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

                                    FORM 10-Q

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

For the quarterly period ended June 30, 1998

                                       OR

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

For the transition period from ______________ to ___________________

Commission file number:          0-25064

                           HEALTH FITNESS CORPORATION
             (Exact name of registrant as specified in its charter)

Minnesota                                                            41-1580506
(State of incorporation or organization)    (I.R.S. Employer Identification No.)

3500 West 80th Street, Bloomington, Minnesota                             55431
(Address of principal executive offices)                              (Zip Code)

(612) 831-6830
(Registrant's telephone number, including area code)

         Check whether the issuer (1) filed all reports  required to be filed by
Section 13 or 15(d) of the  Securities  Exchange  Act of 1934 during the 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. [X] Yes [ ] No

         The number of shares outstanding of each of the registrant's classes of
capital stock, as of August 12, 1998 was:

                 Common Stock, $.01 par value: 11,884,413 shares




<PAGE>



                         PART I - FINANCIAL INFORMATION
                          Item 1. Financial Statements

                  HEALTH FITNESS CORPORATION AND SUBSIDIARIES
                    CONSOLIDATED BALANCE SHEETS (UNAUDITED)
<TABLE>
<CAPTION>

                                                                                              June 30,        December 31,
                                                                                                1998             1997
                                                                                           -------------    -------------

ASSETS

<S>                                                                                        <C>               <C>        
CURRENT ASSETS:
Cash and cash equivalents                                                                  $     47,328      $    81,639
Trade accounts and notes receivable, less 
   allowance for doubtful accounts of $252,000 and
   $225,000, respectively                                                                     8,212,168        6,502,963
Inventories                                                                                     629,025          810,805
Prepaid expenses and other                                                                      405,694          533,321
                                                                                           -------------    -------------
Total current assets                                                                          9,294,215        7,928,728

PROPERTY, less accumulated depreciation of $1,374,943
  and $842,121, respectively                                                                  3,474,872        3,598,188

OTHER ASSETS:
Goodwill, less accumulated amortization of $1,594,499
  and $1,276,287, respectively                                                               10,078,503        8,989,848
Noncompete agreements, less accumulated amortization of 
  $390,392 and $279,639, respectively                                                           821,458          932,211
Copyrights, less accumulated amortization of $63,277 and 
  $40,944, respectively                                                                         606,723          629,056
Trade names, less accumulated amortization of $22,336 
  and $13,667, respectively                                                                     237,664          246,333
Contracts, less accumulated amortization of $89,025 and 
  $48,194, respectively                                                                         130,975          171,806
Trade accounts and notes receivable, less allowance for 
  doubtful accounts of $338,000
  and $650,000, respectively                                                                  1,022,566          679,376
Deferred financing costs, less accumulated amortization of $315,853                           1,105,489
Other                                                                                           215,563          556,736
                                                                                           -------------    -------------
TOTAL ASSETS                                                                                $26,988,028      $23,732,282
                                                                                           =============    =============

LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
Trade accounts payable                                                                        1,198,894        1,873,472
Accrued salaries, wages, and payroll taxes                                                    1,802,170        1,779,200
Accrued earn-out                                                                                194,058          533,444
Other accrued liabilities                                                                       667,338        1,233,538
Current portion of long-term debt                                                               416,070          503,540
Deferred revenue                                                                              1,723,637        1,844,460
                                                                                           -------------    -------------
Total current liabilities                                                                     6,002,167        7,767,654

LONG-TERM DEBT, less current portion                                                          7,645,590        5,785,018

DEFERRED LEASE OBLIGATION                                                                         9,110           31,170

COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value; authorized 
  5,000,000 shares, none issued or outstanding
Common stock, $.01 par value; 25,000,000 shares
  authorized; 11,830,307 and 8,136,828 shares
  issued and outstanding, respectively                                                          118,303           81,368
Additional paid-in capital                                                                   16,670,884       12,976,680
Accumulated deficit                                                                          (3,397,056)      (2,842,379)
                                                                                           -------------    -------------
                                                                                             13,392,131       10,215,669
Stockholder note and interest receivable                                                        (60,970)         (67,229)
                                                                                           -------------      -----------
TOTAL STOCKHOLDERS' EQUITY                                                                   13,331,161       10,148,440
                                                                                           -------------      -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                                                  $26,988,028      $23,732,282
                                                                                           =============    =============

</TABLE>

See notes to consolidated financial statements.



<PAGE>

                  HEALTH FITNESS CORPORATION AND SUBSIDIARIES
                     CONSOLIDATED STATEMENTS OF OPERATIONS
                                  (UNAUDITED)
<TABLE>
<CAPTION>


                                                        Three Months Ended                          Six Months Ended
                                                             June 30,                                   June 30,
                                                  1998                 1997                  1998                 1997
                                            ---------------       -------------       ----------------      ---------------
<S>                                         <C>                   <C>                  <C>                  <C>           
REVENUES:
   Preventive health care:
      Health services                       $    5,385,785        $  4,445,095         $   10,520,704       $    8,729,162
      Health and fitness products                1,775,693           1,326,133              4,168,729            3,326,426
                                            ---------------       -------------       ----------------      ---------------
                                                 7,161,478           5,771,228             14,689,433           12,055,588
   Rehabilitative health care                    2,409,477           2,111,717              4,945,930            4,060,790
                                            ---------------       -------------       ----------------      ---------------
                                                 9,570,955           7,882,945             19,635,363           16,116,378

COSTS OF REVENUES:
   Preventive health care:
      Health services                            4,090,091           3,362,090              7,986,526            6,624,428
      Health and fitness products                1,647,868           1,174,591              3,831,776            2,865,979
                                            ---------------       -------------       ----------------      ---------------
                                                 5,737,959           4,536,681             11,818,302            9,490,407
   Rehabilitative health care                    1,956,462           1,903,994              3,741,750            3,525,293
                                            ---------------       -------------          -------------        -------------
                                                 7,694,421           6,440,675             15,560,052           13,015,700
                                            ---------------       -------------       ----------------      ---------------

GROSS PROFIT                                     1,876,534           1,442,270              4,075,311            3,100,678

OPERATING EXPENSES:
   Salaries                                        729,501             530,659              1,676,550            1,018,356
   Selling, general, and administrative          1,218,627             911,132              2,134,300            1,603,736
   Net gain on disposition of clinic assets              -            (422,319)                     -             (452,319)
                                            ---------------       -------------          -------------        -------------
                                                 1,948,128           1,019,472              3,810,850            2,169,773
                                            ---------------       -------------       ----------------      ---------------
OPERATING (LOSS) INCOME                            (71,594)            422,798                264,461              930,905

INTEREST EXPENSE                                  (563,751)           (170,911)              (877,680)            (299,772)
OTHER INCOME                                        38,401              19,562                 58,542               22,247
                                            ---------------       -------------          -------------        -------------
                                                  (525,350)           (151,349)              (819,138)            (277,525)
                                            ---------------       -------------       ----------------      ---------------
(LOSS) INCOME BEFORE INCOME TAXES                 (596,944)            271,449               (554,677)             653,380
INCOME TAX BENEFIT (EXPENSE)                        12,339             (63,345)                     -             (178,405)
                                            ---------------       -------------       ----------------      ---------------

NET (LOSS) INCOME                            $    (584,605)        $   208,104         $     (554,677)       $     474,975
                                            ===============       =============       ================      ===============

NET (LOSS) INCOME PER SHARE:
   Basic                                     $       (0.05)     $         0.03      $           (0.05)    $           0.06
   Diluted                                           (0.05)               0.03                  (0.05)                0.06

WEIGHTED AVERAGE COMMON SHARES
   ASSUMED OUTSTANDING:
   Basic                                        11,769,808           7,809,184             10,754,077            7,690,595
   Diluted                                      11,769,808           8,125,056             10,754,077            8,018,786

</TABLE>

See notes to consolidated financial statements.


<PAGE>
                  HEALTH FITNESS CORPORATION AND SUBSIDIARIES
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                  (UNAUDITED)

<TABLE>
<CAPTION>

                                                                                           Six Months Ended
                                                                                                June 30,

                                                                                      1998                       1997
                                                                                ---------------           -----------------
<S>                                                                              <C>                       <C>            
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income                                                                $    (554,677)            $       474,975
Adjustment to reconcile net (loss) income to net cash
   used in operating activities:
      Net gain on disposition of clinic assets                                               -                    (496,461)
      Depreciation and amortization                                                  1,232,330                     617,031
      Deferred revenue                                                                (167,470)                    (43,769)
Change in assets and liabilities, net of acquisitions:
   Trade accounts and notes receivable                                              (1,896,337)                   (516,443)
   Inventories                                                                         181,780                    (148,368)
   Prepaid expenses and other                                                           40,200                     233,642
   Other assets                                                                          9,436                     (51,659)
   Trade accounts payable                                                             (880,703)                 (1,329,870)
   Accrued liabilities and other                                                      (589,539)                    186,625
                                                                                ---------------           -----------------
         Net cash used in operating activities                                      (2,624,980)                 (1,074,297)

CASH FLOWS FROM INVESTING ACTIVITIES:
   Purchase of property                                                                (81,394)                   (912,019)
   Payments for acquisitions, net of liabilities assumed
      and cash acquired                                                               (858,794)                 (1,221,825)
   Payments in connection with earn-out provisions                                    (367,802)                   (178,966)
   Payments in connection with noncompete agreements                                         -                    (275,000)
   Proceeds from sale of physical therapy clinics, net                                       -                   1,220,600
   Collection of non-trade notes receivable                                            335,713                           -
                                                                                ---------------           -----------------
         Net cash used in investing activities                                        (972,277)                 (1,367,210)

CASH FLOWS FROM FINANCING ACTIVITIES:
   Increase in checks written in excess of bank balances                                     -                       6,592
   Net borrowings under line of credit                                               5,412,925                      10,000
   Payment of financing costs                                                         (992,594)                          -
   Proceeds from long term debt                                                              -                   2,519,269
   Repayment of long term debt                                                      (3,843,535)                   (246,663)
   Proceeds from private placement of equity                                         2,785,024                           -
   Proceeds from the issuance of common stock                                          194,867                     152,540
   Advances on notes receivable                                                         (4,140)                     (4,281)
   Payments received on notes receivable                                                10,399                       4,050
                                                                                ---------------           -----------------
         Net cash provided by financing activities                                   3,562,946                   2,441,507
                                                                                ---------------           -----------------

NET DECREASE IN CASH AND CASH EQUIVALENTS                                              (34,310)                          -

CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR                                          81,639                           -
                                                                                ---------------           -----------------

CASH AND CASH EQUIVALENTS AT END OF PERIOD                                       $      47,329             $             -
                                                                                ===============           =================
</TABLE>


See notes to consolidated financial statements.



<PAGE>

                   HEALTH FITNESS CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)

NOTE 1.    BASIS OF PRESENTATION

The accompanying  unaudited consolidated financial statements have been prepared
in  accordance  with  generally  accepted  accounting   principles  for  interim
financial  information.  They  should  be read in  conjunction  with the  annual
financial  statements included in the Company's Annual Report on Form 10-KSB for
the year ended  December 31,  1997.  In the opinion of  management,  the interim
consolidated financial statements include all adjustments  (consisting of normal
recurring  accruals)  necessary  for the fair  presentation  of the  results for
interim periods presented.  Operating results for the three and six months ended
June 30, 1998 are not  necessarily  indicative of the operating  results for the
year ending December 31, 1998.

Effective January 1, 1998, the Company adopted Statement of Financial Accounting
Standards No. 130, "Reporting  Comprehensive Income." For the periods presented,
comprehensive (loss) income is the same as net (loss) income.

Certain  reclassifications  have been  made to the  consolidated  statements  of
income for the three and six months ended June 30, 1998. Such  reclassifications
had no effect on net income or stockholders' equity as previously reported.

NOTE 2.    ACQUISITIONS

On February 27, 1998,  the Company  completed the  acquisition of all the issued
and  outstanding  stock  of  closely  held  Midlands   Physical  Therapy,   Inc.
(Midlands),  a Nebraska-based provider of rehabilitative  services. The purchase
agreement  contained a noncompete  provision  that covers a period of five years
and prohibits the former owners from directly or indirectly  competing  with the
Company.  In connection  with the  acquisition  of Midlands,  the Company issued
200,000  shares of common  stock valued at $362,500  and cash  consideration  of
$648,794.

The purchase agreement requires the Company to make annual payments up to 35% of
Midlands' net income from  operations,  as defined,  for each of the five fiscal
years ending February 28, 1999 through 2003. The annual payment,  if any, is due
in a  combination  of 50% in cash and 50% in the  Company's  common  stock.  The
number of shares issued in connection  with the annual  payment is calculated by
dividing the portion of the annual payment payable in common stock by $3.00. The
purchase  agreement  also  requires  the  Company  to make an annual  payment of
$25,000 for each of the three fiscal  years ending  February 28, 1999 to 2001 if
net income from operations, as defined, exceeds 20%.

The  purchase  agreement  also  required  the  Company to enter into  employment
agreements with certain key employees for a term of five years. These agreements
provide for minimum  aggregate  annual  salaries of  $200,000.  The Company also
granted stock  options to purchase up to 50,000  shares of the Company's  common
stock at $4.00 per share in connection with the employment agreements.

Assets acquired:
        Prepaid expenses                                      $       21,750
        Property                                                     196,789
        Excess of purchase price over net assets acquired(i)       1,025,402
                                                              --------------
                                                                   1,243,941
Liabilities assumed:
        Notes payable                                                111,662
        Accounts payable                                             120,985
Common stock issued                                                  362,500
                                                              --------------
Cash consideration paid                                       $      648,794
                                                              ==============
------------------------------------
(i)The excess of purchase price over net assets  acquired will be reviewed by an
independent,  third  party  appraiser  to allocate  appropriate  values to trade
names, noncompete agreements and contracts.


<PAGE>

NOTE 2.    ACQUISITIONS (Continued)

On June 4, 1998,  the Company  completed the  acquisition  of all the issued and
outstanding stock of closely held David W. Pickering, Inc. (DWP), a Rhode Island
corporation doing business as International Fitness Club Network (IFCN). IFCN is
in the business of organizing  and  maintaining a network of commercial  fitness
and  health  clubs and  marketing  memberships  in such clubs to  employers  and
insurance  companies  (the "IFCN  Business").  The IFCN  Business  was  formerly
conducted by the International  Health and Racquet Sports  Association  (IHRSA).
The purchase agreement contained a noncompete  provision that covers a period of
five years and prohibits the former owner from directly or indirectly  competing
with the Company.  In connection with the acquisition of DWP, the Company issued
30,000  shares of  common  stock  valued at  $45,000,  an  automobile  valued at
approximately $30,000 and cash consideration of $210,000.

The purchase agreement requires the Company to make annual payments up to 45% of
DWP's net income from operations,  as defined, for each of the five fiscal years
ending May 31,  1999  through  2003.  The annual  payment,  if any,  is due in a
combination of 50% in cash and 50% in the Company's  common stock. The number of
shares  issued in connection  with the annual  payment is calculated by dividing
the portion of the annual payment payable in common stock by $3.00

The  Company  also  entered  into  a  five  year,   management   agreement  with
International Club Network,  Inc. (ICN) to manage the IFCN Business on behalf of
the  Company.  ICN is owned and operated by the former  shareholder  of DWP. The
management  agreement  requires  the  Company to  compensate  ICN at the rate of
$125,000 per year payable monthly. As additional compensation,  the Company will
grant ICN  nonqualified  stock  options to purchase  up to 15,000  shares of the
Company's  common  stock at an exercise  price equal to the fair market value of
the  Company's  common stock on the last day of each DWP earn-out  year provided
DWP's earn-out ratio is at least 20%.

Assets acquired:
        Accounts receivable                                    $      156,058
        Prepaid expenses                                               10,070
        Property                                                       14,178
        Excess of purchase price over net assets acquired(i)          353,050
                                                               --------------
                                                                      533,356
Liabilities assumed:
        Notes payable                                                  92,050
        Accounts payable                                               85,140
        Deferred revenue                                               46,647
        Accrued expenses                                               24,249
Property                                                               30,270
Common stock issued                                                    45,000
                                                               --------------
Cash consideration paid                                        $      210,000
                                                               ==============
------------------------------------
(i)The excess of purchase price over net assets  acquired will be reviewed by an
independent,  third  party  appraiser  to allocate  appropriate  values to trade
names, noncompete agreements and contracts.



<PAGE>
NOTE 3.   FINANCING

On February 17, 1998,  the Company  entered into a credit  agreement (the Credit
Agreement)  that provides for maximum  borrowings of $12.5 million.  Interest on
outstanding  borrowings  is  computed at the prime rate plus 7.0% with a minimum
rate of 15.5%.  The  Company is required  to pay  monthly  interest  payments on
outstanding borrowings at the prime rate plus 4.5% with a minimum rate of 13.0%.
The remaining interest is added to the outstanding borrowings as of the first of
the current month.  The Company is also required to pay a monthly  servicing fee
of $5,000 per month. The Credit Agreement is due on July 17, 1999.

On June 26,  1998,  the Company  amended  the Credit  Agreement.  The  amendment
modified  certain  covenants  and  requires  the  Company to maintain a "Special
Availability  Reserve"  in an amount  equal to the  Borrowing  Base (as  defined
below) minus $8,000,000 (see Exhibit 10.3).

The  Company's  Borrowing  Base under the Credit  Agreement  is equal to (a) the
lesser of i) $12.5 million, ii) earnings before interest,  taxes,  depreciation,
and  amortization,  as defined,  for the immediately  preceding  12-month period
multiplied by 375%, decreasing to 350% by June 30, 1998, iii) 90% of revenue, as
defined,  for the immediately  preceding  13-week period, or iv) 90% of accounts
receivable  collections,  as  defined,  for the  immediately  preceding  17-week
period, minus (b) required reserves.

Borrowings under the Credit  Agreement are secured by  substantially  all of the
Company's assets and partially guaranteed by the Company's President. The Credit
Agreement  contains  various  restrictive   covenants  relating  to  changes  in
accumulated deficit, maintenance of fixed charge coverage ratio, minimum working
capital requirements, prohibits dividend payments, and other matters.

The Credit Agreement required the Company to pay a closing fee of $317,500,  pay
$212,991 of the lender's  expenses and issue 312,497  shares (the Shares) of the
Company's  common  stock  to  the  lender.  The  Shares'  value,  $343,747,  was
determined  based on the market value of the Company's common stock. In addition
to the costs above,  the Company incurred  incremental  direct costs of $513,590
relating to the Credit Agreement.  These costs have been capitalized as deferred
financing costs and amortized using the effective  interest method over the life
of the Credit Agreement.

The Credit Agreement  required a portion of the initial borrowings to be used to
repay the  Company's  revolving  line of credit,  term note,  and a portion of a
related party note. The remaining  portion of the related party note was paid on
February 20, 1998 with proceeds from the equity  offering on February 18 and 19,
1998 (the Equity Offering) (see Note 4).

NOTE 4.   STOCKHOLDERS' EQUITY

Issuance of Common Stock - In February 1998, the Company obtained gross proceeds
of  $3,300,000  of equity  financing  through a private  placement  of 3,000,000
units,  with each unit  consisting of one share of common stock and a detachable
warrant to  purchase  one-fourth  of a share of common  stock at $2.25 per share
(the Equity  Offering).  The warrants are currently  exercisable and expire four
years from the date of issuance.

In connection  with the private  placement,  the Company also issued warrants to
purchase  300,000  shares of common  stock to the  selling  agents.  The selling
agents'  warrants are  exercisable  from February 18, 1999 through  February 18,
2003 at $1.65 per share and contain a net value exercise  provision allowing for
the issuance of a lesser number of shares than  provided in the warrant  without
payment of the cash exercise price.

During the six months  ended June 30,  1998,  the Company  received  proceeds of
$140,000  when holders of stock  options and warrants  exercised  their right to
purchase  a total of  112,000  shares  of  common  stock at a price of $1.25 per
share.  The Company also issued 38,982 shares of common stock in connection with
the Company's employee stock purchase plan.

NOTE 5.     INCOME TAXES

The benefit for income  taxes has been offset by a valuation  allowance  for the
three and six months ended June 30, 1998,  because the  Company's  net operating
losses could not be carried  back and future  realization  of the net  operating
loss carryforwards is uncertain. Income tax expense for the three and six months
ended June 30, 1997,  has been offset by a reduction in the valuation  allowance
for deferred taxes.

<PAGE>

NOTE 6.   NET (LOSS) INCOME PER COMMON SHARE

Basic net (loss)  income per share are computed by dividing net (loss) income by
the  weighted  average  number of common  shares  outstanding  and  contingently
issuable  shares.  Diluted net (loss)  income per share  assumes  conversion  of
convertible  subordinated  notes as of the  beginning  of the year,  issuance of
contingently  issuable shares,  and exercise of stock options and warrants using
the treasury stock method, if dilutive.  For the three and six months ended June
30, 1998,  diluted net loss per share is the same as basic loss per share due to
the  antidilutive  effect  of  the  assumed  conversions.  The  following  is  a
reconciliation  of the numerators and denominators  used to calculate net (loss)
income per share:
<TABLE>
<CAPTION>

                                                         Three Months Ended            Six Months Ended
                                                               June 30                      June 30
                                                   ----------------------------   ----------------------------
                                                        1998            1997           1998            1997
<S>                                                <C>             <C>            <C>             <C>
Basic Net (Loss) Income Per Share Computation:
   Net (loss) income                               $   (584,605)   $    208,104   $   (554,677)   $    474,975

   Weighted average common shares outstanding        11,769,808       7,809,184     10,754,077       7,642,060
   Contingently issuable shares                            --              --             --            48,535
                                                   ------------    ------------   ------------    ------------
      Average shares used in basic computation       11,769,808       7,809,184     10,754,077       7,690,595
                                                   ------------    ------------   ------------    ------------
   Basic net (loss) income per share               $      (0.05)   $       0.03   $      (0.05)   $       0.06
                                                   ============    ============   ============    ============

Diluted Net (Loss) Income Per Share Computation:
   Net (loss) income                               $   (584,605)   $    208,104   $   (554,677)   $    474,975

   Weighted average common shares outstanding        11,769,808       7,809,184     10,754,077       7,642,060
   Contingently issuable shares                            --           190,476           --           199,022
   Dilutive effect of stock option and warrants            --           125,396           --           177,704
                                                   ------------    ------------   ------------    ------------
      Average shares used in diluted computation     11,769,808       8,125,056     10,754,077       8,018,786
                                                   ------------    ------------   ------------    ------------
   Diluted net (loss) income per share             $      (0.05)   $       0.03   $      (0.05)   $       0.06
                                                   ============    ============   ============    ============
</TABLE>



<PAGE>

Item 2.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND 
           RESULTS OF OPERATIONS

RESULTS OF OPERATIONS

         The following table sets forth, for the periods indicated,  information
derived from the consolidated statements of operations of the Company:
<TABLE>
<CAPTION>

                                                             Three Months Ended June 30,
                                              -------------------------------------------------------
                                                 1998            %              1997            %
                                              -----------     ---------     -----------     ---------
<S>                                           <C>             <C>           <C>             <C>
REVENUES:
   Preventive health care:
      Health services                         $ 5,386,000        56.3%      $ 4,445,000        56.4%
      Health and fitness products               1,776,000        18.5%        1,326,000        16.8%
                                              -----------     ---------     -----------     ---------
                                                7,162,000        74.8%        5,771,000        73.2%
   Rehabilitative health care                   2,409,000        25.2%        2,112,000        26.8%
                                              -----------     ---------     -----------     ---------
                                                9,571,000       100.0%        7,883,000       100.0%

COSTS OF REVENUES:
   Preventive health care:
      Health services                           4,090,000        42.8%        3,362,000        42.6%
      Health and fitness products               1,648,000        17.2%        1,175,000        14.9%
                                              -----------     ---------     -----------     ---------
                                                5,738,000        60.0%        4,537,000        57.5%
   Rehabilitative health care                   1,956,000        20.4%        1,904,000        24.2%
                                              -----------     ---------     -----------     ---------
                                                7,694,000        80.4%        6,441,000        81.7%
                                              -----------     ---------     -----------     ---------

GROSS PROFIT                                    1,877,000        19.6%        1,442,000        18.3%

OPERATING EXPENSES:
   Salaries                                       730,000         7.6%          531,000         6.7%
   Selling, general, and administrative         1,218,000        12.7%          910,000        11.5%
   Net gain on disposition of clinic assets          --           0.0%         (422,000)       -5.3%
                                              -----------     ---------     -----------     ---------
                                                1,948,000        20.3%        1,019,000        12.9%
OPERATING (LOSS) INCOME:
   Preventive health care                         642,000                       403,000
   Rehabilitative health care                    (260,000)                       (1,000)
   Corporate                                     (453,000)                       21,000
                                              -----------     ---------     -----------     ---------
TOTAL OPERATING (LOSS) INCOME                     (71,000)       -0.7%          423,000         5.4%

INTEREST EXPENSE                                 (564,000)       -5.9%         (171,000)       -2.2%
OTHER INCOME                                       38,000         0.4%           19,000         0.2%
                                              -----------     ---------     -----------     ---------
                                                 (526,000)       -5.5%         (152,000)       -2.0%
                                              -----------     ---------     -----------     ---------
NET (LOSS) INCOME BEFORE INCOME TAXES            (597,000)       -6.2%          271,000         3.4%
INCOME TAX BENEFIT (EXPENSE)                       12,000         0.1%          (63,000)       -0.8%
                                              -----------     ---------     -----------     ---------
 
NET (LOSS) INCOME                             $  (585,000)       -6.1%      $   208,000         2.6%
                                              ===========     =========     ===========     =========

</TABLE>
<PAGE>
<TABLE>
<CAPTION>

                                                               Six Months Ended June 30,
                                             ------------------------------------------------------
                                                  1998           %              1997          %
                                             ------------     ---------     -----------    --------
<S>                                          <C>                <C>         <C>               <C>  
REVENUES:
   Preventive health care:
      Health services                        $ 10,520,000        53.6%      $ 8,729,000        54.2%
      Health and fitness products               4,169,000        21.2%        3,326,000        20.6%
                                             ------------     ---------     -----------     ---------
                                               14,689,000        74.8%       12,055,000        74.8%
   Rehabilitative health care                   4,946,000        25.2%        4,061,000        25.2%
                                             ------------     ---------     -----------     ---------
                                               19,635,000       100.0%       16,116,000       100.0%

COSTS OF REVENUES:
   Preventive health care:
      Health services                           7,986,000        40.7%        6,624,000        41.1%
      Health and fitness products               3,832,000        19.5%        2,866,000        17.8%
                                             ------------     ---------     -----------     ---------
                                               11,818,000        60.2%        9,490,000        58.9%
   Rehabilitative health care                   3,742,000        19.0%        3,525,000        21.9%
                                             ------------     ---------     -----------     ---------
                                               15,560,000        79.2%       13,015,000        80.8%
                                             ------------     ---------     -----------     ---------

GROSS PROFIT                                    4,075,000        20.8%        3,101,000        19.2%

OPERATING EXPENSES:
   Salaries                                     1,677,000         8.5%        1,018,000         6.3%
   Selling, general, and administrative         2,134,000        10.9%        1,604,000         9.9%
   Net gain on disposition of clinic assets          --           0.0%         (452,000)       -2.8%
                                             ------------     ---------     -----------     ---------
                                                3,811,000        19.4%        2,170,000        13.4%
                                             ------------     ---------     -----------     ---------
OPERATING (LOSS) INCOME:
   Preventive health care                       1,340,000                     1,136,000
   Rehabilitative health care                    (213,000)                      105,000
   Corporate                                     (863,000)                     (310,000)
                                             ------------     ---------     -----------     ---------          
TOTAL OPERATING (LOSS) INCOME                     264,000         1.4%          931,000         5.8%

INTEREST EXPENSE                                 (878,000)       -4.5%         (300,000)       -1.9%
OTHER INCOME                                       59,000         0.3%           22,000         0.1%
                                             ------------     ---------     -----------     ---------
                                                 (819,000)       -4.2%         (278,000)       -1.8%
                                             ------------     ---------     -----------     ---------
(LOSS) INCOME BEFORE INCOME TAXES                (555,000)       -2.8%          653,000         4.0%
INCOME TAX BENEFIT (EXPENSE)                         --           0.0%         (178,000)       -1.1%
                                             ------------     ---------     -----------     ---------

NET (LOSS) INCOME                            $   (555,000)       -2.8%      $   475,000         2.9%
                                             ============     =========     ===========     =========

</TABLE>

<PAGE>


General.  The  Company  is  engaged  in two  principal  lines of  business:  (i)
preventive health care and (ii)  rehabilitative  health care.  Preventive health
care  includes the  development,  marketing  and  management  of  corporate  and
hospital-based  fitness centers (health  services) and the sale and servicing of
health and fitness products. Rehabilitative health care relates to the operation
of  physical  therapy  clinics  that  provide  a full  range  of  rehabilitative
services,  provides  occupational  health  (injury  prevention  and  work-injury
management  consulting  services) and a network of independent  physical therapy
clinics.

The  Company's   preventive  health  care  revenues  come  from  fitness  center
management and consulting  contracts (health services) and the sales and service
of health and fitness products.  The management and consulting contracts provide
for specific management, consulting, and program fees and contain provisions for
modification, termination, and non-renewal.

The  Company's  rehabilitation  revenues  come from  physical  therapy  services
provided to patients at Company  owned  locations  and at hospital and corporate
locations;  annual fees paid by  independent  physical  therapy  clinic  network
members for  consulting  and group buying  services;  and program and consulting
fees paid by employers,  insurers and others for  occupational  health services.
Net revenues provided to patients at Company owned and worksite  locations are a
function  of the number of patients  treated,  the payor mix and the average net
charge per treatment.  Consequently, two patients provided substantially similar
treatments   might  result  in  different  net  revenues  because  of  differing
reimbursement environments.

The Company incurs costs at three levels:  (i) revenue  generating  sites;  (ii)
regional sites that work closely with the revenue  generating  sites;  and (iii)
general  corporate  costs.  Management  views the  operational  expenses  of the
regional  sites to be an integral  component  of the revenue  generating  sites.
Therefore, the discussion that follows is of revenues and operating income.

Summary of Results  for the Three  Months  Ended  June 30,  1998.  For the three
months ended June 30, 1998, total revenues were up by $1,688,000, or 21.4%, from
the three months ended June 30, 1997,  with  slightly less than one third of the
growth coming from  acquisition.  Gross profit as a percent of revenue  improved
1.3 percentage points, while gross profit dollars increased $435,000,  or 30.2%.
The increase in gross profit  percent was  primarily due to the  acquisition  of
better-performing  businesses offset by the sale of under-performing  businesses
in 1997.  Operating  expenses as a percent of revenue  increased 7.4  percentage
points,  or  $929,000  and 91.2% over the prior year  period.  A portion of this
increase was due to the 1997  operating  expenses  being  partially  offset by a
$422,000 net gain on disposition of clinic  assets.  The remaining  increase was
due to administration,  organization and infrastructure  investments made within
the rehabilitative health care business.  The Company incurred an operating loss
for the  period  as the  investments  made  in the  rehabilitative  health  care
business more than offset the  improvements  in gross profit.  Interest  expense
increased  $393,000  from the prior year period due to the  increased  level and
cost of  borrowing.  Net loss  for the  three  months  ended  June 30,  1998 was
$585,000,  a $793,000  decrease  in net income from the prior year  period.  The
decrease was due to the reduction in operating  income coupled with the increase
in interest expense.

Revenues.  Revenues increased $1,688,000,  or 21.4%, to $9,571,000 for the three
months  ended June 30, 1998 from  $7,883,000  for the same period ended June 30,
1997.

Preventive health care revenues  increased  $1,391,000,  or 24.1%, for the three
months ended June 30, 1998 compared to the same period in 1997. The increase was
primarily due to the annualized  effect of adding a net of 30 corporate  fitness
center  sites under  management  and the increase in sales of health and fitness
products of $450,000, or 33.9%.

Rehabilitative  health care revenues increased $297,000, or 14.1%, for the three
months  ended June 30, 1998,  compared to the same period in 1997.  The increase
was due to the  annualized  effect of the 1997  acquisitions  of  K.A.M.  (April
1997),  Duffy & Associates (May 1997) and Medlink (August 1997), the acquisition
of Midlands Physical Therapy in February 1998 and the increase in patient visits
at  certain  other  clinics,  partially  offset  by the  lost  revenue  at  four
under-performing clinics sold in January 1997 and seven under-performing clinics
sold in May 1997. The newly  acquired  businesses had revenues of $1,555,000 for
the three months ended June 30, 1998 versus  $627,000 for the three months ended
June 30,  1997.  The eleven  clinics sold had revenues of $439,000 for the three
months ended June 30, 1997.


<PAGE>

Operating (Loss) Income.  The operating loss for the three months ended June 30,
1998 was $71,000 compared to operating income of $423,000 for the same period in
1997.

Preventive health care operating income increased $239,000 from $403,000 for the
three months  ended June 30, 1997 to $642,000  for the same period in 1998.  The
increase was primarily due the annualized effect of adding a net of 30 corporate
fitness center sites under management.

Rehabilitative  health care  experienced  an operating  loss of $260,000 for the
three months ended June 30, 1998 compared to an operating loss of $1,000 for the
same period in 1997.  The increase in loss was  primarily due to the increase in
expenses   associated   with   the   centralization   of   certain   operations,
infrastructure and administrative functions.

Excluding the $422,000 net gain on disposition of clinic assets  associated with
the under-performing  clinics sold in 1997, corporate expenses increased $52,000
from  $401,000 for the three months ended June 30, 1997 to $453,000 for the same
period in 1998.

Interest  Expense.  Interest expense of $564,000 for the three months ended June
30, 1998  increased  $393,000  from  $171,000  for the same period in 1997.  The
increase was due to higher average borrowings and the effective interest rate in
1998 versus 1997.

Other Income.  Other income increased  $19,000 from $19,000 for the three months
ended June 30, 1997 to $38,000 for the same period in 1998.

Income Taxes. Income taxes were calculated based on management's estimate of the
Company's  effective tax rate. The benefit for income taxes for the three months
ended  June  30,1998  has been  offset  by a  valuation  allowance  because  the
Company's net operating loss could not be carried back and future realization of
the net  operating  loss is  uncertain.  Income tax expense for the three months
ended June 30, 1997 has been  partially  offset by a reduction in the  valuation
allowance for deferred taxes.

Net (Loss) Income. The Company experienced a net loss for the three months ended
June 30, 1998 of $585,000,  or $.05  diluted net loss per share  compared to net
income of $208,000,  or $.03 diluted net income per share for the same period in
1997.

Summary of Results for the Six Months  Ended June 30,  1998.  For the six months
ended June 30, 1998, total revenues increased $3,519,000, or 21.8%, from the six
months  ended June 30,  1997,  with  slightly  less than one third of the growth
coming  from  acquisition.  Gross  profit as a percent of revenue  improved  1.6
percentage points, while gross profit dollars increased $974,000,  or 31.4%. The
increase  in gross  profit  percent  was  primarily  due to the  acquisition  of
better-performing  businesses offset by the sale of under-performing  businesses
in 1997.  Operating  expenses as a percent of revenue  increased 6.0  percentage
points,  or $1,641,000  and 75.6% over the prior year period.  A portion of this
increase was due to the 1997  operating  expenses  being  partially  offset by a
$452,000 net gain on disposition of clinic assets. Approximately $987,000 of the
remaining  increase was due to  administration,  organization and infrastructure
investments  within  rehabilitative  health care.  The balance of the  increase,
$202,000,  was due to key additions to the Company's  management team. Operating
income for the six months ended June 30, 1998  decreased  $667,000 from the same
period in 1997.  The  decrease  in  operating  income was  primarily  due to the
$452,000 net gain on disposition of the underperforming clinics that occurred in
1997  coupled  with the  increase  in  operating  expenses  associated  with the
investments  made in  administration,  organization  and  infrastructure  within
rehabilitative  health care and the key additions to the  Company's  management.
Interest  expense  increased  $578,000  from the prior  year  period  due to the
increased  level and cost of  borrowing.  Net loss for the six months ended June
30, 1998 was $555,000,  a $1,030,000  decrease in net income from the prior year
period.  The decrease was due to the reduction in operating  income coupled with
the increase in interest expense.

Revenues.  Revenues increased  $3,519,000,  or 21.8%, to $19,635,000 for the six
months ended June 30, 1998 from  $16,116,000  for the same period ended June 30,
1997.

Preventive  health care revenues  increased  $2,634,000,  or 21.8%,  for the six
months ended June 30, 1998 compared to the same period in 1997. The increase was
primarily due to the annualized  effect of adding a net of 30 corporate  fitness
center  sites under  management  and the increase in sales of health and fitness
products of $843,000, or 25.3%.


<PAGE>

Rehabilitative  health care revenues increased  $885,000,  or 21.8%, for the six
months  ended June 30, 1998,  compared to the same period in 1997.  The increase
was due to the  annualized  effect of the 1997  acquisitions  of the  Isernhagen
Companies  (February 1997),  K.A.M.  (April 1997), Duffy & Associates (May 1997)
and Medlink  (August  1997),  the  acquisition of Midlands  Physical  Therapy in
February  1998 and the  increase  in patient  visits at certain  other  clinics,
partially  offset by the lost revenue on four  under-performing  clinics sold in
January  1997 and seven  under-performing  clinics  sold in May 1997.  The newly
acquired businesses had revenues of $3,038,000 for the six months ended June 30,
1998 versus  $906,000 for the six months ended June 30, 1997. The eleven clinics
sold had revenues of $1,236,000 for the six months ended June 30, 1997.

Operating  Income.  Operating  income for the six months ended June 30, 1998 was
$264,000  compared  to  $931,000  for the same  period in 1997,  a  decrease  of
$667,000.

Preventive  health care operating income increased  $204,000 from $1,136,000 for
the six months  ended June 30, 1997 to  $1,340,000  for the same period in 1998.
The  increase  was  primarily  due to the  annualized  effect of adding a net 30
corporate fitness center sites under management.

Rehabilitative health care experienced an operating loss of $213,000 for the six
months ended June 30, 1998 compared to operating income of $105,000 for the same
period in 1997. The change from income to loss was primarily due to the increase
in operating expenses  associated with the centralization of certain operations,
infrastructure and administrative functions.

Excluding  the net gain on  disposition  of clinic  assets  associated  with the
under-performing  clinics sold in 1997,  corporate  expenses  increased $101,000
from  $762,000  for the six months  ended June 30, 1997 to $863,000 for the same
period in 1998.  The  increase  was  primarily  due to the  investments  made to
strengthen the management team.

Interest Expense. Interest expense of $878,000 for the six months ended June 30,
1998 increased  $578,000 from $300,000 for the same period in 1997. The increase
was due to higher  average  borrowings  and the effective  interest rate in 1998
versus 1997.

Other  Income.  Other income  increased  $37,000 from $22,000 for the six months
ended June 30, 1997 to $59,000 for the same period in 1998.

Income Taxes. Income taxes were calculated based on management's estimate of the
Company's  effective  tax rate.  The benefit for income taxes for the six months
ended  June  30,1998  has been  offset  by a  valuation  allowance  because  the
Company's net operating loss could not be carried back and future realization of
the net operating loss is uncertain. Income tax expense for the six months ended
June  30,  1997  has been  partially  offset  by a  reduction  in the  valuation
allowance for deferred taxes.

Net (Loss) Income.  The Company  experienced a net loss for the six months ended
June 30, 1998 of $555,000,  or $.05  diluted net loss per share  compared to net
income of $475,000,  or $.06 diluted net income per share for the same period in
1997.

LIQUIDITY AND CAPITAL RESOURCES

The Company had working  capital of $3,292,000  at June 30, 1998 versus  working
capital of $161,000 at December 31, 1997.  The change was  primarily  due to the
increase in accounts receivable and the overall decrease in accounts payable and
accrued  liabilities.  For the six months ended June 30, 1998,  the Company used
$2,625,000 of cash in operating  activities  as compared to  $1,074,000  for the
same period in 1997.  The increase in usage was primarily due to the increase in
trade accounts and notes receivable.

As of June 30,  1998,  the  Company had  $1,087,000  of  availability  under its
revolving credit facility with Madeleine L.L.C.

On June 4, 1998,  the Company  completed the  acquisition  of all the issued and
outstanding stock of closely held David W. Pickering, Inc. (DWP), a Rhode Island
corporation doing business as International Fitness Club Network (IFCN). IFCN is
in the business of organizing  and  maintaining a network of commercial  fitness
and  health  clubs and  marketing  memberships  in such clubs to  employers  and
insurance  companies.  The purchase agreement contained a non-compete  provision
that covers a period of five years and  prohibits the former owner from directly
or indirectly  competing with the Company. In connection with the acquisition of
DWP, the Company  issued  30,000  shares of common  stock valued at $45,000,  an
automobile valued at approximately $30,000 and cash consideration of $210,000.

<PAGE>

On February 27, 1998,  the Company  completed the  acquisition of all the issued
and  outstanding  stock  of  closely  held  Midlands   Physical  Therapy,   Inc.
(Midlands),  a Nebraska-based provider of rehabilitative  services. The purchase
agreement  contained a noncompete  provision  that covers a period of five years
and prohibits the former owners from directly or indirectly  competing  with the
Company.  In connection  with the  acquisition  of Midlands,  the Company issued
200,000  shares of common  stock valued at $362,500  and cash  consideration  of
$650,000.

On June 26,  1998,  the  Company  amended its  revolving  credit  facility  with
Madeleine L.L.C., an affiliate of Cerberus  Partners,  L.P. (the "Lender").  The
amendment requires the Company to maintain a "Special  Availability  Reserve" in
an  amount  equal to the  Borrowing  Base (as  defined)  minus  $8,000,000.  The
Company's  ability to draw down on the  facility is tied to the  Borrowing  Base
formula which is based upon the  Company's  EBITDA  (defined as earnings  before
interest,  taxes,  depreciation  and  amortization),  revenues,  or collections,
whichever  is less.  The credit  facility  is  secured  by all of the  Company's
assets,  including its accounts receivable,  inventory,  equipment,  and general
intangibles  and is  guaranteed  in part by the  Company's  President  and Chief
Executive Officer. The Company paid the Lender a commitment fee equal to 1.5% of
the total credit  facility,  and a closing fee equal to 1.0% of the total credit
facility.  The Company also issued to the Lender 312,497 shares of common stock.
The  Company  pays the Lender a loan  servicing  fee of $5,000  per  month.  The
advances under the credit  facility  accrue interest at a total rate of interest
equal to 7.0% in excess of Chase  Manhattan's  prime  rate (but in no event less
than  8.5%).  Interest  accruing  at the rate of such  prime  rate  plus 4.5% is
payable monthly. Interest accruing at the rate of 2.5% is added to the principal
balance  of the  facility,  and will  accrue  interest  until  paid.  The credit
facility is due July 1999. The credit facility is subject to various affirmative
and negative  covenants  customary  in  transactions  of this type,  including a
requirement  to  maintain  certain  financial  ratios  and  limitations  on  the
Company's ability to incur additional indebtedness, to make acquisitions outside
of certain established parameters, or to make dividend distributions.

In February 1998, the Company also completed the private sale of 3,000,000 Units
at an aggregate  offering price of $3,300,000.  Each Unit consisted of one share
of common  stock  and a warrant  to  purchase  one-fourth  (.25) of one share of
common stock at $2.25 per whole share.

Sources of capital to meet future obligations in 1998 are anticipated to be cash
provided by operations and the Company's revolving credit facility.  In order to
conserve  capital  resources,  the  Company's  policy is to lease  its  physical
facilities.  The Company does not believe that  inflation  has had a significant
impact on the results of its operations.

Outlook

Over the past six months a number of factors in the  rehabilitation  marketplace
have led the  Company  to  conclude  that the  opportunity  in the  freestanding
physical  therapy clinic  business may be diminishing.  These include  increased
penetration of managed care health plans, the increasing  complexity of Medicare
reimbursement  and  increased  competition  for  clinic  acquisitions  by large,
well-financed competitors.

The Company also  believes the outlook for its  preventive  health care business
has improved  dramatically as a result of increased  corporate health care costs
and the wellness and fitness trend gaining momentum.

Going  forward,  the Company has shifted  its  strategy to  primarily  focus its
growth  efforts on the  preventive  health care  business and does not intend to
acquire additional individual freestanding physical therapy clinics.

In its  preventive  health care  business,  the Company's  strategy is to expand
through the  addition of new  management  contracts,  products  and services and
selective  acquisitions.  It is  anticipated  that  funds  required  for  future
acquisitions and the integration of acquired businesses with the Company will be
provided from operating cash flow, the Company's  revolving  credit facility and
the proceeds from potential future equity financings.  Future equity financings,
if any,  may  result in  dilution  to  holders of the  Company's  common  stock.
However,  there can be no assurance that suitable acquisition candidates will be
identified by the Company in the future,  that  suitable  financing for any such
acquisitions can be obtained by the Company,  or that any such acquisitions will
occur.

Preventive  health care  operating  income,  as a  percentage  of  revenues,  is
expected to increase  compared with that experienced for the year ended December
31, 1997 as the Company expects to control site costs.

<PAGE>

Corporate  expenses,  as  a  percentage  of  revenues,  are  anticipated  to  be
consistent with 1997 levels.

Year 2000 Compliance

The Company has  conducted a review of its  computer  systems to identify  those
areas that  could be  affected  by the "Year  2000"  problem.  The  Company  has
upgraded its accounting software to a version represented by the software vendor
to be Year 2000  compliant  and is in the  process of  similarly  upgrading  its
operating systems software.  The Company believes the Year 2000 problem will not
pose any significant  operational concerns and is not anticipated to be material
to the Company's financial position or results of operations in any given year.

Accounting Pronouncement

 In June 1997,  the Financial  Accounting  Standards  Board issued  Statement of
Financial  Accounting Standards (SFAS) No. 131, Disclosures about Segments of an
Enterprise  and  Related  Information.  SFAS No.  131  redefines  how  operating
segments  are  determined  and requires  disclosures  of certain  financial  and
descriptive  information about a company's operating  segments.  The adoption of
SFAS No. 131 will increase the number of reportable segments for the Company. In
accordance with SFAS No. 131, the additional segment disclosure will be included
in the Company's Form 10-K for the year ending December 31, 1998.

Cautionary Statement

Portions of this Form 10-Q,  including  Management's  Discussion and Analysis of
Financial Condition and Results of Operations,  contain numerous forward-looking
statements that involve a number of risks and uncertainties. Further information
on various  factors that could cause actual  results to differ  materially  from
such forward-looking  statements are set forth in the Company's Annual Report on
Form 10-KSB.

                          PART II. - OTHER INFORMATION

Item 1. Legal Proceedings

From time to time,  the  Company  may  become  involved  in  various  claims and
lawsuits  incident to the operation of its business,  including  claims  arising
from  accidents  or from the alleged  negligent  provision  of physical  therapy
services.

Item 2. Changes in Securities

During the three months ended June 30, 1998,  the Company  issued the  following
securities without registration under the Securities Act:
<TABLE>
<S>                <C>        <C>                                                  <C>              <C>
                                                                                    Price per       Exemption Relied Upon
     Date          Amount                        Purchaser(s)                       Share/Unit

    6/4/98         30,000     Common Stock issued to sellers of business as            N/A              Section 4(2)
                              part of purchase price

</TABLE>

During the three months ended June 30, 1998,  the Company  issued the  following
options,  warrants,  or other equity  securities  in  consideration  of services
rendered or to be rendered without registration under the Securities Act:
<TABLE>
<S>                <C>            <C>                <C>                    <C>                         <C>

                                                                            Exercise Price per Share    Exemption Relied
     Date          Amount           Type               Purchaser(s)                                            Upon

    6/8/98         75,000          Option               Consultant                    $2.25                Section 4(2)
</TABLE>

Item 3.  Defaults Upon Senior Securities

         None.


<PAGE>

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

         The Company  held its Annual  Meeting on June 3, 1998.  Proxies for the
Annual  Meeting were  solicited  pursuant to Regulation 14A under the Securities
Exchange Act of 1934. There was no solicitation in opposition to management. The
following actions were taken at the annual meeting:

(a)      The  following   nominees  were  elected  to  the  Company's  Board  of
         Directors,  with the following  number of shares voted for and withheld
         authority:

Nominee                          Shares Voted For     Withholding Authority
----------------------------  ----------------------  ---------------------
Loren S. Brink                          7,384,022              21,319

Charles E. Bidwell                      7,389,622              15,719

William T. Simonet, M.D.                7,299,672             105,669

Robert K. Spinner                       7,390,922              14,419

         (d)  The  appointment  of  Deloitte  and  Touche  LLP as the  Company's
independent  auditors for the fiscal year ending  December 31, 1998 was approved
by a vote of 7,372,569 shares in favor, 6,002 shares against,  and 26,770 shares
abstained.

Item 5. Other Information


         Thomas   Coplin   ceased   serving  as  President   of  the   Company's
rehabilitative healthcare business effective August 7, 1998. The Company expects
to enter into a severance and release agreement with Mr. Coplin.



Item 6. Exhibits and Reports on Form 8-K

         (a)      Exhibits

         See Exhibit Index immediately following signature page.

         (b)      Reports on Form 8-K

         No Forms 8-K were filed by the Company during the six months ended June
30, 1998.


<PAGE>




                                   SIGNATURES


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

Dated:  August 12, 1998      HEALTH FITNESS CORPORATION


                             By  /s/ Loren S. Brink
                                 Loren S. Brink
                                 Chairman, President and Chief Executive Officer
                                (Principal Executive Officer)


                             By  /s/ Charles E. Bidwell
                                 Charles E. Bidwell
                                Secretary, Treasurer and Chief Financial Officer
                                (Principal Financial Officer)


                             By  /s/ Michael P. Wise
                                 Michael P. Wise
                                 Vice President and Corporate Controller
                                (Principal Accounting Officer)

<PAGE>






                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549


                                  EXHIBIT INDEX
                           HEALTH FITNESS CORPORATION
                                    FORM 10-Q


Exhibit 
No.       Description

3.1      Articles of Incorporation, as amended, of the Company - incorporated by
         reference  to the  Company's  Quarterly  Report on Form  10-QSB for the
         quarter ended June 30, 1997
            
3.2      Restated  By-Laws of the Company --  incorporated  by  reference to the
         Company's Registration Statement on Form SB-2 No. 33-83784C

4.1      Specimen of Common Stock  Certificate --  incorporated  by reference to
         the Company's Registration Statement on Form SB-2 No. 33-83784C


10.1*    Consulting  Agreement  I dated  effective  as of April 1, 1997  between
         Health Fitness Corporation and Charles E. Bidwell

10.2*    Consulting  Agreement  II dated  effective  as of May 1,  1998  between
         Health Fitness Corporation and Charles E. Bidwell

10.3     Amendment  No. 3 to Loan and  Security  Agreement  dated June 26,  1998
         between Health Fitness  Corporation and its  subsidiaries and Madeleine
         L.L.C.

27.1     Financial  Data  Schedule  for 6-month  period  ended June 30, 1998 (in
         electronic version only)

---------------------------
*Indicates management contract or compensatory plan or arrangement.