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, 1999

                          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)

                                  215/471-2358
                           (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   [X]

     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 $25,799,731

     The  aggregate  market  value  of  the common equity held by non-affiliates
based  on  the  closing  sale price of Common stock as of September 15, 2000 was
$1,712,228.

     The  number  of  shares  outstanding  of  each class of the issuer's common
equity,  as  of  September  15,  2000  was as follows: Common Stock - 17,122,778
shares.

     Transitional Small Business Disclosure Format (check one): Yes  [_] No  [X]


                                                                               0
<PAGE>
                             CORECARE SYSTEMS, INC.
FORM  10-KSB

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

PART  I

     ITEM  1-     BUSINESS . . . . . . . . . . . . . . . . . . . . . . . . . . 2
     ITEM  2-     PROPERTIES . . . . . . . . . . . . . . . . . . . . . . . . .12
     ITEM  3-     LEGAL  PROCEEDINGS . . . . . . . . . . . . . . . . . . . . .12
     ITEM  4-     SUBMISSION  OF  MATTERS
                  TO  A  VOTE  OF  SECURITY  HOLDERS . . . . . . . . . . . . .13


PART  II

     ITEM  5-     MARKET  FOR  COMMON  EQUITY
                  AND  RELATED  STOCKHOLDER  MATTERS . . . . . . . . . . . . .13
     ITEM  6-     MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                  CONDITION  AND  RESULTS  OF  OPERATIONS . . . . . . . . . . 14
     ITEM  7-     FINANCIAL  STATEMENTS  AND  SUPPLEMENTARY  DATA . . . . . . 21
     ITEM  8-     CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
                  ON  ACCOUNTING  AND  FINANCIAL  DISCLOSURE . . . . . . . . .21


PART  III

     ITEM  9-     DIRECTORS,  EXECUTIVE  OFFICERS,
                  PROMOTERS  AND  CONTROL  PERSONS;
                  COMPLIANCE  WITH  SECTION
                  16  (A)  OF  THE  EXCHANGE  ACT . . . . . . . . . . . . . . 22
     ITEM  10-    EXECUTIVE  COMPENSATION . . . . . . . . . . . . . . . . . . 26
     ITEM  11-    SECURITY  OWNERSHIP  OF
                  CERTAIN  BENEFICIAL  OWNERS
                  AND  MANAGEMENT . . . . . . . . . . . . . . . . . . . . . . 28
     ITEM  12-    CERTAIN  RELATIONSHIPS
                  AND  RELATED  TRANSACTIONS . . . . . . . . . . . . . . . . .30
     ITEM  13-    EXHIBITS  AND  REPORTS  ON  FORM  8-K. . . . . . . . . . . .31


                                                                               1
<PAGE>
                                     PART I
                                     ------

ITEM  1  -     BUSINESS

CoreCare  Systems, Inc. (Ticker Symbol CRCS) is a regional behavioral healthcare
provider operating in Southeastern Pennsylvania. The principal lines of business
of  Corecare  Systems, Inc. (together with its subsidiaries, the "Company") are:

(I)     providing  a  comprehensive  spectrum  of  behavioral  health  services,
(II)    providing  Clinical  Drug Trial services to  the Pharmaceutical industry
        for  drugs  that  treat  central  nervous  system  disorders , and
(III)   generating  rental  income  from  its  real  estate  assets.

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.  The Company conducts its operations from
two  facilities  in  Bucks  and  Philadelphia Counties.  The corporate office is
located  on  the  site  of  the  Company's  largest  asset,  Kirkbride Center in
Philadelphia,  Pennsylvania.

The  Company  selectively  seeks  opportunities to expand its base of operations
through  synergistic  evolution  of  complimentary  services  and  by  acquiring
additional facilities and /or entities to its existing behavioral care platform.
Significant  planning efforts are being dedicated to growth opportunities in the
clinical  drug trial arena through integration into existing behavioral services
as well as network affiliation, joint ventures, and management. The Company does
intend  to seek acquisitions of small clinical drug research services companies.
The  Company does intend to maximize the profitability of its real estate assets
through  leasing, land sales, construction, and development of commercial space.

                          Recent Development Activities

The  Company  has  restructured  its  business operations to focus on and expand
those  services which are profitable such as its rehabilitation programs, rental
income,  and  clinical  drug  trial services. In 1999 and early 2000 the Company
closed,  sold, and sharply contracted those unprofitable activities which should
reduce  future  operating  losses.  The  Company  has  substantially reduced its
overhead costs over the past 12 months and will continue to do so in the future.
The  remaining  operations of the Company have demonstrated improved performance
as  result  of  closing facilities and elimination of related expenditures. As a
result of management's efforts to eliminate and reduce unnecessary expenditures,
the  Company  has  improved  its  operating  results.

The  Company  believes it has the resources and ability to resolve its liquidity
problems.  The  Company's plan to improve its operating results will continue to
be  multi-pronged.  The  Company  will  move  to  improve operating cash flow by
improving  its  revenue  base  and lowering expenses.  Currently the Company has
received  approval  to  open two outpatient clinics and is seeking to expand its
Drug  &  Alcohol (D&A) Rehabilitation and Residential Treatment programs, though
such  approval  cannot  be guaranteed.  The Company will continue to examine and
reduce the costs for operating systems and overhead especially as they relate to
lowering  bad  debt.  Certain  Medicare  Reimbursement  changes to the Company's
partial hospitalization and outpatient clinics took effect on August 1, 2000 and


                                                                               2
<PAGE>
are  expected to improve the profitability of these programs.  Additionally, the
company  has  entered  into  agreements  for  the  sale of certain non-operating
surplus  real  estate  which will provide liquidity.  Finally, the company is in
the  process  of  obtaining  alternate  sources of financing given the improving
appraised  value  of  the  Companies  properties.  Within the year the Kirkbride
Center  received  an  appraisal  at  $22,000,000  and  the  Westmeade Center was
appraised  for  $5,000,000.  The  Company  has  applied  for  HUD  financing for
Westmeade  Healthcare,  Inc.  which  will  provide  the  financing  to  pay down
significant  liabilities  of  approximately  $1,300,000  while  lowering  annual
interest  charges.  There is no guarantee that the Company will be successful in
this regard.  The Company believes however that it will be able to refinance its
short  and  long  term  liabilities  to  generate additional liquidity and lower
interest  charges.

In  1999,  the Company proceeded with a plan to restructure the company to focus
on  core  revenue  and  profit  making  opportunities:

     -    In September  1999 the Company sold a one acre parcel of surplus land
          at the Kirkbride Campus.

     -    The  Company  also  sold  certain  assets  of its  Physician  Practice
          Management  Practice.  At this  time the  remainder  of the  Physician
          Practice Management Practice has been consolidated into the Behavioral
          Services Business Unit. The associated office lease was terminated and
          remaining assets relocated to Kirkbride Center.

     -    In March  2000,  the  Company  sold  certain  assets of its Health and
          Fitness Operation and ceased all operations of that unit.

     -    In July 2000,  the Company  entered into an agreement  for the sale of
          the Lakewood  property which will satisfy the obligations  owed to the
          debtors of that property.

     -    In January  2000 the Company  signed an agreement to sell 4 acres to a
          development  concern;  in August  2000 the  agreement  was  amended to
          include an additional 4.7 acres.

The  Company  will continue to evaluate business lines, payor contracts, as well
as  outsourcing  or  contracting  relationships  which  would  further  overall
profitability.

DESCRIPTION  OF  LINES  OF  BUSINESS

The  Company is involved in continual development activities with respect to its
three  primary  lines  of  business.

     Behavioral  Health  Services
          The Company has  undertaken a  development  plan to create  behavioral
          healthcare services which provides a continuum of care through a broad
          range of acute,  step-down,  and outpatient  services in  Southeastern
          Pennsylvania.  Growth in this sector will occur primarily  through the
          start-up of newly licensed services rather than acquisition.  Targeted
          service  areas  include  substance  abuse,   geriatric   services  and
          adolescent services.


                                                                               3
<PAGE>
     Clinical  Trial  Services
          The  Company  continuously  seeks  to  grow  the  business  through  a
          combination of internal  initiatives  combined with exploring external
          opportunities  such as joint ventures and  acquisitions.  Historically
          this sector  increased  revenues by expanding  the number of contracts
          with Contract Research Organizations.  Growth in the future will focus
          on acquisitions of other similar companies.

     Real  Estate  Leasing  and  Development
          The Company seeks to maximize the value of its real estate holdings by
          putting  these  assets to their  highest and best use.  This  strategy
          includes   leasing   certain  assets  to  third  parties  as  well  as
          periodically the sale of certain assets.

(I)  Behavioral  Health  Services:

     At  the  present  time,  the  Company  provides  services  in the following
categories:
          (A)          Acute  Inpatient  Hospitalization;
          (B)          Partial  Hospitalization  Services;
          (C)          Outpatient  Care;
          (D)          Drug  and  Alcohol  Rehabilitation  Services;
          (E)          Wrap-around  Services;
          (F)          Non-hospital  acute  residential  psychiatric services to
             adolescent patients

The  Company  provides  these  services  at  its  two  primary  sites:
          -  The  Kirkbride  Center  located  in  West  Philadelphia,  PA
          -  The  Westmeade  Center  at  Warwick  located  in  Hartsville,  PA

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

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 and health
insurance  companies;  however,  the  most  significant  payors  are  Community
Behavioral  Health,  Americhoice  and  Medicaid.


                                                                               4
<PAGE>
Bed  Utilization  and  Occupancy  Rates

The following table shows the historical bed utilization and occupancy rates for
the  facilities  (Warwick  &  Kirkbride Centers) operated by the Company for the
years  indicated.  Accordingly,  information  related  to  the  Kirkbride Center
acquired  during  1997 has been included from its respective date of acquisition
(February  27,  1997).

                               1999             1998            1997
                             -------          -------          -------
Average  Licensed  Beds:
Acute  Care  Hospital          120               120             120
Step  Down  Units              105                74              32
                               ---               ---            ----
Total                          225               194             152

Average  Available  Beds  (1):
Acute  Care  Hospital           94                94              46
Step  Down  Units              105                74              32
                               ---            ------              --
Total                          199               168              78

Admissions:
Acute  Care  Hospital        4,638             3,129           1,393
Step  Down  Units              702               171              15
                             -----            ------           -----
Total                        5,340             3,300           1,408


Average Length of Stay (Days):
Acute  Care  Hospital         8.42              9.57            9.01
Step  Down  Units            50.94             80.47          283.47
Total                        17.59             13.25           11.93

Patient  Days(2):
Acute  Care  Hospital       58,180            29,959          12,543
Step  Down  Units           35,762            13,761           4,252
                            ------            ------          ------
Total                       93,942            43,720          16,795

Occupancy  Rate--Licensed  Beds(3):
Acute  Care  Hospital         77%               68%             29%
Step  Down  Units             93%               69%             36%
Total                         85%               69%             30%

Occupancy  Rate--Available  Beds(3):
Acute  Care  Hospital         98%               87%             75%
Step  Down  Units             93%               69%             36%
Total                         96%               79%             59%

(1)  "Average  Available  Beds" is the  number  of beds  which are  actually  in
     service  at any given time for  immediate  patient  use with the  necessary
     equipment  and staff  available  for  patient  care.  A  hospital  may have
     appropriate  licenses  for more  beds than are in  service  for a number of
     reasons,   including   lack  of  demand,   incomplete   construction,   and
     anticipation of future needs.


                                                                               5
<PAGE>
(2)  "Patient  Days" is the aggregate sum for all patients of the number of days
     that hospital care is provided to each patient.
(3)  "Occupancy  Rate" is  calculated  by dividing  average  patient days (total
     patient  days  divided  by the total  number of days in the  period) by the
     number of average beds, either available or licensed.
(4)  Step Down Services include the Drug and Alcohol Rehabilitation Beds and the
     Residential Treatment Beds.

The  operating  statistics  for 1999 and 1998 demonstrate the start up nature of
the  Kirkbride  Center.  This  facility was acquired on February 27, 1997 with a
census  of 15 patients. The Company focused on improving the census in the acute
inpatient hospital beds while developing new services for this site. The Company
opened  a  D&A Rehabilitation unit in July 1998, which initially had 20 beds and
has  been  increased  to  80  beds  presently.

The  Company  has  achieved  significant growth in providing geriatric services.
Operations  at  the  Philadelphia  Nursing  Home  and the Philadelphia Geriatric
Center  are  the  result  of  Kirkbride's affiliation with the Temple University
Healthcare  System.  Two  licenses  for  outpatient  clinics at the Philadelphia
Geriatric  Center  and  Cambridge Assisted Living Facility were recently awarded
and  these  sites  are  expected  to  be  operational  by  January  2001.

The  Company  determined  that  the  acute  inpatient  license  was  producing
significant losses. These losses were caused by low reimbursement rates from CBH
for  acute  services and sub-acute services, as well as, County Funded patients.
These  reimbursement  rates  were  below  the  Company's  Cost  of providing the
services  for  those  patients.  As  a  result,  the  Company reduced acute care
operations starting in October 1999. The Company is currently operating 49 acute
inpatient  hospital  beds.

The  Company  believes  that D&A Rehabilitation program and adolescent treatment
services  warrant  expansion.

The  number  of  patient  days of a hospital is affected by a number of factors,
including  the number of physicians using the hospital, changes in the number of
beds,  the  composition and size of the population of the community in which the
hospital  is located, general and local economic conditions, variations in local
medical  and  behavioral  practices  and  the  degree  of  outpatient use of the
hospital  services.  Current  industry  trends in utilization and occupancy have
been  significantly affected by changes in reimbursement policies of third party
payors.  A  continuation  of  such industry trends could have a material adverse
impact  upon  the  Company's  future  operating  performance.  The  Company  has
experienced  growth  in  outpatient utilization over the past several years. The
Company  is  unable  to  predict  the rate of growth and resulting impact on the
Company's  future  revenues  because  it  is  dependent  upon  developments  in
physician  practice  patterns,  which  are outside of the Company's control. The
Company is also unable to predict the extent to which other industry trends will
continue  or  accelerate.


                                                                               6
<PAGE>
SOURCES  OF  REVENUE

Behavioral  Health  Services
The  Company  receives  payment  for  services  rendered  from private insurers,
including managed care plans, the federal government under the Medicare program,
state  governments  under  its  respective  Medicaid  programs and directly from
patients. The Company's behavioral health services are certified as providers of
Medicare  and Medicaid services by the appropriate governmental authorities. The
requirements  for  certification  are subject to change, and, in order to remain
qualified for such programs, it may be necessary for the Company to make changes
from  time  to  time  in  its facilities, equipment, personnel and services. The
costs  for  recertification  are  not  material  as many of the requirements for
recertification  are  integrated  with  the  Company's  internal quality control
processes.  If  a  facility  loses  certification,  it will be unable to receive
payment  for  patients  under  the  Medicare  or Medicaid programs. Although the
Company intends to continue in such programs, there is no assurance that it will
continue  to  qualify  for  participation.

The  sources  of  the  Company's  hospital  revenues  are charges related to the
services  provided  by  the  hospitals  and  their  staffs,  such  as  pharmacy,
psychotherapy and laboratory procedures, and basic charges for the hospital room
and  related  services  such  as  general  nursing  care, meals, maintenance and
housekeeping.  Hospital revenues depend upon the occupancy for inpatient routine
services,  the  extent  to  which  ancillary  services  and therapy programs are
ordered  by  physicians  and  provided  to  patients,  the  volume of outpatient
procedures  and  the  charges  or  negotiated  payment  rates for such services.
Charges and reimbursement rates for inpatient routine services vary depending on
the  type  of  bed  occupied  (e.g.,  Acute,  subacute,  and  23  hour  bed).

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.

The following table shows approximate percentages of net patient revenue derived
by the Company's facilities owned as of December 31, 1999 since their respective
dates  of  acquisition  by  the  Company from third party sources, including the
additional  Medicaid  reimbursements.


                                PERCENTAGE  OF  NET  PATIENT  REVENUES
                                    ----------------------------
                                      1999      1998      1997
                                      ----      ----      ----
Third  Party  Payors:
Medicare . . . . . . . . . . . . .     17%       21%       21%
Community Behavioral Health (CBH)      60%       61%       37%
Managed  Care  (a) . . . . . . . .     17%        9%       16%
Medicaid   . . . . . . . . . . . . .    5%        8%       23%
Other  Sources . . . . . . . . . .      1%        1%        3%
                                      ----      ----      ----
Total . . . . . . . . . . . . . .     100%      100%      100%

(a)     Includes  health  maintenance  organizations  and  preferred  provider
organizations.

Regulation  and  Other  Factors:


                                                                               7
<PAGE>
Within  the statutory framework of the Medicare and Medicaid programs, there are
substantial  areas  subject  to  administrative  rulings,  interpretations  and
discretion  which may affect payments made under either or both of such programs
and  reimbursement  is  subject  to  audit  and  review  by  third party payors.
Management  believes  that  adequate provision has been made for any adjustments
that  might  result  therefrom.  The  Federal  government  makes  payments  to
participating  hospitals  under  its Medicare program based on various formulas.
Behavioral  health  facilities  are cost reimbursed by the Medicare program, but
are  subject to a per discharge ceiling, calculated based on an annual allowable
rate of increase over the hospital's base year amount under the Medicare law and
regulations.  Capital  related  costs  are  exempt  from this limitation. In the
Balanced Budget Act of 1997, Congress significantly revised the Medicare payment
provisions  for Prospective Payment System("PPS")- excluded hospitals, including
psychiatric  hospitals.  Effective for Medicare cost reporting periods beginning
on or after August 1, 1997, different caps are applied to psychiatric hospitals'
target  amounts  depending on whether a hospital was excluded from PPS before or
after  that  date.  Congress  also  revised the rate-of-increase percentages for
PPS-excluded  hospitals  and  eliminated  the  new  provider  PPS-exemption  for
psychiatric hospitals. In addition, the Health Care Financing Administration has
implemented  requirements  applicable  to  psychiatric  hospitals  that  share a
facility  or  campus.

The  Balanced Budget Act of 1997 called for the government to trim the growth of
federal spending on Medicare by $115 billion and on Medicaid by $13 billion over
the  next  five  years.  The act also calls for reductions in the future rate of
increases  to payments made to hospitals and reduces the amount of reimbursement
for outpatient services, bad debt expense and capital costs. It is possible that
future  budgets  will contain certain further reductions in the rate of increase
of Medicare and Medicaid spending. In addition to Federal health reform efforts,
several  states  have  adopted or are considering healthcare reform legislation.
Several  states  are  planning  to  consider wider use of managed care for their
Medicaid  populations  and  providing coverage for some people who presently are
uninsured.  The  enactment  of  Medicaid managed care initiatives is designed to
provide  low-cost  coverage.

All  hospitals  are  subject to compliance with various federal, state and local
statutes  and  regulations  and  receive  periodic inspection by state licensing
agencies  to  review  standards  of medical care, equipment and cleanliness. The
Company's  hospitals  must  comply  with  the  conditions  of  participation and
licensing  requirements  of federal, state and local health agencies, as well as
the  requirements  of  municipal  building  codes,  health  codes and local fire
departments.  In  granting  and  renewing  licenses,  a  department  of  health
considers,  among  other  things,  the  physical  buildings  and  equipment, the
qualifications of the administrative personnel and nursing staff, the quality of
care  and  continuing  compliance  with the laws and regulations relating to the
operation  of  the  facilities.

State  licensing  of  facilities  is  a  prerequisite to certification under the
Medicare  and  Medicaid  programs.  Various  other licenses and permits are also
required  in  order to dispense narcotics, operate pharmacies, handle controlled
substances  and  operate certain equipment. All the Company's eligible hospitals
have  been accredited by the Joint Commission on the Accreditation of Healthcare
Organizations  ("JCAHO").  The  JCAHO reviews each hospital's accreditation once
every  three  years. The review period generally ranges from once a year to once
every  three  years.  The Social Security Act and regulations thereunder contain
numerous  provisions  which  affect the scope of Medicare coverage and the basis
for  reimbursement  of Medicare providers. Among other things, this law provides
that  in  states  which  have  executed  an  agreement with the Secretary of the
Department  of  Health  and  Human  Services  (the  "Secretary"),  Medicare
reimbursement  may  be denied with respect to depreciation, interest on borrowed
funds  and other expenses in connection with capital expenditures which have not
received  prior  approval  by  a  designated  state  health  planning  agency.


                                                                               8
<PAGE>
The  Company  has not experienced and does not expect to experience any material
adverse  effects  from  those  requirements.  These  provisions  govern  the
distribution  of healthcare services, the number of new and replacement hospital
beds,  administration  as required state CON laws, contain healthcare costs, and
meet  the  priorities  established  therein.  Significant  CON reforms have been
proposed  in  a  number  of  states, including increases in the capital spending
thresholds  and  exemptions  of  various  services from review requirements. The
Company  is  unable  to predict the impact of these changes upon its operations.

The Company's healthcare operations generate medical waste that must be disposed
of  in  compliance  with  federal, state and local environmental laws, rules and
regulations. In 1988, Congress passed the Medical Waste Tracking Act. Infectious
waste  generators,  including  hospitals,  now  face  substantial  penalties for
improper  arrangements  regarding  disposal  of  medical  waste, including civil
penalties  of  up  to  $25,000  per  day of noncompliance, criminal penalties of
$150,000  per  day,  imprisonment,  and  remedial  costs.  The  comprehensive
legislation  establishes  programs  for  medical waste treatment and disposal in
designated  states.  The  legislation  also  provides  for  sweeping  inspection
authority  in  the  Environmental  Protection  Agency,  including monitoring and
testing.  The Company believes that its disposal of such wastes is in compliance
with  all  state  and  federal  laws.

Medical Staff and Employees
The  Company's  facilities  are  staffed  by  licensed  physicians who have been
admitted  to  the medical staff of individual facilities. With a few exceptions,
physicians  are employees of the Company's facilities and members of the medical
staff.  These physicians also serve on the medical staff of facilities not owned
by the Company and may terminate their affiliation with the Company's facilities
at  any  time. Each of the Company's facilities is managed on a day-to-day basis
by  a  managing  director  employed  by  the  Company.

Competition
In  all  geographical  areas  in  which  the  Company  operates, there are other
facilities  which  provide services comparable to those offered by the Company's
facilities,  some  of  which are owned by governmental agencies and supported by
tax revenues, and others of which are owned by nonprofit corporations and may be
supported  to  a  large  extent by endowments and charitable contributions. Such
support  is  not available to the Company's facilities. Certain of the Company's
competitors  have  greater  financial resources, are better equipped and offer a
broader  range  of services than the Company. In recent years, competition among
healthcare providers for patients has intensified as hospital occupancy rates in
the  United  States  have  declined  due  to, among other things, regulatory and
technological  changes,  increasing  use  of  managed care payment systems, cost
containment  pressures,  a  shift  toward outpatient treatment and an increasing
supply  of  physicians.  The  Company's  strategies are designed, and management
believes  that  its  facilities  are  positioned,  to be competitive under these
changing  circumstances.

Liability Insurance
The Company's subsidiaries are covered under commercial insurance policies which
provide  for  professional  and  general  liability  claims  for  all  of  its
subsidiaries  up  to $1 million per occurrence, with an average annual aggregate
for covered subsidiaries of $6 million through 2001. These subsidiaries maintain
excess  coverage  up  to  $30  million  with  major  insurance  carriers.


                                                                               9
<PAGE>
II.  CLINICAL  RESEARCH  TRIAL  SERVICES

The  Company  operates  its  clinical research business through its wholly owned
subsidiary, Quantum Managed Mental Health Systems, Inc.  (d/b/a Quantum Clinical
Services  Group,  "QUANTUM"). Quantum contracts with its related subsidiaries or
other  non-related  third  party  companies  to conduct clinical trials. Quantum
provides  investigative  services  for  the pharmaceutical and contract research
organizations  in  the  area  of  psychiatric  and neurological clinical trials.

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  $2.4  billion  in 1999. 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 an 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.  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.

The  company  intends  to  provide services on products to treat diseases of the
Central  Nervous  System and Geriatric population. There are 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, III, and IV trials of
     new drugs.

     Quantum's  Market:  The United  States,  as well as  internationally  based
     pharmaceutical  companies, are seeking appropriate clinical trial sites for
     the testing of their drugs.

III. REAL  ESTATE  DEVELOPMENT  AND  LEASING  ACTIVITIES

     Kirkbride  Real  Estate  Leasing  Activities

     The  Kirkbride  Center  consists  of  seven  (7) buildings totaling 422,800
square  feet on a 26-acre site comprising an entire city block bounded by Market
Street,  Haverford  Avenue,  and  48th  and  49th  Streets  in  Philadelphia,
Pennsylvania.

     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.


                                                                              10
<PAGE>
     To  provide  for  an orderly development program, the Company created a new
subsidiary, CoreCare Realty Corporation to assume responsibility for development
of  the  Kirkbride  Center.

     In  September  1999  the  Company  sold  one surplus acre at the Kirkbride
Center.

     In  January  2000  the  Company  signed  an  agreement to sell 4 acres to a
development  concern;  in  August  2000  the agreement was amended to include an
additional  4.7  acres.  The  sale  will  require  the partial demolition of the
oldest  building  at  Kirkbride.


                                                                              11
<PAGE>
As  of  December 31, 1999, Kirkbride Center had 376,283 square feet of leaseable
space.  This  space  was  utilized  as  follows:

                                     Square Feet          %

          CoreCare  Entities          141,800            38
          Third - Party Tenants        84,036            22
          Empty  Space  (1)           150,447            40
                                      -------            --
          Total                       376,283           100

Subsequent  to December 31, 1999 Childrens Hospital reduced its space lease from
47,115 square feet to 9,300 square feet for a lease termination fee of $430,000.

(1)     The  Company  also started downsizing its acute inpatient hospital space
in  October  1999, March 2000 and April 2000.  By November 2000, the Company had
negotiated  leases  for  the  space  that  had  been  vacated  by  the  Hospital
downsizing.


ITEM  2 -     PROPERTIES

The  Company  owns  or  leases  the  following  properties.

PROPERTY                  LOCATION      OWN / LEASE        DESCRIPTION
--------------------  ----------------  -----------  ------------------------
Kirkbride Center      Philadelphia, PA  Own          422,800 square feet on
                                                     26 acres
--------------------  ----------------  -----------  ------------------------
Westmeade at Warwick  Hartsville, PA    Own          14,000 square feet on 11
                                                     acres
--------------------  ----------------  -----------  ------------------------
Wayne Office          Wayne, PA         Lease        5,449 square feet; Lease
                                                     expired 7/31/2000
--------------------  ----------------  -----------  ------------------------
Lakewood              Stroudsburg, PA   Own          Approximately 61 acres;
                                                     held for sale
--------------------  ----------------  -----------  ------------------------

The  Company  believes  its  facilities are adequate for its operating needs for
the  foreseeable  future.

ITEM  3  -     LEGAL  PROCEEDINGS

The  Company  is  subject  to  claims  and  lawsuits  in  the ordinary course of
business,  including  those  arising  from  care  and  treatment afforded at the
Company's  hospitals  and  is  party  to  various  other  litigation.  However,
management  believes  the  ultimate resolution of these pending proceedings will
not  have  a  material  adverse  effect  on  the  Company.

The  Company  is subject to numerous lawsuits from creditors for amounts due for
services rendered and products delivered. In most cases, the Company has accrued
the  amount  of  these  claims  on  its  financial  statements.  The  Company is
attempting  to  work  out  payment  plans  with  most  of  these  creditors.

On  October  18, 2000, The City of Philadelphia sued the Company in the Court of
Common  Pleas of Philadelphia County, Pennsylvania for unpaid wage taxes for the
period  February  1997  through  March  2000.  The  amount sought by the City is
approximately  $1.5  million,  which includes approximately $600,000 of interest
and  penalties.  The Company's financial statements includes provisions for this
claim  in  the  amount  of  approximately  $1,000,000.  The Company is currently
negotiating  the  abatement  of  all  interest  and  penalties.


                                                                              12
<PAGE>
ITEM  4  -     SUBMISSION  OF  MATTERS  TO  VOTE  OF  SECURITY  HOLDERS
Inapplicable.  No matter was submitted during the fiscal year ended December 31,
1999  to  a  vote  of  security  holders.

                                     PART II
                                     -------

ITEM  5  -     MARKET  FOR  COMMON  EQUITY  AND  RELATED
               SHAREHOLDER  MATTERS

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

     The  Company's  Common  Stock is traded on the pink sheets under the symbol
"CRCS."  The  following  table  sets  forth  the closing high and low bid prices
quoted for the Company's Common Stock since January 1, 1998. The Company's stock
was  taken  off  the  over-the-counter electronic bulletin board operated by the
National  Association  of  Securities  Dealers  on  November  12,  1999.


          CALENDAR
          YEAR 1998
          ---------
          First Quarter   $1.031    $0.812
          Second Quarter  $1.960    $0.960
          Third Quarter   $1.250    $0.750
          Fourth Quarter  $1.438    $0.625

          CALENDAR
          YEAR 1999
          ---------
          First Quarter   $1.030    $0.594
          Second Quarter  $0.594    $0.375
          Third Quarter   $0.375    $0.219
          Fourth Quarter  $0.500    $0.078


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

     As  of December 31, 1999 there were approximately 621 record holders of the
Company's  Common  Stock.

(C)  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
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.  No underwriters were involved in any of the following
transactions.


                                                                              13
<PAGE>
Shares  issued  for  Services  -  1999

     The  Company  issued a total of 30,000 shares of restricted Common Stock to
AmCare  International,  Inc.  on  May  4, 1999 for consulting and other services
rendered  in  1997 and 1998 totaling $10,200.  The shares of Common Stock issued
to  AmCare International, Inc. 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.  The Company relied
on  Section  4(2)  in this transaction based on the sophistication of AmCare and
its principals in the Company's industry and the lack of public solicitation for
this  transaction.

     The  Company committed to issuing 300,000 shares restricted Common Stock to
three  vendors  that  had  provided  consulting, rental of real estate and other
services  rendered  in  1997  and  1998.  The Company will issue these shares as
additional  compensation  for  late  payment  of  these  services.  The  Company
recorded  an  expense  of  $37,500  in the year ended December31, 1999 regarding
these  shares.  The  shares  of  Common  Stock  to  be issued will be 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.

1999  -  Shares  Issued  to  Employees  Under  Company  1996  Stock  Plan

     Out  of  the  shares  reserved  for issuance pursuant to the Company's 1996
Stock  Plan and amended in October 1998, during the year ended December 31, 1999
the  Company  issued  a  total  of 41,500 shares of Common Stock to a total of 5
employees  of  the  Company. Additionally, during the year the Company committed
312,600  shares  to 31 employees which have been or will be issued in 2000.  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.  The Company relied
on  Section  4(2)  in  these  transactions as the employees had positions in the
Company which enabled them access to the information regarding the Company which
they  would  have  received  in  a  registration.

     Additionally,  the Company committed to issuing 50,000 shares of restricted
Common  Stock to one employee in exchange for the cancellation of the employee's
option  to acquire 50,000 shares of Common Stock.  The Company recorded a charge
of $6,250 in the year ended December 31, 1999.  The shares of Common Stock to be
issued will be 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.


                                                                              14
<PAGE>
1999  -  Notes  and  Shares  Issued

     Between  October  1999  and  December  1999,  in  separately  negotiated
transactions,  the  Company  borrowed a total of $700,000 from four individuals,
accredited  investors, for a term of two years from the date of investment.  The
debts  were evidenced by Promissory Notes bearing interest at 20% per annum.  In
addition,  the  investors  received  150,000  shares of restricted shares of the
Company's  Common Stock.  None of the investors were previously or are currently
affiliated with the Company.  The transactions with the lenders were exempt from
registration under the Securities Act pursuant to Section 4(2) of the Securities
Act as the investors were accredited investors and had access to the information
which  they  would  have  received  in  a registration statement.  The shares of
Common  Stock  issued  to  the  lender 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.

1999  -  Conversion  of  Series  E  Convertible  Preferred  Stock

     The  holders of Series E Convertible Preferred Stock exercised their rights
to  convert  the  outstanding  stock in the year ended 1998.  The conversion was
reported  in 1998 and the Company issued 1,192,046 unrestricted shares of Common
Stock  in  1999.


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

                           Forward-Looking Statements

The  matters  discussed  in this report as well as the news releases issued from
time  to  time  by  the  Company include certain statements containing the words
"believes",  "anticipates",  "intends",  "expects"  and words of similar import,
which  constitute "forward-looking statements" within the meaning of the Private
Securities  Litigation  Reform  Act  of  1995.  Such  forward-looking statements
involve  known and unknown risks, uncertainties and other factors that may cause
the  actual  results,  performance  or  achievements  of the Company or industry
results  to  be  materially  different  from  any future results, performance or
achievements  expressed  or  implied  by  such  forward-looking statements. Such
factors  include,  among  other  things, the following: that the majority of the
Company's  revenues  are  produced  by  a  small number of its total facilities;
possible  changes  in  the  levels  and  terms  of  reimbursement  by government
programs,  including  Medicare or Medicaid or other third party payors; industry
capacity;  demographic  changes;  existing  laws  and government regulations and
changes  in  or  failure  to  comply with laws and governmental regulations; the
ability  to  enter  into  managed  care provider agreements on acceptable terms;
liability  and  other claims asserted against the Company; competition; the loss
of  significant  customers;  technological  and pharmaceutical improvements that
increase the cost of providing, or reduce the demand for healthcare; the ability
to  attract and retain qualified personnel, including physicians; the ability of
the Company to successfully integrate its acquisitions; the Company's ability to
finance  growth  on  favorable  terms;  and,  other  factors  referenced  in the
Company's  1999  Form  10-KSB  or herein. Given these uncertainties, prospective
investors  are  cautioned  not  to  place undue reliance on such forward-looking
statements.  The  Company disclaims any obligation to update any such factors or
to  publicly  announce the result of any revisions to any of the forward-looking
statements  contained  herein  to  reflect  future  events  or  developments.


                                                                              15
<PAGE>
     The  following  discussion should be read in conjunction with the Company's
financial  statements  and  notes  thereto.

                              Continuing Operations

The  Company has incurred accumulated losses of approximately $37 million (since
inception)  which  has  resulted  in  a  negative  working  capital  balance  of
approximately  $30.9  million  and Shareholder's Deficiency of approximately $20
million  at  December  31, 1999. These conditions have raised concerns about the
Company's  ability  to continue as a going concern. The Company believes that it
will  continue  to  operate  for  the  foreseeable  future  as  explained below.

Earnings  before  interest,  income  taxes, depreciation, amortization, impaired
asset  write  down  expense,  and  nonrecurring gains on sale of assets recorded
("EBITDAR")  improved to $(1.6) million in 1999 from $(3.4) million in 1998. The
improved  performance  of  1999 compared to 1998 was the result of refocusing of
the  business  which  occurred  in  the  latter  half  of  1999.

The  Company  has  focused  its  business operations on expanding those services
which  are profitable such as its rehabilitation programs, residential treatment
services,  outpatient services, rental income, and clinical drug trial services.
In  1999  and  early 2000 the Company closed, sold, and sharply contracted those
activities  which  accounted  for significant historical losses. The Company has
substantially  reduced  its  overhead costs over the past 12-month period ending
June  2000 and will continue to do so in the future. The remaining operations of
the  Company  have  demonstrated  improved  performance  as  a result of closing
facilities and elimination of related expenditures. As a result of these changes
the  Company  has  improved  its  operating  results.

The  Company  believes it has the resources and ability to resolve its liquidity
problems.  The  Company  has  entered  into  agreements  for the sale of certain
non-operating  surplus real estate which will provide liquidity.  The Company is
finally  in the process of obtaining alternate sources of financing and believes
it  will  be  able  to refinance short term liabilities on a favorable long term
basis  and  generate  additional  liquidity.

                          Restatement for 1998 and 1997
In  connection  with  preparation of the December 31, 1999 financial statements,
the  Company  discovered  that  the  financial  statements  for  the years ended
December  31,  1998  and  December  31,  1997 had not properly accounted for and
reflected  certain transactions and events in accordance with generally accepted
accounting  principles.  It  was  determined that a restatement of the financial
statements  was  necessary and appropriate due primarily to the following items:

          -  Capitalization  of  certain  operating  expenses
          -  Unrecorded  charges  associated  with  the  issuance of options and
             warrants  in  connection  with  debt  and  services  provided  by
             nonemployees
          -  Recording  of  obligations  under  capital  lease
          -  Recording  of  reserves  associated  with  accounts  receivable
          -  Under-accrual  of  amounts  due  Medicare


                                                                              16
<PAGE>
The  notes to the financial statements include a comparative presentation of the
Consolidated  Balance  sheet  and  Consolidated  Statement  of  Operations  as
previously  reported  and  restated  for  the  years ended December 31, 1997 and
December  31,  1998.

The  following  discussion is based upon the restated results for the year ended
December  31,  1998.

                              Results of Operations
Net  revenues  increased  26.4%  to  $25.8  million  in 1999 as compared to 1998
revenues of $20.4 million. The $5.4 million increase in net revenues during 1999
as compared to 1998 was due primarily to: (i) revenue growth in Patient Services
at  acute  care and behavioral health care facilities of $6.5 million; and  (ii)
rental income increase of $0.1 million. These increases were partially offset by
declines  in  revenue in Management Services of $1.1 million and $0.1 million in
the  Health  and  Fitness  Center  in  1999  as  compared  to  1998.

Direct Costs accounted for 44.1% and 49.0%  of consolidated net revenues in 1999
and  1998,  respectively  demonstrating  improving  operating efficiency and the
implementation  of  cost  saving  strategies.

EBITDAR  improved  to  $(1.6)  million  in 1999 from $(3.4) million in 1998. The
overall  operating  margins of EBITDAR as a percentage of revenue were (6.3)% in
1999,  and  (16.6)%  in  1998.  The  factors  that caused the improvement in the
Company's  overall  operating  margins during the last year are discussed below.

Depreciation  and amortization expense decreased $1.3 million to $1.5 million in
1999  and  increased  $1.6  million  to  $2.8  million in 1998.  The decline was
primarily  due deferred finance expenses associated with the WRH Mortgage on the
Kirkbride Center which were fully amortized in 1998 and therefore these expenses
were  not  present  in  1999.

Interest  expense  increased  to $3.3 million in 1999 from $2.9 million in  1998
due  primarily  to  increased  borrowings  used  to  finance  operations.

During  the  third quarter of 1999, the Company sold a surplus parcel of land at
the  Kirkbride Center and realized a gain on the transaction which was partially
offset by the realization of a loss on the sale of certain assets related to its
anesthesia  practice  management  business.

During  1999,  the Company recorded a $0.5 million nonrecurring charge to reduce
the carrying value of the Lakewood Retreat real estate holdings to its estimated
realizable  value  of  approximately  $0.6  million.  The Company is involved in
litigation with respect to this facility and may incur additional charges in the
event  it  is  unable  to close or sell the facility for a significant period of
time  or suffers an unfavorable outcome from this litigation.  In July 2000, the
Company  signed  an  agreement for sale on the property for a sale price of $0.8
million.  Although  the  liabilities  exceed  the  sale  price  the  Company  is
optimistic  that  the  mortgage  holders  will  accept the available proceeds in
satisfaction  of  the  debt.  On  October 30, 2000, the sale agreement closed in
escrow  subject  to  certain  documentation  requirements.


                                                                              17
<PAGE>
The  Company's effective tax rate during 1999 and 1998 was 0.0%. The Company has
significant  accumulated  operating  losses  and  believes  it  will not incur a
material  income  tax  liability  in  the  immediate  future.

Net Patient Services
Net  revenues from the Company's behavioral health services facilities accounted
for 91% and 83% of consolidated net revenues in 1999 and 1998, respectively. Net
revenues  at  the Company's behavioral health facilities increased 38.6% in 1999
as  compared  to 1998. Admissions and patient days at these facilities increased
62%  and  134%, respectively, in 1999 as compared to 1998 and the average length
of  stay  increased  to  17.6  days  in  1999  as compared to 13.3 days in 1998.

The  33% increase in the average length of stay during 1999 as compared to 1998,
was  primarily  due  to  an  increase in rehabilitation and adolescent patients,
which generally have longer lengths of stay than acute care for adults.  Despite
the  increase  in  the  average  length of stay during 1999 as compared to 1998,
there  has  been continued practice changes in the delivery of behavioral health
services and continued cost containment pressures from payors, including managed
care  companies,  which  include  a  greater  emphasis  on  the  utilization  of
outpatient  services.  Providers participating in managed care programs agree to
provide  services  to  patients  for  a  discount  from  established rates which
generally  results  in  pricing  concessions by the providers and lower margins.
Additionally,  managed  care  companies  generally  encourage  alternatives  to
inpatient  treatment.  The  Company  expects the admission constraints and payor
pressure  to  continue.

The  Company  has limited ability to reduce many of the costs of providing care.
Each level of care requires certain staffing patterns as mandated by federal and
state  regulations.  The  company  must  comply  with  the  regulatory  staffing
requirements  and  thereby  has  limited, if any ability, to manage these direct
costs.  The  Company  has  aggressively  attempted  to manage such situations to
improve  the profitability of its operations, but also remain in compliance with
all  regulatory  and legal requirements to provide quality care to those in need
of  it.

Gross  Margins  for  Patient  Services were 55.9% in 1999 and 47.5% in 1998. The
improvement  in gross margin was due to revenue increase of 38.6% in 1999, which
was  partially offset by increases in direct costs for Patient Services of 16.6%
in  1999.  The net improvement in gross margin of 8.4% between 1999 and 1998 was
primarily  due  to  improvements  in  utilization  of  staff  combined with cost
reductions  in services for patient care. Management continues to implement cost
controls  in  response  to  the  managed  care environment, however, pressure on
operating  margins  is  expected  to  continue  in  the  future.

Operating  expenses  (operating  expenses,  salaries and wages and provision for
doubtful  accounts)  as a percentage of net revenues at the Company's behavioral
health services facilities were 70.8% in 1999, 85.6% in 1998. The improvement of
14.8%  between  1999  and  1998  reflect  the staff reductions in administrative
departments  combined  with improvements in the management of costs for supplies
and  outside services such as legal and insurance expenses, which were partially
offset  by  an increase in Bad Debt Expense. The increase in Bad Debt Expense of
$1.4  million  was  primarily  due  to  the  Company's  decision to increase the
allowance  for  doubtful accounts associated with services provided in 1999. The
Company  believes  it  billed  for  these services in an appropriate manner. The
payor initially rejected these claims for payment. The Company has appealed this
decision  and  awaits  a  resolution  of  the  matter  at  this  time.


                                                                              18
<PAGE>
The  operating  losses  can  be attributed to certain managed care companies the
Company  regularly  deals  with  that  have  established  reimbursement rates on
specific levels of care that are below the cost of providing that level of care.
Each  level  of care requires specific staffing patterns mandated by federal and
state  regulations.  The  company  must  comply  with  the  regulatory  staffing
requirements  and  thereby  has  limited, if any, ability to manage these direct
costs.  The  company has implemented several cost reduction initiatives designed
to  lower infrastructure and overhead costs. The Company has requested increases
in its reimbursement rates from payors to bring the rates in line with the costs
of  providing  services.  To  date,  the  Company has received some rate relief.

In  late  1999,  the  Company  initiated  programs  to  improve revenue yield by
reducing  beds  provided  to  payors  with unprofitable reimbursement rates. The
Company complied with all applicable regulations, laws, and contract terms as it
implemented  this  program.  At  the end of 1999 the Company followed up on this
program by reducing the number of acute care beds at its Kirkbride Facility from
120  licensed  beds  to  80. In early 2000 the company substantially reduced the
available  beds  to  49  beds  for  acute  care  as part of its drive to improve
profitability.  The Company leased part of its unused capacity to third parties,
as  described  below  in  the  real  estate  development  discussion  below.

D&A  Rehabilitation and residential treatment programs remains a profitable line
of  business  with  strong  prospects  for  growth.  The  Company  has  received
preliminary  approval  to  increase  the licensed beds in its D&A rehabilitation
program  from 80 to 100 beds and to increase the residential treatment beds from
32  to  49.  Final  approval and licensure on the additional residential beds is
expected  in the fourth quarter, 2000 and the rehabilitation beds is expected in
the  first  quarter  2001.

The  Company's  facilities  have experienced an increase in inpatient acuity and
intensity  of  services as less intensive services shift from an inpatient basis
to  an  outpatient  basis  due  to  pharmaceutical  improvements  and  continued
pressures  by payors, including Medicare, Medicaid and managed care companies to
reduce  admissions and lengths of stay. To accommodate the increased utilization
of  outpatient  services,  the Company has expanded or redesigned several of its
outpatient  facilities  and services. Gross outpatient revenues of the Company's
during  the  last  three  years  increased  39%  in 1999 as compared to 1998 and
comprised approximately 10% of the Company's gross patient revenue in each year.
Additionally,  the  hospital  industry  in  the  United  States  as  well as the
Company's  acute  care  facilities  continue to have significant unused capacity
which  has created substantial competition for patients. The Company expects the
increased  competition,  admission  constraints and payor pressures to continue.

The  increase  in  net  revenue as discussed above was partially offset by lower
payments  from  the  government  under  the  Medicare program as a result of the
Balanced  Budget Act of 1997 ("BBA-97") and increased discounts to insurance and
managed  care  companies  (see  General  Trends  for additional disclosure). The
Company  anticipates  that  the  percentage  of  its  revenue  from managed care
business will continue to increase in the future. The Company generally receives
lower  payments  per  patient  from  managed  care  payors  than  it  does  from
traditional  indemnity  insurers.   Recent  changes  in  Medicare  reimbursement
effective  August,  2000 is expected to improve the profitability of the partial
hospital  and  outpatient  clinic  services.

REAL  ESTATE  DEVELOPMENT


                                                                              19
<PAGE>
Net  revenues  increased  7.0%  to $1.1 million in 1999 as compared to 1998. The
$0.1  million  increase  in net revenues during 1999 as compared to 1998 was due
primarily  to  an  increase  of  space  under  lease  at  the  Kirkbride Center.

The  property  at  the Kirkbride Center is unique in many respects. Although the
facility is in area zoned for residential use, its history of providing multiple
commercial  and  institutional  services over 150 years of continuous operations
has provided numerous exceptions to the zoning regulations. The Company believes
that  this  facility  is  well  positioned to become a youth services center for
Philadelphia  and  the  surrounding  counties.  The Kirkbride Center is one of a
handful of sites where these firms can operate without petitioning neighbors and
the  city  for  a  special  exception  to  the  zoning  regulations.

The  Company  is  actively  marketing  the facility to prospective tenants whose
rental income would be greater than income generated by the Company's use of the
space.  For  example  in  second quarter of 2000 the Company leased a floor to a
third  party that it had previously been used to provide acute psychiatric care.
In  the  fourth  quarter  2000  two  additional  floors  were  leased.

QUANTUM  CLINICAL  TRIAL  SERVICES:
In 1999, Quantum completed its first full year of operations posting revenues of
$0.3  million.  During  its  first  year  of  operations,  the  Company began to
establish  a  track  record of quality and reliable services to its clients.  In
many  of  its  trials  the  Company  was in the top third of all sites providing
services.

Management Services
Net  revenues  declined  56.4% to $0.9 million in 1999 as compared to revenue of
$2.0  million  in 1998. The $1.1 million decrease in net revenues during 1999 as
compared  to  1998  was  due primarily to: (i) reduction of the client base; and
(ii)  reduction of rates charged due to intense competition. The Company decided
to  exit  this  line  of  business  by  late 1999. It sold certain assets of the
Management  Services  in  1999. In the first quarter of 2000 it consolidated the
minor  ongoing  business  with  the infrastructure of CoreCare Behavioral Health
Management,  Inc.  subsidiary.

Health and Fitness
Net  revenues  declined  23.5% to $0.3 million in 1999 as compared to revenue of
$0.4  million  in 1998. The $0.1 million decrease in net revenues during 1999 as
compared  to  1998  was  due  primarily to a decline in the membership base. The
Company  decided  to  exit  this line of business by early 2000. It sold certain
assets  of  the Chestnut Health and Fitness Center in the first quarter of 2000,
and  shortly  thereafter  ceased  all  operations.

General Trends
A  significant  portion  of  the Company's revenue is derived from fixed payment
services,  including  Medicare and Medicaid. The Medicare program reimburses the
Company's  by cost based formula for behavioral health facilities. Historically,
rates  paid under Medicare's PPS for inpatient services have increased, however,
these  increases  have  been  less than cost increases. Pursuant to the terms of
BBA-97,  there  were  no  increases in the rates paid to hospitals for inpatient
care  through  September  30,  1998  and  reimbursement for bad debt expense and
capital  costs  as  well  as  other  items  have  been  reduced.


                                                                              20
<PAGE>
Inpatient  operating payment rates were increased 1.1% for the period of January
1,  1999  through  December 31, 1999, however, the modest increase was less than
inflation  and  is  expected  to  be  more than offset by the negative impact of
increasing  the  qualification  threshold  for  additional payments for treating
costly  inpatient  cases.  As  of  January  1, 2000 the Company did receive rate
increases from Community Behavioral Health of 7% on its rehabilitation services;
further  on  July 1, 2000 increases of 5% and 10% were received on its acute and
subacute  hospital  services,  respectively.

Payments  for  Medicare outpatient services historically have been paid based on
costs,  subject  to certain adjustments and limits. BBA-97 requires that payment
for  those  services  be  converted  to  PPS.  The  Health  Care  Financing
Administration's  implemented  PPS  for  outpatients  effective  August 1, 2000.
The  Company  considers  the  change to have a positive impact on profitability.

The  healthcare  industry  is  subject  to  numerous  laws and regulations which
include, among other things, matters such as government healthcare participation
requirements,  various  licensure  and  accreditation, reimbursement for patient
services,  and  Medicare  and  Medicaid  fraud  and abuse. Government action has
increased  with respect to investigations and/or allegations concerning possible
violations  of  fraud  and abuse and false claims statutes and/or regulations by
healthcare  providers.  Providers that are found to have violated these laws and
regulations  may  be  excluded  from  participating  in  government  healthcare
programs,  subjected to fines or penalties or required to repay amounts received
from  government for previously billed patient services. While management of the
Company believes its policies, procedures and practices comply with governmental
regulations, no assurance can be given that the Company will not be subjected to
governmental  inquiries  or  actions.

In  addition  to  the  Medicare  and  Medicaid programs, other payors, including
managed care companies, continue to actively negotiate the amounts they will pay
for  services  performed.  Approximately  32%  in  1999  and  27% in 1998 of the
Company's net patient revenues were generated from managed care companies, which
includes  health maintenance organizations and preferred provider organizations.
In general, the Company expects the percentage of its business from managed care
programs to continue to grow. The consequent growth in managed care networks and
the resulting impact of these networks on the operating results of the Company's
facilities  vary  among  the  markets  in  which  the  Company  operates.

Effects of Inflation and Seasonality
The  healthcare  industry  is very labor intensive and salaries and benefits are
subject  to  inflationary  pressures  as  are  rising supply costs which tend to
escalate  as vendors pass on the rising costs through price increases. Inflation
has  not  had a material impact on the results of operations over the last three
years.  Although  the  Company  cannot  predict its ability to continue to cover
future  cost  increases,  management  believes  that  through  adherence to cost
containment  policies,  labor  management  and  reasonable  price increases, the
effects  of inflation on future operating margins should be manageable. However,
the Company's ability to pass on these increased costs associated with providing
healthcare  to Medicare and Medicaid patients is limited due to various federal,
state  and  local laws which have been enacted that, in certain cases, limit the
Company's  ability  to  increase  prices. In addition, as a result of increasing
regulatory  and  competitive  pressures  and a continuing industry wide shift of
patients  into  managed  care  plans,  the Company's ability to maintain margins
through  price  increases  to  non-Medicare  patients  is  limited.

The  Company's business is seasonal, with higher patient volumes and net patient
service  revenue  in  the  first and fourth quarters of the Company's year. This
seasonality  occurs  because,  generally, more people become ill during the fall
and  winter  months,  which  results  in  significant increases in the number of
patients  treated  in  the  Company's  facilities  during  those  months.


                                                                              21
<PAGE>
Liquidity and Capital Resources
The  accompanying  consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in footnote 1 to
the  consolidated  financial  statements,  the  Company's working capital, as of
December 31, 1999, was a deficit of $(30.9) million which represents an increase
of $3.7 million in the deficit from $(27.2) million as of December 31, 1998. The
increase  in  the  deficit  was  primarily  caused  by  the  increase in current
liabilities  of  $4.5 million, a portion of which is attributable to the loss in
1999.  The  Company has incurred accumulated losses of approximately $37 million
(since  inception)  which  has  resulted  in  a  Shareholder's  Deficiency  of
approximately  $20  million  at  December 31, 1999. These conditions have raised
concerns  about  the  Company's  ability  to  continue  as  a going concern. The
consolidated  financial  statements  do  not  include any adjustments that might
result  from  the  outcome  of these uncertainties. The Company believes that it
will  continue  to  operate  for  the  foreseeable  future  as  explained above.

The  working  capital deficit is a severe challenge for the company. The Company
believes  it  has  the  resources and ability to resolve its liquidity problems.
The  Company  has  entered into agreements for the sale of certain non-operating
surplus real estate which will provide liquidity.  The Company is in the process
of  obtaining  alternate  sources  of  financing and believes it will be able to
refinance  short  term  liabilities  on a favorable long term basis and generate
additional  liquidity.

Net  cash  used  in  operating  activities was $(0.3) million in 1999 and $(2.3)
million  in  1998.  The  $2.0  million  increase in 1999 as compared to 1998 was
primarily  attributable  to: (i) a $3.0. million decrease in net loss, primarily
resulting  from restructuring described above, plus the addback of depreciation,
amortization,  and  impaired  asset  writedown  expenses;  (ii)  a  $1.7 million
unfavorable  change  in  accounts receivable, partially resulting from delays in
payments  by  managed  care  payors; and, (iii) a net increase of liabilities of
$1.6  million.

During  1999,  the  Company  received  total cash proceeds of approximately $0.6
million  generated primarily from the sale of the real property of non-operating
surplus land ($0.5 million). The net gain/loss resulting from these transactions
did  not  have  a  material  impact  on  the  1999  results  of  operations.

During  the  first quarter of 1998, the Company acquired the assets of Preferred
Medical  Services  for  a  purchase  price  of  $0.3  million.  The  assets were
incorporated  into  the  operations  of  the Company's Management Services unit,
doing  business  as  CMI  Incorporated  ("CMI").  CMI  was  focused on providing
administrative  and  billing  services  to  physician  practices.

Capital  expenditures,  net  of  proceeds  received  from sale or disposition of
assets  were  $0.4  million  in  1999  (including  $0.5 million of cash proceeds
generated primarily from the sale of non-operating surplus land and other assets
as  mentioned  above),  and  $(5.0)  million  in  1998. Capital expenditures for
capital  equipment,  renovations  and  new  projects  at  existing hospitals and
completion  of  major construction projects in progress at December 31, 1999 are
expected  to total approximately $0.3 million in 2000. The Company believes that
its  capital  expenditure  program  is adequate to expand, improve and equip its
existing  hospitals.


                                                                              22
<PAGE>
As of December 31, 1999, the Company had $2 million of unused borrowing capacity
under  the  terms  of  its  $5  million revolving credit line agreement. A large
portion of the Company's accounts receivable are pledged as collateral to secure
this  program.  Those  accounts receivable for billed patient services which are
less  than  150 days old are eligible collateral under this facility. A majority
of  the  Company's  accounts  receivable have aged beyond 150 days and no longer
qualify  as  collateral.

This  agreement  provides  for  interest at the bank's prime rate plus 175 basis
points  (10.25%  at December 31, 1999). A facility fee ranging from 1/8% to 3/8%
is  required  on  the  total  commitment.  This program, which began in 1998, is
scheduled  to  expire  or  be  renewed  on  January  15,  2001.

The  Company does not expect to make any significant capital expenditures in the
foreseeable  future  and  expects  to  finance  all  capital  expenditures  and
acquisitions  with  internally  generated  funds  and borrowed funds. Additional
borrowed funds may be obtained either through refinancing the existing revolving
credit  agreement,  mortgages,  or  the  issuance  of  long-term securities. The
Company  believes  that  it  has  a  reasonable  basis  to  believe that it will
refinance  a  portion  of  its  debt  on  a  long  term  basis.


ITEM  7-     Financial  Statements  and  Supplementary  Data
The  Consolidated  Financial Statements of Corecare Systems, Inc. required to be
submitted  in  response  to Item 7 are set forth in Part III, in Item 13 of this
report.


ITEM  8-     Changes  in  and  Disagreements  with Accountants on Accounting and
Financial  Disclosure
On September 16, 1999 the Company informed the accounting
firm  Shiffman Hughes and Brown, P.C.  ("SHB") that the Company would not retain
it  to  audit the Company's financial statements for the year ended December 31,
1999.  SHB  had  been  the Company's principal accountants since the fiscal year
ended  December  31,  1992.  The  report  of  SHB  on the consolidated financial
statements  of  the Company for the two most recent fiscal years did not contain
an  adverse opinion or a disclaimer of opinion, and was not qualified opinion or
modified  as to uncertainty, audit scope, or accounting principles.  The Company
has  had no disagreements with its former principal accountants on any matter of
accounting  principles  or practices, financial statement disclosure or auditing
scope  or  procedure which disagreements, if not resolved to the satisfaction of
the  former  accountants,  would have caused it to make reference to the subject
matter of disagreements in connection with its report relating to the audits for
fiscal  years ended December 31, 1998 and 1997 or during the period from January
1,  1999  to  September  16,  1999.

The  Company's  decision not to retain SHB was not based on the expectation that
any  disagreement  would  arise  in  connection  with the audit of its financial
statement  for  the year ended December 31, 1999. The decision not to retain SHB
was  made  by  the  Company's  Board of Directors upon the recommendation of the
Audit Committee, and the belief that a larger nationwide firm would more able to
service  the  Company  in  the  future.

On  February 5, 2000 the Company engaged the accounting firm of BDO Seidman, LLP
as  its  principal  accountants.


                                                                              23
<PAGE>




                                                                              24
<PAGE>
                                    PART III
                                    --------

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

     As of November 2000, the directors, executive officers, and senior managers
of  the  Company  are  as  follows:

     DIRECTORS  &  OFFICERS:

          NAME                        AGE           POSITION

     Thomas  T.  Fleming              74     Chairman  of  the  Board  of
                                             Directors  and  CEO

     Rose  S.  DiOttavio              50     President, Treasurer and a Director

     Thomas  X.  Flaherty             39     Director

     George  P.  Stasen               54     Director

     Charles  A.  Burton              54     Director

     Mark  Novitsky,  M.D.            46     Senior  Vice  President  &
                                             Corporate  Medical  Director

     SENIOR MANAGERS:
          NAME                                       POSITION

     Fred  Baurer,  M.D.              43     Senior  Vice  President  &
                                             Medical Director, Kirkbride Center

     Jeff  Friedman, Ph.D., L.S.W.    45     Clinical  Director  of Westmeade
                                             at  Warwick

     Erwin A. Carner, Ed.D., MSW      57     Sr.  Director  of  Geriatric
                                             Continuum


     Dennis  Fontana                   31    Director of Management Information
                                             Systems

     Gardner  Kahoe                    50    General  Counsel  and  Corporate
                                             Secretary


All  directors  hold  office  until  the next annual meeting of stockholders and
until their successors have been elected and qualified. No director received any
compensation  for  serving  as  a  director.


                                                                              25
<PAGE>
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.


                                                                              26
<PAGE>
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.


                                                                              27
<PAGE>
     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  B.A.  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  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.

     ITEM  10  -     EXECUTIVE  COMPENSATION

(a)  GENERAL:
     --------


                                                                              28
<PAGE>
     For  the fiscal year ended December 31, 1997  the Company's Chief Executive
Officer  and  President  did  not receive 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,  during  this period, the Company charged operations with $144,000 in
1997,  or $72,000 for each, which was accrued and a like amount credited 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 years ended December 31, 1999, 1998,
and  1997,  respectively.

<TABLE>
<CAPTION>
SUMMARY  COMPENSATION  TABLE
                                       LONG TERM COMPENSATION
                                      1999 ANNUAL COMPENSATION
                                                                             Restricted   Securities
                                                                             -----------  ----------
                                                          All Other Annual      Stock     Underlying
                                                                             -----------  ----------
Name and Principal Position          Salary   Bonus ($)     Compensation      (Shares)     Options
----------------------------------  --------  ---------  ------------------  -----------  ----------
<S>                                 <C>       <C>        <C>                 <C>          <C>
Thomas Fleming, Chairman
Of the Board and Chief Executive
Officer
1999                                $156,000        -0-  $        9,434 (1)          -0-         -0-
1998                                 134,000        -0-           6,758 (1)          -0-         -0-
1997                                  72,000        -0-                -0-           -0-         -0-
----------------------------------  --------  ---------  ------------------  -----------  ----------
Rose S. DiOttavio,  President
1999                                $156,000        -0-                -0-           -0-         -0-
1998                                 134,000        -0-                -0-           -0-         -0-
1997                                  72,000        -0-                -0-           -0-         -0-
----------------------------------  --------  ---------  ------------------  -----------  ----------
Mark Novitsky, Senior Vice
President
1999                                $244,005        -0-                -0-        50,000         525
1998                                  81,245        -0-                -0-           -0-         -0-
1997                                     -0-        -0-                -0-           -0-         -0-
----------------------------------  --------  ---------  ------------------  -----------  ----------
Fred Bauer, Senior Vice President
1999                                $180,003        -0-                -0-        50,000         263
1998                                 172,000        -0-                -0-           -0-         -0-
1997                                 146,000        -0-                -0-           -0-         -0-
----------------------------------  --------  ---------  ------------------  -----------  ----------


                                                                              29
<PAGE>
Sharon Irwin, Vice President (2)
1999                                $ 78,206        -0-                -0-        50,000         368
1998                                  38,798        -0-                -0-           -0-         -0-
1997                                     -0-        -0-                -0-           -0-         -0-
----------------------------------  --------  ---------  ------------------  -----------  ----------
     1)     The  Company provided Mr. Fleming with a car allowance as provided above.
     2)     Ms.  Irwin  left  the  Company  on  September  14,  2000.
</TABLE>


                                                                              30
<PAGE>
(c)  OPTIONS/SAR  GRANTS:
     --------------------
During  the  fiscal  year  ended  December 31, 1999, no executive officer of the
Company  received  any  options.

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

     During the fiscal year ended December 31, 1999, 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, 1999, 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.
     ----------------------------------------


                                                                              31
<PAGE>
ITEM  11  -     SECURITY  OWNERSHIP  OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     The  following  table  sets forth information as of December 31, 1999, 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
                                       (*)
------------------------------  ----------  ---------  ------------  ------------
Mark Novitsky  (9)                  50,000
                                       (*)
------------------------------  ----------  ---------  ------------  ------------
Fred Bauer  (11)                    53,500
                                       (*)
------------------------------  ----------  ---------  ------------  ------------
Total Officers and Directors:    3,869,470      6,000                     1,620.6
                                   (21.8%)
------------------------------  ----------  ---------  ------------  ------------
(b) Other Beneficial Owners:
------------------------------  ----------  ---------  ------------  ------------
Phila. Ventures, 11, L.P.(14)    1,327,956
Phila. Ventures-Japan 1, L.P.       (8.3%)
Phila. Ventures-Japan, 11-L.P.

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


(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.


                                                                              32
<PAGE>
(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 shares 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.  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.  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.

(9)  Includes a grant of 50,000  shares of Common Stock to Dr.  Novitsky when he
     joined the Company.

(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.

(12) Includes a grant of 50,000 shares of Common Stock to Dr. Bauer.

(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.


                                                                              33
<PAGE>
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.

Thomas  T.  Fleming

Thomas  T.  Fleming,  Chairman  of  the  Board  of Directors and Chief Executive
Officer  of the Company, has advanced funds to the Company in the form of either
direct  advances or payments to vendors on behalf of the Company.  A substantial
portion  of  these  advances  consisted  of  borrowings  from  various financial
institutions  for  the sole benefit of the Company.  These amounts were advanced
to  the  Company under the same terms obtained by Mr. Fleming from the financial
institutions.  During  the  years  ended December 31, 1999 and 1998, Mr. Fleming
advanced  $51,004  and  $447,624, respectively.  Additionally, repayments to Mr.
Fleming  or  to  financial  institutions  for  his  benefit where funds had been
borrowed  for  the  Company  was  $55,000  and $612,180 during those same years.

In  March  1999,  the  Company assumed financial responsibility for one of these
loans in the amount of approximately $731,000. This loan continues to be secured
by  the  personal  assets  of  Mr. Fleming and selected assets of Ms. DiOttavio.

Mr.  Fleming  is  the guarantor of various financial obligations of the Company,
including  the  amount assumed by the Company noted above.  Additionally, he has
advanced  funds  under certificates of deposit for the benefit of the Company in
order  to  comply  with  state  regulations  for  one  of  its  subsidiaries.

Phyllys  B.  Fleming

Phyllys  B.  Fleming,  wife  of  the  Chairman  of  the  Board of Directors, has
guaranteed  certain  obligations  of  the  Company  with  various  financial
institutions  by either granting a security in personal assets controlled by the
Fleming Family Trust or by pledging letters of credit for the benefit of certain
creditors.  She has also funded interest payments on certain obligations for the
benefit  of  the  Company.


                                                                              34
<PAGE>
Rose  S.  DiOttavio

Rose  S.  DiOttavio,  President and Chief Operating Officer, has loaned funds to
the  Company  in a fashion similar to Mr. Fleming noted above.  During the years
ended  December  31,  1999 and 1998, Ms. DiOttavio advanced $5,767 and $148,000,
respectively.  Additionally,  repayments  of  $10,000  and $-0- were made during
those  same  years.

Ms.  DiOttavio  is  also  a  guarantor  of  various financial obligations of the
Company.  Additionally, she has advanced funds under certificates of deposit for
the  benefit of the Company in order to comply with state regulations for one of
its  subsidiaries.

Federal  Development  Company,  LLC

In  October  1996,  the  Company entered into a Development Management Agreement
with Federal Development Company, LLC ("Federal").  Mr. Christopher Fleming, the
son  of  Thomas  T. Fleming, the Chairman of the Board of Directors, is a senior
officer  of  Federal.  Federal was retained by the Company to provide management
services  of  the  real  estate  owned by the Company, principally the Kirkbride
Center.  For  the  years  ended December 31, 1999 and 1998, the Company has paid
Federal  in  cash  and  stock  $-0-  and  $62,500,  respectively.

The Company and Federal entered into an amended development management agreement
in  August  of 1999.  This agreement provided for the settlement of all past due
fees  and grants Federal the rights to act as agent for the sale of certain real
estate  assets  of  the  Company.



ITEM  13  -     EXHIBITS  AND  REPORTS  ON  FORM  8-K

(a)  A list of financial statements filed as part of this report is set forth on
     page 36 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


                                                                              35
<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  November  28,  2000.

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  November  28,  2000.

             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


                                                                              36
<PAGE>






                                                          CORECARE SYSTEMS, INC.
                                                                AND SUBSIDIARIES




                                               CONSOLIDATED FINANCIAL STATEMENTS
                                          YEARS ENDED DECEMBER 31, 1999 AND 1998






                                                                               1
<PAGE>
                                         CORECARE SYSTEMS, INC. AND SUBSIDIARIES


                                                                        CONTENTS

================================================================================

REPORTS  OF  INDEPENDENT  CERTIFIED  PUBLIC  ACCOUNTANTS                     3-4

CONSOLIDATED  FINANCIAL  STATEMENTS
     Balance  sheet                                                          5-6
     Statements  of  operations                                              7-8
     Statements  of  changes  in  stockholders'  (deficiency)               9-10
     Statements  of  cash  flows                                           11-12

NOTES  TO  CONSOLIDATED  FINANCIAL  STATEMENTS                             13-60






                                                                               2
<PAGE>
REPORT  OF  INDEPENDENT  CERTIFIED  PUBLIC  ACCOUNTANTS

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

We have audited the accompanying consolidated balance sheet of CoreCare Systems,
Inc.  and  subsidiaries  as  of  December 31, 1999, and the related consolidated
statements  of  operations, changes in stockholders' (deficiency) and cash flows
for  the  year  then  ended.  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 consolidated financial statements referred to above present
fairly,  in  all  material respects, the financial position of CoreCare Systems,
Inc.  and  subsidiaries  as  of  December  31,  1999,  and  the results of their
operations  and  their  cash  flows  for  the year then ended in conformity with
generally  accepted  accounting  principles.

The  accompanying  consolidated financial statements have been prepared assuming
that  the  Company  will continue as a going concern.  As discussed in Note 1 to
the  consolidated  financial  statements,  the Company is not in compliance with
certain  loan  covenants  with  certain  lenders  and  has  sustained  losses of
$7,251,311  and  $10,187,993  for  the  years  ended December 31, 1999 and 1998,
respectively.  Additionally,  the  Company has stockholders' and working capital
deficiencies  of $19,556,078 and $30,903,475, respectively at December 31, 1999.
The  aforementioned  items raise substantial doubt about its ability to continue
as  a  going  concern.  Management's  plans  in regard to these matters are also
described  in  Note 1.  The consolidated financial statements do not include any
adjustments  that  might  result  from  the  outcome  of  these  uncertainties.

                                                                BDO Seidman, LLP
Philadelphia,  Pennsylvania
June  27,  2000,  except  for  Note  20,
  which  is  as  of  August  24,  2000  and  Note  17
  which  is  as  of  October  18,  2000


                                                                               3
<PAGE>
               REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

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

We  have  audited the accompanying consolidated statement of operations, changes
in  stockholders'  (deficiency)  and  cash flows for the year ended December 31,
1998  of  CoreCare Systems, Inc. and subsidiaries.  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
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  results  of operations and cash flows for the year
ended December 31, 1998 of CoreCare Systems, Inc. and subsidiaries in conformity
with  generally  accepted  accounting  principles.

In addition, we have audited the consolidated balance sheet of CoreCare Systems,
Inc.  and  subsidiaries  as  of  December  31,  1998  and  1997, and the related
consolidated statements of operations, changes in stockholders' (deficiency) and
cash flows for the year ended December 31, 1997. The balance sheet and statement
of  operations  as  of and for the year ended December 31, 1997 are contained in
Note  22.

As discussed in Note 22 to the financial statements, the Company discovered that
the  financial statements for the years ended December 31, 1998 and 1997 had not
accounted  for  and reflected certain transactions and events in accordance with
generally  accepted  accounting  principles during the audit of the December 31,
1999  financial  statements.  These  financial  statements have been restated to
reflect  the  financial  impact  of  these  transactions.



Schiffman  Hughes  Brown
Blue  Bell,  Pennsylvania
March  9,  1999,  except  for  Note  22,  as  to which the date is June 27, 2000


                                                                               4
<PAGE>
<TABLE>
<CAPTION>
                                         CORECARE SYSTEMS, INC. AND SUBSIDIARIES


                                                     CONSOLIDATED BALANCE SHEETS

================================================================================

December 31,                                                              1999
---------------------------------------------------------------------  -----------
<S>                                                                    <C>

ASSETS

CURRENT ASSETS
    Cash and cash equivalents                                          $   826,853
    Accounts receivable, net (Note 3)                                    4,445,643
    Prepaid and other current assets                                       210,166
---------------------------------------------------------------------  -----------

TOTAL CURRENT ASSETS                                                     5,482,662
---------------------------------------------------------------------  -----------

REAL ESTATE HELD FOR SALE (Note 6)                                         798,396
---------------------------------------------------------------------  -----------

CONTRACT RIGHTS, net of accumulated amortization of $121,955 (Note 5)       24,391
---------------------------------------------------------------------  -----------

PROPERTY, PLANT AND EQUIPMENT, net (Note 4)                             11,894,555
---------------------------------------------------------------------  -----------

OTHER ASSETS
    Goodwill, net of accumulated amortization of $172,336 (Note 5)       1,482,088
    Restricted cash (Note 7)                                               237,688
    Other                                                                  330,000
---------------------------------------------------------------------  -----------

TOTAL OTHER ASSETS                                                       2,049,776
---------------------------------------------------------------------  -----------

TOTAL ASSETS                                                           $20,249,780
=====================================================================  ===========
</TABLE>


                    See accompanying notes to consolidated financial statements.


                                                                               5
<PAGE>
<TABLE>
<CAPTION>
                                         CORECARE SYSTEMS, INC. AND SUBSIDIARIES


                                                     CONSOLIDATED BALANCE SHEETS

================================================================================

December 31,                                                             1999
-------------------------------------------------------------------  -------------
<S>                                                                  <C>

LIABILITIES AND STOCKHOLDERS' (DEFICIENCY)

CURRENT LIABILITIES
  Lines of credit (Note 8)                                           $  3,643,648
  Current maturities of
    Long-term debt (Note 9)                                            19,957,067
    Obligations under capital lease (Note 9)                              229,850
  Accounts payable                                                      3,906,728
  Advances, officers/stockholders (Note 10)                               700,410
  Accrued expenses                                                      3,657,021
  Payroll and payroll taxes payable (Note 11)                           3,518,547
  Current maturities of amounts due to Medicare (Note 12)                 772,866
-------------------------------------------------------------------  -------------

TOTAL CURRENT LIABILITIES                                              36,386,137

LONG-TERM AMOUNTS DUE TO MEDICARE (Note 12)                             2,063,703

OBLIGATIONS UNDER CAPITAL LEASE, net of current maturities (Note 9)       599,424

LONG-TERM DEBT, net of current maturities (Note 9)                        756,594
-------------------------------------------------------------------  -------------

TOTAL LIABILITIES                                                      39,805,858
-------------------------------------------------------------------  -------------

COMMITMENTS (Note 17)

STOCKHOLDERS' (DEFICIENCY) (Notes 14 and 19)
  Preferred stock                                                              17
  Common stock, $.001 par value
    Authorized 50,000,000 shares
    Issued and outstanding 18,084,643 shares at December 31, 1999          18,085
  Additional paid-in capital                                           17,692,143
  Accumulated deficit                                                 (37,266,323)
-------------------------------------------------------------------  -------------

TOTAL STOCKHOLDERS' (DEFICIENCY)                                      (19,556,078)
-------------------------------------------------------------------  -------------

TOTAL LIABILITIES AND STOCKHOLDERS' (DEFICIENCY)                     $ 20,249,780
===================================================================  =============
</TABLE>


                    See accompanying notes to consolidated financial statements.


                                                                               6
<PAGE>
<TABLE>
<CAPTION>
                                         CORECARE SYSTEMS, INC. AND SUBSIDIARIES


                                           CONSOLIDATED STATEMENTS OF OPERATIONS

================================================================================

Year ended December 31,                    1999          1998
--------------------------------------  -----------  -------------
                                                     (As Restated)
<S>                                     <C>          <C>

NET REVENUE
    Patient services, net (Note 18)     $23,469,373  $  16,935,837
    Management services                     855,805      1,962,803
    Health and fitness center               344,705        450,625
    Rental income                         1,129,848      1,055,788
--------------------------------------  -----------  -------------

TOTAL NET REVENUE                        25,799,731     20,405,053
--------------------------------------  -----------  -------------

DIRECT COSTS
    Patient services                     10,355,043      8,884,360
    Management services                     707,332        842,438
    Health and fitness center               281,647        274,201
--------------------------------------  -----------  -------------

TOTAL DIRECT COSTS                       11,344,022     10,000,999
--------------------------------------  -----------  -------------

GROSS MARGIN                             14,455,709     10,404,054
--------------------------------------  -----------  -------------

OPERATING EXPENSES
    Salaries and employee benefits        3,061,190      3,712,425
    Selling and administrative            9,474,394      7,933,072
    Amortization                            760,715      2,200,610
    Depreciation                            776,620        580,066
    Bad debt expense                      3,547,355      2,147,140
    Impaired asset write-down (Note 2)      930,333      1,121,859
    Gain on sale of assets                 (312,956)             -
--------------------------------------  -----------  -------------

TOTAL OPERATING EXPENSES                 18,237,651     17,695,172
--------------------------------------  -----------  -------------
</TABLE>


                                                                               7
<PAGE>
<TABLE>
<CAPTION>
                                         CORECARE SYSTEMS, INC. AND SUBSIDIARIES


                                           CONSOLIDATED STATEMENTS OF OPERATIONS

================================================================================

Year ended December 31,                                      1999          1998
-------------------------------------------------------  ------------  -------------
                                                                       (As Restated)
<S>                                                      <C>           <C>
(LOSS) FROM OPERATIONS                                   $(3,781,942)  $ (7,291,118)

INTEREST EXPENSE                                           3,469,369      2,896,875
-------------------------------------------------------  ------------  -------------

NET LOSS                                                 $(7,251,311)  $(10,187,993)
=======================================================  ============  =============

(LOSS) PER SHARE OF COMMON STOCK (BASIC
    AND DILUTED)                                         $      (.41)  $       (.64)
=======================================================  ============  =============

WEIGHTED AVERAGE NUMBER OF COMMON
    SHARES OUTSTANDING USED IN COMPUTING LOSS PER SHARE
    (BASIC AND DILUTED)                                   17,843,399     15,943,179
=======================================================  ============  =============
</TABLE>


                    See accompanying notes to consolidated financial statements.


                                                                               8
<PAGE>
<TABLE>
<CAPTION>
                                         CORECARE SYSTEMS, INC. AND SUBSIDIARIES


                                              CONSOLIDATED STATEMENTS OF CHANGES
                                                   IN STOCKHOLDERS' (DEFICIENCY)

================================================================================

Year  ended  December  31,  1999  and  1998
-------------------------------------------

                                                              Preferred Stock       Common Stock
                                                             -----------------  ---------------------
                                                              Number              Number                Additional
                                                                of                  of                   Paid-In      Accumulated
                                                              Shares   Amount     Shares      Amount     Capital       (Deficit)
-----------------------------------------------------------  --------  -------  -----------  --------  ------------  -------------
<S>                                                          <C>       <C>      <C>          <C>       <C>           <C>

BALANCE, December 31, 1997
    (Note 22)                                                17,017.9  $    17  13,506,751   $13,507   $14,803,892   $(19,827,019)

Amounts as restated
    Net loss for the year ended December 31, 1998
        (Note 22)                                                   -        -           -         -             -    (10,187,993)
    Shares issued as compensation for services rendered by
        nonemployees                                                -        -   1,114,916     1,115       634,331              -
    Shares issued as employee compensation                          -        -      49,800        50        38,295              -
    Shares issued in conjunction with debt forbearance              -        -     889,218       889       426,376              -
    Shares redeemed                                                 -        -      (2,188)       (2)       (1,814)             -
    Shares issued to acquire Preferred Medical Service              -        -     250,000       250       200,750              -
    Options issued as compensation for services rendered
        by nonemployees                                             -        -           -         -       238,100              -
    Options issued in conjunction with debt forbearance             -        -           -         -        79,962              -
    Warrants issued in conjunction with debt forbearance            -        -           -         -       145,921              -
    Redemption of warrants                                          -        -           -         -      (500,000)             -
    Conversion of common stock held as collateral                   -        -     200,000       200       149,800              -
    Conversion of mandatory Preferred Stock                         -        -   1,192,046     1,192     1,292,088              -
-----------------------------------------------------------  --------  -------  -----------  --------  ------------  -------------

BALANCE, December 31, 1998 (as restated) (Note 22)           17,017.9       17  17,200,543    17,201    17,507,701    (30,015,012)



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

BALANCE, December 31, 1997
    (Note 22)                                                $ (5,009,603)

Amounts as restated
    Net loss for the year ended December 31, 1998
        (Note 22)                                             (10,187,993)
    Shares issued as compensation for services rendered by
        nonemployees                                              635,446
    Shares issued as employee compensation                         38,345
    Shares issued in conjunction with debt forbearance            427,265
    Shares redeemed                                                (1,816)
    Shares issued to acquire Preferred Medical Service            201,000
    Options issued as compensation for services rendered
        by nonemployees                                           238,100
    Options issued in conjunction with debt forbearance            79,962
    Warrants issued in conjunction with debt forbearance          145,921
    Redemption of warrants                                       (500,000)
    Conversion of common stock held as collateral                 150,000
    Conversion of mandatory Preferred Stock                     1,293,280
-----------------------------------------------------------  -------------

BALANCE, December 31, 1998 (as restated) (Note 22)            (12,490,093)
</TABLE>


                                                                               9
<PAGE>
<TABLE>
<CAPTION>
                                         CORECARE SYSTEMS, INC. AND SUBSIDIARIES


                                              CONSOLIDATED STATEMENTS OF CHANGES
                                                   IN STOCKHOLDERS' (DEFICIENCY)

================================================================================

Year  ended  December  31,  1999  and  1998
-------------------------------------------

                                                           Preferred Stock      Common Stock
                                                          -----------------  -------------------
                                                           Number              Number              Additional
                                                             of                  of                 Paid-In      Accumulated
                                                           Shares   Amount     Shares    Amount     Capital       (Deficit)
--------------------------------------------------------  --------  -------  ----------  -------  ------------  -------------
<S>                                                       <C>       <C>      <C>         <C>      <C>           <C>

BALANCE, December 31, 1998 (as restated) (Note 22)
    (brought forward)                                     17,017.9  $    17  17,200,543  $17,201  $17,507,701   $(30,015,012)

Net loss for year ended December 31, 1999                                                                         (7,251,311)
Shares issued as compensation for services rendered by
    nonemployees                                                 -        -      30,000       30       10,170              -
Shares issued as employee compensation                           -        -     354,100      354       25,127              -
Shares issued in conjunction with debt                           -        -     150,000      150       18,600              -
Shares issued in conjunction with debt forbearance               -        -     300,000      300       37,200              -
Shares issued to cancel stock options granted to
    nonemployees                                                 -        -      50,000       50        6,200              -
Options issued as compensation for services rendered by
    nonemployees                                                 -        -           -        -        3,746              -
Warrants issued for services rendered by nonemployees            -        -           -        -        9,085              -
Warrants issued with debt                                        -        -           -        -       42,786              -
Warrants issued in conjunction with debt forbearance             -        -           -        -       81,528              -
Redemption of warrants                                           -        -           -        -      (50,000)             -
--------------------------------------------------------  --------  -------  ----------  -------  ------------  -------------

BALANCE, December 31, 1999                                17,017.9  $    17  18,084,643  $18,085  $17,692,143   $(37,266,323)
========================================================  ========  =======  ==========  =======  ============  =============



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

BALANCE, December 31, 1998 (as restated) (Note 22)
    (brought forward)                                      $(12,490,093)

Net loss for year ended December 31, 1999                    (7,251,311)
Shares issued as compensation for services rendered by
    nonemployees                                                 10,200
Shares issued as employee compensation                           25,481
Shares issued in conjunction with debt                           18,750
Shares issued in conjunction with debt forbearance               37,500
Shares issued to cancel stock options granted to
    nonemployees                                                  6,250
Options issued as compensation for services rendered by
    nonemployees                                                  3,746
Warrants issued for services rendered by nonemployees             9,085
Warrants issued with debt                                        42,786
Warrants issued in conjunction with debt forbearance             81,528
Redemption of warrants                                          (50,000)
---------------------------------------------------------  -------------

BALANCE, December 31, 1999                                 $(19,556,078)
=========================================================  =============
</TABLE>


                    See accompanying notes to consolidated financial statements.


                                                                              10
<PAGE>
<TABLE>
<CAPTION>
                                         CORECARE SYSTEMS, INC. AND SUBSIDIARIES


                                           CONSOLIDATED STATEMENTS OF CASH FLOWS

================================================================================

Year ended December 31,                                                  1999            1998
------------------------------------------------------------------  --------------  --------------
                                                                                    (As Restated)
<S>                                                                 <C>             <C>

CASH FLOWS FROM OPERATING ACTIVITIES
    Net (loss)                                                      $  (7,251,311)  $ (10,187,993)
    Noncash adjustments to reconcile net loss to
        net cash (used in) operating activities
            Common stock issued for services and interest expense          98,181         842,644
            Options and warrants issued for services rendered and
                financing costs                                           137,145         463,983
            Depreciation                                                  776,620         580,066
            Amortization                                                  760,715       2,200,610
            Impaired asset write-down                                     930,333       1,121,859
            Provision for doubtful accounts                             2,725,846        (224,069)
            Gain on sale of assets                                       (312,956)              -
            Changes in assets and liabilities
                (Increase) decrease in operating assets
                    Accounts receivable                                (2,814,554)     (1,157,323)
                    Other current assets                                  (34,507)         36,708
                    Deposits                                               10,467          98,001
                    Other assets                                          561,403        (179,469)
                Increase (decrease) in operating liabilities
                    Accounts payable                                      765,513       1,485,848
                    Accrued expenses                                    1,318,913         (27,539)
                    Payroll taxes payable                                 416,038       1,414,404
                    Due to Medicare                                     1,622,566       1,214,003
------------------------------------------------------------------  --------------  --------------

NET CASH (USED IN) OPERATING ACTIVITIES                                  (289,588)     (2,318,267)
------------------------------------------------------------------  --------------  --------------

CASH FLOWS FROM INVESTING ACTIVITIES
    Increase in capitalized financing costs                                     -      (1,828,938)
    Purchase of property and equipment                                    (81,396)     (3,170,802)
    Proceeds from sale of equipment and land                              507,066               -
------------------------------------------------------------------  --------------  --------------

NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES                       425,670      (4,999,740)
------------------------------------------------------------------  --------------  --------------
</TABLE>


                                                                              11
<PAGE>
<TABLE>
<CAPTION>
                                         CORECARE SYSTEMS, INC. AND SUBSIDIARIES


                                           CONSOLIDATED STATEMENTS OF CASH FLOWS

================================================================================

Year ended December 31,                                                  1999            1998
------------------------------------------------------------------  --------------  --------------
                                                                                    (As Restated)
<S>                                                                 <C>             <C>

CASH FLOWS FROM FINANCING ACTIVITIES
    Proceeds from issuance of stock                                 $           -   $     256,597
    Advances from officers/stockholders advances                           56,771         595,624
    Repayment of officers/stockholders                                    (65,000)       (612,180)
    Repayment of notes                                                   (530,850)    (11,298,070)
    Repayment of lease obligations                                       (129,429)        (56,337)
    Proceeds from notes                                                 1,959,093       1,372,503
    Proceeds from short and long-term debt                                      -      13,151,789
    Increase in debt due to accrued interest                                    -         992,592
    Proceeds from (repayment of ) line of credit                         (665,056)      2,726,463
    Redemption of warrants                                                (50,000)              -
------------------------------------------------------------------  --------------  --------------

NET CASH PROVIDED BY FINANCING ACTIVITIES                                 575,529       7,128,981
------------------------------------------------------------------  --------------  --------------

NET INCREASE (DECREASE) IN CASH                                           711,611        (189,026)

CASH AT BEGINNING OF YEAR                                                 115,242         304,268
------------------------------------------------------------------  --------------  --------------

CASH AT END OF YEAR                                                 $     826,853   $     115,242
==================================================================  ==============  ==============

    Cash paid during the year for
        Interest                                                    $   2,465,950   $     815,705
==================================================================  ==============  ==============

            Taxes                                                   $           -   $           -
==================================================================  ==============  ==============

    Redemption of warrants for debt                                 $           -   $     500,000
    Common stock issued in connection with
        acquisition of businesses                                   $           -   $     201,000
    Common stock issued as compensation for
        services provided and interest expense                      $      98,181   $     842,644
    Stock options and warrants issued for services
        provided and financing costs                                $     137,145   $     463,983
    Property and equipment acquired under
        capital leases                                              $     571,583   $     402,138
==================================================================  ==============  ==============
</TABLE>


                    See accompanying notes to consolidated financial statements.


                                                                              12
<PAGE>
                                         CORECARE SYSTEMS, INC. AND SUBSIDIARIES


                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

================================================================================

1.   BASIS  OF PRESENTATION AND  BUSINESS DESCRIPTION

               BASIS OF PRESENTATION

               The  accompanying  consolidated  financial  statements  have been
               prepared  assuming   CoreCare  Systems,   Inc.  and  subsidiaries
               (collectively  the  "Company")  will continue as a going concern,
               which contemplates the realization of assets and the satisfaction
               of liabilities in the normal course of business.  The Company has
               incurred losses of $7,251,311 and $10,187,993 for the years ended
               December  31,  1999 and  1998,  respectively.  Additionally,  the
               Company has  stockholders'  and working  capital  deficiencies of
               $19,556,078 and $30,903,475,  respectively, at December 31, 1999.
               Additionally,  the Company is not in compliance with certain loan
               covenants  with certain  lenders,  therefore,  payments  could be
               demanded immediately.  The Company is continuing discussions with
               these  lenders as to the  granting  of waivers or other  remedies
               that could be reached in  connection  with its debt  obligations.
               The Company is  continuing  to monitor  and reduce its  operating
               expenses,  including payroll, and is also considering the sale of
               certain   assets  as  well  as  exploring   other   alternatives,
               including, but not limited to, refinancing opportunities.

               The Company has restructured its business  operations to focus on
               and expand those service  programs which are  profitable  such as
               its  rehabilitation  programs,  rental income,  and clinical drug
               trial  services.  During 1999 and early 2000, the Company closed,
               sold, and sharply  contracted its nonprofitable  activities which
               should  reduce   future   operating   losses.   The  Company  has
               substantially reduced its overhead costs over the 12-month period
               ending June 2000 and will  continue  to do so in the future.  The
               remaining  operations of the Company have  demonstrated  improved
               performance  as a result of closing  facilities  and  eliminating
               their related  expenditures.  As a result of management's efforts
               to eliminate and reduce unnecessary expenditures, the Company has
               improved its operating results.

               The Company  believes it has the resources and ability to resolve
               its liquidity  problems.  The Company is in negotiation  with its
               largest  payor to resolve  claims for services  provided over the
               past  two  years.   Upon  the   successful   conclusion   of  the
               negotiation, the Company expects the payor to release funds which
               the  Company   will  apply  to  reducing   current   liabilities.
               Additionally,  the Company has entered  into  agreements  for the
               sale of certain  nonoperating  surplus  real  estate,  which will
               provide  liquidity.  Finally,  the  Company is in the  process of
               obtaining  alternate sources of financing and believes it will be
               able to refinance short-term liabilities on a long-term basis and
               generate  additional   liquidity.   However,   there  can  be  no
               assurances that the Company will be successful in these areas.


                                                                              13
<PAGE>
                                         CORECARE SYSTEMS, INC. AND SUBSIDIARIES


                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

================================================================================

               Although management believes the Company will continue to operate
               due  to  the  restructuring,   the  resources  and  opportunities
               described  above and the  financial  condition  of the Company at
               December 31, 1999 raises a substantial  doubt about the Company's
               ability  to  continue  as  a  going  concern.   The  consolidated
               financial  statements do not include any adjustments  relating to
               the  recoverability  and classification of asset carrying amounts
               or the amount and  classification  of  liabilities  that might be
               necessary  should the  Company be unable to  continue  as a going
               concern.

               BUSINESS  DESCRIPTION

               CoreCare Systems,  Inc., through its six operating  subsidiaries,
               owns and  operates a  comprehensive  array of  behavioral  health
               service programs,  including acute inpatient psychiatric and drug
               and  alcohol  rehabilitation  services;  conducts  clinical  drug
               trials  for the  pharmaceutical  industry;  operated a health and
               fitness center; provided practice management and billing services
               to nonrelated physician clients and leases space at its Kirkbride
               facility to third parties. (see Notes 3 and 18)

2.   SUMMARY  OF SIGNIFICANT ACCOUNTING POLICIES

               PRINCIPLES OF CONSOLIDATION

               The consolidated  financial statements of the Company include the
               accounts  of  CoreCare   Systems,   Inc.  and  its  wholly  owned
               subsidiaries.

               All significant  intercompany accounts and transactions have been
               eliminated in consolidation.


                                                                              14
<PAGE>
                                         CORECARE SYSTEMS, INC. AND SUBSIDIARIES


                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

================================================================================

               USE  OF  ESTIMATES

               The  preparation  of  financial  statements  in  conformity  with
               generally accepted  accounting  principles requires management to
               make estimates and assumptions  that affect the reported  amounts
               of assets and liabilities and disclosure of contingent assets and
               liabilities  at the  date  of the  financial  statements  and the
               reported  amounts of revenues and expenses  during the  reporting
               period. The Company reviews all significant  estimates  affecting
               the  financial  statements  on a recurring  basis and records the
               effect of any adjustments when necessary.

               CONCENTRATION  OF  CREDIT  RISK

               Financial instruments, which subject the Company to concentration
               of credit risk,  consist  principally of trade  receivables  from
               government  health care systems,  such as Medicare,  Medicaid and
               Community  Behavioral Health. The Company establishes a provision
               for doubtful  accounts based upon factors  surrounding the credit
               risk of specific payors, historical trends and other information.
               (see Notes 3 and 18)

               CASH  EQUIVALENTS

               The  Company  considers  all  highly  liquid  investments  with a
               maturity  of  three  months  or less  when  purchased  to be cash
               equivalents.

               PROPERTY,  PLANT  AND  EQUIPMENT

               Property, plant and equipment are stated at cost less accumulated
               depreciation  and  amortization.  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 and
               amortization are provided using the straight-line method over the
               estimated useful life of the respective assets.


                                                                              15
<PAGE>
                                         CORECARE SYSTEMS, INC. AND SUBSIDIARIES


                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

================================================================================

               DEFERRED  FINANCE  COSTS

               Deferred  finance costs arising from the  incurrence of long-term
               debt is being amortized using the  straight-line  method over the
               terms of the related debt.

               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.

               Contract  rights were amortized on a  straight-line  basis over a
               three to five-year period.

               IMPAIRMENT  OF  LONG-LIVED  ASSETS

               The Company  reviews the carrying  values of its  long-lived  and
               identifiable  intangible assets for possible  impairment whenever
               events or changes in  circumstances  indicate  that the  carrying
               amount of the assets may not be recoverable based on undiscounted
               estimated  future  operating  cash  flows.  For the  years  ended
               December  31,  1999 and 1998,  the  Company  has  recorded  asset
               impairment write downs of $930,333 and $1,121,859,  respectively,
               related to terminated operations. (see Note 5)

               Asset  impairment by class for the years ended  December 31, 1999
               and 1998 is summarized as follows:

               Year ended December 31,           1999           1998
               ---------------------------------------------------------

               Contract rights               $  244,035     $          -
               Goodwill                         186,298          752,479
               Assets held for sale  (a)        500,000          369,380
               ---------------------------------------------------------

                                             $  930,333     $  1,121,859
               =========================================================

               (a)  See  Note  20  for  sale  of  related  property.


                                                                              16
<PAGE>
                                         CORECARE SYSTEMS, INC. AND SUBSIDIARIES


                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

================================================================================

               NET  PATIENT  SERVICE  REVENUE

               Patient service revenue is recorded net of contractual allowances
               based upon the Company's  established  standard  rates during the
               period in which the services are provided.  Contractual and other
               allowances, including uncollectible 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.

               INCOME  TAXES

               The Company has adopted the  provisions of Statement of Financial
               Accounting  Standards  No.  109,  "Accounting  for Income  Taxes"
               ("SFAS No.  109").  SFAS No. 109  requires a company to recognize
               deferred tax  liabilities  and assets for the expected future tax
               consequences of events that have been recognized in its financial
               statements or tax returns. Under this method, deferred tax assets
               and liabilities are determined  based on the differences  between
               the financial  statement carrying amounts and tax bases of assets
               and liabilities using enacted tax rates in effect in the years in
               which the differences are expected to reverse.

               STOCK-BASED  COMPENSATION

               The Company has adopted SFAS No. 123, "Accounting for Stock-Based
               Compensation,"  which has  recognition  provisions that establish
               fair value as the measurement  basis for transactions in which an
               entity  acquires goods or services from  nonemployees in exchange
               for equity instruments.  SFAS No. 123 also has certain disclosure
               provisions.  Adoption of the  recognition  provisions of SFAS No.
               123 with  regard  to these  transactions  with  nonemployees  was
               required for all such  transactions  entered into after  December
               15, 1995. The recognition provision with regard to the fair value
               based method of accounting for stock-based employee  compensation
               plans is optional.  Accounting  Principles  Board Opinion ("APB")
               No. 25,  "Accounting  for Stock Issued to Employees" uses what is
               referred to as an intrinsic value based method of accounting. The
               Company  has  decided  to apply  APB No.  25 for its  stock-based
               employee compensation arrangements.


                                                                              17
<PAGE>
                                         CORECARE SYSTEMS, INC. AND SUBSIDIARIES


                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

================================================================================

               NET  LOSS  PER  COMMON  SHARE

               The Company  computes net loss per share in  accordance  with the
               provisions of SFAS No. 128, "Earnings Per Share".  Basic earnings
               per share  includes no dilution  and is computed by dividing  net
               income  available to common  stockholders by the weighted average
               number of  common  shares  outstanding  for the  period.  Diluted
               earnings per share reflects the potential  dilution of securities
               that could share in the  earnings of an entity and is computed by
               dividing the net income  available to common  stockholders by the
               weighted  average number of common and common  equivalent  shares
               outstanding during the period.  Equivalents,  including warrants,
               stock options and preferred  stock,  were not included in diluted
               net loss per share as their effect would be antidilutive  for all
               periods presented.

               COMPREHENSIVE  INCOME

               The Company  follows the  provisions of SFAS No. 130,  "Reporting
               Comprehensive  Income."  SFAS No. 130  establishes  standards for
               reporting and display of comprehensive  income and its components
               in  financial  statements.   Comprehensive  income,  as  defined,
               includes all changes in equity (net assets)  during a period from
               nonowner   sources.   To  date,  the  Company  has  not  had  any
               transactions  that are  required to be reported in  comprehensive
               income.

               FAIR  VALUE  OF  FINANCIAL  INSTRUMENTS

               As of December 31, 1999, in assessing the fair value of financial
               instruments,  the  Company  has used a  variety  of  methods  and
               assumptions,  which were based on estimates of market  conditions
               and loan risks  existing at that time.  For certain  instruments,
               including  accounts  receivable,  accounts payable and short-term
               debt, it was estimated that the carrying amount approximated fair
               value for these instruments because of their short-term maturity.
               The carrying  amounts of long-term  debt  approximate  fair value
               since the Company's  interest rates approximate  current interest
               rates.


                                                                              18
<PAGE>
                                         CORECARE SYSTEMS, INC. AND SUBSIDIARIES


                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

================================================================================

               RECLASSIFICATION

               Certain  amounts  in the  1998  financial  statements  have  been
               reclassified to conform with the 1999 presentation.

               IMPACT  OF  RECENTLY  ISSUED  ACCOUNTING  PRONOUNCEMENTS

               In April  1998,  the  Accounting  Standards  Executive  Committee
               ("ACSEC")  issued  Statement of Position 98-5,  "Reporting on the
               Costs of Start-Up  Activities"  (SOP 98-5),  which  requires  the
               costs of start-up activities to be expensed as incurred. SOP 98-5
               is required to be adopted for years  beginning after December 15,
               1998. This statement did not materially effect the Company.

               In June 1998,  the FASB  issued  SFAS No.  133,  "Accounting  for
               Derivative Instruments and Hedging Activities".  SFAS No. 133 was
               amended  in  June  1999,  with  the  issuance  of SFAS  No.  137,
               "Accounting for Derivative  Instruments and Hedging  Activities -
               Deferral of the Effective Date of FASB  Statement No. 133".  SFAS
               No. 137 makes SFAS No. 133 effective  for all fiscal  quarters of
               the fiscal years  beginning  after June 15, 2000, and establishes
               accounting and reporting standards for derivative instruments and
               for  hedging  activities.  SFAS No. 133  requires  that an entity
               recognize all  derivatives  as either assets or  liabilities  and
               measure those  instruments  at fair market  value.  Under certain
               circumstances,  a  portion  of the  derivative's  gain or loss is
               initially reported as a component of other  comprehensive  income
               and  subsequently  reclassified  into income when the transaction
               affects  earnings.  For a derivative  not designated as a hedging
               instrument,  the  gain or loss is  recognized  in  income  in the
               period of change.  Presently, the Company does not use derivative
               instruments  either  in  hedging  activities  or as  investments.
               Accordingly,  the Company  believes that the adoption of SFAS No.
               133 will have no impact on its  financial  position or results of
               operations.


                                                                              19
<PAGE>
                                         CORECARE SYSTEMS, INC. AND SUBSIDIARIES


                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

================================================================================

               In December 1999, the  Securities and Exchange  Commission  staff
               released  Staff  Accounting  Bulletin  ("SAB") No. 101,  "Revenue
               Recognition in Financial Statements". This pronouncement provides
               guidance  on the  recognition,  presentation  and  disclosure  of
               revenue in financial  statements.  The Company  believes that the
               adoption  of SAB No. 101 in the fourth  quarter of 2000 will have
               no impact on its financial position or results of operations.

               RESTATEMENT

               Certain items in the 1998 and 1997 financial statements have been
               revised as a result of the audit of the  financial  statements as
               of and for the year ended  December  31,  1999.  (see Note 22 for
               additional information)

3.   ACCOUNTS  RECEIVABLE

               As of December 31, 1999,  accounts  receivable  and allowance for
               doubtful accounts are as set forth below:

               December 31,                                  1999
               --------------------------------------------------

               Total accounts receivable             $  8,101,489
               Provision for doubtful accounts          3,655,846
               --------------------------------------------------

               Accounts receivable, net              $  4,445,643
               ==================================================

               At  December  31,  1999,  the  Company's   three  largest  payors
               represented 51% of the total  receivable  outstanding.  (see Note
               8(c))


                                                                              20
<PAGE>
                                         CORECARE SYSTEMS, INC. AND SUBSIDIARIES


                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

================================================================================

4.   PROPERTY,  PLANT AND  EQUIPMENT

               As of December 31, 1999, property,  plant and equipment consisted
               of the following:

               December 31,                                            1999
               ----------------------------------------------------------------
                                                Estimated
                                                   Useful
                                                 Life  in
                                                    Years
               ----------------------------------------------------------------

               Land                                     --     $    1,875,546
               Buildings                      31.5 to 40.0          7,442,123
               Building improvements          31.5 to 40.0          2,111,514
               Furniture and equipment          5.0 to 7.0            924,923
               Automobiles                      3.0 to 5.0             55,820
               Furniture and equipment under
                  capital lease                 3.0 to 5.0          1,030,746
               ----------------------------------------------------------------

                                                                   13,440,672
               Less accumulated depreciation                        1,546,117
               ----------------------------------------------------------------

                                                                $  11,894,555
               ================================================================

               Depreciation  expense for the years ended  December  31, 1999 and
               1998 was $776,620 and $580,066, respectively.

5.   INTANGIBLE ASSETS

               GOODWILL

               Goodwill  resulting  from  acquisitions  accounted  for using the
               purchase  method is  amortized  on a  straight-line  basis over a
               40-year period. Amortization expense for the years ended December
               31, 1999 and 1998 was $111,975 and $131,519,  respectively.  (see
               Note 2)


                                                                              21
<PAGE>
                                         CORECARE SYSTEMS, INC. AND SUBSIDIARIES


                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

================================================================================

               CONTRACT  RIGHTS

               Contract rights resulting from  acquisitions  were amortized on a
               straight-line  basis  over  periods  ranging  from 3 to 5  years.
               Amortization  expense for the years ended  December  31, 1999 and
               1998 was $249,467 and $237,536, respectively. (see Note 2)

6.   REAL  ESTATE HELD  FOR  SALE

               On July 22, 1992, in connection  with the acquisition of Lakewood
               Retreat,  Inc., the Company  purchased real estate which included
               approximately  61 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 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, 1997, the asset was recorded at
               the lower of cost or the appraised value.

               At  December  31, 1999 and 1998,  the Company  recorded a reserve
               against the asset totaling  $913,723 and $413,723,  respectively.
               (see Note 20)

               During 1999,  the Company  subdivided a five-acre  parcel of land
               contiguous to the Kirkbride  Center.  A one-acre  parcel was sold
               during the year  resulting in a gain of  approximately  $350,000.
               The cost of the remaining  four-acre  parcel of $250,010 has been
               classified  as real estate held for sale as of December 31, 1999.
               On February 29, 2000, the Company,  Franklin Development Company,
               LLC (a  related  party,  see  Note 16) and J&K  Development,  LLC
               entered  into an  agreement  of sale for the four acre  parcel of
               land. (see Note 20)


                                                                              22
<PAGE>
                                         CORECARE SYSTEMS, INC. AND SUBSIDIARIES


                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

================================================================================

7.   RESTRICTED CASH

               Restricted  cash consists of various  certificates  of deposit in
               accordance  with the terms of  certain  mortgage  agreements  and
               state regulations in connection with the operating  activities of
               one of the Company's wholly owned subsidiaries.

               Restricted cash consists of certificates of deposit with interest
               rates ranging from 4.25% to 5.0%.  These  investments are held in
               the  Company's  name  and are  deposited  with a major  financial
               institution.

8.   LINES  OF  CREDIT

               Outstanding balances under various facilities are as follows:

               LINES OF CREDIT

               December 31,                                              1999
               -----------------------------------------------------------------

                                                  Interest  %
                                                    Per Annum           Balance
               -----------------------------------------------------------------

               United  States  Trust
                 Company of New York   (A)      Bank's prime rate   $  1,100,000
               Madison Bank            (B)   Prime rate plus 1.5%        468,500
               Heller Financial, Inc.  (C)  Prime rate plus 1.75%      2,075,148
               -----------------------------------------------------------------

                                                                    $  3,643,648
               =================================================================

               (A)  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 (8.5% as of December
                    31,  1999)  and  is  collateralized  by  certain  marketable
                    securities  pledged by the  chairman's  spouse.  The line of
                    credit  expired  in May  2000.  The  financing  company  has
                    extended this facility until January 2001.

               (B)  The Company has also  borrowed  $468,500  under its May 1998
                    line of credit  facility  agreements with another bank which
                    is collateralized by an irrevocable  letter of credit in the
                    amount of $475,000. Interest on outstanding balances accrues
                    at the rate of  prime  plus  1.5%  (10% as of  December  31,
                    1999).  The facility matured in January 2000 and the Company
                    is currently negotiating a line of credit agreement.


                                                                              23
<PAGE>
                                         CORECARE SYSTEMS, INC. AND SUBSIDIARIES


                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

================================================================================

               (C)  In May  1998,  the  Company  entered  into a line of  credit
                    agreement  with a  financial  institution  in the  amount of
                    $5,000,000.  The credit  line bears  interest  at the bank's
                    prime rate (10.25% as of December 31,  1999).  In 1999,  the
                    Company  entered  into  a  forbearance  agreement  regarding
                    noncompliance  with  certain  loan  covenants.  The  Company
                    granted a  $2,000,000  lien against the  Kirkbride  facility
                    which  would  be  subordinated  to  the  mortgage  with  WRH
                    Mortgage as additional  security for the line of credit. The
                    line  of  credit  is   collateralized  by  certain  accounts
                    receivable.  This line of credit  matured  in May 2000.  The
                    financing  company has extended this facility  until January
                    2001. (see Note 3)

<TABLE>
<CAPTION>
9.   DEBT

     NOTES  AND  MORTGAGES  PAYABLE:

December 31,                                                                      1999
--------------------------------------------------------------------------------------------------
                                                          Interest %
                                                          Per Annum         Current     Long-Term
--------------------------------------------------------------------------------------------------
<S>                                           <C>  <C>                     <C>          <C>

CORECARE BEHAVIORAL HEALTH MANAGEMENT (CBHM)

WRH Mortgage, Inc.                            (A)  LIBOR rate plus 6.5%    $12,900,247  $        -
                                                    (12.92% at 12/31/99)
Community Behavioral Health                   (B)  N/A                       1,211,979           -
The Pennsylvania Hospital of the              (C)  Prime plus 1% (9.5% at      358,166           -
University of the Pennsylvania Health                           12/31/99)
Domas, Inc.                                   (D)                   8.50%      247,634           -
Service Master Diversified Health             (E)  Prime plus 1% (9.5% at      181,914      29,175
Management, Inc.                                                12/31/99)
Ford Motor Credit                             (F)                  11.00%        4,733       9,249
Laboratory Corporation of America             (G)                     12%        1,653           -


                                                                              24
<PAGE>
                                         CORECARE SYSTEMS, INC. AND SUBSIDIARIES


                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

================================================================================

December 31,                                                                      1999
----------------------------------------------------------------------------------------------------
                                                          Interest %
                                                          Per Annum           Current     Long-Term
----------------------------------------------------------------------------------------------------
<S>                                           <C>  <C>                       <C>          <C>

WESTMEADE HEALTHCARE, INC.

Finova Capital Corporation (Finova)           (H)  Treasury rate plus 4.5%   $ 1,677,437  $        -
(Senior Mortgage)                                     (10.94% at 12/31/99)

Finova Capital Corporation (Finova)           (I)  Treasury rate plus 4.5%       478,062           -
(Junior Mortgage)                                     (10.94% at 12/31/99)

MANAGED CAREWARE, INC.

Preferred Medical                             (J)                    5.54%        61,092           -

CORECARE SYSTEMS, INC.

Merrill Lynch                                 (K)  Various                       749,539           -
Mentor Capital Partners, Ltd. (Mentor)        (L)                      12%       499,667           -
Steve Guarino                                 (M)                      20%       263,238           -
Don Won Kang                                  (N)                      20%             -     250,000
Tak Soon Yun                                  (O)                      20%             -     235,000
Jung & Eun Lee                                (P)                      20%             -     215,000
GMAC                                          (Q)                     2.9%         8,856      18,170
Mark Wachs                                    (R)                      10%        20,000           -
Senior Lifestyles, Inc.                       (S)                       -         10,000           -
Blue Bell Capital                             (T)                      11%             -           -

LAKEWOOD RETREAT, INC.

Unicorn Financiera Company Limited            (U)                      11%       884,000           -
Donald Camplese                               (V)  $            82 per day       249,640           -

WESTMEADE CENTER AT WYNDMOOR, INC.

Elliott Kremms                                (W)  N/A                           149,210           -
----------------------------------------------------------------------------------------------------

                                                                             $19,957,067  $  756,594
====================================================================================================
</TABLE>


                                                                              25
<PAGE>
                                         CORECARE SYSTEMS, INC. AND SUBSIDIARIES


                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

================================================================================

               (A)  Original loan dated  February 24, 1998,  interest is payable
                    monthly  at LIBOR  plus 6.5% per  annum,  collateralized  by
                    assets of CoreCare  Behavioral Health  Management,  Inc. and
                    matured on February  26,  1999.  On  February  5, 1999,  the
                    mortgage  note was  extended  to June 30,  1999.  Additional
                    collateral  was assumed in April 1998 to expand the original
                    mortgage to repay other short-term loans. The collateral was
                    a  second  mortgage   assignment  on  the  Lakewood  Retreat
                    Property,  assignment  of rents and leases at the  Kirkbride
                    facility,  security agreement, and a fixture filing executed
                    by Lakewood  Retreat,  Inc. The mortgage  holder has 600,000
                    shares  of  CoreCare  Systems  and  100  shares  of  Managed
                    Careware, Inc.'s common stock as additional collateral.  The
                    Company was not compliant  with various loan covenants as of
                    December 31, 1999.  During June 2000,  the Company  obtained
                    forbearance  under the terms of the original loan agreements
                    for  certain   defaults   until   December  31,  2000.   The
                    forbearance also provides for a further  extension until May
                    31, 2001 if certain requirements are met. The Company paid a
                    1% fee on the outstanding  balance in consideration for this
                    forbearance.

               (B)  Amount   represents  a   noninterest-bearing   advance  from
                    Community  Behavioral  Health  Corporation  based on certain
                    accounts  receivable  due from this  company.  The amount is
                    payable  beginning  March  2000  through  December  2000  in
                    monthly installments ranging from $50,000 to $125,000,  with
                    a balloon payment totaling $326,530 on December 31, 2000.

               (C)  Payable in weekly  installments  of $2,500 plus  interest at
                    the  rate  of  prime  plus 1% per  annum.  The  note  holder
                    possesses the right to setoff up to $273,000 against certain
                    leases  with the  Company  under the terms of a  forbearance
                    agreement.

               (D)  Payable  in  weekly   installments   of  $7,500,   including
                    principal  and  interest  at  8.5%  per  annum.  The  entire
                    principal  and any unpaid  interest  was due and  payable in
                    full on February 28, 2000.  However,  the obligation has not
                    been   satisfied  in  accordance   with  the  terms  of  the
                    agreement.  To date, the lender has not exercised its rights
                    under this debt agreement.


                                                                              26
<PAGE>
                                         CORECARE SYSTEMS, INC. AND SUBSIDIARIES


                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

================================================================================

               (E)  Payable  in  bi-weekly  installments  of  $6,000,  including
                    principal  and  interest  at prime plus 1% per  annum.  This
                    amount was paid in full in March 2000.

               (F)  Payable in monthly installments of $417, including principal
                    and interest at 11% per annum  maturing  January  2003.  The
                    note is collateralized by the vehicle.

               (G)  Payable  in  monthly  installments  of  $12,000,   including
                    principal and interest at 12% per annum.

               (H)  In June 1996,  through a  refinancing  of the then  existing
                    debt, the Company obtained  financing pursuant to a mortgage
                    note payable to a finance  company.  The mortgage note which
                    bears  interest  at the  average  rate of  10.94%  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, partially guaranteed by two
                    officers  and  stockholders  of the  Company and a letter of
                    credit for $175,000.

                    The  Company  is in default of this  senior  mortgage  as of
                    October 27, 1999. As a consequence  of the events of default
                    on October 27, 1999,  Finova effected a partial draw down of
                    the letter of credit in the amount of  $25,813.  The Company
                    obtained a forbearance  agreement on November 5, 1999, under
                    which Finova agrees to forbear until  February 3, 2000.  The
                    forbearance  agreement  states that the Company  comply with
                    certain  conditions on or before  February 3, 2000. In order
                    to execute this  agreement,  the Company paid a  forbearance
                    fee of $6,453 plus all fees, costs and expenses  incurred by
                    Finova in  connection  with  this  agreement.  To date,  the
                    lender has not exercised its rights under this agreement.


                                                                              27
<PAGE>
                                         CORECARE SYSTEMS, INC. AND SUBSIDIARIES


                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

================================================================================

               (I)  In February 1997, the Company obtained financing pursuant to
                    a mortgage note payable to an independent  finance  company.
                    The mortgage is being  amortized  over 20 years with monthly
                    payments  of  $5,140  and a  final  payment  of  any  unpaid
                    principal and interest due on June 27, 2001.  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 stockholders of the Company.

                    The  Company  was in default of this  junior  mortgage as of
                    October 27, 1999. As a consequence  of the events of default
                    on October  27,  1999,  the Company  obtained a  forbearance
                    agreement on November 5, 1999, which agrees to forbear until
                    February 3, 2000. The forbearance  agreement states that the
                    Company comply with certain conditions on or before February
                    3, 2000.  To date,  the lender has not  exercised its rights
                    under this agreement.

               (J)  Demand note payable for the acquisition of Preferred Medical
                    Services,  Inc. bearing  interest of 5.54%.  Interest on the
                    outstanding principal amount shall be due when the principal
                    amount is paid.  Upon an event of  default,  interest  shall
                    accrue  at a rate  of 12% per  annum  from  the  date of the
                    default  until  complete   satisfaction  of  the  obligation
                    occurs. (see Note 16)

               (K)  Note  payable in monthly  installments  of $10,000 per month
                    until  December 31, 1999,  at which time the balance and all
                    accrued interest is payable on demand.  The rate of interest
                    charged  monthly on the  balance  will be the "Base  Lending
                    Rate"  (7.875% at December  31,  1999),  plus .625%  through
                    2.625% based on the outstanding loan balance  (combined 8.5%
                    at  December  31,  1999).  This  note  is  guaranteed  by  a
                    corporate officer and the pledge of certain personal assets.

               (L)  Subordinated  note  bearing  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 the note is a warrant to purchase
                    333,000 shares of common stock at an exercise price of $1.50
                    per  share  expiring  August  2001.  As  principal  and some
                    interest  payments  were not paid when due in 1999 and 1998,
                    Mentor  has been  issued  additional  warrants  to  purchase
                    512,876  shares of common  stock at an exercise  price of $1
                    per share expiring in August 2006.


                                                                              28
<PAGE>
                                         CORECARE SYSTEMS, INC. AND SUBSIDIARIES


                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

================================================================================

               (M)  Investor  notes  payable  bearing  interest at rates ranging
                    from 11% to 20% during the three-year period ending December
                    31, 1999. These notes matured during 1997 and the Company is
                    currently negotiating repayment provisions.  The Company has
                    issued  300,000  shares of  common  stock  and  warrants  to
                    purchase  211,400 shares of common stock at exercise  prices
                    ranging  from  $1.50 to $3.00  per share in lieu of past due
                    interest and missed  principal  payments on the  outstanding
                    debt.

               (N)  Investor  note  bearing  interest of 20% per annum,  payable
                    monthly,  maturing in October 2001. The entire principal and
                    any unpaid  interest  matures in December 2001. The investor
                    also received 30,000 shares of restricted  common stock upon
                    execution of the note.

               (O)  Investor notes,  interest payable monthly at the rate of 20%
                    per annum.  The  entire  principal  and any unpaid  interest
                    matures in December 2001. The investor also received  90,000
                    shares of  restricted  common  stock upon  execution  of the
                    notes.

               (P)  Investor note,  interest  payable monthly at the rate of 20%
                    per annum.  The  entire  principal  and any unpaid  interest
                    matures in October 2001.  The investor also received  30,000
                    shares of  restricted  common  stock upon  execution  of the
                    note.


                                                                              29
<PAGE>
                                         CORECARE SYSTEMS, INC. AND SUBSIDIARIES


                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

================================================================================

               (Q)  Auto note payable in monthly installments of $575, including
                    principal and interest at 2.9% per annum maturing  September
                    2003. The note is collateralized by the vehicle.

               (R)  Convertible  promissory note bearing interest at the rate of
                    10% per annum.  The note is convertible into common stock of
                    the  Company  at the rate of one share of  common  stock for
                    each  $1.50 of debt  converted.  The  note  also  carries  a
                    warrant  to  purchase  400  shares  of  common  stock  at an
                    exercise  price of $3.00 per  share for each  $1,000 of debt
                    converted.

               (S)  Noninterest-bearing demand note payable to a related party.

               (T)  Promissory note, interest payable monthly at the rate of 11%
                    per annum.

                    The Company issued a warrant, which contained a put feature,
                    to purchase  200,000  shares of common  stock at an exercise
                    price of $1.00 per share, expiring June 30, 2002. The lender
                    has "put" the  warrant to the  Company at $1.50 per share in
                    accordance with the agreement. The Company recorded a charge
                    of  $200,000  in  1999  related  to the put  feature  of the
                    warrant.

                    On October 31,  1999,  the above note was  purchased by Jung
                    and Eun Lee. (see Note P above)

               (U)  Mortgage note 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 $548,386.  The mortgage
                    note payable matured in 1996,  including various extensions.
                    The terms of these  extensions  required the Company to make
                    principal  payments of $50,000 per month and to issue 15,000
                    shares of its common  stock to the  mortgagee.  No  payments
                    have been made on this obligation since 1996. (see Note 20)


                                                                              30
<PAGE>
                                         CORECARE SYSTEMS, INC. AND SUBSIDIARIES


                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

================================================================================

               (V)  Judgement  order  in  the  amount  of  $314,592,   including
                    interest  and fees in the  amount of  $64,952.  Interest  is
                    accruing at the rate of $82 per day since May 1, 1999.  (see
                    Note 20)

               (W)  Amounts  due under a lease  separation  agreement  effective
                    September  2,  1997  totaling   $202,000.   The  Company  is
                    currently  in default  of the  payment  arrangements  and is
                    negotiating new payment terms. (see Note 20)

               The  amounts  of  principal  repayment  are  as  follows:

               Year ending December 31,                      Amount
               ----------------------------------------------------
                  2000                                $  19,957,067
                  2001                                      739,772
                  2002                                       11,300
                  2003                                        5,522
               ----------------------------------------------------

                                                      $  20,713,661
               ====================================================


                                                                              31
<PAGE>
                                         CORECARE SYSTEMS, INC. AND SUBSIDIARIES


                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

================================================================================

               OBLIGATIONS UNDER CAPITAL LEASES

               The future  minimum lease  payments  under  capital  leases as of
               December 31, 1999 are as follows:

               Year ending December 31,                                  Amount
               -----------------------------------------------------------------
               2000                                                  $   276,031
               2001                                                      240,466
               2002                                                      205,677
               2003                                                      128,923
               2004                                                       73,923
               -----------------------------------------------------------------

               Total minimum lease payments                              925,020
               Less amount representing interest (5.2% to 8.5%)           95,746
               -----------------------------------------------------------------

               Present value of net minimum lease payments               829,274
               Less current maturities of capital lease obligations      229,850
               -----------------------------------------------------------------

                                                                     $   599,424
               =================================================================

               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 useful lives.

               During 1999 and 1998,  the Company  entered  into  capital  lease
               obligations totaling $543,407 and $402,138, respectively, for the
               purchase  of  equipment.  Depreciation  and  amortization  on the
               equipment  acquired under capital leases was $143,289 and $90,766
               for 1999 and 1998, respectively.  The net book value of equipment
               under  capital  leases at December 31, 1999 and 1998  amounted to
               $790,388 and $390,269, respectively.


                                                                              32
<PAGE>
                                         CORECARE SYSTEMS, INC. AND SUBSIDIARIES


                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

================================================================================

10.  ADVANCES,  OFFICERS/  STOCKHOLDERS

               Amounts  are  payable  to  two   officers/stockholders   totaling
               $700,410 as of December  31,  1999.  These  amounts  reflect both
               direct  advances  to the  Company as well as monies  advanced  to
               cover expenses paid on behalf of the Company.

               Certain of these  amounts bear a market rate of interest as these
               amounts resulted from the officers borrowing funds from financial
               institutions  for the benefit of the Company.  During  1999,  the
               Company assumed financial  responsibility  for one of these loans
               in the  amount of  $731,239;  however,  personal  guarantees  and
               personal  assets of corporate  officers  continue to secure these
               loans.    The   Company    also   repaid    $225,000   to   these
               officers/shareholders,  or to  financial  institutions  for loans
               that benefited the Company, during 1999.

11.  PAYROLL  AND  PAYROLL  TAXES PAYABLE

               INTERNAL  REVENUE  SERVICE

               In November 1999,  Westmeade  Healthcare,  Inc. filed installment
               agreements to repay past due payroll taxes. The Company agreed to
               pay the federal taxes owed plus penalties and interest in monthly
               payments of $5,000 due on the 15th of each month, then on July 1,
               2000 the amount will  increase to $10,000 due on the 15th of each
               month until the total liability of approximately $223,700 is paid
               in full.

               On November 29, 1999,  Managed  Careware,  Inc. filed installment
               agreements to repay past due payroll taxes. The Company agreed to
               pay the federal taxes owed plus penalties and interest in monthly
               payments of $5,000 due on the 15th of each month, then on July 1,
               2000 the amount will  increase to $10,000 due on the 15th of each
               month until the total liability of approximately $211,000 is paid
               in full.


                                                                              33
<PAGE>
                                         CORECARE SYSTEMS, INC. AND SUBSIDIARIES


                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

================================================================================

               On November 29, 1999, CBHM filed installment  agreements to repay
               past due payroll  taxes.  The  Company  agreed to pay the federal
               taxes owed plus  penalties  and  interest in monthly  payments of
               $10,000 due on the 15th of each  month,  then on July 1, 2000 the
               amount  will  increase  to $50,000  due on the 15th of each month
               until the total liability of approximately  $1,331,900 is paid in
               full.

               On November 29, 1999,  Chestnut Hill Fitness Club,  Inc. filed an
               installment  agreement  to repay  past  due  payroll  taxes.  The
               Company  agreed to pay the federal taxes owed plus  penalties and
               interest  in monthly  payments  of $5,000 due on the 15th of each
               month until the total liability of approximately  $20,000 is paid
               in full.

               PENNSYLVANIA  DEPARTMENT  OF  REVENUE

               The  Company  owes  the   Pennsylvania   Department   of  Revenue
               approximately  $248,145  for current  and past due payroll  taxes
               plus  approximately  $193,360  in  penalties  and  interest.  The
               Company  has  negotiated  a  payment  plan  for  the  outstanding
               balance.

               CITY  OF  PHILADELPHIA

               The Company owes the City of Philadelphia  approximately $981,000
               for  current  and  past  due  payroll  taxes  plus  approximately
               $357,532  in  penalties  and   interest.   The  Company  has  not
               negotiated  any payment plan for the  outstanding  balance.  (see
               Note 17)

               COMMONWEALTH OF PENNSYLVANIA DEPARTMENT  OF  LABOR  AND  INDUSTRY

               As of December 31, 1999,  the Company is negotiating to repay the
               Pennsylvania  unemployment  contributions  outstanding balance of
               approximately $95,800.


                                                                              34
<PAGE>
                                         CORECARE SYSTEMS, INC. AND SUBSIDIARIES


                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

================================================================================

12.  DUE  TO MEDICARE

               During  1999,  the  Company  negotiated  a  repayment  plan  with
               Medicare  to pay back 1998 over  reimbursements  received  in the
               amount of approximately $1,200,000. The repayments are payable in
               monthly installments of $47,386, including principal and interest
               at 13.375% per annum until July 2001. The balance due on the 1998
               over reimbursements as of December 31, 1999 is $807,314.

               The Company is required to file a "Hospital  and Hospital  Health
               Care Complex Cost Report  Certification  and Settlement  Summary"
               (cost report) with Medicare annually.  The cost report reconciles
               allowable reimbursable expenditures to actual reimbursements from
               Medicare.  If the Company was under reimbursed during the period,
               additional reimbursements would be made by Medicare.  Conversely,
               if the Company had been over reimbursed,  during the period,  the
               over reimbursement would be required to be repaid with the annual
               filing of the cost report.

               The Cost Report  filed by the Company for the  December  31, 1999
               year end  shows  that the  Company  has been over  reimbursed  by
               approximately  $2,030,000 for that fiscal year. The Company has a
               monthly  repayment  plan  requiring  monthly  payments of $69,050
               including principal and interest at 13.75% through June 2003.

13.  INCOME  TAXES

               The  Company has net  operating  loss  carryforwards  aggregating
               approximately  $31,100,000 at December 31, 1999 expiring  through
               2012. SFAS No. 109 requires the  establishment  of a deferred tax
               asset for all deductible temporary differences and operating loss
               carryforwards.  Because of the uncertainty  that the Company will
               generate  income in the future  sufficient  to fully or partially
               utilize these  carryforwards,  however, the deferred tax asset of
               approximately  $12,440,000 is offset by a valuation  allowance of
               the same amount.  Accordingly, no deferred tax asset is reflected
               in these financial statements.

               Certain  amounts of the net operating loss  carryforwards  may be
               limited due to possible changes in the Company's stock ownership.
               In  addition,  the sale of Common  Stock by the  Company to raise
               additional  operating  funds,  if  necessary,   could  limit  the
               utilization  of  the  otherwise   available  net  operating  loss
               carryforwards.  The grant  and/or  exercise  of stock  options by
               others  would also impact the number of shares that could be sold
               by the Company or by significant  shareholders  without affecting
               the net operating loss carryfowards.


                                                                              35
<PAGE>
                                         CORECARE SYSTEMS, INC. AND SUBSIDIARIES


                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

================================================================================

14.  STOCKHOLDERS' EQUITY (DEFICIENCY)

               STOCK  OPTIONS

               The  Company has elected to follow  Accounting  Principles  Board
               Opinion No. 25,  "Accounting  for Stock Issued to Employees" (APB
               No.  25)  and  related  interpretations  in  accounting  for  its
               employee stock  options.  Under APB No. 25, if the exercise price
               of the Company's  employee  stock options equals the market price
               of the  underlying  stock on the date of grant,  no  compensation
               expense  is  recognized.  Effects  of  applying  SFAS No. 123 for
               providing   pro   forma   disclosures   are  not   likely  to  be
               representative  of the effects on reported  net income for future
               years.

               Pro forma  information  regarding  net loss and loss per share is
               required  by SFAS  No.  123,  and has been  determined  as if the
               Company had  accounted  for its employee  stock options under the
               fair  value  method of that  statement.  The fair value for these
               options was estimated at the date of grant using a  Black-Scholes
               option   pricing  model  with  the   following   weighted-average
               assumptions:

               December 31,                1999      1998
               --------------------------------------------

               Expected volatility         45.60%    45.80%
               Expected dividend yield         0%        0%
               Expected life (term)      5 YEARS   5 years
               Risk-Free Interest Rate      6.33%     5.48%
               ============================================

               The Black-Scholes option valuation model was developed for use in
               estimating the fair value of traded options which have no vesting
               restrictions  and are fully  transferable.  In  addition,  option
               valuation   models   require  the  input  of  highly   subjective
               assumptions,  including  the  expected  stock  price  volatility.
               Because the Company's employee stock options have characteristics
               significantly different from those of traded options, and because
               changes in the subjective input assumptions can materially affect
               the fair value estimate,  in management's  opinion,  the existing
               models do not  necessarily  provide a reliable  single measure of
               the fair value of its employee stock options.


                                                                              36
<PAGE>
                                         CORECARE SYSTEMS, INC. AND SUBSIDIARIES


                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================


               For purposes of pro forma  disclosures,  the estimated fair value
               of the  option is  expensed  when the  options  are  vested.  The
               Company's pro forma information follows:

               Year ended December 31,      1999                  1998
               --------------------------------------------------------

               Pro forma net loss       $(7,266,189)    $  (10,209,457)

               Pro forma loss
               per share
               Basic and diluted               (.41)              (.64)

               The  weighted-average  fair  value of options  granted  (at their
               grant date) during the years ended December 31, 1999 and 1998 was
               $1.00 and $1.05, respectively.

               In July 1996, the Company's  Board of Directors and  Stockholders
               approved and adopted the Company's  1996 Stock Plan (the "Plan").
               The Plan, as amended in October  1998,  provides for the granting
               of options to purchase up to 3,000,000 shares of common stock, at
               a price per share as shall be determined  by the Company's  Board
               of  Directors  from  time to  time.  The  Plan  provides  for the
               granting of options that do not qualify  under Section 422 of the
               Code. Therefore,  the Company will recognize compensation expense
               for all options issued at less than fair market value on the date
               of grant equal to the difference between fair market value on the
               date of grant less the option  exercise  price  multiplied by the
               number of options granted.  No option may have a term longer than
               five years. Options under the Plan are nontransferable, except in
               the event of death and are only  exercisable  by the holder while
               employed by the Company or until such time as  determined  by the
               Board of  Directors  at its sole  discretion.  Unless the Plan is
               terminated  earlier by the Board, the Plan will terminate in July
               2001.


                                                                              37
<PAGE>
                                         CORECARE SYSTEMS, INC. AND SUBSIDIARIES


                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================


               The  majority  of the  options  issued  under the Plan were fully
               vested  upon  grant.  Any  options  that did not vest upon  grant
               vested within twelve months of grant date.

               A summary of the  Company's  stock option  activity,  and related
               information  for the  years  ended  December  31,  1999  and 1998
               follows:

                                                 Number    Weighted-Average
                                               of Shares    Exercise Price
               -------------------------------------------------------------

               Outstanding December 31, 1997   1,269,445   $             .93
                    Granted                      221,660   $            1.05
                    Canceled                    (215,000)  $             .43
                    Exercised                          -                   -
               -------------------------------------------------------------


               Outstanding, December 31, 1998  1,276,105   $            1.04
                    Granted                      566,667   $            1.00
                    Canceled                    (155,000)  $            1.34
                    Exercised                          -                   -
               -------------------------------------------------------------


               Outstanding December 31, 1999   1,687,772   $            1.00
               =============================================================

               At December 31, 1999 and 1998,  exercisable stock options totaled
               1,687,772 and 1,276,105 and had weighted-average  exercise prices
               of $1.00 and $1.04, respectively.


                                                                              38
<PAGE>
                                         CORECARE SYSTEMS, INC. AND SUBSIDIARIES


                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================


               Options  outstanding and exercisable at December 31, 1999 were as
               follows:

<TABLE>
<CAPTION>
                            Options Outstanding and Exercisable
------------------------------------------------------------------------------------------

                                                                              Weighted-
Range of                                          Weighted-               Average Exercise
Exercise Prices   Number Outstanding  Average Remaining Contractual Life        Price
<S>               <C>                 <C>                                 <C>
 .10 - $.90                  876,105                           2.86 yrs.  $             .89
1.00 - $1.63                811,667                           3.26 yrs.  $            1.63
------------------------------------------------------------------------------------------

                           1,687,772                           3.09 yrs.  $            1.00
==========================================================================================
</TABLE>

               The  following  schedule  represents   warrants   outstanding  at
               December 31, 1999 and 1998:

                                       Warrants


                                                               Exercise
                                                                 Price
                                                  Number         Range
                                                    of            Per
                                                  Shares         Share
               -----------------------------------------------------------

               Outstanding, December 31, 1997    4,094,070   $   .80-$3.00
                    Granted                      1,211,691   $1.00- $1.125
                    Canceled or expired           (550,000)  $        2.00
               -----------------------------------------------------------


               Outstanding, December 31, 1998    4,755,761   $   .80-$3.00
                    Granted                        589,695   $  1.00-$2.00
                    Canceled / repurchased (1)  (1,569,278)  $        3.00
               -----------------------------------------------------------


               Outstanding, December 31, 1999    3,776,178   $   .80-$3.00
               ===========================================================


                                                                              39
<PAGE>
                                         CORECARE SYSTEMS, INC. AND SUBSIDIARIES


                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================


               The Company has  historically  issued warrants in connection with
               the issuance of debt,  extension of debt maturity dates,  payment
               of past due interest or principal on debt and payments to service
               providers for services.

               (1)  The Company  repurchased a warrant issued in connection with
                    the acquisition of the Westmeade facility for $50,000.

15.  RELATED PARTY TRANSACTIONS

               THOMAS T. FLEMING

               Thomas T.  Fleming,  Chairman of the Board of Directors and Chief
               Executive  Officer  of the  Company,  has  advanced  funds to the
               Company in the form of either  direct  advances  or  payments  to
               vendors on behalf of the Company. A substantial  portion of these
               advances   consisted  of   borrowings   from  various   financial
               institutions.  These  amounts were  advanced to the Company under
               the  same  terms  obtained  by Mr.  Fleming  from  the  financial
               institutions.  During the years ended December 31, 1999 and 1998,
               Mr.  Fleming   advanced   $51,004  and  $447,624,   respectively.
               Additionally,   repayments   to  Mr.   Fleming  or  to  financial
               institutions for his benefit for funds  previously  loaned to the
               Company were $55,000 and $612,180 during those same years.

               In March 1999, the Company assumed financial  responsibility  for
               one of these loans in the amount of approximately  $731,000. This
               loan  continues  to be  secured  by the  personal  assets  of Mr.
               Fleming.

               Mr. Fleming is the guarantor of various financial  obligations of
               the Company,  including  the amount  assumed by the Company noted
               above. Additionally,  he has advanced funds under certificates of
               deposit  for the  benefit of the  Company in order to comply with
               state regulations for one of its subsidiaries. (see Note 10)

               PHYLLYS B. FLEMING

               Phyllys  B.  Fleming,  wife  of  the  Chairman  of the  Board  of
               Directors, has guaranteed certain obligations of the Company with
               various  financial  institutions  by either  granting  a security
               interest  in personal  assets  controlled  by the Fleming  Family
               Trust or by pledging letters of credit for the benefit of certain
               creditors.  She has also  funded  interest  payments  on  certain
               obligations for the benefit of the Company.


                                                                              40
<PAGE>
                                         CORECARE SYSTEMS, INC. AND SUBSIDIARIES


                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================


               ROSE S. DIOTTAVIO

               Rose S.  DiOttavio,  President and Chief Operating  Officer,  has
               loaned funds to the Company in a fashion  similar to Mr.  Fleming
               noted above.  During the years ended  December 31, 1999 and 1998,
               Ms.  DiOttavio   advanced  $5,767  and  $148,000,   respectively.
               Additionally,  repayments  of $10,000  and $-0- were made  during
               those same years.

               Ms.   DiOttavio  is  also  a  guarantor   of  various   financial
               obligations of the Company.  Additionally, she has advanced funds
               under  certificates  of deposit for the benefit of the Company in
               order  to  comply   with  state   regulations   for  one  of  its
               subsidiaries. (see Note 10)

               FEDERAL DEVELOPMENT COMPANY, LLC

               In  October  1996,   the  Company   entered  into  a  Development
               Management   Agreement  with  Federal  Development  Company,  LLC
               ("Federal").  Mr.  Christopher  Fleming,  the  son of  Thomas  T.
               Fleming,  the  Chairman  of the Board of  Directors,  is a senior
               officer  of  Federal.  Federal  was  retained  by the  Company to
               provide  management  services  for the real  estate  owned by the
               Company,  principally the Kirkbride  Center.  For the years ended
               December 31, 1999 and 1998,  the Company has paid Federal in cash
               and stock $-0- and $62,500, respectively.

               The  Company  and  Federal  entered  into an amended  development
               management  agreement in August of 1999. This agreement  provided
               for the  settlement  of all past due fees and grants  Federal the
               right to act as agent for the sale of certain real estate  assets
               of the Company.


                                                                              41
<PAGE>
                                         CORECARE SYSTEMS, INC. AND SUBSIDIARIES


                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================


16.  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
               renamed it Kirkbride Center ("Kirkbride"). Kirkbride is comprised
               of approximately 420,000 square feet of commercial real estate on
               27 acres of land in West Philadelphia, Pennsylvania.

               Kirkbride Center was licensed for 120 acute inpatient psychiatric
               beds until the fourth quarter of 1999 when the number was reduced
               to  80  beds;  32  adult  partial   hospitalization   slots;  and
               outpatient services. Of its 120 beds, 49 beds hold dual licensure
               to treat substance abuse disorders.  The Company also operates an
               80-bed drug and alcohol  rehabilitation  program at the Kirkbride
               Center.  In the fourth  quarter  of 1999,  the  Company  received
               preliminary  approval to increase the drug and alcohol program by
               20 beds  for a total  of 100  beds.  The  Center  also  holds  an
               inactive provider 50 license for home services.

               The Company is utilizing  approximately 25% of the facility for a
               120-bed  inpatient  acute  psychiatric  hospital  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 acquisition costs of the facility in
               the amounts of $462,940 and $562,722, respectively. From February
               27, 1997, the date of the acquisition, through December 31, 1997,
               Kirkbride   capitalized   approximately   $1,700,000   of   costs
               associated  with improving the facility.  During 1998,  Kirkbride
               capitalized  approximately  $735,000  of  costs  associated  with
               improving the facility.


                                                                              42
<PAGE>
                                         CORECARE SYSTEMS, INC. AND SUBSIDIARIES


                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================


               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  reorganized  as a Preferred  Provider  Network for
               employee assistance programs.

               During 1999 and 1998,  the Company  developed a new service  line
               providing  clinical drug trial testing of central  nervous system
               drugs for the pharmaceutical industry.

               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.   Subsequent  to  the  acquisition,   several  client
               contracts were  terminated.  The Company is seeking an adjustment
               to the purchase price due to the  nondisclosure  of the status of
               these contracts at the date of acquisition. (see Note 9 (J))

17.  COMMITMENTS AND CONTINGENCIES

               LEASES

               The Company leases certain facilities and equipment.  Commitments
               for minimum  rentals under  noncancelable  leases at December 31,
               1999 are as follows:

               Year ending December 31,       Amount
               --------------------------------------

                    2000                     $225,774
                    2001                       48,856
                    2002                       29,144
                    2003                        4,797
                    2004                        4,536
               --------------------------------------

               Total minimum lease payments  $313,107
               ======================================


                                                                              43
<PAGE>
                                         CORECARE SYSTEMS, INC. AND SUBSIDIARIES


                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================


               Rental  expense  for the years ended  December  31, 1999 and 1998
               amounted to approximately $410,000 and $428,000, respectively.

               The Company is a lessor of office space.  Commitments for minimum
               rental income under noncancelable leases at December 31, 1999 are
               as follows:

               Year ending December 31,             Amount
               ---------------------------------------------

                    2000                          $  922,565
                    2001                             362,150
                    2002                             322,223
                    2003                             335,126
                    2004                             343,424
                    Thereafter                       797,878
               ---------------------------------------------


               Total minimum lease rental income  $3,083,366
               =============================================

               LITIGATION

               The  Company is subject to claims and  lawsuits  in the  ordinary
               course  of  business,  including  those  arising  from  care  and
               treatment  afforded at the  Company's  hospitals  and is party to
               various  other  litigation.   However,  management  believes  the
               ultimate  resolution of these pending proceedings will not have a
               material adverse effect on the Company.

               The Company is subject to numerous  lawsuits  from  creditors for
               amounts due for services rendered and products delivered. In most
               cases,  the Company has accrued the amount of these claims on its
               financial  statements.  The  Company  is  attempting  to work out
               payment plans with most of these creditors.

               On October 18, 2000, the City of Philadelphia sued the Company in
               the Court of Common Pleas of  Philadelphia  County,  Pennsylvania
               for unpaid wage taxes for the period  February 1997 through March
               2000.  The  amount  sought  by the  City  is  approximately  $1.5
               million,  which includes  approximately  $600,000 of interest and
               penalties.  The Company's financial statements include provisions
               for this claim in the  amount of  approximately  $1,000,000.  The
               Company is currently  negotiating  the  abatement of all interest
               and penalties.


                                                                              44
<PAGE>
                                         CORECARE SYSTEMS, INC. AND SUBSIDIARIES


                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================


18.  NET PATIENT REVENUE

               Net patient service revenue for the years ended December 31, 1999
               and 1998, consists of the following:

               Year ended December 31,         1999         1998
               -----------------------------------------------------

               Patient service revenue      $92,872,994  $54,441,933

               Contractual adjustments       69,403,621   37,506,096
               -----------------------------------------------------


               Net patient service revenue  $23,469,373  $16,935,837
               =====================================================


               Concentration  of  net  patient  revenue  by  payor:
               ----------------------------------------------------


               Year ended December 31,         1999         1998
               -----------------------------------------------------


               Community Behavioral Health  $14,110,288  $10,392,848
               Medicare                       3,998,885    3,571,807
               State of Pennsylvania          1,198,998    1,294,580
               All others                     4,161,202    1,676,602
               -----------------------------------------------------


                                            $23,469,373  $16,935,837
               =====================================================

19.  CAPITAL STRUCTURE

               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,  privileges, and ratify
               powers,  if any, and the restrictions and  qualifications  of the
               share of each series as established.  Of the 5,000,000  shares of
               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,  6,000 shares have been
               designated as Series F Convertible  Preferred Stock and 1,000,000
               shares have been  designated  as Series G  Convertible  Preferred
               Stock.


                                                                              45
<PAGE>
                                         CORECARE SYSTEMS, INC. AND SUBSIDIARIES


                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================


               COMMON STOCK

               The Company is  authorized to issue  50,000,000  shares of Common
               Stock,  $.001 par value per share.  As of  December  31, 1999 and
               1998,   18,084,643   and   17,200,543   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 holders 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.


                                                                              46
<PAGE>
                                         CORECARE SYSTEMS, INC. AND SUBSIDIARIES


                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================


               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. Stockholders owning Series G Preferred are entitled to
               2 votes per share.

               Through December 31, 1999, the Company had not declared dividends
               on any class of preferred stock.

               The table below reflects a summary of the authorized,  issued and
               outstanding  shares of  preferred  stock  during the fiscal years
               indicated:

                                  Issued and Outstanding
                                      at December 31,
                                       1999 and 1998
                                   --------------------
               Series  Authorized   Shares   Par Value
               ----------------------------------------

               A           10,000     6,000  $        6
               B            7,000         -           -
               C           25,000   8,147.3           8
               D           15,000         -           -
               E           13,250         -           -
               F            6,000   2,870.6           3
               G        1,000,000         -           -
               ----------------------------------------

                                   17,017.9  $       17
               ========================================


                                                                              47
<PAGE>
                                         CORECARE SYSTEMS, INC. AND SUBSIDIARIES


                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================


               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,  1999 and 1998.  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 its option, 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.


                                                                              48
<PAGE>
                                         CORECARE SYSTEMS, INC. AND SUBSIDIARIES


                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================


               SERIES B CONVERTIBLE PREFERRED STOCK

               The Company has  authorized  7,000 shares of Series B Convertible
               Preferred Stock,  $.001 par value per share. There were no shares
               of Series B Preferred  outstanding  as of  December  31, 1999 and
               1998.

               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 features 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,  $.001 par value per  share,  of which  8,147.3
               shares are issued and  outstanding  as of  December  31, 1999 and
               1998.  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 features
               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 senior in
               rank to all  other  stock of the  Company  except  for  Preferred
               Series E which shares the same rank,  and for Preferred  Series G
               which is superior in rank.


                                                                              49
<PAGE>
                                         CORECARE SYSTEMS, INC. AND SUBSIDIARIES


                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================


               The  Company  has the  right to  redeem  the  Series C Shares  at
               $100.00  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,  $.001 par value
               per share,  of which no shares are issued and  outstanding  as of
               December  31,  1999 and  1998.  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,  $.001 par value
               per  share.  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 is convertible
               at the  option of its  holder  into 100  shares of Common  Stock.
               Conversion  features  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 senior
               in rank to all stock of the  Company  except  for  Series C which
               shares  the same  rank,  and for  Preferred  Series  G,  which is
               superior in rank.


                                                                              50
<PAGE>
                                         CORECARE SYSTEMS, INC. AND SUBSIDIARIES


                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================


               As of December 31, 1997,  the Company has reflected  9,934 shares
               of Series E Convertible Preferred Stock issued and outstanding as
               redeemable  preferred  stock with a value of  $1,293,280 in their
               financial statements.

               The holders of such preferred stock  exercised  their  conversion
               rights during December 1998 by converting  these preferred shares
               into 1,192,046 shares of 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  Stock,  $.001 par
               value  per  share,  of  which  2,870.6  shares  were  issued  and
               outstanding  as of December 31, 1999 and 1998.  Holders of shares
               of Series F  Convertible  Stock (the  "Series F  Preferred")  are
               entitled  to  annual  dividends  of  $6.00  per  share,   payable
               semi-annually.

               Each share of Series F Preferred is  convertible at the option of
               its holder into 50 shares of Common  Stock.  Conversion  features
               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.

               SERIES G CONVERTIBLE PREFERRED STOCK

               The Company's Board of Directors has designated  1,000,000 shares
               of its Preferred Stock as Series G Convertible  Preferred  Stock,
               $.001 par value per  share,  of which no shares  are  issued  and
               outstanding  as of December 31, 1999 and 1998.  Holders of shares
               of  Series  G   Convertible   Preferred   Stock  (the  "Series  G
               Preferred")  are entitled to annual  dividends of $.18 per share,
               payable semi-annually.


                                                                              51
<PAGE>
                                         CORECARE SYSTEMS, INC. AND SUBSIDIARIES


                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================


               Each share of Series G Preferred is  convertible at the option of
               its holder  into 2 shares of common  stock.  Conversion  features
               will be adjusted in the event of any stock  splits,  dividends on
               common stock payable in common stock or similar events.  Series G
               Preferred  has  a  liquidation   value  of  $2.20  per  share  in
               liquidation  of the  Company  and is  senior in rank to all other
               stock of the Company.

               The  Company has the right to redeem the Series G shares at $2.20
               per share plus accrued  dividends  upon not less than thirty (30)
               days written notice.

20.  SUBSEQUENT EVENTS

               CHESTNUT HILL FACILITY

               On March 30, 2000,  Chestnut Hill Health and Fitness  Center Inc.
               sold its assets  with a net book value of  approximately  $98,000
               for $1 and the assumption of liabilities  totaling  $97,000.  The
               assets sold consisted of all inventory,  contracts,  unencumbered
               equipment and leased  equipment.  The liabilities  assumed by the
               buyer were membership contracts and other liabilities  associated
               with the memberships.  The buyer accepted  responsibility for all
               membership contracts executed after March 15, 2000.

               REAL ESTATE HELD FOR SALE BY LAKEWOOD RETREAT, INC.

               On July 19, 2000,  the Company  entered into an agreement for the
               sale of the real estate assets of Lakewood Retreat, Inc.

               It is  contemplated  that the  proceeds  from  this  sale will be
               utilized  to  satisfy   both  the  Unicorn  and   Camplese   debt
               obligations. (see Notes 6, 9(U) and 9(V))

               REAL ESTATE HELD FOR SALE - KIRKBRIDE CENTER

               On August 24, 2000,  the Company  entered into a contract for the
               sale  of  approximately  4.7  acres  of  land  contiguous  to the
               Kirkbride Center.  Consideration for this parcel is approximately
               $2.2 million.


                                                                              52
<PAGE>
                                         CORECARE SYSTEMS, INC. AND SUBSIDIARIES


                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================


               DEBT FORBEARANCE - ELLIOTT KREMMS

               On June 30, 2000, the Company entered into a settlement agreement
               due to defaults under a previously  negotiated  lease  separation
               agreement.  (see Note 9(w)) The terms of the settlement  call for
               immediate   payment   of  $5,000   with   monthly   payments   of
               approximately $6,500 for the following thirty months.

21.  (UAUDITED) FOURTH QUARTER ADJUSTMENTS

               As of December 31, 1999, the Company recorded certain adjustments
               which increased net loss. These adjustments predominantly related
               to accounts  receivable reserves and fixed asset write downs (see
               Note 2) are summarized below:

                                            Net Income
                                             (Decrease)
                                          (in Thousands)
               ------------------------------------------
               Receivable reserves        $       (1,250)
               Impaired asset write down            (930)
               Other, net                           (581)
               ------------------------------------------


                                          $       (2,761)
               ==========================================

               In addition to these adjustments, other adjustments were required
               to  properly  reflect  certain  transactions  in the first  three
               quarters of fiscal  1999.  The Company  plans to restate its Form
               10-QSB  filings in the near future to reflect these  adjustments.
               The adjusted net loss amounts, by quarter, are reflected below:

               Fiscal 1999  As originally
               Quarter         reported      Adjustments      As Adjusted
                            (in Thousands)  (in Thousands)   (in Thousands)
               ----------------------------------------------------------------
               First        $      (1,660)  $         (372)  $          (2,032)
               Second       $        (768)  $         (359)  $          (1,127)
               Third        $        (369)  $         (665)  $          (1,034)


                                                                              53
<PAGE>
                                         CORECARE SYSTEMS, INC. AND SUBSIDIARIES


                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================


22.  FINANCIAL STATEMENT RESTATEMENT

               In  connection  with the  preparation  of the  December  31, 1999
               financial  statements,  the Company discovered that the financial
               statements for the years ended December 31, 1998 and December 31,
               1997 had not accounted for and reflected certain transactions and
               events  in  accordance   with   generally   accepted   accounting
               principles. It was determined that a restatement of the financial
               statements  was  necessary and  appropriate  due primarily to the
               following items:


<TABLE>
<CAPTION>
                              Year ended       Year ended      Prior to
                             December 31,     December 31,     January 1,
                                 1998            1997            l997
                            ----------------------------------------------
<S>                         <C>             <C>             <C>

Capitalization of certain
  operating expenses        $    (830,516)  $  (1,237,500)  $           -

Unrecorded charges
  associated with the
  issuance of options and
  warrants in connection
  with debt, forbearance
  and services provided
  by nonemployees                (463,983)     (1,011,499)     (3,225,751)

Overaccrual of amounts due

  Medicare                        478,387               -               -

Interest expense                  287,594           5,041          (4,285)

Nonrecording of
  impairment of
  intangible assets              (752,479)       (225,000)              -

Other                              32,048        (436,193)       (288,000)
                            ----------------------------------------------


                            $  (1,248,949)  $  (2,905,151)  $  (3,518,036)
                            ==============================================
</TABLE>


                                                                              54
<PAGE>
                                         CORECARE SYSTEMS, INC. AND SUBSIDIARIES


                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================

               The  financial   statements   below  represent  the  balances  as
               previously  filed and as  restated  to give effect to those items
               noted above, as well as, other less significant adjustments.


<TABLE>
<CAPTION>
                                 BALANCE SHEET

ASSETS
                                        December 31, 1998
                                    ----------------------------
                                   As Previously
                                     Reported     As Restated
----------------------------------------------------------------
<S>                                 <C>             <C>

CURRENT ASSETS
  Cash                              $      115,242  $    115,242
  Accounts receivable, net               4,411,418     4,356,935
  Prepaid and other current assets         175,659       175,659
----------------------------------------------------------------


TOTAL CURRENT ASSETS                     4,702,319     4,647,836
----------------------------------------------------------------


REAL ESTATE HELD FOR SALE                1,100,000     1,100,000
----------------------------------------------------------------


CONTRACT RIGHTS, net                       265,300       517,620
----------------------------------------------------------------


PROPERTY, PLANT AND EQUIPMENT, net      14,151,787    12,367,076
----------------------------------------------------------------


OTHER ASSETS
  Goodwill, net                          1,705,231     1,780,361
  Deferred finance costs, net              443,172       443,172
  Security deposits                         10,467        10,467
  Restricted cash                          207,041       232,041
  Other                                    609,610       897,050
----------------------------------------------------------------


TOTAL OTHER ASSETS                       2,975,521     3,363,091
----------------------------------------------------------------


TOTAL ASSETS                        $   23,194,927  $ 21,995,623
================================================================
</TABLE>


                                                                              55
<PAGE>
                                         CORECARE SYSTEMS, INC. AND SUBSIDIARIES


                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================


<TABLE>
<CAPTION>
LIABILITIES  AND  STOCKHOLDERS'  (DEFICIENCY)
---------------------------------------------

                                                                   December 31, 1998
                                                             ------------------------------
                                                              As Previously
                                                                Reported       As Restated
-------------------------------------------------------------------------------------------
<S>                                                          <C>              <C>

CURRENT LIABILITIES
  Lines of credit                                            $    4,308,703   $  4,308,703
  Current maturities of
    Long-term debt                                               16,191,983     15,365,441
    Lease termination fee payable                                    38,565              -
    Obligations under capital lease                                       -        106,814
  Accounts payable                                                3,748,882      3,761,290
  Advances, officers/stockholders                                 1,332,692      1,458,178
  Accrued expenses                                                1,851,026      2,538,108
  Payroll and payroll taxes payable                               3,048,183      3,102,509
  Due to Medicare                                                 1,692,389      1,214,003
-------------------------------------------------------------------------------------------


TOTAL CURRENT LIABILITIES                                        32,212,423     31,855,046

OBLIGATIONS UNDER CAPITAL LEASE, net of current maturities                -        308,482

LONG-TERM LIABILITIES
  Lease termination fee payable                                      93,467              -
  Long-term debt                                                  2,098,907      2,322,188
-------------------------------------------------------------------------------------------

TOTAL LIABILITIES                                                34,404,797     34,485,716
-------------------------------------------------------------------------------------------


COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS' (DEFICIENCY)
  Preferred stock                                                        17             17
  Common stock                                                       15,949         17,201
  Additional paid-in capital                                     11,086,340     17,507,701
  Accumulated (deficit)                                         (22,312,176)   (30,015,012)
-------------------------------------------------------------------------------------------


TOTAL STOCKHOLDERS' (DEFICIENCY)                                (11,209,870)   (12,490,093)
-------------------------------------------------------------------------------------------


TOTAL LIABILITIES AND STOCKHOLDERS' (DEFICIENCY)             $   23,194,927   $ 21,995,623
===========================================================================================
</TABLE>


                                                                              56
<PAGE>
                                         CORECARE SYSTEMS, INC. AND SUBSIDIARIES


                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================


<TABLE>
<CAPTION>
                                      STATEMENT OF OPERATIONS
                                      -----------------------


                                                                        Year ended
                                                                     December 31, 1998
                                                        ------------------------------------------
                                                         As Previously
                                                           Reported                   As Restated
--------------------------------------------------------------------------------------------------
<S>                                                     <C>                          <C>

REVENUE
  Patient services, net                                 $   16,457,451               $ 16,935,837
  Management services                                        1,962,803                  1,962,803
  Health and fitness center                                    450,625                    450,625
  Rental income                                              1,078,016                  1,055,788
--------------------------------------------------------------------------------------------------


TOTAL NET REVENUE                                           19,948,895                 20,405,053
--------------------------------------------------------------------------------------------------


DIRECT COSTS
  Patient services                                           8,884,360                  8,884,360
  Management services                                          842,438                    842,438
  Health and fitness center                                    278,774                    274,201
--------------------------------------------------------------------------------------------------


TOTAL DIRECT COSTS                                          10,005,572                 10,000,999
--------------------------------------------------------------------------------------------------


GROSS MARGIN                                                 9,943,323                 10,404,054
--------------------------------------------------------------------------------------------------


OPERATING EXPENSES
  Salaries and employee benefits                             3,552,430                  3,712,425
  Selling and administrative                                 6,994,583                  7,933,072
  Amortization                                               2,423,054                  2,200,610
  Depreciation                                                 482,360                    580,066
  Provision for bad debts                                    2,147,140                  2,147,140
  Impaired asset write down                                    369,380                  1,121,859
--------------------------------------------------------------------------------------------------


TOTAL OPERATING EXPENSES                                    15,968,947                 17,695,172
--------------------------------------------------------------------------------------------------


(LOSS) FROM OPERATIONS                                      (6,025,624)                (7,291,118)

INTEREST EXPENSE                                             2,913,420                  2,896,875
--------------------------------------------------------------------------------------------------


NET (LOSS)                                              $   (8,939,044)           $   (10,187,993)
==================================================================================================


(LOSS) PER SHARE OF COMMON STOCK (BASIC AND DILUTED)    $         (.65)           $          (.64)
==================================================================================================


WEIGHTED AVERAGE NUMBER OF COMMON SHARES
  OUTSTANDING USED IN COMPUTING LOSS PER SHARE (BASIC
  AND DILUTED)                                              13,758,587                 15,943,179
==================================================================================================
</TABLE>


                                                                              57
<PAGE>
                                         CORECARE SYSTEMS, INC. AND SUBSIDIARIES


                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================


<TABLE>
<CAPTION>
                                  BALANCE SHEET
                                  -------------


ASSETS

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

CURRENT ASSETS
  Cash                              $      304,267  $    304,268
  Accounts receivable, net               2,575,473     2,575,475
  Prepaid and other current assets         212,367       212,367
----------------------------------------------------------------

TOTAL CURRENT ASSETS                     3,092,107     3,092,110
----------------------------------------------------------------


REAL ESTATE HELD FOR SALE                1,513,723     1,513,723
----------------------------------------------------------------


CONTRACT RIGHTS, net                       548,663       545,311
----------------------------------------------------------------


PROPERTY, PLANT AND EQUIPMENT, net      10,727,385     9,532,669
----------------------------------------------------------------


OTHER ASSETS
  Goodwill, net                          1,801,155     2,561,460
  Deferred finance costs, net              305,354       305,354
  Security deposits                        108,468           466
  Restricted cash                          197,394       222,394
  Other                                    247,232       835,229
----------------------------------------------------------------


TOTAL OTHER ASSETS                       2,659,603     3,924,903
----------------------------------------------------------------


TOTAL ASSETS                        $   18,541,481  $ 18,608,716
================================================================
</TABLE>


                                                                              58
<PAGE>
                                         CORECARE SYSTEMS, INC. AND SUBSIDIARIES


                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================


<TABLE>
<CAPTION>
LIABILITIES  AND  STOCKHOLDERS'  (DEFICIENCY)
---------------------------------------------

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

CURRENT LIABILITIES
  Lines of credit                                 $    1,582,240   $  1,582,240
  Current maturities of
    Long-term debt                                    10,203,425     10,287,621
    Lease termination fee payable                         38,565              -
    Obligations under capital lease                       71,763         69,505
  Accounts payable                                     2,275,442      2,275,443
  Advances, officers/stockholders                      1,013,428      1,474,734
  Accrued expenses                                     2,091,675      2,565,646
  Payroll and payroll taxes payable                    1,688,105      1,688,105
--------------------------------------------------------------------------------

TOTAL CURRENT LIABILITIES                             18,964,643     19,943,294

LONG-TERM LIABILITIES
  Lease termination fee payable                           93,467              -
  Long-term debt                                       2,192,798      2,231,745
--------------------------------------------------------------------------------


TOTAL LIABILITIES                                     21,250,908     22,175,039
--------------------------------------------------------------------------------


COMMITMENTS AND CONTINGENCIES

REDEEMABLE PREFERRED STOCK                             1,293,271      1,293,280

COMMON STOCK HELD AS COLLATERAL                                -        150,000

STOCKHOLDERS' (DEFICIENCY)
  Preferred stock                                             26             17
  Common stock                                            12,694         13,507
  Additional paid-in capital                           9,357,714     14,803,892
  Accumulated (deficit)                              (13,373,132)   (19,827,019)
--------------------------------------------------------------------------------


TOTAL STOCKHOLDERS' (DEFICIENCY)                      (4,002,698)    (5,009,603)
--------------------------------------------------------------------------------


TOTAL LIABILITIES AND STOCKHOLDERS' (DEFICIENCY)  $   18,541,481   $ 18,608,716
================================================================================
</TABLE>


                                                                              59
<PAGE>
                                         CORECARE SYSTEMS, INC. AND SUBSIDIARIES


                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================


<TABLE>
<CAPTION>
                                      STATEMENT OF OPERATIONS
                                      -----------------------


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

REVENUE
  Patient services, net                                 $    7,670,834      $  7,670,834
  Management services                                        1,760,075         1,760,075
  Health and fitness center                                    521,414           521,414
  Rental income                                                512,861           512,860
-----------------------------------------------------------------------------------------


TOTAL NET REVENUE                                           10,465,184        10,465,183
-----------------------------------------------------------------------------------------


DIRECT COSTS
  Patient services                                           4,753,042         4,892,620
  Management services                                          254,269           242,662
  Health and fitness center                                    304,055           309,584
-----------------------------------------------------------------------------------------


TOTAL DIRECT COSTS                                           5,311,366         5,444,866
-----------------------------------------------------------------------------------------


GROSS MARGIN                                                 5,153,818         5,020,317
-----------------------------------------------------------------------------------------


OPERATING EXPENSES
  Salaries and employee benefits                             2,716,304         2,709,879
  Selling and administrative                                 3,730,504         5,207,389
  Amortization                                                 677,067           773,887
  Depreciation                                                 279,546           483,342
  Provision for bad debts                                      590,656           590,656
  Impaired asset write down                                          -           225,000
-----------------------------------------------------------------------------------------


TOTAL OPERATING EXPENSES                                     7,994,077         9,990,153
-----------------------------------------------------------------------------------------


(LOSS) FROM OPERATIONS                                      (2,840,259)       (4,969,836)
-----------------------------------------------------------------------------------------


NONOPERATING EXPENSES
  Interest expense                                           1,844,284         2,619,858
  Factor fees                                                  281,533           281,533
-----------------------------------------------------------------------------------------


TOTAL NONOPERATING EXPENSES                                  2,125,817         2,901,391
-----------------------------------------------------------------------------------------


NET (LOSS)                                              $   (4,966,076)  $    (7,871,227)
=========================================================================================


(LOSS) PER SHARE OF COMMON STOCK (BASIC AND DILUTED)    $         (.44)  $          (.69)
=========================================================================================


WEIGHTED AVERAGE NUMBER OF COMMON SHARES
  OUTSTANDING USED IN COMPUTING LOSS PER SHARE (BASIC
  AND DILUTED)                                              11,326,617        11,473,740
=========================================================================================
</TABLE>


                                                                              60
<PAGE>