SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C.  20549

                                   FORM 10-KSB
              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 NO.  0-24807

                             CORECARE SYSTEMS, INC.
                 (NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER)

            Delaware                                            23-2840367
  (STATE  OR  JURISDICTION  OF                               (I.R.S.  EMPLOYER
INCORPORATION  OR  ORGANIZATION)                            IDENTIFICATION  NO.)


                               111 N. 49th Street
                             Philadelphia, PA 19139
                    (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)

                                  215/471-2600
                           (ISSUER'S TELEPHONE NUMBER)

Securities  registered  under  Section  12(b)  of  the  Exchange  Act:     None

Securities  registered  under  Section 12(g) of the Exchange Act:  Common Stock,
par  value  $.001  per  share

     Check  whether  the  issuer  (1)  filed all reports required to be filed by
Section  13  or 15(d) of the Exchange Act during the past 12 months (or for such
shorter  period  that the registrant was required to file such reports), and (2)
has  been  subject  to  such  filing  requirements  for  the  past 90 days.  Yes
No

Check  if there is no disclosure of delinquent filers in response to Item 405 of
Regulation  S-B  contained in this form, and no disclosure will be contained, to
the  best  of  registrant's  knowledge,  in  definitive  proxy  or  information
statements  incorporated  by  reference  in  Part III of this Form 10-KSB or any
amendment  to  this  form  10-KSB.

The  issuer's  revenues  for  its  most  recent  fiscal  year  were $21,617,054.

The  aggregate market value of the common equity held by non-affiliates based on
the  closing  sale  price  of Common stock as of April 13, 1999, was $4,454,366.

The number of shares outstanding of each class of the issuer's common equity, as
of  April  1,  1999,  was  as  follows:  Common  Stock  -  15,949,128  shares.

Transitional  Small  Business Disclosure Format (check one):     Yes          No

<PAGE>

<TABLE>
<CAPTION>
                CORECARE SYSTEMS, INC.
                     FORM 10-KSB

                  TABLE OF CONTENTS
                  -----------------

<S>       <C>                              <C>
PART I

ITEM 1-   BUSINESS                           2
ITEM 2-   DESCRIPTION OF PROPERTY           18
ITEM 3-   LEGAL PROCEEDINGS                 18
ITEM 4-   SUBMISSION OF MATTERS
          TO A VOTE OF SECURITY HOLDERS     19


PART II

ITEM 5-   MARKET FOR COMMON EQUITY
          AND RELATED STOCKHOLDER MATTERS   20
ITEM 6-   MANAGEMENT'S DISCUSSION AND
          ANALYSIS OF FINANCIAL CONDITION
          AND RESULTS OF OPERATIONS         21
ITEM 7-   FINANCIAL STATEMENTS              35
ITEM 8-   CHANGES IN AND DISAGREEMENTS
          WITH ACCOUNTANTS ON ACCOUNTING
          AND FINANCIAL DISCLOSURE          35


PART III

ITEM 9-   DIRECTORS, EXECUTIVE OFFICERS,
          PROMOTERS AND CONTROL PERSONS;
          COMPLIANCE WITH SECTION
          16 (A) OF THE EXCHANGE ACT        36
ITEM 10-  EXECUTIVE COMPENSATION            42
ITEM 11-  SECURITY OWNERSHIP OF
          CERTAIN BENEFICIAL OWNERS
          AND MANAGEMENT                    44
ITEM 12-  CERTAIN RELATIONSHIPS
          AND RELATED TRANSACTIONS          46
ITEM 13-  EXHIBITS, FINANCIAL STATEMENT
          SCHEDULES AND REPORTS
          ON FORM 8-K                       53
</TABLE>

<PAGE>
                                     PART I
                                     ------

ITEM  1  -     BUSINESS

(A)     BUSINESS  DEVELOPMENT:
        ----------------------

     CoreCare  Systems,  Inc.  (the "Company") is a regional health care network
providing  behavioral  services and clinical drug research, operating in Eastern
Pennsylvania.  The  Company's  headquarters  are  located at 111 N. 49th Street,
Philadelphia,  PA  19139.  Its  telephone  number  at  that  location  is  (215)
471-2600.   In  1996,  the  Company  transferred its state of incorporation from
Nevada  to  Delaware.

     In  1998  the  Company  initiated the second phase of its strategic plan by
integrating  clinical  trial  research  services  to  the pharmaceutical biotech
industries  into  its  behavioral  services  operating  platform.  The  company
commenced  conducting clinical trials in the area of new drugs to treat diseases
of  the  Central  Nervous  Systems  and  for  drugs  designed  to treat diseases
afflicting  the  geriatric population. The Company intends to recruit volunteers
for  clinical trials from the behavioral health services patient population. The
Company  put  in  place  an  experienced  team  in  clinical  trials and shortly
thereafter  signed  the  first  of  several  contracts.

     In  April  1998, the Company expanded its billing business by acquiring the
assets  of  Preferred  Medical  Services,  Inc.,  a Pennsylvania based physician
billing and practice management business, valued by the Company at $340,290, for
a  purchase price of $260,000 (less outstanding billed accounts receivable as of
the  closing date), paid $28,545 in cash and the balance of $111,744 by way of a
promissory note and 250,000 shares of the Company's Common Stock, valued at $.80
per  share.

     In  July, 1998 the Company expanded its behavioral care platform by opening
a  drug  and  alcohol rehabilitation unit at the Kirkbride Center.  The unit was
licensed  for  43  beds as of December 31, 1998 and subsequently increased to 63
beds.

     The  Company  conducts  all  of  its  operations  through  its  subsidiary
corporations.  Unless  the  context indicates otherwise, the term "Company" when
used  herein  shall  include  the  Company's  subsidiaries.

(B)     BUSINESS  OF  ISSUER:
        ---------------------

The  Company  has  three  primary  lines  of  business.  They  are  as  follows:
(I)     Behavioral  Health  Services
(II)     Clinical  Trials  and  Outcomes  Research
(III)     Billing  and  Practice  Management

Additionally  the  Company  has  secondary business interests, which include the
following:
(IV)     Leasing  office  space  at  the  Kirkbride  Center  to  third  parties
(V)     Health  and  Fitness  Center

<PAGE>

     The  Company  operates  its  business  through  seven  (7)  wholly  owned
subsidiaries  including  the  following:

-     CoreCare  Behavioral  Health  Management, Inc. d/b/a/ Kirkbride Center and
      d/b/a  Westmeade  Center  at  Kirkbride
-     Westmeade  Healthcare,  Inc.  d/b/a  Westmeade  Center  at  Warwick
-     Chestnut  Hill  Health  &  Fitness  Center,  Inc.
-     Managed  CareWare,  Inc.,  d/b/a  CoreCare  Management, Inc. and Preferred
      Medical  Services
-     CoreCare  Realty  Corp.
-     CoreCare,  Inc.  (Inactive)
-     Lakewood  Retreat,  Inc.  (Inactive)

(I)  Behavioral  Health  Services
     The  Company  has undertaken an aggressive development campaign to create a
behavioral  health care system which will provide continuity of care to patients
and  serve  as  a platform to expand its clinical trial research services to the
pharmaceutical  industry.  The  Company  has responded to the cost-effectiveness
demands  of  Managed  Care  by:

          Creating  a  critical  mass  of services in a defined geographic area;

          Providing  a spectrum of high quality acute, step-down, and outpatient
services;

          Structuring  services  with  clinical  continuity such that clinicians
follow  patients  through  service  levels;

          Shifting  the  focus of clinical control from the individual clinician
to  the  system  case  manager  following  approved  clinical  protocols;

          Computerization  of  all  administrative,  financial,  and  clinical
functions;  and

          Structuring  to deliver services pursuant to capitated contracts, i.e.
contracts shifting the risk for treatment costs of a defined population from the
insurer  or  other  third-party  payor  to  the  provider.

     The  healthcare  industry  today  is  increasingly affected by Managed Care
companies,  i.e.,  companies  that  contract  with  the  healthcare providers to
provide  services  and  products  to  the  Managed  Care companies' subscribers.
Generally,  Managed  Care  companies seek to contract products and services at a
cost  below  the provider's customary fee schedule in exchange for the access to
the  larger  patient-base which these organizations control.  Two major segments
of  Managed Care include health maintenance organizations ("HMOs") and preferred
provider  organizations  ("PPOs").   HMOs and PPOs customarily pay each provider
on  a  fee-for-service  basis,  usually  at a lower rate than the provider would
otherwise  charge.  The  rates are negotiated per each individual contract. With
increasing frequency, HMOs may contract with providers on a "capitated" or "case
rate" basis.  Capitation means that the provider is paid a periodic fee based on
the  number  of  subscribers  eligible  to use that provider's services, without
regard  initially  to  the  level of use.  Case rate means that each provider is
paid a set amount for each inpatient episode.  The Company currently has no case
rate  contracts,  and  no  capitated  contracts.

     Management  believes  that  Managed  Care  has  been  a  catalyst  for  the
consolidation of individual and small group health care providers into corporate
delivery  systems.  Managed Care companies prefer to contract with multi-service
system  providers  who,  with  one  call,  can  provide a variety of services to
multiple  patients.  In  addition,  integration  of services helps assure better
clinical  continuity  of  services  and  greater  cost  efficiency.  The Company
believes it is positioned to benefit from this trend in defined geographical and
service  areas.

     The key to clinical success in a managed care environment is the ability of
a  healthcare  provider  to  establish a good clinical outcome in a time-limited
episode  of  care.  To effect this, the Company is committed to a biopsychiatric
approach  to  treatment  relying  on  the appropriate use of psychopharmacology.
State  of  the  art  Behavioral  treatment changes with each new drug discovery,
therefore,  the Company is committed to conducting clinical research drug trials
on  central  nervous  system  drugs  at CoreCare Network sites, as well as other
unrelated  healthcare  services  sites.


     (I)(B)(1)     BEHAVIORAL  HEALTH  PRINCIPAL  PRODUCTS  AND  SERVICES:

     At  the  present time, the services provided by and the business activities
of  the  Company  are  within  the  following  categories:  (A)  Acute Inpatient
Hospitalization;  (B)  Acute  Residential  Psychiatric  Care;  (C)  Partial
Hospitalization  Services;  (D)  Outpatient  Care;  (E)  Drug  and  Alcohol
Rehabilitation  Services;  (F)  Wrap-around  Services;  (G) Billing and Practice
Management;  (H)  Real estate development and leasing activities; (I) Health and
Fitness  Center,  and  (J)  Pharmaceutical  Clinical  Research  Trials.


(A)     ACUTE  INPATIENT  HOSPITALIZATION

     CORECARE  BEHAVIORAL  HEALTH  MANAGEMENT, INC. ("CBHM") d/b/a the Kirkbride
Center  and d/b/a Westmeade Center at Kirkbride is the largest subsidiary of the
Company.  CBHM,  formerly  known as the CareGroup of America, Inc., was acquired
by  the  Company  on March 24, 1995, at which time, it was a management services
organization.

     On February 26, 1997, CBHM acquired the assets and selected licenses of the
INSTITUTE  OF  PENNSYLVANIA  HOSPITAL  for  $4.5  million.  The KIRKBRIDE CENTER
consists  of  seven (7) buildings totaling 422,800 square feet on a 27-acre site
comprising  an entire city block bounded by Market Street, Haverford Avenue, and
48th  and  49th Streets in Philadelphia, Pennsylvania.  Kirkbride provides acute
inpatient  psychiatric  care  in  a freestanding hospital setting supported by a
full  continuum  of  step-down  services.

The  120 bed licensed acute psychiatric hospital transitioned operations without
closure  on  February  26,  1997,  starting  with  an average daily census of 15
patients  and  increasing  to  114  in  December  1998.  Since  that  date  of
acquisition,  operating  a  dedicated geriatric unit, a dual diagnosis substance
abuse  unit,  and  a  general  adult psychiatry unit has further enhanced volume
growth.  Of  the  120  licensed  beds,  57  beds  hold  dual  licensure to treat
psychiatric clients with substance abuse problems. Additionally in July 1998 the
Kirkbride  Center  added  licensed drug and alcohol rehabilitation beds starting
with  20  beds  and  increasing  to  63  in  early  1999.  In  1997,  the 24-bed
residential  treatment license of the Westmeade Center at Wyndmoor was relocated
to  the  Kirkbride  Center.  The  following  describes the clinical programs and
acute  inpatient  services  available  at  Kirkbride:

     GERIATRIC  PROGRAM
     ------------------

     The  Geriatric Program provides specialized psychiatric acute-care to older
adults,  who  are  demonstrating  emotional symptoms and behaviors indicative of
acute distress.  Geropsychiatrists and behavioral specialists lead the treatment
team,  supported  by  a  therapeutic  milieu  and  structured  living situation.
Discharge  specialists work with the family, exploring long-term placement needs
following  the  acute  care  episode.

     GENERAL  ADULT  PROGRAM
     -----------------------

     In  the Acute Adult Program, the treatment team works intensively with each
patient  to  achieve stability, strengthen and support the family and return the
patient  to  the  home  or  to a less intensive setting, as quickly as possible.
Individuals,  18  years  or  older, participate in intense individual, group and
family  therapy,  psychoeducational  programs  and  a rich and varied program of
therapeutic  rehabilitation  activities.

     SUBACUTE  ADULT  TRANSITION  PROGRAM
     ------------------------------------

     The  Subacute  Adult  Program  provides  intensive psychiatric treatment to
individuals  who  no  longer  meet acute inpatient criteria, yet still require a
24-hour  structured  treatment setting to provide safety and stabilization.  The
Transition  program serves as a diversion from more costly acute inpatient care,
and as a step-down unit to transition patients from acute care to discharge. The
average  length  of  stay  in  this  program  is  five  (5)  days.

     THE  SUBSTANCE  ABUSE  DUAL  DIAGNOSIS  PROGRAM
     -----------------------------------------------

     Of  the  120  licensed  beds at Kirkbride, 57 beds hold dual licensure from
both  the  Pennsylvania  Department  of  Public  Welfare  and  the  Pennsylvania
Department  of  Health  to  treat  psychiatric  clients  with  substance  abuse
disorders.  The  program  services  adults  over  the  age of 18 offering group,
individual, family or multi-family group therapy, psycho-educational services as
well as medical detoxification and methadone treatment. Treatment typically also
includes  involvement  in  self-help  groups,  such  as  Alcoholics Anonymous or
Narcotics  Anonymous.

     THE  KIRKBRIDE  CENTER'S  MARKET:  The Kirkbride Center's primary market is
West  and North Philadelphia.  While certified to provide Medicare, Medicaid and
Blue  Cross  recipients,  the  facility's  primary payor is Community Behavioral
Health  (CBH).

     Effective  February  1,  1997,  each  county  in  Pennsylvania  assumed
responsibility for managing its own medical assistance population.  Philadelphia
County,  which  has a Medicaid population of approximately 450,000 participants,
has  assigned  the  behavioral  healthcare  management  of  these individuals to
COMMUNITY  BEHAVIORAL  HEALTH,  a  non-profit  community-based  managed  care
organization.  Kirkbride  Center  is  located  in  the  heart  of Philadelphia's
Medicaid  population,  which  is  now controlled by Community Behavioral Health.
The  Company  anticipates  that  CBH and Medicare will continue to represent the
predominant  payors  of  services  at  the  Kirkbride  Center.

<PAGE>

     Notwithstanding  the  number  of  contracts which the Kirkbride Center has,
these contracts permit the Kirkbride Center to seek payment for treatment of the
patients  who  are  subscribers  or  insureds of the payor companies, but do not
ensure  that  the potential patients covered by these payors who seek behavioral
health  care  will  become  patients  of  the  Kirkbride  Center.


(B)     ACUTE  RESIDENTIAL  PSYCHIATRIC  CARE

     The  Company,  through  an  acute  residential  treatment center, Westmeade
Center  at  Warwick  (the  "Westmeade  Center,")  is  engaged in the business of
providing  non-hospital  acute  residential  psychiatric  services to adolescent
patients. The Westmeade Center at Wyndmoor, a 24-bed acute residential treatment
center  serving  adult  patients  located in Montgomery County, Pennsylvania was
closed  in  December  1996.   Its license has been  transferred to the Kirkbride
Center  for  improved  operational  efficiency.  A  third  residential treatment
center,  Lakewood Retreat, located in the Pocono Mountain region of northeastern
Pennsylvania,  was  closed  in  April  1996.

     Through  the  Westmeade Center, the Company provides services that are less
costly  than  in  a  traditional  hospital setting.  The residential psychiatric
treatment  program  is  intended  for  patients who volunteer to be admitted for
treatment,  who  do  not  need extensive long-term care, and who do not need any
form  of  restraint.

     Following  the  acquisition  of  the  Westmeade  facilities,  the  Company
determined  that  it  would  be  more  efficient  to concentrate its residential
treatment  efforts  at  the Westmeade Centers, and to sell Lakewood Retreat.  In
part,  the  decision  was  motivated  by  Managed  Care companies' desire to use
providers  that  are  geographically  convenient  and easily accessible to their
patients,  and  Lakewood Retreat's distance from the Company's concentrations of
service  in  Southeastern  Pennsylvania.

     THE WESTMEADE PROGRAM:   The Westmeade Center at Warwick was established to
provide  residential  psychotherapeutic  services to adolescents, ages 12 to 18,
who  are  ambulatory  and medically stable. The program, which operates 24 hours
each  day, offers intensive clinical treatment in a less restrictive residential
setting.  The  length of stay is short-term and the focus of treatment addresses
the  key  issues  that  precipitated  the  patient's  admission.  The goal is to
eliminate  or  reduce  the  barriers  that  prevent the patient from functioning
successfully  as  an  outpatient.

     The  Westmeade  Center  provides  an  acute  care  alternative to inpatient
psychiatric  treatment.  The  Westmeade  Center  is also utilized as a step-down
unit  for those persons who still require 24-hour supervision but have benefited
from  hospitalization to the degree that a less restrictive setting can now meet
their  therapeutic needs.  The Westmeade Center does not attempt to treat people
who  are  so  severely ill that they require seclusion and/or restraint that are
only  available  in  a  hospital  setting.

     Each  patient  is  assessed to determine unique strengths and weaknesses so
that a multi-disciplinary treatment team can develop an individualized treatment
plan.  The  goal  of  this  process  is  to  identify the specific interventions
designed  to  assist  and  encourage  the  patient's understanding of his or her
potential  for  emotional  and  psychological  well  being to build a successful
outpatient.  This process identifies the philosophical basis of the program; the
treatment  plan  establishes  a  guideline  for  the  direction  of  care  the
multi-disciplinary  professional staff will provide and is related to the unique
identified clinical problems of each patient.  As part of the treatment planning
process,  objectives  are  established  which  address  the  methodology,  staff
responsibility  and  time  frames  necessary  to  facilitate  treatment.

     The  Westmeade patients suffer from a variety of psychiatric disorders such
as  depression,  manic  depression and anxiety disorder.  The Westmeade Center's
core  psychiatric  programs are designed to accomplish stabilization of symptoms
by  addressing  management of major life stresses.  Therapy experiences focus on
cognitive  and  behavioral  restructuring  of  dysfunctional thinking and belief
systems  by  addressing  cognitive  and perceptual misperceptions, dysfunctional
coping  mechanisms,  and inadequate life skills.  Concentrated, diagnosis-driven
individual  and  group  therapy  is  given  to  patients  in  homogeneous groups
(gender-specific  where  needed).

     THE  WESTMEADE CENTER'S MARKET:  The primary market of the Westmeade Center
at  Warwick is Eastern Pennsylvania with significant concentration of cases from
Bucks, Montgomery and Philadelphia counties.  The Westmeade Center at Warwick is
a  certified Medical Assistance provider and has numerous contracts with Managed
Care Providers, health insurance companies, however, the most significant payors
are  Community  Behavioral  Health,  Americhoice  and  Medicaid.

     The  Westmeade  Center at Wyndmoor's primary market has shifted in the last
two  years  to  reflect  the changes in the managed care industry.  Major payors
have  shifted  from  US  Healthcare  to  the  managed  Medicaid  payors of Merit
Behavioral  Healthcare  and Mustard Seed which were then supplanted by Community
Behavioral  Health.  Because  Philadelphia  residents  increasingly  represented
Wyndmoor's  patient  base,  the operating license was relocated to the Kirkbride
Center,  thus  making  West  Philadelphia  the  major  market.

     Notwithstanding  the  number  of  contracts which the Westmeade Center has,
there is no assurance that these companies will continue to provide coverage for
the psychiatric care offered by the Westmeade Centers, even with these contracts
in  force.   In  addition,  these contracts permit the Westmeade Centers to seek
payment  for  treatment  of  the patients who are subscribers or insureds of the
payor  companies, but do not ensure that the potential patients covered by these
payors  who  seek  behavioral  health care will become patients of the Westmeade
Center.

(C)     PARTIAL  HOSPITALIZATION  SERVICES

     The  Kirkbride  Center  is  the  Company's  only  licensed provider site to
provide  hospital  based  psychiatric  partial  hospitalization  services.  The
license  provides  for 50 slots of treatment for the provision of care to adults
and  seniors  at  the  Kirkbride Center.  Such programs provide up to 8 hours of
care  a  day  and allow the clients to reside at home while receiving treatment.
Clinical  intensity  may vary allowing the program to serve as an alternative to
acute  inpatient  hospitalization  as  well  as  a  step-down  program for acute
programs.

     GERIATRIC  PARTIAL  HOSPITALIZATION  PROGRAM
     --------------------------------------------

     The  Geriatric  Partial  Hospitalization  Program provides day-treatment to
senior  individuals  demonstrating  psychiatric  illness.  Services are provided
Monday  through  Friday,  and  include  diagnostic  and  mental health treatment
services  within  a  protected  and structured environment. Individual and group
therapy,  activity  therapy  and  medication  monitoring  are  provided.  Family
support  is  also  provided.  Day-treatment  allows  the  individual to continue
living  at  home,  or  in  an  assisted  living  or  nursing  care  facility.

     ADULT  PARTIAL  HOSPITALIZATION  PROGRAM
     ----------------------------------------

     The Adult Partial Hospitalization Program provides interdisciplinary mental
health  care,  as  an  alternative to inpatient treatment or as a transition for
those  who  need  ongoing  treatment  and  support after an inpatient stay.  The
program,  which  provides  services  Monday  through  Friday,  offers  group,
individual,  family and multi-family group therapy, psycho-educational services,
multi-media  educational  and  activity  programs,  access  to  anonymous-based
self-help groups or community-based support groups as appropriate and adjunctive
services  such  as  family  counseling  and  occupational  therapy  programs  as
indicated.

     PARTIAL  HOSPITALIZATION  MARKET:  The  Partial Hospitalization Programs at
     --------------------------------
Kirkbride  serve  primarily  West  and  North  Philadelphia. The major payors of
service  are  Community  Behavioral  Health  and  Medicare. The Company has also
applied  for  licensure  for  several  satellite  locations  but there can be no
assurance  that  these  license  to  operate  will  be  obtained.

(D)     OUTPATIENT  AND  INTENSIVE  OUTPATIENT  PROGRAMS

     The Company has developed a comprehensive network of professional providers
to  meet  the  outpatient  needs  of  its  clients. These professional providers
include  psychiatrists,  psychologists,  and  licensed social workers, certified
addiction  counselors  and  psychiatric  nurses.

As  they  are  credentialed  by  various  managed care companies and third party
payors,  these  health  care  professionals  and  clinicians are able to provide
services  to  children,  adolescents,  adults  and  seniors.  Approaches offered
include  individual,  group,  couples  and  family therapy depending on clinical
need.  Pharmacotherapy  is  also  provided.

     Urgent  appointments  are  provided  within  five  (5)  hours;  emergency
appointments are provided within forty-eight hours; and routine appointments are
scheduled  within five (5) business days.  Day, evening and weekend appointments
are  available  at affordable fees.  Because the Company maintains contacts with
many  of  the managed care companies, the cost of therapy to the client is often
only  the  co-payment.

     Outpatient  services  are  provided at KIRKBRIDE CENTER (West Philadelphia,
Pa), and the WESTMEADE CENTER (Warwick, Pa).  Until March 1998, the Company also
provided  outpatient  services  through  American  Institute  of  Behavioral
Counseling,  Inc.  at  Greenbrook, New Jersey, and in Easton, Pennsylvania until
December 1998.  Given limited activity and no strategic focus in New Jersey, the
Company  sold  the  operations  of  this  facility.


     OUTPATIENT  MARKET:  All  sites  serve  primarily  Managed  Care  referral
     ------------------
patients.  Kirkbride  Center  serves Medicare, Medicaid and Community Behavioral
     --
Health  claimants  as  well.

<PAGE>

(E)     DRUG  AND  ALCOHOL  REHABILITATION  SERVICES

     In  the last year, the Kirkbride Center has had to increase the size of its
acute  substance  abuse  dual  diagnosis program from 25 to 57 beds.  Given this
demand,  Kirkbride  has  received an additional license permitting the Center to
treat  up  to  63 drug and alcohol rehabilitation clients on a subacute level in
addition  to  the  Center's  acute  program.  The  Program has established payor
contracts  with  Medical Assistance and Behavioral Health Specialists Initiative
and  Community  Behavioral  Health.

     REHABILITATION  PROGRAM  MARKET:     Kirkbride Center primarily serves West
and  North Philadelphia.  Primary payors are expected to be Community Behavioral
Health,  Medicaid  and  special  programmatic funding contracts from the justice
systems.

(F)     WRAP-AROUND  SERVICES

     In  February  1997,  upon completion of the acquisition of the Institute of
Pennsylvania,  the  Kirkbride  Center  received a Provider 50 license to provide
wrap-around-psychiatric  services  to  adolescents.  Provider  50  services  are
designed  to provide support services in the home and/or school setting to avoid
inpatient  hospitalization.  While  Kirkbride  Center  holds  this  license, the
program  has  not  yet  become  operational,  but  remains part of the Company's
strategic  plan.  The  Company  has negotiated payor contracts with Americhoice,
Merit  and  Community  Behavioral  Health  for this service and intends to begin
operations  in  1999.

(G)     BILLING  AND  PRACTICE  MANAGEMENT

     The  Company's  acquisition  of  ZA  Consulting/Management, Inc. ("CMI,") a
provider practice management, billing and collection company for diverse medical
specialties, enhanced and accelerated its efforts to computerize its operations.
CMI  also has entered into contracts with CoreCare Behavioral Health Management,
Inc.  and  all other Company's subsidiaries to act as the billing and collection
agent for all Company services.  CMI has also assumed all network management and
corporate  office  functions  since  July  1997.  In April 1998, CMI doubled its
non-CoreCare  related  revenues  through  the  acquisition of certain assets and
scheduled  liabilities  of  Preferred  Medical  Services.  CMI  consolidated
operational  activities, which include the reduction of administrative staff and
closure  of  the Preferred Medical Services office in Blue Bell, Pennsylvania in
December  1998.  CMI  is  located  in  Wayne,  Pennsylvania.

     The  Company  operates its Billing and Practice Management business through
its  one  wholly  owned  subsidiary,  Managed  CareWare,  Inc.  (D/B/A) CoreCare
Management,  Inc.  and  Preferred  Medical  Services.

     Services  provided  by  the  Company  include:
a)     Billing  services  for  physician  practices,  especially  hospital based
specialties  of  radiation  oncology  and  anesthesiology.
b)     Billing  services  for  Behavioral  facilities  including  hospital  and
non-hospital
c)     Practice  management  services  including  bookkeeping,  accounting,  and
credentialling  for  physician  groups.
d)     Information  Services  support  for  billing  including direct electronic
claims  transmission  between  Medicare  and  Payers.

     PRACTICE  MANAGEMENT  MARKET:     CMI  serves  clients primarily in Eastern
Pennsylvania,  New  Jersey  and  New York.  Services are rendered under services
agreements  on  a  fee for services basis.  Core competencies include behavioral
health  care,  radiation  oncology,  and  anesthesiology,  and  most  Medical
subspecialties.


(H)     REAL  ESTATE  DEVELOPMENT  AND  LEASING  ACTIVITIES

     KIRKBRIDE  REAL  ESTATE  LEASING  ACTIVITIES
     --------------------------------------------

     Since  the  Kirkbride  Center  acquisition  in  1997,  the Company has been
developing  and  marketing  unused  space  creating  a  medical  community  of
complementary  healthcare  providers  and  further  enhancing  the  value of the
property.  In addition to the developed land there exists significant unimproved
property  suitable  for  sale  or  lease.

     To  provide  for  an  orderly  development  program,  CRCS  created  a  new
subsidiary, CoreCare Realty Corporation to assume responsibility for development
of  the  Kirkbride  Center.  To  expand  CRCS'  resources,  Franklin Development
Company,  LLC  ("FDC")  based in Boston, Massachusetts was hired as a management
consultant.  Christopher  Fleming, a senior manager in FDC, is the son of Thomas
T.  Fleming,  Chairman  of  CoreCare  Systems,  Inc.

     To effect the development plan and to simplify Kirkbride Center's financial
records  and  Medicare  cost reporting, CoreCare Realty Corporation has signed a
master  lease  with  Kirkbride  Center  covering  all  space  not  reserved  for
Kirkbride's  direct  patient  care  services.

Schedule  of  Leases  at  Kirkbride  Center

<TABLE>
<CAPTION>
Tenant                               Space Leased (SF)  Lease Expiration Date
-----------------------------------  -----------------  ---------------------
<S>                                  <C>                <C>
Physician Offices                               24,000             02/01/2001
Children's Hospital                             65,400             10/31/2007
Southeast Mental Health Association             18,000             07/01/2009
Pennsylvania Hospital                           18,683             06/30/1999
Northeastern Linen Services                     15,000             08/21/2007
Rudolphy Residence for the Blind                 5,000             09/30/1999
Vacant                                          44,000
Total                                          190,083
</TABLE>

The  Company  has  other  subsidiaries:
-     Chestnut  Hill  Health  and  Fitness  Center,  Inc.
-     CoreCare,  Inc.
-     Lakewood  Retreat,  Inc.

<PAGE>
------

LAKEWOOD  RETREAT,  INC.

     The Company owns a 57-acre facility in East Stroudsburg, PA previously used
as a residential treatment facility. Operations were terminated in December 1996
due  to  adverse  market  changes  resulting  from  managed care. The Company is
attempting  to  sell  the  facility.  Its  value  was  written  down  in 1998 to
$1,100,000 which represents the Companies estimate for its net realizable value.


(I)     HEALTH  AND  FITNESS  CENTER

     The  Company, through its wholly owned subsidiary, Chestnut Hill Health and
Fitness  Center,  Inc.  ("CHHFC")  operate  a  health and fitness center.  CHHFC
provides  a  complex  of  related  health  and  medical  services,  including  a
comprehensive  aerobic  program with the latest cardiac conditioning techniques,
as well as yoga for stress management, resistance and weight training equipment,
and exercise physiologists.  CHHFC leases approximately 7,000 square feet in the
Whitemarsh  Professional Center in Erdenheim, Pennsylvania, which facility has a
sauna,  whirlpool,  full  locker  room  and  child  care.

     The  Company currently plans to relocate CHHFC to a better quality building
in an effort to eliminate certain growth obstacles.  Given the relocation of the
Westmeade  license  to  the  Kirkbride  Center,  the Company is reevaluating the
fitness  center's  growth  plan  and  place  in  the Company's overall strategic
business  plan.

     CHHFC'S  MARKET: CHHFC serves a local higher income community, the Chestnut
Hill  area  of Philadelphia, Pennsylvania.  Its service area is approximately 20
minutes  driving  radius  from  the  health  and  fitness  center.


(K)  CLINICAL  RESEARCH  TRIAL  SERVICES

     The  Company,  through  its wholly owned subsidiary, Quantum Managed Mental
Health  Systems, Inc., d/b/a Quantum Clinical Services Group, has recently begun
to  penetrate  the  clinical  research market. During 1998, the Company utilized
Quantum  to  provide  investigative services for the pharmaceutical and contract
research  organizations  in  the  area  of psychiatric and neurological clinical
trials,  and  to  conduct  outcomes  research  studies for clients using medical
records  of  physician  practices  and  experience  of  related  facilities.

Drugs  to  treat  psychiatric and neurological diseases are estimated to account
for  25%  to  30%  of  all drugs under development by pharmaceutical and biotech
firms.  Clinical  Trials for Central Nervous System (CNS) drugs are estimated to
have  been  $1.8  billion  in 1998. Wall Street Analysts estimate the demand for
clinical  tests  to  be increasing at a rate of 15% - 20% per year. At this time
there  exists  a  critical need for CNS investigators due to the large number of
drugs  in the development pipeline and requirements for extensive testing by the
FDA.  Industry completion rates on trials are low due to patient recruitment and
project  management  difficulties.

     Quantum  has  been  staffed  with  a  experienced  and accomplished team to
perform  clinical  trials  of  psychopharmacological agents and products.  These
trials  are  to  be  conducted at the Kirkbride Center using approximately 6,000
square  feet  of  space  for  outpatient  research studies and a 20-bed unit for
studies requiring intensive observation.  Quantum is also to serve as a platform
for  coordinating multi-center clinical trials at sites other than the Kirkbride
Center, including affiliated units of the Company, physician practice management
groups  and  other  behavioral  health  systems.

     Four contracts with clinical research companies have been signed by Quantum
and  are  in  progress,  including  contracts  with  Clinical  Studies,  Ltd. of
Providence,  RI  that  is  under  contract  with  Janssen Research Foundation of
Belgium  and  a contract with Covance Clinical and Periapproval Services Inc, of
Princeton,  NJ  that  is  under  contract  with  Abbott  Laboratories.

     The  Company  operates  its  clinical  research business through its wholly
owned  subsidiary,  Quantum  Managed  Health  Services  (d/b/a  Quantum Clinical
Services  Group).  Quantum  contracts  with  its  related  subsidiaries or other
non-related  third  party  companies  to  conducts  clinical  trials.

     The  company  intends  to provide services on products to treat diseases of
the  Central  Nervous  System  and  Geriatric population. The intends to provide
services  in  the four phases of drug trials in human volunteers; which commence
after  the  drugs  have  been  approved  for  testing  in  humans  by  the  FDA.
     Phase  I:  testing  for  tolerance  in  healthy  volunteers
     Phase  II:  testing  for  effectiveness  in  a  small  sample  of afflicted
patients.
     Phase  III:  placebo  controlled  testing  in  a  large sample of afflicted
patients  necessary  for  FDA  approval
     Phase  IV:  Long  term  monitoring  tests  of  drugs  post  FDA  approval.

     Currently  Quantum  is providing services in Phase II and III trials of new
drugs.  The  company  is  evaluating  the  development  of a Phase I unit at its
Kirkbride  Center.

     QUANTUM'S  MARKET:  United  States  as  well  as  internationally  based
pharmaceutical  companies  are  seeking appropriate clinical trial sites for the
testing  of  their  drugs.



     (B)(2)     DISTRIBUTION  METHODS:

     I.  Behavioral  Services

     The  Company  obtains patients primarily through referrals from physicians,
hospitals, community based health care organizations, and Managed Care plans and
other  third  party  payors.  Therefore,  the  focus  of the Company's sales and
marketing  programs  is direct sales to physicians, hospitals, other health care
institutions  and  third  party  payors.  The  Company's  marketing  focus  is
necessarily  local,  concentrating  on establishing relationships with the local
referral sources.  In the markets that it currently serves, the Company believes
that  it  has a strong reputation for quality with physicians and other referral
sources.

     Both  payors and referral sources increasingly demonstrate a preference for
providers,  which  offer  systems  of  care  at  various levels.  Integration of
services  helps  assure  better clinical continuity of services and greater cost
efficiency.  In  addition,  Managed  Care  companies  and  other  payors  are
continually trying to reduce the number of vendors with whom they must contract.
The  Company  believes, therefore, that achieving a critical density of services
in  a  defined  geographical  area,  establishing  and  maintaining  personal
relationships  with  referral  sources,  a  continued  focus  on  quality,  and
increasing  economies  of scale all are important keys to its ability to compete
effectively  with  smaller local competitors which may not offer a full range of
services,  as  well  as  larger  national providers which may not provide a full
spectrum  of  integrated  clinical  services  in  the  Company's  market  area.
     The  Company  markets  its  services  to  all  types  of  payors, including
insurance  companies  and  Managed Care companies, but primarily to Managed Care
companies  on  a negotiated fee basis.  In markets where the Company can offer a
comprehensive range of services, it intends to market its services on a selected
"capitated  basis"  (fixed fee per covered life per month), or "case rate basis"
(fixed  fee  per  inpatient episode).  To date, the Company has not entered into
any  capitated  contracts.

     Referral  sources include case managers, crisis workers, hospital emergency
rooms, evaluation centers, private practitioners, clinics, etc. that have direct
patient  contact  and  a  need or obligation to place the patient in a treatment
setting.  A referral source usually has a range of options of the best placement
for  a  patient  and  weighs several factors including proximity to the patient,
cost,  appropriateness  of  service  and  responsiveness  of  provider.  This
behavioral patient platform serves as a magnet to attract central nervous system
clinical  drug  trials  for  Quantum  as  well.

II.  Clinical  Research  Services
---------------------------------

     The  Company  has obtained contracts for clinical research through Contract
Research  Organizations  (CRO's) and Site Management Organizations (SMO's) which
are retained by Pharmaceutical and Bio-Tech Companies. The Companies markets its
services  Pharmaceutical Companies, CRO's and SMO's.  The Company's marketing is
focused  on  established relationship between key staff and pharmaceutical firms
and  their  representatives.  Should the Company be successful in establishing a
Phase  I  unit inpatient clinical research unit will serve as a feeder for Phase
II,  III,  and  IV studies and should result in an increase research activities.

III.  Billings  and  Practice  Management
-----------------------------------------

     The  Company's  growth has been derived by acquisition historically. Growth
through  new  provider  contracts  has  been limited given the demand created by
Kirkbride's  growth.  The  Company has recently developed a marketing plan based
upon  three  pronged  strategy:
1.     Referrals  made  from  financial  and reimbursement consulting or lending
groups  to  physicians  and  small  provider  groups.
2.     Referrals  made  from  existing  clients
3.     New  business  development  from  traditional  marketing

     Historically  the  Company  has  had  a  successful  cooperative  marketing
relationship with reimbursement consultants and intends to expand its network of
such  groups.

     (B)(3)     PRODUCT  OR  SERVICE  DEVELOPMENT:

          (B)  (3)  (A)  BEHAVIORAL  SERVICES:
          ------------------------------------
     The  Company's  marketing  strategy  is  to  develop in selected geographic
markets, extensive, wholly-owned, multi-level health care delivery systems which
provide  a high quality of care in a cost effective manner.  The Company intends
to  pursue  growth  by surrounding inpatient sites with outpatient mental health
clinics  and other alternative or step-down services.  The Company believes that
by  providing  a  fully  integrated  coverage  of the market, it will be able to
generate  a  critical  mass  of  clinicians,  patients  and services to generate
significant  cost  advantages  that  are more attractive to payors.  The Company
believes  that  this  critical  mass strategy will allow the Company to leverage
management  resources, contracting opportunities with Managed Care payors, sales
and  marketing  programs, information systems and corporate overhead, as well as
providing  a  patient  base  for the growth of clinical drug research contracts.

     The  Company's  approach  to the delivery of health services is intended to
yield  the  following  benefits:

     The  Low  Cost  Provider.  By  establishing  an extensive, fully integrated
network  of  multi-disciplinary health care professionals in a given market, the
Company  will  seek  to achieve economies of scale, thereby lowering the cost of
care  without  compromising quality.  For instance, the Company believes that by
employing  a full range of clinicians it is better able to match the appropriate
clinician  and  type  of  treatment  to  the  patients'  needs.

     Managed-Care  Friendly.   The  Company  believes  that  establishing  a
significant  presence  in each of its markets will enable it to meet payor needs
more  effectively,  and  that  as the Company increases its ability to provide a
full  range  of health services, a standardized level of care and the ability to
service all of the payors' patients within a geographic region, it will increase
market  share.  Additionally,  the  Company  will  offer payors systems for risk
management  (including  contracts under which the Company assumes various levels
of  risk), claims reimbursement and clinical outcomes measures, thereby reducing
the  payors'  administrative burden as well as the number of provider contracts.

     Integrated  Clinical  Research.  The  Company is committed to evolving as a
state  of  the  art  behavioral
     healthcare  provider  as  well  as  a  site  management  organization  for
conducting  clinical  research.  We
     believe  these  two  product  platforms will synergistically support mutual
growth  providing  an
     economic  advantage  to  each  product.

     Attractive  to  Sellers.  The  Company  believes  that  through  successful
implementation of its business plan and marketing strategy, it will represent an
increasingly  attractive  potential  buyer  to single and multi-site health care
providers  who face significant uncertainty regarding the future and who may not
possess the financial resources or administrative skills to adapt to health care
reforms,  including changes in reimbursement.  The Company will be able to offer
potential  sellers  management  expertise, administrative and regulatory support
and  increased  job  security.  In  addition, the Company will offer sellers the
ability  to  realize the value of their businesses as well as the opportunity to
benefit  economically  from  the  growth  of  a  larger  enterprise.

     (B)  (3)  (B)  CLINICAL  RESEARCH:
     ----------------------------------
     The  Company's focus is to integrate Clinical Research Services into all of
its  behavioral  services  and  sites to establish a track record as a reliable,
productive  investigative site that performs according to protocols. The Company
believes  that the demographic composition of its behavioral customers will make
it  an  attractive  site  for  conducting  clinical  research on new drugs.  The
Company  plans  to leverage its relationships through its affiliations, referral
sources,  and its Quantum Network of providers to evolve in to a Site Management
Organization  specializing  in Central Nervous System and Geriatric drug trials.

     (B)  (3)  (C)  BILLING  AND  PRACTICE  MANAGEMENT:
     --------------------------------------------------
     The  Company's  development  strategy is to expand the range of services it
can  offer current and future clients. Given the failure of acquisition model of
Physician  Practice  Management  by Hospitals and Public Companies. These groups
are  divesting physician practice groups thereby creating demand for billing and
collection  services  by  the  independent  physicians.

     The Company will aggressively market to such prospective clients as well as
expand  the  scope  of  its services to include human resources, credentialling,
information  services,  and  payor  contract  compliance  management  services.

     (B)(4)     COMPETITION:
I.  Behavioral  Services
------------------------
     There  is  intense  competition  among  providers in the Company's existing
markets.  While  most  of the markets in which the Company provides services are
highly  fragmented, the behavioral health care industry in general is undergoing
consolidation,  and  the  Company  will  face  intense competition in seeking to
increase  its  market  share.  Many  of  the  Company's  current  and  potential
competitors  have  significantly greater financial and other resources than will
be available to the Company.  In addition, the national competitors benefit from
contracting  with  Managed  Care companies which themselves operate in more than
one  region,  volume  purchasing  and,  in  some  cases,  name  recognition.

     The  Company's  management  believes  that the pace of consolidation in the
behavioral  health  care industry dictates an aggressive multi-prong growth plan
which  includes  the  development  of start-up services as well as, acquisition,
alliance  or  joint venture strategy to enter new markets and to increase market
share.

II.  Clinical  Research  Services
---------------------------------
     Clinical  Research  Services for drug trials is a rapidly growing industry.
Drugs  for  Central  Nervous System Diseases are estimated to account for 30% of
all  drugs  under  development. Estimates are that 8-10% of all investigators is
focused  on  this  type  of  research.  The  growth  in  demand has outpaced the
availability  of  sites and investigators. The Company believes that demand will
support many more competitors and that success will be a function of recruitment
of  volunteers  and  quality  of  performance.

III.  Billing  and  Practice  Management
----------------------------------------
     The  industry  is  highly  fragmented. The Company believes that 75% of the
industry  is  served  by  small  companies.  Many  of  the Company's current and
potential  competitors  have  significantly greater financial resources than the
Company's.

     The  Company  believes  that  its  capability to service both physician and
hospital based billing as well as provide practice management services will be a
competitive  advantage  in  the  market  place.  Clients prefer to contract with
vendors  that  can  provide  multiple services rather than working with multiple
vendors  that  offer  limited  services.


     (B)(5)     RAW  MATERIALS:  Not  Applicable.

     (B)(6)     CUSTOMERS:

     The  largest payor for both Kirkbride and Westmeade at Warwick is Community
Behavioral Health, which contributes approximately 63% of all patients for these
sites.  Medicare  reimbursed  Kirkbride  for approximately 20% of all inpatients
treated  at  the  facility.


     For  the  year ended December 31, 1998, inpatient payer mix for the Company
was  broken  down  as  follows:

<TABLE>
<CAPTION>
                                                                 WESTMEADE   KIRKBRIDE
                                                                 ----------  ----------
<S>                                                              <C>         <C>
Private payment sources (including private insurance companies)          6%         1 %
Medicare/Preferred Provider arrangements                                 0%         20%
Medicaid                                                                26%          4%
CBH, ABH and Managed Care                                               68%         75%

Outpatient revenues were broken down as follows:
---------------------------------------------------------------

-  Private payment sources                                               3%
-  Medicare/Managed Care /Preferred Provider arrangements               97%
</TABLE>

     Private  payment  is the category for which patients are neither reimbursed
by  Medicare  nor  covered  by a Managed Care arrangement.  These payors include
traditional  insurance  indemnity  plans as well as direct payments by patients.
With respect to outpatient revenues, this category also includes personal injury
insurance coverage.  With respect to both inpatient and outpatient revenues, the
Company  anticipates  that  in  the  future,  in  line  with general health care
industry  trends,  the  percentage of revenues derived from traditional Medicare
and  Medicaid will decrease, and the percentage of revenues derived from Managed
Care  and  preferred  provider  arrangements  will  increase.

     CHHFC  serves  a private pay consumer market; however, given the preventive
medicine  orientation  of  HMOs,  many  will  reimburse  for  fitness  services.
Currently, CHHFC is negotiating preferred provider contracts with such agencies.
CHHFC also offers corporate contracts for employers interested in providing such
services  to  their  employees.

     Quantum provides services as a subcontractor to clinical research companies
hired  by  pharmaceutical companies whose drugs are tested at facilities such as
Kirkbride.  Quantum  began  generating  revenue  in  1999.


     (B)(7)     PATENTS,  TRADEMARKS,  LICENSES,  ETC.:

     The  Company  has  no  patents  or  trademarks  that  are  material  to its
operations.  Various  licenses  are  required for the operation of Kirkbride and
Westmeade  Centers,  and  other company operations. See "Governmental Approvals"
below.


     (B)(8)     GOVERNMENTAL  APPROVALS:

     Kirkbride is licensed by the Department of Public Welfare, Office of Mental
Health,  for  the Commonwealth of Pennsylvania for Inpatient Private Psychiatric
Hospital,  a  Partial  Hospital,  an  outpatient clinic, and by the Pennsylvania
Department  of  Health as a drug and alcohol rehabilitation center; additionally
57  of  the  hospital's  inpatient psychiatric beds hold dual licenses with both
Departments.

     The Westmeade Center at Warwick is licensed for 32 beds by the Pennsylvania
Department  of  Public  Welfare,  Office  of  Children, Youth and Families, as a
Residential  Treatment  Facility  for  Children  and Adolescents.  The Westmeade
Center  at  Kirkbride  is  licensed  by  the  Department  of  Public Welfare for
Residential  Treatment  of  Adults  for  24-beds.

     The  Kirkbride  and  Westmeade  Centers  operate  with  a  Certificate  of
Accreditation  from  the  Joint  Commission  on the Accreditation of Health-Care
Facilities.  In July 1998, the Westmeade Center at Warwick received a three-year
accreditation;  The  Kirkbride  Center  received  a  three-year accreditation in
December  1998.

     CHHFC  operates as a "Health Club" under a Certificate of Compliance issued
by  the Attorney General of the Commonwealth of Pennsylvania, Bureau of Consumer
Protection,  pursuant  to  the  Pennsylvania  Health  Club  Act.

     (B)(9)     GOVERNMENTAL  REGULATIONS:

     Health  care  is  an area of extensive federal, state and local regulation.
Changes  in  the law or new interpretations of existing laws can have a dramatic
effect  on  methods  of  doing  business, costs of doing business and amounts of
reimbursement  by  government  and  private third party payors.  The health care
industry  is  subject  to  state  laws  governing  certification,  professional
licensure,  certificate of need requirements and physician and other health care
provider  self-referrals.  In  addition,  state  regulation  of  Medicaid
reimbursement directly impacts the profitability of servicing Medicaid patients.
Federal regulations covering fraud and abuse, and arrangements among health care
providers  that  may  be deemed under Medicare/Medicaid regulations as fraud and
abuse  or  self-referral  arrangements,  can limit the ways in which the Company
conducts  business.  No  assurance  can  be  given  that  federal  and  state
regulations,  administrative actions pursuant to such regulations, or changes in
such  regulations  will  not  adversely  affect  the  Company.

     In  addition,  numerous  federal  legislative proposals have been initiated
which contemplate significant changes in the availability, delivery, pricing and
payment  for  health  medical  products  and services.  Various states also have
undertaken  or  are  considering  significant  health  care  reform initiatives.
Although  it is not possible to predict the exact manner and the extent to which
the  Company will be affected by the passage of health care "reform" measures or
other  legislative  or  administrative initiatives, it is virtually certain that
health  care  delivery,  reimbursement of health care costs, and virtually every
other  aspect of the health care industry will be the subject of legislative and
administrative initiatives in the future.  It is likely that the Company will be
affected  in  some  fashion  by any new legislative and administrative measures,
which  are  adopted,  and  such  effects  could  be  material and adverse to the
business  of  the  Company.

     Most  states  have laws, regulations and professional licensing board legal
doctrines which prohibit the employment of physicians by corporations other than
professional corporations with all stockholders being licensed persons.  Certain
states  have  legislation  or  regulations,  or rulings or opinions of courts or
state  officials,  suggesting  that  other  health  care  professionals  may not
lawfully  provide services as employees of business corporations.  To the extent
that such restrictions are or become applicable to the Company's operations, the
Company  must structure its operations to be in compliance with such provisions.
There  is  no  assurance,  however, that the Company will develop a satisfactory
structure  to  deal  with  all  such  restrictions.


     (B)(10)     RESEARCH  AND  DEVELOPMENT:  Not  Applicable.

     (B)(11)     ENVIRONMENTAL  LAWS:

     The  Company's  operations  are not significantly affected by environmental
regulations.

     (B)(12)     EMPLOYEES:

     As of December 31, 1998, the Company and its subsidiaries had 629 full-time
and  part-time  employees.  This  number  does  not  include  mental  health
professionals  (e.g.,  psychiatrists,  psychologists, etc.) who provide services
through the Company's facilities and who may be deemed employees for federal tax
and  accounting purposes.  Kirkbride Center represents the highest concentration
of  Company  employees  with  a  total  of  438.

ITEM  2  -     DESCRIPTION  OF  PROPERTY

The  Company  owns  or  leases  the  following  properties.

<TABLE>
<CAPTION>
PROPERTY              LOCATION          OWN / LEASE  DESCRIPTION
--------------------  ----------------  -----------  ----------------------------------------
<S>                   <C>               <C>          <C>
Kirkbride Center      Philadelphia, PA  Own          422,800 square feet on 27 acres
--------------------  ----------------  -----------  ----------------------------------------
Westmeade at Warwick  Hartsville, PA    Own          14,000 square feet on 11 acres
                      ----------------  -----------  ----------------------------------------
Wayne Office          Wayne, PA         Lease        5,449 square feet; Lease expires 7/31/99
                      ----------------  -----------  ----------------------------------------
Lakewood              Stroudsburg, PA   Own          Approximately 57 acres
--------------------  ----------------  -----------  ----------------------------------------
</TABLE>


ITEM  3  -     LEGAL  PROCEEDINGS

     An  affiliate  of  UNION CHELSEA NATIONAL BANK holds a mortgage foreclosure
judgment  against  property  comprising the site of CENTER AT LAKEWOOD, which is
owned  by  LAKEWOOD  RETREAT,  INC.,  a  subsidiary of CRCS.  Pursuant to a loan
modification  agreement  executed  in  April  1995,  and  furthers  extension
agreements,  Union  Chelsea  agreed  to  take no action to enforce this judgment
before  September  16,  1996.  CRCS  has  requested continued forbearance by the
lender  while CRCS attempts to sell the property or refinance the mortgage.  The
lender,  while cooperating with CRCS to sell the property, has not agreed to any
further  extensions.  If  the  lender  were  to  commence  enforcement  of  its
foreclosure  judgment, CRCS would be required to submit the Deed in satisfaction
of  the indebtedness or seek bankruptcy court protection for the subsidiary that
holds  title  to the property.  As of 12/31/1998, the book value of the property
was  judged  to  be  1.1  million  dollars.

     In  July,  1996,  a  lawsuit was filed in the Superior Court of New Jersey,
Somerset  County  by  certain  therapists  formerly  associated  with  CRCS
subsidiaries,  AMERICAN  INSTITUTE  FOR  BEHAVIORAL  COUNSELING,  INC.  and PENN
INTERPERSONAL  COMMUNICATIONS, INC.  The complainant names these subsidiaries as
defendants  as well as CRCS, Anthony and Marlene Todaro, Thomas Fleming and Rose
DiOttavio.  The  suit  alleges that the Plaintiffs were damaged because the fees
charged,  by  CRCS'  subsidiaries  for  providing  office  space  and management
services, exceeded the reasonable value of the services provided.  The suit also
claims  that  CRCS'  subsidiaries  have  not  remitted  to  the  Plaintiffs  an
unspecified  amount  of  fees  collected from patients by the subsidiaries which
allegedly  were  to have been remitted to the plaintiffs.  The suit also alleges
that  the  defendants  tortuously  interfered  with  the plaintiffs' contractual
relationships  with  patients  and  managed  care  companies  and  defamed  the
plaintiffs.  The  complaint  does  not  specify  the  damages  sought  by  the
plaintiffs.  Management  does not believe there is any validity to these claims.
CRCS  does not believe that the ultimate resolution of this litigation will have
a  material,  adverse  effect  upon  the  business, finances or affairs of CRCS.

     In  November,  1998,  a  former  employee  of CoreCare filed a complaint in
Federal  District  Court  for the Eastern District of Pennsylvania alleging that
the  Company  discriminated  against her in employment by failing to accommodate
her disability, and that the Company retaliated against her for filing a workers
compensation  claim.  The  Company  has  denied  all  of  these  claims.  The
plaintiff's  complaint  asks  for compensatory and punitive damages in excess of
$100,000.  We believe that the ultimate resolution of this claim will not have a
material,  adverse  effect  on  CoreCare's  operations  or  financial condition.

     CRCS is subject to professional malpractice and related claims from time to
time  in the ordinary course of business.  CRCS maintains insurance against such
claims.  Insurers are defending all such claims, and, except as discussed above,
CRCS  is confident that it's ultimate liability or settlement obligation in such
claims  will  be  within  policy  limits.



ITEM  4  -     SUBMISSION  OF  MATTERS  TO  VOTE  OF  SECURITY  HOLDERS
-     Election  of  Directors
-     Increase  of  2  million  shares  for  the  employee  stock  option  plan
Both  matters  were approved by Shareholders at the October 29, 1998 Shareholder
Meeting.



<PAGE>

                                     PART II
                                     -------

ITEM  5  -     MARKET  FOR  COMMON  EQUITY  AND  RELATED
               SHAREHOLDER  MATTERS

(A)     MARKET  INFORMATION:
        --------------------

     The  Company's  Common  Stock  is traded over-the-counter on the electronic
bulletin  board operated by the National Association of Securities Dealers under
the  symbol  "CRCS."  The following table sets forth the high and low bid prices
quoted  for  the  Company's  Common  Stock  since  January  1,  1996.

<PAGE>
<TABLE>
<CAPTION>
                    HIGH      LOW
                  CALENDAR
                  YEAR 1996
                  ---------    
<S>               <C>        <C>
  First Quarter       1 5/8      1
  Second Quarter      3 3/8  1 3/8
  Third Quarter           2      1
  Fourth Quarter      3 7/8  2 5/8

  CALENDAR
  YEAR 1997
----------------                  
  First Quarter       1 7/8   11/5
  Second Quarter      1 7/8    3/4
  Third Quarter           2    3/4
  Fourth Quarter      1 1/8  22/32

  CALENDAR
  YEAR 1998
----------------                  
  First Quarter        1.03    .81
  Second Quarter    1 24/25  24/25
  Third Quarter           1
  Fourth Quarter     1 7/16    5/8
</TABLE>

(B)     HOLDERS:
        --------

     As of December 31, 1998, there were approximately 573 record holders of the
Company's  Common  Stock.

(C)      DIVIDENDS:
         ----------

     The  Company  has  never  declared or paid any cash dividends on its Common
Stock.  The  Company  currently  anticipates  that  all  future earnings will be
retained  by  the  Company  to  support  its  growth strategy.  Accordingly, the
Company  does  not  anticipate  paying cash dividends on the Common Stock in the
foreseeable  future.   In  addition,  dividends  on  Common Stock cannot be paid
until  all  dividends  in  arrears  on  the preferred stock have been paid.  The
payment  of dividends on Common Stock will be at the discretion of the Company's
Board  of  Directors  and will depend upon, among other things, future earnings,
operations,  capital  requirements,  the  general  financial  condition  of  the
Company,  contractual  restrictions  and  general  business  conditions.  The
Company's  term  loan  and  revolving  credit  facility prohibits the payment of
dividends  without  the  consent  of  the  lenders.

     For  information  concerning  dividend  rights  of holders of the Company's
Preferred  Stock,  see  "Part  I,  Item  8  -  Description  of  Securities."


ITEM  6  -     MANAGEMENT'S  DISCUSSION  AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS  OF  OPERATIONS

     The  following  discussion should be read in conjunction with the Company's
financial  statements  and  notes  thereto.

(A)     INTRODUCTION:

     The  Company,  through  seven  of  its  wholly  owned  actively  operating
subsidiaries,  provides,  owns  and operates inpatient and outpatient behavioral
health care services and facilities; provides management and billing services to
health  care  providers;  operates  a  health  and  fitness center; and provides
investigative  services  for  the  pharmaceutical  and  clinical  research
organizations.

     On  April  15,  1998,  the  Company  acquired  certain assets and scheduled
liabilities  of  Preferred  Medical  Services,  Inc.,  a  physician  billing and
practices management business.  The purchase price was $260,000, less the amount
of  outstanding  billed  accounts  receivable as of the closing date, payable in
cash  and  a demand note in the amount of $111,744.36, and 250,000 shares of the
Company's  common  stock.

     On  March 1, 1998, the Company sold certain assets, properties and goodwill
of  the  American  Institute for Behavioral Counseling, Inc. ("Greenbrook") to a
Delaware  limited  liability  corporation  that  will  manage the operations and
liquidate  certain  remaining  assets and liabilities.  The assets were sold for
their  net  book  value without a material impact of gains.  As a result of this
divestiture,  the  Company  should  eliminate annualized losses of approximately
$150,000.  The purchase price was $25,000 payable with the assumption of certain
liabilities  together  with  receivables collected by the new owner on behalf of
the  Company  through  July  31,  1998.

     On  December  1,  1998  the  company  sold  certain assets, properties, and
goodwill  of  the  Penn Interpersonal Communications, Inc. to a Delaware limited
liability  corporation  that  will  manage  the operations and liquidate certain
remaining  assets and liabilities. The assets were sold for their net book value
without a material impact of gains. As a result of this divestiture, the Company
should  eliminate  annualized  losses  of  approximately $100,000.  The purchase
price  was  $30,000  and  the  assumption  of  certain liabilities together with
receivables collected by the new owner on behalf of the Company through July 31,
1998.


<PAGE>
(B)  RESTATEMENT


     In  its  Registration  Statement on Form 10-SB, the Company reported a loss
from  operations  of  $(460,259)  for  the  year ended December 31, 1997, a loss
before  income  tax  benefit  of  $(2,586,076)  and  net income after income tax
benefit  of  $1,197,656.  Subsequent  to the filing of the Company's Form 10-SB,
the  Company  determined  that  the reported 1997 results were overstated due to
over-accrual  of  revenues.  The  Company  over-accrued  amounts  due  from  a
significant  third party payor, resulting from a miscalculation of the allowable
per  diem  charges  for  in-patient  services.  Primarily  as  a  result  of the
restatement of these revenues, the Company's loss from operations is anticipated
to  be  restated  from  ($460,259) to approximately $(2,840,000).  The Company's
operating  loss  in  1998  is  anticipated  to  be  approximately  $(2,730,000).

     Based  on  the  prior  calculation  of  the  allowable per diem charges for
inpatient services, at the time the 1997 financial statements were issued and at
the  time  the  10-SB was filed, Management's estimates permitted the Company to
record  a  deferred  tax  benefit  in 1997 in accordance with SFAS 109.  Had the
recalculated  per  diem charge been used in Management's estimates, the deferred
tax  benefit  would  not  have been recognized.  As a result, the Company's 1997
results  will  be  restated  to  eliminate  the  $3,783,732  income  tax benefit
previously  reported.  As a result of the elimination of this income tax benefit
and  the  reduction in revenues, the Company's previously reported net income of
$1,197,656  in  1997  will  be  restated  to  a  net  loss  of  $(4,960,000).

     1998  revenues  increased  over  100%  over restated 1997 revenues, but the
Company  anticipates  reporting  a  loss  from  operations  of  approximately
($2,730,000)  in  1998  and  a  net  loss  of  approximately  ($4,590,000).  The
operating  loss  includes  amortization  of  deferred  financing  charges  of
approximately  $2,400,000,  an  increase  of  approximately  $1,700,000 from the
previous  year.  This  amortization  is  primarily related to deferred financing
charges  from  the  Company's  various debt financing. The Company considers the
deferred  financing  charges  to  be non-recurring expenses.  The operating loss
also  includes  an  impaired  asset write-down of approximately $369,000, also a
non-recurring  expense.  A  summary  of  the previously reported and anticipated
restated  1997  results  and  anticipated  1998  results  is  as  follows:

<TABLE>
<CAPTION>
                                                    1997 RESTATED
                                 1997 PREVIOUSLY     (ESTIMATED)        1998
                                     STATED                         (ESTIMATED)
                                -----------------  ---------------  ------------
<S>                             <C>                <C>              <C>

Net Revenues                    $     12,854,184   $   10,465,000   $21,617,000 

Income (Loss) from Operations   $       (460,259)  $   (2,840,000)  $(2,730,000)

Net Income (Loss)               $      1,197,656   $   (4,966,000)  $(4,590,000)
</TABLE>


     A  summary  of  the  effects  of  the  restatement  follows:

<PAGE>
<TABLE>
<CAPTION>
                             CORECARE SYSTEMS, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                        DECEMBER 31, 1998, 1997 AND 1996


 .     Restatement  (continued):


                                   ASSETS


                                           December 31, 1997
                                      ----------------------------
                                      As Previously
                                         Reported     As Restated
                                      --------------  ------------

<S>                                   <C>             <C>
Current assets:
  Cash                                $      304,267  $    304,267
  Accounts receivable, net                 4,955,473     2,575,473
  Prepaid & other current assets             212,367       212,367
  Deferred income taxes                    1,555,000
                                      --------------              
    Total current assets                   7,027,107     3,092,107
                                      --------------  ------------

Contract rights, net of accumulated
 amortization of $1,023,619 in 1998
 and $531,011 in 1997                        548,663       548,663
                                      --------------  ------------

Real estate and other assets
 held for sale                             1,513,723     1,513,723
                                      --------------  ------------

Property, plant and equipment net         10,727,385    10,727,385
                                      --------------  ------------

Other assets:
  Goodwill, net of
accumulated amortization
  of $496,924 in 1998
and 257,598 in 1997                        1,801,155     1,801,155
  Deferred finance costs,
net of accumulated
  amortization of
1,759,635 in 1998 and
  $241,648 in 1997                           305,354       305,354
  Security deposits                          108,468       108,468
  Restricted cash                            197,394       197,394
  Deferred income taxes                    2,228,732
  Other                                      247,232       247,232
                                      --------------  ------------
                                           4,888,335     2,659,603
                                      --------------  ------------

                                      $   24,705,213  $ 18,541,481
                                      ==============  ============
</TABLE>


<PAGE>
<TABLE>
<CAPTION>
                             CORECARE SYSTEMS, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                        DECEMBER 31, 1998, 1997 AND 1996



16.     Restatement  (continued):

                   LIABILITIES  AND  SHAREHOLDERS'  EQUITY


                                                December 31, 1997
                                       ----------------------------------
                                          As Previously
                                            Reported         As Restated
                                       -------------------  -------------
<S>                                    <C>                  <C>
Current liabilities:
Line of credit                         $        1,582,240   $  1,582,240 
Current portion of:
    Long-term debt                             10,203,425     10,203,425 
Lease termination fee payable                      38,565         38,565 
Obligations under capital lease                    71,763         71,763 
  Accounts payable                              2,275,442      2,275,442 
  Advances, officers-shareholders               1,013,428      1,013,428 
  Accrued expenses                              2,091,675      2,091,675 
  Payroll and payroll taxes payable             1,688,105      1,688,105 
                                       -------------------  -------------
    Total current liabilities                  18,964,643     18,964,643 
                                       -------------------  -------------

Long term liabilities:
  Notes payable                                 2,192,798      2,192,798 
  Lease termination fee payable                    93,467         93,467 
                                       -------------------  -------------
                                                2,286,265      2,286,265 
                                       -------------------  -------------
Commitments and contingencies

Company obligated mandatorily
redeemable Series E convertible
preferred stock (redemption value
943,400 in 1998 and  1997)                     1,293,271      1,293,271 
                                       -------------------  -------------

Shareholders' equity (deficiency):
  Preferred stock                                      26             26 
  Common stock                                     12,694         12,694 
  Additional paid in capital                    9,357,714      9,357,714 
  Accumulated deficit                          (7,209,400)   (13,373,132)
                                       -------------------  -------------
                                                2,161,034     (4,002,698)
                                       -------------------  -------------

                                       $       24,705,213   $ 18,541,481 
                                       ===================  =============
</TABLE>


<PAGE>
<TABLE>
<CAPTION>
                             CORECARE SYSTEMS, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                        DECEMBER 31, 1998, 1997 AND 1996


                                             December  31,  1997
                                      ------------------------------
                                       As Previously
                                         Reported       As Restated
                                      ---------------  -------------
<S>                                   <C>              <C>
Revenue:
  Patient services, net               $   10,050,834   $  7,670,834 
  Management services                      1,760,075      1,760,075 
  Health and fitness center                  521,414        521,414 
  Rental income                              512,861        512,861 
                                      ---------------  -------------
                                          12,845,184     10,465,184 
                                      ---------------  -------------
Direct costs:
  Patient services                         4,753,042      4,753,042 
  Management services                        254,269        254,269 
  Health and fitness center                  304,055        304,055 
                                      ---------------  -------------
                                           5,311,366      5,311,366 
                                      ---------------  -------------

Gross profit                               7,533,818      5,153,818 
                                      ---------------  -------------

Operating expenses:
  Salaries and employee benefits           2,716,304      2,716,304 
  Selling and administrative               3,730,504      3,730,504 
  Amortization                               677,067        677,067 
  Depreciation                               279,546        279,546 
  Provision for bad debts                    590,656        590,656 
  Impaired assets write down                -------- 
    Total operating expenses               7,994,077      7,994,077 
                                      ---------------  -------------

Income (loss) from operations               (460,259)    (2,840,259)
                                      ---------------  -------------

Non-operating expenses:
  Interest expense                         1,844,284      1,844,284 
  Factor fees                                281,533        281,533 
                                      ---------------  -------------
                                           2,125,817      2,125,817 
                                      ---------------  -------------

Net income (loss) before
     income tax benefit                   (2,586,076)    (4,966,076)

Income tax (benefit) expense               3,783,732 
                                      ---------------               

Net income (loss)                     $    1,197,656   $ (4,966,076)
                                      ===============  =============

Basic net income (loss) per share     $          .11   $       (.44)
                                      ===============  =============

Diluted net income (loss) per share   $          .08   $       (.44)
                                      ===============  =============

Weighted average number of
 common shares outstanding                11,326,617     11,326,617 
                                      ===============  =============
</TABLE>


<PAGE>

 (C)     RESULTS  OF  OPERATIONS:

          (C)(1)     1998  VERSUS  1997:

Revenues:
---------
Operating  revenues  in 1998 increased by $11,151,871, or 106%, from $10,465,184
in  1997 to $21,617,054 in 1998.  The increase was primarily due to improvements
in  Net Patient Service Revenues, which increased by $10,711,807 from $7,670,834
in  1997 to $18,125,610, as a  result of a 134% increase in patient days in 1998
at  the  Kirkbride  Center  and  at  Westmeade  at  Warwick.

-     Acute  inpatient  days at the Kirkbride Center increased by 134% to 29,320
in  1998  from  12,489  in  1997  due  primarily  to:

1.     Improvement  in  market  awareness  of  Kirkbride  programs and a greater
number  of  referral  sources.

2.     Temple  University  affiliation

3.     Increase  in  admissions  related  to  the new programs added to Corecare
Systems,  Inc.'s  continuum  of  services,  especially  the new drug and alcohol
rehabilitation  programs.

-     Kirkbride  Center opened a 43 bed licensed drug and alcohol rehabilitation
center  in  July  1998  which  was  then  expanded to 63 beds in February, 1999.

-     Kirkbride  Center  entered  into  contracts  with  the  Federal  Probation
Department  in  1998  to  provide  psychiatric  and  substance  abuse  services.

<TABLE>
<CAPTION>
                KIRKBRIDE CENTER - INPATIENT ACTIVITY STATISTICS


1997
----------------------------                          
QUARTER                        1st    2nd    3rd    4th
----------------------------  -----  -----  -----  ------
<S>                           <C>    <C>    <C>    <C>
----------------------------  -----  -----  -----  ------
Admissions                             289    504     622
----------------------------  -----  -----  -----  ------
Average Length of Adult Stay          8.56   8.93    8.86
----------------------------  -----  -----  -----  ------
Patient Days                         2,295  4,467   5,524
----------------------------  -----  -----  -----  ------
Average Daily Census                  25.2   48.6    60.0
----------------------------         -----  -----  ------

1998
----------------------------  -----  -----  -----  ------
QUARTER                         1st    2nd    3rd     4th
----------------------------  -----  -----  -----  ------
Admissions                      726    735    787     831
----------------------------  -----  -----  -----  ------
Average Length of Adult Stay   9.29  10.34  11.49   12.65
----------------------------  -----  -----  -----  ------
Patient Days                  6,898  7,599  9,044  10,512
----------------------------  -----  -----  -----  ------
Average Daily Census           76.6   83.5   98.3   114.3
----------------------------  -----  -----  -----  ------
</TABLE>


Terms  Defined:
---------------
     Admissions
     -  A  patient  which a doctor has diagnosed as requiring inpatient hospital
treatment.

     Patient  Days
          -Each  patient  that  is  in  an inpatient hospital bed at midnight is
counted  as  one  patient  day.

Terms  Defined  Continued:
--------------------------

     Average  Length  of  Stay
-Total  inpatient  days,  including acute care plus drug and alcohol, divided by
the  total  number  of  admissions  during  the  period

     Average  Daily  Census
          -The  average  number  of  patients  in  the  hospital.

     Management  Services Revenues increased by $202,728 from $1,760,075 in 1997
to  $1,962,803  in  1998  primarily  as  a  result  of the assets acquisition of
Preferred  Medical  Services  in  July  1998,  which was partially offset by the
expiration  of  the  management  contract with St. Luke's/Quakertown Hospital in
June  1998.

     Revenue  from  the  Health  and  Fitness  Center  declined  by $70,789 from
$521,414  in  1997  to $450,625 in 1998 due to a decline in membership resulting
from  increased  competition and operating difficulties with the physical plant.

     Rental  Income increased by $565,155 from $512,861 in 1997 to $1,078,016 in
1998  due  to increased space leased to third parties at the Kirkbride Center as
well  as the full year of rental income in 1998 as compared to a partial year in
1997  for  leases  signed  in  1997.


Direct  Costs:
--------------
     Direct  costs  increased 84.6% from 5,311,366 in 1997 to $9,805,572 in 1998
primarily  due  to  increases  in  Patient Services of $3,931,318 and Management
Services  of  $588,169,  which were partially offset by reductions of $25,281 at
the  Health  and  Fitness Center. Direct costs declined as a percentage of total
revenue  from  50.8%  to  45.4%.

     Cost of Patient Services increased by $3,931,318 from $4,753,042 in 1997 to
$8,684,360  in  1998  due  to  increased census at Kirkbride and at Westmeade at
Warwick.  Patient  Services  Expenses  declined as a percentage of total revenue
from  45.4%  in  1997  to  40.2%  in 1998 due to improved staffing controls. The
Company established a CoreFlex staffing policy to maintain staffing at efficient
levels per occupied bed as census fluctuates. A centralized staffing coordinator
department  manages  staffing  on  an  integrated  basis throughout the company.

     Cost of Management Services increased by $588,169 from $254,269 to $842,438
in  1998  primarily  as  a result of costs associated with the Preferred Medical
Services  acquisition.

     Cost of the Health and Fitness Center decreased by $25,281 from $304,055 to
$278,774  as  the  company  adjusted  staffing  commensurate with the decline in
membership.

Gross  Profits:
---------------
     Gross  profits increased by $6,657,664 or 129.2% from $5,153,818 in 1997 to
$11,811,482  in  1998. The Gross Margin increased from 49.2% in 1997 to 54.6% in
1998  due  to  efficiency  improvements  in  the  services  provided.

Operating  Expenses:
--------------------
     Operating  expenses  increased by $6,552,198 from $7,994,077 to $14,546,275
primarily  due to increases of $2,176,407 in Selling and Administrative Expense,
$1,745,987 in Amortization Expense, $1,355,484 in Bad Debt Expense, and Salaries
Expense  of  $702,126.

     Salaries  and  Employee  Benefits  expense  increases  were attributable to
higher  staffing  levels  necessary  to  service  the  increase in average daily
census.  Salaries  and  Employee  Benefits  decreased  as  a percentage of total
revenue  from  26.0%  in  1997  to  15.8%  in 1998 due to operating efficiencies
achieved  at  the  higher revenue level in 1998. 1997 was a start up year at the
Kirkbride  Center.  Comparisons  between 1998 and 1997 is difficult as a portion
of  these  costs  were  included  in  a  third party management contract for the
Kirkbride  Center which are shown in Selling and Administrative Expense in 1997.

     Selling  and Administrative Expense increased by $2,167,407 from $3,730,504
to  $5,906,911  due  to  costs associated with internally managing the Kirkbride
Center  resulting  from  the  increase  in  average  daily  census.  Selling and
Administrative  Expense  declined as a percentage of total revenue from 35.6% to
27.3%  due  to  overhead  efficiencies  achieved associated with the increase in
revenues  in  1998.
-     Due  to  the  1997  Management  Contract  being  allocated to Salaries and
Administrative  Expenses;  a  relevant comparison is the combined costs of these
categories  which  declined from 61.6% to 43.1% in 1998, reflecting improvements
in  operating  efficiencies.

     Amortization  Expense  increased  primarily  due  to Deferred Finance Costs
associated  with  the WRH mortgage, which were fully amortized over the one-year
term  of  the  financing.

     Depreciation Expenses increases were attributable to the investments in the
Kirkbride  Center  necessary  to  generate  Rental  Income.

     Provision  for  Bad  Debt  Expense increased due to difficulties associated
with  the  start-up  of  the  Kirkbride  Center  operations,  lack of historical
experience  associated  with  municipal  funded  clients.

     The  Impaired  Asset  Write Down Expense of $369,380 is attributable to the
Lakewood property. The property is under a letter of intent for sale and its net
book  value  was  reduced  to  reflect  its  value  under the contemplated sale.

     Interest Expense and Factoring Fees declined as the Company refinanced high
cost  debt obligations with less costly debt financing. The Company restructured
its  factoring  arrangement on its receivables in 1998 with Healthcare Financial
Partners  to  a  revolving  line  of  credit.

     The  Company  produced a net loss of ($4,333,590) in 1998 compared to a net
loss  of  ($4,966,076)  in  1997.


<PAGE>

The  Company  generated  Earnings  Before  Interest  Taxes  Depreciation  and
Amortization of $540,001 in 1998 compared to a loss of ($1,883,646) in 1997. The
profit improvement was due to higher average daily census and the implementation
of  operating  controls,  budgets  and  management  information  systems,  which
occurred  primarily  in  the  latter  part  of  1998.

<TABLE>
<CAPTION>

                              CALCULATION OF EBITDA
                             Corecare Systems, Inc.
                        For the Years ended December 31.


<S>                       <C>         <C>          <C>   <C>           <C>
                                                   1998                1997
                                                   ----                ----
Revenue                               $21,617,054        $10,465,184 

Direct Costs                          $ 9,805,572        $ 5,311,386 

Gross Profit                          $11,811,482        $ 5,153,818 

Operating Expenses
Salaries & Employee Ben.  $3,418,430  $ 2,716,304
Selling & Admin. Exp.     $5,906,911  $ 3,730,504
Provision for Bad Debts   $1,946,140  $   590,656
------------------------  ----------  -----------                          
EBITDA                                $   540,001        $(1,883,646)
</TABLE>



     (C)(2)     1997  VERSUS  1996:

Revenues:
---------
     Operating revenues increase by $3,440,880 or 49% from $7,024,304 in 1996 to
$10,465,184 in 1997 primarily as a result of acquisition of the Kirkbride Center
made in early 1997.  Revenues of entities acquired in 1997 (including Kirkbride)
from their respective acquisition dates were $8,512,521, or approximately 66% of
consolidated  1997  revenues,  as  follows:

-     Kirkbride  Center  -  $7,518,102,  or  58%  of  revenues;

-     Quantum/Managed  Mental  Health  Inc.   -  (no  revenues);

-     CoreCare  Management, Inc. - $994,419 for the first six months of 1998, or
8%  of  revenues  (this  unit  has  also  been  used "in house" to service other
operations  of  the  Company);

     The  balance  of  1997  revenue  was  generated  by various subsidiaries of
$4,332,663  or  approximately 34% of revenue of which Westmeade represented 20%.
The  relative  significance,  in  terms  of  their  contribution to consolidated
revenues,  of  entities  acquired  in  1997 was substantially reduced because of
Kirkbride's  significance.


Direct  Costs:
--------------
     Direct  costs  in 1997 increased by $2,186,350 from $3,25,016 to $5,311,366
primarily  as  a  result  of  the  entities  acquired  during  the  year.

Operating  Expenses:
--------------------
     Total Operating Expenses increased by $1,289,535 from $6,704,542 in 1996 to
$7,994,077  in 1997 primarily due to increases in Salaries and Employee Benefits
Expense  of $704,354, Selling & Administrative Expense of $204,025, and Bad Debt
Expense  of  $216,055.

     Selling and Administrative Expenses in 1997 increased approximately 5% over
1996  to  $3,730,004  or 29% of revenues versus $3,526,479 or 50% of revenues in
1996.  This  is  attributable  to  the increase in revenues without a comparable
increase  in  fixed  costs  reflecting greater operational efficiency.  Overhead
efficiency  improved  due  to  revenue  growth  as  well  as  consolidation  of
administrative  costs.  In  August 1997, the Company closed its former corporate
office  located  in  Erdenheim,  PA  and  merged  such  functions  with CoreCare
Management,  Inc.  thereby  decreasing  annual  overhead  expenses.

     Operating  salaries  and  employee  benefits represented 21% and 29% of net
revenues  for 1997 and 1996, respectively, due again to the increase in revenues
without  a  comparable  increase  in  fixed  costs.

     Depreciation  expense  increased  by $60,610  in 1997, primarily reflecting
the  increase  in  depreciable  assets resulting from the Kirkbride acquisition.

     Amortization  expense  increased  from  $572,576  to  $677,067  due  to the
increase  in  debt  related  costs  during  1997.

     Interest expense increased by $1,375,426 to $2,125,817 in 1997 primarily as
a  result  of  the  acquisition  of  the  Kirkbride  Center.

     The  weighted  average  number  of  common  shares  outstanding in 1997 was
11,326,617  shares, which represented a 29% increase over 1996 levels.  Net gain
per  common  share  was  $.11  in  1997  from  $(.41)  in  1996.


ANALYSIS  OF  1997  OPERATIONS:
-------------------------------
     In  1996  the  Company  had  only  four  operating  units,  consisting  of
residential  psychiatric  treatment facilities, outpatient care and a health and
fitness  center.  In  1997,  the  Company's  operations were carried on in seven
service  lines:

1)     inpatient  hospital  at  Kirkbride
2)     real  estate  activities  at  Kirkbride
3)     residential  psychiatric  treatment  facilities,
4)     outpatients  care
5)     hospital-based  management  services
6)     health  and  fitness  center
7)     billing  and  practice  management

<PAGE>
     These  service  lines  produced  a  loss from operations, on a consolidated
basis,  primarily  attributable  to:
1)     Startup  of  inpatient hospital facilities with census levels below break
even;
2)     Operating  expenses  of  acquired  entities,  due  in  part to inadequate
operating  controls,  budgets  and  management  information  systems.
3)     Overhead  payroll  relative  to  the  Company's  revenue  base.
4)     Rate  structures.

LIQUIDITY  AND  CAPITAL  RESOURCES

Operating  Activities:
----------------------
     Net  Cash  Provided  {Used} by Operations was ($1,849,145), ($590,800), and
($3,150,013)  in  1998,  1997,  and  1996,  respectively.  The  decrease in cash
provided  by operations in 1998 compared to 1997 was primarily the result of (I)
increase  in  accounts  receivables  of  $3,269,746  associated with the rise in
revenue,  and  (ii)  funding  operating  liabilities  of  $1,251,321  in accrued
expenses.

Investing  Activities:
----------------------
     Investing  activities  used  $5,007,792,  $8,582,284, and $435,332 in 1998,
1997,  and  1996,  respectively.

Financing  Activities:
----------------------
     The  company borrowed $15,063,982, $8,669,095, and $4,678,390 during fiscal
years  1998, 1997, and 1996, respectively. The borrowings in 1997 were primarily
related  to the acquisition of the Kirkbride facility and in 1998 the borrowings
were  primarily  used  to  refinance  the  debt  associated  with  the Kirkbride
acquisition and start-up losses.  The company repaid $8,571,706, $618,080, and $
$2,551,248  in  debt  during  fiscal  years  1998, 1997, and 1996, respectively.

     On  February  27,  1997,  the  Company  through its wholly owned subsidiary
CoreCare  Behavioral  Health Management, Inc. acquired the real estate, licenses
and other assets of the Institute of Pennsylvania Hospital for $4.5 million, and
named  it  Kirkbride  Center.  The Company paid $4,500,000 for the property. The
Company  financed  the  acquisition by borrowing the sum of  $6,440,000 from GLN
Capital  Co.,  LLC.,  an  independent  real  estate  company,  in exchange for a
Promissory  Note  secured  by  a  mortgage  on  the  property.

     In  February  1998,  the Company refinanced the property with WRH Mortgage,
Inc. for $13,000,000, using the proceeds to satisfy the mortgage indebtedness to
GLN,  to pay for tenant improvements to the property required in connection with
lease  commitments,  and to satisfy certain short-term indebtedness. The term of
the  loan has been extended to June 30, 1999 from March 1, 1999.  The loan bears
interest  at  the  London  Interbank  Offered Rate (LIBOR) plus six and one half
(6.5%)  per  cent.

On  May  21,  1998,  certain  subsidiaries  of  the  Company, including CoreCare
Behavioral Health Management, Inc., Penn Interpersonal Communications, Inc., and
Managed  CareWare, Inc. ("Borrowers") entered into a Loan and Security Agreement
("Loan Agreement") with HCFP Funding, Inc. pursuant to which a revolving line of
credit  up  to  a  maximum  of  $5,000,000  was established. The indebtedness is
evidenced by a promissory note and is secured by a lien on all of the Borrowers'
account  receivable.

     On  December  30,  1998,  Philadelphia  Ventures and its associated venture
funds  as holders of Class E Convertible Preferred Stock delivered notice of its
election  to  convert 9,933.72 preferred shares into 1,192,046 of common shares.
The transaction did not generate any capital to the company but did increase the
number  of  common  shares  outstanding.

     In  June  1998, the Company was successful in consummating a revolving line
of  credit  of  a  maximum  of $5,000,000 with HCFP Funding, Inc. secured by the
accounts  receivable  of  four of the Company's subsidiaries.  This facility has
improved  the  Company's liquidity by providing for working capital for services
rendered  less than 150 days.  Given the growth of the Company additional equity
or  debt  financing  may  be  required  in  order  to realize its business plan.

     In  January 1998, the Company entered into a master equipment lease program
with  Copelco  Capital,  Inc.  for approximately $396,000, the proceeds of which
were used to finance certain equipment such as computers, telephones, accounting
software and office equipment.  The term of the financing is for five years.  At
December  31,  1998,  approximately  $85,000  was  available from this facility.


RECENT  SALES  OF  UNREGISTERED  SECURITIES

     The  following  sales  of securities of the Company took place as indicated
below.  Unless otherwise described, all such sales were a result of transactions
that  were exempt from registration under the Securities Act pursuant to Section
4(2)  of the Securities Act, and the shares of the Company's Common Stock issued
(or  issuable  in  the  case  of  warrants  or options granted) were "restricted
securities"  as  that  term  is  defined  in  Rule 144 and may be resold only in
compliance  with  registration  provisions of the Securities Act or an exemption
thereunder.

SHARES  ISSUED  FOR  SERVICES  -  1998
--------------------------------------
     As  of July 1, 1998, the Company issued a total of 711,444 shares of Common
Stock  to  four consultants and advisors of the Company for consulting and other
services  rendered.

ACQUISITION  OF  ASSETS  OF  PREFERRED  MEDICAL  SERVICES,  INC.
----------------------------------------------------------------
     On  April  15,  1998,  the  Company  acquired  certain assets and scheduled
liabilities  of  Preferred  Medical  Services, Inc. ("Preferred,") a billing and
practice  management  business.  Pursuant to the terms of the Assets Acquisition
Agreement, the Company issued on May 4, 1998 a total of 250,000 shares of Common
Stock  to  stockholders of Preferred. The transaction was exempt from securities
registration  as  the  principals  were  experienced  and  knowledgeable  in the
industry.  In  issuing  the shares to the two shareholders of Preferred Medical,
the  Company relied on the exemption from registration under Section 4(2) of the
Securities  Act.  The  Company  relied  on  4(2)  because  there  were  only two
offerees,  both  of  whom were knowledgeable in the Company's industry, and, the
Company  believes,  in  financial  matters  generally;  the  transaction  was  a
negotiated  sale  of  a  business  in  which  the  Company  believed  the  two
shareholders  were  advised  by  counsel;  and  the  shares  issued  were
"restricted  securities"  and had transfer restrictions placed on them which are
customary
for  restricted  securities.



1998  -  SHARES  ISSUED  TO  EMPLOYEES  UNDER  COMPANY  1996  STOCK  PLAN
-------------------------------------------------------------------------
     Out  of  the  shares  reserved  for issuance pursuant to the Company's 1996
Stock  Plan,  as of July 1, 1998, the Company issued a total of 62,300 shares of
Common Stock to a total of 199 employees of the Company. These transactions were
exempt from registration under the Securities Act pursuant to Rule 701 under the
Securities  Act.  The shares of Common Stock issued are restricted securities as
that  term  is defined in Rule 144 and may be resold only in compliance with the
registration  provisions  of  the  Securities  Act  or  an exemption thereunder.

FEBRUARY  1998  INVESTMENT
--------------------------
     In  consideration  of  the payment of $.50 per share, on February 26, 1998,
the  Company issued a total of 250,000 shares of Company Stock to two accredited
investors.  In  connection  with the sale, the company further agreed that for a
period of one-year beginning May 18, 1998, the investors shall have the right to
require  the  Company  to  repurchase  the  shares  for  $1.00  per  share.  The
transactions  with  the  investors  were  exempt  from  registration  under  the
Securities  Act  pursuant  to Section 4(2) of the Securities Act.  The shares of
Common  Stock  issued to the investors are restricted securities as that term is
defined  in  Rule 144 and may be resold only in compliance with the registration
provisions  of  the  Securities  Act  or  an  exemption  thereunder.

NOTES  AND  WC/WD  WARRANTS
---------------------------
     Between  November  1995  and  February  1996,  in  separately  negotiated
transactions,  the  Company  borrowed a total of $359,750 from eight individual,
accredited  investors,  for a term of one year from the date of investment.  The
debts  were  evidenced  by Promissory Notes bearing interest initially at 7% per
annum  and  later  by  amendment  at  10%  per annum. In addition, the investors
received  warrants  to  purchase an aggregate of 334,771 shares of the Company's
Common  Stock at $1.125 per share.  None of the investors were previously or are
currently  affiliated  with  the  Company.  The issuance of these securities was
exempt  from  registration  under Rule 506 of Regulation D. Subsequently, during
1997  and  1998,  the  Company, in consideration of the investors' agreements to
waive  alleged  defaults under the notes and to forbear payment, issued warrants
to  purchase  an  aggregate  of  246,935 shares of the Company's Common Stock at
$1.125  per  share,  and  an aggregate of 418,366 shares of the Company's Common
Stock. The transactions with the lenders were exempt from registration under the
Securities  Act  pursuant  to Section 4(2) of the Securities Act.  The shares of
Common  Stock  issued  to  the lender, and the shares underlying the warrants if
exercised, are restricted securities as that term is defined in Rule 144 and may
be  resold only in compliance with the registration provisions of the Securities
Act  or  an  exemption  thereunder.

ISSUANCE  OF  COMMON  STOCK  TO  CONVERT  DEBT
----------------------------------------------
     Pursuant  to  an  agreement dated December 31, 1995, the Company on May 14,
1997  issued 50,000 shares of restricted Common Stock to an investor in exchange
for  all  outstanding  obligations  owed  to  him  by  the  Company's subsidiary
Westmeade  Healthcare,  Inc.  On  January  27,  1998, the Company issued 100,000
shares  of  restricted  Common  Stock  to  the  investor  as payment in full for
CoreCare  Behavioral  Health Care, P.C., a Pennsylvania professional corporation
owned  by  the  investor.


<PAGE>

OUTLOOK-LIQUIDITY  AND  CAPITAL  RESOURCES

     Interest  payments  on the notes, maturity of certain debt obligations, and
liabilities  associated  with  accrued  payroll  taxes  and  Medicare  represent
significant liquidity requirements for the company in 1999. The company believes
that  the  revenue increases and operating results realized from improvements in
average  daily  census  and operational efficiencies will permit it to refinance
many  of  its  debt  and  liability  obligations with a medium term or long term
structured debt financing.  The appraised values of the Company's two facilities
far exceed the current book value and debt level on the Company's balance sheet.
The  Company  is  highly  confident  that  its  short-term  liabilities  can  be
restructured  into  long-term  mortgage  debt.

     Medicare is a cost based reimbursement program. The Company had substantial
growth  in non-Medicare and Drug and Alcohol Rehabilitation, which decreased the
percentage  of  Medicare  patients  in  1998  versus  1997.  This  resulted  in
anticipated payments due to Medicare of $1,000,000.  The Company has established
a  reserve account with Healthcare Financial Partners so that such funds will be
available  to  the  Company  when  due.

YEAR  2000

The  company  believes  its  internal systems are mostly in compliance with Year
2000  protocol.  At this time there are a few non-critical systems which are not
in  compliance  but  have been identified and the Company believes these systems
will  be  corrected  before  year-end.

     The  Company  is dependent upon vendors and third party payors, clients and
is  surveying  them  to  ascertain their preparedness. The Company is developing
contingency  plans  to  protects its ability to financially operate in the event
critical  third  parties  have  systems problems resulting from failure to be in
Year  2000  compliance.

     The  Company's  total  cost  is  estimated  to  be  $200,000  for Year 2000
compliance.


<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,  in  the  City  of
Philadelphia,  State  of  Pennsylvania,  on  April  8,  1999.

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has  been  signed  below by the following persons on behalf of Registrant and in
the  capacities  indicated  on  April  8,  1999

SIGNATURE                              TITLE

/s/  Thomas  T.  Fleming               Chairman  of  the  Board
------------------------
Thomas  T.  Fleming


/s/  Rose  S.  DiOttavio               President  and  Director
------------------------
Rose  S.  DiOttavio


/s/  Thomas  X.  Flaherty              Director
-------------------------
Thomas  X.  Flaherty


/s/  George  P.  Stasen                Director
-----------------------
George  P.  Stasen


/s/  Charles  A.  Burton               Director
------------------------
Charles  A.  Burton


/s/  Keith  Day                        Vice  President  &
---------------
Keith  Day                             Corporate  Secretary



ITEM  7  -     FINANCIAL  STATEMENTS

     The  financial  statements can be found at the end of this report beginning
on  page  55.



ITEM  8  -     CHANGES  IN  AND  DISAGREEMENTS  WITH  ACCOUNTANTS
          ON  ACCOUNTING  AND  FINANCIAL  DISCLOSURE

     None.

                                    PART III
                                    --------

ITEM  9  -     DIRECTORS,  EXECUTIVE  OFFICERS,  PROMOTERS  AND  CONTROL
     PERSONS

     As of March 1999, the directors, executive officers, and senior managers of
the  Company  are  as  follows:

     DIRECTORS  &  OFFICERS:

<TABLE>
<CAPTION>

                              CALCULATION OF EBITDA
                             Corecare Systems, Inc.
                        For the Years ended December 31.


<S>                       <C>         <C>          <C>   <C>           <C>
                                                   1998                1997
                                                   ----                ----
Revenue                               $21,617,054        $10,465,184 

Direct Costs                          $ 9,805,572        $ 5,311,386 

Gross Profit                          $11,811,482        $ 5,153,818 

Operating Expenses
Salaries & Employee Ben.  $3,418,430  $ 2,716,304
Selling & Admin. Exp.     $5,906,911  $ 3,730,504
Provision for Bad Debts   $1,946,140  $   590,656
------------------------  ----------  -----------                          
EBITDA                                $   540,001        $(1,883,646)
</TABLE>



     (C)(2)     1997  VERSUS  1996:

Revenues:
---------
     Operating revenues increase by $3,440,880 or 49% from $7,024,304 in 1996 to
$10,465,184 in 1997 primarily as a result of acquisition of the Kirkbride Center
made in early 1997.  Revenues of entities acquired in 1997 (including Kirkbride)
from their respective acquisition dates were $8,512,521, or approximately 66% of
consolidated  1997  revenues,  as  follows:

-     Kirkbride  Center  -  $7,518,102,  or  58%  of  revenues;

-     Quantum/Managed  Mental  Health  Inc.   -  (no  revenues);

-     CoreCare  Management, Inc. - $994,419 for the first six months of 1998, or
8%  of  revenues  (this  unit  has  also  been  used "in house" to service other
operations  of  the  Company);

     The  balance  of  1997  revenue  was  generated  by various subsidiaries of
$4,332,663  or  approximately 34% of revenue of which Westmeade represented 20%.
The  relative  significance,  in  terms  of  their  contribution to consolidated
revenues,  of  entities  acquired  in  1997 was substantially reduced because of
Kirkbride's  significance.


Direct  Costs:
--------------
     Direct  costs  in 1997 increased by $2,186,350 from $3,25,016 to $5,311,366
primarily  as  a  result  of  the  entities  acquired  during  the  year.

Operating  Expenses:
--------------------
     Total Operating Expenses increased by $1,289,535 from $6,704,542 in 1996 to
$7,994,077  in 1997 primarily due to increases in Salaries and Employee Benefits
Expense  of $704,354, Selling & Administrative Expense of $204,025, and Bad Debt
Expense  of  $216,055.

     Selling and Administrative Expenses in 1997 increased approximately 5% over
1996  to  $3,730,004  or 29% of revenues versus $3,526,479 or 50% of revenues in
1996.  This  is  attributable  to  the increase in revenues without a comparable
increase  in  fixed  costs  reflecting greater operational efficiency.  Overhead
efficiency  improved  due  to  revenue  growth  as  well  as  consolidation  of
administrative  costs.  In  August 1997, the Company closed its former corporate
office  located  in  Erdenheim,  PA  and  merged  such  functions  with CoreCare
Management,  Inc.  thereby  decreasing  annual  overhead  expenses.

     Operating  salaries  and  employee  benefits represented 21% and 29% of net
revenues  for 1997 and 1996, respectively, due again to the increase in revenues
without  a  comparable  increase  in  fixed  costs.

     Depreciation  expense  increased  by $60,610  in 1997, primarily reflecting
the  increase  in  depreciable  assets resulting from the Kirkbride acquisition.

     Amortization  expense  increased  from  $572,576  to  $677,067  due  to the
increase  in  debt  related  costs  during  1997.

     Interest expense increased by $1,375,426 to $2,125,817 in 1997 primarily as
a  result  of  the  acquisition  of  the  Kirkbride  Center.

     The  weighted  average  number  of  common  shares  outstanding in 1997 was
11,326,617  shares, which represented a 29% increase over 1996 levels.  Net gain
per  common  share  was  $.11  in  1997  from  $(.41)  in  1996.


ANALYSIS  OF  1997  OPERATIONS:
-------------------------------
     In  1996  the  Company  had  only  four  operating  units,  consisting  of
residential  psychiatric  treatment facilities, outpatient care and a health and
fitness  center.  In  1997,  the  Company's  operations were carried on in seven
service  lines:

1)     inpatient  hospital  at  Kirkbride
2)     real  estate  activities  at  Kirkbride
3)     residential  psychiatric  treatment  facilities,
4)     outpatients  care
5)     hospital-based  management  services
6)     health  and  fitness  center
7)     billing  and  practice  management

<PAGE>
     These  service  lines  produced  a  loss from operations, on a consolidated
basis,  primarily  attributable  to:
1)     Startup  of  inpatient hospital facilities with census levels below break
even;
2)     Operating  expenses  of  acquired  entities,  due  in  part to inadequate
operating  controls,  budgets  and  management  information  systems.
3)     Overhead  payroll  relative  to  the  Company's  revenue  base.
4)     Rate  structures.

LIQUIDITY  AND  CAPITAL  RESOURCES

Operating  Activities:
----------------------
     Net  Cash  Provided  {Used} by Operations was ($1,849,145), ($590,800), and
($3,150,013)  in  1998,  1997,  and  1996,  respectively.  The  decrease in cash
provided  by operations in 1998 compared to 1997 was primarily the result of (I)
increase  in  accounts  receivables  of  $3,269,746  associated with the rise in
revenue,  and  (ii)  funding  operating  liabilities  of  $1,251,321  in accrued
expenses.

Investing  Activities:
----------------------
     Investing  activities  used  $5,007,792,  $8,582,284, and $435,332 in 1998,
1997,  and  1996,  respectively.

Financing  Activities:
----------------------
     The  company borrowed $15,063,982, $8,669,095, and $4,678,390 during fiscal
years  1998, 1997, and 1996, respectively. The borrowings in 1997 were primarily
related  to the acquisition of the Kirkbride facility and in 1998 the borrowings
were  primarily  used  to  refinance  the  debt  associated  with  the Kirkbride
acquisition and start-up losses.  The company repaid $8,571,706, $618,080, and $
$2,551,248  in  debt  during  fiscal  years  1998, 1997, and 1996, respectively.

     On  February  27,  1997,  the  Company  through its wholly owned subsidiary
CoreCare  Behavioral  Health Management, Inc. acquired the real estate, licenses
and other assets of the Institute of Pennsylvania Hospital for $4.5 million, and
named  it  Kirkbride  Center.  The Company paid $4,500,000 for the property. The
Company  financed  the  acquisition by borrowing the sum of  $6,440,000 from GLN
Capital  Co.,  LLC.,  an  independent  real  estate  company,  in exchange for a
Promissory  Note  secured  by  a  mortgage  on  the  property.

     In  February  1998,  the Company refinanced the property with WRH Mortgage,
Inc. for $13,000,000, using the proceeds to satisfy the mortgage indebtedness to
GLN,  to pay for tenant improvements to the property required in connection with
lease  commitments,  and to satisfy certain short-term indebtedness. The term of
the  loan has been extended to June 30, 1999 from March 1, 1999.  The loan bears
interest  at  the  London  Interbank  Offered Rate (LIBOR) plus six and one half
(6.5%)  per  cent.

On  May  21,  1998,  certain  subsidiaries  of  the  Company, including CoreCare
Behavioral Health Management, Inc., Penn Interpersonal Communications, Inc., and
Managed  CareWare, Inc. ("Borrowers") entered into a Loan and Security Agreement
("Loan Agreement") with HCFP Funding, Inc. pursuant to which a revolving line of
credit  up  to  a  maximum  of  $5,000,000  was established. The indebtedness is
evidenced by a promissory note and is secured by a lien on all of the Borrowers'
account  receivable.

     On  December  30,  1998,  Philadelphia  Ventures and its associated venture
funds  as holders of Class E Convertible Preferred Stock delivered notice of its
election  to  convert 9,933.72 preferred shares into 1,192,046 of common shares.
The transaction did not generate any capital to the company but did increase the
number  of  common  shares  outstanding.

     In  June  1998, the Company was successful in consummating a revolving line
of  credit  of  a  maximum  of $5,000,000 with HCFP Funding, Inc. secured by the
accounts  receivable  of  four of the Company's subsidiaries.  This facility has
improved  the  Company's liquidity by providing for working capital for services
rendered  less than 150 days.  Given the growth of the Company additional equity
or  debt  financing  may  be  required  in  order  to realize its business plan.

     In  January 1998, the Company entered into a master equipment lease program
with  Copelco  Capital,  Inc.  for approximately $396,000, the proceeds of which
were used to finance certain equipment such as computers, telephones, accounting
software and office equipment.  The term of the financing is for five years.  At
December  31,  1998,  approximately  $85,000  was  available from this facility.


RECENT  SALES  OF  UNREGISTERED  SECURITIES

     The  following  sales  of securities of the Company took place as indicated
below.  Unless otherwise described, all such sales were a result of transactions
that  were exempt from registration under the Securities Act pursuant to Section
4(2)  of the Securities Act, and the shares of the Company's Common Stock issued
(or  issuable  in  the  case  of  warrants  or options granted) were "restricted
securities"  as  that  term  is  defined  in  Rule 144 and may be resold only in
compliance  with  registration  provisions of the Securities Act or an exemption
thereunder.

SHARES  ISSUED  FOR  SERVICES  -  1998
--------------------------------------
     As  of July 1, 1998, the Company issued a total of 711,444 shares of Common
Stock  to  four consultants and advisors of the Company for consulting and other
services  rendered.

ACQUISITION  OF  ASSETS  OF  PREFERRED  MEDICAL  SERVICES,  INC.
----------------------------------------------------------------
     On  April  15,  1998,  the  Company  acquired  certain assets and scheduled
liabilities  of  Preferred  Medical  Services, Inc. ("Preferred,") a billing and
practice  management  business.  Pursuant to the terms of the Assets Acquisition
Agreement, the Company issued on May 4, 1998 a total of 250,000 shares of Common
Stock  to  stockholders of Preferred. The transaction was exempt from securities
registration  as  the  principals  were  experienced  and  knowledgeable  in the
industry.  In  issuing  the shares to the two shareholders of Preferred Medical,
the  Company relied on the exemption from registration under Section 4(2) of the
Securities  Act.  The  Company  relied  on  4(2)  because  there  were  only two
offerees,  both  of  whom were knowledgeable in the Company's industry, and, the
Company  believes,  in  financial  matters  generally;  the  transaction  was  a
negotiated  sale  of  a  business  in  which  the  Company  believed  the  two
shareholders  were  advised  by  counsel;  and  the  shares  issued  were
"restricted  securities"  and had transfer restrictions placed on them which are
customary
for  restricted  securities.



1998  -  SHARES  ISSUED  TO  EMPLOYEES  UNDER  COMPANY  1996  STOCK  PLAN
-------------------------------------------------------------------------
     Out  of  the  shares  reserved  for issuance pursuant to the Company's 1996
Stock  Plan,  as of July 1, 1998, the Company issued a total of 62,300 shares of
Common Stock to a total of 199 employees of the Company. These transactions were
exempt from registration under the Securities Act pursuant to Rule 701 under the
Securities  Act.  The shares of Common Stock issued are restricted securities as
that  term  is defined in Rule 144 and may be resold only in compliance with the
registration  provisions  of  the  Securities  Act  or  an exemption thereunder.

FEBRUARY  1998  INVESTMENT
--------------------------
     In  consideration  of  the payment of $.50 per share, on February 26, 1998,
the  Company issued a total of 250,000 shares of Company Stock to two accredited
investors.  In  connection  with the sale, the company further agreed that for a
period of one-year beginning May 18, 1998, the investors shall have the right to
require  the  Company  to  repurchase  the  shares  for  $1.00  per  share.  The
transactions  with  the  investors  were  exempt  from  registration  under  the
Securities  Act  pursuant  to Section 4(2) of the Securities Act.  The shares of
Common  Stock  issued to the investors are restricted securities as that term is
defined  in  Rule 144 and may be resold only in compliance with the registration
provisions  of  the  Securities  Act  or  an  exemption  thereunder.

NOTES  AND  WC/WD  WARRANTS
---------------------------
     Between  November  1995  and  February  1996,  in  separately  negotiated
transactions,  the  Company  borrowed a total of $359,750 from eight individual,
accredited  investors,  for a term of one year from the date of investment.  The
debts  were  evidenced  by Promissory Notes bearing interest initially at 7% per
annum  and  later  by  amendment  at  10%  per annum. In addition, the investors
received  warrants  to  purchase an aggregate of 334,771 shares of the Company's
Common  Stock at $1.125 per share.  None of the investors were previously or are
currently  affiliated  with  the  Company.  The issuance of these securities was
exempt  from  registration  under Rule 506 of Regulation D. Subsequently, during
1997  and  1998,  the  Company, in consideration of the investors' agreements to
waive  alleged  defaults under the notes and to forbear payment, issued warrants
to  purchase  an  aggregate  of  246,935 shares of the Company's Common Stock at
$1.125  per  share,  and  an aggregate of 418,366 shares of the Company's Common
Stock. The transactions with the lenders were exempt from registration under the
Securities  Act  pursuant  to Section 4(2) of the Securities Act.  The shares of
Common  Stock  issued  to  the lender, and the shares underlying the warrants if
exercised, are restricted securities as that term is defined in Rule 144 and may
be  resold only in compliance with the registration provisions of the Securities
Act  or  an  exemption  thereunder.

ISSUANCE  OF  COMMON  STOCK  TO  CONVERT  DEBT
----------------------------------------------
     Pursuant  to  an  agreement dated December 31, 1995, the Company on May 14,
1997  issued 50,000 shares of restricted Common Stock to an investor in exchange
for  all  outstanding  obligations  owed  to  him  by  the  Company's subsidiary
Westmeade  Healthcare,  Inc.  On  January  27,  1998, the Company issued 100,000
shares  of  restricted  Common  Stock  to  the  investor  as payment in full for
CoreCare  Behavioral  Health Care, P.C., a Pennsylvania professional corporation
owned  by  the  investor.


<PAGE>

OUTLOOK-LIQUIDITY  AND  CAPITAL  RESOURCES

     Interest  payments  on the notes, maturity of certain debt obligations, and
liabilities  associated  with  accrued  payroll  taxes  and  Medicare  represent
significant liquidity requirements for the company in 1999. The company believes
that  the  revenue increases and operating results realized from improvements in
average  daily  census  and operational efficiencies will permit it to refinance
many  of  its  debt  and  liability  obligations with a medium term or long term
structured debt financing.  The appraised values of the Company's two facilities
far exceed the current book value and debt level on the Company's balance sheet.
The  Company  is  highly  confident  that  its  short-term  liabilities  can  be
restructured  into  long-term  mortgage  debt.

     Medicare is a cost based reimbursement program. The Company had substantial
growth  in non-Medicare and Drug and Alcohol Rehabilitation, which decreased the
percentage  of  Medicare  patients  in  1998  versus  1997.  This  resulted  in
anticipated payments due to Medicare of $1,000,000.  The Company has established
a  reserve account with Healthcare Financial Partners so that such funds will be
available  to  the  Company  when  due.

YEAR  2000

The  company  believes  its  internal systems are mostly in compliance with Year
2000  protocol.  At this time there are a few non-critical systems which are not
in  compliance  but  have been identified and the Company believes these systems
will  be  corrected  before  year-end.

     The  Company  is dependent upon vendors and third party payors, clients and
is  surveying  them  to  ascertain their preparedness. The Company is developing
contingency  plans  to  protects its ability to financially operate in the event
critical  third  parties  have  systems problems resulting from failure to be in
Year  2000  compliance.

     The  Company's  total  cost  is  estimated  to  be  $200,000  for Year 2000
compliance.


<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,  in  the  City  of
Philadelphia,  State  of  Pennsylvania,  on  April  8,  1999.

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has  been  signed  below by the following persons on behalf of Registrant and in
the  capacities  indicated  on  April  8,  1999

SIGNATURE                              TITLE

/s/  Thomas  T.  Fleming                         Chairman  of  the  Board
------------------------
Thomas  T.  Fleming


/s/  Rose  S.  DiOttavio                         President  and  Director
------------------------
Rose  S.  DiOttavio


/s/  Thomas  X.  Flaherty                         Director
-------------------------
Thomas  X.  Flaherty


/s/  George  P.  Stasen                         Director
-----------------------
George  P.  Stasen


/s/  Charles  A.  Burton                         Director
------------------------
Charles  A.  Burton


/s/  Keith  Day                              Vice  President  &
---------------
Keith  Day                              Corporate  Secretary



ITEM  7  -     FINANCIAL  STATEMENTS

     The  financial  statements can be found at the end of this report beginning
on  page  55.



ITEM  8  -     CHANGES  IN  AND  DISAGREEMENTS  WITH  ACCOUNTANTS
          ON  ACCOUNTING  AND  FINANCIAL  DISCLOSURE

     None.

                                    PART III
                                    --------

ITEM  9  -     DIRECTORS,  EXECUTIVE  OFFICERS,  PROMOTERS  AND  CONTROL
     PERSONS

     As of March 1999, the directors, executive officers, and senior managers of
the  Company  are  as  follows:

     DIRECTORS  &  OFFICERS:

<TABLE>
<CAPTION>
DIRECTORS & OFFICERS:

NAME                          AGE                 POSITION
<S>                           <C>   <C>
Thomas T. Fleming               72  Chairman of the Board of
                                    Directors and CEO
Rose S. DiOttavio               48  President, Treasurer and a Director
Thomas X. Flaherty              38  Director
George P. Stasen                53  Director
Charles A. Burton               53  Director
Keith Day, MBA                  42  Senior Vice President &
                                    Corporate Secretary
Mark Novitsky, M.D.             45  Senior Vice President &
                                    Corporate Medical Director
Fred Baurer, M.D.               41  Senior Vice President &
                                    Medical Director, Kirkbride Center
John Schrogie, M.D.             63  Senior Vice President
John Fleming                    44  Vice President Development
Ella M. Bowen, ED.D.            53  Vice President of Community
                                    Relations and Public Affairs
Meg Givnish-Mercer              59  Vice President for Education and
                                    Training
Daniel B. LoPreto, Ph.D.        39  Vice President of Quality
                                    Management
Albert Campana, MBA             48  Vice President for Core Services &
                                    Risk Management and Kirkbride
                                    & Senior Director of Administrative
                                    Services

<PAGE>
SENIOR MANAGERS:              NAME  POSITION
David Baron, D.O., FACN             Director of Clinical Research
Ernest J. Ritacco, CPA, MBA         Director of Finance
Jeff Friedman, Ph.D., L.S.W.        Clinical Director of Westmeade
                                    at Warwick
Roberta K. Mainiero, MBA            Controller - CMI / Director of
                                    Practice Management
Erwin A. Carner, Ed.D., MSW         Sr. Director of Geriatric Continuum
Sharon Irwin                        Sr. Director of Mental Health
                                    Continuum
Laura Jones                         Sr. Director Substance
                                    Abuse Continuum
Margaret Halas                      Director of CoreCare Management Inc.
Dennis Fontana                      Director of Management Information
                                    Systems
William Chambley                    Director of Human Resources
</TABLE>

     All directors hold office until the next annual meeting of stockholders and
until  their  successors  have  been  elected and qualified.  John Fleming, Vice
President  of  Corporate  Development is the son of the Chief Executive Officer,
Thomas  T.  Fleming.    No  director  receives any compensation for serving as a
director.

BOARD  OF  DIRECTORS:
---------------------

     THOMAS  T.  FLEMING  has  been Chairman of the Board of Directors and Chief
Executive  Officer  of  the  Company  since  January 31, 1995, and has served in
comparable  positions  with  present  subsidiaries  of  the  Company since 1991.

     Mr.  Fleming  has  over  25  years  experience  in  health care operations,
financing,  manufacturing, marketing and real estate development.  Specifically,
he  was  the  founder  in  1973  of Horsham Clinic and Horsham Psychiatric Group
(includes  Wyoming  Valley  Clinic,  The Meadows, The Cloisters at Pine Island);
Senior  Vice  President of Howmet Corporation; a former Financial Consultant for
Envirodyne,  Inc.; Chairman of Capital Home Care Group; Managing Director of UMS
Communities,  Inc.;  and a General Partner of Holmstead Properties; and has been
Chairman  of  Health  Ventures  Limited,  a  consulting firm specializing in the
health field since 1986.  Mr. Fleming also has served as a consultant on various
third-party  acquisition transactions including the sale of developed properties
for  construction  of  two personal care homes (JAD Development), acquisition of
Retirement  Centers  of America from Avon (UMS Corporation), acquisition of Park
Avenue Manor (AmeriCare Partners), financing of Renewal Centers, acquisition and
financing  of Whitemarsh Professional Center, acquisition of St. Mary's Hospital
by  Neumann  Medical  Center,  and financial restructuring of Senior Lifestyles,
Inc.

     Mr.  Fleming  also  has  served  on  numerous civic and corporate Boards of
Directors,  including  most  recently  Quality  Health  Services,  Inc.; Renewal
Centers,  Inc.; Lifequest; and Chestnut Hill Community Association.  Mr. Fleming
also  was founder and chairman of the Christmas Revels, is a former Commissioner
of  Higher  Education  of  the  City  of  Philadelphia,  is a former Chairman of
Chestnut  Hill  Academy,  and  a former Chairman of The Philadelphia Council for
Performing  Arts.  Mr.  Fleming received a BA from Haverford College in 1949 and
also attended Georgetown Foreign Service School.  He is a fellow in the American
Institute  of  Management.

     ROSE  S.  DIOTTAVIO  has been President and a Director of the Company since
January  31,  1995 and Treasurer since August 1998, and has served in comparable
positions  with  present  subsidiaries  of  the  Company  since  1991.

     Ms. DiOttavio has served in a variety of management positions in the health
care industry, including operations troubleshooter, needs assessment, regulatory
compliance,  financial  feasibility,  project development, financial consulting,
operations  and fiscal management, expert witness and acquisition due diligence.
Specifically,  she has been President of Health Ventures Limited since 1986, and
currently  serves  as a consultant to Senior Lifestyles, Inc.  Formerly, she has
served as President and Chairperson of Neumann Medical Center; Vice President of
Strategic  Planning  for  Neumann Medical Center; Development Consultant for UMS
Communities,  Inc.;  Director  and Executive Vice President of Capital Home Care
Group; Vice President of Planning and Development for Horsham Psychiatric Group;
Vice  President  of  Operations  for  Medical  Management  Institute;
Consultant--Strategic  Planning  for  Plante  &  Moran  (CPA/Consulting  Firm,
Michigan);  Deputy  Director  for  Health  Systems  Agency  of  Southeastern
Pennsylvania;  Senior  Planning  Associate  for  Regional  Comprehensive  Health
Planning Council, Inc.; and Chairperson, Metropolitan Home Health Services, Inc.

Ms.  DiOttavio  holds  a BS and M.S.H. from the University of Pittsburgh and its
Graduate  School  of  Public  Health.  She  has  been  noted  for distinction in
Outstanding  Young  Women  of America and Who's Who of American Women.  She also
serves  currently  as  a  Director  and  Vice  Chairperson  of  Horizon House, a
non-profit  organization  serving  the mentally ill, homeless and disadvantaged.

     THOMAS  X.  FLAHERTY  has  been a Director of the Company since January 31,
1995  and  has  also  served  as Treasurer until August 1998 when he resigned as
Treasurer  due  to  time constraints. Mr. Flaherty has held comparable positions
with  certain of the Company's present subsidiaries since 1991.  Mr. Flaherty is
the  founder,  and  since  March  1990  has  served as President, of Value Added
Investment  Corporation  ("VAIC,")  specialized investment banking and financial
consulting  organization  headquartered  in  Narberth, Pennsylvania, since March
1990.  Prior  to  forming  VAIC,  Mr.  Flaherty  was  a  tax consultant with the
accounting  firms  of  Arthur  Andersen  and  Company  and  Coopers and Lybrand.
Previously,  Mr.  Flaherty  was  employed  as a Financial Analyst and Investment
Consultant by Shearson Lehman Brothers.  He has held or currently holds licenses
as  a  Certified  Public  Accountant  and  a  registered  securities  broker and
commodities  broker.

Mr. Flaherty is a recognized speaker and member of the National Speakers Bureau.
He  has  presented  and  lectured  worldwide  on various financial, business and
management  topics.  Outside of his daily responsibilities as President of VAIC,
Mr.  Flaherty also serves as a member of the Board of Directors of the following
corporations and other organizations; Durable Medical Equipment Corporation; ITI
Technical Services, Inc.; The Marquis Mortgage Corporation; Park Place Builders,
Inc.;  Senior  Lifestyles  Incorporated;  Universal  Trade  Corporation;  Living
Younger Longer, Inc.; M&M Opportunities, Inc.; The Northwestern Corporation; The
Northwestern  Properties  Company;  Northwestern  Enterprises,  Inc.;  The Amica
Company; Allied Health Care, Inc.; and Northwestern Management Services Company.

     GEORGE  P.  STASEN  has  served  as a director and/or advisor to government
units,  foundations  and  public  corporations.  He  has structured and provided
financing  and  investment guidance to major corporations, investment companies,
developing enterprises and municipalities.  Mr. Stasen co-founded Mentor Capital
Partners,  Ltd.,  a  prominent Philadelphia based Merchant Banking firm in 1993.

     Prior to returning to the Philadelphia area, Mr. Stasen was Chief Operating
Officer  from  1987  of  the  Rushmore Group of Bethesda, Maryland a diversified
financial services firm engaged in the management of mutual funds, institutional
money  management,  financial  advisory services and securities brokerage.  From
1984 to 1987, Mr. Stasen was President and Chief Operating Officer of American &
European  Investment  Corporation,  an  international  financial  and investment
advisor  headquartered in Washington, D.C.  From 1978 to 1984, Mr. Stasen served
Provident  Institutional  Management  Corporation  (PIMC)  as  Vice  President
responsible  for investment strategy and product development.  PIMC the advisory
subsidiary  of  Provident  National  Bank  of  Philadelphia,  Pennsylvania (PNC)
provided  institutional  investment management services principally to banks, at
which  time  assets  under management increased from $50 million to $15 billion.

     Mr.  Stasen  also  serves as Chairman of Declaration Holdings a mutual fund
management  and  administration company as well as a director of several private
Delaware  Valley  based  corporations.  Mr.  Stasen  has  been  a  lecturer  on
investment  and  economic  trends  throughout the United States and Europe.  Mr.
Stasen  earned  his  BS  from  Drexel University in 1968 with a concentration in
Economics  and  was  subsequently  awarded  a  fellowship and earned an MBA from
Drexel.

     CHARLES  A.  BURTON currently serves as Director of this Company as well as
others,  such  as  Anadigics,  Inc.,  Microsource, Inc., Sherpa Corporation, and
Visual  Edge  Technologies.  From  1984 to the present, Mr. Burton has served as
President  and Managing Director of Philadelphia Ventures, Inc.  Since 1973, Mr.
Burton  has  served  in  several  positions,  including  Vice President of CIGNA
Corporation, President of Venture Capital Corporation, and Chairman of the Board
and  Founder of Devon Systems Group, Inc., which was eventually sold to Citicorp
Venture  Capital.

     Mr. Burton's Professional and Civic Activities have included that of Former
President  and  Trustee  of  the  Delaware Valley Venture Group, Director of the
Philadelphia Chamber of Commerce and Trustee for Gettysburg College.  Mr. Burton
earned  his  AB  from  Gettysburg  College  in  1967 and an MBA from the Wharton
Graduate School, University of Pennsylvania.  Mr. Burton also served his country
as  a  Line  Officer  in  the  United  States  Navy  from  1967  to  1972.

OFFICERS  OF  THE  COMPANY:
---------------------------

     DR.  MARK NOVITSKY, M.D. joined Kirkbride Center in August 1998 as Director
of  Clinical  Improvement  and  senior psychiatrist and has since been named the
Psychiatrist  in Chief at Kirkbride Center and the Corporate Medical Director of
CoreCare  Systems,  Inc.  He  was  Chief  of  Psychiatry at Presbyterian Medical
Center  and  is  recognized for his work in geriatric psychiatry. During his ten
years  at Presbyterian as Chief, Dr. Novitsky was instrumental in the successful
growth  and  expansion  of  the  psychiatric  department.  During  that time, he
assisted  in  the  development  of a 24-bed acute inpatient psychiatric unit, an
18-bed  LTSR, and a 20-bed managed care sub-acute unit.  Dr. Novitsky headed the
consultation  liaison  services  and  led  to  the  formation  of  an  emergency
psychiatric  assessment  service in their emergency room.  He was also active in
the evolution of day programs and psychiatric care provided at ten local nursing
homes.  Dr.  Novitsky earned his M.D. from the Bowman Gray School of Medicine of
Wake  Forest  University  in  Philadelphia and is Board Certified in Psychiatry.
Dr.  Novitsky has gained a reputation of developing excellent relationships with
area  community  leaders,  the  Philadelphia  Office  of Mental Health and payor
representatives  such  as  Community  Behavioral  Health  (CBH).

     DR.  FRED  BAURER,  M.D.  graduated  from  Wesleyan  University  and Temple
University School of Medicine.  He completed Residency Training at the Institute
of  Pennsylvania  Hospital  and  Psychoanalytic  Training  at  the  Philadelphia
Psychoanalytic  Institute  and  the Philadelphia Psychotherapy Training Program.
He  is  Board  Certified  in  Psychiatry  with added qualifications in Addiction
Psychiatry.  Dr.  Baurer  served  as  Director  of the Strecker Partial Hospital
Program  from  its  inception  in 1989 until 1997, and a Co-director of Strecker
Hall  in  1996-1997.  He  also has been Director of the OATS Program (Outpatient
Addiction Treatment Service) since 1992.  Dr. Baurer is the Regional Chairperson
of  the  America  Academy  of  Addiction Psychiatry.  Since the inception of the
Kirkbride  Center in February 1997, Dr. Baurer has served as Medical Director of
Substance  Abuse  Services,  and  he  has  also been appointed Assistant Medical
Director.

KEITH  DAY,  MBA joined the Company as Senior Vice President in July of 1998 and
became  Corporate  Secretary  in  December 1998.  Mr. Day is responsible for the
development  of Quantum Clinical Services Group, the Company's clinical research
subsidiary.  Prior  to  joining  the  Company,  Mr.  Day  had  been acting as an
independent consultant in the clinical research field.  From 1993 to 1997 he was
Director  of Finance for Airgas, Inc. in Radnor, PA where he was responsible for
investigating,  negotiating and structuring corporate development opportunities.
From  1989  to  1992  he  was  a  Project  Manager  for  Hines Interests Limited
Partnerships  in  Philadelphia,  PA.  From  1984  to 1989 he was Chief Financial
Officer  and  Principal  of  Conklin  Construction Corporation of Greenwich, CT.
From  1982  to  1984  he was a Senior Financial Analyst for Pepsico, Inc. in NY.
From 1979 to 1981 he was a Financial Management Associate for GTE Corporation in
Stamford,  CT.  Mr. Day received his BS in Economics in 1979 from the University
of  Pennsylvania,  Wharton School, and his MBA from Dartmouth College, Amos Tuck
School  of  Business  in  1983.

     JOHN  SCHROGIE,  M.D.  has  been  acting  as  the Senior Vice President for
Clinical  Research  since July of 1998 and is responsible for the development of
the  Company's  clinical  research  subsidiary, Quantum Clinical Services Group.
Dr.  Schrogie  is  trained  in  internal  medicine and completed a fellowship in
clinical pharmacology at John Hopkins University.  He received in BS from Boston
College  in  1956  and his M.D. from Yale University School of Medicine in 1960.
During  his  career he has served in various positions at the FDA, NIH, Schering
Plough  and  Merck  Research  Institute.  He  founded  one of the first contract
research  organizations, the Philadelphia Association for Clinical Trials (PACT)
and  served  as  Chairman, President and CEO.  After the company was acquired by
Corning,  Inc.  (now  Covance),  he continued to serve as an executive.  He most
recently  acted  as Assistant Director of health Policy and Clinical Outcomes at
Jefferson  Medical College, and prior to that was Chairman and CEO of Pulse Data
Institute,  a  start-up  medical  services  company  in  Bryn  Mawr,  PA.  He is
currently  the  Secretary-Treasurer  of  the  American  Society  for  Clinical
Pharmacology  and  Therapeutics.

<PAGE>

JOHN  FLEMING  Vice President Development is responsible for the development for
the  Kirkbride  Center.  John  negotiated and administers all third party tenant
contracts, supervises tenant fit-out, budgets, monitors and manages the facility
and  property, assists in securing, negotiating, and executing all CoreCare Real
Estate  related financing.  From 1991 through to 1995 John was Managing Director
of  the  Chestnut  Hill  Health  and Fitness Center.  He was responsible for the
operations  of  the  facility,  including  all budgeting, managing marketing and
strategic  planning  of  the Fitness center.  From 1984 through to 1990 John was
Project  Manager  for  St.  James Properties and Real Estate sales in Boston; he
also  supervised  and managed the renovation and leasing of small to medium size
commercial  office  buildings  in  downtown  Boston.

     DR.  ELLA  M.  BOWEN,  ED.D.  currently  serves  as  the  Vice President of
Community  Relations  and  Public  Affairs  for CoreCare Systems, Inc.  Prior to
CoreCare, Dr. Bowen served as the Director/Vice President of Community Relations
for Oak Tree/Oxford Health Plans.  She also served in several capacities in city
government  and in education.  Her job experiences include serving as the Senior
Assistant  Managing  Director  in Mayor Rendell's administration, Youth Services
Commissioner  for  Mayor  Goode's  administration,  Legislative  Assistant  for
Councilwoman  Augusta  Clark,  assistant  professor  and  assistant  Dean  of
Instruction  for  the  School  in New Jersey and OLC in Illinois.  Dr. Bowen has
also  worked  as  an  Affirmative  Action  Consultant  in Business and Industry.

     Dr.  Bowen received her Master's Degree and Doctorate of Education from the
University  of Illinois.  She received her Undergraduate Degree in Business from
the  University  of  Maryland,  Eastern  Shore.  She  is  currently  an  adjunct
professor  in  Education  at  Rowan University and hosts a monthly radio program
called  "Mind,  Body  and  Soul"  on  WHAT  Radio.  Her other activities include
serving  on  such boards as Special Olympics, Big Brother/Big Sister, PAL, PUSH,
Mayor's  Coordinating  Office  for  Drug & Alcohol Programs, Philadelphia Fight,
Black  Family  Reunion  Center  and  the  National  Forum  and  Black  Public
Administrators.  She  has published several books and articles and is well known
as  a  dynamic  motivational  speaker  both  locally  and  nationally.

     MEG  GIVNISH-MERCER  is Vice President for Education and Training, CoreCare
Systems,  Inc.  She  is  also a member of the faculty for the Graduate School of
Health  and  Education  at  St.  Joseph's University.  From 1974 until 1985, Ms.
Givnish-Mercer  was  a  key  member  of  the  management team that purchased and
developed  the  Horsham  Clinic.  She  worked  as  both a clinical leader and an
administrative  liaison  during  those  years.  Ms. Givnish-Mercer holds degrees
from  Chestnut Hill College, Beaver College and Summit University.  She has been
a  member of Who's Who of American Women since 1985 and was awarded a television
Emmy for her writing, directing and narrating the one time special "What Will We
Do  About  Momma?,"  a  thought  provoking  dramatic attempt to care for elderly
parents.

     She  is  certified  as  a Trainer and Practitioner by the American Board of
Examiners in Psychodrama, group Psychotherapy and Sociometry.  In this capacity,
she  has  trained  hundreds  of clinicians throughout the United States.  She is
also  well  known for her energizing presentations, management-training seminars
as  well  as  for her clinical seminars for Psychotherapists, teachers and other
members  of  the  helping professions.  Ms. Givnish-Mercer joined the Company in
1992  as  a  senior  manager/clinician  of  Lakewood  Retreat,  Inc.

<PAGE>

     DANIEL B. LOPRETO, PH.D., Vice President of Care Systems Management came to
CoreCare  Systems,  Inc. after directing the Care Management Department at Green
Spring  of  Eastern  Pennsylvania,  the  third largest managed behavioral health
company  in  the  country.  Dr.  LoPreto  directed  a  department of over thirty
psychiatrists  and mental health professionals who were responsible for managing
the  mental  health  and  substance  abuse  services  to approximately 3 million
covered lives in Pennsylvania, New Jersey and Delaware.  Originally recruited to
the  position  of CoreCare's Director of Adult Continuum, he assumed his current
position  upon CoreCare's acquisition of Kirkbride Center.  He has worked within
private  psychiatric  hospitals,  outpatient  clinics and managed care as both a
clinician  and  administrator  for  15  years.

     Dr.  LoPreto  is  licensed  as  a Psychologist in both Pennsylvania and New
Jersey and is board-certified in the specialty area of applied psychophysiology.
He  is  a  Diplomat  of  the American Board of Quality Assurance and Utilization
Review  Physicians  and  is  a  Diplomat  of  the  American  College of Forensic
Examiners,  Board of Examiners, Board of Psychological Specialties.  Dr. LoPreto
provides peer reviews as well as independent medical examinations and disability
evaluations  for  numerous  insurance  companies  in  both  Pennsylvania and New
Jersey.  He  is one of only two psychologists chosen and approved to participate
in Southeastern Pennsylvania Transit Authority's panel of professional providers
of  service  to  SEPTA  employees.

ALBERT  CAMPANA,  MBA  is the Vice President / Senior Director of Administrative
Services  at  the  Kirkbride Center.  He was born and raised in Philadelphia and
received  his  BS Degree in Psychology from Penn State University.  He began his
career  in  behavioral  health  at the Horsham Clinic where he worked his way up
from  mental  Health Technician to Clinical Coordinator and Chief Social Worker.
In  1989, he received his MBA from Temple University. His last positions, before
joining  Corecare  Systems, Inc., were with Graduate Health Systems at Mt. Sinai
Hospital  as  their Senior Director for Psychiatry and with Allegheny University
Hospitals,  Parkview  as  Director  of  Behavioral  Health.


ITEM  10  -     EXECUTIVE  COMPENSATION

(A)     GENERAL:
        --------

     For  the  fiscal  years  ended  December  31,  1996 and 1997 neither of the
Company's  Chief  Executive  Officer or President received any compensation from
the  Company.  In  order  to  reflect  a  fair  estimate of the cost of services
provided  by  the  Company's  Chairman  of  the  Board,  Thomas  T. Fleming, and
President,  Rose  S.  DiOttavio,  in this period, the Company charged operations
with  $144,000  in  1997,  or $72,000 for each, which was accrued and credited a
like  amount  to  paid  in  capital.  Mr.  Fleming  and  Ms. DiOttavio have each
received  annual salaries of $156,000 commencing March 1998, and paid currently,
which  salaries  the  company  believes  are  below  industry  standards.

(B)     SUMMARY  COMPENSATION  TABLE:
        -----------------------------

     The  following summary compensation table sets forth information concerning
compensation  for  services  rendered in all capacities awarded to, earned by or
paid  to  the  Company's  Chief  Executive Officer and the next four most highly
compensated  executive  officers  during  the  year  ended  December  31,  1998.

<TABLE>
<CAPTION>
                                            SUMMARY COMPENSATION TABLE
                                              LONG TERM COMPENSATION
                                             1998 ANNUAL COMPENSATION


                                                                                             Securities Underlying
                                                                                             ---------------------
                                                               All Other Annual  Restricted         Options
                                                                                 ----------  ---------------------
Name and Principal Position                Salary   Bonus ($)    Compensation      Stock
----------------------------------------  --------  ---------  ----------------  ----------
<S>                                       <C>       <C>        <C>               <C>         <C>
Thomas Fleming, Chairman                  $120,000        -0-             6,758         -0-                    -0-
Of the Board and Chief Executive Officer                       car allowance
Rose S. DiOttavio,  President             $120,000        -0-               -0-         -0-                    -0-

Richard C. Beatty                          107,466        -0-               -0-         -0-                    -0-
----------------------------------------  --------  ---------  ----------------  ----------  ---------------------
David Baron                                250,542        -0-               -0-         -0-                    -0-
                                          --------  ---------  ----------------  ----------  ---------------------
</TABLE>


1)     Refer  to  General  Information  above.

THE  COMPANY HAS NOT PRESENTED COMPENSATION FOR 1997 IN THE TABLE AS MR. FLEMING
AND MS. DIOTTAVIO DID NOT RECEIVE COMPENSATION  IN  1997  AND  NO  OTHER OFFICER
OF THE COMPANY RECEIVED  COMPENSATION  IN  EXCESS  OF  $100,000  IN  1997.

(C)     OPTIONS/SAR  GRANTS:
        --------------------

<TABLE>
<CAPTION>
            (a)          (b)            (c)              (d)                (e)
------------------  -------------  -------------  ------------------  ----------------
Year ended 1998
------------------
                      Number of       %Total
                     Securities    Options/SARS
                     underlying     Granted to
                    Options/SARS   Employees in    Exercise or Base
Name                   Granted      Fiscal Year      Price ($/Sh)     Expiration Date
                    -------------  -------------  ------------------  ----------------
<S>                 <C>            <C>            <C>                 <C>
Thomas T.                     -0-           -0- 
Fleming
Rose S.                       -0-           -0- 
DiOttavio
David Baron               100,000            23%  $          1.25/sh           7/15/02
                    -------------  -------------  ------------------  ----------------
Richard C. Beatty          40,000             9%  $          1.50/sh          12/31/98
------------------  -------------  -------------  ------------------  ----------------
</TABLE>

(D)     AGGREGATED  OPTION/SAR  EXERCISES  AND FISCAL YEAR-END OPTION/SAR VALUE:
        ------------------------------------------------------------------------

     During the fiscal year ended December 31, 1998, no executive officer of the
Company  exercised  any  options.

(E)     LONG-TERM  INCENTIVE  PLANS:  None.
        ----------------------------

(F)     COMPENSATION  OF  DIRECTORS:
        ----------------------------

     During  the fiscal year ended December 31, 1998, no director of the Company
received any compensation for any services provided in such capacity.  Directors
of  the  Company are reimbursed for expenses incurred by them in connection with
their  activities  on  behalf  of  the  Company.

(G)     EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND CHANGE IN CONTROL
        ------------------------------------------------------------------------
ARRANGEMENTS:
-------------

     The  Company and/or its subsidiaries have no employment agreements with any
of  its  executive  officers.


(H)     REPORT  ON  REPRICING  OF  OPTIONS/SARS:  Not  Applicable.
        ----------------------------------------


ITEM  11  -     SECURITY  OWNERSHIP  OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     The  following  table  sets forth information as of December 31, 1998, with
                                                         -----------------
respect  to  the  beneficial  ownership  of  CRCS'  securities  by  officers and
directors,  individually  and  as a group, and all holders of more than five (5)
percent  of  the shares of any class of CRCS voting securities. Unless otherwise
indicated,  all  shares  are  beneficially  owned and sole investment and voting
power  is  held  by  the  beneficial  owners  indicated.

<TABLE>
<CAPTION>
                               PRINCIPAL SHAREHOLDERS
                       NUMBER OF SHARES BENEFICIALLY OWNED 1

==============================  ================  =========  ============  ==========
NAME AND ADDRESS OF                  COMMON       SERIES A    SERIES E      SERIES F
BENEFICIAL OWNER                     STOCK(2)     PREFERRED  PREFERRED(3)  PREFERRED(4)
------------------------------  ----------------  ---------  ------------  ----------
<S>                             <C>               <C>        <C>           <C>
Officers and Directors:
Thomas T. Fleming(5)                   1,673,470      3,000                   1,270.6
                                         (10.5%)
------------------------------  ----------------  ---------  ------------  ----------

Rose S. DiOttavio(6)                   1,687,500      3,000                       350
                                         (10.6%)
------------------------------  ----------------  ---------  ------------  ----------

Thomas X. Flaherty(7)                    405,000
                                             (*)
------------------------------  ----------------  ---------  ------------  ----------
David Baron (8)                          101,000
                                             (*)
------------------------------  ----------------  ---------  ------------  ----------
Richard Beatty (9)                        66,000
                                             (*)
------------------------------  ----------------  ---------  ------------  ----------
John Fleming (10)                         56,000
                                             (*)
------------------------------  ----------------  ---------  ------------  ----------
Ella M. Bowen                                500
                                             (*)
------------------------------  ----------------  ---------  ------------  ----------
Daniel LoPreto                            10,600
                                             (*)
------------------------------  ----------------  ---------  ------------  ----------
Meg Givnish-Mercer (11)                   68,990
                                             (*)
------------------------------  ----------------  ---------  ------------  ----------
Roberta Mainiero (12)                     15,500
                                             (*)
------------------------------  ----------------  ---------  ------------  ----------
                                       4,262,200
Total Officers and Directors:            (24.7%)      6,000                   1,620.6
------------------------------  ----------------  ---------  ------------  ----------

(b) Other Beneficial Owners:
Phila. Ventures, 11, L.P.13     1,327,956 (8.3%)
Phila. Ventures-Japan 1, L.P.
Phila. Ventures-Japan, 11-L.P.
------------------------------  ----------------  ---------  ------------  ----------

200 S. Broad Street 8th Floor
Philadelphia, Pa. 19102
Total Other Beneficial Owner           1,327,956
                                          (8.3%)
==============================  ================  =========  ============  ==========
<FN>
 (*)  less  than  5%

 (1)     A  person  is  deemed to be the beneficial owner of securities that can be
acquired  by  such person within 60 days from the date as to which this information
is  provided.  In  computing the number of shares and the percentage of outstanding
shares  of  each class of securities held by each person or group of persons above,
any  security which such person or persons has or have a right to acquire within 60
days  from  the date of this Memorandum is deemed outstanding, but is not deemed to
be  outstanding  for the purpose of computing the percentage ownership of any other
person.

(2)     In  computing the number of shares and the percentage of outstanding Common
Stock  "beneficially  owned"  by  a  person  who  owns  any shares of any series of
Convertible  Preferred  Stock,  the shares issuable upon exercise of such rights to
acquire  Common  Stock owned by such persons, but no other person, are deemed to be
outstanding.

(3)     Series  E  Convertible  Preferred Stock is convertible into Common Stock on
the  basis of 100 share of Common Stock per share of Series E Convertible Preferred
Stock.

(4)     Series  F  Convertible  Preferred Stock is convertible into Common Stock on
the  basis of 50 shares of Common Stock per share of Series F Convertible Preferred
Stock.

(5)     Does not include 140,186 shares of Common Stock by Health Ventures Limited,
a consulting firm in which Mr. Fleming is a principal, is a stockholder of Chestnut
Hill Fitness Club.  Includes 63,530 shares of Common Stock issuable upon conversion
of  1,270.6  shares  of  Series  F  Preferred

(6)     Does  not  include  140,186 shares of Common Stock owned by Health Ventures
Limited,  a consulting firm in which Ms. DiOttavio is a principal, is a stockholder
of  Chestnut  Hill  Fitness  Club,  Inc.  Includes  17,500  shares  of Common Stock
issuable  upon  conversion  of  350  shares  of  Series  F  Preferred.

(7)     Does not include 67,102 shares of Common Stock owned by Josephine Flaherty,
the mother of Thomas X. Flaherty, and a member of the Company's Board of Directors.

(8)     Includes an option to acquire 100,000 shares at $1.25 per shares granted to
Dr.  Baron  when  he  joined the Company pursuant to the Company's 1996 Stock Plan.

(9)     Includes  options  to  acquire  40,000  shares of Common Stock at $1.50 per
share  granted  to  Mr. Beatty when he joined the Company pursuant to the Company's
1996  Stock  Plan.

(10)     Includes  an  option to acquire 15,000 shares of Common Stock at $0.10 per
share  pursuant  to  the  Company's  1996  Stock  Plan.

(11)     Includes  an option to acquire 150,000 shares of Common Stock at $0.10 per
share  pursuant  to  the  Company's  1996  Stock  Plan.

(12)     Includes  an  option to acquire 15,000 shares of Common Stock at $1.50 per
shares  pursuant  to  the  Company's  1996  Stock  Plan.

(13)     Common  Shares  held  by  each  Philadelphia  Venture Fund are as follows:
     Philadelphia  Ventures  II  L.P.          1,033,360
     Philadelphia  Ventures  Japan  I  L.P.      147,298
     Philadelphia  Ventures  Japan  II  L.P.     147,298
     ---------------------------------------   ---------
     For  a  Total  of:                        1,327,956
     Charles  A. Burton is the Director of the Company, and General Partner in each
     of  the  above
     Philadelphia  Venture  Funds.
</TABLE>

                                                                              58
                                                                              97

ITEM  12  -     CERTAIN  RELATIONSHIPS  AND  RELATED  TRANSACTIONS

     The  Company  believes  that  the terms of the transactions described below
were  as  favorable to the Company as would have been obtained by the Company in
arms-length  negotiation  with  non-affiliated  entities.

     From  time  to time Thomas Fleming and Rose DiOttavio have made advances to
the  Company.  A  substantial  portion of these advances consisted of funds from
bank financings obtained by Mr. Fleming and Ms. DiOttavio personally, which they
then  lent  to the Company upon the same terms, which they had obtained from the
banks.  As  of  December  31,  1998,  Mr.  Fleming  and  Ms.  DiOttavio advanced
$1,013,428  to  the Company of which $386,080 for funds, which they had borrowed
from  banks  and  loaned  to  the  Company.

PERSONAL  GUARANTEES  BY  PRINCIPAL  STOCKHOLDERS
-------------------------------------------------

     The Company's subsidiaries have approximately $3,300,000 in lines of credit
and  term  loans  which  either  are  loans  made directly to the Company or its
subsidiaries  which  are secured by personal guarantees and collateral of Thomas
Fleming, Rose DiOttavio, and in some cases, other members of the Fleming family.

FRANKLIN  DEVELOPMENT  COMPANY
------------------------------

     In  October  1996,  the  Company  entered  into  a  Development  Management
Agreement with Franklin Development Company, LLC. ("Franklin").  Mr. Christopher
Fleming,  the son of Thomas T. Fleming, the Chairman of the Company, is a senior
officer  of  Federal.  The  Company  and  Franklin have agreed to terminate this
contract  effective  February  1998,  except  for  certain performance fees with
respect  to  the  refinancing of the Kirkbride Center and commissions earned for
leases  concluded.  The terms and conditions relative to the termination of this
agreement  are  still  being  negotiated  as  of  the  date of this registration
statement.  Since  the  effective  date  of  the  contract, the company has paid
Franklin  approximately  $227,000  in  cash  and  stock  for  development  and
performance  fees.

CONVERSION  OF  SERIES  B  CONVERTIBLE  PREFERRED  STOCK
--------------------------------------------------------

     On  June  30,  1996,  the  six Series B Convertible Preferred stockholders,
including  Mr.  Fleming,  converted their preferred shares and accrued dividends
into  Common Stock.  The conversion ratio is 92 shares of Common Stock per share
of  Series B Convertible Preferred Stock.  The aggregate number of common shares
issued was 725,903.  The conversion also included accrued and unpaid interest on
the  CoreCare  Notes  totaling  $124,582.21  at  $1.00  per  share.

     The  company  issued  a total 725,902 of common stock for the conversion of
6,546.7  shares  of Preferred Series B stock into 601,320 shares of common stock
and  124,582  shares of common stock for accredited unpaid interest of $124,582.

     See  Item  4  "Recent Sales of Unregistered Securities" for descriptions of
certain  transactions  involving  acquisitions  by  the  Company.

     The  Company's  authorized  capital  stock consists of 50,000,000 shares of
Common  Stock,  $.001  par  value  per  share,  of  which  15,949,128 shares are
outstanding as of December 31, 1998, and 5,000,000 shares of Preferred Stock, as
to  which  the  Board of Directors has the power to designate the rights, terms,
preferences,  etc.  Of  the initially undesignated Preferred Stock 10,000 shares
have  been  designated  as  Series  A  Preferred  Stock; 25,000 shares have been
designated  Series  C  Convertible  Preferred  Stock;  15,000  shares  have been
designated  as  Series  D Preferred Stock; 13,250 shares have been designated as
Series  E  Convertible Preferred Stock; and 6,000 shares have been designated as
Series  F  Convertible  Preferred  Stock.

COMMON  STOCK
-------------

     The Company is authorized to issue 50,000,000 shares of Common Stock, $.001
par value per share.  As of December 31, 1998, 15,949,128 shares were issued and
outstanding.  Holders of Common Stock are entitled to one vote for each share of
Common  Stock  owned  of  record  on all matters to be voted on by stockholders,
including  the  election of directors.  The holders of Common Stock are entitled
to  receive  such dividends, if any, as may be declared from time to time by the
Board  of  Directors,  in its discretion, from funds legally available therefor.

     The  rights  of holders of Common Stock to receive dividends are subject to
the  dividend  rights  of  the  holders  of Preferred Stock, as described below.
Similarly,  the  rights  of  holders  of  Common  Stock,  upon  liquidation  or
dissolution  of  the Company, are subject to the preferences afforded to holders
of  the  Company's  Preferred  Stock.

     The  Common  Stock  has  no  preemptive  or  other  subscription rights, no
cumulative  voting  rights,  and  there  are  no conversion rights or redemption
provisions.  All  outstanding  shares  of Common Stock are validly issued, fully
paid,  and  nonassessable.

PREFERRED  STOCK
----------------

     Holders  of  Preferred  Stock vote as a class with holders of Common Stock,
except  that  without  the  vote or consent of the holder of at least 67% of the
respective  Preferred  Stock then outstanding, the Company may not (i) create or
issue  any  class  or  series  of capital stock ranking, either as to payment of
dividends,  distribution of assets or redemptions, prior to the Preferred Stock,
(ii)  alter  or  change the designations, powers, preferences, or rights, or the
qualifications,  limitations  or  restrictions  of  the  Preferred  Stock.

     Holders of Series B, C, D, E, and F Preferred Stock are entitled to vote in
the election of directors and on all other matters submitted to stockholders for
their approval or consent. None of the Preferred Stock has any cumulative voting
rights.  The  number  of  votes is equal to the number of shares of Common Stock
into  which  their  Preferred Stock is convertible at the time of the meeting at
which  the  vote  is  cast  or,  in  the case of an action of stockholders taken
without a formal meeting, on the date of such action, except that each Preferred
A  and  D  shares,  which  have  no conversion rights, are entitled to 65 and 50
votes,  respectively,  per  share.

SERIES  A  PREFERRED  STOCK
---------------------------

     The Company has authorized 10,000 shares of Series A Preferred Stock, $.001
par  value per share, of which 6,000 shares are issued and outstanding as of the
date of this Registration Statement.  The Company's Series A Preferred Stock has
a  liquidation  value  of  $100.00  per  share  ($600,000  in  the aggregate) in
liquidation  of the Company; a preference over Common Stock to the extent of its
liquidation  value;  and  is entitled to annual dividends in the amount of $4.00
per  share  (i.e., an annual rate of four (4%) percent) payable semi-annually in
arrears  unless  and  until  a  "Dividend Reset Event" occurs.  After a Dividend
Reset  Event,  the  annual dividend rate on Series A Preferred will be increased
from  four  (4%) percent to a rate equal to the "prime rate" as published in the
Wall  Street  Journal  as  of the last business day preceding the Dividend Reset
 --------------------
Event  plus  six  (6%)  percent.  The  Series  A  Preferred is redeemable by the
 --
Company, at liquidation value, in whole or in part, at any time after a Dividend
 --
Reset  Event,  upon  not  less  than  thirty  (30)  days  written  notice.

     The  term  "Dividend  Reset  Event"  is defined to mean either (a) a public
offering  of  equity securities by the Company or any corporation which owns 50%
or  more  of  all  classes  of  the  Company's  common  stock  then  outstanding
(hereinafter,  a "Parent of the Company") which results in the Company's receipt
(or  receipt  by  the  Parent of the Company) of not less than $5,000,000 net of
offering  underwriting  discounts  and  commissions,  or  (b) either the Company
and/or  the  Parent  of  the  Company, on a consolidated basis, having as of any
fiscal  year-end  stockholders'  equity  of  $12,000,000  or  more.

     The  Company has the right to redeem the Series A Preferred Stock after the
Dividend  Reset  Date and upon not less than 30 days notice at $100.00 per share
plus  accrued  dividends.

SERIES  B  CONVERTIBLE  PREFERRED  STOCK
----------------------------------------

     The  Company  has authorized 7,000 shares of Series B Convertible Preferred
Stock.  All  previously  outstanding shares of Series B Preferred were converted
on  June 30, 1996, and as of the date of this Registration Statement, there were
no  shares  of  Series  B  Preferred  outstanding.

     Holders  of  Series  B  Preferred  are entitled to receive annual dividends
equal  to  the  dividends  payable  on  Series A Preferred Stock, and to convert
shares  of  Series  B  Preferred  into Common Stock on the basis of 92 shares of
Common  Stock  per  share of Series B Preferred Stock.  Conversion prices/ratios
will  be  adjusted  in  the event of any stock splits, dividends on Common Stock
payable  in  Common  Stock  or  similar  events.  Series B Preferred Stock has a
liquidation  value  of  $100.00  per  share  in  liquidation  of  the  Company.

     The  Company  has the right to redeem the Series B Shares at $100 per share
plus  accrued  dividends  upon  not  less  than thirty-(30) days written notice.

     Of  the  Series  B Convertible Stock issued to Thomas T. Fleming, 88,044.40
shares  where  converted  to  725,903 shares of common stock effective August 8,
1996.

SERIES  C  CONVERTIBLE  PREFERRED  STOCK
----------------------------------------

     The  Company has authorized 25,000 shares of Series C Convertible Preferred
Stock, of which 8,147.3 shares are issued and outstanding as of the date of this
Registration  Statement.  Holders  of  shares  of Series C Convertible Preferred
Stock  (the  "Series C Preferred") are entitled to annual dividends of $6.00 per
share,  payable  semi-annually.

     Each  share  of  Series  C  Preferred  are convertible at the option of its
holder  into  66.67  shares  of  Common Stock.  Conversion prices/ratios will be
adjusted  in the event of any stock splits, dividends on Common Stock payable in
Common  Stock  or  similar  events.  Series  C Preferred Stock has a liquidation
value  of  $100.00 per share plus in liquidation of the Company; and is superior
in  rank  to  all other stock of the Company except for Preferred Series E which
shares  the  same  rank.

     The  Company  has the right to redeem the Series C Shares at $100 per share
plus  accrued  dividends  upon  not  less  than thirty (30) days written notice.

SERIES  D  PREFERRED  STOCK
---------------------------

     The  Company's  Board  of  Directors  has  designated  15,000 shares of its
Preferred  Stock  as Series D Preferred Stock, of which no shares are issued and
outstanding as of the date of this Registration Statement.  Holders of shares of
Series  D  Preferred Stock (the "Series D Preferred") will be entitled to annual
dividends  of  $6.00 per share, payable semi-annually.  Series D Preferred Stock
has  a  liquidation value of $100.00 per share in liquidation of the Company and
is  equal  in  rank  to  the  Series  A  Preferred.

     The  Company  has  the  right  to redeem the Series D Shares at $100.00 per
share plus accrued dividends upon not less than thirty (30) days written notice.

SERIES  E  CONVERTIBLE  PREFERRED  STOCK
----------------------------------------

     The  Company's  Board  of  Directors  has  designated  13,250 shares of its
Preferred  Stock  as  Series  E  Preferred  Stock,  of which there are no shares
issued,  and outstanding as of the date of this Registration Statement.  Holders
of shares of Series E Preferred Stock (the "Series E Preferred") are entitled to
annual  dividends  of  $6.00  per  share  payable  semi-annually.

     Prior to the Series E Redemption Date, each share of Series E Preferred are
convertible  at  the  option  of  its  holder  into  100 shares of Common Stock.
Conversion  prices/ratios  will  be  adjusted  in the event of any stock splits,
dividends  on  Common Stock payable in Common Stock or similar events.  Series E
Preferred  Stock  has a liquidation value of $100.00 per share in liquidation of
the  Company,  and  is  superior  in rank to all stock of the Company except for
Series  C  that  shares  the  same  rank.

     After  October  26,  2000, the Company has the right to redeem the Series E
Shares  upon  not  less  than  30  days written notice at $100.00 per share plus
accrued  dividends.  On  or  after  October 26, 2005, holders of Series E Shares
have  the right to require the Company to redeem shares not previously converted
or  redeemed.

     On  December 30, 1998 the Company received written notice from Philadelphia
Ventures and its affiliated investment funds to convert the 9,933.72 outstanding
shares of Series E Preferred Stock into 1,192,0446 shares of Free Trading Common
Stock.

SERIES  F  CONVERTIBLE  PREFERRED  STOCK
----------------------------------------

     The  Company's  Board  of  Directors  has  designated  6,000  shares of its
Preferred Stock as Series F Convertible Preferred Stock, of which 2,870.6 shares
are  issued  and  outstanding  as  of  the  date of this Registration Statement.
Holders  of  shares  of  Series  F  Convertible  Preferred  Stock (the "Series F
Preferred")  are  entitled  to  annual  dividends  of  $6.00  per share, payable
semi-annually.

     Each  share  of  Series  F  Preferred  are convertible at the option of its
holder  into  50.00  shares  of  Common Stock.  Conversion prices/ratios will be
adjusted  in the event of any stock splits, dividends on Common Stock payable in
Common  Stock  or similar events.  Series F Preferred has a liquidation value of
$100.00  per share in liquidation of the Company, and is equal in rank to Series
A  Preferred.

     The  Company has the right to redeem the Series F Shares upon not less than
thirty  (30)  days  written  notice at $100.00 per share plus accrued dividends.

UNDESIGNATED  PREFERRED  STOCK
------------------------------

     The  Company's Board of Directors presently has the authority by resolution
to issue up to 4,923,750 shares of preferred stock in one or more series and fix
the  number  of  shares  constituting  any  such  series,  the  voting  powers,
designations, preferences and relative, participating, optional or other special
rights  and  qualifications, limitations, or restrictions thereof, including the
dividend  rights,  dividend  rate,  terms  of redemption (including sinking fund
provisions),  redemption  price  or  prices,  conversion  rights and liquidation
preferences  of  the shares constituting any series, without any further vote or
action  by  the stockholders.  For example, the Board of Directors is authorized
to  issue  a  series  of  preferred  stock  that  would  have the right to vote,
separately  or  with  any  other  series  of  preferred  stock,  on any proposed
amendment  to  the  Company's  Articles  of  Incorporation or any other proposed
corporate  action,  including  business  combinations  and  other  transactions.

OUTSTANDING  WARRANTS/OPTIONS
-----------------------------

     Prior  to  the  date of this Registration Statement, the Company had issued
the  following  outstanding  Warrants  or  Options  to  purchase  Common  Stock:

     A.     Series  WC  and WD Warrants issued from December 1, 1995 to February
16,
1996  exercisable  for  a total of 581,716 shares at an exercise price of $1.125
per share with an expiration date of December 31, 1996, extended by amendment to
April  1,  2002  (provided  that the expiration date will be extended until such
time  as  the Company shall have processed a registration statement covering the
warrant  shares and such registration statement shall have been effective for 90
days)

B.     Warrant  issued  October  1,  1995  exercisable  for  50,000 shares at an
exercise  price  of  $2.00 per share with an expiration date of October 17, 1997
(provided  that  the  expiration  date  shall be extended until such time as the
Company  has  processed a registration statement covering the warrant shares and
such  registration  statement  has  been  effective  for  90  days)

C.     Warrant  issued  October 1995 exercisable for a number of shares equal to
10% of the Common Stock outstanding on the date of exercise.  In determining the
number  of  shares outstanding, all securities convertible into common stock are
deemed  converted;  with  an  exercise  price of $2.00 per share with escalation
provisions  of  $.50  per  share  on  October  18,  1997,  and  each  October 18
thereafter, to a maximum of $3.50 per share.  The expiration date is October 17,
2000 (provided that the expiration date shall be extended indefinitely until the
Company  has  processed a registration statement covering the warrant shares and
such  registration  statement  has  been  in  effect  for  90  days)

D.     Warrants  issued between June 10, 1996 and August 2, 1996 exercisable for
a  total  of  658,333  shares at exercise prices ranging from $1.00 to $1.50 per
share  with  expiration  dates  of  June  10,  2001  to  August  2,  2001

E.     Warrants  issued  October  1,  1996  exercisable  for  4,000 shares at an
exercise  price  of  $2.50 per share with an expiration date of October 31, 2001

F.     Series  E  Warrants  issued  October  4,  1996 exercisable for a total of
433,899  shares at an exercise price of $3.00 per share with expiration dates of
October  4, 2002 (See "Part II, Item 4, Recent Sales of Unregistered Securities)

G.     GL  Warrants  issued December 20, 1996 exercisable for a total of 126,567
shares  at  an  exercise  price  of  $1.50  per share with an expiration date of
December  1, 2002 (provided that the expiration date will be extended until such
time  as  the Company shall have processed a registration statement covering the
warrant shares and such registration statement shall have been effective for 180
days)  (See  "Part  II,  Item  4,  Recent  Sales  of  Unregistered  Securities)

H.     Series  IAF  Warrants issued February 14, 1997 exercisable for a total of
95,000 shares at an exercise price of $1.50 per share with an expiration date of
January  31, 2002 (provided that the expiration date will be extended until such
time  as  the Company shall have processed a registration statement covering the
warrant shares and such registration statement shall have been effective for 180
days)  (See  "Part  II,  Item  4,  Recent  Sales  of  Unregistered  Securities)

I.     Warrants  issued  between  March 5, 1997 to December 19, 1997 exercisable
for  a  total of 82,500 shares at exercise prices ranging from $.80 to $1.50 per
share  with  expiration  dates  of  December  31,  2000  to  December  31,  2004

J.     Warrant  authorized  to  be  issued  May  30,  1997, issued July 10, 1998
exercisable  for  50,000  shares at an exercise price of $2.00 per share with an
expiration  date  May  30,  2001

K.     Options issued between November 26, 1997 and January 30, 1998 exercisable
for  a  total  of  430,553  shares  at  an exercise price of $.90 per share with
expiration dates of November 25, 2002 to January 30, 2003 (See "Part II, Item 4,
Recent  Sales  of  Unregistered  Securities)

L.     Options issued between November 26, 1997 and January 30, 1998 exercisable
for  a  total  of  430,552  shares  at  an exercise price of $.90 per share with
expiration dates of November 26, 2002 to January 30, 2003 (See "Part II, Item 4,
Recent  Sales  of  Unregistered  Securities)

M.     Warrants  issued  June  24,  1998  and July 24, 1998 each exercisable for
25,000 shares at an exercise price of $1.00 per share with an expiration date of
June  30,  2002  (See "Part II, Item 4, Recent Sales of Unregistered Securities)

     A  number  of  the Warrants described above contain antidilution provisions
that  are triggered by events such as, among others, the issuance by the Company
of  shares  at  a  purchase  price  less  than  the stated exercise price of the
Warrants.  The  triggering events have been recognized, appropriate calculations
have  been  made on the Company's books, and the overall impact on the number of
shares  issuable  and  the  purchase  price  therefor  is  immaterial.

1996  EMPLOYEE  STOCK  PLAN
---------------------------

     On  July  8,  1996,  the Company adopted an employee stock plan pursuant to
which  800,000  shares of the Company's authorized but unissued shares of Common
Stock  were  reserved for issuance in connection with grants of stock to and the
exercise of options by employees under such plan. Since the adoption of the plan
through  July  1998,  237,000  shares of stock have been granted and options for
560,000 shares have been granted and are outstanding of which options to acquire
no  shares  have  been  exercised.

     At  the October 29, 1998 Meeting of Shareholders, the Shareholders approved
reserving  2,000,000 additional shares in connection with grants of stock to and
the  exercise  of  options  by  employees  made  under  such  plan.

TRANSFER  AGENT
---------------

     The  Company's transfer agent is StockTrans, Inc., 7 East Lancaster Avenue,
Ardmore,  PA  19003-2318.

ANTI-TAKEOVER  PROVISIONS
-------------------------

     Although  the  Board  of  Directors  is not presently aware of any takeover
attempts,  the Certificate of Incorporation and Bylaws of the Company and Nevada
law  contain  certain  provisions  which  may be deemed to be "anti-takeover" in
nature  in that such provisions may deter, discourage or make more difficult the
assumption  of control of the Company by another corporation or person through a
tender  offer,  merger,  proxy  contest  or  similar  transaction  or  series of
transactions.

     Authorized  but  Unissued  Shares:  The  authorized  capital  stock  of the
     ---------------------------------
Company  includes  50,000,000  shares  of  Common  Stock and 5,000,000 shares of
     -
Preferred  Stock.  These shares of capital stock were authorized for the purpose
of  providing  the Board of Directors of the Company with as much flexibility as
possible  to  issue  additional  shares for proper corporate purposes, including
equity  financing,  acquisitions,  stock dividends, stock splits, employee stock
option plans, and other similar purposes which could include public offerings or
private  placements.  Shares  of  Preferred  Stock  could be issued quickly with
terms  calculated to delay or prevent a change in control of the Company without
any  further  action  by  the  stockholders.

     No  Cumulative Voting:  Neither the Company's Articles of Incorporation nor
     ---------------------
its Bylaws contain provisions for cumulative voting.  Cumulative voting entitles
each  stockholder  to  as  many votes as equal the number of shares owned by him
multiplied  by the number of directors to be elected.  With cumulative voting, a
stockholder  may cast all these votes for one candidate or distribute them among
any  two  or  more  candidates.  Thus,  cumulative  voting  for  the election of
directors  allows  a stockholder or group of stockholders who hold less than 50%
of  the  outstanding  shares  voting  to elect one or more members of a board of
directors.  Without cumulative voting for the election of directors, the vote of
holders of a plurality of the shares voting is required to elect any member of a
board of directors and would be sufficient to elect all the members of the board
being  elected.


ITEM  13  -     EXHIBITS,  FINANCIAL  STATEMENT  SCHEDULES  AND
          REPORTS  ON  FORM  8-K

(a)     A list of financial statements and financial statement schedule filed as
part  of  this  report  is set forth on page 56 hereof.   The only Exhibit filed
with  this  report  is  Exhibit  27,  Financial  Data  Schedule.

(b)     Reports  on  Form  8-K
     During  the  last quarter of the period covered by this report, the Company
did  not  file  any  Current
     Reports  on  Form  8-K.

(c)     Exhibit  27
Financial  Information  in  SEC  format  (see  page  54)

(d)     Accountant's  Consent  (see  page  55)




<PAGE>











     ACCOUNTANT'S  CONSENT



To  the  Stockholders  and  Board  of  Directors
CoreCare  Systems,  Inc.


We  consent  to the use of our Independent Auditor's Report dated March 9, 1999,
and  accompanying financial statements of CoreCare Systems, Inc. (the "Company")
for  the years ended December 31, 1998 and 1997,  in the Company's Annual Report
on  Form  10K-SB for the year ended December 31, 1998, filed with the Securities
and  Exchange  Commission.




SCHIFFMAN  HUGHES  BROWN
Certified  Public  Accountants
Blue  Bell,  Pennsylvania
April  12,  1999



<PAGE>

<TABLE>
<CAPTION>

             FINANCIAL  STATEMENTS


                                            PAGE
<S>                                         <C>
Independent Auditor's Report                   58

Consolidated Balance Sheets                 59-60

Consolidated Statements of Operations          61

Consolidated Statements of Changes in
Shareholders' Equity                           62

Consolidated Statements of Cash Flows          63

Notes to Consolidated Financial Statements  64-90
</TABLE>


<PAGE>









                             CORECARE SYSTEMS, INC.

                        CONSOLIDATED FINANCIAL STATEMENTS

              FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996













<PAGE>





                          INDEPENDENT  AUDITOR'S  REPORT



To  the  Shareholders  and  Board  of  Directors
CoreCare  Systems,  Inc.
Philadelphia,  Pennsylvania


We  have  audited  the  accompanying  consolidated  balance  sheets  of CoreCare
Systems,  Inc.  as  of  December  31, 1998 and 1997 and the related consolidated
statements  of  operations,  changes in shareholders' deficiency, and cash flows
for  each  of  the  years in the three year period ended December 31, 1998 (1997
Restated - see Notes 1 and 16).  These consolidated financial statements are the
responsibility of the Company's management.  Our responsibility is to express an
opinion  on  these  financial  statements  based  on  our  audit.

We conducted our audit 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  audit  provides  a  reasonable  basis  for  our opinion.

In  our  opinion,  the financial statements referred to above present fairly, in
all  material  aspects,  the  financial position of CoreCare Systems, Inc. as of
December 31, 1998 and 1997, and the results of its operations and its cash flows
for  each  of  the  years  in  the  three year period ended December 31, 1998 in
conformity  with  generally  accepted  accounting  principles.



SCHIFFMAN  HUGHES  BROWN
Blue  Bell,  Pennsylvania
March  9,  1999


<PAGE>
<TABLE>
<CAPTION>
                             CORECARE SYSTEMS, INC.
                           CONSOLIDATED BALANCE SHEETS
                           DECEMBER 31, 1998 AND 1997


                                     ASSETS


                                                 1998         1997
                                              -----------  -----------
<S>                                           <C>          <C>

                                                           As Restated
                                                           See Note 16

Current assets:
  Cash                                        $   115,242  $   304,267
  Accounts receivable, net                      5,588,188    2,575,473
  Prepaid and other current assets                224,215      212,367
                                              -----------  -----------
    Total current assets                        5,927,645    3,092,107
                                              -----------  -----------

Contract rights, net of accumulated
 amortization of $1,023,619 in 1998
 and $531,011 in 1997                             265,300      548,663
                                              -----------  -----------

Real estate and other assets held for sale      1,100,000    1,513,723
                                              -----------  -----------

Property, plant and equipment net              14,151,787   10,727,385
                                              -----------  -----------

Other assets:
  Goodwill, net of accumulated amortization
   of $496,924 in 1998 and 257,598 in 1997      1,527,981    1,801,155
  Deferred finance costs, net of accumulated
   amortization of $1,759,635 in 1998 and
   $241,648 in 1997                               443,172      305,354
  Security deposits                               109,334      108,468
  Restricted cash                                 207,041      197,394
  Other                                           981,436      247,232
                                              -----------  -----------
                                                3,268,964    2,659,603
                                              -----------  -----------

                                              $24,713,696  $18,541,481
                                              ===========  ===========
</TABLE>

The accompanying notes are an integral part of the financial statements

<PAGE>
<TABLE>
<CAPTION>
                             CORECARE SYSTEMS, INC.
                     CONSOLIDATED BALANCE SHEETS (CONTINUED)
                           DECEMBER 31, 1998 AND 1997


                    LIABILITIES AND SHAREHOLDERS' DEFICIENCY


                                               1998           1997
                                           -------------  -------------
                                                           As Restated
                                                           See Note 16
<S>                                        <C>            <C>
Current liabilities:
  Line of credit                           $  4,308,703   $  1,582,240 
  Current portion of:
    Long-term debt                           15,199,388     10,203,425 
    Lease termination fee payable                38,565         38,565 
    Obligations under capital lease                             71,763 
  Accounts payable                            3,748,884      2,275,442 
  Advances, officers-shareholders               910,692      1,013,428 
  Accrued expenses                              840,354      2,091,675 
  Payroll and payroll taxes payable           3,048,183      1,688,105 
  Due to Medicare                             1,000,000 
                                           -------------               
    Total current liabilities                29,094,769     18,964,643 
                                           -------------  -------------

Long term liabilities:
  Notes payable                               2,098,907      2,192,798 
  Lease termination fee payable                  93,467         93,467 
                                           -------------  -------------
                                              2,192,374      2,286,265 
                                           -------------  -------------
Commitments and contingencies

Company obligated mandatorily redeemable
  Series E convertible preferred stock
  (redemption value $943,400 in 1997)                 0      1,293,271 
                                           -------------  -------------

Shareholders' deficiency:
  Preferred stock                                    17             26 
  Common stock                                   15,949         12,694 
  Additional paid in capital                 11,374,340      9,357,714 
  Accumulated deficit                       (17,963,753)   (13,373,132)
                                           -------------  -------------
                                             (6,573,447)    (4,002,698)
                                           -------------  -------------

                                           $ 24,713,696   $ 18,541,481 
                                           =============  =============
</TABLE>

The accompanying notes are an integral part of the financial statements

<PAGE>
<TABLE>
<CAPTION>
                             CORECARE SYSTEMS, INC.
                      CONSOLIDATED STATEMENTS OF OPERATIONS
              FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996


                                      1998          1997          1996
                                  ------------  ------------  ------------
                                                As Restated
                                                See Note 16
<S>                               <C>           <C>           <C>
Revenue:
  Patient services, net           $18,125,610   $ 7,670,834   $ 5,741,894 
  Management services               1,962,803     1,760,075       717,423 
  Health and fitness center           450,625       521,414       564,987 
  Rental income                     1,078,016       512 861 
                                  ------------  ------------              
                                   21,617,054    10,465,184     7,024,304 
                                  ------------  ------------  ------------
Direct costs:
  Patient services                  8,684,360     4,753,042     2,561,845 
  Management services                 842,438       254,269       444,433 
  Health and fitness center           278,774       304,055       118,738 
                                  ------------  ------------  ------------
                                    9,805,572     5,311,366     3,125,016 
                                  ------------  ------------  ------------

Gross profit                       11,811,482     5,153,818     3,899,288 
                                  ------------  ------------  ------------

Operating expenses:
  Salaries and employee benefits    3,418,430     2,716,304     2,011,950 
  Selling and administrative        5,906,911     3,730,504     3,526,479 
  Amortization                      2,423,054       677,067       572,576 
  Depreciation                        482,360       279,546       218,936 
  Provision for bad debts           1,946,140       590,656       374,601 
  Impaired asset write down           369,380 
                                  ------------                            
    Total operating expenses       14,546,275     7,994,077     6,704,542 
                                  ------------  ------------  ------------

Income (loss) from operations      (2,734,793)   (2,840,259)   (2,805,254)
                                  ------------  ------------  ------------

Non-operating expenses:
  Interest expense                  1,855,828     1,844,284       640,008 
  Factor fees                                       281,533       110,383 
                                  ------------  ------------  ------------
                                    1,855,828     2,125,817       750,391 
                                  ------------  ------------  ------------

Net loss                          $(4,590,621)  $(4,966,076)  $(3,555,645)
                                  ============  ============  ============

Basic net loss per share          $      (.33)  $      (.44)  $      (.41)
                                  ============  ============  ============

Diluted net loss per share        $      (.33)  $      (.44)  $      (.41)
                                  ============  ============  ============

Weighted average number of
 common shares outstanding         13,758,587    11,326,617     8,744,842 
                                  ============  ============  ============
</TABLE>


    The accompanying notes are an integral part of the financial statement

<PAGE>
<TABLE>
<CAPTION>
                                                 CORECARE SYSTEMS, INC.
                        CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIENCY)
                                     FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997


                                                                                             Additional
                                        Common Stock                Preferred Stock           Paid In      Accumulated
                                   ------------------------  -----------------------------  ------------  -------------
                                      Shares     Par Value        Shares        Par Value     Capital        Deficit
                                   ------------  ----------  ----------------  -----------  ------------  -------------
<S>                                <C>           <C>         <C>               <C>          <C>           <C>

Balance, December 31, 1996           10,491,326      10,491           17,868           32     7,286,388     (8,407,056)

Net loss for the year ended
 December 31, 1997 (as Restated,
 See Note 16)                                                                                               (4,966,076)

Issuance of common stock              1,785,587       1,786                     2,056,207     2,057,993 
Conversion of preferred stock
 to common stock                        416,615         417             (850)          (6)       15,119                
                                   ------------  ----------  ----------------  -----------  ------------               

Balance, December 31, 1997
 (as Restated, See Note 16)          12,693,528      12,694           17,018           26   $ 9,357,714   $(13,373,132)

Net loss for the year
 ended December 31, 1998                                                                                    (4,590,621)

Issuance of common stock              2,063,554       2,063                                   1,224,538                

Conversion of preferred stock
 to common stock                      1,192,046       1,192           (9,934)          (9)    1,292,088                

Redemption of warrants                                                                         (500,000)               
                                                                                            ------------               

                                     15,949,128  $   15,949            7,084   $       17   $11,374,340   $(17,963,753)
                                   ============  ==========  ================  ===========  ============  =============




                                      Total
                                   ------------
<S>                                <C>

Balance, December 31, 1996          (1,110,145)

Net loss for the year ended
 December 31, 1997 (as Restated,
 See Note 16)                       (4,966,076)

Issuance of common stock
Conversion of preferred stock
 to common stock                        15,530 
                                   ------------

Balance, December 31, 1997
 (as Restated, See Note 16)        $(4,002,698)

Net loss for the year
 ended December 31, 1998            (4,590,621)

Issuance of common stock             1,226,601 

Conversion of preferred stock
 to common stock                     1,293,271 

Redemption of warrants                (500,000)
                                   ------------

                                   $(6,573,447)
                                   ============
</TABLE>

    The accompanying notes are an integral part of the financial statement

<PAGE>
<TABLE>
<CAPTION>
                                         CORECARE SYSTEMS, INC.
                                  CONSOLIDATED STATEMENTS OF CASH FLOWS
                          FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996


                                                                    1998          1997          1996
                                                                ------------  ------------  ------------
As Restated
See Note 16
<S>                                                             <C>           <C>           <C>
Cash flows from operating activities:
  Net loss                                                      $(4,590,621)  $(4,966,076)  $(3,555,645)
  Common stock issued for services
    and interest expense                                            769,005       690,766       313,000 
  Contributed capital for services                                                              144,000 
  Non-cash adjustments to reconcile net loss to
   net cash provided by operating activities:
    Depreciation                                                    482,360       279,546       218,936 
    Amortization                                                  2,423,054       677,067       572,576 
    Impaired asset write down                                       369,380 
    Allowance for doubtful accounts                                 570,757      (151,198)        2,021 
  (Increase) decrease in operating assets:
    Accounts receivable                                          (3,583,472)   (1,329,723)     (597,202)
    Other current assets                                            (11,848)     (210,495)       63,230 
    Deposits                                                           (866)        8,558       (73,050)
    Deferred costs                                                  (65,000)       65,000 
    Other assets                                                   (743,851)     (237,683)     (180,787)
  Increase (decrease) in operating liabilities:
    Accounts payable                                              1,473,442     1,466,235       202,035 
    Lease payable                                                   168,717 
    Accrued expenses                                             (1,251,321)    1,759,275      (267,013)
    Payroll taxes payable                                         1,360,078     1,487,928      (225,831)
    Due to Medicare                                               1,000,000 
                                                                ------------  ------------  ------------
Net cash used in operating activities                            (1,733,903)     (590,800)   (3,150,013)
                                                                ------------  ------------  ------------

Cash flows from investing activities:
  Increase in capitalized financing costs                        (1,902,341)     (114,157)     (378,775)
  Purchase of property and equipment                             (3,105,451)   (8,468,127)      (18,014)
  Purchase of contract rights                                       (38,543)
                                                                ------------  ------------  ------------
Net cash used in investing activities                            (5,007,792)   (8,582,284)     (435,332)
                                                                ------------  ------------  ------------

Cash flows from financing activities:
  Proceeds from issuance of stock                                   256,597       948,817     1,176,276 
  Advances from officers                                           (102,736)      481,472       246,976 
  Repayment of notes                                             (8,571,706)     (618,080)   (2,551,248)
  Repayment of lease obligations                                    (93,467)      (17,413)      (54,346)
  Proceeds from short and long term debt                         12,337,519     8,669,095     3,065,361 
  Proceeds from line of credit                                    2,726,463       (30,789)    1,613,029 
                                                                ------------  ------------  ------------
Net cash provided by financing activities                         6,552,670     9,433,102     3,496,048 
                                                                ------------  ------------  ------------

Net increase (decrease) in cash                                    (189,025)      260,018       (89,297)

Cash, beginning of period                                           304,267        44,249       133,546 
                                                                ------------  ------------  ------------

Cash, end of period                                             $   115,242   $   304,267   $    44,249 
                                                                ============  ============  ============

Supplemental disclosures of cash flows information:
  Interest paid                                                 $   815,705   $   646,145   $   616,749 
                                                                ============  ============  ============
  Taxes paid                                                    $       -0-   $       -0-   $       -0- 
                                                                ============  ============  ============

Non-cash financing activities: Redemption of warrants for debt  $   500,000 
                                                                ============  ============  ============

Non-cash investing activities:
  Businesses acquired                                           $   201,000   $   200,000 
                                                                ============  ============  ============
  Common stock issued for services                              $   769,005   $   690,766   $   313,000 
                                                                ============  ============  ============
</TABLE>


<PAGE>
                             CORECARE SYSTEMS, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        DECEMBER 31, 1998, 1997 AND 1996



1.     Restatement:

     During  the  audit  of  the 1998 financial records, it came to management's
attention  that  the 1997 financial statements contained inaccuracies.  The 1997
financial  statements  contained  herein  have  been  restated  (See  Note  16).

2.     The  Business:

     CoreCare  Systems, Inc., through its eight operating subsidiaries, provides
management services to behavioral service providers; provides, owns and operates
out-patient  and  inpatient  behavioral  health  services; operates a health and
fitness  center; develops billing software for the health industry, leases space
at  the  Kirkbride  facility  to  third  parties, and provides clinical research
services  to  the  pharmaceutical  industry.

3.     Summary  of  significant  accounting  policies:

     Principles  of  consolidation:

     The  December  31,  1998, 1997 and 1996 financial statements of the Company
include  the  accounts  of  CoreCare  Systems,  Inc.,  and  its  wholly  owned
subsidiaries.

     All  material  inter-company accounts and transactions have been eliminated
in  consolidation.

     Use  of  estimate:

     In  preparing  financial  statements,  management  makes  estimates  and
assumptions  that  affect  the reported amounts of assets and liabilities in the
Consolidated  Balance  Sheet  and  revenues  and  expenses  in  the Consolidated
Statements  of  Operations.  Actual  results  could differ from those estimates.
Estimates  made  by  management  include:  allowance  for  doubtful  accounts,
contractual  allowances,  depreciation,  amortization  and  income  taxes.

     Concentration  of  credit  risk:

     Financial instruments, which subject the Company to concentration of credit
risk,  consist of trade receivables from government health care systems, such as
Medicare,  Medicaid  and  Community  Behavioral  Health  care  providers.


<PAGE>
                             CORECARE SYSTEMS, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                        DECEMBER 31, 1998, 1997 AND 1996


3.     Summary  of  significant  accounting  policies  (continued):

     Year  2000  compliance:

     The  Company  primarily  uses  licensed software products in its operations
with  a  significant  portion  of  processes and transactions centralized in one
particular  software  package. During 1998 and 1999, management plans to upgrade
to  the most current version of this software package which, among other things,
is  Year  2000  compliant.  Cost  of  the  project  has not yet been determined.

     Earnings  (loss)  per  share:

     Basic  earnings (loss) per share are computed by dividing net income (loss)
by  the  weighted average number of shares of common stock. Diluted earnings per
share  reflect  the  dilutive effect of an equivalent number of common shares of
convertible  preferred  stock,  stock  options and warrants. For the years ended
December  31, 1998, 1997 and 1996, the computation of diluted loss per share was
antidilutive;  therefore,  the  amounts  reported for basic and diluted loss per
share  were  the  same.

     Income  taxes:

     The  provision  for  income  taxes  is  based  upon  income  recognized for
financial  statement  purposes and includes the effects of temporary differences
between such income and that recognized for the tax return purposes.  Future tax
benefits, such as net operating loss carryforwards, are recognized to the extent
that  realization  of  such  benefits  is  more  likely  than  not.

     Deferred  finance  costs:

     Deferred  finance  costs arising from the acquisition of long-term debt are
being  amortized  using  the  straight-line method over the terms of the related
subordinated  convertible  promissory  notes.

     Net  patient  service  revenue:

     Patient  service  revenue  is  recorded  net  of contractual allowances and
accounted  for  using  the accrual method of accounting based upon the Company's
established standard rates during the period in which the services are provided.
Contractual  and  other  allowances,  including  un-collectible  amounts,  are
accounted  for on the accrual basis so as to include accounts receivable and net
patient  revenue  amounts  expected  to  be  realized  through  payments  from
third-party  payors  and  others.

<PAGE>

                             CORECARE SYSTEMS, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                        DECEMBER 31, 1998, 1997 AND 1996




3.     Summary  of  significant  accounting  policies  (continued):

     Goodwill  and  contract  rights:

     Costs  in  excess  of  the  fair  value  of  net  assets acquired are being
amortized  on  a straight-line basis over a 40-year period.  Certain acquisition
costs  are  written  off  at an accelerated rate if it appears that the economic
value  of  such  costs  is  reduced.

     Contract  rights  are  being  amortized  using  the straight-line method of
accounting  over  a  three  to  five  year  period.

     Property,  plant  and  equipment  and  depreciation:

     Property,  plant  and  equipment  are  stated  at  cost  less  accumulated
depreciation.  Additions  and  betterments  are  capitalized and maintenance and
repairs  are  charged  to  current  operations.  The  cost  of assets retired or
otherwise  disposed of and the related accumulated depreciation and amortization
are  removed  from  the  accounts  and  the gain or loss on such dispositions is
included  in  current  operations.  Depreciation  is  provided  using  the
straight-line  method.  Estimated  useful  lives  of  the  assets  are:

          Buildings     31.5  to  40  years
          Building  improvements     31.5  to  40  years
          Furniture  and  equipment     5  to  7  years
          Automobiles     5  years

     Reclassifications:

     Certain  reclassifications  have been made to the 1997 financial statements
to  conform  to the 1998 financial statement presentation. These adjustments had
no  effect  on  net  loss  for  that  period.


<PAGE>
                             CORECARE SYSTEMS, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                        DECEMBER 31, 1998, 1997 AND 1996




4.     Acquisitions:

     Kirkbride  Center:

     On  February  27,  1997,  the Company, through its wholly owned subsidiary,
CoreCare  Behavioral  Health  Management,  Inc.,  acquired  the  property of the
Institute of Pennsylvania Hospital and re-named it Kirkbride Center (Kirkbride).
Kirkbride  is  comprised  of 420,000 square feet of commercial real estate on 27
acres  of  land  in  West  Philadelphia,  Pennsylvania.

     Kirkbride  Center  is licensed for 120 acute inpatient psychiatric beds and
63  drug  and  alcohol  beds;  50  adult  partial  hospitalization  slots;  and
outpatient  services.  Of  its  120  beds,  57 beds hold dual licensure to treat
substance  abuse  disorders.  The  Center  also  holds a provider 50 license for
mobile  therapy  services  and  has  24  licensed  residential  treatment  beds.

     The  Company  is  utilizing  approximately  50%  of  the  facility  for its
inpatient  beds  and  outpatient  services  and  leases  the balance for medical
offices,  a  school,  a  food processing plant, a laundry and related behavioral
services.

     The  total purchase price of the facility was $4,500,000 plus closing costs
of $1,025,662.  The closing costs were allocated to deferred financing costs and
the  facility  in  the amounts of $462,940 and $562,722, respectively.  From the
date  of  the  acquisition  through  December  31,  1997,  Kirkbride capitalized
$2,936,509 of costs associated with improving and carrying the facility.  During
1998,  Kirkbride  capitalized  $1,563,797 of costs associated with improving and
carrying  the  facility.

     In  connection with the acquisition of Kirkbride, in January 1997, CoreCare
Realty Corp. was organized to manage the real estate assets of CoreCare Systems,
Inc.,  principally  the  Kirkbride  Center.  CoreCare  Realty Corp. has retained
Franklin  Realty  Corp.  (FRC)  to  provide  the management services of the real
estate  portion  of  Kirkbride and therefore has no employees.  During 1997, FRC
was  paid  $10,000  to  manage Kirkbride.  In the opinion of management, the fee
paid  to  FRC  is  an  arm's  length amount. Revenue is derived from leases with
tenants  in  Kirkbride Center which currently include two major hospital systems
in  the  Philadelphia  area  and  individual  doctors  who  lease  office space.


<PAGE>
                             CORECARE SYSTEMS, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                        DECEMBER 31, 1998, 1997 AND 1996



4.     Acquisitions  (continued):

     Quantum  Managed  Mental  Health  Systems,  Inc.:

     On  July 3, 1997, the Company acquired 100% of the outstanding common stock
of  Quantum Managed Mental Health System, Inc. (Quantum) in exchange for 200,000
shares  of  its  common  stock.  Quantum  is  a  network  of approximately 3,000
psychologists  contractually  organized  as  a  Preferred  Provider  Network for
employee  assistance  programs.

     Quantum  commenced  operations  in  1998  and signed four clinical research
contracts,  which  should  generate  revenue  in  1999.

     On  June  30, 1997, the Company acquired the assets and certain liabilities
of  ZA  Consulting/Management,  Inc.  (ZA/CMI), a physician billing and practice
management  services  business.  CoreCare's  wholly-owned  subsidiary,  Managed
CareWare,  Inc.,  d/b/a CoreCare Management, Inc. (CMI) operates the company and
has  the  responsibility  for all of the Company's billing and collections which
were  previously outsourced.  The purchase price was $1.00 and the assumption of
selected  liabilities  approximating  $20,000.  The Company signed a demand note
payable  to  the  seller  for  the  value  of  the  accounts  receivable  and
work-in-process which is to be collected and remitted to the seller. For the six
months  ended December 31, 1997, CMI had revenue of $994,419 and a net income of
$178,700.

     Preferred  Medical  Services:

     On  April  15,  1998,  Managed  Careware  acquired  the assets of Preferred
Medical  Services  for  $312,744.  The  purchase  price  was funded with 250,000
shares  of  CRCS  common stock valued at $201,000 and a demand note for $111,744
bearing  interest  of  5.54%  per  annum.  During  1998,  $30,550  was paid.  In
December,  1998, the Company integrated the operations of Preferred into CMI and
closed  their  Blue  Bell,  Pennsylvania  office.



<PAGE>
                             CORECARE SYSTEMS, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                        DECEMBER 31, 1998, 1997 AND 1996



5.     Real  estate  and  other  assets  held  for  sale:

     On  July  22, 1992, in connection with the acquisition of Lakewood Retreat,
Inc.,  the  Company  purchased  real  estate,  which  included  56.7+  acres  of
                                                                    -
unimproved,  developable  land.  Upon  acquisition,  the  cost  allocated to the
developable  land, of $115,857, was based upon the then fair market value of the
unimproved  developable  land.

     During the first quarter of 1996, the Company closed Lakewood Retreat, Inc.
It  is  currently  held  for  sale.  As  of  December 31, 1997, the facility was
recorded at its original cost, net of accumulated depreciation, $1,513,723.  The
Company  has  adopted  FASB  Statement No. 121 "Accounting for the Impairment of
Long-Lived  Assets  and  for  Long-Lived  Assets To Be Disposed Of" and the real
estate  and  other  assets  held for sale are valued at the lower of cost or net
realizable  value.  At December 31, 1998, the asset was recorded at the lower of
cost  or the appraised value. In February 1999, the Company received an offer to
buy  the  property for $1,100,000 and the asset was reduced at December 31, 1998
to  reflect  the  offered  price.

6.     Accounts  receivable:

     In  June 1998, the Company entered into a revolving line of credit pledging
the  accounts  receivable  as  collateral.  This facility replaced the factoring
agreement,  which  was  in  place  from  January  1996  through  May  1998.

     In  January,  1996,  a  subsidiary of the company entered into an Agreement
with  a  factor whereby the Company can sell (with recourse) up to $2,500,000 of
certain  accounts  receivable on a revolving basis.  The agreement obligates the
subsidiary  to  repurchase  accounts receivable, which have defaulted.  Upon the
sale  of the accounts receivable to the factor, the subsidiary receives proceeds
of  approximately  80%  of  such  accounts  receivables.  The  factor  holds
approximately  19%  of  the  accounts receivable as a reserve.  The reserves are
maintained  as  a  fixed percentage of the cumulative balance of sold and unpaid
receivables.  Reserves  in  excess  of  required  balances  are  remitted to the
subsidiary.

     As  a  result  of  the  Kirkbride  Center acquisition, this arrangement was
expanded  permitting  the  company  to  sell up to $5,000,000 of certain account
receivables  in  its  Westmeade  Center  at  Warwick  and  Kirkbride operations.


<PAGE>
                             CORECARE SYSTEMS, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                        DECEMBER 31, 1998, 1997 AND 1996



6.     Accounts  receivable  (continued):

     As  of  December  31,  1998 and 1997, accounts receivable and allowance for
doubtful  accounts  are  as  set  forth  below:

<TABLE>
<CAPTION>
                                          December  31,
                                      ----------------------
                                         1998        1997
                                      ----------  ----------
<S>                                   <C>         <C>

  Total accounts receivable           $7,313,014  $4,863,653
  Accounts receivable sold to factor   1,134,111
                                      ----------            
                                       7,313,014   3,729,542
  Allowance for doubtful accounts      1,724,826   1,154,069
                                      ----------  ----------

  Accounts receivable, net            $5,588,188  $2,575,473
                                      ==========  ==========
</TABLE>

7.     Property,  plant  and  equipment:

     As of December 31, 1998 and 1997, property, plant and equipment consists of
the  following:

<TABLE>
<CAPTION>
                                         December  31,
                                  --------------------------
                                      1998          1997
                                  ------------  ------------
<S>                               <C>           <C>
  Land                            $ 1,637,329   $ 1,637,329 
  Buildings                         4,864,635     4,864,635 
  Building improvements             7,378,221     3,780,801 
  Furniture and equipment           1,271,424     1,008,561 
  Automobiles                          20,450        28,705 
  Property held for licensing         200,000       200,000 
  Furniture and equipment under
    capital lease                     235,307       235,307 
                                  ------------  ------------
                                   15,607,366    11,755,338 
  Less: Accumulated depreciation   (1,455,579)   (1,027,953)
                                  ------------  ------------
                                  $14,151,787   $10,727,385 
                                  ============  ============
</TABLE>

<PAGE>
                             CORECARE SYSTEMS, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                        DECEMBER 31, 1998, 1997 AND 1996


8.     Income  taxes:

     At  December  31,  1998,  1997 and 1996, the Company had net operating loss
carryforwards available to reduce future federal taxable income of approximately
$17,000,000, $13,000,000  and $8,000,000, respectively. The carryforwards expire
through  2011.

9.     Bank  lines  of  credit:

     In  May,  1996,  the  Company  entered  into a bank line of credit facility
agreement for $1,100,000.  The credit line facility bears interest at the bank's
prime  rate  and  is  collateralized  by  marketable  securities  pledged by the
officers.  At  December 31, 1998 and 1997, borrowings against the line of credit
totaled  the  maximum  outstanding  during  the  year,  $1,100,000.

     The  Company  has  also  borrowed  $468,500  under  its August 1996 line of
credit  facility  agreement  with  another  bank,  which  is  collateralized  by
marketable  securities,  pledged  by  the  Company's  officers.  Interest  on
outstanding  balances  accrues  at  the rate of prime plus 1.5%. At December 31,
1998  and  1997,  borrowings  against  the  line  of  credit totaled the maximum
outstanding  during  the  year,  $468,500.

     A  line  of  credit in the amount of $44,529 was issued to Lakewood Retreat
Inc.  (Lakewood),  a wholly owned subsidiary of the Company, at an interest rate
of 10.25%.  At December 31, 1997, borrowings against the line of credit facility
totaled  $13,740.  This  loan  was  guaranteed  by  the  officers.

     In  May,  1998,  the Company entered into a line of credit agreement with a
financial  corporation  for  $5,000,000.  The  credit line bears interest at the
bank's  prime  rate. At December 31, 1998, borrowings against the line of credit
totaled  $2,740,203.

<PAGE>
                             CORECARE SYSTEMS, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                        DECEMBER 31, 1998, 1997 AND 1996


10.     Long  term  debt:

<TABLE>
<CAPTION>
                                                        1998       1997
                                                     ----------  --------
<S>                                                  <C>         <C>
  Mortgage note payable:
    Payable in monthly installments of $3,500
    plus interest at the rate of 11% per annum.
    The mortgage is collateralized by assets of
    Lakewood which include real estate held for
    sale or development and property, plant and
    equipment having a net book value of
    $1,631,973.  The mortgage note payable was
    to mature on September 16, 1996 but was
    extended to December 17, 1996. The terms
    for the extension require the Company to
    reduce the principal $50,000 in September,
    October, and November of 1996 and to issue
    15,000 shares of its common stock to the
    mortgagee. Payment has not been made during
    1997. In 1997, the Company signed an agreement
    whereby the mortgagee can sell the property.     $  702,000  $702,000

  Mortgage note payable (continued):
    Interest is payable monthly at LIBOR plus
    6.5% per annum. The mortgage is
    collateralized by assets of CoreCare
    Behavioral Health Management, Inc.
    which includes property, plant, equipment,
    investments and all proceeds and products
    of the Company. The mortgage note matures
    on August 26, 1998 but may be extended
    to February 26, 1999 by exercising an option
    contained in the loan indenture. Upon the
    repayment of the note, the lender will
    charge additional interest as stated in the
    loan document. At December 31, 1997 the
    additional interest due was $1,098,252 and
    was recorded as accrued interest expense.
    (See Note 3 Acquisitions, Kirkbride)              6,440,000
</TABLE>


<PAGE>
                             CORECARE SYSTEMS, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                        DECEMBER 31, 1998, 1997 AND 1996

10.     Long  term  debt  (continued):

<TABLE>
<CAPTION>
                                                          1998        1997
                                                       -----------  ---------
<S>                                                    <C>          <C>

    Interest is payable monthly at LIBOR plus
    6.5% per annum. The mortgage is collateralized
    by assets of CoreCare Behavioral Health
    Management, Inc. which includes property,
    plant, equipment, investments and all proceeds
    and products of the Company. The mortgage
    note matured on February 26, 1999, but the
    mortgagee extended the maturity to June 30, 1999.
    The mortgage holder has 600,000 shares of
    common stock of the Company in escrow as
    additional collateral which will be returned
    upon repayment of the mortgage debt.               $13,000,000

    In June 1996, through a refinance of the then
    existing debt, the Company obtained financing
    pursuant to a mortgage note payable to an
    independent finance company.  The mortgage
    note which bears interest at the average
    rate of 10.9% per annum matures on July 1,
    2001. The mortgage is being amortized over
    20 years with 59 monthly payments of $18,249
    and a final payment of $1,629,160.  The note
    is secured by the Warwick, Pennsylvania
    facility, is partially guaranteed by two officers
    and shareholders of CoreCare Systems, Inc.
    and a letter of credit for $175,000.                 1,706,745  1,737,181

    In February 1997, the Company obtained
    financing pursuant to a mortgage note
    payable to an independent finance company.
    The mortgage matures on June 27, 2001. The
    mortgage is being amortized over 20 years
    with 59 monthly payments of $5,140 and shall
    be paid without offset. The note bears interest
    at a rate of 10.94% per annum. The note is
    secured by the Warwick, Pennsylvania facility,
    is partially guaranteed by two officers and
    shareholders of CoreCare Systems, Inc.                 486,604    494,566
</TABLE>


<PAGE>
<TABLE>
<CAPTION>
                             CORECARE SYSTEMS, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                        DECEMBER 31, 1998, 1997 AND 1996

10.     Long  term  debt  (continued):


                                                     1998     1997
                                                    -------  -------
<S>                                                 <C>      <C>
  Notes payable:
    The investor promissory note bears interest
    at the prime rate of interest per annum and
    is due on demand.  The note matures on
    October 1, 2019.  Subordinated Payment
    Bonds owned by two officers-shareholders
    of the Company are pledged as collateral.        50,000

    Convertible promissory notes bear interest
    at the rate of 10% per annum.  At the option
    of the note holder, these notes can be
    converted into common stock of the Company
    at a conversion price of $2.00 per share.        10,000   10,000

    Subordinate note bears interest at the rate
    of 12% per annum. The note requires interest
    payments quarterly and principal payments
    of $166,666 on December 31, 1998, 1999 and
    2000.  Associated with this note is a warrant
    to purchase 333,333 common shares at
    $1.50 per share until 2001.                     500,000  500,000

    Demand note payable bears interest at the
    lowest rate allowable under Section 7872
    of the Internal Revenue Code for work-in-
    process payments and the prime interest
    rate for accounts receivable.                   110,954  204,421

    Notes which bear interest at a rate of 3%
    per calendar quarter. The notes mature at
    various dates throughout 1998. The notes
    are secured by a personal guarantee of
    the Company's principal shareholders.           625,000

    Note which bears interest at a rate of 11%
    per annum. The principal amount together
    with all interest accrued through December
    1997 is due June 1998. This has been
    extended to December 31, 1999.                  300,000  530,000
</TABLE>


<TABLE>
<CAPTION>


                             CORECARE SYSTEMS, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                        DECEMBER 31, 1998, 1997 AND 1996

10.     Long  term  debt  (continued):


                                                     1998         1997
                                                  -----------  -----------
<S>                                               <C>          <C>

    The secured note bears interest at a rate of
    14% per annum and matures July 1998. The
    note is collateralized by equipment and
    accounts receivable. At the option of the
    note holder, the note was converted
    into common stock of the Company.                 300,000

    Notes which bear interest at annual
    interest rates from 9.75% to 11.75% per
    annum. The notes matured during 1998.             117,147

    Investor notes bearing interest from
    6% to 12% per annum and maturing
    at various dates through 2000.                    150,900      535,908

    Note payable bearing interest at the rate
    of 8% per annum due upon the successful
    filing of a Regulation S Underwriting.            250,000      150,000

    Demand note payable for the acquisition of
    Preferred Medical Services, Inc. bearing
    interest of 5.54%.                                 81,092
                                                  -----------             
                                                   17,298,295   12,396,223
    Less amount due in one year                    15,199,388   10,203,425
                                                  -----------  -----------
                                                  $ 2,098,907  $ 2,192,798
                                                  ===========  ===========
</TABLE>


     The  amounts  of  principal  repayments  are  as  follows:

<TABLE>
<CAPTION>
<S>          <C>
1999         $15,199,388
2000              47,749
2001           1,646,001
2002             405,157
             -----------

              17,298,295
             ===========
</TABLE>


<PAGE>
                             CORECARE SYSTEMS, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                        DECEMBER 31, 1998, 1997 AND 1996


11.  Commitments  and  contingencies:

     Operating  leases:

          Facility  leases:

     Fitness  center:

     The  Company  leases  its  fitness  center under a noncancellable operating
lease  expiring  in August 1997. The facility has a month to month understanding
given the Company's interest in moving to a new location. Monthly lease payments
are  $13,000.  Under  the  terms  of  the  lease, the Company is responsible for
substantially  all  operating  costs.

     Acquisition  of  ZA  Consulting/Management,  Inc.  Lease:

     On June 30, 1997, the Company (CMI) acquired ZA Consulting/Management, Inc.
and  assumed  its office lease.  The initial lease agreement was made on January
8, 1993 and was amended on February 1, 1995 and December 4, 1997.  The lease has
a termination date of July 31, 2000 with a one-time extension renewal option for
an  additional  three  years.  Monthly  rental payments are $7,152. Rent expense
from  the  date  of  acquisition  through  December  31, 1997 was $42,912.  Rent
expense  for  1998  was  $85,822.

     Closure  of  Wyndmoor,  Pennsylvania  Facility:

     In  December  1996,  the  Company  ceased  operations  at  its  Wyndmoor,
Pennsylvania  facility.  The  facility  was leased through December 31, 1998 for
$15,000  per  month  until  it  was modified.  Rent expense under this lease was
$75,000  for  the  year  ended  December  31,  1997.


<PAGE>
                             CORECARE SYSTEMS, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                        DECEMBER 31, 1998, 1997 AND 1996


11.     Commitments  and  contingencies  (continued):

     The  Company  and  the  lessor  agreed to terminate the lease on August 12,
1997.  In  consideration  of  the  lessor  allowing the Company to terminate the
lease agreement and in settlement for all amounts due and outstanding or owed in
the  future  under  the  lease,  the  Company shall pay the lessor a termination
settlement  fee of $202,000.  The Company and the lessor agreed that the Company
shall  pay  the  termination fee to the lessor in monthly payments due the first
Thursday  of  each  month.  The  Company made payments totaling $51,190 in 1997.
Starting  on April 2, 1998 and for an additional 47 months, a monthly payment of
$3,000  will  be  made  to the lessor.  The balance due at December 31, 1998 and
1997  is  $132,032.

     The  termination  agreement  payments  were  discounted at 10%. The Company
accrued  as  an  expense  the  present value of the future payments for the year
ended  December  31,  1996.

     In  addition  to the lease termination fee, the Company accrued $20,000 for
costs  associated  with  the  closing  of  the  facility.

     In  September,  1997,  the  Company transferred the Wyndmoor license to its
Kirkbride  facility.

     Equipment  lease:

     In  January, 1998 the Company entered into equipment leases whereby it pays
the  lessor  $8,096  per  month  for  sixty  months.

     The  minimum  annual  operating  lease  payments  for  the  facilities  and
equipment  are  as  follows:

<TABLE>
<CAPTION>
      Facilities   Equipment
      -----------  ----------
<S>   <C>          <C>
1999  $    85,040  $   97,152
2000       50,064      97,152
2001                   97,152
2002                   97,152
</TABLE>


     Litigation:

     In  the  ordinary  course of business, the Company and its subsidiaries are
involved in and subject to claims, contractual disputes and other uncertainties.
In  the  opinion  of  management,  after  consultation  with  legal counsel, the
ultimate disposition of these matters will not have a material adverse effect on
the  Company's  financial  condition.

<PAGE>

                             CORECARE SYSTEMS, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                        DECEMBER 31, 1998, 1997 AND 1996

12.     Description  of  securities:

     Authorized  shares:

     The  Company's  authorized  capital  stock consists of 50,000,000 shares of
Common Stock, par value $.001 per share and 5,000,000 shares of Preferred Stock,
as to which the Board has the power to designate the rights, terms, preferences,
etc.  Of  the  initially  undesignated  Preferred  Stock 10,000 shares have been
designated  as  Series A Preferred Stock.  25,000 shares have been designated as
Series  C  Convertible  Preferred  Stock,  15,000 shares have been designated as
Series  D  Preferred  Stock,  13,250  shares  have  been  designated as Series E
Convertible  Preferred  Stock, and 6,000 shares have been designated as Series F
Convertible  Preferred  Stock.

     Common  stock:

     The Company is authorized to issue 50,000,000 shares of Common Stock, $.001
par  value  per  share.  As  of  December  31,  1998  and  1997,  15,949,128 and
12,693,528  shares  were issued and outstanding, respectively. Holders of Common
Stock are entitled to one vote for each share of Common Stock owned of record on
all matters to be voted on by stockholders, including the election of directors.
The  holders  of Common Stock are entitled to receive such dividends, if any, as
may  be declared from time to time by the Board of Directors, in its discretion,
from  funds  legally  available  therefor.

     The  rights  of holders of Common Stock to receive dividends are subject to
the  dividend  rights  of  the  holders  of Preferred Stock, as described below.
Similarly,  the  rights  of  holders  of  Common  Stock,  upon  liquidation  or
dissolution  of  the Company, are subject to the preferences afforded to holders
of  the  Company's  Preferred  Stock.

     The  Common  Stock  has  no  preemptive  or  other  subscription rights, no
cumulative  voting  rights,  and  there  are  no conversion rights or redemption
provisions.  All  outstanding  shares  of Common Stock are validly issued, fully
paid,  and  nonassessable.

     Preferred  stock:

     Holders  of  Preferred  Stock vote as a class with holders of Common Stock,
except  that  without  the vote or consent of the holder of at least 67% of each
respective  series  of the Preferred Stock then outstanding, the Company may not
(i)  create  or issue any class or series of capital stock ranking, either as to
payment  of  dividends,  distribution  of  assets  or redemptions, prior to such
series  of  Preferred  Stock,  (ii)  alter  or  change the designations, powers,
preferences,  or  rights,  or the qualifications, limitations or restrictions of
such  series  of  Preferred  Stock.


<PAGE>

                             CORECARE SYSTEMS, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                        DECEMBER 31, 1998, 1997 AND 1996


12.     Description  of  securities  (continued):

     Holders of Series C, D, E and F Preferred Stock are entitled to vote in the
election  of  directors  and  on all other matters submitted to stockholders for
their  approval  or  consent.  None  of  the  Preferred Stock has any cumulative
voting  rights.  The  number of votes is equal to the number of shares of Common
Stock into which their Preferred Stock is convertible at the time of the meeting
at  which  the  vote  is cast or, in the case of an action of stockholders taken
without a formal meeting, on the date of such action, except that each Preferred
A  and  D  shares,  which  have  no conversion rights, are entitled to 65 and 50
votes,  respectively,  per  share.

     Series  A  Preferred  Stock:

     The Company has authorized 10,000 shares of Series A Preferred Stock, $.001
par  value  per  share,  of  which 6,000 shares are issued and outstanding as of
December  31,  1998  and  1997.  The  Company's  Series  A Preferred Stock has a
liquidation  value  of  $100.00  per  share  ($600,000  in  the  aggregate)  in
liquidation  of the Company; a preference over Common Stock to the extent of its
liquidation  value;  and  is entitled to annual dividends in the amount of $4.00
per  share  (i.e., an annual rate of four (4%) percent) payable semi-annually in
arrears unless and until a "Dividend Reset Event" occurs. No dividends have ever
been declared.  After a Dividend Reset Event, the annual dividend rate on Series
A  Preferred  will  be  increased  from four (4%) percent to a rate equal to the
"prime rate" as published in the Wall Street Journal as of the last business day
                                 -------------------
preceding  the  Dividend  Reset  Event  plus  six  (6%)  percent.  The  Series A
Preferred  is  redeemable  by  the Company, at liquidation value, in whole or in
part,  at  any time after a Dividend Reset Event, upon not less than thirty (30)
days  written  notice.

     The  term  "Dividend  Reset  Event"  is defined to mean either (a) a public
offering  of  equity securities by the Company or any corporation which owns 50%
or  more  of  all  classes  of  the  Company's  common  stock  then  outstanding
(hereinafter,  a "Parent of the Company") which results in the Company's receipt
(or  receipt  by  the  Parent of the Company) of not less than $5,000,000 net of
offering  underwriting  discounts  and  commissions,  or  (b) either the Company
and/or  the  Parent  of  the  Company, on a consolidated basis, having as of any
fiscal  year-end  stockholders'  equity  of  $12,000,000  or  more.

     The  Company has the right to redeem the Series A Preferred Stock after the
Dividend  Reset  Date and upon not less than 30 days notice at $100.00 per share
plus  accrued  dividends.


<PAGE>

                             CORECARE SYSTEMS, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                        DECEMBER 31, 1998, 1997 AND 1996


12.     Description  of  securities  (continued):

     Series  B  Convertible  Preferred  Stock:

     The  Company  has authorized 7,000 shares of Series B Convertible Preferred
Stock. All previously outstanding shares of Series B Preferred were converted on
June  30,  1996.  There  were  no shares of Series B Preferred outstanding as of
December  31,  1998  and  1997.

     Holders  of  Series  B  Preferred  are entitled to receive annual dividends
equal to the dividends payable on Series A Preferred Stock, no dividend has ever
been  declared, and to convert shares of Series B Preferred into Common Stock on
the  basis  of  92 shares of Common Stock per share of Series B Preferred Stock.
Conversion  prices/ratios  will  be  adjusted  in the event of any stock splits,
dividends  on  Common Stock payable in Common Stock or similar events.  Series B
Preferred  Stock  has a liquidation value of $100.00 per share in liquidation of
the  Company.

     The  Company  has the right to redeem the Series B Shares at $100 per share
plus  accrued  dividends  upon  not  less  than thirty-(30) days written notice.

     Series  C  Convertible  Preferred  Stock:

     The  Company has authorized 25,000 shares of Series C Convertible Preferred
Stock,  of  which  8,147.3  shares are issued and outstanding as of December 31,
1998  and  1997.  Holders of shares of Series C Convertible Preferred Stock (the
"Series  C  Preferred")  are  entitled  to  annual dividends of $6.00 per share,
payable  semi-annually.  No  dividends  have  ever  been  declared.

     Each  share  of  Series  C  Preferred  are convertible at the option of its
holder  into  66.67  shares  of  Common Stock.  Conversion prices/ratios will be
adjusted  in the event of any stock splits, dividends on Common Stock payable in
Common  Stock  or  similar  events.  Series  C Preferred Stock has a liquidation
value of $100.00 per share plus accrued dividends in liquidation of the Company;
and  is  superior in rank to all other stock of the Company except for Preferred
Series  E  which  shares  the  same  rank.

     The  Company  has the right to redeem the Series C Shares at $100 per share
plus  accrued  dividends  upon  not  less  than thirty (30) days written notice.


<PAGE>
                             CORECARE SYSTEMS, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                        DECEMBER 31, 1998, 1997 AND 1996


12.     Description  of  securities  (continued):

     Series  D  Preferred  Stock:

     The  Company's  Board  of  Directors  has  designated  15,000 shares of its
Preferred  Stock  as Series D Preferred Stock, of which no shares are issued and
outstanding  as  of  December  31,  1998 and 1997. Holders of shares of Series D
Preferred  Stock  (the "Series D Preferred") are entitled to annual dividends of
$6.00  per  share,  payable  semi-annually.  Series  D  Preferred  Stock  has  a
liquidation  value  of  $100.00  per  share in liquidation of the Company and is
equal  in  rank  to  the  Series  A  Preferred.

     The  Company  has  the  right  to redeem the Series D Shares at $100.00 per
share plus accrued dividends upon not less than thirty (30) days written notice.

     Series  E  Convertible  Preferred  Stock:

     The  Company's  Board  of  Directors  has  designated  13,250 shares of its
preferred  Stock  as Series E Preferred Stock, of which 9,934 shares were issued
and  outstanding as of December 31, 1997. On December 31, 1998, the 9,934 shares
of  outstanding  Series E Preferred Stock was converted into 1,192,046 shares of
common  stock.  Holders  of  shares  of  Series E Preferred Stock (the "Series E
Preferred")  are  entitled  to  annual  dividends  of  $6.00  per  share payable
semi-annually.  No  dividends  have  ever  been  declared.

     Prior  to the Series E Redemption Date, each share of Series E Preferred is
convertible  at  the  option  of  its  holder  into  100 shares of Common Stock.
Conversion  prices/ratios  will  be  adjusted  in the event of any stock splits,
dividends  on  Common Stock payable in Common Stock or similar events.  Series E
Preferred  Stock  has a liquidation value of $100.00 per share in liquidation of
the  Company,  and  is  superior  in rank to all stock of the Company except for
Series  C  that  shares  the  same  rank.

     After  October  26,  2000, the Company has the right to redeem the Series E
shares  upon  not  less  than  30  days written notice at $100.00 per share plus
accrued  dividends.  On  or  after  October 26, 2005, holders of Series E Shares
have  the right to require the Company to redeem shares not previously converted
or  redeemed.  No  dividends  have  ever  been  declared.

     Series  F  Convertible  Preferred  Stock:

     The  Company's  Board  of  Directors  has  designated  6,000  shares of its
Preferred Stock as Series F Convertible Preferred Stock, of which 2,870.6 shares
are  issued and outstanding as of December 31, 1998 and 1997.  Holders of shares
of  Series  F Convertible Preferred Stock (the "Series F Preferred) are entitled
to  annual  dividends  of  $6.00 per share, payable semi-annually.  No dividends
have  ever  been  declared.


<PAGE>
                             CORECARE SYSTEMS, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                        DECEMBER 31, 1998, 1997 AND 1996


12.     Description  of  securities  (continued):

     Each share of Series F Preferred is convertible at the option of its holder
into 50.00 shares of Common Stock.  Conversion prices/ratios will be adjusted in
the event of any stock splits, dividends on Common Stock payable in Common Stock
or  similar  events.  Series  F Preferred has a liquidation value of $100.00 per
share in liquidation of the Company, and is equal in rank to Series A Preferred.

     The  Company has the right to redeem the Series F Shares upon not less than
thirty  (30)  days  written  notice at $100.00 per share plus accrued dividends.

     Stock  options:

     At  December  31, 1998 and 1997, there were 1,241,105 and 1,204,445 options
outstanding,  respectively.  The  average exercise price of $1.08  was above the
average market price of $1.00.  The options expire at various dates from July 6,
2001  through  January  30,  2003.

     Stock  warrants:

     At December 31, 1998 and 1997, there were 4,845,693 and 2,526,793  warrants
outstanding,  respectively.  The  average exercise price of $1.82  was above the
average  market  price  of  $1.00.  During 1997, 50,000 warrants expired. During
1998,  500,000  warrants  were  converted  to  a  note payable for $500,000. The
outstanding  warrants  at  September  30,  1998 expire December 31, 2000 through
December  31,  2004.

13.     Obligations  under  capital  leases:

     The  assets  and liabilities under capital leases are recorded at the lower
of  the  present  value  of  the  minimum lease payment or the fair value of the
assets.  The  assets  are  amortized  over  their  estimated  productive  lives.
Amortization of the assets under capital leases are included in depreciation and
amortization  expense  for  the  years  ended  December 31, 1998 and 1997. Lease
payments  vary  according to the aggregate assets under lease and are payable in
monthly installments ($6,600 at December 31, 1997) including interest imputed at
the  approximate  rate  of  10%.  The  Company assumed current capitalized lease
obligations  approximately  $50,000  when  it  acquired  the  management service
company.


<PAGE>

                             CORECARE SYSTEMS, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                        DECEMBER 31, 1998, 1997 AND 1996


13.     Obligations  under  capital  leases  (continued:

     As  of December 31, 1997, minimum future lease payments under these capital
lease  obligations  are  as  follows:

<TABLE>
<CAPTION>
                                                  1997
                                                 -------
<S>                                              <C>
    Year ending December 31, 1997                $79,736
                                                 -------
    Total minimum lease payments                  79,736
    Less amount representing interest              7,973
                                                 -------

    Present value of net minimum lease payments  $71,763
                                                 =======

    Current portion                              $71,763
                                                 =======
</TABLE>


14.     Net  patient  service  revenue:

     The  Company  books revenue at a set charge rate. The Company has contracts
with its payors. The contracts have an agreed upon per diem rate. The difference
between  the  contractual  rate and the gross charges is recorded as contractual
allowance.

     Net patient service revenue for the years ended December 31, 1998 and 1997,
consists  of  the  following:

<TABLE>
<CAPTION>
                                    1998         1997         1996
                                 -----------  -----------  ----------
<S>                              <C>          <C>          <C>
    Patient service revenue      $54,441,933  $19,799,545  $9,223,976
    Contractual adjustments       36,316,323   12,128,711   3,482,082
                                 -----------  -----------  ----------

    Net patient service revenue  $18,125,610  $ 7,670,834  $5,741,894
                                 ===========  ===========  ==========
</TABLE>

15.     Subsidiary  companies'  financial  information:

     In  1998  and 1997, the Company has two subsidiaries which account for more
than  twenty  percent  of  revenue and/or assets, Westmeade Healthcare, Inc. and
CoreCare Behavioral Health Management, Inc.  In 1996, Westmeade Healthcare, Inc.
accounted  for  more  than  twenty  percent  of  the  revenue  and  assets.


<PAGE>

                             CORECARE SYSTEMS, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                        DECEMBER 31, 1998, 1997 AND 1996


15.     Subsidiary  companies'  financial  information  (continued)



     As  of  December  31,  1998  and  1997,  highlights of subsidiary financial
information  is  summarized  below.

<TABLE>
<CAPTION>
                           WESTMEADE HEALTHCARE, INC.
                            (WHOLLY OWNED SUBSIDIARY)
                       BALANCE SHEET FINANCIAL HIGHLIGHTS


                                           1998        1997
                                        ----------  ----------
<S>                                     <C>         <C>
    Current assets                      $2,513,979  $2,222,422
    Property, plant and equipment
     (net of accumulated depreciation)   1,453,742   1,487,889
    Other assets                           334,859     325,794
                                        ----------  ----------

      Total assets                      $4,302,580  $4,036,105
                                        ==========  ==========

    Current liabilities                 $  685,285  $  423,922
    Long term liabilities                2,187,518   2,231,746
    Shareholder Equity                   1,429,777   1,380,437
                                        ----------  ----------

                                        $4,302,580  $4,036,105
                                        ==========  ==========
</TABLE>


<TABLE>
<CAPTION>
                           WESTMEADE HEALTHCARE, INC.
                            (WHOLLY OWNED SUBSIDIARY)
                       STATEMENTS OF OPERATING HIGHLIGHTS


                                      1998        1997         1996
                                   ----------  -----------  ----------
<S>                                <C>         <C>          <C>

    Patient service revenue        $2,918,219  $1,865,388   $4,296,398
    Direct operating costs          1,023,776   1,250,481    1,907,438
                                   ----------  -----------  ----------
    Gross profit                    1,894,443     614,907    2,388,960
    Operating expenses              1,616,362     491,028    1,447,706
    Other non-operating expenses      228,743     309,817      289,397
                                   ----------  -----------  ----------

  Net income (loss)                $   49,338  $ (185,938)  $  651,857
                                   ==========  ===========  ==========
</TABLE>


<PAGE>

                             CORECARE SYSTEMS, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                        DECEMBER 31, 1998, 1997 AND 1996


15.     Subsidiary  companies'  financial  information  (continued):

<TABLE>
<CAPTION>
                             WESTMEADE HEALTHCARE, INC.
                              (WHOLLY OWNED SUBSIDIARY)
                         STATEMENTS OF CASH FLOWS HIGHLIGHTS


                                                   1998        1997         1996
                                                ----------  ----------  ------------
<S>                                             <C>         <C>         <C>

    Net income (loss)                           $  49,338   $(185,938)  $   651,857 
    Net cash provided by (used in)
     operating activities                          (5,110)    475,862    (1,406,473)
    Net cash provided by investing activities
    Net cash used by financing activities         (44,228)   (478,019)      838,128 
                                                ----------  ----------  ------------
    Net decrease in cash                                     (188,095)       83,512 
    Cash, beginning                                           188,095       104,583 
                                                ----------  ----------              

    Cash, ending                                $     -0-   $     -0-   $   188,095 
                                                ==========  ==========  ============
</TABLE>


<TABLE>
<CAPTION>
                      CORECARE BEHAVIORAL HEALTH MANAGEMENT
                            (WHOLLY OWNED SUBSIDIARY)
                       BALANCE SHEET FINANCIAL HIGHLIGHTS


                                                  1998          1997
                                              ------------  ------------
<S>                                           <C>           <C>

    Current assets                            $ 5,425,640   $ 2,038,329 
    Property, plant and equipment, net         12,082,111     8,128,257 
    Other assets                                  683,823       161,460 
                                              ------------  ------------

    Total assets                              $18,191,574   $10,328,046 
                                              ============  ============

    Current liabilities                       $20,433,432   $ 3,767,003 
    Long term liabilities                                     7,538,252 
    Shareholders equity                        (2,241,858)     (977,209)
                                              ------------  ------------

    Total liabilities and shareholder equity  $18,191,574   $10,328,046 
                                              ============  ============
</TABLE>


<PAGE>
                             CORECARE SYSTEMS, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                        DECEMBER 31, 1998, 1997 AND 1996


15.     Subsidiary  companies'  financial  information  (continued):

<TABLE>
<CAPTION>
                      CORECARE BEHAVIORAL HEALTH MANAGEMENT
                            (WHOLLY OWNED SUBSIDIARY)
                       STATEMENTS OF OPERATING HIGHLIGHTS


                                      1998          1997        1996
                                  ------------  ------------  --------
<S>                               <C>           <C>           <C>

    Patient service revenue       $14,887,257   $ 6,129,271   $717,423
    Rental income                   1,078,016       512,861 
    Direct operating costs          7,405,908     3,101,652 
                                  ------------  ------------  --------
    Gross profit                    8,559,365     3,540,480    717,423
    Operating expense               7,599,966     3,341,828    598,848
    Other non-operating expense     2,342,509     1,371,716 
                                  ------------  ------------  --------

    Net income (loss)             $(1,383,110)  $(1,173,064)  $118,575
                                  ============  ============  ========
</TABLE>


<TABLE>
<CAPTION>
                       CORECARE BEHAVIORAL HEALTH MANAGEMENT
                             (WHOLLY OWNED SUBSIDIARY)
                        STATEMENTS OF CASH FLOWS HIGHLIGHTS


                                                1998          1997         1996
                                            ------------  ------------  ----------
<S>                                         <C>           <C>           <C>
    Net income (loss)                       $(1,383,110)  $(1,173,064)  $ 118,575 

    Net cash provided by (used in)
     operating activities                       493,745    (9,375,075)   (118,323)

    Net cash used in investing activities    (4,317,972)

    Net cash provided by financing            4,799,651    11,070,815 
                                            ------------  ------------  ----------

    Net increase (decrease) in cash            (407,686)      522,676         252 
    Cash, beginning                             522,928           252 
                                            ------------  ------------  ----------

    Cash, ending                            $   115,242   $   522,928   $     252 
                                            ============  ============  ==========
</TABLE>


<PAGE>
                             CORECARE SYSTEMS, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                        DECEMBER 31, 1998, 1997 AND 1996


16.     Restatement

          Subsequent  to  the  issuance  of the Company's consolidated financial
statements  for  the  year  ended  December 31, 1997, it was determined that the
reported 1997 results were overstated.  Upon examination, it was determined that
certain  revenue  was  improperly  recorded.  The  Company's  two  subsidiaries,
CoreCare  Behavioral  Health  Management  and  Westmeade  Healthcare,  Inc. over
accrued  the  amounts  due from their third party provider, Community Behavioral
Health.  The over accrual resulted from miscalculation of the allowable per diem
charges  for  in-patient  services.

          As  a  result  of the miscalculation of the allowable per diem charges
for  in-patient  service,  management  projected  that  the  Company  would  be
profitable  in  1998  and,  in  accordance  with SFAS 109, record a deferred tax
benefit.  Had  the correct per diem charges been used in the projection for 1998
operations,  the  deferred  tax  benefit  would  not have been recognized.  As a
result,  the  accompanying  consolidated  financial statements as of and for the
year  ended  December  31,  1997  present  the  restated  results.

          A  summary  of  the  effects  of  the  restatement  follows:

<PAGE>
<TABLE>
<CAPTION>
                             CORECARE SYSTEMS, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                        DECEMBER 31, 1998, 1997 AND 1996


16.     Restatement  (continued):

                                    ASSETS


                                                   December  31,  1997
                                              ----------------------------
                                              As Previously
                                                 Reported     As Restated
                                              --------------  ------------
<S>                                           <C>             <C>

Current assets:
  Cash                                        $      304,267  $    304,267
  Accounts receivable, net                         4,955,473     2,575,473
  Prepaid and other current assets                   212,367       212,367
  Deferred income taxes                            1,555,000
                                              --------------  ------------
    Total current assets                           7,027,107     3,092,107
                                              --------------  ------------

Contract rights, net of accumulated
 amortization of $1,023,619 in 1998
 and $531,011 in 1997                                548,663       548,663
                                              --------------  ------------

Real estate and other assets held for sale         1,513,723     1,513,723
                                              --------------  ------------

Property, plant and equipment net                 10,727,385    10,727,385
                                              --------------  ------------

Other assets:
  Goodwill, net of accumulated amortization
   of $496,924 in 1998 and 257,598 in 1997         1,801,155     1,801,155
  Deferred finance costs, net of accumulated
   amortization of $1,759,635 in 1998 and
   $241,648 in 1997                                  305,354       305,354
  Security deposits                                  108,468       108,468
  Restricted cash                                    197,394       197,394
  Deferred income taxes                            2,228,732
  Other                                              247,232       247,232
                                              --------------  ------------
                                                   4,888,335     2,659,603
                                              --------------  ------------

                                              $   24,705,213  $ 18,541,481
                                              ==============  ============
</TABLE>


<PAGE>
<TABLE>
<CAPTION>
                               CORECARE SYSTEMS, INC.
               NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                          DECEMBER 31, 1998, 1997 AND 1996


16.     Restatement  (continued):

                       LIABILITIES  AND  SHAREHOLDERS'  EQUITY

                                                December  31,  1997
                                           ------------------------------
                                            As Previously
                                              Reported       As Restated
                                           ---------------  -------------
<S>                                        <C>              <C>
Current liabilities:
  Line of credit                           $    1,582,240   $  1,582,240 
  Current portion of:
    Long-term debt                             10,203,425     10,203,425 
    Lease termination fee payable                  38,565         38,565 
    Obligations under capital lease                71,763         71,763 
  Accounts payable                              2,275,442      2,275,442 
  Advances, officers-shareholders               1,013,428      1,013,428 
  Accrued expenses                              2,091,675      2,091,675 
  Payroll and payroll taxes payable             1,688,105      1,688,105 
                                           ---------------  -------------
    Total current liabilities                  18,964,643     18,964,643 
                                           ---------------  -------------

Long term liabilities:
  Notes payable                                 2,192,798      2,192,798 
  Lease termination fee payable                    93,467         93,467 
                                           ---------------  -------------
                                                2,286,265      2,286,265 
                                           ---------------  -------------
Commitments and contingencies

Company obligated mandatorily redeemable
  Series E convertible preferred stock
  (redemption value $943,400 in 19987 and
  1997)                                         1,293,271      1,293,271
                                           ---------------  -------------

Shareholders' equity (deficiency):
  Preferred stock                                      26             26 
  Common stock                                     12,694         12,694 
  Additional paid in capital                    9,357,714      9,357,714 
  Accumulated deficit                          (7,209,400)   (13,373,132)
                                           ---------------  -------------
                                                2,161,034     (4,002,698)
                                           ---------------  -------------

                                           $   24,705,213   $ 18,541,481 
                                           ===============  =============
</TABLE>


<PAGE>
<TABLE>
<CAPTION>
                             CORECARE SYSTEMS, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                        DECEMBER 31, 1998, 1997 AND 1996

                                                   December  31,  1997
                                              ------------------------------
                                               As Previously
                                                 Reported       As Restated
                                              ---------------  -------------
<S>                                           <C>              <C>

Revenue:
  Patient services, net                       $   10,050,834   $  7,670,834 
  Management services                              1,760,075      1,760,075 
  Health and fitness center                          521,414        521,414 
  Rental income                                      512 861        512,861 
                                              ---------------  -------------
                                                  12,845,184     10,465,184 
                                              ---------------  -------------
Direct costs:
  Patient services                                 4,753,042      4,753,042 
  Management services                                254,269        254,269 
  Health and fitness center                          304,055        304,055 
                                              ---------------  -------------
                                                   5,311,366      5,311,366 
                                              ---------------  -------------

Gross profit                                       7,533,818      5,153,818 
                                              ---------------  -------------

Operating expenses:
  Salaries and employee benefits                   2,716,304      2,716,304 
  Selling and administrative                       3,730,504      3,730,504 
  Amortization                                       677,067        677,067 
  Depreciation                                       279,546        279,546 
  Provision for bad debts                            590,656        590,656 
  Impaired asset write down
    Total operating expenses                       7,994,077      7,994,077 
                                              ---------------  -------------

Income (loss) from operations                       (460,259)    (2,840,259)
                                              ---------------  -------------

Non-operating expenses:
  Interest expense                                 1,844,284      1,844,284 
  Factor fees                                        281,533        281,533 
                                              ---------------  -------------
                                                   2,125,817      2,125,817 
                                              ---------------  -------------

Net income (loss) before income tax benefit       (2,586,076)    (4,966,076)

Income tax (benefit) expense                       3,783,732 
                                              ---------------  -------------

Net income (loss)                             $    1,197,656   $ (4,966,076)
                                              ===============  =============

Basic net income (loss) per share             $          .11   $       (.44)
                                              ===============  =============

Diluted net income (loss) per share           $          .08   $       (.44)
                                              ===============  =============

Weighted average number of
 common shares outstanding                        11,326,617     11,326,617 
                                              ===============  =============
</TABLE>


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