 
declared by the Company's Board of Directors.  No dividends on the Common 
Stock have been paid by the Company, nor does the Company anticipate that 
dividends will be paid in the foreseeable future, but intends instead to 
retain any future earnings for reinvestment in its business. 

As reflected in the price quotations above, there have been price fluctuations 
in the Company's Common Stock. Factors that may cause or can cause market 
prices to fluctuate include any purchase or sale of a significant number of 
securities during a relatively short time period, quarterly fluctuations in 
results of operations, announcements of new facilities, issuance of additional 
securities, registration of securities and entrance of such securities into 
the public float, market conditions specific to the Company's industry and 
market conditions in general.  In addition, in recent years the stock market 
in general has experienced significant price and volume fluctuations. These 
fluctuations, which may be unrelated to the operating performance of specific 
companies, have had a substantial effect on the market price for many small 
capitalization companies such as the Company. 

Factors such as those cited  above, as well as other factors that may be 
unrelated to the operating performance of the Company, may adversely affect 
the price of the Common Stock.

<PAGE> 24

ITEM 6. SELECTED FINANCIAL DATA

Not applicable


ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
        FINANCIAL CONDITION AND RESULTS OF OPERATIONS OR
        PLAN OF OPERATION

FISCAL YEAR ENDING September 30, 1998

NOTE:

On September 1, 1998, Acadia National Health Systems purchased selected assets 
of Northeast Medical Business Group, Inc., a medical billing and management 
services corporation located in Keene, New Hampshire.  The following 
management discussion and analysis of financial conditions and results of 
operations includes the operations of Northeast from September 1, 1998 to 
September 30, 1998.

The following discussion should be read in conjunction with the Financial
Statements and notes thereto.

GENERAL

Acadia National Health Systems, Inc., a corporation originally organized in 
1971 and re-organized in 1996 under the laws of the State of Colorado 
("Acadia" or the "Company"), provides business management services to 
physicians and hospitals, including data collection, data input, medical 
coding, billing, cash collections and accounts receivable management. These 
services are designed to assist customers with the business management 
functions associated with the delivery of healthcare services, allowing 
physicians and hospital staff to focus on providing quality patient care. 
These services also assist physicians and hospitals in improving cash flows 
and reducing administrative costs and burdens.  The Company also provides 
information technology and consulting services to healthcare markets.
 
Acadia markets its products and services primarily to integrated healthcare 
delivery networks, hospitals, physician practices, long term care facilities 
and home health providers.   The Company will also continue to focus on small 
practices in tertiary markets ignored by the major MSO players. Acadia's 
business and marketing plan will combine the experiences of its leadership 
team with expanded executive talent.  

<PAGE> 25

The company was formed to become a major national Medical Management 
Services Organization (MSO) over the next five years. MSOs offer billing, 
consulting, software, business systems, related services and financing to 
physicians and other health care providers. In a growing managed care 
environment, these firms offer business resources to an industry that is 
traditionally clinically oriented.

SALES

Sales for the year were $1,134,972 compared to $730,546 for the corresponding 
period in 1997. This represents a 55% increase in volume over the period.  
Acadia was successful in adding nine (9) new clients during the year with 
annualized revenues of $425,000. Two additional client contracts were 
signed late in August and September with anticipated gross sales of $65,000 
for fiscal year 1999.The Company also signed a major contract in July 1998 
with a large local behavioral medicine group for a one year term.  Revenue 
earned on this contract in the 1998 fiscal year totaled $61,000 with additional 
revenue of over $100,000 expected before the contract expires in mid 1999.   
At that time both parties have agreed to review results to determine if any 
future contractual relationship should take place.

As a result of the acquisition of Northeast Medical Business Group, Inc. as 
described above, Acadia added ten (10) physician practice groups to its client 
base.  Gross revenue earned on these contracts in the 1998 fiscal year totaled 
$42,400. Gross sales of $650,000 are expected for fiscal year 1999 from these 
clients.

All the Company's new clients are medical specialists in radiology, 
anesthesiology, behavioral and family medicine, which further compliments our 
solid base in these disciplines.
                        
OPERATING EXPENSES

Increases in operating expenses during the period were principally 
due to increased costs incurred in servicing the expanded client base, in 
addition to increases in depreciation, occupancy, and administrative costs 
related to the acquisition of Northeast Medical Billing.

OPERATING INCOME

The operating gain for the year was $80,371 compared to a gain of  $4,066 for 
fiscal year 1997.  This represents a significant increase over the prior year.

<PAGE> 26

INCOME TAXES

Acadia is a C Corporation with an accrual of  $8,770 combined State and 
Federal income taxes. 

NET INCOME

Acadia's net gain after taxes of $53,650 was ($0.0143) per share on 3,744,321 
average outstanding common shares as compared to  $1,866 ($0.0005 per share) 
on 3,733,987 outstanding common shares in fiscal year 1997.

LIQUIDITY AND CAPITAL RESOURCES

The Company's non-trade accounts receivable increased $233,718 due to the 
rapid growth of the Waivered Foster Home and non-medical billing programs as 
well as the acquisition of Northeast Medical Group.  These are clean, secured 
receivables with the majority due from the State of Maine. During this same 
period, the Company added $97,684 in property, plant and equipment, 
principally computer systems and related software.  Anticipated expansions and 
potential acquisitions will place additional demands on liquidity during the 
remainder of next year. The Company received a $30,000 four (4) year term 
loan, variable rate of .75% over national prime APR in June l998. The Company 
also signed a second five (5) year term loan for $200,000 at a 9.25% fixed rate
in September 1998 to cover start up expenses and technology costs related to 
the acquisition of Northeast Medical Billing.

These loans are secured by accounts receivables and equipment, including new 
assets acquired as a result of the acquisition.

SALARIES AND WAGES

Increase reflects the Company's expanded client base creating the need for 
additional staff, as well as the expansion of the Senior Management team.

DEPRECIATION

Increase reflects the Company's normal investment in property and equipment to 
support growth in its business as well as the acquisition of Northeast Medical 
Group, Inc.  Primary capital expenditures were in the technology area.

<PAGE> 27

AMORTIZATION

Amortization of intangible assets, which are primarily associated with the 
Company's acquisitions and software products, was $8,544 for the year ended 
September 30, 1998 as compared with $3,419 for the same period in 1997.  

INTANGIBLE ASSETS

The Company amortizes goodwill over a period of five years as management 
believes that these assets have a determinate life based on the non-competition
agreements related to the acquisition.  Management continually monitors 
events and circumstances both within the Company and within the industry,
which could warrant revisions to the Company's estimated useful life 
of goodwill.  If the Company ever determines that a reduction in the 
amortization period is necessary, it could have a material impact on the 
Company's results of operations.

INTEREST EXPENSE

Net interest expense was $57,200 in the year ended September 30, 1998 as 
compared with $34,095 in the same period of 1997.  The increase in interest 
expense was due to additional financing requirements related to the 
acquisition of Northeast as well as capital expansions.

OTHER INFORMATION
=================

Acadia has spent the second fiscal year of operations preparing the 
organization for rapid sales growth and expansion. The Company has 
completely revised operating policies, installed a new financial management 
system and recruited experienced,  operational and management personnel. 
Discussions continue with other similar businesses for future acquisitions and 
mergers.  Also, the Company is actively working with underwriters and capital 
formation specialists, concentrating in health care companies, to arrange a 
secondary offering capitalization. 

Another major accomplishment this year was the development and adoption of a 
medical reporting compliance program.  Acadia takes very seriously the need 
for correct verification, reporting and billing of medical services to all 
payors.  Education of our employees and providers is constant and critical to 
remain abreast in this very complex and rapidly changing medical billing and 
regulated arena.  

<PAGE> 28

MAJOR ACQUISITION

The Company continues to initiate discussions with various companies towards 
major acquisitions that will greatly strengthen Acadia and its product lines.

SALES TRENDS

Trends in Acadia's existing business lines, medical billing services and 
billing for waivered foster home care, are positive, with expected growth 
throughout  FY1999.  Added billing clients, software sales, practice 
management consulting, related support services and major acquisitions are 
expected to result in major revenue and earning increases in FY 1999 and 
beyond.

ACCOMPLISHMENTS AND OBJECTIVES

The Company will grow through strategic acquisitions, joint ventures and 
internal strategic alliance. Our market capitalization will foster our 
national marketing and sales programs. Promotion of our medical billing 
software technology and medical practice management consulting services will 
add additional growth to our front line business of medical billing.  Many 
smaller billing services and some practice management consultants are ill 
equipped to deal with the changes occurring in the health care market and 
regulatory environment, establishing them as candidates for affiliation.  
Acadia intends to grow its business through mergers and acquisitions of 
companies whose business philosophy is based on producing a high quality 
product, who's management is dedicated to long term ethical growth and who's 
organization and structure are complimentary to Acadia's vision of a superior 
company with a premium product.

The degree to which the Company is leveraged could have the following 
consequences: (i) the Company's ability to obtain additional financing in the 
future for working capital, capital expenditures, acquisitions or other 
general corporate purpose may be impaired; and (ii) a substantial portion of 
the Company's cash flow from operations may be dedicated to the payment of 
principal and interest on its indebtedness thereby reducing the funds 
available to the Company for its operations. In addition, the Credit Lines and 
short-term debt contain financial and other restrictive covenants, including 
without limitation those restricting the incurrence of additional 
indebtedness, the creation of liens, the payment of dividends, sales of 
assets, capital expenditures, and prepayments of indebtedness.
 
<PAGE> 29

YEAR 2000
 
It is possible that the Company's currently installed computer systems, 
software products or other business systems, or those of the Company's 
customers, vendors or resellers, working either alone or in conjunction with 
other software or systems, will not accept input of, store, manipulate and 
output dates for the years 1999, 2000 or thereafter without error or 
interruption (commonly known as the "Year 2000" problem). The Company has 
conducted a review of its business systems, including its computer systems, 
and is querying its customers, vendors and resellers as to their progress in 
identifying and addressing problems that their computer systems may face in 
correctly interrelating and processing date information as the year 2000 
approaches and is reached. Through its review, the Company has identified a 
number of older legacy systems that will be abandoned in favor of a limited 
number of more efficient processing systems, rather than make all the systems 
Year 2000 compatible.

The detail planning and inventory for the majority of the Company's legacy 
systems that are being modified for Year 2000 compatibility has been completed 
and such systems are in remediation.  Customers, vendors and resellers have 
been identified and requests for information distributed regarding the Year 
2000 readiness of such parties. Responses are expected through the first 
quarter of 1999. The Company will develop contingency plans during the first 
quarter of 1999 through the second quarter of 1999 in response to assessments 
of the Year 2000 readiness of customers, vendors and resellers.

The estimated cost of the Company's Year 2000 efforts is $25,000 to $30,000 
over 1999, the majority of which represents redirection of internal resources. 
However, there can be no assurance that the Company will identify all such 
Year 2000 problems in its computer systems or those of its customers, vendors 
or resellers in advance of their occurrence or that the Company will be able 
to successfully remedy any problems that are discovered.  The expenses of the 
Company's efforts to identify and address such problems, or the expenses or 
liabilities to which the Company may become subject as a result of such 
problems, could have a material adverse effect on the Company's business, 
financial condition and results of operations.  The revenue stream and 
financial stability of existing customers may be adversely impacted by Year 
2000 problems, which could cause fluctuations in the Company's revenue. In 
addition, failure of the Company to identify and remedy Year 2000 problems 
could put the Company at a competitive disadvantage relative to companies 
that have corrected such problems.

<PAGE> 30

ITEM 8. FINANCIAL STATEMENTS

The financial statements are included beginning at F 2.  See page F 1 for the 
Index to the Financial Statements.


ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS 
        ON ACCOUNTING AND FINANCIAL DISCLOSURE

On August 4, 1997, Berry, Dunn, McNeil & Parker, Certified Public Accountants, 
whose address is 100 Middle Street, Portland, Maine 04104 1100 has been 
engaged as the principal accountant to audit the Registrant's financial 
statements.

Additionally, there has been no occurrence requiring a response to this item.


PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND 
         CONTROL PERSONS;

Acadia National Health Systems, Inc. strives to provide a pleasant working 
environment and a strong team spirit.  Acadia has embraced the philosophy of 
"Distributive Ownership" that will be carried further through corporate office 
incentives and business unit ownership.

Board of Directors - will continue to be drawn from leaders in the financial 
services, insurance and medical industries.

Acadia will be governed by experienced veterans from health care, finance, law 
and operations. Corporate policy will be from an amalgamation of ideas from 
experts with experience.  Operational decision will be delegated to a senior 
management team directed by a national Chief Executive Officer with counsel 
and implementation from experienced administrative leaders. 

Paul W. Chute, President and Chief Executive Officer - brings over 22 years 
senior executive experience from Western Maine Health Care Corporation and its 
family of organizations and an additional four years from public accounting 
firms.  Mr. Chute's executive experience includes the design, development and 
implementation of nine active corporations where he was responsible for the 
finance and operation of over 600 employees and $38 million in sales.  He also 
directed and participated in key strategic planning activities for the 

<PAGE> 31

development of rural health care systems, hospital cooperatives and community 
organizations.  Mr. Chute played a significant role in major health care 
issues by promoting specific legislation through the State of Maine 
Legislature.  He has also testified in various legislative committees and 
sub-committees at the state and national congressional level.

Mr. Chute has extensive experience in developing joint business and partnering 
agreements with other standalone health care organizations, creation of new 
jointly owned companies and cooperative arrangements where major for-profit 
companies participated in health care programs developed and directed by him.

Mr. Chute's experiences bring together a wealth of financial experiences and 
knowledge and extensive background in operations and systems development.  

Mr. Chute has a Masters Degree in Business, is certified as a Diplomate from 
the American College of Healthcare Executives, carries an advanced 
certification as Fellow from the Healthcare Financial Management Association 
and is certified as a health care billing and management executive.

Jacquelyn J. Magno, Vice President and Secretary - has been with the Company 
for 24 years.  She became general manager in 1985.  She has been responsible 
for sales, operations, provider setup and liaison.  Magno keeps the company 
abreast of the latest changes in third party policy.  She will continue to 
expand and develop the waivered foster home billing program, enabling Acadia 
to market and promote "waivered billing" services nationally. 

Mark T. Thatcher, Vice President, Corporate Counsel - Mr. Thatcher has 
participated as a business and legal advisor for a number of public and 
privately held companies.  He has been retained for federal and state 
securities compliance, venture capital analysis, public and private merger 
and acquisition review, corporate reorganization/restructuring planning, 
and international franchising development. 

Mr. Thatcher coordinates and administers consultation regarding advanced 
securities planning, corporate acquisitions and mergers, advanced foreign 
situs estate planning, international tax planning, Securities Act of 1933 
compliance, Securities Exchange Act of 1934 compliance, "Blue Sky Law" 
compliance and Rule 144/145/701 sales and transaction compliance.  He has 
participated directly in eight public offerings registered with the S.E.C. 
and filed over thirty private offerings. 

<PAGE> 32

Mr. Thatcher was a junior partner of Daniel P. Edwards, P.C., an "AV" rated 
Colorado law firm with multiple listings for "preeminence" in the Martindale 
Hubell Directory.  The firm was "of counsel" to Hughes Dorsey, Denver, 
Colorado, Heron Burchette, Washington, D.C. and Sparks, Dix and Enoch, 
Colorado Springs, Colorado.  He is an honorary member of Phi Kappa Delta, 
Sutton Award candidate, and recipient of the E.V. Graham Scholarship Merit 
Award.

Mr. Thatcher attended the University of Denver where he earned a Juris 
Doctorate and Masters in Business Administration. He is presently a 
member of the State Bar of Colorado; Court of Appeals, District of Columbia; 
Committee Member of the Securities Forum, Washington, D.C.; Member of 
the Business Section, Securities Forum, Tax Section and Estate and 
Probate Section of the American Bar Association; and Member of  the 
American Society of International Law. 

John L. Crispin, M.D., Member of the Board of Directors - Doctor Crispin, 
currently a practicing physician is Chief, Department of  Anesthesiology, at 
Central Maine Medical Center.  He has held the position of Department Chief 
since 1995.  Doctor Crispin, is licensured in the State of Maine and certified 
as Diplomate, American Board of Anesthesiology.  Doctor Crispin holds a B.A. 
Cum Laude from Colby College, Waterville, Maine and a 1982 graduate of 
Dartmouth Medical School.   He has served his internship, residency, 
fellowship, military and as Chief Resident duties throughout the northern 
seaboard.  Doctor Crispin was awarded the John Dukrey Award for Excellence in 
Regional Anesthesia and the Robert D. Dripps Award for the outstanding 
graduate resident in anesthesiology.  He currently is a member of the Board of 
Directors for United Way of Androscoggin County and Lewiston-Auburn 
Physician's Association in addition to serving on the Executive, Operating 
Room, Pharmacy and Therapeutic Committees at Central Maine Medical Center.      

COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT

The following material contains information concerning the directors, 
including their recent employment, positions with the Company, other 
directorships and age as of the date of this Form 10 KSB.

<PAGE> 33


                                    CAPACITIES IN              DIRECTOR OR
NAME                       AGE      WHICH SERVED               OFFICER SINCE  
                           ---      -------------              -------------

Paul W. Chute              49       Chairman of the Board,     1997
                                    President and Treasurer

Jacquelyn J. Magno         51       Vice President and         1996  
                                    Secretary                     

John Crispin, MD           42       Director                   1997

Mark T. Thatcher, Esq.     34       Director                   1997

                            
Each director holds office until the next annual meeting of shareholders or 
until a successor has been duly elected and qualified. The Board is seeking 
qualified nominees to fill the vacancies and anticipates that the nominees 
will be presented to shareholders at the Company's next annual meeting.  
Officers are appointed by and serve at the discretion of the Board of 
Directors.  All of the Company's officers devote full time to the Company's 
business and affairs.

COMMITTEES OF THE BOARD

The Board of Directors delegates certain of its authority to a Compensation 
Committee and an Audit Committee.  There are currently vacancies on both of 
these committees.  The Board expects to fill such vacancies after it has 
filled the vacancies on the Board of Directors.

The primary function of the Compensation Committee will be to review and make 
recommendations to the Board with respect to the compensation, including 
bonuses, of the Company's officers and to administer the Company's proposed 
Option Plan.

<PAGE> 34

The function of the Audit Committee is to review and approve the scope of 
audit procedures employed by the Company's independent auditors, to review and 
approve the audit reports rendered by both the Company's independent auditors 
and to approve the audit fee charged by the independent auditors.  The Audit 
Committee will report to the Board of Directors with respect to such matters 
and recommends the selection of independent auditors.

BOARD AND COMMITTEE ATTENDANCE

In the 1998 fiscal year, the Board of Directors held four meetings.  All 
directors attended more than 75% of the aggregate of board and committee 
meetings held during the 1998 fiscal year.


ITEM 11. EXECUTIVE COMPENSATION

                            SUMMARY COMPENSATION TABLE

                                             Long Term Compensation
________________________________________________________________________________
Annual Compensat.                      Awards                            Payouts
________________________________________________________________________________

(a)          (b)   (c)       (d)      (e)     (f)       (g)      (h)     (i)
                                      Other   Rest.                      All
Name and                              Annual  Stock              LTIP    Other
Principal                             Comp.   Award(s)  Opt.     P/outs  Comp.  
Position     Year  Salary    Bonus($) ($)     ($)       SARs(#)  ($)     ($)
________________________________________________________________________________
CEO &
Treasurer    1998  51,750.00
Chute,                    
Paul W.
             1997  56,000.00
                   (Annualized)

V.P.
Magno,
Jacquelyn J. 1998  33,800.00

             1997  50,000.00
                   (Annualized)

             1996  50,000.00

V.P.
DeJohn,
Frank J.     1998  35,000.00
                   (Annualized)

No employee of the Company receives any additional compensation for his 
services as a director.  Non management directors receive no salary for their 
services as such, but are entitled to receive reasonable travel or other out 
of  pocket expenses incurred by non management directors in attending meetings 
of the Board of Directors and a fee of $100.00 per meeting attended.

The Company has no retirement, pension or profit sharing program for the 
benefit of its directors, officers or other employees.  The Board of Directors 
may recommend one or more such programs for adoption in the future.

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

Under the securities laws of the United States, the Company's directors, its 
executive officers, and any persons holding more than ten percent of the 
Company's Common Stock are required to report their initial ownership of the 
Company's Common Stock and any subsequent changes in that ownership to the 
Commission and the Company.  Specific due dates for these reports have been 
established and the Company is required to disclose any failure to file, or 
late filing, of such reports.  Based solely on the Company's review of Forms 
3, 4 and 5 and amendments thereto furnished to the Company and written 
representations with respect to filing of such Forms, the Company is aware 
that all Forms have been filed timely to date.

ITEM 12. SECURITY OWNERSHIP OF 
         CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth certain information regarding beneficial 
ownership of Common Stock as of September 30, 1998 by (i) each person known by 
the Company to own beneficially more than 5% of the outstanding Common Stock, 
(ii) each director, and (iii) all executive officers and directors as a 
group.  Each person has sole voting and sole investment or dispositive power 
with respect to the shares shown except as noted.

<PAGE> 36


                                 Shares of Acadia      
                                 Common Stock to be
                                 Beneficially Owned    Percent
Name and                         as of the Distrib.    of  
Address                          Record Date           Class

Paul W. Chute                      710,750             19.01%
76 North Withman School Road
Buckfield, ME 04220

Jacquelyn Magno                    710,350             19.00%
124 Fairway Drive
Auburn, ME 04210

Mark T. Thatcher                   700,000             18.24%
5 Julia Court
Portsmouth, RI 02871

All Directors and                2,247,100             58.56%   
Executive Officers
As a Group

Management of Acadia has advised that they may acquire additional shares of 
Acadia Common Stock from time to time in the open market at prices prevailing 
at the time of such purchases. 


ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

In connection with affiliate and insider transactions, the Company will not 
secure an independent determination of the fairness and reasonableness of such 
transactions and arrangements with affiliates of the Company.  However, in 
each instance, the directors will review and unanimously approve the fairness 
and reasonableness of the terms of the transactions. The Company believes 
that the approved transactions will be fair and reasonable to the Company on 
the basis that such transactions will be on terms at least as favorable as 
could have been obtained from unaffiliated third parties.  The transactions 
between officers and directors of the Company, on the one hand, and the 
Company, on the other, have inherent conflicts of interest.

<PAGE> 37

On September 8, 1998, the Registrant entered into a Contract for Sale of 
Assets agreement with Northeast Medical Business Group, Inc., a New Hampshire 
corporation (hereinafter referred to as "Northeast" or "Company") and Frank 
and Martha DeJohn,  sole shareholders of the Company, to acquire selected 
assets and a limited list of liabilities of the Company. The Registrant 
acquired all accounts receivables, furniture & equipment, computer hardware  
and operating systems as well as all software licenses along with various 
inventories an prepaid assets. In consideration, the Registrant paid a 
combination of $300,000 in cash and selected bank, lease and trade debt 
assumption, along with one hundred thousand (100,000) shares of the 
Registrant's common stock valued at $1.12 per share. A portion of the cash 
used in the acquisition was supplied by a five (5) year term loan for $200,000 
at variable market rates obtained from Northeast Bank FSB, Auburn, Maine 04211 
(no relationship with acquisition). All assets acquired were owned by or under 
lease to Northeast Medical Business Group, Inc., and will continue to be used 
in the operations of medical billing, accounts receivable management and 
medical practice management.

PART IV

ITEM 14. EXHIBITS AND REPORTS ON FORM 8 K

(a)  EXHIBITS

The following documents are filed herewith or have been included as exhibits 
to previous filings with the Commission and are incorporated herein by this 
reference:

EXHIBIT         NO.     DOCUMENT

*               2.1     Assets Purchase Agreement between Acadia National 
                        Health Systems, Inc. and Physician Resources, Inc., 
                        dated September 27, 1996;

####            2.2     Contract for Sale of Assets of Northeast Medical 
                        Business Group to Acadia National Health Systems, Inc., 
                        dated September 8, 1998;

####            2.3     Non-Competition, Confidentiality and Non-Solicitation
                        Agreement between Frank and Martha DeJohn and Acadia
                        National Health Systems, Inc., dated September 8, 1998;

<PAGE> 38

EXHIBIT         NO.     DOCUMENT

*               3.1     Articles of Incorporation of the Company, as amended;

*               3.2     Bylaws of the Company;

*               4.1     Instruments Defining Rights of Security 
                        Holders/Minutes of Annual/ Special Meetings of the 
                        Company;

*               4.2     Loan Agreements Secured by Demand Notes/Promissory 
                        Notes, Defining Rights of Holders of Long Term Debt; 

####            5.1     Opinion on Legality of Securities Being Issued to 
                        Frank and Martha DeJohn;

*               10.1    Software License Master Agreement;
  
*               10.2    Lease of Premises, Acadia Corporate Headquarters, 460 
                        Main Street, Lewiston, Maine 04240 (Assignment);     

*               10.3    Employment Agreements, dated September 27, 1996 
                        between Acadia and THOMAS N. HACKETT, C.E.O., 
                        JACQUELYN J. MAGNO, Vice President;

*               10.4    Internal Revenue Code Section 125 Cafeteria Plan 
                        dated June 1, 1996;

*               10.5    Line of Credit Memorandum dated September 8, 1995 
                        with PEOPLE'S HERITAGE BANK in the amount of 
                        $250,000.00;

*               10.6    Line of Credit Memorandum dated July 29, 1996 with 
                        PEOPLE'S HERITAGE BANK in the amount of$100,000.00;

###             10.7    Common Stock Purchase Agreement for 156,000 shares 
                        of common stock of Acadia National Health Systems, Inc.

###             10.8    Assignment Separate from Certificate and 
                        Irrevocable Stock Power for 156,000 shares of common 
                        stock of Acadia National Health Systems, Inc.

<PAGE> 39

EXHIBIT         NO.     DOCUMENT

###             10.9    Opinion of Counsel with respect to transfer of 
                        156,000 shares of common stock of Acadia National 
                        Health Systems, Inc.

###             10.10   Common Stock Purchase Agreement for 2,326,000 shares of
                        common stock of Acadia National Health Systems, Inc.

###             10.11   Assignment Separate from Certificate and Irrevocable 
                        Stock Power for 2,326,000 shares of common stock of 
                        Acadia National Health Systems, Inc.

###             10.12   Opinion of Counsel with respect to transfer of 
                        2,326,000 shares of common stock of Acadia National 
                        Health Systems, Inc.
     
####            10.13   Board of Directors' Resolution Authorizing Increase 
                        of outstanding Shares in connection with the issuance 
                        of 100,000 shares of common stock of Acadia National
                        Health Systems, Inc., to Frank and Martha DeJohn, in 
                        joint tenancy w/ right of survivorship;

####            10.14   Opinion of Counsel with respect to issuance 
                        of 100,000 shares of common stock of Acadia National 
                        Health Systems, Inc. to Frank and Martha DeJohn;

x               11      Computation of Basic and Diluted Earnings Per Share

##              16.1    Baker Newman & Noyes' Letter dated August 18, 1997 
                        in response to Item 4(a)(i), Item 4(a)(ii) and Item 
                        4(a)(iii) of this Form 8-KA.

###             20.1    Board of Director's Resolution authorizing new 
                        lines of credit and a term loan in connection with 
                        canceling personal guaranty and Debts of 
                        Thomas N. Hackett, founder of the Registrant.

###             20.2    Opinion of Borrower's Counsel

###             20.3    Indemnification Agreement (Estate of Thomas N. 
                        Hackett)

<PAGE> 40

EXHIBIT         NO.     DOCUMENT

###             20.4    Indemnification Agreement (Peacock Hill Farm Limited
                        Liability Company)

####            20.5    Board of Director's Resolutions authorizing a term 
                        loan in connection with purchase of selected assets of 
                        Northeast Medical Business Group, Inc. by Acadia 
                        National Health Systems, Inc;

####            20.6    Opinion of Borrower's Counsel;

x               23.1    Consent of Counsel

x               23.2    Consent of Berry, Dunn, McNeil & Parker, independent 
                        certified public accountants for the Company.

x               27      Financial Data Schedule

x               99.1    Private Securities Litigation Reform Act of 1995 Safe 
                        Harbor Compliance Statement for Forward-Looking 
                        Statements

####            99.2    Text of press release dated September 9, 1998.

------------------------------
x          Filed herewith.

*          Incorporated by reference from the issuer's Registration Statement 
           on Form 10SB12G (S.E.C. File No. 000-1026491) as declared effective 
           on January 11, 1997.

#          Incorporated by reference from the Issuer's Form 8 KA for event 
           date of July 31, 1997.

##         Incorporated by reference from the Issuer's Form 8 KA for event 
           date of August 8 and August 20, 1997.

###        Incorporated by reference from the Issuer's Form 8 K for event 
           date of August 13, 1997.

####       Incorporated by reference from the Issuer's Form 8-K for 
           event date of September 23, 1998.  

<PAGE> 41

(b)  REPORTS ON FORM 8 K

The Company filed the following reports on Form 8 K during the last quarter of 
the 1998 fiscal year.

     8-K, September 9, 1998, Item 99.1, Press Release

     8-K, September 23, 1998, Item 2, Acquisition of Assets and 
     Item 5, Other Events

SIGNATURES

In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934, 
the registrant caused this report to be signed on its behalf by the 
undersigned, thereunto duly authorized.


ACADIA NATIONAL HEALTH SYSTEMS, INC.                    


By:  /s/ Paul W. Chute
       
Paul W. Chute,
Chairman of  the Board and Chief Executive Officer
Date: December 30, 1998

In accordance with the Securities Exchange Act of 1934, this report has been 
signed below by the following persons on behalf of the registrant and in the 
capacities and on the dates indicated.

<PAGE> 42

SIGNATURE                    TITLE                    DATE
                                                                                
                       
/s/ Paul W. Chute            Chairman of the Board,   December 30, 1998
                             President (Principal 
                             Executive Officer) and
                             Treasurer

/s/ Jacquelyn J. Magno       Vice President and       December 30, 1998
                             Secretary

/s/ John Crispin, MD         Director                 December 30, 1998
                                         
/s/ Mark T. Thatcher, Esq.   Director                 December 30, 1998

<PAGE>  F-1

                    ACADIA NATIONAL HEALTH SYSTEMS, INC.
     
                   FINANCIAL STATEMENTS TABLE OF CONTENTS

<TABLE>
<S>                                                  <C>

Independent Auditors' 
Report...............................................F-2

Financial Statements

     Balance Sheet  
     September 30, 1998..............................F-3

     Statements of Operations   
     Years Ended September 30, 1998 and 
     September 26, 1997..............................F-4

     Statement of Changes in Stockholders' Equity  
     Years Ended September 30, 1998 and 
     September 26, 1997..............................F-5

     Statements of Cash Flows   
     Years Ended September 30, 1998 and 
     September 26, 1997..............................F-6

Notes to Consolidated Financial 
Statements...........................................F-7

</TABLE>

<PAGE> F-2

INDEPENDENT AUDITORS' REPORT

The Board of Directors and Stockholders
Acadia National Health Systems, Inc.

We have audited the accompanying balance sheet of Acadia National Health 
Systems, Inc., as of September 30, 1998, and the related statements of income, 
changes in stockholders' equity and cash flows for the years ended September
30, 1998 and September 26, 1997. These financial statements are the 
responsibility of the Company's management. Our responsibility is to express 
an opinion on these financial statements 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 
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 Acadia National Health 
Systems, Inc., as of September 30, 1998, and the results of its operations, 
changes in stockholders' equity, and its cash flows for the years ended 
September 30, 1998 and September 26, 1997, in conformity with generally 
accepted accounting principles.


Portland, Maine
November 20, 1998

<PAGE> F-3

ACADIA NATIONAL HEALTH SYSTEMS, INC.

Balance Sheet

September 30, 1998 

ASSETS

Current assets
     Cash                                                   $     2,529
     Accounts receivable and advances                         1,001,107
     Current portion of note receivable                          19,885
     Prepaid expenses and other assets                           69,634
     Deferred income taxes                                        5,960

               Total current assets                           1,099,115

Property and equipment
     Computer software and licenses                              79,847
     Equipment                                                  134,703
     Furniture and fixtures                                      38,431
     Leased equipment under capital leases                      211,173

                                                                464,154
     Less accumulated depreciation                               94,863

               Net  property and equipment                      369,291

Other assets
     Deferred costs, net of amortization of $10,552              31,754
     Goodwill, net of amortization of $1,412                     83,323
     Note receivable                                             63,487

               Total other assets                               178,564

                                                            $ 1,646,970      
<PAGE> F-4

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities
     Notes payable                                          $   542,738       
     Current portion of long-term debt                           57,600
     Current portion of obligations under capital leases         55,800
     Accounts payable                                            72,633
     Accrued expenses                                            43,339
     Income taxes payable                                         8,770

               Total current liabilities                        780,880

Deferred income taxes                                            12,500

Long-term debt, excluding current portion                       248,399

Note payable - stockholder                                       20,850

Obligations under capital leases, 
  excluding current portion                                      92,193

               Total liabilities                              1,154,822

Commitments (Note 10)

Stockholders' equity
     Common stock of no par value; authorized 50,000,000
       shares; issued and outstanding 3,837,987 shares          394,640      
     Additional paid-in capital                                  41,992
     Retained earnings                                           55,516

               Total stockholders' equity                       492,148

                                                            $ 1,646,970

<PAGE> F-5

ACADIA NATIONAL HEALTH SYSTEMS, INC.

Statements of Income

Years Ended September 30, 1998 and 
September 26, 1997 

                                                    1998           1997         
                                                  -----------    -----------

Revenues                                          $ 1,134,972    $   730,546
Direct expenses                                       394,773        229,844

               Gross profit                           740,199        500,702

Selling, general and administrative expenses
     Salaries and benefits                            242,685        143,683
     Professional fees                                 42,763        141,423
     Administrative                                    82,624         55,358
     Depreciation and amortization                     43,773         31,797
     Equipment                                         45,604         23,342
     Postage                                           69,199         30,579
     Occupancy                                         60,190         39,702
     Travel                                            16,438         14,709
     Bad debts                                          5,509              -

               Total expenses                         608,785        480,593

Other income (expense)
     Interest expense                                 (57,199)       (34,095)
     Interest income                                    9,450            552
     Other income                                      10,697         17,500
     Loss on disposition of fixed assets              (13,991)             -

               Total other expenses                   (51,043)       (16,043)

               Income before income taxes              80,371          4,066

Income taxes                                           26,721          2,200

               Net income                         $    53,650    $     1,866

               Net income per common share        $     .0143    $     .0005

<PAGE> F-6

ACADIA NATIONAL HEALTH SYSTEMS, INC.

Statements of Changes in Stockholders' Equity

Years Ended September 30, 1998 and September 26, 1997 

<TABLE>
<CAPTION>

                       
                                            Common Stock             Additional        Retained
                                         Shares      Amount        Paid-in Capital     Earnings        Total
                                         _________   ___________   _______________     ___________     ____________
<S>                                      <C>         <C>           <C>                 <C>             <C> 
Balance, September 27, 1996              3,708,987   $   251,640   $         -         $         -     $   251,640

     Issuance of common stock               25,000        25,000             -                   -          25,000
     Additional capital contribution             -             -        41,992                   -          41,992
     Net income                                  -             -             -               1,866           1,866

Balance, September 26, 1997              3,733,987       276,640        41,992               1,866         320,498

     Issuance of common stock                4,000         6,000             -                   -           6,000
     Common stock to be issued             100,000       112,000             -                   -         112,000
     Net income                                  -             -             -              53,650          53,650

Balance, September 30, 1998              3,837,987   $   394,640   $    41,992         $    55,516     $   492,148

</TABLE>

<PAGE> F-7

Statements of Cash Flows

Years Ended September 30, 1998 and September 26, 1997

<TABLE>
<CAPTION>

                                                                 1998           1997
                                                               -----------    -----------         
<S>                                                            <C>            <C>       
Cash flows from operating activities
     Net income                                                $    53,650    $     1,866
     Adjustments to reconcile net income to net cash
          provided (used) by operating activities
               Stock issued for services received                    6,000         41,992
               Depreciation and amortization                        43,773         31,797
               Loss on disposition of fixed assets                  13,991              -
               Deferred income taxes                                13,540            500
               Decrease (increase) in
                    Accounts receivable and advances               (95,887)      (547,106)
                    Prepaid expenses and other assets              (12,836)        26,184
               Increase (decrease) in
                    Accounts payable                                15,436          3,235
                    Accrued expenses                                13,058         (9,694)
                    Income taxes payable                             7,070          1,700

               Net cash provided (used) by operating activities     57,795       (449,526)

Cash flows from investing activities
     Deposits                                                            -         12,000
     Additions to property and equipment                           (97,683)       (87,493)
     Cash paid for net assets acquired                             (18,168)             -
     Note receivable                                                (8,372)       (75,000)

               Net cash used by investing activities              (124,223)      (150,493)

Cash flows from financing activities
     Net short-term borrowings                                     (10,125)       463,946
     Principal payments on long-term debt                          (20,667)      (103,912)
     Proceeds from issuance of long-term debt                      101,287        101,407
     Principal payments under capital lease obligations             (7,249)             -
     Organizational costs                                                -         (6,150)
     Deferred financing cost                                             -         (2,352)
     Increase in note payable to stockholder                             -          6,803
     Sale of common stock                                                -         25,000

               Net cash provided by financing activities            63,246        484,742

               Net decrease in cash                                 (3,182)      (115,277)

Cash, beginning of year                                              5,711        120,988

Cash, end of year                                              $     2,529    $     5,711

</TABLE>

<PAGE> F-8

ACADIA NATIONAL HEALTH SYSTEMS, INC.

Notes to Financial Statements

September 30, 1998 and September 26, 1997

Nature of Business and Change in Year End

The Company provides practice management, invoicing and accounts
receivable collection services for doctors' offices, foster homes, and 
hospital-based practices in the New England area. The Company's 
operations commenced on September 27, 1996, after the acquisition of an 
affiliate.  During 1998, the Company changed from a 52/53 week year-end
to a fiscal year ending September 30.

1.    Summary of Significant Accounting Policies


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 disclosure of 
contingent assets and liabilities at the date of the financial statements. 
Estimates also affect 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 include investments in highly liquid investments 
with an original maturity of three months or less.


Reclassifications

Certain 1997 balances have been changed to conform with 1998 presentation.


Earnings Per Share

Earnings per share are based upon the weighted average number of common shares 
outstanding during the year. There are no common stock equivalents that dilute 
the number of shares.


Property and Equipment

Property and equipment are stated at cost and are being depreciated over the 
estimated useful lives of the assets using straight-line and accelerated 
methods.

<PAGE>

1.    Summary of Significant Accounting Policies (Concluded)


Deferred Costs

Deferred development and organizational costs are being amortized using the 
straight-line method over five years. 

Deferred financing costs are being amortized over the five year term of the 
loan. 


Goodwill

Goodwill in the amount of $84,735 arose from the acquisition of Northeast 
Medical Billing Group. It is being amortized on a straight-line basis over 
five years, based on the duration of the non-competition agreement.  


Advertising

The Company expenses advertising as incurred.  Advertising expense was $8,685 
and $630 for the years ended September 30, 1998 and September 26, 1997.


Income Taxes

Deferred tax assets and liabilities are recognized for the future tax 
consequences attributable to differences between the financial statement 
carrying amounts of assets and liabilities and their respective tax bases. 
Deferred tax assets and liabilities are measured using enacted tax 
rates expected to apply to taxable income in the years in which those 
temporary differences are expected to be recovered or settled. The effect 
on deferred tax assets and liabilities of a change in tax rates is 
recognized in income in the period the change is enacted. 

Restatement

Equity balances at September 26, 1997 were restated to appropriately reflect 
stockholder transactions. There was no change to total stockholders' equity.

<PAGE>

2.    Acquisition 

On September 8, 1998, the Company acquired selected assets of Northeast 
Medical Business Group, Inc., a medical billing and management services 
corporation located in New Hampshire.  The Company acquired selected assets 
and assumed certain bank, lease, and trade debt, in exchange for $18,000 in 
cash and 100,000 shares of the Company's common stock, valued at $1.12 per 
share. The purchase method was used to account for the acquisition, and the 
purchase price was allocated as follows:

          Accounts receivable                  $     138,000
           Deposits and prepaid expenses               8,000
           Property and equipment                    155,000
          Goodwill                                    85,000
          Current liabilities                        (47,000)
          Loan payable                              (122,000)
          Capital lease obligations                  (87,000)

          Cash paid and stock to be issued     $     130,000

The accompanying financial statements include the operations of Northeast 
Medical Billing Group, Inc. for the period from September 8, 1998 to 
September 30, 1998.

The unaudited consolidated results of operations on a pro forma basis as 
though Northeast Medical Business Group had been acquired as of the 
beginning of the Company's fiscal years 1998 and 1997 are as follows:

                                             1998              1997
                                             -----------       -----------

               Revenues and other income     $ 1,631,818       $ 1,813,035
               Net income                        119,842            62,541
               Earnings per common share         0.03123           0.01630   


3.    Accounts Receivable and Advances

Accounts receivable and advances consist of the following at September 30, 
1998:

               Accounts receivable                             $   346,507     
               Advances                                            654,600     

                                                               $ 1,001,107     

<PAGE>

3.    Accounts Receivable and Advances (Concluded)

The Company has arrangements with certain customers whereby the Company 
advances cash to the customer based on their outstanding accounts receivable. 
The Company then assumes the responsibility for billing and collecting such 
receivables, which have been pledged as collateral.

4.    Note Receivable

The Company holds an $83,372 conditional note receivable from a vendor at 
l0% interest, due in monthly installments of $2,420, including interest 
beginning November l, 1998. The note is collateralized by accounts receivable,
equipment and inventory of the vendor. 

5.    Indebtedness

Long-Term Debt:

Long-term debt at September 30, 1998 consists of the following:

Note payable to bank at 1.25% above prime, (9.75% at the 
     balance sheet date), due in monthly installments of $2,822, 
     including interest, through July 2002; collateralized by  
     substantially all assets of the Company                      $   105,999
     

9.25% note payable to bank, due in monthly installments
     of $4,177, including interest, through September 2003; 
     collateralized by equipment and fixtures                         200,000
     
                                                                      305,999
     Less current portion                                              57,600
     
     Long-term debt, excluding current portion                    $   248,399
     

Maturities of long-term debt for the next five years are as follows:

               1999       $ 57,600
               2000         63,300
               2001         69,600
               2002         67,900
               2003         47,599

<PAGE>

5.    Indebtedness (Concluded)

Lines of Credit:

The Company, as co-borrower with Community Living Options (CLO), a customer of 
the Company, has a $ 250,000 revolving line of credit which is collateralized 
by all assets of the Company, exclusive of real estate. Interest is at the 
National Prime rate plus l% (9.50% at September 30, 1998). Borrowings under 
this line of credit are limited to 80% of eligible accounts receivable of CLO
(trade accounts receivable due to CLO under its Job Smart program). Advances 
under the line totaled $170,038 at September 30, 1998.

The Company also has a $400,000 revolving line of credit which is 
collateralized by all assets of the Company, exclusive of real estate. 
Interest is at the National Prime rate plus l% (9.50% at September 30, 1998).
Borrowings under this line of credit are limited to 80% of eligible accounts 
receivable less the principal amount outstanding on the $105,999 term note 
from same lender. Advances under the line totaled $372,700 at September 30, 
1998.

6.    Leases

Through July 1998, the Company leased office space under an operating 
lease agreement calling for monthly rental payments of $1,700.  The lease 
expired on December 31, 1996, and was renewed on a monthly basis through 
July 1998.  The Company currently leases office space under an operating 
lease agreement that expires in 2003.  The lease calls for monthly rental 
payments of $3,500.  Lease payments under these agreements totaled $25,312 
and $20,400 in 1998 and 1997, respectively.

The company leases certain computer and other office equipment under 
capital leases that expire from 2000 through 2003.  The company also leases 
certain computer equipment under a noncancelable operating lease that 
expires next year.

Included under property, plant, and equipment at September 30, 1998 are 
the following amounts applicable to capital leases:

          Equipment                         $     207,687
          Furniture and fixtures                    3,486

                                                  211,173
          Less accumulated amortization             3,825

                                            $     207,348

<PAGE>

6.    Leases (Concluded)

Future minimum lease payments under noncancelable operating leases and the 
present value of future minimum capital lease payments as of September 30, 
1998 are as follows:
     
                                                     Capital       Operating
                                                     Leases        Leases
                                                   -----------   -----------
1999                                               $    69,800   $    88,000
2000                                                    70,700        62,000
2001                                                    23,200        65,000
2002                                                     5,600        47,000
2003                                                     4,700        41,000

                                                       174,000   $   303,000

Less amount representing interest at 9.25%              26,007

Present value of minimum capital lease payments        147,993

     Less current portion                               55,800

Obligations under capital leases, 
  excluding current portion                        $    92,193


7.    Issuance of Stock as Compensation

During 1997, 60,000 shares of common stock were transferred from an existing 
stockholder for services rendered, at a calculated cost per share of $.05087.  
An additional 700,000 shares were transferred for services to be rendered 
over the next three years.  Prepaid expense of $35,609 was recorded and is 
being expensed over a three year period beginning in 1998. Accordingly, these 
transactions were recorded in additional paid-in capital.

<PAGE>

8.    Income Taxes

Income tax expense at September 30, 1998 consists of:

                                   Current       Deferred       Total
                                 -----------   -----------    -----------
     1998
     ----
          Federal                $     9,637   $    10,140    $    19,777
          State                        3,544         3,400          6,944

                                 $    13,181   $    13,540    $    26,721

     1997
     ----
          Federal                $     1,350   $       400    $    1,750
          State                          350           100           450

                                 $     1,700   $       500    $    2,200

The current deferred tax asset of $5,960 results from accrued vacation pay 
which is not currently deductible for income tax purposes.

The noncurrent deferred tax liability of $12,500 results from assets whose tax 
basis differs from the financial statement carrying amount.

9.    Supplemental Cash Flow Information

Cash paid for interest and income taxes during 1998 and 1997 were as follows:  

                    
                                                    1998           1997
                                                  -----------    -----------

          Interest                                $    57,199    $    34,095

          Income taxes                            $     7,444    $         -

<PAGE>

9.    Supplemental Cash Flow Information (Concluded)

The Company had the following noncash transactions during 1998:

Equipment was acquired under capital leases totaling $155,243.

The Company had noncash transactions related to the acquisition of Northeast 
Medical Billing Group. Debt assumed as part of the acquisition and related 
closing costs, totaling $128,713, were refinanced as part of a bank note 
payable.  In addition, assets were acquired through the issue of common stock 
with a market value of $112,000. 

10.    Commitments

The Company signed a Memorandum of Understanding dated October 1998 with a 
corporation to acquire 20% of their issued and outstanding common stock in 
exchange for certain considerations totaling approximately $374,000. An 
initial payment of $50,000 in cash and 20,000 common shares of 
the Company, valued at $1.12 per share, are to be delivered on the closing 
date. The remaining cash of $100,000 and 180,000 common shares of stock at 
the prevailing market price are to be issued ratably in nine successive 
monthly installments. The terms of this agreement are contingent upon 
completion of due diligence and acceptance of noncompetition agreements and 
other conditions.

11.    Related Party Transactions

The Company has notes payable due on demand to an officer and stockholder.  
The principal balance of the note was $20,850 at September 30, 1998.  The 
note is unsecured and requires monthly interest payments at a rate of 10%.  
Interest of $2,085 was paid for the years ended September 30, 1998 and 
September 26, 1997.

The Company's attorney is a shareholder and also serves on the Board of 
Directors.  Amounts totaling $11,524 were paid during 1998 for legal and 
consulting fees.   

12.    Fair Value of Financial Instruments

The Corporation's financial instruments consist of cash, short-term trade 
receivables and payables, long-term notes receivable, lines of credit and 
long-term debt. The carrying amounts of all instruments approximate their 
fair value.

<PAGE>

13.    Accounting Pronouncement

Effective for fiscal year ended September 30, 2000, all start-up and 
organizational costs will have to be expensed as incurred. Remaining 
organizational costs of $16,279 will be recorded as a cumulative effect 
of a change in accounting principle at that time.

14.    Subsequent Event

On October 14, 1998, the Board of Directors authorized the private issuance 
of one million shares of the Company's common stock to officers, directors, 
stockholders, and employees of the Company at a price of fifty cents per 
share.

<PAGE>  

EXHIBIT          NO.     DOCUMENT

*                2.1     Assets Purchase Agreement between Acadia National 
                         Health Systems, Inc. and Physician Resources, Inc., 
                         dated September 27, 1996;

####             2.2     Contract for Sale of Assets of Northeast Medical 
                         Business Group to Acadia National Health Systems, Inc.,
                         dated September 8, 1998;

####             2.3     Non-Competition, Confidentiality and Non-Solicitation
                         Agreement between Frank and Martha DeJohn and Acadia
                         National Health Systems, Inc., dated September 8, 1998;

*                3.1     Articles of Incorporation of the Company, as amended;

*                3.2     Bylaws of the Company;

*                4.1     Instruments Defining Rights of Security 
                         Holders/Minutes of Annual/ Special Meetings of the 
                         Company;

*                4.2     Loan Agreements Secured by Demand Notes/Promissory 
                         Notes, Defining Rights of Holders of Long Term Debt; 

####             5.1     Opinion on Legality of Securities Being Issued to 
                         Frank and Martha DeJohn;

*               10.1     Software License Master Agreement;
  
*               10.2     Lease of Premises, Acadia Corporate Headquarters, 460 
                         Main Street, Lewiston, Maine 04240 (Assignment);     

*               10.3     Employment Agreements, dated September 27, 1996 
                         between Acadia and THOMAS N. HACKETT, C.E.O., 
                         JACQUELYN J. MAGNO, Vice President;

*               10.4     Internal Revenue Code Section 125 Cafeteria Plan 
                         dated June 1, 1996;

*               10.5     Line of Credit Memorandum dated September 8, 1995 
                         with PEOPLE'S HERITAGE BANK in the amount of 
                         $250,000.00;

<PAGE>

EXHIBIT          NO.     DOCUMENT

*               10.6     Line of Credit Memorandum dated July 29, 1996 with 
                         PEOPLE'S HERITAGE BANK in the amount of$100,000.00;

###             10.7     Common Stock Purchase Agreement for 156,000 shares 
                         of common stock of Acadia National Health Systems, Inc.

###             10.8     Assignment Separate from Certificate and 
                         Irrevocable Stock Power for 156,000 shares of common 
                         stock of Acadia National Health Systems, Inc.

###             10.9     Opinion of Counsel with respect to transfer of 
                         156,000 shares of common stock of Acadia National 
                         Health Systems, Inc.

###             10.10    Common Stock Purchase Agreement for 2,326,000 shares of
                         common stock of Acadia National Health Systems, Inc.

###             10.11    Assignment Separate from Certificate and Irrevocable 
                         Stock Power for 2,326,000 shares of common stock of 
                         Acadia National Health Systems, Inc.

###             10.12    Opinion of Counsel with respect to transfer of 
                         2,326,000 shares of common stock of Acadia National 
                         Health Systems, Inc.
     
####            10.13    Board of Directors' Resolution Authorizing Increase 
                         of outstanding Shares in connection with the issuance 
                         of 100,000 shares of common stock of Acadia National
                         Health Systems, Inc., to Frank and Martha DeJohn, in 
                         joint tenancy w/ right of survivorship;

####            10.14    Opinion of Counsel with respect to issuance 
                         of 100,000 shares of common stock of Acadia National 
                         Health Systems, Inc. to Frank and Martha DeJohn;

x               11       Computation of Basic and Diluted Earnings Per Share

##              16.1     Baker Newman & Noyes' Letter dated August 18, 1997 
                         in response to Item 4(a)(i), Item 4(a)(ii) and Item 
                         4(a)(iii) of this Form 8-KA.

<PAGE>

EXHIBIT          NO.     DOCUMENT

###             20.1     Board of Director's Resolution authorizing new 
                         lines of credit and a term loan in connection with 
                         canceling personal guaranty and Debts of 
                         Thomas N. Hackett, founder of the Registrant.

###             20.2     Opinion of Borrower's Counsel

###             20.3     Indemnification Agreement (Estate of Thomas N. 
                         Hackett)

###             20.4     Indemnification Agreement (Peacock Hill Farm Limited
                         Liability Company)

####            20.5     Board of Director's Resolutions authorizing a term 
                         loan in connection with purchase of selected assets of 
                         Northeast Medical Business Group, Inc. by Acadia 
                         National Health Systems, Inc;

####            20.6     Opinion of Borrower's Counsel;

x               23.1     Consent of Counsel

x               23.2     Consent of Berry, Dunn, McNeil & Parker, independent 
                         certified public accountants for the Company.

x               27       Financial Data Schedule

x               99.1     Private Securities Litigation Reform Act of 1995 Safe 
                         Harbor Compliance Statement for Forward-Looking 
                         Statements

####            99.2     Text of press release dated September 9, 1998.

------------------------------
x          Filed herewith.

*          Incorporated by reference from the issuer's Registration Statement 
           on Form 10SB12G (S.E.C. File No. 000-1026491) as declared effective 
           on January 11, 1997.

#          Incorporated by reference from the Issuer's Form 8 KA for event 
           date of July 31, 1997.

<PAGE>

##         Incorporated by reference from the Issuer's Form 8 KA for event 
           date of August 8 and August 20, 1997.

###        Incorporated by reference from the Issuer's Form 8 K for event 
           date of August 13, 1997.

####       Incorporated by reference from the Issuer's Form 8-K for 
           event date of September 23, 1998.