SECURITIES AND EXCHANGE COMMISSION
                                  Washington, D.C.  20549

                                         FORM 10-K
                     ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
                            THE SECURITIES EXCHANGE ACT OF 1934

                        For the fiscal year ended December 31, 1998

                              Commission File Number 0-29172

                                PROMEDCO MANAGEMENT COMPANY
                  (Exact name of registrant as specified in its charter)

                   Delaware                                   75-2529809
          (State or other jurisdiction of                  (I.R.S. Employer
          incorporation or organization)                Identification Number)

          801 Cherry Street, Suite 1450
          Fort Worth, Texas                                     76102
           (Address of principal executive offices)           (Zip Code)

        Registrant's telephone number, including area code:  (817) 335-5035

          Securities registered pursuant to Section 12(b) of the Act:  None

          Securities registered pursuant to Section 12(g) of the Act:  
                  Common Stock, $.01 par value

         Indicate by check mark whether the registrant (1) has 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 .

         Indicate by check mark if disclosure of delinquent  filers  pursuant to
Item 405 of Regulation S-K is not contained  herein,  and will not be contained,
to the best of  registrant's  knowledge,  in  definitive  proxy  or  information
statements  incorporated  by  reference  in Part  III of this  Form  10-K or any
amendment to this Form 10-K. [ ]

         The  aggregate  market value of the  registrant's  Common Stock held by
non-affiliates  of the  registrant as of March 1, 1999 (computed by reference to
the closing price of such stock on the Nasdaq National Market) was $80,666,956.

         As of March 1, 1999,  there were 21,061,215  shares of the registrant's
Common Stock outstanding.

                   DOCUMENTS INCORPORATED BY REFERENCE

           DOCUMENT                                         WHERE INCORPORATED

Portions of the Registrant's definitive Proxy Statement
  regarding the 1999 Annual Meeting of Stockholders              Part III




<PAGE>


                          PROMEDCO MANAGEMENT COMPANY

                                   FORM 10-K

                               Table of Contents
<TABLE>
<CAPTION>

Item                                                                                                           Page


                                                       Part I
<S>      <C>                                                                                                 <C>
 1       Business...........................................................................................   1
 2       Properties.........................................................................................   8
 3       Legal Proceedings..................................................................................   8
 4       Submission of Matters to a Vote of Security Holders................................................   8

                                                       Part II

 5       Market for Registrant's Common Equity and Related Stockholder Matters..............................   9
 6       Selected Financial Data............................................................................  10
 7       Management's Discussion and Analysis of Financial Condition and Results of
         Operations.........................................................................................  11
 7A      Quantitative and Qualitative Disclosures About Market Risk.........................................  20
 8       Financial Statements...............................................................................  20
 9       Changes in and Disagreements With Accountants on Accounting and Financial
         Disclosure.........................................................................................  20

                                                      Part III

10       Directors and Executive Officers of the Registrant.................................................  21
11       Executive Compensation.............................................................................  21
12       Security Ownership of Certain Beneficial Owners and Management.....................................  21
13       Certain Relationships and Related Transactions.....................................................  21

                                                       Part IV

14       Exhibits, Financial Statement Schedules and Reports on Form 8-K....................................  22

</TABLE>



<PAGE>



                                    PART I

Item 1.  Business

General

         ProMedCo  Management Company ("ProMedCo" or the "Company") is a medical
services  company that manages and  coordinates  the delivery of  healthcare  in
secondary   markets.   By   affiliating   with  leading   primary  care  driven,
multi-specialty  physician  groups,  the  Company  establishes  dominate,  local
healthcare  delivery  platforms,  thus providing  physicians the opportunity for
increasing  control of medical  expenditures  in their  communities.  The groups
expand  through   affiliations  with  additional  primary  care  physicians  and
specialists  and  selective  additions  of  ancillary  services.  In addition to
providing  operating and expansion capital,  the Company provides its affiliated
groups with a broad range of strategic  and  management  expertise and services.
The Company also offers a full range of medical management services to capitated
physician  networks.  The Company  currently is affiliated with  multi-specialty
physician groups in 14 states, comprised of approximately 685 physicians and 130
mid-level providers (primarily  physician  assistants and nurse  practitioners),
and is associated with  approximately  585 physicians in associated  independent
practice association ("IPA") networks.

Development and Operations

   Market Development

         ProMedCo's   development  objective  is  to  position  itself  and  its
physician  partners to control a major share of healthcare  expenditures  within
each local  market by focusing  exclusively  on secondary  markets.  The Company
performs  research  and market  analyses to  identify  priority  markets,  which
generally are communities that have populations of at least 30,000 and less than
500,000,  typically  have less than 20% HMO  penetration,  and meet other market
criteria.  Such market  criteria  relate to, among other  things,  the number of
primary care physicians  relative to demand,  Medicare payment rates,  physician
group competition,  proximity to other ProMedCo groups, the number of hospitals,
demographics,  population  growth,  and the likelihood of significant future HMO
growth.  The Company estimates that there are over 1,200 markets  representing a
total  population  of  approximately  120 million,  and  containing an estimated
144,000  physicians  generating  $50 - 60 billion in  revenues,  that  currently
satisfy its priority market criteria. The Company ranks these markets based upon
the degree to which they satisfy its criteria,  enabling the Company  to further
prioritize its development efforts.

         Within its priority  markets,  ProMedCo seeks to affiliate  either with
primary  care groups or with  multi-specialty  groups that are  committed to the
importance  of primary care  physicians.  The Company  seeks to  affiliate  with
groups  that  have a  reputation  for  providing  high  quality  care and have a
substantial share of their local markets or the potential to acquire such share.
These groups are frequently the largest groups in their markets.

         Once ProMedCo has identified a group meeting its criteria,  the Company
conducts  preliminary  discussions  to  ascertain  the  group's  interest  in an
affiliation. If such interest is established,  the Company conducts site visits,
analyzes  financial  and other data,  and  conducts an extensive  due  diligence
investigation  into  the  group's  operations,  leadership,  and  commitment  to
long-term growth. Assuming a favorable outcome of the investigation, the Company
prepares  a  comprehensive  business  plan for  presentation  to the  group  and
proposes to affiliate with the group through a long-term service agreement.  See
"--Affiliation Structure."

         Upon  affiliation  with a group,  the  Company  immediately  begins  to
facilitate  expansion of the group within its local market.  Group expansion may
be accomplished through affiliations with additional  primary-care and specialty
physicians  in  the  community,  recruitment  of  physicians  from  outside  the
community,  addition of mid-level providers  and expansion of ancillary services
such as radiology and laboratory services. The Company will also seek to improve
the group's  profitability  through  management of expenses and strengthening of
existing  managed care contracts and  ultimately  controlling a greater share of
healthcare expenditures in the market.





<PAGE>


   Current Operations

         The Company  currently  provides  management  services and expertise to
approximately  1,400  providers in 14 states,  consisting of  approximately  685
physicians  and 130  mid-level  providers  in  affiliated  physician  groups and
approximately 585 physicians in associated IPA networks.

         Approximately 69% of the physicians in ProMedCo's  affiliated physician
groups are primary care providers. The primary care physicians consist of family
practitioners,  general internists,  pediatricians,  obstetrician/gynecologists,
and  urgent-care  physicians.  Increasingly,  these  physicians are augmented by
mid-level  providers,  primarily  consisting of physician  assistants  and nurse
practitioners,  whom the Company believes  significantly increase the efficiency
of delivery of a group's  primary care  services.  Each of the physician  groups
also provides,  to varying  degrees,  medical  specialty  services and ancillary
services.  Medical specialties currently include anesthesiology,  endocrinology,
gastroenterology,  general surgery, infectious diseases, nephrology,  neurology,
occupational   medicine,   orthopedic  surgery,   otolaryngology,   pulmonology,
rheumatology,  and urology.  Each of the physician groups is continually seeking
to expand its  practice  through the  addition of primary  care  physicians  and
specialists.  The  physician  groups  offer,  to  varying  degrees,  a range  of
ancillary services such as audiology, clinical laboratories, diagnostic imaging,
and stress testing.  The Company and each of its affiliated  groups  continually
evaluate  the  addition  of  ancillary   services  to  enhance  the  growth  and
profitability of such group.

         The IPAs are  organizations  of independent  primary care providers and
specialists that contract to provide physician and other healthcare  services to
HMOs and other managed care organizations  ("MCOs").  The members maintain their
individual  practices and, through the IPA  organization,  share information and
managed care systems,  actuarial and financial analysis,  medical management and
managed care contract services provided by the Company.


<PAGE>


         The following  table sets forth  information  concerning  the Company's
providers as of March 1, 1999:
<TABLE>
<CAPTION>

                                                                             Beginning Of
                                                                               ProMedCo                    Mid-Level
                                                           Location           Affiliation    Physicians    Providers
<S>                                                 <C>                   <C>                <C>           <C>
Affiliated Physician Groups:
     North Texas Medical Surgical, P.A.              Denton, TX            June 1995              8            - 
     Abilene Diagnostic Clinic Practices             Abilene, TX           December 1995         47           12
     Cullman Primary Care, P.C.                      Cullman, AL           March 1996            15            3
     Morgan-Haugh, P.S.C.                            Mayfield, KY          April 1996            17            6
     HealthFirst Medical Group, P.A.                 Lake Worth, TX        June 1996             20            7
     King's Daughters Clinic, P.A.                   Temple, TX            September 1996        49            8
     The Medical Group of Northern Nevada            Reno, NV              October 1996          23            8
     Naples Medical Center, P.A.                     Naples, FL            March 1997            39            9
     Beacon Medical Group, P.C.(1)                   Harrisburg, PA        April 1997            41            3
     Intercoastal Medical Group, Inc.                Sarasota, FL          August 1997           26            2
     Christie Clinic Association                     Champaign, IL         August 1997           88           20
     Thomas-Spann Clinic, P.A.                       Corpus Christi, TX    December 1997         13            - 
     HealthStar Physicians, P.C.                     Knoxville, TN         December 1997         25            5
     Berkshire Physicians & Surgeons, P.C. (2)       Pittsfield, MA        February 1998        102           23
     Permian Basin Physician Group, P.A.             Midland, TX           May 1998              13            2
     Medical Associates of Pinellas, L.L.C.          Clearwater, FL        July 1998             50            5
     Shah Associates MD, L.L.C.                      Hollywood, MD         July 1998             35            2
     Physicians' Primary Care of 
         Southwest Florida, P.L.                     Ft. Myers, FL         August 1998           42            9
     Boca Raton Medical Associates, P.A.             Boca Raton, FL        October 1998          12            1
     El Paseo Medical Center, Inc.                   Las Cruces, NM        December 1998         18            7
                                                                                              -----        -----
                                                                                                683          132

IPA Physicians:
     PMC Medical Management IPA                      Maine
                                                     New Hampshire         June 1997            510
     Christie Clinic IPA                             Champaign, IL         August 1997           18
     Berkshire Physicians & Surgeons IPA             Pittsfield, MA        February 1998         15
     Prime Physicians Network IPA                    Hudson, NY            June 1998             40
                                                                                              -----
                                                                                                583
         Total Providers                                                                      1,398

</TABLE>

(1)  In  December  1997  Beacon  Medical  Group  combined  with  Cowley  Medical
     Associates,  which had become affiliated with ProMedCo  effective  November
     1997.
(2)  Includes Prime Medical  Associates,  P.C.  located in Hudson,  NY, which is
     managed along with Berkshire Physicians & Surgeons,  by Commonwealth Health
     Management Services, Inc., ProMedCo's local subsidiary in Pittsfield, MA.




<PAGE>




   Management Services

         Upon affiliating with a physician group,  ProMedCo  immediately assumes
the management of all aspects of the group's operations other than the provision
of medical  services.  The operating  assets that are typically  acquired by the
Company are provided for the exclusive use of the group, and  substantially  all
non-physician personnel utilized in the group's practice become employees of the
Company.  ProMedCo provides the full range of  administrative  services required
for the group's operations,  including facilities management and the purchase of
medical malpractice insurance,  supplies, and equipment, and a broad spectrum of
financial and accounting services,  including budgeting, billing and third-party
reimbursement  services.  The Company also  provides  each group with  operating
capital and expansion capital for affiliations with other physicians,  additions
of ancillary services, and improvements of existing facilities and equipment. As
MCOs expand their presence into the local market, the Company provides expertise
in the  negotiation of managed care contracts and the management of risk-sharing
arrangements.

         While the Company  provides a  centralized  source of  expertise in all
aspects of management,  it believes that each physician group presents different
operational   issues  and   challenges   and  therefore   employs  a  system  of
decentralized  local management of each group. The Company generally retains the
group's existing  administrative staff as ProMedCo employees,  adding additional
management  personnel as the group expands. The physicians in the group continue
to maintain full professional control of the practice of medicine, including the
hiring and termination of physicians and the setting of practice  guidelines and
standards.  The Company  establishes  for each group a policy council  comprised
equally of  physicians  and  ProMedCo  representatives  to  determine  the broad
strategic and operational policies of the group. See "--Affiliation Structure."

         The  Company  believes  that  sophisticated   information  systems  are
essential to reducing the cost and  improving the quality of  healthcare.  Basic
practice  management  systems have long been  necessary  for  efficient  patient
scheduling  and  registration,  billing,  and  collections.  In the future,  the
integration  of  financial  practice,  managed  care,  and  clinical  systems is
expected to be imperative for physician groups to remain  competitive.  Clinical
systems will provide  information  in the  physician's  workplace--such  as case
management, practice guidelines, and clinical pathways--that will facilitate the
improvement  of patient  care.  Electronic  medical  records  will  automate the
clinical  workflow and allow access to patient records from multiple sites, thus
providing more effective clinical decision support and increasing the quality of
care.   Systems  that  effectively   measure   clinical   outcomes  and  patient
satisfaction  are likely to become  increasingly  important as quality becomes a
more significant factor in maintaining and increasing market share.

         Rather  than  attempting  to develop  its own  proprietary  information
systems,  ProMedCo believes it is more  cost-effective,  in light of the rapidly
changing healthcare and information technology environments,  to utilize systems
developed and proven by independent  companies.  Although there are many systems
currently  under  development,  none is yet  available  that,  in the  Company's
opinion,  effectively  addresses all of the evolving needs of physician  groups.
The Company initially works with its affiliated physician groups to maximize the
performance of the groups' existing systems.  If MCOs increase their penetration
of a group's market, new or enhanced  information systems will be implemented as
required.  Ultimately,  the Company  expects to interface all of its  affiliated
clinics with a central data  repository  for  consolidation  and  evaluation  of
operating,  clinical, and financial data. To that end, the Company has installed
a common general ledger and financial package in each of its subsidiaries (other
than the most recent  affiliations),  providing  the  platform  for  comparative
benchmarking.

         Additionally,  the Company offers a full range of managed care services
to capitated  providers,  including clinical quality assessment,  credentialing,
claims  processing  and payment,  referral and  utilization  management and case
management.  The Company is currently  providing  such  services,  covering over
120,000 MCO members,  to the  Company's  affiliated  physician  groups that have
entered  into  risk-sharing  contracts  with MCOs and to three of the  Company's
associated IPAs.

Affiliation Structure

         ProMedCo  utilizes  an  affiliation  structure  that  fully  aligns the
interests of the Company with those of its physician  partners.  Moreover,  each
physician  group  retains  professional  autonomy  and control  over its medical
practices  through  continued  ownership  and  governance  of  its  professional
corporation or similar organization.



<PAGE>


         When a  physician  group has agreed to  affiliate  with  ProMedCo,  the
Company generally purchases the group's operating assets, excluding real estate,
and the group  enters into a  long-term  service  agreement  with the Company in
exchange for a  combination  of common  stock,  cash,  other  securities  of the
Company, and/or assumption of certain liabilities. The Company has utilized, and
may  continue  to  utilize,  common  stock  in  payment  of  a  portion  of  its
consideration for the assets of affiliated physician groups,  providing that the
economics of the transaction justify its use.

         The service agreements between the Company and the physician groups are
for a term of 40 years and cannot be terminated  by either party without  cause,
consisting  primarily  of  bankruptcy  or  material  default.  Under the service
agreement,  the Company  provides the physician  group with the  facilities  and
equipment used in the group's medical practice,  assumes  responsibility for the
management of the operations of the practice,  and employs  substantially all of
the non-physician  personnel  utilized by the group. Upon expiration of the term
of a service  agreement or in the event of  termination,  the physician group is
required to purchase the assets  related to the practice,  including  intangible
assets, then owned by the Company at their current book value. Concurrently with
the execution of a service  agreement,  the physician group is required to enter
into an  employment  contract  with  each of its  physicians,  typically  for an
initial  term of five  years.  In those  affiliations  involving  the  Company's
purchase of the group's operating assets,  the employment  contract provides for
the repayment by the physician of all or a portion of the  physician's  share of
the consideration  paid by ProMedCo for such assets and service agreement in the
event of the  physician's  breach of the  contract.  Each  physician  group also
enters into an agreement not to compete with the Company,  and each  physician's
employment  contract  includes an agreement  not to compete  with the  physician
group  during  the  period  of his or her  employment  and for a period  of time
thereafter,  typically two years. The employment contract also provides that the
Company is a third-party beneficiary entitled to enforce the repayment provision
and the agreement not to compete.

         The income of both the Company and the physicians  within each group is
dependent upon the operating income of the group.  Under its service  agreement,
the Company  receives a fixed percentage  (typically  15-20%) of group operating
income,  which is defined as the group's net revenue less certain  contractually
agreed-upon    clinic   expenses   before    physician    salaries   and   other
physician-related   expenses.  In  addition,   the  Company  typically  receives
implementation and transitional fees in return for significant up-front services
required in the first one to three months of the  affiliation.  The distribution
to the Company is increased or decreased by a percentage (typically ranging from
25% to 50%) of the group's  surplus or deficit under  risk-sharing  arrangements
pursuant to capitated  managed care  contracts.  Thus,  both the Company and the
physicians have incentives to improve the group's  operating  income and surplus
under risk-sharing arrangements, and both share the risk that the group may have
limited or no operating income or a deficit under its risk-sharing arrangements.

         The policy council  established for each group is comprised  equally of
physicians  and ProMedCo  representatives.  The council  meets  periodically  to
consider and  determine  broad  policies  regarding  strategic  and  operational
planning, marketing,  arrangements with MCOs, and other major issues involved in
the group's  operations.  This  ensures  that the  physicians  within each group
retain a significant voice in the expansion and operation on their group,  while
benefiting from ProMedCo's management experience and expertise.

Competition

         The medical services industry is competitive, although less so now than
in prior years.  The Company is subject to competition  both in affiliating with
physician  groups  and in  seeking  managed  care  contracts  on  behalf  of its
affiliated  groups.  Its competitors  include  hospitals,  MCOs, other physician
groups, and other medical services companies. There can be no assurance that the
Company will be able to compete  effectively,  that additional  competitors will
not enter the market,  or that such  competition will not make it more difficult
to enter into  affiliations  with  physician  groups on terms  beneficial to the
Company.

         The  Company  also  experiences  competition  in  the  recruitment  and
retention of qualified  physicians and other healthcare  professionals on behalf
of its affiliated  physician groups.  There can be no assurance that the Company
will be able to recruit or retain a sufficient  number of  qualified  physicians
and other healthcare professionals to continue to expand its operations.



<PAGE>


Government Regulation

         As a participant in the healthcare  industry,  the Company's operations
and relationships are subject to extensive and increasing regulation by a number
of governmental  entities at the federal and state levels.  The Company believes
its operations are in material  compliance  with  applicable  laws.  Because the
structure of its relationship  with physician groups is relatively new, however,
many aspects of the Company's  business  operations have not been the subject of
state or federal regulatory interpretation.  There can therefore be no assurance
that a review of the Company's or the affiliated  physicians' business by courts
or  regulatory  authorities  will  not  result  in a  determination  that  could
adversely affect the operations of the Company or that the healthcare regulatory
environment  will not change so as to  restrict or require  modification  of the
Company's  or  its  affiliated  physician  groups'  operations  or  limit  their
liability to expand.

         The  Company  estimates  that  approximately  30% of the net  physician
groups   revenue   of  the   Company   is   derived   from   payments   made  by
government-sponsored healthcare programs (principally Medicare and Medicaid). As
a  result,  any  change  in  government  reimbursement  regulations,   policies,
practices, interpretations, or statutes could adversely affect the operations of
the Company. There are also state and federal civil and criminal status imposing
substantial penalties,  including civil and criminal fines and imprisonment,  on
healthcare  providers that fraudulently or wrongfully bill governmental or other
third-part payors for healthcare services.

         The laws of many  states  prohibit  business  corporations  such as the
Company from practicing medicine and employing  physicians to practice medicine.
The Company performs only  non-medical  administrative  services,  does not hold
itself out as a provider of medical services, and does not exercise influence or
control  over  the  practice  of  medicine  by the  physicians  with  whom it is
affiliated.  Accordingly,  the  Company  believes  it is  not  in  violation  of
applicable  state laws  relating  to the  practice of  medicine.  In addition to
prohibiting  the  practice of  medicine,  numerous  states  limit the ability of
entities  such as the  Company  to  control  physician  revenues  or to  receive
portions of such revenues in excess of the value of services  provided.  In most
states, such so-called  "fee-splitting"  laws provide that the laws are violated
only if a physician  shares fees with a referral  source.  The Florida  Board of
Medicine,  however, has recently interpreted the Florida  fee-splitting law very
broadly so as arguably to include the payment of any percentage-based management
fee,  even to a management  company that does not refer  patients to the managed
group. The interpretation of the Florida Board of Medicine has been appealed. If
it is not  reversed,  the decision  could  require  modification  of the service
agreements covering the Company's affiliated groups in Florida.  There can be no
assurance that further action by government  authorities regarding the structure
of the Company's  relationship  with it affiliated  physician groups and managed
IPAs, in Florida or elsewhere, will not have an adverse effect upon the Company.

         Certain  provisions of the Social Security Act, commonly referred to as
the fraud and abuse  provisions,  prohibit the payment or receipt of any form of
remuneration  in return for the referral of Medicare or Medicaid  patients  care
opportunities,  or in  return  for the  recommendation,  arrangement,  purchase,
lease,  or order of items or  services  that are covered by Medicare or Medicaid
programs.  Many states have adopted similar  prohibitions  against payments that
are  intended  to induce  referrals  of  Medicaid  and other  third-party  payor
patients.  Although  the  Company  believes  that  neither  it  nor  any  of its
affiliated  physician  groups  is in  violation  of any such  prohibitions,  its
operations  do not fit within  any of the  existing  or  proposed  federal  safe
harbors and may therefore be subject to challenge.

         Significant  prohibitions  against physician  referrals were enacted by
Congress in the Omnibus Budget  Reconciliation  Act of 1993.  Subject to certain
exemptions, a physician or a member of his or her immediate family is prohibited
by this  legislation from referring  Medicare or Medicaid  patients to an entity
providing  "designated  health services" in which the physician has an ownership
or  investment  interest  or  with  which  the  physician  has  entered  into  a
compensation  arrangement.  Some  states  have also  enacted  similar  so-called
"physician  self-referral"  laws, and additional states may follow.  The Company
believes that its practices fit within  exemptions  contained in such  statutes.
Nevertheless,   expansion   of  the   operations   of  the  Company  to  certain
jurisdictions  may require  structural and  organizational  modifications of the
Company's  relationships  with  physician  groups to comply  with new or revised
state statutes.

         Because the Company's affiliated physician groups remain separate legal
entities,  they may be deemed  competitors  subject to a range of antitrust laws
that  prohibit  anti-competitive  conduct,  including  price  fixing,  concerted
refusals to deal,  and  division of market.  The Company  intends to comply with
such state and federal laws in its 


<PAGE>


development  of integrated  healthcare  delivery  networks,  but there can be no
assurance  that a review of the  Company's  business  by  courts  or  regulatory
authorities  will not result in a determination  that could adversely affect the
operation of the Company and its affiliated physician groups.

         Several  states  regulate  the  managed  care  support   activities  of
organizations  other than insurers.  In particular,  claims  administration  and
utilization  review functions may require  licensure and the various elements of
the operations of the Company may be subject to regulation. The Company believes
that PMC holds all necessary licenses for its business  activities.  However, it
cannot be assured that it will receive  necessary  regulatory  approvals for all
states  in  which it  intends  to  conduct  business,  nor  that the  applicable
operational  requirements  will not adversely  affect the  profitability  of the
Company.

         As a result of the continued  escalation  of  healthcare  costs and the
inability of many  individuals to obtain health  insurance,  numerous  proposals
have  been or may be  introduced  in the U.S.  Congress  and  state  legislators
relating to  healthcare  reform.  There can be no  assurance  as to the ultimate
content,  timing,  or effect of any  healthcare  reform  legislation,  nor is it
possible at this time to estimate  the impact of  potential  legislation,  which
could be material, on the Company.

Insurance

         The Company's  affiliated physician groups maintain medical malpractice
liability  insurance  in the  amount of $1.0  million  per  occurrence  and $3.0
million in the aggregate.  The Company is named as the additional insured on the
policies maintained by each of its affiliated groups. The Company also maintains
general liability and umbrella coverage.  The umbrella policy has limits of $1.0
million per occurrence and a $10.0 million aggregate.  The cost and availability
of such  coverage  has varied  widely in recent  years.  The  Company  maintains
individual and aggregate  stop-loss  insurance  coverage with respect to its and
its affiliated groups'  risk-sharing  contracts.  While the Company believes its
insurance  coverage is  adequate  for its  current  operations,  there can be no
assurance  that the coverage  maintained  by the Company will be  sufficient  to
cover all future claims or will continue to be available in adequate  amounts or
at a reasonable cost.

Employees

         The Company currently  employs  approximately  3,400 people,  including
those  employed  in its  corporate  office.  The  Company  is not  party  to any
collective  bargaining  agreement with a labor union and considers its relations
with its employees to be good. The Company does not employ any of the physicians
practicing in its affiliated groups.

Item 2.  Properties

         The Company currently leases  approximately  8,000 square feet of space
at 801 Cherry Street in Fort Worth,  Texas,  where its headquarters are located,
under a lease  terminable  upon 60 days'  notice by either  party.  The  Company
believes these  facilities are adequate for its current uses and that additional
space is available to accommodate its anticipated growth.

         The Company  leases,  subleases,  or  occupies  pursuant to its service
agreements  the  clinic  facilities  at which its  affiliated  physician  groups
conduct   their   practices.   The  leases  have  varying   terms  ranging  from
month-to-month  to ten years.  The Company  anticipates  that as the  affiliated
practices  continue to grow and add new services,  expanded  facilities  will be
required.





<PAGE>


Item 3.  Legal Proceedings

         The Company and its affiliated  physician  groups are from time to time
subject to medical malpractice claims and other various claims and legal actions
that arise in the ordinary course of business. Such claims, if successful, could
result in  substantial  damage  awards  that may exceed the limits of  insurance
coverage.  The  Company  does not engage in the  practice of medicine or provide
medical services, nor does it control the practice of medicine by its affiliated
physician  groups  or  the  compliance  with  regulatory  requirements  directly
applicable  to such groups.  Nevertheless,  there can be no  assurance  that the
Company will not become subject to such claims in the future.

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

         Not applicable.



<PAGE>



                                PART II

Item 5.  Market for Registrant's Common Equity and Related Stockholder Matters

          Since March 12,  1997,  the Common Stock has been traded on the Nasdaq
National Market under the symbol "PMCO." The following table sets forth the high
and low sale  prices per share of the  Common  Stock as  reported  by the Nasdaq
National Market for each calendar quarter since the commencement of trading.
<TABLE>
<CAPTION>

                                                                                        High         Low  
<S>                                                                                   <C>        <C>
         1997
            First Quarter (commencing March 12).....................................  $    9.25  $    9.00
            Second Quarter..........................................................       9.25       6.00
            Third Quarter...........................................................      11.00       6.75
            Fourth Quarter..........................................................      11.63       8.00
         1998
            First Quarter...........................................................      16.25       8.81
            Second Quarter..........................................................      15.87       8.81
            Third Quarter...........................................................      10.75       8.87
            Fourth Quarter..........................................................       7.87       4.12
         1999
            First Quarter (through March 12)........................................       6.62       4.00
</TABLE>

         The Company has not paid any cash  dividends  on its common stock since
its  formation.  It  presently  intends  to retain its  earnings  for use in its
business and  therefore  does not  anticipate  paying any cash  dividends in the
foreseeable  future.  The payment of any future  dividends will be determined by
the Board of Directors  in light of  conditions  then  existing,  including  the
Company's  earnings,  financial  condition  and  requirements,  restrictions  in
financing agreements,  business conditions,  and other factors. In addition, the
Company's ability to pay dividends or make  distributions to its stockholders is
restricted by the terms of its credit facility.  As of March 1, 1999, there were
379 holders of record of Common Stock.

         During 1998,  the Company  issued  2,955,015  shares of Common Stock to
stockholders  of seven physician  groups in connection  with their  affiliations
with the Company.  As of December 31, 1998, the Company had commitments to issue
an  aggregate of 412,771  shares of Common  Stock to physician  groups and their
stockholders in connection with its affiliations with a physician group in April
1998 and three roll-in physicians to existing groups during the third and fourth
quarter of 1998.  Such shares are expected to be issued in the second quarter of
1999. Each of such issuances was or will be exempt from  registration  under the
Securities Act,  pursuant to section 4(2) of the Act as they did not involve any
public offering.



<PAGE>






Item 6.  Selected Financial Data

         The  selected   financial  data  presented  below  should  be  read  in
conjunction with the consolidated  financial statements and the notes thereto of
the Company and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" included elsewhere in this Form 10-K. Prior year selected
financial  data have been  restated  to include the  results of  operations  and
balance sheet data for Western Medical Management Corp., Inc., which merged with
the Company in March 1997, and has been accounted for as a pooling of interests.

<TABLE>
<CAPTION>

                                                   July 1, 1994
                                                   (Inception) to
                                                   December 31,               Years Ended December 31, 
                                                      1994          1995         1996         1997         1998    
<S>                                               <C>           <C>          <C>          <C>          <C>
Statements of Operations Data:
Net revenue.....................................   $ 2,259,149  $ 7,843,717  $26,245,196  $80,641,535  $222,502,115
Operating expenses:
Clinic salaries and benefits....................     1,689,007    4,249,813   11,694,973   29,859,718    74,676,074
Clinic rent and lease expense...................       242,235      708,020    2,670,138    7,016,261    17,186,828
Clinic supplies.................................       261,811      624,370    3,213,443    9,667,085    24,873,718
Purchased medical services......................       170,909      781,000      969,650    7,946,989    45,444,439
Other clinic costs..............................       183,158    1,759,013    5,018,876   10,883,588    25,699,233
General corporate expenses......................       172,462      802,980    2,633,585    3,793,552     5,612,103
Depreciation and amortization...................        64,170      203,482      723,641    2,942,604     7,238,960
Interest expense................................         6,659       20,958      209,474      456,175     1,104,273
Merger costs....................................        -            -           682,269       -             -     
                                                   -----------  -----------  -----------  -----------   -----------
                                                     2,790,411    9,149,636   27,816,049   72,565,972   201,835,628
Income (loss) before provision for (benefit 
     from) income taxes and
     extraordinary charge ......................      (531,262)  (1,305,919)  (1,570,853)   8,075,563    20,666,487
Provision for (benefit from) income taxes.......        12,566      (54,405)      -         2,602,379     7,853,266
                                                   -----------  -----------  -----------  -----------   -----------
Net income (loss) before extraordinary charge ..      (543,828)  (1,251,514)  (1,570,853)   5,473,184    12,813,221
Extraordinary charge - loss on 
     extinguishment of debt, net of
     $375,000 income taxes .....................        -            -            -            -           (611,192)
                                                   -----------  -----------  -----------  -----------   -----------
Net income (loss)...............................   $  (543,828) $(1,251,514) $(1,570,853) $ 5,473,184   $12,202,029
                                                   ===========  ===========  ===========  ===========   ===========
Net earnings (loss) per share:
Basic:
     Income  (loss) before extraordinary charge.   $     (0.07) $     (0.16) $     (0.20) $      0.48   $      0.69
     Extraordinary charge.......................          -            -            -            -            (0.03)
                                                   -----------  -----------  -----------  -----------   -----------
     Net income (loss) .........................   $     (0.07) $     (0.16) $     (0.20) $      0.48   $      0.66
                                                   ===========  ===========  ===========  ===========   ===========
Diluted
     Income  (loss) before extraordinary charge.   $     (0.07) $     (0.16) $     (0.20) $      0.38   $      0.61
     Extraordinary charge.......................          -            -            -            -            (0.03)
                                                   -----------  -----------  -----------  -----------   -----------
     Net income (loss)..........................   $     (0.07) $     (0.16) $     (0.20) $      0.38   $      0.58
                                                   ===========  ===========  ===========  ===========   ===========
Weighted average number of common shares 
      outstanding:
Basic...........................................     7,871,746    7,871,746    7,870,908   11,375,662    18,621,988
                                                   ===========  ===========  ===========  ===========   ===========
Diluted.........................................     7,871,746    7,871,746    7,870,908   14,224,198    20,957,771
                                                   ===========  ===========  ===========  ===========   ===========

Balance Sheet Data:
Cash and cash equivalents.......................   $   490,391  $ 3,047,366  $ 1,633,534  $15,760,920   $13,870,967
Working capital.................................       951,542    3,376,293    2,253,291   24,207,077    55,497,946
Total assets....................................     2,317,951    6,203,340   30,559,774  162,966,150   306,658,872
Long term debt, less current maturities.........        57,625      278,962    7,809,193   56,603,135    94,939,599
Redeemable equity securities....................        -         3,945,134    3,949,417       -             -     
Total stockholders' equity......................     1,423,141      240,439   10,523,972   80,618,737   172,647,506
</TABLE>

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

Overview

         ProMedCo is a medical services company that manages and coordinates the
delivery of healthcare in secondary markets. By affiliating with leading primary
care driven, multi-specialty physician groups, the Company establishes dominant,
local healthcare  delivery  platforms thus providing  physicians the opportunity
for increasing control of medical  expenditures in their  communities.  ProMedCo
commenced  operations in December 1994 and affiliated with its initial physician
group in June 1995.  The Company's  rapid growth during 1996,  1997 and 1998 has
resulted from its strong 





<PAGE>




same net revenue market growth  consistently  exceeding 15%, with the balance of
the growth coming from affiliations with additional physician groups. The groups
expand  through   affiliations  with  additional  primary  care  physicians  and
specialists  and  selective  additions  of  ancillary  services.  In addition to
providing  operating and expansion capital,  the Company provides its affiliated
groups with a broad range of strategic  and  management  expertise and services.
The Company currently is affiliated with multi-specialty  physician groups in 14
states,  comprised of approximately  685 physicians and 130 mid-level  providers
(primarily physician assistants and nurse practitioners), and is associated with
585 physicians in associated independent practice association ("IPA") networks.

         The Company also offers a full range of medical management  services to
capitated  physician  networks.  Utilizing  sophisticated  information  systems,
ProMedCo provides a full range of managed care services to capitated  providers,
including  clinical quality  assessment,  credentialing,  claims  processing and
payment,  referral  and  utilization  management,  and  case  management  to its
associated  IPAs and to those of its  affiliated  groups that have  entered into
capitation  arrangements,  together covering over 120,000 managed care capitated
lives.

         When affiliating with a physician group, the Company generally acquires
at fair market value the group's  non-real  estate  operating  assets and enters
into a 40-year service agreement with the group in exchange for a combination of
common stock, cash,  other  securities of the Company,  and/or the assumption of
certain  liabilities.  The Company is continually  seeking additional  physician
groups  with  which  to  affiliate  and at any  time  is  typically  engaged  in
negotiations with several such groups.

         The  Company's  net revenue  represents  the  revenue of the  physician
groups reported at the estimated  realizable amounts from patients,  third-party
payors,  and  others  for  services  rendered,  net  of  contractual  and  other
adjustments and is further reduced by the amounts paid to physician groups.  The
amounts paid to physician  groups  (typically  80-85% of the  physician  groups'
operating  income) pursuant to the service  agreements  primarily consist of the
cost of the affiliated  physician services.  Under the service  agreements,  the
Company  provides each physician group with the facilities and equipment used in
its  medical  practice,   assumes  responsibility  for  the  management  of  the
operations of the practice,  and employs  substantially all of the non-physician
personnel  utilized by the group. The Company does not consolidate the operating
results and accounts of the physician  groups under EITF 97-2,  "Applications of
FASB No. 94 and APB No. 16 to Physician Practice Management Entities and Certain
Other Entities under Contracted Management Agreement."

         Operating  expenses consist of the expenses  incurred by the Company in
fulfilling its obligations under the service agreements.  These expenses are the
same as the  operating  costs and expenses  that would have been incurred by the
affiliated groups, including non-physician salaries,  employee benefits, medical
supplies,   purchased  medical  services,   building  rent,   equipment  leases,
malpractice  insurance  premiums,  management  information  systems,  and  other
expenses related to clinic operations.

         Because of the  significance of individual  group  affiliations and the
level of capitation and other  revenues,  expense  ratios and operating  margins
will  vary with  each new  affiliation.  The mix of  physician  specialties  and
ancillary  services affects the level of clinic salaries and benefits and clinic
supplies,  and the margins on capitated  revenues generally are lower than those
on fee-for-service revenues (although capitated revenues can provide incremental
profit with little or no additional capital investment). Generally, primary care
and office-based  physician  practices  require a higher number of support staff
than specialty care or hospital-based  practices.  Clinic rent and lease expense
as a percentage of physician  groups revenue will vary based on the size of each
affiliated  group's  offices,  the current market rental rate for medical office
space in the particular  geographic  markets and the amount of medical and other
equipment  under  lease.  Capitation  arrangements  may require the  purchase of
medical services that are not provided by the group accepting capitation.  These
purchased medical services may include hospitalization,  emergency room care and
other technical or specialty  services.  The ratio of purchased medical services
to  associated  capitation  revenues will vary  depending  upon the terms of the
individual  contracts  and the amount of  services  that can be  provided by the
particular  group.  Other clinic  costs will vary as a  percentage  of physician
groups revenue based on regional cost  differences and the Company's  ability to
implement  operational  efficiencies  and negotiate  more  favorable  purchasing
arrangements.

         In addition to the clinic expenses  discussed above, the Company incurs
personnel and administrative expenses in connection with maintaining a corporate
office  function  that  provides  management,   administrative  and  acquisition







<PAGE>


services to its affiliated groups. The Company's profitability depends on, among
other things, increasing market share, expanding healthcare services,  enhancing
operating efficiencies, and maintaining favorable contractual relationships with
payors.

         For the year ended December 31, 1998,  two of the Company's  affiliated
physician  groups each  contributed  10% or more of the  Company's  net revenue.
Clinics in Champaign, IL, and Pittsfield,  MA, represented approximately 25% and
14% of net revenue, respectively.

         In addition to managing its affiliated  physician  groups,  the Company
manages an IPA in Maine and New  Hampshire.  Revenues  from this IPA  consist of
capitation and risk pool payments  under managed care contracts with HMOs.  Such
revenues  represent  less  than  10% of total  net  revenue.  Related  operating
expenses consist of the cost of providing the medical  services  required by the
HMO members covered by the contracts,  and are reflected  primarily as purchased
medical services.

Results of Operations

         The Company  commenced  operations in December 1994 and affiliated with
its first  physician  group in June 1995 and its second group in December  1995.
The Company entered into  affiliations  with five additional groups during 1996,
seven additional  groups during 1997, and with eight additional  groups in 1998.
Changes in results of  operations  were caused  primarily by  affiliations  with
these additional physician groups.

         The  following   table  sets  forth  the  percentages  of  net  revenue
represented by certain items reflected in the Company's consolidated  statements
of operations.
<TABLE>
<CAPTION>

                                                                                     Years Ended December 31,        
                                                                              1996            1997           1998   
                                                                          -----------     -----------     ---------
<S>                                                                       <C>            <C>              <C>
Statements of Operations:
Net revenue.............................................................       100.0%         100.0%         100.0%
Operating expenses:
   Clinic salaries and benefits.........................................        44.6           37.0           33.5
   Clinic rent and lease expense........................................        10.2            8.7            7.7
   Clinic supplies......................................................        12.2           12.0           11.2
   Purchased medical services...........................................         3.7            9.9           20.4
   Other clinic costs...................................................        19.1           13.5           11.6
   General corporate expenses...........................................        10.0            4.7            2.5
   Depreciation and amortization........................................         2.8            3.6            3.3
   Interest expense ....................................................         0.8            0.6            0.5
   Merger costs.........................................................         2.6            0.0            0.0
                                                                          ----------      ---------       --------
                                                                               106.0           90.0           90.7
                                                                          ----------      ---------       --------
Income (loss) before provision for income taxes and 
    extraordinary charge................................................        (6.0)          10.0            9.3
Provision for income taxes..............................................         0.0            3.2            3.5
                                                                          ----------      ---------       --------
Income (loss) before extraordinary charge...............................        (6.0)           6.8            5.8
Extraordinary charge, net of tax........................................         0.0            0.0           (0.3)
                                                                          ----------      ---------       --------
Net income (loss).......................................................        (6.0)%          6.8%           5.5%
                                                                          ==========      =========       ========



<PAGE>


Other Financial Information:
   Physician groups revenue, amounts in thousands (1) ..................  $   47,037      $ 127,717       $310,454
   Payor breakdown (2)
       Commercial and discounted fee-for service........................        42.1%          39.2%          36.3%
       Medicare/Medicaid................................................        29.5           24.7           29.6
       Capitation.......................................................        13.9           16.4           20.7
       Other............................................................        14.5           19.7           13.4
                                                                          ----------      ---------       --------
                                                                               100.0%         100.0%         100.0%
                                                                          ==========      =========       ========
</TABLE>

-----------------
(1)  Physician  groups  revenues  represent the revenue of the physician  groups
     reported at the estimated  realizable  amounts from  patients,  third-party
     payors and others  for  services  rendered,  net of  contractual  and other
     adjustments.
(2)  As a percentage of physician groups revenues

Year Ended December 31, 1998 Compared with Year Ended December 31, 1997

         Net  revenue  increased  by 176% to $222.5  million  for the year ended
December 31, 1998,  from $80.6 million for the year ended December 31, 1997. New
affiliations  in 1998 produced  $56.9 million of this increase and $78.5 million
of the increase  results from a full year of revenue  production and growth from
affiliations  completed in 1997. In addition,  there was $6.5 million  growth in
revenues from affiliations completed prior to 1997.

         Overall  clinic  costs,  including  purchased  medical  services,  as a
percentage  of net revenue  increased  to 84.4% for the year ended  December 31,
1998,  compared to 81.1% for the year ended  December  31,  1997.  The change in
overall  clinic  costs  and  specific  items  is due to  the  mix of  affiliated
physician groups managed by the Company.  Purchased medical services created the
largest  increase as a percentage  of net revenue,  increasing  to 20.4% in 1998
compared to 9.9% in 1997.  This increase is directly  related to the increase in
full professional and global capitation revenues, which requires the purchase of
services outside the group.

         General  corporate  expenses as a percentage of net revenue declined to
2.5% for the year ended  December 31, 1998,  compared to 4.7% for the year ended
December 31, 1997.  While these costs  declined as a percentage  of net revenue,
the amount of general corporate expenses increased 47.9% to $5.6 million for the
year ended  December 31, 1998 from $3.8 million for the year ended  December 31,
1997.  This  increase in expenses was  expected as the Company  continued to add
management and technology infrastructure.  Management expects these increases in
amounts to continue as the Company increases the number of affiliated  physician
groups.

         Depreciation and amortization as a percentage of net revenue  decreased
to 3.3% for the year ended  December  31,  1998,  compared  to 3.6% for the year
ended December 31, 1997. This decrease results primarily from differences in the
mix of assets acquired in connection with these affiliations,  but also reflects
the impacts of declining  consideration  levels on new affiliations in the later
part of 1998.

         Net interest  expense as a percentage of net revenue  decreased to 0.5%
for the year  ended  December  31,  1998,  compared  to 0.6% for the year  ended
December 31, 1997.  Although long term debt levels  increased in the latter part
of 1998, the resulting  interest expense was offset by interest income earned in
the earlier part of 1998 on unused  proceeds from the Company's  public offering
of its common stock.

         Provision for income taxes  reflects an effective  rate of 38.0%.  This
effective rate is higher than the expected Federal  statutory rate primarily due
to the impact of state income taxes.

         In  December  1998,  the  Company  replaced  its then  existing  credit
facility. In connection with this transaction, the Company was required to write
off the  unamortized  deferred  financing  costs  relating  to the prior  credit
facility.   The  resulting,   extraordinary  charge  amounted  to  approximately
$611,000, net of applicable income taxes of approximately $375,000.



<PAGE>


Year Ended December 31, 1997 Compared with Year Ended December 31, 1996

         Net  revenue  increased  by 207% to $80.6  million  for the year  ended
December 31, 1997 from $26.2 million for the year ended  December 31, 1996.  New
affiliations  in 1997 produced  $37.8 million of this increase and  affiliations
completed in December 1995 through 1996 produced a $16.6 million increase.

         Overall  clinic  costs,  including  purchased  medical  services,  as a
percentage  of net revenue  decreased  to 81.1% for the year ended  December 31,
1997,  compared to 89.8% for the year ended  December  31,  1996.  Decreases  in
clinic salaries and benefits and other clinic costs were offset  partially by an
increase in purchased medical  services.  The change in overall clinic costs and
within the  individual  expense  categories  is caused  primarily  by the mix of
affiliated physician groups managed by the Company.

         General  corporate  expenses as a percentage of net revenue declined to
4.7% for the year ended December 31, 1997,  compared to 10.0% for the year ended
December 31, 1996.  While these costs  declined as a percentage  of net revenue,
the amount of general corporate expenses increased 44.0% to $3.8 million for the
year ended  December 31, 1997 from $2.6 million for the year ended  December 31,
1996.  This  increase in expenses was  expected as the Company  continued to add
management and technology infrastructure.

         Depreciation and amortization as a percentage of net revenue  increased
to 3.6% for the year ended  December  31,  1997,  compared  to 2.8% for the year
ended  December  31, 1996.  This  increase  resulted  primarily  from  increased
amortization of service  agreement  rights  obtained in the new  affiliations in
1997, as well as  differences in the mix of assets  acquired in connection  with
these affiliations.

         Net interest  expense as a percentage of net revenue  decreased to 0.6%
for the year  ended  December  31,  1997,  compared  to 0.8% for the year  ended
December 31, 1996.  Although long term debt levels  increased in the latter part
of 1997, the resulting  interest expense was offset by interest income earned in
the earlier part of 1997 on unused  proceeds from the Company's  initial  public
offering.

         Provision for income taxes  reflects an effective  rate of 32.2%.  This
effective  rate is lower than the  expected  Federal  statutory  rate due to the
realization  of net  operating  loss  carryforwards,  which had been  previously
reserved.  At December 31, 1997, all net operating loss  carryforwards  had been
utilized and recognized.



<PAGE>



Summary of Operations by Quarter

         The following table presents unaudited  quarterly operating results for
the  preceding  eight  quarters.   The  Company   believes  that  all  necessary
adjustments,  consisting  only  of  normal,  recurring  adjustments,  have  been
included in the amounts  stated below to present  fairly the  quarterly  results
when read in conjunction with the Company's  consolidated  financial  statements
and notes  thereto  included  elsewhere  in this  Form 10-K.   Future  quarterly
results may fluctuate depending on, among other things, the timing and number of
affiliations  with  physician  groups.  Results of operations for any particular
quarter are not necessarily  indicative of results of operations for a full year
or for future periods.
<TABLE>
<CAPTION>

                                               Three Months Ended                           Three Months Ended             
                               Mar. 31,     Jun. 30,     Sep. 30,     Dec. 3  1    Mar. 31,   Jun. 30,     Sep. 30,      Dec. 31,
                                1997          1997        1997         1997         1998        1998         1998         1998   
                            -----------   ----------   ----------   ----------   ----------   ----------   ----------   ----------
<S>                         <C>          <C>          <C>          <C>         <C>           <C>         <C>           <C>
Statements of Operations Data:
Net revenue                 $11,717,406  $15,199,871  $17,805,601  $35,918,657  $40,612,453  $51,993,812  $61,096,677  $68,799,173
Operating expenses:
  Clinic salaries and 
     benefits                 4,639,895    5,926,457    6,795,818   12,497,548   13,340,225   17,715,045   19,333,680   24,287,124
  Clinic rent and lease
     expense                  1,079,862    1,429,063    1,620,677    2,886,659    3,199,036     3,861977    4,528,776    5,597,039
  Clinic supplies             1,513,716    1,962,366    2,034,422    4,156,581    4,857,545    6,337,031    6,598,383    7,080,759
  Purchased medical
     services                   685,158      780,510      725,486    5,755,835    8,131,910   10,656,091   14,813,087   11,843,351
  Other clinic costs          1,778,472    2,154,875    2,100,817    4,849,424    4,321,958    5,636,433    6,649,411    9,091,431
  General corporate 
     expenses                   818,772      823,533    1,113,978    1,037,269    1,083,158    1,291,480    1,232,954    2,004,511
  Depreciation and
      amortization              435,875      602,552      923,093      981,084    1,294,260    1,749,005    2,074,654    2,121,041
  Interest expense
      (revenue)                 115,949        1,148      110,468      228,610      472,219     (170,309)     (47,912)     850,275
Income before provision 
   for income taxes and
   extraordinary charge         649,707    1,519,367    2,380,842    3,525,647    3,912,142    4,917,059    5,913,644    5,923,642
Provision for income taxes      194,912      412,429      778,494    1,216,544    1,486,614    1,868,482    2,247,168    2,251,002
                            -----------   ----------   ----------   ----------   ----------   ----------   ----------   ----------
Net income before
   extraordinary charge         454,795    1,106,938    1,602,348    2,309,103    2,425,528    3,048,577    3,666,476    3,672,640
Extraordinary charge - loss
   on extinguishment
   of debt, net of 
   $375,000 of income taxes          -             -            -            -            -            -           -      (611,192)
                            -----------   ----------   ----------   ----------   ----------   ----------   ----------   ----------
Net income                  $   454,795   $1,106,938   $1,602,348   $2,309,103   $2,425,528   $3,048,577   $3,666,476   $3,061,448
                            ===========   ==========   ==========   ==========   ==========   ==========   ==========   ==========
Net earnings (loss) per share:
Basic
   Income before 
     extraordinary charge   $      0.05   $     0.09   $     0.13   $     0.18   $     0.18   $     0.17   $     0.17   $     0.17
   Extraordinary charge               -            -            -            -            -            -            -        (0.03)
                            -----------   ----------   ----------   ----------   ----------   ----------   ----------   ----------
     Net income             $      0.05   $     0.09   $     0.13   $     0.18   $     0.18   $     0.17   $     0.17   $     0.14
                            ===========   ==========   ==========   ==========   ==========   ==========   ==========   ==========
Diluted
   Income before 
     extraordinary charge   $      0.04   $     0.08   $     0.11   $     0.15   $     0.15   $     0.15   $     0.16   $     0.16
   Extraordinary charge               -            -            -            -            -            -            -        (0.03)
                            -----------   ----------   ----------   ----------   ----------   ----------   ----------   ----------
   Net income               $      0.04   $     0.08   $     0.11   $     0.15   $     0.15   $     0.15   $     0.16   $     0.13
                            ===========   ==========   ==========   ==========   ==========   ==========   ==========   ==========
Weighted average 
   number of common shares
   outstanding:
Basic                         8,669,343   12,031,726   12,042,769   12,507,883   13,615,887   17,841,121   21,450,466   21,514,216
                            ===========   ==========   ==========   ==========   ==========   ==========   ==========   ==========
Diluted                      11,617,229   14,704,451   15,260,449   15,355,033   16,490,851   20,554,789   23,539,875   23,330,729
                            ===========   ==========   ==========   ==========   ==========   ==========   ==========   ==========

Other Data (at end of period):
Total providers                     233          238          280          982        1,097        1,285        1,316        1,398
                            ===========   ==========   ==========   ==========   ==========   ==========   ==========   ==========
Affiliated physicians               180          186          224          354          440          592          606          683
Mid-level providers                  53           52           56          100          115          123          127          132
IPA physicians                       --           --           --          528          542          583          583          583
Number of states                      5            5            6           10           11           13           13           14
</TABLE>


Year 2000

         The Company is aware of issues  associated with the programming code in
existing  computer systems as the year 2000 approaches.  The "Year 2000" problem
is pervasive and complex, as virtually every computer operation will 


<PAGE>



be affected  in the same way by the  rollover of the two digit year value to 00.
The issue is whether  computer  systems will properly  recognize  date sensitive
information  when  the  year  changes  to  2000.  Systems  that do not  properly
recognize such  information  could generate  erroneous data or cause a system to
fail.

         The  Company  continues  to assess the impact of the Year 2000 issue on
its  information  systems  and  operations  using  both  internal  and  external
resources. The Company divides its internal procession software into three broad
categories: financial (including general ledger, accounts payable, fixed assets,
purchasing and inventory control),  practice  management  (including billing and
accounts  receivable)  and managed care. The Company has installed a new, common
financial  software  package  at all  locations  that  is  certified  Year  2000
compliant.  The Company's philosophy with respect to practice management systems
is to utilize  the legacy  system in place as long as it can  capably  serve the
physicians'  needs.  Of  the  Company's  existing affiliated groups, only  three
locations are utilizing practice  management systems that are not currently Year
2000  compliant.   Two  of  these  locations  have  been  scheduled  for  system
conversions  and  upgrades  in the second  quarter  of 1999 to handle  increased
patient volume. These planned conversions will be Year 2000 compliant. The third
location  utilizes on a system  maintained  by  a  local  hospital;  ProMedCo is
working  with the  hospital  to  complete  Year 2000  testing  during the second
quarter  of 1999.  The Year  2000  assessment  process  continues  with each new
affiliation.  Inadequate or noncompliant  practice  management  systems could be
acquired  in a new  affiliation,  which  would  require  system  remediation  or
replacement. Given these issues, the Company is currently unable to estimate the
costs of the remediation or replacements  that may be required during 1999. With
its current  strategy  of  replacing  inadequate  practice  management  systems,
however,  the  Company  does not  believe  that Year 2000  issues  will  cause a
conversion of one or more of its practice  management systems to be more or less
difficult than a typical system  conversion.  The Company's primary managed care
technology  resides at its risk management  subsidiary,  PMC Medical  Management
("PMC"). PMC is currently upgrading its systems to be Year 2000 compliant.  This
process is expected to be completed in the second  quarter of 1999 and the costs
are not currently estimated to be material.

         The Company is also in the process of gathering  information  about the
Year 2000  compliance  status of its  significant  suppliers  and  vendors.  The
inability  of  suppliers  and  vendors to  complete  their Year 2000  resolution
process in a timely fashion could materially  impact the Company.  The potential
effect on the Company of  non-compliance  by  suppliers  and vendors has not yet
been determined

         Management of the Company believes it has an effective program in place
to resolve the Year 2000 issue in a timely manner. In the event that the Company
does not complete any additional phases, the Company's ability to record revenue
or process  collections  in a timely  fashion would be adversely  impacted after
January 1, 2000. In addition, disruptions in the general economy due to the Year
2000 problem could also materially adversely affect the Company.

         The Company currently has no contingency plans in place in the event it
does not  complete  all phases of its Year 2000  program.  The Company  plans to
evaluate the status of its efforts in June 1999 to determine whether such a plan
is necessary.

Liquidity and Capital Resources

         At December 31, 1998, the Company had working capital of $55.5 million,
compared to $24.2 million at December 31, 1997. This increase resulted primarily
from the acquisition of current assets (primarily accounts receivable) in excess
of current liabilities  assumed in new affiliations.  About 30% of this increase
resulted from an increase in accounts  receivable in affiliations where ProMedCo
did not buy the  existing  accounts  receivable  of the  group  (see  discussion
below). Although each new affiliation will have its own specific structure,  the
Company  typically  acquires  current  assets  well  in  excess  of the  current
liabilities it assumes.

         Cash used in operations  for the year ended  December 31, 1998 amounted
to $12.5  million.  This is  primarily  attributable  to a "ramp up" in accounts
receivable  of  approximately  $11.1  million in  physician  group  affiliations
completed in the fourth  quarter of 1997 and during 1998,  where the Company did
not acquire the medical  group's  existing  accounts  receivable.  Overall,  net
accounts receivable of $51.4 million at December 31, 1998 amounted to 47 days of
net physician  groups revenue  (excluding other revenues) for the fourth quarter
of 1998. While this measure of net accounts receivable has risen since the first
quarter  of 1998,  when  days  outstanding  was 42 days,  the  increase  in days
outstanding can be attributed,  in part, to the "ramp up" in accounts receivable
for the  affiliations  discussed  above,  as


<PAGE>


well as  increases  resulting  from  changes  in  payor  mix,  most  notably  in
Medicare/Medicaid  from 25% in 1997 to 30% in 1998.  Net income,  combined  with
depreciation  and  amortization,  deferred taxes,  and an increase in payable to
affiliated  physician  groups,  accrued  expenses and other current  liabilities
provided  $23.8 million in cash flows.  This was offset by increases in accounts
receivable,  management fees receivable,  due from affiliated  physician groups,
prepaid  expenses and other  current  assets and other  assets and  decreases in
accounts payable totaling $36.3 million.

         The Company had aggregate cash expenditures of $57.4 million and issued
or committed to issue an aggregate of approximately 500,000 shares of its common
stock for the  acquisition  of clinic assets during the year ended  December 31,
1998. Of the cash expenditures,  $14.9 million was for additional  physicians at
existing  clinics and deferred  payments  associated with  previously  completed
acquisitions.  Capital expenditures  amounted to $4.1 million for the year ended
December 31, 1998.  Although each of the Company's  service  agreements with its
affiliated  physician  groups  requires  the  Company  to  provide  capital  for
equipment,  expansion,  additional  physicians and other major expenditures,  no
specific amounts have been committed in advance.  Capital  expenditures are made
based  partially  upon  the   availability  of  funds,  the  sources  of  funds,
alternative projects and an acceptable repayment period.

         During May 1998, the Company  completed a public  offering of 6,900,000
shares  of  common  stock  at a  price  of  $11.00  per  share  (the  "Secondary
Offering").  Gross and net  proceeds  from the  Secondary  Offering  were  $75.9
million and $72.5 million,  respectively. In addition, net proceeds were reduced
by approximately $600,000 of expenses relating to the Secondary Offering.

         Effective  December 17, 1998, the Company  entered into a new revolving
credit  agreement (the "Credit  Facility").  The Credit Facility  provides for a
three-year  commitment  to fund  revolving  credit  borrowings  of up to  $125.0
million for acquisitions and general working capital purposes. The interest rate
under the Credit  Facility is set at the  Company's  options and varies based on
the  Company's  leverage,  as follows:  (i) the higher of the federal funds rate
plus 0.5% to 1.25% or the prime rate plus 0.0% to 0.75%,  or (ii) the Eurodollar
rate plus 1.25% to 2.25%.  As of December 31, 1998, the effective  interest rate
on  the  Credit  Facility  was  7.2%.  The  Credit  Facility   includes  certain
restrictive  covenants including limitations on the payment of dividends as well
as the maintenance of certain  financial  ratios.  Under the terms of the Credit
Facility,  the  Company  paid a  commitment  fee  and  other  closing  costs  of
approximately  $1  million  which has been  capitalized  in other  assets in the
accompanying  consolidated  balance  sheets and is amortized as an adjustment to
interest expense using the effective  interest method.  At the Company's option,
the Company can convert the outstanding balance on the Credit Facility to a term
loan  which is due  December  17,  2003.  The  Credit  Facility  is  secured  by
substantially  all the assets of the  Company.  As of  December  31,  1998,  the
Company had $70.5 million available under the Credit Facility subject to certain
conditions as defined by the agreement.

         In connection  with the August 1997 Christie  Clinic  affiliation,  the
Company  agreed  to lend  the  physician  group a total of  $42.7  million,  the
proceeds of which are being utilized by the group's physicians.  An initial loan
of $3.0  million  was  funded in  November  1997,  $16.4  million  was funded in
December 1997,  $5.83 million was funded in December 1998, with additional loans
of $5.83 million to be funded each December  through 2001.  This note receivable
is recorded  in long term  receivables  in the  Company's  consolidated  balance
sheet. The note receivable  earns interest at 8% and is an  interest-only  loan,
payable monthly,  through November 2007, after which the balance is to be repaid
in annual  installments  through  December 2022.  After December 2007, an amount
equal to one twelfth of the annual  amortization  is required to be set aside by
the physician group each month to fund each upcoming annual installment. Certain
assets of the affiliated physician group have been pledged as security under the
loan, and the loan provides  certain rights of offset against  distributions  to
the  physician  group under the service  agreement in the event of default under
the loan agreement.  As of December 31, 1998, the outstanding loan totaled $25.2
million,  and the Company  estimates  that the  carrying  value this  receivable
approximates the fair value.

         In November 1998, the Company  entered into a similar  agreement with a
new physician group to loan $8 million,  all of which was funded on November 12,
1998. The purpose of this loan was to provide the physician group with liquidity
for  general  corporate   purposes and to strengthen  the  physician-association
relationships.  Interest is payable to the Company  monthly at an annual rate of
8.0%. The principal will be repaid in 180 monthly payments beginning on November
30, 2008. Certain assets of the affiliated  physician group have been pledged as
security under the loan, and the loan provides  certain rights of offset against
distributions to the physician group under the service 

<PAGE>



agreement in the event of default under the loan  agreement.  As of December 31,
1998, the outstanding loan totaled $8.0 million,  and the Company estimates that
the carrying value this receivable approximates the fair value.

         In  connection  with the March 1997  Naples  affiliation,  the  Company
issued $8.6 million of notes payable in three equal annual installments in April
1998,  1999 and 2000.  The notes bear interest at 9%, with  interest  payable in
options to purchase  the  Company's  common  stock at a price of $9.00 per share
(valued in accordance with the Black-Scholes  model),  provided the market price
for the stock is above the exercise  price at the time of payment.  Interest may
be paid in cash at the option of either  party if the market price for the stock
is $9.00 or less at the time of payment.

         In April 1998, in connection  with the  affiliation  of a new physician
group,  the Company issued $6.5 million in convertible  subordinated  notes. The
notes bear interest of 4.75% paid annually on March 31 and can be converted into
shares of the Company's  common stock any time after April 17, 1999 and prior to
March 31, 2005 at a conversion price of $15.35,  subject to adjustment under the
note agreements.

         The Company had cash and cash  equivalents of $13.9 million at December
31, 1998. In addition to cash, the Company's principal sources of liquidity were
accounts receivable of $51.4 million at December 31, 1998 and availability under
the working capital portion of the Credit Facility of $70.5 million. The Company
believes  that the  combination  of these sources will be sufficient to meet its
working  capital  needs  for  the  next  twelve  months.  The  Company's  future
acquisition, expansion and capital expenditure programs will require substantial
amounts of capital resources.  To meet the capital needs of these programs,  the
Company will continue to evaluate  alternative  sources of financing,  including
short- and  long-term  bank  indebtedness,  and other  forms of  financing,  the
availability  and terms of which will depend  upon market and other  conditions.
There can be no assurance that  additional  financing will be available on terms
acceptable to the Company.



<PAGE>



Forward-Looking Statements

         This  Form  10-K  includes  certain  forward-looking  statements  about
anticipated results, including statements as to operating results, liquidity and
capital  resources,   and  negotiations  with  and  acquisitions  of  additional
physician  groups.  The Company notes that such  forward-looking  statements are
based upon internal estimates,  which are subject to change because they reflect
preliminary  information  and  management  assumptions,  and that a  variety  of
factors  could  cause the  Company's  actual  results and  experience  to differ
materially from the anticipated  results or other expectations  expressed in the
Company's  forward-looking  statements.  The  factors  that could  cause  actual
results or outcomes to differ from such  expectations  include the extent of the
Company's  success in (i) negotiating  the  acquisition of additional  physician
groups;  (ii)  integrating all operations  within the planned time frame;  (iii)
locating and  negotiating  additional  financing at terms that are acceptable to
the Company; and (iv) negotiating favorable  reimbursement rates, along with the
uncertainties  and other  factors  described  from time to time in the Company's
public filings and reports.

Item 7A.  Quantitative and Qualitative Disclosures About Market Risk

         Not applicable.

Item 8.  Financial Statements

         The  Company's  Consolidated  Financial  Statements  are listed in Item
14(a)(1), included at the end of this report on Form 10-K beginning on page F-1,
and incorporated herein by reference.

Item 9.  Changes in and Disagreements with Accountants on Accounting and 
         Financial Disclosure.

         None


<PAGE>



                               Part III

Item 10.  Directors and Executive Officers of the Registrant.

         The information  required by Item 10 will be contained in the Company's
Proxy Statement for the 1999 Annual Meeting of  Stockholders  under the captions
"Directors and Nominees,"  "Executive  Officers of the Company" and  "Compliance
with Section 16(a) of the Securities Exchange Act of 1934."

Item 11.  Executive Compensation.

         The information  required by Item 11 will be contained in the Company's
Proxy  Statement for the 1999 Annual Meeting of  Stockholders  under the caption
"Executive Compensation," and is incorporated herein by reference.

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

         The information  required by Item 12 will be contained in the Company's
Proxy  Statement for the 1999 Annual Meeting of  Stockholders  under the caption
"Common Stock Ownership of Certain  Beneficial  Owners and  Management,"  and is
incorporated herein by reference.

Item 13.  Certain Relationships and Related Transactions.

         The information  required by Item 13 will be contained in the Company's
Proxy  Statement for the 1999 Annual Meeting of  Stockholders  under the caption
"Compensation   Committee  Interlocks  and  Insider  Participation  and  Certain
Transactions," and is incorporated herein by reference.


<PAGE>






                                 Part IV

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

         (a) (1) List of Financial  Statements.  The  following is a list of the
financial  statements  included at the end of this Report of Form 10-K beginning
on page F-1:

     Report of Independent Public Accountants
     Consolidated Balance Sheets as of December 31, 1997 and 1998
     Consolidated Statements of Operations for the Years Ended December 31,
           1996, 1997 and 1998 
     Consolidated Statements of Stockholders' Equity for the Years Ended 
           December 31, 1996,  1997 and 1998  
     Consolidated  Statements of Cash Flows for the Years Ended  December 31,  
           1996,  1997 and 1998 
     Notes to Consolidated Financial Statements

              (2) List of Financial Statement Schedules. All schedules have been
omitted  because  they  are not  applicable  or not  required,  or the  required
information is provided in the financial statements or notes thereto.

         (b)  Reports on Form 8-K.

         No Reports on Form 8-K were filed during the fourth quarter of 1998.

         (c) List of Exhibits.  The  following is a list of exhibits  furnished.
Copies of exhibits will be furnished upon written  request of any stockholder at
a charge of $.25 per page plus postage.

Exhibit
Number                                               Description

1                 Form of Purchase Agreement. (1)
2                 Asset Purchase  Agreement  dated as of January 19, 1996 by and
                  among  ProMedCo,  Inc.,  ProMedCo of Abilene,  inc. and
                  Abilene Diagnostic Clinic, P.L.L.C. (2)
2(a)              First  Amendment to Asset Purchase  Agreement dated as of 
                  January 19, 1996 by and among  ProMedCo,  Inc.,  ProMedCo of
                  Abilene, inc., and Abilene Diagnostic Clinic, P.L.L.C. (2)
2.1               Plan and  Agreement  for  Reorganization  dated as of 
                  September 13, 1996 by and between  ProMedCo,  Inc.,  ProMedCo
                  of Temple, Inc., and King's Daughters Clinics, P.A. (2)
2.2               Agreement  for  Statutory  merger  dated as of November 7, 
                  1996 by and between  ProMedCo,  Inc.,  ProMedCo of Northern
                  Nevada, Inc. and Western medical Management Corporation, 
                  Inc. (2)
3.1               Form of Restated Certificate of Incorporation of ProMedCo 
                  Management Company. (2)
3.2               By-laws of ProMedCo Management Company. (2)
4                 Form of Rights Agreement. (2)
10.1              Interim  Service  Agreement  dated as of January  19,  1996 by
                  and  between  ProMedCo  of  Abilene,  inc.  and Abilene
                  Diagnostic Clinic, P.L.L.C. (2)(3)
10.1(a)           First  Amendment  to Service  Agreement  and  Interim  Service
                  Agreement  dated as of January 19, 1996 by and between
                  ProMedCo of Abilene, inc. and Abilene Diagnostic Clinic, 
                  P.L.L.C. (2)
10.2              Service Agreement  dated as of January 19, 1996 by and between
                  ProMedCo  of  Abilene,  Inc.  and Abilene  Diagnostic
                  Clinic, P.L.L.C. (2)(3)
10.3              Service  Agreement  dated as of March 12, 1996 by and between
                  ProMedCo,  Inc. of Cullman,  Inc.  and Cullman  Primary
                  Care, P.C. (2)(3)
10.4              Service Agreement dated as of April 1, 1996 by and between 
                  ProMedCo of Mayfield, Inc. and Morgan-Haugh, P.S.C. (2)(3)
10.5              Amended and  Restated  Service  Agreement  dated as of June
                  24, 1996 by and between  ProMedCo of Lake Worth,  Inc. and
                  Tarrant Family Practice, P.A. (2)(3)


<PAGE>


10.6              Service  Agreement dated as of June 30, 1995 by and between
                  ProMedCo of Denton,  Inc. and North Texas Medical Surgical
                  Clinic, P.A. (2)(3)
10.7              Credit Agreement dated as of June 12, 1996 among ProMedCo,  
                  Inc., the Lenders referred to therein,  and  NationsCredit
                  Commercial Corporation, as Agent. (2)
10.8              1996 Stock Option Plan. (2)
10.9              Employee Stock Purchase Plan. (2)
10.10             Employment Agreement with H. Wayne Posey. (2)
10.11             Employment Agreement with Richard R. D'Antoni. (2)
10.12             Amended and Restated Employment Agreement with Dale K. 
                  Edwards. (2)
10.13             Employment Agreement with R. Alan Gleghorn. (2)
10.14             Employment Agreement with Rick E. Weymier. (2)
10.15             Employment Agreement with Deborah A. Johnson. (2)
10.16             Service  Agreement  dated as of September 1, 1996 by and
                  between  ProMedCo of Temple,  Inc. and  Physicians  of King's
                  Daughters, P.A. (2)
10.17             Employment Agreement with Robert D. Smith. (2)
10.18             Form of Service  Agreement by and between  ProMedCo of
                  Northern  Nevada,  Inc. and Knutzen Goring Medical Group, Ltd.
                  DBA The Northern Nevada Medical Group. (2)(3)
10.19             1994 Stock Option Plan. (2)
10.20             Asset Purchase  Agreements as of April 23, 1997 by and between
                  ProMedCo  Management  Company,  ProMedCo of Southwest Florida,
                  Inc.,  Naples  Medical  Center,  P.A. and Naples  Obstetrics &
                  Gynecology,  M.D.,  P.A.  Included  as  Appendix  2.9A  to the
                  Agreement is the Service  Agreement by and between ProMedCo of
                  Southwest Florida and Naples Medical Center, P.A. (4)
10.21             Asset Purchase Agreement as of August 12, 1997 by and between
                  ProMedCo  Management  Company,  PHB Management  Company,
                  Inc.  and  HealthAmerica  Pennsylvania,  Inc.  
                  Service  Agreement  by and between PHB  Management  Company,
                  Inc. and HealthAmerica Pennsylvania, Inc. effective October 1,
                  1997. (5)
10.22             Stock  Purchase Agreement as of October 8, 1997 by and between
                  ProMedCo  Management  Company,  ProMedCo of Sarasota,
                  Inc., IMG, Inc.  (formerly known as Intercoastal  Medical
                  Group,  Inc.), and Intercoastal  Medical Group, Inc. Service
                  Agreement by and between ProMedCo of Sarasota and Intercoastal
                  Medical Group, Inc., effective August 1, 1997. (6)
10.23             Agreement for Statutory Merger by and between HP Acquisition
                  Corp., a Wholly Owned Subsidiary of ProMedCo  Management
                  Company, with PBMA Health Systems, Inc. and Health Plans, Inc.
                  dated July 25, 1997. (7)
10.24             Amended and Restated Credit  Agreement dated as of November
                  13, 1997 among ProMedCo  Management  Company,  the Lenders
                  referred to therein, and NationsCredit Commercial Corporation,
                  as Agent. (8)
10.25             Agreement for  Statutory  Merger  between  ProMedCo Management
                  Company,  ProMedCo of  Berkshire,  Inc. and Berkshire
                  Physicians & Surgeons, P.C., dated April 14, 1998. (9)
10.26             Service Agreement between Commonwealth Health Management
                  Services, Inc. and BP&S, P.C., dated April 1, 1998. (9)
10.27             Second  Amended and Restated  Credit  Agreement  dated as of
                  April 16, 1998 among  ProMedCo  Management  Company,  the 
                  Lenders referred to therein, and NationsCredit Commercial 
                  Corporation, as Agent. (1)

<PAGE>

10.28             Credit  Agreement dated as of December 17, 1998 among ProMedCo
                  Management  Company,  the  Lenders  referred  to  therein  and
                  NationsBank,   N.A.  as  Agent  and   NationsBanc   Montgomery
                  Securities, LLC, as Arranger
11                Computation of Net Income Per Share.
21                List of Subsidiaries.
23.1              Consent of Independent Public Accountants.
27                Financial Data Schedule.


(1)  Filed  as an  exhibit  of the same  number  to the  Company's  registration
     statement on Form S-3 (File No. 333-50105).
(2)  Filed  as an  exhibit  of the same  number  to the  Company's  registration
     statement on Form S-1 (File No. 333-10557).
(3)  Confidential  treatment  has been  requested  and an  application  has been
     separately filed with the Commission.
(4)  Filed as  exhibit  2.3 to the  Company's  report on Form 8-K filed with the
     Commission on May 7, 1997.
(5)  Filed as an  exhibit  to the  Company's  report on Form 8-K filed  with the
     Commission on October 15, 1997.
(6)  Filed as an  exhibit  to the  Company's  report on Form 8-K filed  with the
     Commission on October 23, 1997.
(7)  Filed as an  exhibit  to the  Company's  report on Form 8-K filed  with the
     Commission on December 17, 1997.
(8)  Filed as an  exhibit  to the  Company's  report on Form 10-K filed with the
     Commission on March 26, 1998.
(9)  Filed as an  exhibit  to the  Company's  report on Form 8-K filed  with the
     Commission on May 1, 1998.



<PAGE>



                                  SIGNATURES

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

                                 PROMEDCO MANAGEMENT COMPANY


                                     By:   /s/ H. WAYNE POSEY    
                                             H. Wayne Posey
                                Chairman, President and Chief Executive Officer

       Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the  following  persons in the  capacities  and on the
dates indicated.
<TABLE>
<CAPTION>

              Signature                              Title                                 Date


<S>                                      <C>                                        <C>
/s/ H. WAYNE POSEY                       Chairman, President, Chief Executive         March 31, 1999
--------------------------------------
H. Wayne Posey                           Officer and Director
                                         (Principal Executive Officer)

/s/ ROBERT D. SMITH                      Senior Vice President-Finance and            March 31, 1999
--------------------------------------
Robert D. Smith                          Chief Financial Officer
                                         (Principal Financial and Accounting
                                         Officer)

/s/ RICHARD R. RAGSDALE                  Director                                     March 31, 1999
--------------------------------------
Richard R. Ragsdale

/s/ DAVID T. BAILEY, M.D.                Director                                     March 31, 1999
--------------------------------------
David T. Bailey, M.D.

/s/ CHARLES J. BUYSSE, M.D.              Director                                     March 31, 1999
--------------------------------------
Charles J. Buysse, M.D.

/s/ E. THOMAS CHANEY                     Director                                     March 31, 1999
--------------------------------------
E. Thomas Chaney

/s/ JAMES F. HERD, M.D.                  Director                                     March 31, 1999
---------------------------------------
James F. Herd, M.D.

/s/ JACK W. MCCASLIN                     Director                                     March 31, 1999
--------------------------------------
Jack W. McCaslin
</TABLE>



<PAGE>




                         INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>


ProMedCo Management Company                                                                                   Page 
<S>                                                                                                           <C>
Report of Independent Public Accountant.........................................................................F-1

Consolidated Balance Sheets as of December 31, 1997 and 1998 ...................................................F-2

Consolidated Statements of Operations for the Three Years Ended
  December 31, 1998............................................................................................ F-4

Consolidated Statements of Stockholders' Equity for the Three Years Ended
  December 31, 1998.............................................................................................F-5

Consolidated Statements of Cash Flows for the Three Years Ended
  December 31, 1998.............................................................................................F-6

Notes to Consolidated Financial Statements......................................................................F-7
</TABLE>




<PAGE>









                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS



To the Board of Directors of
ProMedCo Management Company:

We have  audited  the  accompanying  consolidated  balance  sheets  of  ProMedCo
Management Company (a Delaware  corporation) and subsidiaries as of December 31,
1997  and  1998,  and  the  related   consolidated   statements  of  operations,
stockholders'  equity,  and cash flows for each of the three years in the period
ended December 31, 1998. 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 audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion,  the financial  statements  referred to above present fairly, in
all material respects, the financial position of ProMedCo Management Company and
subsidiaries  as of  December  31,  1997  and  1998,  and the  results  of their
operations  and their cash flows for each of the three years in the period ended
December 31, 1998, in conformity with generally accepted accounting principles.


                                        ARTHUR ANDERSEN LLP


Fort Worth, Texas,
March 12, 1999






                                  F-1

<PAGE>






                    PROMEDCO MANAGEMENT COMPANY AND SUBSIDIARIES

                             CONSOLIDATED BALANCE SHEETS


<TABLE>
<CAPTION>

                                                                                          December 31,          
                                 ASSETS                                              1997              1998     
                                 ------                                         --------------    --------------
<S>                                                                             <C>               <C>
Current assets:
         Cash and cash equivalents                                              $   15,760,920    $   13,870,967
         Accounts receivable, net of allowances of approximately
              $19,281,000 and $45,281,000, respectively                             22,463,689        51,375,337
         Management fees receivable                                                  1,938,464         8,490,099
         Due from affiliated physician groups                                        2,870,607         5,584,651
         Deferred tax benefit                                                           -              2,205,835
         Prepaid expenses and other current assets                                   6,917,675        13,042,824
                                                                                --------------    --------------
                      Total current assets                                          49,951,355        94,569,713

Property and equipment, net of accumulated depreciation of approximately
         $2,630,000 and $5,668,000, respectively                                    10,590,561        15,125,569

Intangible assets, net of accumulated amortization of approximately
         $1,775,000 and $5,967,000, respectively                                    77,195,351       153,402,297

Long term receivables                                                               23,915,884        40,428,738

Other assets                                                                         1,312,999         3,132,555
                                                                                --------------    --------------
                      Total assets                                              $  162,966,150    $  306,658,872
                                                                                ==============    ==============
</TABLE>

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














                               F-2
<PAGE>



                 PROMEDCO MANAGEMENT COMPANY AND SUBSIDIARIES
                  CONSOLIDATED BALANCE SHEETS - (Continued)
<TABLE>
<CAPTION>

                                                                                          December 31,          
                  LIABILITIES AND STOCKHOLDERS' EQUITY                               1997              1998     
                  ------------------------------------                          --------------    --------------
<S>                                                                             <C>               <C>
Current liabilities:
         Accounts payable                                                       $    3,185,208    $    4,683,218
         Accrued salaries, wages and benefits                                        6,562,903         8,146,391
         Payable to affiliated physician groups                                      2,895,023         6,640,636
         Accrued purchased medical services                                          3,251,751         6,087,151
         Accrued expenses and other current liabilities                              2,762,978         6,741,451
         Deferred income tax liability                                                 174,101            -     
         Current maturities of notes payable                                         3,676,365         3,231,551
         Current portion of obligations under capital leases                           609,591           557,449
         Current portion of deferred purchase price                                  1,575,308         2,137,154
         Income taxes payable                                                        1,051,050           846,766
                                                                                --------------    --------------
                      Total current liabilities                                     25,744,278        39,071,767

Notes payable, net of current maturities                                            39,688,325        58,130,408
Obligations under capital leases, net of current portion                             1,073,886           701,042
Deferred purchase price, net of current portion                                     11,008,931        25,289,764
Convertible subordinated notes payable                                               1,765,058         7,634,626
Deferred income tax liability                                                        1,103,876         2,871,838
Other long term liabilities                                                          1,963,059           311,921
                                                                                --------------    --------------
                      Total liabilities                                             82,347,413       134,011,366
                                                                                --------------    --------------
Commitments and contingencies

Stockholders' equity:

         Preferred stock, $0.01 par value, 20,000,000 shares authorized and no
              shares outstanding                                                        -                 -     
         Common stock, $0.01 par value; 50,000,000 shares authorized;
              10,686,767 and 21,024,415 shares issued and outstanding in 1997
              and 1998, respectively                                                   106,868           210,244
         Additional paid-in-capital                                                 58,946,838       152,785,961
         Common stock to be issued, 2,875,073 and 412,771 shares, in 1997 and
              1998, respectively                                                    20,121,059         6,005,300
         Stockholder notes receivable                                                 (369,665)         (369,665)
         Accumulated earnings                                                        1,813,637        14,015,666
                                                                                --------------    --------------
                      Total stockholders' equity                                    80,618,737       172,647,506
                                                                                --------------    --------------
                      Total liabilities and stockholders' equity                $  162,966,150    $  306,658,872
                                                                                ==============    ==============

</TABLE>

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




                              F-3

<PAGE>




                 PROMEDCO MANAGEMENT COMPANY AND SUBSIDIARIES

                     CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>

                                                                           Years Ended December 31,             
                                                                    1996             1997               1998    
<S>                                                          <C>                <C>               <C>
Net revenue                                                   $  26,245,196     $   80,641,535    $  222,502,115

Operating expenses:
     Clinic salaries and benefits                                11,694,973         29,859,718        74,676,074
     Clinic rent and lease expense                                2,670,138          7,016,261        17,186,828
     Clinic supplies                                              3,213,443          9,667,085        24,873,718
     Purchased medical services                                     969,650          7,946,989        45,444,439
     Other clinic costs                                           5,018,876         10,883,588        25,699,233
     General corporate expenses                                   2,633,585          3,793,552         5,612,103
     Depreciation and amortization                                  723,641          2,942,604         7,238,960
     Interest expense, net                                          209,474            456,175         1,104,273
     Merger costs                                                   682,269             -                 -     
                                                              --------------    --------------    --------------
              Total operating expenses                           27,816,049         72,565,972       201,835,628
                                                              -------------     --------------    --------------

Income (loss) before provision for income taxes and
     extraordinary charge                                        (1,570,853)         8,075,563        20,666,487

Provision for income taxes                                           -               2,602,379         7,853,266
                                                              -------------     --------------    --------------

Net income (loss) before extraordinary charge                    (1,570,853)         5,473,184        12,813,221

Extraordinary charge - loss on extinguishment of debt, net
     of income taxes of approximately $375,000                       -                  -               (611,192)
                                                              -------------     --------------    --------------

Net income (loss)                                             $  (1,570,853)    $    5,473,184    $   12,202,029
                                                              =============     ==============    ==============
Net earnings (loss) per share:
     Basic
         Income (loss) before extraordinary charge            $       (0.20)    $         0.48    $         0.69
         Extraordinary charge                                        -                  -                  (0.03)
                                                              -------------     --------------    --------------
              Net income (loss)                               $       (0.20)    $         0.48    $         0.66
                                                              =============     ==============    ==============
     Diluted
         Income (loss) before extraordinary charge            $       (0.20)    $         0.38    $         0.61
         Extraordinary charge                                        -                  -                  (0.03)
                                                              -------------     --------------    --------------
              Net income (loss)                               $       (0.20)    $         0.38    $         0.58
                                                              =============     ==============    ==============


Weighted average number of common shares outstanding:
     Basic                                                        7,870,908         11,375,662        18,621,988
     Diluted                                                      7,870,908         14,224,198        20,957,771
</TABLE>



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





                                     F-4

<PAGE>



              PROMEDCO MANAGEMENT COMPANY AND SUBSIDIARIES


             CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY




<TABLE>
<CAPTION>


                             Class B                               Additional    Common    Stockholder   Accumulated
                          Common Stock         Common Stock          Paid-In    Stock To      Notes       Earnings
                       Shares     Amount     Shares      Amount      Capital    Be Issued  Receivable     (Deficit)      Total
<S>                 <C>          <C>         <C>         <C>        <C>         <C>         <C>          <C>            <C>

Balance, December 
  31, 1995           1,226,150      12,262   2,320,549      23,205    2,321,500       4,000   (31,834)   (2,088,694)        240,439

  Common stock 
   issued                -            -        843,729       8,437    9,634,903       -      (120,000)         -          9,523,340
  Stock options
   exercised             -            -         22,851         229       31,077       -       (31,306)         -            -
  Stock 
   subscription
   canceled              -            -           -            -          -          (4,000)    4,000          -            -
  Common stock
    to be issued         -            -           -            -          -       2,303,212        -           -          2,303,212
  Stockholder
   notes payments        -            -           -            -          -            -       27,834          -             27,834
Net loss                 -            -           -            -          -            -          -      (1,570,853)     (1,570,853)
                     ---------   ---------   ---------    --------  -----------  ---------- ---------    ----------     -----------

Balance, December 
  31, 1996           1,226,150      12,262   3,187,129      31,871   11,987,480   2,303,212  (151,306)   (3,659,547)     10,523,972

  Common stock 
   issued in
   initial public
   offering, net        -             -      4,000,000      40,000   31,705,000       -          -           -           31,745,000
  Redeemable
    preferred
    shares 
    converted           -             -        500,000       5,000    2,952,641       -          -           -            2,957,641
  Redeemable 
    common shares
    converted           -             -        165,296       1,653      990,123       -          -           -              991,776
  Class B common 
    converted       (1,226,150)    (12,262)  1,226,150      12,262         -          -          -           -                 -
  Warrants and
    options
    exercised           -             -         59,786         597       92,142       -          -           -               92,739
  Subordinated 
   notes payable
   converted            -             -          3,912          39       35,177       -          -           -               35,216
  Common stock
   issued and
   to be issued,
   net                  -             -      1,608,656      16,087   11,565,716  17,817,847  (249,671)       -           29,149,979
  Treasury stock
   purchased
   and retired          -             -        (64,162)       (641)    (381,441)      -          -           -             (382,082)
  Stockholder
   notes payments       -             -           -            -            -         -        31,312        -               31,312
Net income              -             -           -            -            -         -          -        5,473,184       5,473,184
                     ---------   ---------   ---------    --------  -----------  ---------  ---------    ----------     -----------

Balance, December 
  31, 1997              -            -      10,686,767     106,868   58,946,838  20,121,059  (369,665)    1,813,637      80,618,737
                     ---------   ---------   ---------    --------  -----------  ---------  ---------    ----------     -----------

  Common stock
   offering, net        -            -       6,900,000      69,000   71,820,496       -          -           -           71,889,496

  Warrants and
   options exercised    -            -         406,540       4,065      547,038       -          -           -              551,103

  Subordinated notes
   payable converted    -            -          76,093         761      684,004       -          -           -              684,765

  Common stock
   issued and to
   be issued, net       -            -       2,955,015      29,550   20,787,585 (14,115,759)     -           -            6,701,376
Net income              -            -           -            -            -          -          -       12,202,029      12,202,029
                     ---------   ---------   ---------    --------  -----------  ---------  ---------    ----------     -----------

Balance, December
  31, 1998              -        $   -      21,024,415    $210,244  $152,785,961 $6,005,300 $(369,665)   $14,015,666   $172,647,506
                     =========   =========   =========    ========  ===========  ==========  ========    ==========     ===========
</TABLE>





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





                                       F-5
<PAGE>




               PROMEDCO MANAGEMENT COMPANY AND SUBSIDIARIES

                 CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>

                                                                           Years Ended December 31,            
                                                                    1996             1997               1998   
<S>                                                            <C>                <C>             <C>
Cash flows from operating activities:
    Net income (loss) before extraordinary charge              $  (1,570,853)     $  5,473,184    $  12,813,221
    Extraordinary charge                                                                               (611,192)
    Adjustments to reconcile net income (loss) to net
       cash provided by (used in) operating activities
       (net of effects of purchase transactions)-
       Depreciation and amortization                                 723,641         2,942,604        7,238,960
       Deferred provision for income taxes                           -                 329,840        1,267,343
       Net gain on sale of fixed assets                             (229,251)           -                -     
       Noncash compensation                                           14,750            -                -     
       Changes in assets and liabilities-
          Accounts receivable                                       (785,773)       (7,179,281)     (19,963,539)
          Management fees receivable                              (1,149,630)          457,449       (6,644,822)
          Due from affiliated physician groups                      (428,830)       (1,972,295)      (2,714,044)
          Prepaid expenses and other current assets                 (205,401)       (3,624,430)      (1,226,703)
          Other assets                                              (172,985)         (402,298)        (639,685)
          Accounts payable                                           (96,932)        1,558,148       (5,122,401)
          Payable to affiliated physician groups                   1,242,641         5,191,027        1,539,123
          Accrued expenses and other current liabilities           1,468,040        (1,499,493)       1,539,337
                                                               -------------     --------------   -------------
              Net cash provided by (used in) operating
                 activities                                       (1,190,583)        1,274,455      (12,524,402)
                                                               -------------     -------------    --------------

Cash flows from investing activities:
    Purchases of property and equipment                           (1,102,029)       (2,817,907)      (4,081,535)
    Proceeds from sale of equipment                                  242,175            -                -     
    Purchases of clinic assets, net of cash                       (2,435,905)      (22,391,718)     (57,373,146)
    Increase in notes receivables (net of effects of
       purchase transactions)                                        -             (20,024,375)     (17,458,211)
                                                               -------------     --------------   --------------
              Net cash used in investing activities               (3,295,759)      (45,234,000)     (78,912,892)
                                                               --------------    -------------    --------------

Cash flows from financing activities:
    Borrowings under notes payable                                 4,482,557        30,550,891      132,775,099
    Payments on notes payable                                       (331,715)       (2,838,760)    (114,777,966)
    Payments on capital leases                                       (70,132)         (561,998)        (424,986)
    Payment of deferred financing costs                             (565,137)         (300,500)      (1,007,546)
    Payment of deferred offering costs                              (564,427)           -                -     
    Proceeds from issuance of common stock                           125,000        31,837,739       72,982,740
    Purchase and retirement of treasury shares                       -                (382,082)          -     
    Issuance of stockholder notes receivable                          (3,636)         (218,359)          -     
                                                               --------------    -------------    -------------

              Net cash provided by financing activities            3,072,510        58,086,931       89,547,341
                                                               -------------     -------------    -------------

Increase (decrease) in cash and cash equivalents                  (1,413,832)       14,127,386       (1,889,953)

Cash and cash equivalents, beginning of period                     3,047,366         1,633,534       15,760,920

                                                               -------------     -------------    -------------
Cash and cash equivalents, end of period                       $   1,633,534     $  15,760,920    $  13,870,967
                                                               =============     =============    =============
Supplemental disclosure of cash flow information (See Notes 3 and 7):
    Cash paid during the year-
       Interest expense                                        $     137,242     $     689,199    $   3,165,463
       Income taxes                                            $           -     $   1,299,118    $   6,668,295
</TABLE>



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



                                   F-6
<PAGE>


                  PROMEDCO MANAGEMENT COMPANY AND SUBSIDIARIES
                    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                          DECEMBER 31, 1996, 1997 and 1998


1.   DESCRIPTION OF BUSINESS

ProMedCo   Management  Company   ("ProMedCo"  or  the  "Company"),   a  Delaware
corporation,  is a medical  services  company that manages and  coordinates  the
delivery of healthcare in secondary markets.  The Company focuses exclusively on
secondary  markets,  in which it establishes  local  delivery  systems using the
platform  of  primary   care-driven,   multi-specialty   physician   groups.  By
affiliating with leading primary care driven,  multi-specialty physician groups,
the Company  establishes  dominant,  local  healthcare  delivery  platforms thus
providing   physicians  the  opportunity  for  increasing   control  of  medical
expenditures in their communities.  The groups expand through  affiliations with
additional  primary care physicians and  specialists and selective  additions of
ancillary  services.  In addition to providing  operating and expansion capital,
the Company  provides its affiliated  groups with a broad range of strategic and
management  expertise  and  services.  The  Company  also offers a full range of
medical  management  services  to  capitated  physician  networks.  The  Company
currently is  affiliated  with  multi-specialty  physician  groups in 14 states,
comprised of approximately 685 physicians and 130 mid-level providers (primarily
physician  assistants  and  nurse  practitioners),  and is  associated  with 585
physicians in associated independent practice association ("IPA") networks.

The Company, through its wholly-owned  subsidiaries,  typically acquires certain
net assets of and manages  physician  groups under long term service  agreements
with  affiliated  physician  groups.  The Company  provides  administrative  and
technical  support for  professional  services  rendered by the physician groups
under  service  agreements.   Under  the  service  agreements,  the  Company  is
reimbursed  for  all  clinic  expenses,   as  defined  in  the  agreement,   and
participates  at varying  levels in the excess of net clinic revenue over clinic
expenses.

2.   SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation/Basis of Consolidation

The consolidated financial statements have been prepared on the accrual basis of
accounting  and  include  the  accounts  of the  Company  and its  wholly  owned
subsidiaries. The Company's subsidiaries acquire the operating assets and assume
certain  liabilities  of the  physician  groups and  account  for the  Company's
management  activities  with the physician  groups under the Company's long term
service  agreements.  The Company does not consolidate the operating results and
accounts of the physician  groups under EITF 97-2,  "Applications of FASB No. 94
and APB No. 16 to  Physician  Practice  Management  Entities  and Certain  other
Entities under Contracted Management  Agreement".  All significant  intercompany
accounts and transactions have been eliminated.

In November 1996, the Company  entered into a definitive  agreement with Western
Medical Management Corp., Inc. ("Reno"), a physician  management company.  Under
the terms of the agreement,  Reno exchanged its common stock for common stock of
the Company upon  consummation  of the initial  public  offering  (the  "Initial
Offering")  (see Notes 3 and 8). This  transaction  has been  accounted for as a
pooling of interests,  as defined by APB No. 16,  "Business  Combinations."  The
accompanying financial statements are based on the assumption that the companies
were combined for the full periods presented and prior financial statements have
been restated to give effect to the combination.

Certain  prior  year  balances  have been  reclassified  to  conform to the 1998
presentation.

Net Revenue

Net revenue  represents  physician groups revenue less amounts paid to physician
groups.  The amounts paid to physician groups (typically 80-85% of the physician
groups' operating income) represents amounts paid to the physicians  pursuant to
the  service  agreements  between  the  Company  and the  physician  groups  and
primarily consists of the cost of the affiliated  physician services.  Under the
service agreements, the Company provides each





                               F-7

<PAGE>




physician group with the facilities and equipment used in its medical  practice,
assumes responsibility for the management of the operations of the practice, and
employs substantially all of the non-physician personnel utilized by the group.

Net revenue is detailed as follows:
<TABLE>
<CAPTION>

                                                                   1996             1997              1998     
                                                              -------------     --------------   --------------
<S>                                                           <C>               <C>              <C>
         Physician groups revenue, net                        $  47,036,801     $  120,961,775   $  304,689,084
         Other revenue                                               -               6,755,000        5,765,000
                                                              --------------    ---------------  --------------
         Total revenue                                            47,036,801       127,716,775      310,454,084
         Amounts paid to physician groups                         20,791,605        47,075,240       87,951,969
                                                              --------------    --------------   --------------

         Net revenue                                          $   26,245,196    $   80,641,535   $  222,502,115
</TABLE>

Physician groups revenue represents the revenue of the physician groups reported
at the estimated  realizable  amounts from  patients,  third-party  payors,  and
others for services rendered, net of contractual and other adjustments.  Revenue
under certain  third-party  payor agreements is subject to audit and retroactive
adjustments.  Provisions for third-party  payor  settlements and adjustments are
estimated in the period the related services are rendered and adjusted in future
periods as final  settlements  are  determined.  There are no  material  claims,
disputes,  or other  unsettled  matters  that  exist to  management's  knowledge
concerning third-party  reimbursements.  In addition,  management believes there
are no retroactive adjustments that would be material to the Company's financial
statements.   Other  revenue   represents  fees  from   management   consulting,
supplemental implementation services, and other miscellaneous revenues.

Accounts Receivable

Accounts receivable  principally  represents receivables from patients and other
third party payors for medical services provided by the physician  groups.  Such
amounts are recorded net of  contractual  allowances  and  estimated  bad debts.
Management   continually   monitors  and  periodically  adjusts  its  allowances
associated  with these  receivables  based on estimated  collection  and payment
rates.  Any  adjustments  to these  estimates  are made in the period  that they
become known and quantifiable.  Under the terms of the service  agreements,  the
affiliated physician groups retain a percentage  (typically 80-85%) of the risks
associated with uncollectible receivable amounts.

Concentration of Risk

         During  1996,   1997  and  1998,   approximately   30%,  25%  and  30%,
respectively, of physician group revenue was received under government-sponsored
healthcare  programs  (principally,  the Medicare and  Medicaid  programs).  The
physician groups have numerous  agreements with managed care  organizations  and
other payors to provide  physician  services  based on negotiated fee schedules.
The Company also receives  payments under capitation  arrangements  with various
managed care organizations.  During 1996, 1997 and 1998,  approximately 14%, 16%
and 21%,  respectively,  of physician  groups revenue received under  capitation
arrangements. No individual managed care organization or other payor is material
to the Company.

For the year ended December 31, 1998, two of the Company's  affiliated physician
groups each  contributed  10% or more of the Company's  net revenue.  Clinics in
Champaign, Illinois and Pittsfield,  Massachusetts represented approximately 25%
and 14% of net revenue, respectively.

General Corporate Expenses

General  corporate  expenses  represent  primarily  the salaries and benefits of
corporate  headquarters  personnel,   rent,  travel,  and  other  administrative
expenses.



                                  F-8


<PAGE>






Net Earnings (Loss) Per Share

The Company adopted the Statement of Financial Accounting Standards ("SFAS") No.
128,  "Earnings per Share" effective  December 31, 1997. SFAS No. 128 simplifies
the  computation  of EPS by  replacing  the  presentation  of primary EPS with a
presentation  of basic EPS.  Basic EPS is calculated  by dividing  income (loss)
available to common shareholders by the weighted average number of common shares
outstanding during the period. Common stock to be issued is assumed to be common
stock  outstanding  and is included  in the  weighted  average  number of common
shares outstanding for the basic EPS calculation.  Options,  warrants, and other
potentially  dilutive securities are excluded from the calculation of basic EPS.
Diluted EPS includes  the  options,  warrants,  and other  potentially  dilutive
securities  that are excluded  from basic EPS using the  treasury  method to the
extent that these securities are not anti-dilutive.

There is no  difference  between  basic  and  diluted  EPS for the  years  ended
December 31, 1996 because options,  warrants and convertible  subordinated notes
payable have an anti-dilutive effect.  Similarly,  the convertible  subordinated
notes payable have been  excluded  from diluted EPS in the years ended  December
31, 1997 and 1998 because they are considered to be anti-dilutive.  Following is
a reconciliation  of basic and diluted EPS for the years ended December 31, 1997
and December 31, 1998:
<TABLE>
<CAPTION>

                                                                      Income           Shares          Per-Share
December 31, 1997                                                   (Numerator)     (Denominator)       Amount
                                                                    -----------     -------------       ------
<S>                                                               <C>               <C>               <C>
         Basic EPS                                                $   5,473,184        11,375,662       $ 0.48
                                                                                                        ======
         Effect of dilutive securities
              Options                                                    -                657,273
              Warrants                                                   -              2,191,263
                                                                  --------------    -------------
         Diluted EPS                                              $    5,473,184       14,224,198       $ 0.38
                                                                  --------------    -------------       ======
December 31, 1998
         Basic EPS, income before extraordinary charge            $   12,813,221       18,621,988       $ 0.69
         Effect of dilutive securities
              Options                                                     -               402,020
              Warrants                                                    -             1,933,763
                                                                  --------------    -------------
         Diluted EPS, income before extraordinary charge              12,813,221       20,957,771       $ 0.61
         Extraordinary charge - loss on extinguishment of
              debt, net of $375,000 of income taxes                     (611,192)          -             (0.03)
                                                                  --------------    -------------       ------
         Diluted EPS, net income                                  $   12,202,029       20,957,771       $ 0.58
                                                                  ==============    =============       ======
</TABLE>

Cash and Cash Equivalents

The Company  considers all highly liquid  investments  with  maturities of three
months or less when purchased to be cash equivalents.  Cash and cash equivalents
as of December 31, 1997 and December 31, 1998, include approximately  $6,317,000
and $4,738,000,  respectively of cash held in escrow accounts for the payment of
premiums under split-dollar life insurance contracts (see Note 6.).

Management Fees Receivable

Management  fees  receivable   represent  amounts   receivable  from  affiliated
physician  groups for interim  management and other services.  These amounts are
typically received within one to four months after the services are rendered.

Property and Equipment

Property  and  equipment  are  stated  at cost.  Depreciation  of  property  and
equipment  are  calculated  using the  straight-line  method over the  estimated
useful lives of the assets,  which range from three to fifteen years.  Leasehold
improvements  are  amortized  on a  straight-line  basis over the shorter of the
lease term or  estimated  useful life of the  assets.  Routine  maintenance  and
repairs are charged to expense as incurred, while major renewals or improvements
are capitalized.




                             F-9


<PAGE>


Intangible Assets

Service Agreement Rights

The  Company's  affiliations  typically  involve the  purchase  of tangible  and
intangible  assets and the  assumption of certain  liabilities of the affiliated
physician groups. As part of the purchase allocation,  the Company allocates the
purchase price to the tangible assets acquired and liabilities assumed, based on
estimated fair market values. In connection with each  acquisition,  the Company
enters into long term service  agreements with the affiliated  physician groups.
The service  agreements  are for a term of 40 years and cannot be  terminated by
either party  without  cause,  consisting  primarily of  bankruptcy  or material
default.

In connection with the allocation of purchase price to  identifiable  intangible
assets,  the  Company  analyzes  the  nature of each  group with which a service
agreement is entered  into,  including  the number of  physicians in each group,
number of  service  sites and  ability  to recruit  additional  physicians,  the
Group's  relative  market  position,  the  length of time each group has been in
existence, and the term and enforceability of the service agreement. Because the
Company  does  not  practice  medicine,  maintain  patient  relationships,  hire
physicians,  or  enter  into  employment  and  noncompete  agreements  with  the
physicians,  the intangible asset created in the purchase  allocation process is
associated solely with the service agreement with the physician group.

The Company believes that there is no material value allocable to the employment
and  noncompete  agreements  entered  into between the  physician  group and the
individual  physicians.  The primary economic beneficiary of these agreements is
the physician  group,  an entity that the Company does not legally  control.  In
addition,  any damages  under the  agreements  are paid solely to the  physician
group for  purposes of replacing  departing  physicians.  Generally,  due to low
expected  physician  turnover in the industry  and the ability of the  physician
group to actively replace  departing  physicians,  there would be no significant
economic  loss to either the  physician  group or the Company  due to  physician
departure.   The  physician  groups  continually   recruit  physicians  and,  as
appropriate and necessary,  subsequently add qualified  physicians to the group.
This manner of  operations  allows the physician  group to perpetuate  itself as
individual  physicians  retire or are otherwise  replaced.  The Company believes
that the physician  groups with which it has service  agreements  are thus long-
lived entities with an  indeterminable  life, and that the physicians,  customer
demographics,  and various contracts will be continuously  replaced. The service
agreement  intangible  is  being  amortized  on a  straight-line  method  over a
composite average life of 25 years. (See also Note 10).

Excess of Cost of Acquired Assets Over Fair Value

Excess of cost of acquired assets over fair value  (goodwill) is amortized using
the straight-line method over 25 years. (See also Note 10).

Impairment of Long-Lived Assets

The Company  periodically  reviews its intangible assets for impairment whenever
events or changes in  circumstances  indicate  that the  carrying  amount of the
asset may not be recoverable.  If this review indicates that the carrying amount
of the asset may not be recoverable, based on the undiscounted cash flows of the
operations over the remaining  amortization  period,  then the carrying value of
the asset is reduced to estimated fair value. Among the factors that the Company
will  continually  evaluate are  unfavorable  changes in each physician  group's
relative market share and local market competitive  environment,  current period
and  forecasted  operating and cash flow levels of the  physician  group and its
impact on the management fee earned by the Company,  and legal factors governing
the practice of medicine. At December 31, 1997 and 1998, no impairment existed.

Income Taxes

The Company  accounts for income taxes under the  liability  method which states
that  deferred  taxes are to be  determined  based on the  estimated  future tax
effects of differences  between the financial  statement and tax bases of assets
and  liabilities  given the provisions of enacted tax laws.  Deferred income tax
provisions  and benefits are based on the changes to the asset or liability from
period to period.  The  Company and its  subsidiaries  file a  consolidated  tax
return.




                                   F-10

<PAGE>




Use of Estimates

The  preparation of the  consolidated  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  and the  reported  amounts  of  revenues  and  expenses  during  the
reporting period. Actual results could differ from those estimates.

Stock-Based Compensation

In October 1995, the Financial  Accounting  Standards Board ("FASB") issued SFAS
No. 123,  "Accounting  for Stock-Based  Compensation,"  which allows entities to
measure  compensation costs related to awards of stock-based  compensation using
either the fair value method or the intrinsic value method. Under the fair value
method,  compensation  expense is  measured  at the grant date based on the fair
value of the award.  Under the intrinsic value method,  compensation  expense is
equal to the  excess,  if any,  of the quoted  market  price of the stock at the
grant date over the amount the employee must pay to acquire the stock.  Entities
electing to measure  compensation  costs using the  intrinsic  value method must
make pro forma  disclosures  of net income and earnings per share as if the fair
value  method  had  been  applied.  The  Company  has  elected  to  account  for
stock-based   compensation  programs  using  the  intrinsic  value  method.  The
following pro forma  disclosures are presented to reflect amounts as if the fair
value method were applied:
<TABLE>
<CAPTION>

                                                                          Years Ended December 31,            
                                                                   1996             1997              1998    
                                                                (Unaudited)     (Unaudited)        (Unaudited)
<S>                                                           <C>               <C>                <C>
         Net income (loss)                                    $ (2,045,455)     $  3,921,296       $ 10,762,451

         Basic net earnings (loss) per share                  $      (0.26)     $       0.34       $       0.58

         Diluted net earnings (loss) per share                $      (0.26)     $       0.28       $       0.51
</TABLE>


For  disclosure  purposes,  the Company used U.S.  Treasury  strip rates for its
risk-free  interest rates,  assumed no future dividends and assumed the expected
life of the options through the applicable  expiration dates. For 1996, prior to
the  Initial  Offering,  the  Company  assumed  no  volatility,  and  assumed  a
volatility rate of 58% and 88% in 1997 and 1998, respectively.  See Note 8.

3.   ACQUISITIONS

Medical Groups

During 1998, 1997 and 1996, the Company, through its wholly-owned  subsidiaries,
acquired  certain  operating  assets  or  all of the  outstanding  stock  of the
following physician groups:
<TABLE>
<CAPTION>

                    Physician Group                     Effective Date                      Location
<S>      <C>                                         <C>                                <C>
1998:    Berkshire Physicians & Surgeons             April 1998 (a)                     Pittsfield, MA
         Primary Medical Clinics                     May 1998                           Midland, TX
         Prime Medical Associates                    June 1998                          Hudson, NY
         Physicians' Primary Care                    July 1998                          Ft. Myers, FL
         Medical Associates of Pinellas              November 1998 (b)                  Clearwater, FL
</TABLE>






                                      F-11
<PAGE>


<TABLE>
<CAPTION>

<S>                                                  <C>                               <C>
1997:    Naples Medical Center                       March 1997                         Naples, FL
         Abilene Diagnostic Clinic                   June 1997 (c)                      Abilene, TX
         Intercoastal Medical Group                  August 1997                        Sarasota, FL
         Beacon Medical Group                        October 1997 (d)                   Harrisburg, PA
         Cowley Medical Associates (e)               November 1997                      Harrisburg, PA
         Thomas-Spann Clinic                         December 1997                      Corpus Christi, TX
         HealthStar, Inc.                            December 1997                      Knoxville, TN

1996:    Cullman Primary Care                        March 1996                         Cullman, AL
         Morgan-Haugh                                April 1996                         Mayfield, KY
         HealthFirst Medical Group                   June 1996                          Lake Worth, TX
         King's Daughters Clinic                     September 1996                     Temple, TX
</TABLE>



(a)           Berkshire  Physicians  and  Surgeons  was  operated by the Company
              under an interim service agreement effective February 1, 1998. The
              Company  completed its acquisition in April 1998, and entered into
              a long-term  service  agreement with the physician group effective
              April 1, 1998.

(b)           Medical  Associates  of Pinellas was operated by the Company under
              an interim  service  agreement  effective May 1, 1998. The Company
              completed  its  acquisition  in October  1998 and  entered  into a
              long-term  service  agreement with the physician  group  effective
              November 1, 1998.

(c)           Abilene  Diagnostic  Clinic was  operated by the Company  under an
              interim service agreement  effective December 1, 1995. The Company
              completed  its  acquisition  of certain  operating  assets in June
              1997,  and entered  into a long-term  service  agreement  with the
              physician group effective June 1, 1997.

(d)           Beacon  Medical Group was operated by the Company under an interim
              service  agreement  effective April 1, 1997. The Company completed
              its acquisition of certain  operating  assets in October 1997, and
              entered  into a long-term  service  agreement  with the  physician
              group effective on that date.

(e)           The physicians of Cowley Medical Associates combined with the 
              Beacon Medical Group in December 1997.

The acquisitions of the operating assets and liabilities have been accounted for
by the purchase  method of accounting and,  accordingly,  the purchase price has
been allocated to the tangible assets acquired and liabilities  assumed based on
the estimated fair values at the dates of  acquisition.  Simultaneous  with each
acquisition,  the Company  entered into a long term service  agreement with each
physician  group.  In  conjunction  with  certain  acquisitions,  the Company is
obligated  to make  deferred  payments to  physician  groups.  Such  amounts are
included in deferred  purchase price in the  accompanying  consolidated  balance
sheets.  The following is the  preliminary  allocation of purchase price for the
acquisitions completed during the year ended December 31, 1998.

<TABLE>
<CAPTION>

<S>                                                                             <C>
         Fair value of assets acquired                                          $    17,074,862
         Liabilities assumed                                                        (11,950,186)
         Intangible assets                                                           80,217,372
                                                                                     85,342,048
         Less - Fair value of common stock issued and to be issued                    6,270,328
         Less - Notes issued                                                          6,554,469
         Less - Deferred purchase price (payable in cash)                            23,217,622
                                                                                ---------------
         Cash purchase price                                                    $    49,299,629
                                                                                ===============
</TABLE>


For certain  acquisitions  occurring  close to or at the end of the period,  the
estimated fair values are  preliminary  and,  therefore,  are subject to change.
Under the purchase  agreements,  the purchase price is adjustable by the Company
for a period  between 60 to 120 days after the  closing  of the  transaction  in
order to  finalize  the fair  values  of the  assets  acquired  and  liabilities
assumed.



                               F-12

<PAGE>





Health Plans, Inc.

Effective  December 1, 1997,  the Company,  through a  wholly-owned  subsidiary,
completed its  acquisition  of Health Plans,  Inc.,  and renamed the company PMC
Medical Management , Inc. ("PMC").  PMC provides capitation  management services
through  risk  contracting  with HMOs and other  third-party  payors.  The total
consideration for the transaction was approximately $8.5 million which consisted
of $1.7 million cash and $6.8  million of the  Company's  common stock and stock
options.

Pro Forma Information

The  following   unaudited  pro  forma   information   reflects  the  effect  of
acquisitions of medical groups and PMC on the consolidated results of operations
of the  Company  assuming  that the  acquisitions  occurred  at January 1, 1997.
Future  results may differ  substantially  from pro forma  results and cannot be
considered indicative of future results.
<TABLE>
<CAPTION>

                                                                                 Years Ended December 31,     
                                                                                 1997                1998     
                                                                              (unaudited)         (unaudited)
<S>                                                                        <C>                 <C>
         Net revenue                                                       $   178,866,227     $   252,135,793
                                                                           ===============     ===============

         Net income before extraordinary charge                            $     6,905,946     $    13,766,474
                                                                           ===============     ===============
         Net income before extradordinary charge per share
                  Basic                                                    $          0.59     $          0.73
                                                                           ===============     ===============
                  Diluted                                                  $          0.47     $          0.65
                                                                           ===============     ===============
         Weighted average number of common shares outstanding
                  Basic                                                         11,790,919          18,750,802
                                                                           ===============     ===============
                  Diluted                                                       14,639,455          21,086,585
                                                                           ===============     ===============
</TABLE>


Western Medical Management Corp. Inc.

As  discussed  in Note 1, the  Company  completed  its merger with Reno in March
1997, the date of the Initial Offering.  The accompanying condensed consolidated
financial  statements  are  based  on the  assumption  that the  companies  were
combined for the full periods presented and prior financial statements have been
restated to give effect to the combination.  The following unaudited information
reflects the separate results of the combined  entities for periods prior to the
combination:
<TABLE>
<CAPTION>

                                                      Twelve Months Ending              Three Months Ending
                                                        December 31, 1996                 March 31, 1997        
                                                    ProMedCo           Reno          ProMedCo           Reno    
<S>                                               <C>             <C>              <C>             <C>
         Net revenue                              $  19,319,002   $    6,926,194   $   9,674,181   $   2,043,225
         Operating expenses
             Clinic expenses                         16,460,181        7,106,899       8,025,524       1,671,579
             General corporate expenses               2,633,585           -              818,772          -
             Depreciation and amortization              610,827          112,814         391,507          44,368
             Interest expense                           163,714           45,760         112,666           3,283
             Merger costs                                 -              682,269          -                    -
                                                  -------------   --------------   -------------   -------------
         Income (loss) before provision for
             income taxes                              (549,305)      (1,021,548)        325,712         323,995
         Provision for income taxes                      -                -               97,714          97,198 
                                                  -------------   --------------   -------------   -------------
         Net income (loss)                        $    (549,305)  $   (1,021,548)  $     227,998   $     226,797
                                                  =============   ==============   =============   =============
</TABLE>

                                     F-13

<PAGE>


4.   PROPERTY AND EQUIPMENT

Property and equipment is summarized as follows:
<TABLE>
<CAPTION>

                                                                                December 31,            
                                                                          1997                1998      
<S>                                                                  <C>                <C>
         Furniture, fixtures, and equipment                          $    12,212,561    $     18,430,494
         Leasehold improvements                                            1,008,421           2,362,598
                                                                     ---------------    ----------------
                                                                          13,220,982          20,793,092
         Less- Accumulated depreciation                                   (2,630,421)         (5,667,523)
                                                                     ----------------   -----------------
         Property and equipment, net                                 $    10,590,561    $     15,125,569
                                                                     ===============    ================
</TABLE>


5.   INTANGIBLE ASSETS

Intangible assets are summarized as follows:
<TABLE>
<CAPTION>

                                                                                December 31,            
                                                                          1997                1998      
<S>                                                                  <C>                 <C>
         Service agreement rights                                    $    73,200,258     $   152,889,768
         Excess of cost of acquired assets over fair value                 5,770,534           6,479,090
                                                                     ---------------    ----------------
                                                                          78,970,792         159,368,858
         Less- Accumulated amortization                                   (1,775,441)         (5,966,561)
                                                                     ----------------   -----------------

         Intangible assets, net                                      $    77,195,351    $    153,402,297
                                                                     ===============    ================
</TABLE>


6.   LONG TERM RECEIVABLES

During 1997,  the Company  entered into an agreement to lend up to $42.7 million
to an affiliated  physician  group.  The purpose of this loan was to provide the
physician group with liquidity to meet certain obligations,  general association
purposes and to strengthen the physician-association  relationships. The loan is
being funded in six advances.  As of December 31, 1998, three advances  totaling
$25.2 million had been made. The remaining three advances of $5.825 million each
will be made annually on December 1, 1999, 2000 and 2001. Interest is payable to
the  Company  monthly  at an  annual  rate of 8.0%.  The loan  will be repaid in
fifteen annual  payments  beginning on November 30, 2008.  Certain assets of the
affiliated physician group have been pledged as security under the loan, and the
loan provides certain rights to offset against  distributions  under the service
agreement in the event of default under the loan  agreement.  As of December 31,
1998, the outstanding loan totaled $25.2 million,  and the Company estimates the
carrying value of this receivable approximates the fair value.

In  November  1998,  the Company  entered  into a similar  agreement  with a new
physician  group to loan $8.0  million,  all of which was funded on November 12,
1998. The purpose of this loan was to provide the physician group with liquidity
for general  association  purposes and to strengthen  the  physician-association
relationships.  Interest is payable to the Company  monthly at an annual rate of
8.0%. The loan will be repaid in 180 monthly payments  beginning on November 30,
2008.  Certain  assets of the  affiliated  physician  group have been pledged as
security under the loan, and the loan provides  certain rights to offset against
distributions under the service agreement in the event of default under the loan
agreement.  As of December 31, 1998, the outstanding  loan totaled $8.0 million,
and the Company estimates the carrying value of this receivable approximates the
fair value.



                                 F-14

<PAGE>




During  1997 and 1998 and in  connection  with  the  certain  acquisitions,  the
Company entered into split-dollar life insurance  agreements with the physicians
and prior  owners of certain  physician  groups.  Under  these  agreements,  the
Company purchases life insurance in the name of the individual seller.  Upon the
death of the individual  seller,  the amount of the premiums paid by the Company
will  be  returned.  In  addition,  these  receivables  are  guaranteed  by  the
individual  policy  holders.  The total of the premiums that will be returned to
the Company is $28.8 million. The Company initially records the present value of
future  premiums  receivable  as long  term  receivables  in the  allocation  of
purchase price, using a discount rate of 6.75% over the estimated actuarial life
of the policy owners. The accretion of this receivable from the initial carrying
value to the full  premium  amount is recorded as a  reduction  of  amortization
expense in the accompanying  consolidated statements of operations.  At December
31, 1998 and 1997, the carrying value of these  receivables was $5.2 million and
$3.9 million, respectively.

In May 1997,  the Company  loaned  $600,000 to an officer of the  Company.  This
note,  plus  interest at 6.5%,  was repaid in March 1998.  In August  1998,  the
Company loaned an officer of the Company $2.0 million. Beginning in August 2003,
the loan will be repaid in annual installments of $200,000 plus accrued interest
of 7.0% with the remaining balance due in August 2008. This loan is secured by a
pledge of warrants for up to 620,665 shares of the Company's common stock.


7.   NOTES PAYABLE, OTHER LONG TERM DEBT
     AND OBLIGATIONS UNDER CAPITAL LEASES

Notes payable are summarized as follows:

<TABLE>
<CAPTION>

                                                                                December 31,         
                                                                           1997              1998    
<S>                                                                    <C>              <C>
         Borrowings under Revolving Credit Facility                    $  32,968,000    $  54,500,000
         Notes payable to physician group; unsecured; due
              in three  annual  installments  
              in April 1998,  1999 and 2000;  9%
              interest  payable  annually  in cash 
              or  options to  purchase  the
              Company's
              common stock                                                 8,608,602        5,786,870
         Notes payable to physician group; unsecured; due
              in four  annual installments in December
              1998, 1999, 2000, and 2001; 5% interest
              payable annually                                             1,172,000          866,950
         Note payable to physician group; unsecured; due
              in two equal installments of principal and 7%
              interest in April 1997 and 1998                                440,173           -     
         Other notes payable                                                 175,915          208,139
                                                                       -------------    -------------
                                                                          43,364,690       61,361,959
         Less- Current portion                                            (3,676,365)      (3,231,551)
                                                                       -------------    -------------
         Notes payable, net                                            $  39,688,325    $  58,130,408
                                                                       =============    =============
</TABLE>


The maturities of notes payable at December 31, 1998, are as follows:

                        1999                           $   3,231,551
                        2000                               3,298,179
                        2001                              54,809,795
                        2002                                  20,000
                        2003                                   2,434
                                                       -------------
                                                       $  61,361,959

Revolving Credit Facility

Effective  December 17, 1998,  the Company  entered into a new revolving  credit
agreement (the "Credit Facility"). The Credit Facility provides for a three-year
commitment  to fund  revolving  credit  borrowings  of up to $125.0  million for
acquisitions and general working capital purposes.  Initial borrowings under the
new  facility  of $52.5  



                                    F-15

<PAGE>


million were used to payoff the Company's  previous  revolving  credit  facility
(see Note 11.) and pay certain  financing  costs.  Under the terms of the Credit
Facility,  the  Company  paid a  commitment  fee  and  other  closing  costs  of
approximately  $1  million  which has been  capitalized  in other  assets in the
accompanying  consolidated  balance  sheets and  amortized as an  adjustment  to
interest expense using the effective  interest method.  At the Company's option,
the Company can convert the outstanding balance on the Credit Facility to a term
loan which is due December 17, 2003.

The interest rate under the Credit Facility is set at the Company's  options and
varies based on the Company's leverage ratio, as follows:  (i) the higher of the
federal  funds rate plus 0.5% to 1.25% or the prime rate 0.0% to 0.75%,  or (ii)
the Eurodollar  rate plus 1.25% to 2.25%. As of December 31, 1998, the effective
interest  rate on the Credit  Facility was 7.2%.  The Credit  Facility  includes
certain restrictive  covenants including limitations on the payment of dividends
as well as the maintenance of certain financial  ratios.  The Credit Facility is
secured by substantially all the assets of the Company. As of December 31, 1998,
the Company had $70.5 million  available  under the Credit  Facility  subject to
certain conditions as defined by the agreement.

Convertible Subordinated Notes Payable

In March 1996, in connection with the affiliation of two physician  groups,  the
Company issued $1.8 million in convertible  subordinated  notes.  The notes bear
interest of 7.0% and mature in March 2003. The notes may, at the election of the
noteholders,  be converted into shares of common stock at a conversion  price of
$9.00 per share,  subject to certain  limitations  and automatic  conversions as
defined  in  the  note  agreements.   During  1997,  one  noteholder   converted
approximately  $35,000 of notes into 3,912 shares of the Company's common stock.
During 1998,  noteholders converted  approximately $685,000 of notes into 76,093
shares of the Company's common stock.

In April 1998, in connection with the affiliation of a new physician  group, the
Company issued $6.5 million in convertible  subordinated  notes.  The notes bear
interest of 4.75% paid annually on March 31 and can be converted  into shares of
the Company's  common stock any time after April 17, 1999 and prior to March 31,
2005 at a  conversion  price of  $15.35,  subject to  adjustment  under the note
agreements.

Obligations Under Capital Leases

In connection with affiliations with physician groups and in the ordinary course
of business,  the Company  assumed the  obligation  of various  equipment  under
capital  leases.  As of December 31, 1998,  future  minimum lease payments under
capital leases are as follows:

                 1999                                        $         592,159
                 2000                                                  455,394
                 2001                                                  277,079
                 2002                                                   63,221
                 2003                                                   22,842
                                                             -----------------
                                                                     1,410,695
        Less- Portion attributable to interest                        (152,204)
                                                             -----------------
        Obligations under capital leases                             1,258,491
        Less- Current portion                                         (557,449)
                                                             -----------------
                                                             $         701,042


8.   REDEEMABLE CONVERTIBLE PREFERRED STOCK,
     COMMON STOCK, AND STOCKHOLDERS' EQUITY

The Company has authorized the issuance of 70,000,000  shares of stock, of which
(a) 20,000,000 shares, par value $0.01 per share, are to be designated Preferred
Stock  (of  which  700,000  shares  are to be  designated  Series  A  Redeemable
Convertible  Preferred  Stock) and (b)  50,000,000  shares,  par value $0.01 per
share, are to be of a class designated Common Stock.





                                  F-16

<PAGE>




During March 1997, the Company completed the Initial Offering of its common. The
Initial  Offering  consisted of 4,000,000 shares of common stock sold at a price
of $9.00 per share.  Gross and net proceeds from the Initial Offering were $36.0
million and $33.5 million,  respectively. In addition, net proceeds were reduced
by approximately $1.8 million of expenses relating to the Initial Offering.

During May 1998, the Company  completed a public offering of 6,900,000 shares of
common stock at a price of $11.00 per share (the  "Secondary  Offering").  Gross
and net  proceeds  from the  Secondary  Offering  were $75.9  million  and $72.5
million , respectively.  In addition, net proceeds were reduced by approximately
$600,000 of expenses relating to the Secondary Offering.

Redeemable Common Stock

In connection  with an acquisition in 1995, the Company issued 165,296 shares of
Redeemable Common Stock for $991,776. On the completion of the Initial Offering,
the 165,296 shares of Redeemable Common Stock were automatically  converted into
common stock.

Class B Common Stock

During 1994,  the Company  issued  1,226,150  shares of Class B Common Stock and
warrants to purchase 965,916 shares of Class B Common Stock at an exercise price
of $1.25 per share. The Company also granted an option to purchase 155,000 Class
B Common  Stock at an  exercise  price of $0.50 per unit.  Each share of Class B
Common Stock, automatically converted into common stock on the completion of the
Initial  Offering.  Similarly,  the rights to purchase  shares of Class B Common
Stock under the warrants and options were converted into warrants and options to
purchase  shares of common  stock.  The  warrants are  exercisable  on or before
September 30, 2004 and warrants to purchase  926,410 shares of common stock were
outstanding as of December 31, 1998.

Common Stock Warrants

During 1994, the Company issued warrants to purchase  1,428,998 shares of common
stock at an exercise price of $1.25 per share.  The warrants are  exercisable on
or before June 30, 2003. As of December 31, 1998, warrants to purchase 1,079,695
shares of common stock were outstanding.

Common Stock To Be Issued

In  connection  with  acquisitions  completed in 1998,  common  shares valued at
$6,005,300  will be issued in 1999. The number of common shares to be issued and
the  price  per  share  were  fixed  at the  consummation  date of the  specific
acquisitions in 1998.

In  connection  with  acquisitions  completed in 1997,  common  shares valued at
$20,121,059 were issued in 1998. The number of shares to be issued and the price
per share were fixed at the  consummation  date of the specific  acquisitions in
1997.

Stock Option Plans

The Company has reserved 1,500,000 shares of common stock for issuance under its
1994 Stock Option Plan and 2,100,000  shares of common stock for issuance  under
its 1996 Stock Option Plan  (collectively  the "Stock  Option  Plans").  Options
granted  under the  Plans  may be either  incentive  stock  options  ("ISO")  or
nonqualified  stock  options  ("NQSO").  The option price per share shall not be
less than the fair market  value of the  Company's  Common  stock at the date of
grant.  Generally,  options  vest over a  five-year  period and expire ten years
after the option was  issued.  As of  December  31,  1998,  options to  purchase
1,337,629 shares remain available for grant under the Stock Option Plans.



                             F-17

<PAGE>




The following table summarizes the activity in the Stock Option Plans:

<TABLE>
<CAPTION>

                                                                                         Weighted-Average
                                                     Outstanding    Price Per Share       Exercise Price
<S>                                                <C>             <C>                      <C>
         December 31, 1996                            1,064,400     $0.50 - $14.00             $6.85
              Granted                                   626,071     $6.00 - $12.00             $7.88
              Exercised                                  (3,100)         $6.00                 $6.00
              Canceled                                  (61,400)     $6.00 - $9.00             $6.67
                                                    -----------
         December 31, 1997                            1,625,971     $0.50 - $14.00             $6.71
              Granted                                   709,400     $4.69 - $15.00             $9.00
              Exercised                                (117,350)     $0.50 - $9.00             $5.25
              Canceled                                  (96,100)    $6.00 - $14.00             $7.02
                                                    -----------
         December 31, 1998                            2,121,921     $0.50 - $14.00             $7.69
                                                    ===========
</TABLE>

Stock options  exercisable under the Stock Option Plans as of December 31, 1996,
1997 and 1998, totaled 170,720; 653,464 and 701,791, respectively.

In 1996, the Company entered into a credit facility which has subsequently  been
refinanced (see Note 7). In connection with the original  credit  facility,  the
Company issued 46,875  options to purchase the Company's  Common stock at $10.00
per share. These options are outstanding and exercisable.


9.   INCOME TAXES

The provision for income taxes for the years ended  December 31, 1996,  1997 and
1998 consists of:
<TABLE>
<CAPTION>

                                                                   1996             1997              1998    
                                                              -------------     -------------    -------------
<S>                                                           <C>               <C>              <C>
         Current
              Federal                                         $     -           $   2,146,759        5,820,968
              State                                                 -                 125,780          764,955
         Deferred
              Federal                                               -                 306,510        1,044,093
              State                                                 -                  23,330          223,250
                                                              -------------     -------------    -------------
                                                              $     -           $   2,602,379    $   7,853,266
                                                              =============     =============    =============
</TABLE>

Total  provision for income taxes differed from the amount  computed by applying
the  U.S.  Federal  income  tax  rate  of  35%  to  earnings  before  taxes  and
extraordinary charge as a result of the following:
<TABLE>
<CAPTION>

                                                                   1996             1997              1998    
                                                              -------------     -------------    -------------
<S>                                                           <C>               <C>              <C>
         Federal tax (benefit) at statutory rate              $    (534,090)    $   2,826,447    $   7,233,271
         State income taxes, net of federal income tax
                  benefit                                           (10,986)          422,352          687,400
         Change in valuation allowance                              571,118          (992,301)          -     
         Amortization of nondeductible service agreement
                  rights                                            -                 209,234          187,445
         Accretion of future premiums receivable                    -                (171,409)        (291,022)
         Other                                                      (26,042)          308,056           36,172
                                                              -------------     -------------     ------------
         Total provision for income taxes                     $         -       $   2,602,379     $  7,853,266
                                                              =============     =============     ============
</TABLE>




                              F-18


<PAGE>




Deferred  income tax assets  (liabilities)  reflect net tax effects of temporary
differences  between  the  amounts  of  assets  and  liabilities  for  financial
reporting  purposes and the amounts used for income tax purposes.  In connection
with  acquisition of a medical groups in 1998, the Company  recorded certain net
operating loss carryforwards  ("NOL's") and other deferred income tax assets and
liabilities,  net of a valuation allowance,  through purchase accounting.  These
NOL's  begin to expire in 2012.  Significant  components  of the  Company's  net
deferred tax liability are as follows:
<TABLE>
<CAPTION>

                                                                                December 31,         
                                                                           1997              1998    
<S>                                                                    <C>              <C>
         Current deferred tax assets (liabilities)
              Operating loss carryforwards                             $        -       $   3,006,000
              Unrealized gains on security investments                      (381,323)          -     
              Non-deductible accrued expenses                                207,222          295,051
                                                                       -------------    -------------
                                                                            (174,101)       3,301,051
         Valuation allowance                                                  -            (1,095,216)
                                                                       -------------    -------------
                                                                            (174,101)       2,205,835
         Non-current deferred tax liabilities
              Property and equipment, principally due to
                  differences in depreciation                               (299,838)        (299,838)
              Service agreement rights                                      (729,896)      (2,023,720)
              Other                                                          (74,142)        (548,280)
                                                                       -------------    -------------
                                                                          (1,103,876)      (2,871,838)
                                                                       -------------    -------------
                                                                       $  (1,277,977)   $    (666,003)
                                                                       =============    =============
</TABLE>

10.  CHANGE IN ACCOUNTING ESTIMATE

Effective  July 1, 1998,  the Company  changed its estimate  with respect to the
estimated life of its service  agreement rights  intangible assets to conform to
industry standards.  All existing and future service agreement rights intangible
assets will be amortized over a period not to exceed 25 years from the inception
of the respective service agreements. Had the Company adopted this policy at the
beginning of 1997,  amortization  expense would have increased by  approximately
$221,000 or $0.01 per share for the year ended  December 31,  1997.  On the same
basis,  amortization  expense  for the year ended 1998 would have  increased  by
approximately  $480,000 resulting in a decrease in diluted earnings per share of
$0.01.


11.  EXTRAORDINARY CHARGE

On December 17, 1998,  the Company  replaced its then existing  credit  facility
with a new  revolving  credit  facility  (see Note 7). In  connection  with this
transaction,  the Company was  required  to write off the  unamortized  deferred
financing   costs  relating  to  the  prior  credit   facility.   The  resulting
extraordinary  charge  amounted to  approximately  $611,000,  net of  applicable
income taxes of approximately $375,000.


12.  DISCLOSURES ABOUT THE FAIR VALUE OF FINANCIAL INSTRUMENTS

As of December 31, 1997 and 1998,  the fair value of the Company's cash and cash
equivalents,  accounts receivable, accounts payable, due to physician groups and
accrued  expenses  approximated  their  carrying  value  because  of  the  short
maturities of those financial instruments.  The fair value of the Company's long
term debt also  approximates  its  carrying  value since the related  notes bear
interest at current market rates.

The  estimated  fair  value of the  convertible  subordinated  notes  payable to
physician groups was $1,985,690 and $7,634,626 as of December 31, 1997 and 1998,
respectively. The carrying value of these notes was $1,765,058 and $7,634,626 as
of December 31, 1997 and 1998,  respectively.  The estimated fair value of these
convertible


                             F-19

<PAGE>




subordinated  notes  payable is based on the greater of their face value and the
closing  market  value of the  common  shares  into  which  they could have been
converted at the respective balance sheet date.


13.  SEGMENT REPORTING

The Company has two operating  segments:  the management of physician groups and
provision  of  capitation  and  medical  management  services  to IPA  networks.
However,  since the management of IPA networks  represents  less than 10% of the
Company's revenue and assets,  the Company's  consolidated  financial statements
approximate  the  operations  and  assets  of the  physician   group  management
segment.  The Company  regularly  reviews the  operating  results of each of the
different medical groups. However, since each of the medical groups have similar
economic  characteristics,  the Company has aggregated all of the medical groups
into one reporting segment.

The accounting  policies of the segments are the same as those  described in the
summary of significant  accounting policies (see Note 2). Intersegment sales and
transfers  are  based on the  actual  cost of  services  provided.  The  Company
evaluates  performance  based on profit or loss from  operations  before  income
taxes and extraordinary gains or losses.

The Company has no net revenues  attributed  to customers  outside of the United
States and no assets are located in foreign countries.


14.      EMPLOYEE BENEFIT PLAN

The  Company   sponsors  a  401(k)   retirement   plan  (the  "Plan")   covering
substantially  all employees.  Participants may make voluntary  contributions to
the Plan up to 15% of their compensation, as defined. Company contributions vary
by  subsidiary  and may  include a  matching  contribution  of 0% to 4.5% of the
participant's  contributions and a discretionary contribution as a percentage of
the  participant's  compensation.  The Plan  was  adopted  in late  1997 and the
Company's  expense  during that period was  minimal.  During  1998,  the Company
recognized expense of $1.5 million related to the Plan.


15.  COMMITMENTS AND CONTINGENCIES

Leases

Operating  leases  generally  consist of short-term  leases for medical practice
office space, medical practice equipment,  corporate office space, and corporate
equipment.  Lease expense amounted to approximately  $2,740,000;  $7,086,000 and
$17,324,000 for the years ended 1996, 1997, and 1998, respectively.

The following is a schedule of future minimum lease payments under noncancelable
operating leases as of December 31, 1998.

                  1999                  $       13,217,640
                  2000                          12,730,633
                  2001                          12,051,143
                  2002                          11,093,363
                  2003                          10,259,025
                  Thereafter                    34,455,504
                                        ------------------
                                        $       93,807,308
                                        ==================

Litigation

The  Company is subject to various  claims and legal  actions  that arise in the
ordinary  course  of  business.  In the  opinion  of  management,  the  ultimate
resolution  of such  matters  will not have a  material  adverse  effect  on the
Company's financial position or results of operations.



                             F-20

<PAGE>



Insurance

The  Company  and the  physician  groups  are  insured  with  respect to medical
malpractice risks on a claims- made basis. Management is not aware of any claims
against the Company or the physician groups that might have a material impact on
the Company's financial position or results of operations.





























                                   F-21