COMPLETE WELLNESS CENTERS INC, 10KSB40, 1999-03-31

COMPLETE WELLNESS CENTERS INC
10KSB40, 1999-03-31
MISC HEALTH & ALLIED SERVICES, NEC

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<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
----------------
FORM 10-KSB

(MARK ONE)

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998

[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 FOR THE TRANSITION PERIOD FROM TO

COMMISSION FILE NUMBER 0-22115
----------------
COMPLETE WELLNESS CENTERS, INC.
(EXACT NAME OF SMALL BUSINESS ISSUER AS SPECIFIED IN ITS CHARTER)

DELAWARE 52-1910135
(STATE OR OTHER JURISDICTION OF (IRS EMPLOYER NUMBER)
IDENTIFICATION INCORPORATION OR ORGANIZATION)

666 11th Street, NW, Suite 200, WASHINGTON, DC 20003
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES AND ZIP CODE)

(202) 639-9700
(ISSUER'S TELEPHONE NUMBER)

SECURITIES REGISTERED UNDER SECTION 12(b) OF THE ACT: none

SECURITIES REGISTERED UNDER SECTION 12(g) OF THE ACT:

Common Stock, $.0001665 par value per share
Redeemable Common Stock Purchase Warrants

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 [X] No []

Check if there is no disclosure of delinquent filers in response to Item 405
of Regulation S-B is not 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. [X]

The issuer's revenues for the year ended December 31, 1998 were $24,161,819.

The aggregate market value of all of the voting stock held by non-affiliates
outstanding at March 23, 1999, was $7,558,747. The amount was computed by
reference to the average bid and asked prices of the Common Stock as of March
23, 1999.

As of March 23, 1999, 2,949,755 shares of Common Stock were outstanding, and
1,036,776 Redeemable Common Stock Purchase Warrants were outstanding.
<PAGE> 2
DOCUMENTS INCORPORATED BY REFERENCE

Not applicable.

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

COMPLETE WELLNESS CENTERS, INC.
CONSOLIDATED FINANCIAL STATEMENTS
10-KSB DECEMBER 1998

TABLE OF CONTENTS

PART I
Item 1 Business
Item 2 Properties
Item 3 Legal Proceedings
Item 4 Submission of Matters to a Vote of Security Holders

PART II
Item 5 Market for Common Equity and Related Stockholder Matters
Item 6 Management's Discussion and Analysis
Item 7 Financial Statements
Item 8 Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure

PART III
Item 9 Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act
Item 10 Executive Compensation
Item 11 Security Ownership of Certain Beneficial Owners and Management
Item 12 Certain Relationships and Related Party Transactions
Item 13 Exhibits and Reports on Form 8-K
<PAGE> 3
The Company operates through a series of wholly-owned and majority owned
subsidiaries as follows:

COMPLETE WELLNESS CENTERS, INC.

OPTIMUM HEALTH COMPLETE WELLNESS MEDICAL COMPLETE WELLNESS
SERVICE, INC.(3) CENTERS (1) SMOKING CESSATION, INC.

COMPLETE WELLNESS WEIGHT COMPLETE BILLING,
MANAGEMENT, INC.(2) INC.

COMPLETE WELLNESS COMPLETE WELLNESS
EDUCATION (4) RESEARCH INSTITUTE(4)

1. Represents 84 Integrated Medical Centers of which 28 are wholly owned by the
Company and 56 are owned by Medical Doctors who are nominee owners on behalf of
the Company.

2. Represents 56 weight management centers which were acquired by CWWM on
January 31, 1998. Operations of all these centers ceased by December 31, 1998.

3. Sold to management of Optimum Health Services on November 3, 1998.

4. No operations in 1998.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
STATE INTEGRATED MEDICAL WEIGHT MANAGEMENT
CLINICS (1) CLINICS (2)

<S> <C> <C>
Georgia 3
Florida 27
North Carolina 15
Illinois 3 2
California 8
Texas 3
Oregon 2
Arizona 7
Tennessee 3
South Carolina 3
Iowa 2
Indiana 4
Ohio 3
Missouri 1 4
Maryland 3
New Jersey 17
New York 12
Pennsylvania 6
Virginia 6
Washington 6

-- --
Total 84 56
== ==
</TABLE>
<PAGE> 4
1. Represents fully Integrated Medical Centers as of December 31, 1998 which
were in operation on that date. The Company also operated 5 Integrated Medical
Centers in 3 states during 1998 which were closed or otherwise ceased operations
prior to December 31, 1998.

2. The Company acquired the weight loss centers on January 31, 1998 and
commenced operations thereof on that date. Operations of all these centers
ceased by December 31, 1998.

PART I

ITEM 1. BUSINESS

(a) General Development of Business

Complete Wellness Centers, Inc. (the "Company" or "CWC") was incorporated
under the laws of the State of Delaware in November 1994. The Company completed
an initial public offering of Common Stock and Redeemable Common Stock Warrants
in February 1997. The Company controls, either through 100% or majority
ownership, seven separate independent operating subsidiaries and is the managing
member of a limited liability corporation. The Company provides administrative
support services to all its subsidiaries including: (1) management services;
(2)legal services; (3) accounting services; (4) purchasing services; and
(5)support services. All of the subsidiaries are focused in the health care
industry and each delivers a unique product or service sold to consumers
directly or through their subsidiary companies.

Complete Wellness Medical Centers, Inc. ("CWMC") was incorporated under
the laws of the State of Delaware in August 1997. The Company is a 100% owner of
CWMC. CWMC develops multi-disciplinary medical centers ("Integrated Medical
Centers") and furnishes certain support services to such facilities. The
Integrated Medical Centers combine, in one practice, at the same location,
traditional health care providers, such as physicians and physical therapists
and alternative health care providers, such as chiropractors, acupuncturists and
massage therapists. At December 31, 1998 CWMC was managing 84 Integrated Medical
Centers in 14 States and had 18 additional agreements with chiropractors to
develop and manage 20 Integrated Medical Centers in 4 additional states.

CWMC develops Integrated Medical Centers generally through affiliations
with chiropractors (the "Affiliated Chiropractors") and their existing
chiropractic practices. Management endeavors to enter into an agreement with a
chiropractor who has an existing chiropractic practice in a convenient location
and who is an individual who has demonstrated the entrepreneurial skills to
build a practice. The existing practice is used as a base for the development of
an Integrated Medical Center. Typically, CWMC establishes a new Integrated
Medical Center by forming a medical corporation, which is a general business
corporation wholly-owned by the Company or a professional corporation that is
physician-owned, depending upon the applicable state law. The Affiliated
Chiropractor establishes a management company which contracts with CWMC to
provide day-to-day management of the Integrated Medical Center.

CWMC's development strategy is to develop additional Integrated Medical
Centers in local or regional groups or clusters. CWMC plans to continue to
develop Integrated Medical Centers through affiliations with chiropractors and
their existing practices and health clubs and intends to begin development of
Integrated Medical Centers in connection with corporations, government offices,
or other organizations, in which cases the Integrated Medical Centers would be
developed in places such as office buildings.

The Company plans to continue to develop Integrated Medical Centers
primarily by affiliating with chiropractors and their existing chiropractic
practices. Management endeavors to enter into agreements with chiropractors who
are located in convenient locations, and who have demonstrated the
entrepreneurial skills to build a practice. The Company believes that such
chiropractors will consider affiliation with an Integrated Medical Center to be
attractive because they may have greater access to managed care contracts in the
future through the Company and its network of Integrated Medical Centers, will
be relieved of certain administrative burdens, and may have the opportunity to
increase their practice
<PAGE> 5
income by providing the expanded services that the Integrated Medical Centers
provide. An Integrated Medical Center is usually established at the same
location as the existing chiropractic practice, although it could be established
at a new or separate location. The Company has developed seven Integrated
Medical Centers in Arizona that are located inside health clubs.

The Company's overall strategy is to integrate the services of each of the
subsidiaries into the Integrated Medical Centers. During 1998, the Company made
available the products and services of the Smokenders program of Complete
Wellness Smoking Cessation as well as the weight loss programs of Nutri/System
to its Integrated Medical Centers.

The Company has developed and has implemented a corporate computer network
which ties together the major locations of the Company to facilitate data
transmission, email, Internet access, Integrated Medical Center communication
and access to management information and data. It is expected that all newly
acquired subsidiaries and affiliates of the Company will be integrated into
the system in 1999.

Historically, the cost to the Company to develop an Integrated Medical
Center has averaged $15,000. This cost has consisted of such things as computer
software, legal fees, professional credentialing, training, and administrative
starter kit and travel.

The Company anticipates that its Integrated Medical Centers will expand
their services in two phases. The first phase involves the medical treatment of,
principally, neuromusculoskeletal conditions and, to a lesser extent, the
provision of primary care services and wellness and weight loss programs to
patients referred to the Integrated Medical Center by the Affiliated
Chiropractor for reasons of medical necessity and in the case of certain
Integrated Medical Centers, of any new patients to the facility. This is
accomplished by utilizing one of more part-time medical doctors and, depending
on the market, other providers such as a physical therapist or massage
therapist. The second phase of operations is generally expected to begin after
12 to 24 months of operation, depending on an Integrated Medical Center's
financial results. It would involve utilizing one or more medical doctors on a
full time basis. Several of the operating Integrated Medical Centers are now in
a second phase of expansion.

The Company intends to facilitate the growth of the Integrated Medical
Centers by arranging for the provision of ancillary services, such as medical
imaging, rehabilitation, diagnostics, and weight management either by contract
with third party providers or by acquisition of other businesses. The Company
believes that the ability to offer ancillary services will make the Integrated
Medical Centers more attractive to patients, health care practitioners and third
party payors. The acquisitions of other providers of certain other services may,
however, trigger additional licensing requirements. As of this date the Company
has no understandings, commitment, or agreements with respect to any
acquisition.

The Company's expansion strategy is to use its existing network of
affiliated chiropractors to sell the integrated concept to the 50,000
chiropractors in the country not currently offering fully integrated medical
platforms. To date, the Company has augmented the efforts of its management and
staff through consulting arrangements with various persons and entities. These
consultants have directed their efforts primarily toward identifying potential
chiropractors and chiropractic practices with which to affiliate and toward
providing assistance with the integration process.

The agreements provide for the consultant(s) to assist the Company in
identifying candidates which meet the Company's criteria and executing binding
Integration Contracts. The Company seeks to execute consulting agreements with
chiropractic consultants whose clients include most of the chiropractic
industry. The highly successful chiropractors that have demonstrated success in
their integrated practice are used to reach out to others in the field,
assisting the Company in supporting the newly integrated practices and
identifying and targeting chiropractic practices for integration.

In November 1996, the Company entered into such a five year consulting
agreement (the "Kats Agreement") with Kats Management, LLC ("Kats Management"),
a company under common control with Integrated Physicians Management Co., LLC
("IPM") that has represented to the Company that it provides management and
consulting services to over 600 chiropractic clinics. Under the Kats Agreement,
Kats
<PAGE> 6
Management agreed to advise and assist the Company in (I) identifying and
negotiating with chiropractors and their existing chiropractic practices with
which the Company might affiliate for the purpose of developing additional
Integrated Medical Centers and (ii) developing Integrated Medical Centers.

Finally, the leading chiropractors may also be provided buyout
opportunities by the Company as an exit strategy. The company believes that its
enterprise development model creates additional opportunities for the
chiropractic and medical doctors as well as integration candidates for the
Company.

Complete Billing, Inc. ("CBI") was incorporated under the laws of the
State of Delaware in May 1997. The Company is the 100% owner of CBI. CBI is a
health care billing company, which has provided a full range of billing and
collecting services to medical and chiropractic clinics both inside the
Company's network and to unaffiliated doctors. CBI contracted with its clients
on a fixed fee of collection basis, unless state law dictates otherwise, which
ranged from 5% - 8% of collections. CBI had regional locations in Florida,
Maryland and New Jersey. At June 30, 1998 CBI had 19 contracts representing 20
clinics in 8 states. On July 7, 1998, the Company committed to a formal plan to
exit the operations of CBI. The Company ceased CBI's billing operations on
August 15, 1998 and converted all billing performed by CBI back to the
respective clients. The Company ceased CBI's collection operations on February
26, 1999 and converted all collection activity performed by CBI back to the
respective clients. The company does not expect to incur any further expenses as
a result of closing CBI.

Optimum Health Services, Inc. ("OHS"), formerly known as Complete Wellness
Independent Physicians Association ("OHS") was incorporated under the laws of
the State of Delaware in May 1997. The Company held an 86.67% interest in OHS,
with 13.33% ownership held by the management of OHS. OHS is a health care
Management Services Organization (MSO) currently providing services to Health
Maintenance Organizations. The management team joined Complete Wellness with
the goal of providing a comprehensive wellness model of care. In addition to
developing provider networks, OHS delivers support services which include
accepting delegated claims, credentialing, utilization management, quality
assurance, marketing, and provider relations functions.

OHS is a multi-disciplinary integrated delivery system. OHS's 1998 focus
was in the Florida market where they have contracted with approximately one
thousand physicians (less than 20% being Primary Care Physicians). In the state
of Florida, OHS has contracted more than two hundred complementary care
practitioners in various modalities including but not limited to; acupuncture,
chiropractic, nutrition, massage therapy, yoga and tai chi. OHS typically
contracts for a percentage of premium or carve-out pricing for alternative care
and wellness products. They provide the following wellness package of services
under these same arrangements: smoking cessation, weight management, and
complimentary care education programs. OHS has the ability to create innovative
relationships for all these services or for a subset thereof.

OHS network development focuses on contracting in geographically
underserved areas. These locations are new sites for payers to provide health
care access to their membership. These sites provide payers with expansion
capabilities and improve member satisfaction. In addition, these centers
typically have patient bases not previously enrolled in managed care programs.
This provides payers with an opportunity to expand their member base to new
populations which had previously not had access to their products.

OHS is one of the only companies in the country developing a health care
delivery system, which integrates alternative care practitioners under a managed
care setting. The management team's experience in managed care makes them
uniquely qualified to tailor programs to meet the scrutiny of qualification
under insurance settings. OHS has established credentialing protocols and
designs of benefit programs for inclusion under any type of insurance
arrangement. OHS develops systems for inclusion as a Preferred Provider
Organization, an insured benefit rider, and as a service under standard benefit
programs. The inclusion of physician access and wellness products provides OHS
with market differentiation. These
<PAGE> 7
value-added services which exceed those services typically provided by
Management Services Organizations both in quality and quantity provide OHS with
future growth opportunity.

On November 3, 1998, the Company's Board of Directors adopted a formal
plan to divest of its 86.67% interest in OHS. Under the plan, the Company
converted its investment in OHS totaling approximately $1,000,000 at October 31,
1998, into 266,736 OHS ten-year warrants at an exercise price of $0.01 per
share. If the warrants were to be exercised at this time, the Company would own
90.2% of the current and outstanding shares of OHS (71% on a fully diluted
basis). However, the warrants can not be exercised prior to one year nor in an
amount at any time such that the Company's ownership of OHS's common stock would
represent greater than 49% of the total OHS common stock outstanding.

Complete Wellness Smoking Cessation, Inc. ("Smokenders") was incorporated
under the laws of the State of Delaware in July 1997. The Company holds an
88.23% interest in Smokenders, with 11.77% ownership held by management of
Smokenders. Smokenders was formerly owned by Oxford Health Plans and was
purchased from that company on July 31, 1997. Smokenders markets a patented
"Learn to Quit" kit to end users through a national network of trained
facilitators. Smokenders' customers include government agencies, corporations,
CWMC, OHS and individuals.

Smokenders is an adult education program which has as its goal, not only
the cessation of smoking for its clients, but the opportunity to be comfortable
as a non-smoker. The company was created in 1969. Since it was founded, more
than a million people have successfully quit smoking using the Smokenders'
patented techniques. The company is trademarked in more than 20 countries around
the world.

The dynamics of the program recognizes the complexity of smoking addiction
and approaches the challenge of dealing with it comprehensively. The program is
not based on pandering to the fears of smokers about health hazards or death.
Scare tactics are not used.

Smokenders has delivered its services in the following three ways:

1.The Smokenders traditional seminar program consists of seven weekly meetings,
each one about an hour in length, in which clients are provided step-by-step
instruction from a trained moderator about ways to modify and then eliminate
their smoking habit. In weekly assignments, clients learn about the nature of
their addiction, the effects of nicotine on their body, and utilize exercises to
reinforce the new habit of non-smoking. They engage in group participation, are
put into a buddy system with another smoker and are taught ways to cut back on
their nicotine intake.

2.The Smokenders' "Train the Trainer" program is designed to be used in very
large corporations and government agencies. Under this format, Smokenders trains
employees within the large organization to deliver the program themselves. They
learn in a day-long training seminar how to motivate smokers to quit and
effectively guide smokers through the program.

3.Smokenders also markets a "Learn How To Quit" kit, which includes a set of
audio tapes as well as a complementary work-book. This program allows clients to
achieve success in the privacy of their own home or workplace.

A recent survey conducted by the Johns Hopkins University from the records
of people who attended the traditional seminar program found that 81% of those
who completed the program successfully quit smoking. 46% remained smoke-free
after one year, and 38% were still non-smokers after three years. The Smokenders
system is currently marketed to hospitals, health clinics, weight-loss centers,
private corporations, the military services, and other federal and state
governmental organizations.
<PAGE> 8

Complete Wellness Weight Management, Inc. ("CWWM") was incorporated under
the laws of the State of Delaware in December 1997. The Company owns 100% of
CWWM. CWWM is made up of 56 weight loss centers formerly owned by Nutri/System,
L.P. CWWM agreed to purchase the assets of these 56 centers, subject to certain
objectives to be accomplished by January 31, 1998 which date constituted the
final closing of the purchased assets. CWWM markets, in a retail setting, food,
medically supervised weight loss programs and nutritional supplements. Included
in the asset purchase is the perpetual right to use the Nutri/System name and
logo. The Nutri/System program has both a traditional (non-medical) and medical
program.

The Nutri/System Program is designed to assist in the treatment of
obesity. Nutri/System clients receive a comprehensive approach to weight loss
involving nutritionally balanced menu plans, wellness and exercise information
and one-to-one counseling sessions with a trained Medical Staff.

The Traditional Nutri/System Program offers a Maintenance Program that
monitors the clients continued progress after they have reached their Goal
Weight. Providing support with health and wellness information in this component
of the program completes the inclusive Nutri/System.

The Medical Program was designed to assist in the treatment of obesity
using a comprehensive approach to weight loss involving prescription
medications, nutritionally balanced menu plans, and wellness and exercise
information. In addition, the Medical Program offers professional supervision
consisting of scheduled visits with both a Nurse and a Medical Doctor Physician.

Weight loss authorities currently believe that prescription medications
for the treatment of obesity should be used in combination with caloric
restriction, behavior modification and exercise. Therefore the Medical Program
was developed using the traditional Nutri/System program as its foundation. In
this approach, the staff physician will prescribe drug combinations to eligible
clients following an initial screening process and a medical assessment. Since
the staff physician only monitors the client's health as it is affected by the
Medical Program, the client's personal physician or health care provider will
continue to manage the client's other medical needs.
<PAGE> 9
On November 13, 1998, the Company's Board of Directors voted to sell
and/or otherwise divest of the operations of CWWM. The Company does anticipate
continuing to offer the Nutri/System weight loss program through its Integrated
Medical Centers and Internet web site. CWWM closed all of weight loss centers as
of December 31, 1998 and is transitioning its patients to a direct sales program
or to a Integrated Medical Center. The estimated costs associated with closing
the CWWM clinics is approximately $3,355,000.

(b)Narrative Description of Business

The Company's operating strategy is to (i) provide consumers the
opportunity to obtain, and the convenience of obtaining, under the supervision
of a medical doctor, complementary traditional and alternative medical
treatments in one location, (ii) facilitate the efficient provision of high
quality patient care through the use of credentialing standards and standardized
protocols, (iii) establish Integrated Medical Centers in local and regional
clusters for purposes of obtaining managed care contracts, (iv) assist in
marketing the Integrated Medical Centers regionally and nationally on a
coordinated basis and furnish them management, marketing, financing and other
advice and support, and (v) achieve operating efficiencies and economies of
scale through the implementation of an integrated management information system,
the rotation of health care providers among Integrated Medical Centers,
increased purchasing power with suppliers, standardized protocols,
administrative systems, and procedures.

The Company itself is not authorized or qualified to engage in any
activity which may be construed or be deemed to constitute the practice of
medicine but is an independent supplier of non-medical services only. The
physicians and chiropractors are responsible for all aspects of the practice of
medicine and chiropractic and the delivery of medical and chiropractic services
(subject to certain business guidelines determined in conjunction with the
Company), including but not limited to diagnosis, treatment, referrals and
therapy. In connection with any managed care contracts it may arrange on behalf
of the Integrated Medical Centers, the Company will need to manage the
Integrated Medical Centers' utilization of medical services to patients. If
under such contracts, the Integrated Medical Centers accept responsibility for
the treatment of their patients by specialists or at hospitals, the Company will
also need to manage the practitioners' referral patterns with respect to
specialty physician and hospital services. The Company would only do so,
however, for payment purposes and would not, through such process, interfere
with the professional judgment of a medical practitioner or prohibit a
practitioner from providing any medical services.

The objective of the Company's operating strategy is to facilitate the
provision of a high level of traditional and alternative medical care to
patients in a convenient, cost-effective manner. Key elements of the Company's
operating strategy are:

One Location. The Company seeks to provide consumers the opportunity to
obtain, and the convenience of obtaining, under the supervision of a medical
doctor, complementary traditional and alternative medical treatments in one
location. The Company believes that alternative medicine is growing in
popularity, and that supervision of treatment by a medical doctor may alleviate
some patient and third party payor concerns.

Facilitate the Efficient Provision of High Quality Care. All health care
services at an Integrated Medical Center are provided by health care
practitioners under the supervision of a licensed medical doctor. The Company
seeks qualified and reputable medical doctors. The Company further seeks to
facilitate the efficient provision of high quality care through the use of
credentialing and standardized protocols. Additionally, in many states, only
medical doctors are permitted to order certain laboratory and radiological
tests. The Company believes that supervision by a medical doctor and a medical
doctor's access to more sophisticated diagnostic testing services will enhance
the quality of patient care.

Establish Networks of Integrated Medical Centers to Obtain Managed Care
Contracts. A key component of the Company's operating strategy is to attract
both health care practitioners and managed care payors. The Company seeks to
attract health care practitioners by, among other things, providing them greater
access to managed care contracts than they could attain independently and
relieving them of certain
<PAGE> 10
administrative responsibilities. The Company intends for its local and regional
clusters of Integrated Medical Centers to attract managed care contractors by
providing single, integrated points of market entry, thereby enabling managed
care payors to more efficiently contract for the provision of health care
services for patient populations. The Company credentials its licensed health
care practitioners through a credentialing function accredited by the National
Committee for Quality Assurance, has drafted new and improved standardized
protocols and will develop and implement a utilization management program, for
the purpose of attracting and managing its managed care contracts.

Provide Advice and Assistance. The Company intends to develop and
implement advertising and marketing programs for the Integrated Medical Centers
primarily at the regional and national levels, utilizing television, radio, and
print advertising as well as internal marketing promotions. The name of each
Integrated Medical Center includes the words "Complete Wellness Medical
Center(SM)." Each Integrated Medical Center displays signage bearing such words,
or the words "Complete Wellness Center(SM)." The Company's goal is to achieve
"brand name" awareness of the Integrated Medical Centers. There is no assurance,
however, that the Company will be able to realize this goal. An individual
Integrated Medical Center may also advertise its services locally, and the
Company provides advice in that regard upon request. The Company also agrees to
furnish the Integrated Medical Centers management services, financing and other
advice and support. By doing so, the Company seeks to relieve providers, to a
limited extent, from certain burdens of administering and managing a medical
practice, achieve operating efficiencies and economies of scale. The Company
intends and has organized its Integrated Medical Centers into regional groups or
clusters to utilize employees and serve patients more effectively, to leverage
management and other resources, to increase purchasing power with suppliers, and
to facilitate the development of networks of affiliated physicians,
chiropractors, and other health care practitioners.

The Company plans to continue to develop Integrated Medical Centers
primarily by affiliating with chiropractors and their existing chiropractic
practices. Management endeavors to enter into agreements with chiropractors who
are located in convenient locations, and who have demonstrated the
entrepreneurial skills to build a practice. The Company believes that such
chiropractors will consider affiliation with Integrated Medical Centers to be
attractive because they may have greater access to managed care contracts in the
future through the Company and its network of Integrated Medical Centers, will
be relieved of certain administrative burdens, and may have the opportunity to
increase their practice income. An Integrated Medical Center is usually
established at the same location as the existing chiropractic practice, although
it could be established at a new or separate location.

Various state and federal laws regulate the relationship between providers
of health care services and physicians, and, as such, the Company is subject to
these laws and regulations. The Company is also subject to laws and regulations
relating to business corporations in general. During the year and continuing
into 1999, the Company has, through its legal counsel, performed a detailed
regulatory review in each state in which the Company has established Integrated
Medical Centers. The Company believes its operations are in compliance with
applicable laws. Every state imposes licensing requirements on individual
physicians and on certain other types of health care providers and facilities.
Many states require regulatory approval, including licenses to render care or
certificates of need, before establishing certain types of heath care facilities
or offering services which entail the acquisition of expensive medical
equipment.

The laws of many states prohibit business corporations from engaging in
the practice of medicine, such as through employment arrangements with
physicians. These laws vary from state to state and are enforced by the state
courts and regulatory authorities with broad discretion. The Company does not
<PAGE> 11
employ physicians to practice medicine, does not represent to the public that it
offers medical services, and does not control or interfere with the practice of
medicine by physicians at the Integrated Medical Centers. The Integrated Medical
Centers are formed as general business corporations wholly-owned by the Company
in states in which the Company believes general business corporations are
permitted to own medical practices. In most states, the Integrated Medical
Centers are formed as professional corporations owned by one or more medical
doctors licensed to practice medicine under applicable state law.

The laws of most states prohibit physicians from splitting professional
fees. These statutes are sometimes quite broad and as a result prohibit
otherwise legitimate business arrangements. Laws in all states regulate the
business of insurance and the operation of health maintenance organizations, or
HMOs. Many states also regulate the establishment and operation of networks of
health care providers. There are a number of federal laws prohibiting certain
activities and arrangements relating to services or items reimbursable by
federal or state funded health care programs. Certain provisions of the Social
Security Act, commonly referred to as the "Anti-kickback Amendments," prohibit
the offer, payment, solicitation or receipt of any form of remuneration either
in return for the referral of federal or state health care reimbursement program
patients or patient care opportunities, or in return for the recommendation,
arrangement, purchase, lease or order of items or services covered by such
federal or state health care funded programs.

Federal law and the laws of many states regulate the sale of franchises.
Franchise laws require, among other things, that a disclosure document be
prepared and given to prospective franchisees. The Company believes that the
Integrated Medical Centers formed as business corporations wholly-owned by the
Company are not subject to such laws. Integrated Medical Centers formed as
physician-owned professional corporations may be subject to them. If such laws
are deemed to apply, the Company would be required to prepare and deliver a
disclosure document to the physician that owns the professional corporation, who
may be an employee of the Company. Although the Company believes that its form
of relationship with Integrated Medical Centers is not the type intended to be
covered by such laws, the Company has engaged counsel to advise it in this
regard. There can be no assurance that review of the Company's business by
regulatory authorities will not result in a determination that could adversely
affect the operations of the Company or require structural and organizational
modifications of the Company's form of relationship with Integrated Medical
Centers that could have an adverse effect on the Company.

The managed health care industry, including the provider practice
management industry, is highly competitive. The Company competes with other
companies for physicians and other practitioners of health care services as well
as for patients. The Company competes not only with national and regional
provider practice management companies, but also with local providers, many of
which are trying to combine their own services with those of other providers
into integrated delivery networks. Certain of the companies are significantly
larger, provide a wider variety of services, have greater financial and other
resources, have greater experience furnishing provider practice management
services, and have longer established relationships with buyers of these
services, than the Company, and provide at least some of the services provided
by the Company.

The Company's overall strategy is to integrate the services of each of the
subsidiaries into the Medical Centers. During 1998, the Company will made
available the products and services of the smoking cessation program of Complete
Wellness Smoking Cessation as well as the weight loss programs of Nutri/System
to its Integrated Medical Centers.

The Company has developed a corporate technology plan which ties together
the various corporate and operations locations of the Company to facilitate data
transmission, e-mail, Internet access, Integrated Medical Center communications
and access to management information and data.

As of March 31, 1999 the Company had 18 employees and the operating
Integrated Medical Centers had a total of approximately 400 employees. The
Company's 17 employees consisted of 15 in finance and administration and 2 in
sales and marketing.
<PAGE> 12
ITEM 2. PROPERTIES

The Company does not own any property. Effective April 1, 1998, the
Company's executive and administrative offices were located in approximately
6,300 square feet of office space in Washington, DC. The Company will pay
$10,000 per month rent on a 7 year sublease from Crestar Bank. It also leases
approximately 1,395 square feet of office space in West Palm Beach, Florida. The
lease term began in March 1998 and expires in February 2000. The current monthly
rental rate is $1,950 plus 6% sales tax. Both facilities are in satisfactory
condition and are adequate for the Company's use.

ITEM 3. LEGAL PROCEEDINGS

The Company and its affiliates are involved in the following legal
proceedings:

Complete Wellness Centers, Inc. is currently directly involved in four
legal proceedings. The first matter is an action brought in Sarasota Florida in
July 1997 by Jeffrey Friedlander, a medical doctor, against the Company for
alleged back wages owed him by the Company for work he performed at an
Integrated Medical Center in Florida. The case was tried by a jury in March,
1999, and a verdict was entered against the Company in the amount of $141,000,
which includes $100,000 in punitive damages. The Company contests the jury
finding and has appealed the decision. The Company expects to settle this matter
favorably.

The second matter is a breach of contract action brought by Comprehensive
Billing Services, Inc., a medical billing company, against the Company and one
of the Integrated Medical Centers in Tampa, Florida, in May 1998 alleging a
breach of contract and seeking damages of approximately $14,500. The Company
has answered the suit and discovery is currently underway. The Company intends
to defend the suit.

The third matter involves an action initiated by James Renegar, a massage
therapist, in Penellas County, Florida in May 1998 against the Company for an
unspecified amount of back wages back wages which the therapist alleges is owed
him. He has sued the Company and the Integrated Medical Center for the wages,
alleging an oral contract with the Company. The Company denies that he was an
employee of the Company and is vigorously defending the action.

The fourth matter involves a suit by the former president, Hiam Zittman,
of a Company subsidiary, Complete Wellness Weight Management, Inc. in Federal
Court in the Southern District of New York in October 1998, alleging breach of
his employment contract against the Company. The employee was terminated for
cause in April, 1998, and filed a breach of contract action in federal court in
New York, seeking damages under the contract. The Company intends to defend the
action and has filed an answer in the matter. Discovery is currently underway.

In addition to the matters described above, the Company's subsidiaries are
involved in the following legal matters:

Complete Wellness Weight Management, Inc.("CWWM"), a wholly-owned
subsidiary of the Company ceased operations in December, 1998. At the time, it
vacated the various store locations which it had rented to conduct business. In
vacating the premises, CWWM had outstanding lease obligations, which were not
guaranteed by the Company. Many of the landlords of those various locations have
brought suit against CWWM seeking to recover damages under the leases, for past
and future rent and associated charges. The Company has not opposed those
collection actions, and several such suits have proceeded to judgment against
CWWM. Although no such suits have obtained judgments against the Company, any
attempt by any such creditor of CWWM to impose any liability on the Company will
be promptly and vigorously defended by the Company. Likewise, certain other
creditors, including vendors to various CWWM facilities, have brought collection
actions against CWWM. Once again, although no such suits have obtained judgments
against the Company, any attempt by any such creditor of CWWM to impose any
liability on the Company will be promptly and vigorously defended by the
Company.

The Company has a number of ongoing disputes with former employees,
vendors and Integrated Medical Center Doctors. The Company believes these
disputes are in the normal course of business and in any event are minor. The
Company endeavors to settle such disputes in a timely manner.
<PAGE> 13
In November 1997, various facilities of the Company's operations were
searched by federal authorities pursuant to search warrants, and the government
removed various computer equipment, records and documents. During 1998, various
employees of the Company and certain subsidiaries were served with subpoenas
requesting records and documents related to billing and claims coding, clinical
relationships and corporate records. The Company believes it may be a target in
this investigation. Only one employee has received a target letter stating that
the employee is a subject of the investigation. While it is too early to predict
the outcome of any of the ongoing investigations of the Company or the
initiation of any additional investigations, were CWC to be found in violation
of federal or state laws relating to Medicare, Medicaid, CHAMPUS or similar
programs, the Company could be subject to substantial monetary fines, civil and
criminal penalties and exclusion from participation in the Medicare, Medicaid or
CHAMPUS programs and similar other reimbursement programs. Any such sanctions
could have a material adverse effect on the Company's financial position and
results of operations.

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

At the Annual Meeting held on May 26, 1998, the following items were
submitted to the security holders:

1. to elect a Board of Directors (6) who shall hold office until the next
Annual Meeting or until their successors are duly elected and shall have
qualified ("Proposal One");

2. to consider and vote upon a proposal to create a stock option plan
containing 50,000 shares of the Company's Common Stock for Outside
Directors on the Company's Board of Directors ("Proposal Two");

3. to consider and vote upon a proposal to amend the Company's 1994 Stock
Option Plan, 1996 Stock Option Plan and 1996 Restricted Stock Option Plan
for Health Care Professionals to add a "change in control" provision and a
"cashless exercise" provision ("Proposal Three");

4. to ratify the selection of Ernst & Young LLP as independent accountants
for the fiscal year ending December 31, 1998 ("Proposal Four");

5. to transact such other business as may properly come before the Meeting or
any adjournments thereof.

At a Special Meeting of Shareholders held on August 11, 1998, the following
items were submitted to the security holders:

1. approval of the Convertible Preferred Private Placement investment by
Wexford Spectrum Investors, LLC and Imprimis Investors, LLC ("Proposal
One");

2. approval and authorization of an amendment to the Company's certificate of
incorporation increasing the number of shares of Preferred Stock and
Common Stock the Company is authorized to issue ("Proposal Two")
<PAGE> 14
PART II

ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

(a) Market Information

The Company's Common Stock and Redeemable Common Stock Purchase Warrants
are traded on the Nasdaq SmallCap Market (Nasdaq SCM).

The following table states the high and low quotation information by
quarter for the Company's Common Stock and Common Stock Warrants based on actual
trading, as reported on Nasdaq SCM. The quotations reflect inter-dealer prices,
without retail mark-up, markdown, or commission and may not represent actual
transactions.

<TABLE>
<CAPTION>
COMMON STOCK

HIGH LOW
------ ------
<S> <C> <C>
1st Quarter, 1998.... $ 3.063 $ 1.75
2nd Quarter, 1998.... $ 3.625 $ 1.50
3rd Quarter, 1998.... $ 3.875 $ 2.125
4th Quarter, 1998.... $ 4.875 $ 2.625

<CAPTION>
WARRANTS

HIGH LOW
------ ------
<S> <C> <C>
1st Quarter, 1998.... $ 1.75 $ 0.75
2nd Quarter, 1998.... $ 2.00 $ 0.875
3rd Quarter, 1998.... $ 2.50 $ 0.75
4th Quarter, 1998.... $ 3.125 $ 1.37
</TABLE>

(b) Holders

As of December 31, 1998, there were 728 holders of record of the Company's
Common Stock and approximately 22 holders of record of its Redeemable Common
Stock Purchase Warrants.

Holders of the Company's Common Stock are entitled to receive such
dividends as may be declared by the Board of Directors out of funds legally
available therefor. There has been no declaration of dividends to date, except
as required by the Senior Convertible Preferred Stock (See Note 9 - Stockholders
Equity), and none is expected in the foreseeable future. The Company anticipates
that future earnings will be retained to finance future operations and
expansion. The payment of dividends is within the discretion of the Board of
Directors of the Company and will depend on the Company's earnings, if any,
capital requirements, financial condition, and such other factors as are
considered to be relevant by the Board of Directors from time to time.

ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS

General
<PAGE> 15

Statements included in this "Management's Discussion and Analysis of
Financial Condition and Results of Operations" Section, and in other sections of
this Report and in prior and future filings by the Company with the Securities
and Exchange Commission, in the Company's prior and future press releases and in
oral statements made with the approval of an authorized executive which are not
historical or current facts are "forward looking statements" made pursuant to
the safe harbor provisions of the Private Securities Litigation Reform Act of
1995 and are subject to certain risks and uncertainties that could cause actual
results to differ materially from those presently anticipated or projected. The
Company wishes to caution readers not to place undue reliance on any such
forward-looking statements, which speak only as of the date made. There are
important risk factors that in some cases have affected and in the future could
affect the Company's actual results and could cause the Company's actual
financial and operating performance to differ materially from that expressed in
any forward-looking statement. The following discussion and analysis should be
read in conjunction with the Financial Statements and notes appearing elsewhere
in this report.

The Company was established in November 1994. From its inception until
March 1995, the Company raised funds privately and developed the corporate
infrastructure, protocols, policies and procedures required to commence its plan
to develop multi-disciplinary medical clinics. In March 1995, the Company began
implementing the initial stages of its business plan. The Company formed
Complete Wellness Centers, L.L.C. ("CWC, LLC"), a Delaware limited liability
company, as a vehicle for raising capital needed to open Integrated Medical
Centers. The Company is the managing member of CWC, LLC and has a 1% equity
interest. The Company has obtained irrevocable and permanent voting proxies from
the holders of a majority of ownership interests in CWC, LLC. The Company
consolidates the financial statements of CWC, LLC in its financial statements.

On May 29, 1998 the Company, by unanimous consent of the Board of
Directors, agreed to purchase all of the outstanding units of CWC,LLC. The
acquisition was accomplished by approving 77,821 shares of Common Stock (of
which as of the end of 1998 had issued 70,912 shares of Common Stock) valued at
$200,000, based upon the average closing bid price of the Company's Common Stock
for the thirty (30) trading days prior to June 1, 1998. Such shares are subject
to SEC Rule 144, but shall have piggyback registration rights. Former and
current employees, directors, and immediate relatives of management, owning
37.6% of the LLC's equity received a discount to 26.32% of the $200,000
valuation of the LLC; the remaining investors received the balance of the
valuation on a pro rata basis in accordance with their respective investments.
The LLC ceased operations at December 31, 1997.

The Company began pursuing its primary development strategy in early 1996.
This strategy involves entering into an agreement with one or more chiropractors
and their existing chiropractic practices and the chiropractor's corporation.
The chiropractor or existing chiropractic practice leases the office space and
equipment utilized by the existing chiropractic practice to the Company. The
chiropractor then incorporates the Admincorp, with which task the Company
assists, and causes the Admincorp to ratify the agreement. In general, the
Admincorp assumes responsibility for the daily management functions of the
Integrated Medical Centers. The Company agrees to furnish the Admincorp certain
services, such as assistance with advertising, other practice development
activities, and medical doctor recruitment, to help the Admincorp perform daily
management functions. The Company then forms the Integrated Medical Center and
enters into a long-term management agreement with the Integrated Medical Center
to provide certain administrative and management services. In addition, the
Company subleases the existing chiropractic practice's office space and
equipment to the Integrated Medical Center. The Integrated Medical Center
employs the Affiliated Chiropractor(s) and one or more medical doctors.
Depending on the needs of the patient base, the Integrated Medical Center may
also employ one or more other traditional or alternative health care providers.

The Company charges the Integrated Medical Center management fees for the
goods and services it provides the Integrated Medical Center. Such fees are
generally based on a periodic determination of the fair market value of such
goods and services. The Company also subleases the office space and equipment to
the Integrated Medical Center for estimated fair market value. With respect to
Integrated Medical Centers that serve patients covered by any federal or state
funded health care program and certain other Integrated Medical Centers, the
management fees are pre-set for one year for flat dollar amounts that represent
the fair market value of the goods and services the Company directly furnishes
the Integrated
<PAGE> 16
Medical Center and of the services the Company indirectly furnishes the
Integrated Medical Center through its arrangement with the Admincorp. The
Admincorp charges the Company a monthly fee equal to the sum of the management
fees and lease and rental fees for office space and equipment that the Company
charges the Integrated Medical Center, less a specified fixed amount. In
general, the Company charges the Admincorp a monthly integration fee that is,
depending on various factors, 9% to 20% (if the initial term of the agreement is
five years) or 10% to 15% (if the initial term of the agreement is ten years)
equal to the sum of (i) the management fee and lease and rental fees for office
space and equipment that the Company charges the Integrated Medical Center and
(ii) the Integrated Medical Center's permissible expenses, until the sum reaches
$300,000 to $500,000 in any one year, and 10% of the sum for the remainder of
that year. With respect to Integrated Medical Centers that serve patients
covered by federal or state funded health care programs and certain other
Integrated Medical Centers, the integration fees are fixed dollar amounts equal
to estimated fair market value of services provided by the Company to the
Integrated Medical Centers, subject to a 15% cap. The Company also may charge
certain Admincorps an operations fee of $250 per month, subject in certain cases
to delayed or contingent effectiveness. Except for the operations fee, however,
the fees are simply accrued, and actual payment of them is not required, unless
and until, and then only to the extent, that the Integrated Medical Centers
collect on their accounts receivable in excess of certain permitted expenses,
such as payroll expenses. If the agreement with the Admincorp is terminated, the
Admincorp is generally entitled to receive from the Company a severance,
generally equal to 80% to 95% of the accounts receivable then due the Company
from the Integrated Medical Center, less the balance then due the Company from
the Admincorp, subject to the Integrated Medical Center collecting on its
accounts receivable. In the case of certain Integrated Medical Centers, however,
the Admincorp is entitled to a pro rata portion of the Integrated Medical
Center's accounts receivable as of the date of termination, if and when
collected.

The Company's agreements with Affiliated Chiropractors and entities
controlled by them relating to the operation and management of the Integrated
Medical Centers are generally for initial terms of five or ten years. They may
be renewed in five year increments, up to four times, by mutual consent. An
Affiliated Chiropractor may terminate such an agreement if the Company
materially breaches it and, if the breach is correctable, the Company fails to
cure the breach within ten days after written notification. The start-up phase
is generally three months following the Integration Date. The loss of a
substantial number of such agreements, or the loss of a substantial number of
Affiliated Chiropractors, would have a material adverse effect on the Company.

As of December 31, 1998, the Company was managing 84 Integrated Medical
Centers. The Company ceased operating five Integrated Medical Centers and plans
to dissolve the related corporations after having terminated its agreement with
the Affiliated Chiropractors and Admincorps. The Company anticipates no material
adverse financial effect as a result of such termination's.

The Company integrated many of its existing Integrated Medical Centers
within a few weeks after the Affiliated Chiropractors entered into agreements
with the Company to develop such Integrated Medical Centers. The Company is now
taking up to six months to integrate clinics due, in part to the ongoing federal
investigation, limited financial resources and the numerous agreements it has
pending with chiropractors to develop Integrated Medical Centers.

The cost to the Company to develop an Integrated Medical Center not
connected with a strategic alliance has averaged $15,000. This cost has
consisted of such things as computer software, legal fees, professional
credentialing, training, an administrative starter kit and travel.
<PAGE> 17
The Company has from time to time advanced additional funds to the
Integrated Medical Centers to fund working capital requirements. If the Company
does make such an advance, the advance will bear interest (the current rate
being 10% per annum), will be secured by such collateral as the Company deems
appropriate, and will be repayable before the expiration of the initial term of
the Company's agreement with the Affiliated Chiropractor and the Admincorp.

The Company intends to develop no fewer than 45 additional Integrated
Medical Centers by December 31, 1999. However, there can be no assurance that
the Company will develop the Integrated Medical Centers with respect to which it
had agreements with chiropractors as of December 31, 1998, will be able to
identify and recruit a sufficient number of additional chiropractors, or that
the average cost to the Company to develop Integrated Medical Centers will not
be greater than those discussed above.

The Integrated Medical Centers developed through December 31, 1998 were
financed by the issuance of the Company's notes, shares of Common Stock, and
shares of Preferred Stock. The Integrated Medical Centers intended to be
developed by December 31, 1999 are expected to be financed by internal cash flow
of the Company and additional equity financing.

During May 1997, the Company incorporated three new wholly owned
subsidiaries: Complete Wellness Research Institute, Inc., ("CWRI"), Complete
Wellness Education, Inc., ("CWEI"), both corporations of the state of Delaware,
and Complete Billing, Inc., ("CBI"), a state of Florida corporation. Two of the
three companies started operations in May 1997. CWEI has not yet begun
operations. CWRI provides clinic research and studies to pharmaceutical,
vitamin, natural product and medical device manufactures' within the Company's
network of clinics and has had limited operational results in 1997 and no
operations in 1998. CWEI, through its consortium of nationally recognized
doctors and authors, will provide education and wellness articles and
periodicals to national publications and publishers. CWEI had no operations in
1998. CBI is a healthcare billing company, which provides services to medical
and chiropractic clinics, both inside the Company's clinic network and to
unaffiliated doctors. Included in the Company's December 31, 1998 consolidated
financial statements are the results of operations of this company.

On July 7, 1998, the Company committed to a formal plan to exit the
operations of CBI. The Company ceased CBI's billing operations on August 15,
1998 and converted all billing performed by CBI back to the respective clients.
The Company ceased CBI's collection operations on February 26, 1999 (see Note 15
Subsequent Events) and converted all collection activity performed by CBI back
to employees of the Company. The Company does not expect to incur any further
expenses as a result of closing CBI.

Also, during May 1997 the Company entered into an agreement to become the
majority shareholder of a new company, Complete Wellness Independent Physicians
Association, Inc. ("OHS"), a Delaware corporation now named Optimum Health
Services, Inc. ("OHS"). The Company holds an 86.67% stake in OHS, with 13.33%
ownership held by the management of OHS. OHS plans to build a network of
primary, specialty, hospital and ancillary healthcare providers, including the
Company's network of clinics, to attract managed care contracts, Medicare,
Medicaid and federal and state government contracts and self funded corporation
contracts. OHS began developing its provider network in June 1997. OHS has
entered into contracts to provide access to its network in early 1998.

On November 3, 1998, the Company's Board of Directors adopted a formal
plan to divest of its 86.67% interest in OHS. Under the plan, the Company will
convert its investment in OHS, totaling approximately $1,000,000 at November 30,
1998, into 266,736 OHS ten-year warrants at an exercise price of $0.01 per
share. However, the warrants can not be exercised prior to one year nor in an
amount at any time such that the Company's ownership of OHS's common stock would
represent greater than 49% of the total OHS common stock outstanding. The
current value recorded by the Company in relation to the 266,736 OHS warrants is
zero.

During July 1997, a subsidiary of the Company acquired all of the
operating assets and business of Oxford Health Plan's Smokenders program for
$50,000. The subsidiary, Complete Wellness Smoking Cessation, Inc.,
("Smokenders") also agreed to pay Oxford Health Plan a royalty of 5% on gross
revenues
<PAGE> 18
for a 10 year period and a minimum of $26,000 per annum in royalties to the
founders of Smokenders as a result of the acquisition. In forming Smokenders,
the Company contributed $50,000 cash and a commitment to provide working capital
as needed in an amount not to exceed $198,000 in return for 88.23% of the Common
Stock. Robert J. Mrazek, the CEO of Smokenders and a director of the Company is
to contribute $22,000 in promissory notes in return for 11.77% of the common
stock. The promissory notes from Mr. Mrazek will accrue interest at 8%. Unpaid
interest and principle on the promissory notes will be payable no later than
September 30, 2000. Smokenders plans to market its smoking cessation behavioral
modification program to corporations, federal and state government agencies and
individuals as well as seek strategic alliances with pharmaceutical companies to
develop an adjunct product for nicotine replacement therapies. Additionally, the
Smokenders program was offered in the Company's Integrated Medical Centers in
1998.

In January, 1998, the Company acquired 56 weight loss centers
from Nutri/System, L.P. for the $150,000 and the assumption and assignment of
the outstanding lease obligations and certain other liabilities of the centers
of approximately $700,000. On November 13, 1998, the Company's Board of
Directors voted to sell and/or otherwise exit the operations of Complete
Wellness Weight Management, Inc., ("CWWM"), the company established to acquire
the weight loss centers, which is a wholly owned subsidiary of the Company.
The Company does anticipate continuing to offer the Nutri/System weight loss
program through its Integrated Medical Centers and Internet web site.
CWWM commenced operations on February 1, 1998 and realized losses from
operations of approximately $5,974,000 on revenues of approximately $6,573,000
for the period ended December 31, 1998. The estimated costs to divest of the
CWWM clinics is estimated to be approximately $3,355,000.

Results of Operations

Twelve months ended December 31, 1998 compared to twelve months ended December
31, 1997:

Revenue. During the twelve months ended December 31, 1998 and December 31,
1997, the Company had total revenue of $24,161,819 and $9,010,414, respectively.
The increase of $15,151,405 was due primarily to the improved revenues from the
Company's Integrated Medical Centers in the amount of $8,285,616 and the
addition of the Company's weight management subsidiary in 1998, which
contributed $6,573,931 to the increase. The remaining increase of $291,858 was
attributable to the Company's other smaller subsidiaries.

Salary and Consulting Costs. During the twelve months ended December 31,
1998 and December 31, 1997, the Company incurred salary and consulting costs of
$7,066,208 and $2,886,184, respectively. The increase of $4,180,024 was due to
an increase of $174,335 in costs resulting from the hiring of additional
employees at the corporate headquarters, an increase of $950,028 resulting from
the hiring of new employees at the Integrated Medical Centers, an increase of
$2,358,159 resulting from the addition of the Company's weight management
subsidiary in 1998, an increase of $645,652 in compensation expense resulting
from the grant of stock options and warrants to purchase Common Stock, the fair
market value of which exceeded their exercise price, and an increase of $51,850
resulting from consulting fees in connection with the development of corporate
infrastructure and the operation of Integrated Medical Centers.

Management Fees. During the twelve months ended December 31, 1998 and
December 31, 1997, the Company incurred management fees of $8,641,067 and
$3,850,112, respectively. These are fees that are paid to the Affiliated
Chiropractors' management companies for managing the day-to-day operations of
the Integrated Medical Centers. The fees are paid when the accounts receivable
of the Integrated Medical Centers are collected by the Integrated Medical
Centers. The increase of $4,790,955 was due primarily to the improved revenues
from the Company's Integrated Medical Centers in 1998.

Rent. During the twelve months ended December 31, 1998 and December 31,
1997, the Company incurred rent expenses of $5,140,929 and $131,292,
respectively. Rent consists of amounts paid for the Integrated Medical Center
space, weight loss clinic space, administrative office space and certain
equipment by the Company and its subsidiaries. Rent for space and equipment for
the Integrated Medical Centers is paid when the accounts receivable of the
Integrated Medical Centers are collected by the Integrated Medical Centers. The
increase of $5,009,637 was due primarily to the weight management subsidiary in
1998.

Advertising and Marketing. During the twelve months ended December 31,
1998 and December 31, 1997, the Company incurred advertising and marketing
expenses of $963,918 and $76,774,
<PAGE> 20
respectively. The increase of $887,144 was attributable primarily to the
addition of the Company's weight management subsidiary in 1998 and additional
advertising for marketing and recruitment purposes over the amounts expended in
1997.

Bad Debt Expense. During the twelve months ended December 31, 1998 and
December 31, 1997, the Company incurred bad debt expense of $2,656,597 and
$3,232,111, respectively. The decrease of $575,514 was due primarily to improved
collections at the Integrated Medical Centers.

Network Development Costs. All network development costs relate to the
activities of Optimum Health Services, Inc. OHS was developing a network of
health care providers with the intention of entering into contracts with managed
care entities for the provision of medical services. During the twelve months
ended December 31, 1998 and December 31, 1997 the Company incurred network
development cost of $701,443 and $317,682 respectively.

General and Administrative. During the twelve months ended December 31,
1998 and December 31, 1997, the Company incurred general and administrative
expenses of $6,066,240 and $2,700,987, respectively. The increase of $3,365,253
was attributable to the addition of the Company's weight management subsidiary
in 1998 and consists of an increase of (i) $1,065,439 in accounting and legal
costs, (ii) $2,299,814 in various overhead costs, which include insurance,
travel, telephone, bank services, and commissions

Depreciation and Amortization. During the twelve months ended December 31,
1998 and December 31, 1997, the Company incurred depreciation and amortization
expense of $209,882 and $86,969, respectively. The increase of $122,913 resulted
from the addition of fixed assets, primarily computer software and equipment,
which tend to have depreciable lives of five years or less and the acceleration
of depreciation for assets no longer in use.

Interest Income. During the twelve months ended December 31, 1998 and
December 31, 1997, the Company had interest income of $62,616 and $87,498,
respectively. The decrease of $24,882 resulted from the reduction of funds
available for investment.

Interest Expense. During the twelve months ended December 31, 1998, and
December 31, 1997, the Company had interest expenses of $2,771 and $31,041,
respectively. The decrease of $28,270 resulted from the retirement of the 1996
bridge financing loan repaid in February 1997, which accounted for approximately
all the 1997 interest expense.

During 1996, the losses incurred by the consolidated CWC, LLC allocable to
the minority interest owners of the CWC, LLC, eliminated all net equity of the
minority interest owners. Accordingly, the Company has reflected 100% of the
operations of the CWC, LLC in its results of operations in 1997 and 1998,
without allocation to the minority interest owners. In addition, the Company's
investments in Complete Wellness Smoking Cessation, Inc. represents 100% of the
equity funding of that entity. The Company has reflected 100% of the operations,
assets, and liabilities of the Smokenders subsidiary due to the lack of minority
interest investment into the Company. The Company's investment in Optimum Health
Services, Inc. was made in conjunction with an investment by the minority
interest owners of $50,000. The Company has included the effects of an
allocation of approximately $42,000 of the net losses incurred by Optimum Health
Services, Inc. for the year ended December 31, 1997 based on the minority
interest owners investment in and percentage ownership of Optimum Health
Services, Inc. During 1998 the Company allocated approximately $8,000 of the net
losses incurred by Optimum Health Services, Inc. to the minority interest owners
investment in and percentage ownership of Optimum Health Services, Inc.
Accordingly, the Company has reflected the balance of the results operations of
Optimum Health Services, Inc. in its results of operations in 1998, without
further allocation to the minority interest owners.

The Company has evaluated its tax position as of December 31, 1998 and its
expected tax position for the next three to five years and determined that,
based on assumptions and estimates utilized in its evaluation, it is more likely
than not that the Company will not be able to realize the economic benefits of
net operating losses incurred and certain other deferred items. Accordingly, the
Company has recorded a
<PAGE> 21
valuation allowance representing 100% of the net deferred tax assets and has
recognized a net tax provision of zero.

Liquidity and Capital Resources

The Company has experienced net losses, negative cash flow, a deficit in
working capital, and an accumulated deficit each month since its inception. For
the years ended December 31, 1998 and December 31, 1997 the Company had incurred
a net losses of $(9,668,018) and $(4,176,433), respectively. At December 31,
1998, the Company had a working capital deficit of $(4,389,437), and an
accumulated deficit of $(15,516,733). Net cash used in operations for the years
ended December 31, 1998 and December 31, 1997 was $(4,616,757) and $(3,270,204),
respectively. Negative cash flow for each period was attributable primarily to
net losses in each of the periods and increases in accounts receivable net of
accounts payable and other current liabilities. For the years ended December 31,
1998 and December 31, 1997, the Company used $99,631 and $370,680, respectively,
for purchases of equipment.

The Company has financed certain start-up operations through the sale of
minority interest in those operations. In 1995 and 1996, approximately $665,000
was raised through a private placement of CWC, LLC Class A units. In 1997,
approximately $50,000 was raised through the sale of common stock to management
of OHS.

In August 1996, the Company completed the Bridge Financing pursuant to
which it issued (i) an aggregate of $1.1 million principal amount of secured
promissory notes (the "Bridge Notes") that bore interest at the rate of 12% per
annum, were payable upon the earlier of the closing of the IPO or June 30, 1997,
and were secured by substantially all of the Company's assets and (ii) warrants
entitling the holders to purchase that number of shares of Common Stock
determined by dividing the principal amount of the Bridge Notes by the price per
share of Common Stock offered in the IPO (the "Bridge Warrants"). The Company
agreed that the Bridge Warrants and the shares of Common Stock issuable upon
exercise of the Bridge Warrants would be included in the registration statement
for the IPO. A total of 183,333 shares of Common Stock were issuable upon
exercise of the Bridge Warrants at an exercise price of $.003 per share.
Proceeds of the Bridge Financing were used for the development of additional
Integrated Medical Centers, working capital, and general corporate purposes. The
Company also issued a warrant to purchase 3,333 shares of Common Stock to a
broker-dealer who acted as a placement agent for a portion of the Bridge
Financing. The fair value of the Bridge Warrants and broker/dealer warrants,
$5,920, was recognized as a discount on the Bridge Notes of which $3,920 was
amortized through December 31, 1996, and the balance of $2,000 in 1997.

On February 24, 1997, the Company successfully completed an initial public
offering of 1,000,000 shares of common stock and 1,000,000 redeemable common
stock purchase warrants from which it received net proceeds, after giving effect
to the underwriting discount and non-accountable expenses, of approximately
$5,281,000. The offering proceeds were received by the Company in February 1997.
In addition, the Company incurred approximately $595,000 in transaction costs in
connection with the offering.

On March 20, 1997, the underwriter exercised 36,776 redeemable common
stock purchase warrants from a possible 150,000 included in the over-allotment
option. After giving effect to the underwriting discount, the Company received
approximately $3,200 in March 1997.

On December 23, 1997, the Company completed a Bridge Financing of
$500,000. This temporary financing was used in the lease payment for the
acquisition of assets for Complete Wellness Weight Management, Inc. On January
23, 1998, the $500,000 Bridge Loan was converted to Preferred Stock (See Note 9
- - Stockholders Equity). Interest expense on this loan was $1,315 in 1997 and
$4,313 in 1998.

The Company intends to develop no fewer than 45 Integrated Medical Centers
(including the 16 for which it had agreements with chiropractors as of December
31, 1998) during 1999. The average cost to the Company to develop an Integrated
Medical Center not connected with a strategic alliance is approximately $15,000.
There can be no assurance, however, that the Company will develop the Integrated
<PAGE> 22
Medical Centers with respect to which it had agreements with chiropractors as of
December 31, 1998, will be able to identify and recruit a sufficient number of
additional chiropractors, or that the average costs to the Company to develop
Integrated Medical Centers will not be greater than those mentioned above.

The Company committed to fund future working capital requirements of
Smokenders totaling approximately $98,000, of which all amounts have been funded
through December 31, 1998. In addition, Complete Wellness Smoking Cessation,
Inc. is obligated to pay a royalty fee of 5% of total revenues to Oxford Health
Plan and $26,000 per annum to the founders of Smokenders as a result of its
acquisition of Smokenders. This obligation is payable in annual installments
over a 10 year period.

The Company has entered into employment agreements with certain key
employees which, generally, provide for continued employment through various
dates in 2000 at an aggregate annual compensation level of approximately
$550,000 (see Note 15 - Subsequent Events). In the event the employees subject
to such agreements were terminated by the Company for reasons other than "with
cause", the employees would receive 6 to 12 months compensation and benefits
upon separation. The Company has not obtained key man life insurance for
employees subject to employment agreements.

In addition, the Company has entered into various consulting agreements
which, generally, provide for payment of "finders fees" of $1,500 to $4,000 for
each chiropractic clinic identified by the consultant and integrated by the
Company subject to certain maximum amounts per consultant. Certain consulting
agreements also provide for the Company to pay royalties ranging from 1% to 10%
of gross collections at Integrated Medical Centers identified by the consultant
for periods ranging from 5 to 25 years after integration.

The Company or its subsidiaries currently have the following legal
proceedings in various stages of litigation:

Complete Wellness Centers, Inc. is currently directly involved in four
legal proceedings. The first matter is an action brought by a medical doctor
against the Company for alleged back wages owed him by the Company for work he
performed at an Integrated Medical Center in Florida. The case was tried by a
jury in March, 1999, and a verdict was entered against the Company in the amount
of $141,000, which includes $100,000 in punitive damages. The Company contests
the jury finding and has appealed the decision. The Company expects to settle
this matter favorably.

The second matter is a breach of contract action brought by a medical
billing company against the Company and one of the Integrated Medical Centers in
Florida, alleging a breach of contract and seeking damages of approximately
$14,500. The Company has answered the suit and discovery is currently underway.
The Company intends to defend the suit.

The third matter involves an action initiated by a massage therapist
against the Company for an unspecified amount of back wages back wages which the
therapist alleges is owed him. He has sued the Company and the Integrated
Medical Center for the wages, alleging an oral contract with the Company. The
Company denies that he was an employee of the Company and is vigorously
defending the action.

The fourth matter involves a suit by the former president of a Company
subsidiary, Complete Wellness Weight management, Inc., alleging breach of his
employment contract against the Company. The employee was terminated for cause
in April, 1998, and filed a breach of contract action in federal court in New
York, seeking damages under the contract. The Company intends to defend the
action and has filed an answer in the matter. Discovery is currently underway.

In addition to the matters described above, the Company's subsidiaries are
involved in the following legal matters:

Complete Wellness Weight Management, Inc. ("CWWM"), a wholly-owned
subsidiary of the Company ceased operations in December, 1998. At the time, it
vacated the various store locations which it had rented to conduct business. In
vacating the premises, CWWM had outstanding lease obligations, which
<PAGE> 23
were not guaranteed by the Company. Many of the landlords of those various
locations have brought suit against CWWM seeking to recover damages under the
leases, for past and future rent and associated charges. The Company has not
opposed those collection actions, and several such suits have proceeded to
judgment against CWWM. Although no such suits have obtained judgments against
the Company, any attempt by any such creditor of CWWM to impose any liability on
the Company will be promptly and vigorously defended by the Company. Likewise,
certain other creditors, including vendors to various CWWM facilities, have
brought collection actions against CWWM. Once again, although no such suits have
obtained judgments against the Company, any attempt by any such creditor of CWWM
to impose any liability on the Company will be promptly and vigorously defended
by the Company.

The Company is currently under a federal investigation whose ultimate
outcome can not be reasonably predicated at this time. If the Company is found
to be in violation of federal or state laws, the Company could be subject to
substantial monetary fines, civil and criminal penalties, and exclusion from
federal and state reimbursement programs. The ultimate cost to the Company to
defend itself and any settlement, fine, or penalty imposed could have a material
adverse effect on the Company's financial position, results of operations and
liquidity.

Year 2000 Issue

The Company has been and is continuing to assess the implications on its
operations of the Year 2000 issue. At December 31, 1998, the process of
evaluation the Company's services, products and internal systems was underway
and is expected to be completed by June 30, 1999. At this time, the Company is
satisfied that all of its major vendors have or are in the process of verifying
to the Company their Year 2000 compliance. The Company's internal systems have
been updated, where appropriate to accommodate Year 2000 compliance. Any actual
impact of Year 2000 compliance on the Company's future results of operations,
capital spending, and business operations is not is not expected to be material.

Net Operating Losses

At December 31, 1998, the Company and its wholly owned subsidiaries had
combined net operating loss carryforwards for income tax purposes of
approximately $3,030,000, which expire between 2010 and 2011. The Company files
a consolidated federal tax return with its wholly owned subsidiaries. CWC, LLC
is not included in this tax return. CWC, LLC is treated as a partnership for tax
purposes and its gains and losses are reflected at each member's level. Further,
CWC, LLC does not file a consolidated tax return with its subsidiaries.
Accordingly, the use of substantially all of the combined net operating loss
carryforwards will be limited to use to offset future taxable income of each
separate subsidiary in proportion to its share of the tax losses generated to
date. In addition, these carryforwards may be significantly limited under the
Internal Revenue Code of 1986, as amended, as a result of ownership changes
resulting from the Company's Preferred Stock financing and other equity
offerings. A valuation allowance of approximately $4,546,000 has been
established at December 31, 1998 to offset any benefit from the net operating
loss carryforwards, as it cannot be determined when or if the Company will be
able to utilize the net operating losses. Utilization of the net operating loss
carryforwards may be significantly limited, based on changes in the Company's
ownership.

<PAGE> 24
Seasonality

The Company believes that the patient volumes at its Integrated Medical
Centers are not significantly affected by Seasonality. However, the weight loss
subsidiary, acquired January 31, 1998, experienced significant decreases in
patient volumes of up to 50% during the summer months of June through September.

New Accounting Pronouncements

In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities". Statement No. 133 establishes accounting
and reporting standards for derivative instruments and for hedging activities.
It requires that an entity recognize all derivative as either assets or
liabilities and measure them at fair value. Under certain circumstances, the
gains or losses from derivatives may be offset against those from the items the
derivatives hedge against. The Company will adopt SFAS No. 133 in the year
ending December 31, 1999.

ITEM 7. FINANCIAL STATEMENTS

PAGE NO.

Report of Independent Auditors..................................................

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

Consolidated Statements of Operations for the Years Ended
December 31, 1997 and 1998......................................................

Consolidated Statements of Stockholders' Equity (Deficit)
for the Years Ended December 31, 1997 and 1998..................................

Consolidated Statements of Cash Flows for the Years Ended
December 31, 1997 and 1998......................................................

Notes to Consolidated Financial Statements......................................

REPORT OF INDEPENDENT AUDITORS

The Board of Directors
Complete Wellness Centers, Inc.

We have audited the accompanying consolidated balance sheet of Complete
Wellness Centers, Inc. (the "Company"), as of December 31, 1998, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
the years then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

We conducted our 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.
<PAGE> 25
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Complete Wellness Centers, Inc. at December 31, 1998 and the consolidated
results of their operations and their cash flows for the year then ended in
conformity with generally accepted accounting principles.

/s/ Amper, Politziner & Mattia P.A.

Edison, NJ
March 31, 1999
<PAGE> 26
REPORT OF INDEPENDENT AUDITORS

The Board of Directors
Complete Wellness Centers, Inc.

We have audited the accompanying consolidated balance sheet of Complete
Wellness Centers, Inc. (the "Company") as of December 31, 1997 and the related
consolidated statements of operations, stockholders' equity, and cash flows for
the year then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Complete Wellness Centers, Inc. at December 31, 1997 and the consolidated
results of their operations and their cash flows for the year then ended in
conformity with generally accepted accounting principles.

/s/ Ernst and Young, LLP

Washington, DC
March 31, 1998
<PAGE> 27
COMPLETE WELLNESS CENTERS, INC.
CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1997 1998
------------- -------------
ASSETS
<S> <C> <C>
Current Assets:
Cash and cash equivalents $804,924 $444,963
Patient receivables, net of allowance for doubtful
accounts of $3,825,708 and $6,255,238 2,758,841 5,766,369
Inventory 39,483 53,405
Prepaid expenses 42,882 9,661
Other assets 394,854 49,774
------------- -------------
Total current assets 4,040,984 6,324,172
Furniture and equipment, net 504,215 369,583
Deposits 150,000 31,983
------------- -------------
Total assets $4,695,199 $6,725,738
============= =============

LIABILITIES AND STOCKHOLDERS' EQUITY/( DEFICIT)

Current liabilities:
Accounts payable and accrued expenses $1,156,865 $6,693,321
Accrued management fees 3,117,135 4,020,288
Accrued interest 8,298 0
Advances from affiliates 154,976 0
Notes payable - current 45,433 0
------------- -------------
Total current liabilities 4,482,707 10,713,609
Convertible note payable 25,000 0
Notes payable 500,000 392,000
Minority interest 7,179 0
Stockholders' equity/(deficit):
Common Stock, $.0001665 par value per share,
10,000,000 shares authorized, 2,183,598 shares and 2,457,968 shares
issued and outstanding at December
31, 1997 and 1998 respectively 363 409
Senior Convertible Preferred Stock, $.01 par value per share,
8% cumulative, 109,686 shares currently issued and
outstanding 0 5,016,620
Additional capital 5,044,365 6,119,833
Accumulated deficit (5,364,415) (15,516,733)
------------- -------------
Total stockholders' equity/(deficit) (319,687) (4,379,871)
------------- -------------
Total liabilities and stockholders' deficit $4,695,199 $6,725,738
============= =============
</TABLE>

See accompanying notes.
<PAGE> 28
COMPLETE WELLNESS CENTERS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1997 1998
------------- -------------

<S> <C> <C>
Operating revenue:
Patient revenue $8,846,772 $17,132,388
Weight management centers 0 6,573,931
Other income 163,642 455,500
------------- -------------
Total operating revenue 9,010,414 24,161,819
Direct expenses:
Salary and consulting costs 2,886,184 7,066,208
Management fees 3,850,112 8,641,067
Cost of revenues 3,540 2,450,577
Rent 131,292 5,140,929
Advertising and marketing 76,774 963,918
Bad debt expense 3,232,111 2,656,597
------------- -------------
Total direct expenses 10,180,013 26,919,296
Network development cost 317,682 701,443
General and administrative 2,700,987 6,066,240
Depreciation and amortization 86,969 209,882
------------- -------------
Operating loss (4,275,237) (9,735,042)
Interest expense (31,041) (2,771)
Interest income 87,498 62,616
Minority interest 42,347 7,179
------------- -------------
Net loss before income taxes (4,176,433) (9,668,018)
Income taxes 0 0
------------- -------------
Net loss after income taxes ($4,176,433) ($9,668,018)
============= =============

Loss per share - basic and diluted ($1.98) ($4.41)

Weighted average common shares - basic
and diluted 2,113,096 2,301,332
</TABLE>

See accompanying notes.
<PAGE> 29
COMPLETE WELNESS CENTERS, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY/(DEFICIT)

<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK
--------------- ------------ ADDITIONAL ACCUMULATED
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT TOTAL
------ ------ ------ ------ ------- ------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996 1,350 $14 714,967 $119 $156,027 ($1,187,982) ($1,031,822)
Issuance of common stock 0 0 1,000,000 167 4,687,205 0 4,687,372
Conversion of preferred stock to common (1,350) (14) 145,800 24 (10) 0 0
Exercise of stock options for shares of
Complete Wellness Centers, Inc.
common stock 0 0 146,498 24 4,371 0 4,395
Exercise of common stock warrants of
Complete Wellness Centers, Inc.
common stock 0 0 176,333 29 5,261 0 5,290
Recognition of the granting of below
market common stock 0 0 0 0 4,511 0 4,511
Recognition of the granting of below
market common stock warrants 0 0 0 0 187,000 0 187,000
Net loss 0 0 0 0 0 (4,176,433) (4,176,433)
--------------------------------------------------------------------------------------
Balance at December 31, 1997 0 $0 2,183,598 $363 $5,044,365 ($5,364,415) ($319,687)
Issuance of common stock 0 0 70,912 13 199,987 0 200,000
Issuance of redeemable preferred stock 100,000 4,532,320 0 0 0 0 4,532,320
Exercise of stock options for shares of
Complete Wellness Centers, Inc.
common stock 0 0 68,792 11 2,379 0 2,390
Exercise of common stock warrants of
Complete Wellness Centers, Inc.
common stock 0 0 16,666 2 48 0 50
Exercise of representative warrants to
purchase Complete Wellness Centers,
Inc. warrants 0 0 0 0 1,563 0 1,563

Issued 100,000 shares of common stock, 0 0 100,000 17 374,983 0 375,000
Issued 8,000 shares of common stock, 0 0 8,000 1 19,999 0 20,000
Issued 10,000 shares of common stock, 0 0 10,000 2 38,748 0 38,750
Recognition of the granting of below
market common stock options 0 0 0 0 80,633 0 80,633
Recognition of the granting of below
market common stock warrants 0 0 0 0 357,128 0 357,128
Dividends recorded on redeemable
preferred stock 9,686 484,300 0 0 0 (484,300) 0
Net loss 0 0 0 0 0 (9,668,018) (9,668,018)
--------------------------------------------------------------------------------------
Balance at December 31, 1998 109,686 $5,016,620 2,457,968 $409 $6,119,833 ($15,516,733) ($4,379,871)
======================================================================================
</TABLE>

See accompanying notes.
<PAGE> 30
COMPLETE WELLNESS CENTERS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1997 1998
------------- -------------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss ($4,176,433) ($9,668,018)
Adjustments to reconcile net loss to net
cash used in operating activities:
Minority interest (42,347) (7,179)
Depreciation and amortization 89,245 216,197
Provision for bad debt 3,232,111 2,656,597
Provision for loss on long lived assets 0 18,066
Amortization of debt discount 2,000 0
Recognition of compensatory granting
non-qualified stock options 4,511 0
Recognition of the issuance of common
stock warrants and options 187,000 873,074
Issuance of stock for LLC units 0 200,000
Changes in operating assets and liabilities:
Accounts receivable (5,450,508) (5,664,125)
Advances to officers and other
current assets (399,964) 327,420
Deferred taxes (8,241) 0
Accounts payable and other current liabilities 3,292,422 6,431,211
------------- -------------
Net cash used in operating activities (3,270,204) (4,616,757)
INVESTING ACTIVITIES
Investment in Complete Wellness Weight Management (150,000) 0
Purchase of equipment (370,680) (99,631)
Investment in Smokenders (50,000) 0
------------- -------------
Net cash used in investing activities (570,680) (99,631)
FINANCING ACTIVITIES
Proceeds from bridge notes and warrants 500,000 0
Repayment of notes 0 (178,333)
Payment of bridge loan (1,100,000) 0
Stock issuance costs incurred 0 (467,680)
Proceeds from sale of preferred stock 0 5,000,000
Proceeds from sale of common stock 4,687,205 0
Proceeds from notes payable 200,409 0
Investment of minority stockholders in CWIPA 50,000 0
Exercise of warrants 5,290 50
Exercise of stock options 4,395 2,390
------------- -------------
Net cash provided by financing activities 4,347,299 4,356,427
------------- -------------
Net increase in cash and cash equivalents 506,415 (359,961)
Cash and cash equivalents at beginning
of year 298,509 804,924
------------- -------------
Cash and cash equivalents at end of year $804,924 $444,963
============= =============
</TABLE>
See accompanying notes.
<PAGE> 31
COMPLETE WELLNESS CENTERS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997 AND 1998

1. LIQUIDITY

The consolidated financial statements of Complete Wellness Centers, Inc.,
(the "Company") have been presented on the basis that the Company is a going
concern, which contemplates the realization of assets and the satisfaction of
liabilities in the normal course of business. For the year ended December 31,
1998, the Company had recurring loss from operations of $9,668,018, negative
working capital of $4,389,437 and a net capital deficiency of $4,379,871.

It is the Company's intention to seek additional equity funding through a
best efforts private placement, which is currently underway, and to seek a firm
underwriting commitment for a secondary offering in the second half of 1999.
The Company believes that through continued cost cutting efforts currently
underway and its fund raising efforts as described above that sufficient
working capital will be available for the operations of the Company for the
next twelve months.

2. ORGANIZATION AND PRESENTATION

The Company was incorporated in Delaware in November 1994. The Company
develops and operates integrated medical delivery systems with a goal of
providing consumers with a comprehensive integrated wellness model of care. The
current primary operations are integrated medical centers. The Company also
operates a smoking cessation program and previously operated a medical billing
company and a weight loss program, and is developing an integrated delivery
network through out the United States.

Integrated Medical Center Model

The Company's integrated medical centers are generally developed and
operate under agreements whereby the Company will open new Integrated Medical
Centers in the same location as chiropractors' existing chiropractic practices
(the "Affiliated Practices"). The Integrated Medical Centers will employ a
physician (the "MD") on a salaried basis to supervise the provision of health
care services. Where permitted by state law, the Integrated Medical Centers will
be wholly owned by the Company. In other jurisdictions, the Integrated Medical
Centers will be wholly owned by a nominee MD and managed by the Company. The
chiropractor will continue to operate his or her existing Affiliated Practice
separately from the Integrated Medical Center. The Company will not acquire the
Affiliated Practice, its patient base, or its tangible assets. In addition, no
consideration will be paid to the chiropractor at inception of the arrangements.
As of December 31, 1998 the Company had integrated 84 centers.

3. SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation

The consolidated financial statements reflect the accounts of Complete
Wellness Centers, Inc., which includes 28 wholly owned subsidiaries, and 56
managed Integrated Medical Centers, CWC, LLC, Complete Wellness Weight
Management ("CWWM"), Complete Wellness Research Institute, Complete
<PAGE> 32
Wellness Education, Inc., Complete Billing Inc., and its majority owned
subsidiaries, Complete Wellness Smoking Cessation, Inc. (88.23%), and Optimum
Health Services (86.67%). Complete Wellness Weight Management ceased operations
in December 1998, Optimum Health Services ("OHS") was sold to the management of
OHS in November 1998 and Complete Billing ceased operations in August 1998.
Operational activities through these dates are consolidated in the Company's
applicable financial statements. Significant inter-company transactions have
been eliminated. The financial statements of the integrated medical centers that
are controlled but not directly owned by the Company are consolidated in the
Company's financial statements in accordance with the FASB's Emerging Issues
Task Force consensus 97-2 "Application of APB Opinion No, 16 and FASB Statement
No. 94 to Medical Entities." The Company has recorded the net equity of any
individuals holding a minority percentage as minority interest, if their
original investments (basis) has not been previously eliminated.

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 amounts reported in the financial statements and
accompanying notes. The more significant areas, requiring the use of management
estimates, relate to allowance for uncollectible patient accounts receivable and
accrued lease obligations. Actual results could differ from those estimates.

Cash and Equivalents

The Company considers cash and cash equivalents to include currency on
hand, demand deposits, and all highly liquid investments with a maturity of
three months or less at the date of purchase.

Inventory

Inventory is recorded at the lower of cost, using the average cost method
or net realized value.

Furniture and Equipment

Furniture and equipment are recorded at cost. Maintenance and repairs are
charged to expense as incurred. Depreciation is computed using the straight-line
method at rates intended to amortize the cost of the related assets over their
estimated useful lives.

Furniture and equipment of the Company are reviewed for impairment
whenever events or circumstances indicate that the asset's undiscounted expected
cash flows are not sufficient to recover its carrying amount. The Company
measures an impairment loss by comparing the fair value of the asset to its
carrying amount. Fair value of an asset is calculated as the present value of
expected future cash flows.

Revenue

Patient revenue from services is reported at the estimated realizable
amounts from patients and third party payors for services rendered.
Substantially all of the patient service revenue of the Integrated Medical
Centers is paid by the patients and traditional commercial insurers. The
Integrated Medical Centers do not currently have any HMO contracts.

The Company's Integrated Medical Centers provide certain patient services
at discounted rates based on the patients' demonstration of financial hardship
and need for the services rendered. The amount of discount is based on the level
of demonstrable hardship on a case by case basis. The Company and its Integrated
Medical Centers are under no obligation to provide such services but do so as a
community service. Patient revenues related to such services are recognized net
of discounts allowed in the accompanying financial statements. The Company does
not measure the level of such services provided.

Income Taxes
<PAGE> 33

Income taxes are provided using the liability method. Deferred tax assets
and liabilities are recognized for the future tax consequences attributable to
differences between the financial statements carrying amounts of existing assets
and liabilities and their respective tax bases (i.e., temporary differences).

Stock-Based Compensation

The Company grants stock options for a fixed number of shares to employees
and certain consultants. The Company has elected to continue to account for
stock-based compensation arrangements under APB Opinion No. 25 "Accounting for
Stock Issued to Employees," and accordingly recognizes compensation expense for
the stock option grants as the difference between the fair value and the
exercise price at the grant date. The pro forma information required by FASB
Statement No. 123, "Accounting for Stock-Based Compensation," which provides a
fair-value-based method of accounting alternative to account for stock-based
compensation issued to employees and consultants has been disclosed in Note 9.

In addition, the SEC staff issued Staff Accounting Bulletin No. 98 ("SAB
98"), issued by the SEC staff in February 1998. SAB 98 requires that registrants
in initial public offerings consider all potentially dilutive securities issued
for nominal consideration outstanding for all periods. Under the previous SEC
regulations in SAB 83, the Company considered all potentially dilutive
securities issued within a twelve month period prior to the initial public
offering date at a price below the initial public offering price as outstanding
for all periods.

Fair Value of Financial Instruments

Management has determined the estimated fair value of financial
instruments using available market information and valuation methodologies. Cash
equivalents, accounts receivable, accounts payable, notes payable and accrued
liabilities and other current assets and liabilities are carried at amounts
which reasonably approximate their fair values. Considerable judgment is
necessary to interpret market data and develop estimated fair value.
Accordingly, the estimates presented herein are not necessarily indicative of
the amounts the Company could realize on disposition of the financial
instruments. The use of different market assumptions or estimation methodologies
may have an effect on the estimated fair value amounts.

Concentration of Cash Balances

Periodically, the Company maintains cash balances in excess of the
$100,000 insured by the Federal Deposit Insurance Corporation (FDIC).

Net Income Per Share

Financial Accounting Standards Board Statement No. 128, Earnings Per
Share, replaced the calculation of primary and fully diluted earnings per share
with basic and diluted earnings per share. Unlike primary earnings per share,
basic earnings per share excludes the dilutive effects of options, warrants and
convertible securities. Diluted earnings per share is very similar to the
previously reported fully diluted earnings per share. In addition, the SEC staff
issued Staff Accounting Bulletin No. 98 ("SAB 98"), in February 1998. SAB 98
requires that registrants consider all potentially dilutive securities issued
for nominal consideration outstanding for all periods. Under the previous SEC
regulations in SAB 83, the Company considered all potentially dilutive
securities issued within a twelve month period prior to the initial public
offering date at a price below the initial public offering price as outstanding
for all periods. All earnings per share amounts for all periods have been
presented, and where appropriate, restated to conform to the Statement 128 and
SAB 98 requirements. The effect on weighted average shares outstanding of
securities that could potentially dilute basic earnings per share in the future
were not included in the computation of diluted earnings per share because to do
so would have been antidilutive for the periods presented.

New Accounting Pronouncements
<PAGE> 34

Reclassifications

Certain reclassifications have been made to conform prior year amounts to
the current year presentation.

4. ACQUISITIONS/DISPOSALS

Acquired Medical Centers

In June 1997, CWC, LLC acquired the assets of Complete Wellness Medical
Center of Paula Drive, Inc., one of its affiliated Integrated Medical Centers,
in exchange for forgiveness of $35,000 of debt and all the assets of the clinic
Complete Wellness Medical Center of Dunedin.

Smokenders

On July 31, 1997, a subsidiary of the Company acquired substantially all
of the assets of a smoking cessation program owned by the Oxford Health Plan
(Smokenders) for $50,000. The operating results of Smokenders have been
reflected in the accompanying financial statements since acquisition. The
acquisition is subject to two royalty arrangements, a 5% royalty on gross
revenues for a 10 year period to Oxford Health Plan and 12.4% of revenues with a
minimum of $26,000 to the founders of Smokenders. At the same time, the CEO of
Smokenders, who is also a Director of the Company, acquired an 11.77% minority
interest in Smokenders from the Company in return for a $22,000 promissory note
bearing interest at 8%, due September 30, 2000. The transaction was accounted
for as a purchase. The net purchase price has been allocated for accounting
purposes to the assets acquired, primarily the inventory of printed materials.

On June 1, 1998, the Company amended certain agreements with its Complete
Wellness Smoking Cessation, Inc. ("Smokenders") subsidiary. During September
1998, the Company contributed to Smokenders $23,000 as additional capital and
$75,000 in return for a secured note bearing interest at 12%, payable on or
before September 30, 1999. Additionally, the Company eliminated $22,000 of
promissory notes due from the CEO of Smokenders, as part of the original
shareholder agreement. On September 15, 1998, the CEO resigned his position
however, he remains a Board Member of the Company. The Company also agreed to
grant the managers of Smokenders up to an additional 3,000 options to purchase
Smokenders stock, 1,500 of which vested at the grant date and 1,500 of which are
subject to time vesting schedules through August 1, 1999. All options are
exercisable for 5 year periods, contain anti-dilution provisions, and are not
exercisable until January 1, 2000, except under certain circumstances. The
exercise of these options will result in the managers having 35% of the
outstanding shares of Common Stock and the Company having 65% of the outstanding
shares of Common Stock of Smokenders. All shares are non-public restricted
securities exempt from regulation requirements of the Securities Act of 1933 as
amended. The shareholders of Smokenders have certain put and call options as
well as non-mandatory repurchase options and liquidation requirements in the
event selling shareholders are not able to obtain buyers for their stock.

Nutri/Systems

On January 31, 1998, CWWM completed the acquisition of 56 weight loss
treatment centers from Nutri/system, L.P. The centers marketed, in a retail
setting, food, medically supervised weight loss programs and nutritional
supplements. The purchase price of the centers included $150,000 in cash and the
<PAGE> 35
assumption of certain lease liabilities and other acquisition costs of
approximately $700,000. The transaction was accounted for as a purchase. The
purchase price, including acquisition costs has been allocated for accounting
purposes to the assets acquired, primarily food inventory.

On November 13, 1998, the Company's Board of Directors voted to exit the
operations of CWWM. The Company does anticipate continuing to offer the
Nutri/System weight loss program through its Integrated Medical Centers and
Internet web site. CWWM commenced operations on February 1, 1998 and realized
losses from operations of approximately $5,974,000 on revenues of approximately
$6,573,000 for the period ended December 31, 1998. The costs to exit this
activity are estimated to be approximately $3,355,000.

Complete Wellness Centers, LLC

On May 29, 1998 the Company, by unanimous consent of the Board of
Directors, agreed to purchase all of the outstanding units of Complete Wellness
Centers, LLC ("CWC,LLC"), a Delaware limited liability company, of which the
Company has a 1% equity interest and irrevocable proxies from a majority of
interest holders in the LLC. The acquisition was accomplished by the granting of
77,821 shares of Common Stock (of which 70,912 were issued in 1998) valued at
$200,000, based upon the average closing bid price of the Company's Common
Stock for the thirty (30) trading days prior to June 1, 1998. Such shares are
subject to SEC Rule 144, but shall have piggyback registration rights. Former
and current employees, directors, and immediate relatives of management, owning
37.6% of the LLC's equity received a discount to 26.32% of the $200,000
valuation of the LLC; the remaining investors received the balance of the
valuation on a pro rata basis in accordance with their respective investments.
The amount was expensed during 1998.

Accident and Industrial Injury Associates (See Note 15 - Subsequent Events,
Regarding the Board's Decision to Rescind this Transaction)

In July 1998, the Company purchased Accident and Industrial Injury
Associates ("AIIA"), a chiropractic preferred provider network of approximately
2,700 providers located throughout the United States in exchange for warrants to
purchase 20,000 shares of its common stock for $3.31 per share which expire in 5
years and contain certain piggyback registration rights. The Company accounted
for this transaction under the purchase method. The primary assets acquired were
members of the network and databases related to the operations thereof. The
Company contemporaneously sold 30% of its interest in AIIA to its 86.67% owned
subsidiary, Optimum Health Services, Inc. ("OHS") in exchange for a $12,000 note
bearing interest at 6.1% per annum, due January 31, 2000. OHS will manage the
network on behalf of the Company and receive an additional 20% interest in AIIA
over three years as compensation for such services. The Company has committed to
fund the initial working capital requirements of AIIA, up to approximately
$10,000, after which, the Company and OHS will fund all future working capital
requirements equally.

As a result of a revised spin off plan with OHS, as amended on November
3,1998, the Company agreed to sell OHS an additional 25% of AIIA for an
additional $6,000 note bearing interest at 6.1% pre annum. The amended agreement
established the new company, Optimum Preferred Provider Organization ("OPPO"),
with is owned initially as to 55% OHS and 45% to the Company. OHS was to manage
the network and will receive an additional 20% interest in OPPO over three years
as compensation for such services at which time OHS will own 75% of OPPO.

Complete Billing, Inc.

On July 7, 1998, the Company committed to a formal plan to exit the
operations of Complete Billing, Inc. ("CBI") one of its wholly owned
subsidiaries. The Company ceased CBI's operations on August 15, 1998 and
converted all billing performed by CBI back to the respective medical clinics
that were CBI's clients. The Company does not expect to incur any further
expenses as a result of closing CBI.

CBI initiated operations in May 1997. During the year ending December 31,
1997, CBI had losses from operations of approximately $9,600 on revenues of
approximately $84,000. For the period ended
<PAGE> 36
December 31, 1998, CBI had losses from operations of approximately $75,000 on
revenues of approximately $91,000.

Optimum Health Services, Inc.

The Company's formal plan to divest its 86.67% interest in OHS, as amended
on November 3, 1998 was to spin-off the Company's interest in OHS to the
management of OHS. Under the plan, the Company converted its investment in OHS
into 266,736 OHS ten-year warrants at an exercise price of $0.01 per share. The
warrants can not be exercised prior to one year and not in an amount at any time
such that the Company's ownership of OHS's common stock would be greater than
49% of the total OHS common stock outstanding. The current value recorded by the
Company in relation to the 266,736 OHS warrants is zero.

OHS initiated operations in May 1997. During the year ended December 31,
1997, OHS had losses from operations of approximately $318,000 with no revenues.
For the eleven months ended November 30, 1998, OHS had losses from operations of
approximately $701,000 with approximately $19,000 in revenues.

5. ALLOWANCE FOR DOUBTFUL ACCOUNTS

Details of the allowance for doubtful accounts receivable are as follows:

December 31,
------------
1997 1998
---- ----
<S> <C> <C>
Beginning Balance $143,422 $3,825,708
Bad debt expense 3,232,111 2,656,597
Provision for third party allowances and adjustments 450,175 --
Recoveries -- (227,067)
---------------------------------
Ending Balance $3,825,708 $6,255,238
=================================

</TABLE>

6. FURNITURE AND EQUIPMENT

Furniture and equipment consists of the following:

December 31,
------------
1997 1998
---- ----
<S> <C> <C>
Furniture and Equipment (5 year life) $638,084 $706,208
Less Accumulated Depreciation and Amortization (133,869) (336,625)
---------------------------------
$504,215 $369,583
=================================
</TABLE>

7. DEBT

Note Payable

The Company, entered into a financing agreement, with Wexford Spectrum
Investors, LLC and Imprimis Investors, LLC. The agreement provides a $350,000
revolving line of credit and an acquisition financing of $125,000. At December
31, 1998 the Company had used the entire line of credit $350,000 and $42,000 of
the clinic acquisition financing commitment. The note accrues interest at 12%
per annum and is payable in full on March 31, 2000.

1997 Bridge Note
<PAGE> 37
The Company, as part of new financing (See Note 9 - Stockholders Equity),
received $500,000 as a Bridge Loan on December 19, 1997. This note bears
interest at 12% and was converted into Preferred Stock on January 23, 1998. The
note, along with an additional investment of $4,500,000 was converted into
100,000 shares of 12% convertible Preferred Stock.

8. INCOME TAXES

Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amount of assets and liabilities for financial reporting
purposes and the amount used for income tax purposes. The tax effects of
temporary differences that give rise to significant portions of the deferred tax
assets and deferred tax liabilities recognized as of December 31, 1997 and 1998
are presented below:

<TABLE>
<CAPTION>
December 31,
------------
1997 1998
---- ----
<S> <C> <C>
Deferred tax assets:
Start-up costs $10,138 $21,000
Nonqualified stock options 11,448 314,000
Bad debt expense 388,168 2,252,000
Operating loss carryforward 1,174,844 1,090,000
Accrued exit of activity costs - 880,000
---------------------------------
Total deferred tax assets 1,584,598 4,557,000
Less valuation allowance (1,579,770) (4,546,000)
---------------------------------
Net Deferred tax assets 4,828 11,000
---------------------------------
Deferred tax liabilities:
Depreciation (4,828) (11,000)
---------------------------------
Total deferred tax liabilities (4,828) (11,000)
---------------------------------
Net deferred tax amount $0 $0
=================================
</TABLE>

The Company files a consolidated federal tax return with its wholly owned
subsidiaries. At December 31, 1998, the Company had net operating loss
carryforwards for income tax purposes of approximately $6,820,000 which expire
between 2010 and 2011. Utilization of net operating loss carryforwards may be
significantly limited, based on changes in the Company's ownership. The use of
substantially all of the combined net operating loss carryforwards of CWC, LLC
will be limited to offset future taxable income of each separate subsidiary in
proportion to their share of the tax losses generated to date. In addition,
these carryforwards may be significantly limited under the Internal Revenue Code
as a result of ownership changes resulting from the Company's redeemable
convertible Preferred Stock financing and other equity offerings.

The Company has a cumulative pretax loss for financial reporting purposes.
Recognition of deferred tax assets will require generation of future taxable
income. There can be no assurance that the Company will generate earnings in
future years. Therefore, the Company established a valuation allowance on
deferred tax assets of approximately $1,580,000 and $4,546,000 as of December
31, 1997 and 1998, respectively.
<PAGE> 38
Significant components of the provision for income taxes are as follows
for the years ended:

December 31,
------------
1997 1998
---- ----
<S> <C> <C>
Current:
Federal $0 $0
State 0 0
-------------------------------
Total Current 0 0

Deferred:
Federal (928,516) (2,453,000)
State (193,662) (513,000)
Increase in valuation allowance 1,122,178 2,966,000
-------------------------------
Total deferred 0 0
-------------------------------
Total provision for income taxes $0 $0
===============================
</TABLE>

The effective tax rate on income before income taxes varies from the
statutory federal income tax rate for the years ended December 31, 1998 and 1997
as follows:

December 31,
------------
1997 1998
---- ----
<S> <C> <C>
Statutory rate (34%) (34%)
State taxes, net (3%) (3%)
Other differences, net 1% 1%
Valuation allowance 36% 36%
---------------------------
0% 0%
===========================
</TABLE>
9. STOCKHOLDERS EQUITY

Initial Public Offering

On February 24, 1997, the Company closed on its Initial Public Offering.
At this time, 1 million shares of Common Stock, par value $0.0001665, and 1
million redeemable common stock purchase warrants were sold on a public market
for $6.00 per share and $0.10 per warrant, respectively. Net proceeds to the
Company after expenses of the Offering were $4,965,000. In conjunction with the
offering, all of the Series A (at that time) Preferred Stock then outstanding
was converted into 145,800 shares of Common Stock and the Company repaid the
principal plus accrued interest relating to the 1996 Bridge Financing Notes.

Warrants

The Company issued one warrant for each common share sold in connection
with its initial public offering. The warrants are exercisable at any time
commencing August 19, 1997 until February 18, 2002 at $7.20 per share. The
warrants are subject to adjustment in accordance with the certain anti-dilution
commitments and other provisions.

Sale of Senior Convertible Preferred Stock

The Senior Redeemable Preferred Stock was issued to two investment groups
(the "investors") pursuant to the terms of the investment agreement dated
January 23, 1998 and amended July 2, 1998. The
<PAGE> 39
offering consisted of a $500,000 13% Bridge Loan (the "Bridge Loan") received by
the Company on December 16, 1997, a $1,000,000 Senior Redeemable Preferred Stock
purchase by the Investors on January 17, 1998, of which $500,000 was used to
retire the Bridge Loan and a $4,000,000 Senior Redeemable Preferred Stock
purchase by the Investors on January 23, 1998. On July 2, 1998, the Senior
Redeemable Preferred Stock was exchanged for Senior Convertible Preferred Stock.

The cost of the offering to the Company, approximately $468,000, was paid
out of the proceeds of the Senior Redeemable Preferred Stock offering.

The significant provisions of the for Senior Convertible Preferred Stock
are as follows:

(I) The Senior Convertible Preferred Stock accrues dividends at 8% per annum
if paid in cash and 10% per annum if paid in the form of additional Senior
Convertible Preferred Stock. Dividends are payable quarterly. Dividends in
the form of additional Senior Convertible Preferred Stock were paid March
31, 1998, June 30, 1998, September 30, 1998 and December 31, 1998.

(II) The Senior Convertible Preferred Stock's liquidation preference is
calculated as $50 per share plus an amount equal to all dividends (whether
or not earned or declared) accumulated and unpaid to the date of final
distribution.

(III) Conversion of the Senior Convertible Preferred Stock is based on the
liquidation preference divided by the lower of $1.75 or 75% of the average
market price per share of the Company's Common Stock on the 20 trading
days immediately prior to the conversion date, subject to certain anti-
dilution provisions. Conversion of the Senior Convertible Preferred Stock,
at the option of the Investors, can occur at any time on or after
January 3, 1999 or, if the Company is unable to obtain a shareholder
approval to increase its authorized shares of Common Stock to 50,000,000
from 10,000,000 shares, at any time after August 31, 1998 (shareholder
approval was obtained on August 11, 1998).

(IV) The Senior Convertible Preferred Stock is redeemable, at the Company's
option, in whole but not in part, from July 2, 1998 through January 3,
1999 at the liquidation preference, except that the dividend rate shall be
12% per annum.

(V) Warrants issued to the Investors in connection with the Senior Redeemable
Preferred Stock were returned to the Company and canceled.

(VI) The Company issued 100,000 fully paid for and non-assessable shares of the
Company's Common Stock to the Investors. All common stock issued or
issuable to the Investors upon conversion of the Senior Convertible
Preferred Stock contain certain demand registration rights, the Company
will bear the costs associated with the registrations if any.
<PAGE> 40
10. STOCK OPTION PLAN

The Company has stock option plans providing for the grant of incentive
and non-qualified stock options to employees, directors, consultants and
advisors. Pursuant to the Plans, 950,000 shares of Common Stock have been
reserved for issuance. At December 31, 1998 the following options have been
granted:

<TABLE>
<CAPTION>
Number of
Options/ Exercisable
Warrants at Exercise
Date of Grant Granted 12/31/98 Price Fair Value
- -------------

<S> <C> <C> <C> <C>
Employee Options:
- -----------------
December 1, 1995 36,667 0 $0.0300 $0.0100
January 1, 1996 56,667 0 $0.0300 $0.0300
March 1, 1996 40,000 13,333 $0.0300 $0.0400
March 18, 1996 1,500 0 $0.0300 $0.0400
April 1, 1996 116,667 0 $0.0300 $0.0400
May 30, 1996 1,000 0 $0.0300 $0.0500
June 14, 1996 1,000 0 $0.0300 $0.0600
June 15, 1996 1,000 0 $0.0300 $0.0600
August 26, 1996 46,667 16,660 $0.6000 $0.6000
September 23, 1996 5,000 3,333 $4.5000 $0.0600
April 6, 1997 157,000 142,198 $3.3750 $0.8433
July 25, 1997 89,733 30,284 $4.3750 $1.0932
July 28, 1997 32,510 7,922 $4.8125 $1.2025
August 6, 1997 7,500 3,750 $3.7500 $0.9370
January 6, 1998 9,500 4,750 $2.2500 $1.2111
February 17, 1998 7,000 2,335 $2.5625 $1.3793
March 30, 1998 5,000 5,000 $2.5000 $1.3457
April 13, 1998 15,000 0 $2.2500 $1.2111
May 26, 1998 22,500 11,250 $2.8125 $1.5139
June 16, 1998 10,000 0 $3.3750 $1.8166
July 2, 1998 79,237 0 $3.0300 $1.6309
July 6, 1998 10,000 0 $3.0300 $1.6309
August 24, 1998 3,000 0 $3.0000 $1.6148
September 2, 1998 16,500 6,750 $2.8750 $1.5475
November 3, 1998 10,500 0 $4.2500 $2.2876
November 13, 1998 4,000 0 $4.3130 $2.3215

Non-Employee Options:
- ---------------------

December 1, 1995 4,333 0 $0.0300 $0.0040
January 19, 1996 23,333 0 $0.0300 $0.0100
January 31, 1996 50,000 35,000 $0.0300 $0.0100
May 1, 1996 13,332 10,666 $0.0300 $0.0300
July 1, 1996 5,000 5,000 $0.6000 $0.0200
September 12, 1996 16,667 11,111 $4.5000 $0.4800
September 26, 1996 6,667 6,667 $4.5000 $0.4800
November 1, 1996 11,000 3,667 $4.5000 $0.4800
</TABLE>
<PAGE> 41

<TABLE>
<S> <C> <C> <C> <C>
February 24, 1997 8,000 5,333 $6.0000 $1.4992
March 28, 1997 10,000 10,000 $3.7500 $0.9370
April 29, 1997 15,000 4,000 $3.3800 $0.8445
May 15, 1997 2,000 0 $3.3750 $0.8433
May 16, 1997 15,000 0 $3.3750 $0.8433
July 25, 1997 18,600 8,799 $4.3750 $1.0932
July 28, 1997 17,490 8,744 $4.8125 $1.2025
July 2, 1998 12,753 0 $3.0300 $1.6309
August 1, 1998 7,500 3,750 $3.0625 $1.6484
</TABLE>

Options generally vest 33 1/3% each year beginning on the anniversary of
the grant date. During 1997, 3,333 of the 1996 incentive options were forfeited
and 20,000 of the non-qualified options were forfeited. During 1998, 74,980 of
the 1996, 20,000 of the 1997 and 25,000 of the 1998 granted incentive options
were forfeited and 0 of the 1996, 17000 of the 1997 and 0 of the 1998
non-qualified options were forfeited. The weighted average remaining contractual
life of the options outstanding at December 31, 1998 is 3.63 years. The weighted
average price of exercisable options at December 31, 1998 was $2.94.

The Company has elected to follow Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" (APB 25), and related
Interpretations in accounting for its employee stock option because, as
discussed below, the alternative fair value accounting provided for under FASB
Statement No. 123, "Accounting for Stock Based Compensation," requires use of
option valuation models that were not developed for use in valuing employee
stock options. Under APB 25's intrinsic value method, compensation expense is
determined on the measurement date, that is the first date on which both the
number of shares the employee is entitled to receive and the exercise price, if
any, are known. Compensation expense is measured based on the award's intrinsic
value of the excess of the market price of the stock over the exercise price on
the measurement date. The Company has recorded $462 and $80,633 of compensation
expense and $4,049 and $0 of consulting expense related to stock options granted
below market value as of December 31, 1997 and 1998, respectively. Additionally,
the Company has recorded consulting expense of $187,000 and $357,128 as of
December 31, 1997 and 1998, respectively as a result of the granting of Common
Stock warrants during the years then ended.

Had compensation costs for the Company's stock option plan been determined
based on the fair value at the date of grant for the awards in 1998 consistent
with the provisions of SFAS 123, the Company's net loss and loss per
share-diluted would have been as indicated below:

<TABLE>
<CAPTION>
1997 1998
---- ----
<S> <C> <C>
Net loss - as reported ($4,176,433) ($9,668,018)
Net loss - pro forma ($4,314,674) ($9,698,389)
Loss per share - as reported ($1.98) ($4.41)
Loss per share - pro forma ($2.04) ($4.43)
</TABLE>

For the purposes of the pro forma disclosures, the estimated fair value of
the options is amortized to expense over the options' vesting period.

The fair value of each option grant is estimated on the date of grant
using the "Black Scholes" option-pricing model with the following
weighted-average assumptions for 1998 and 1997: risk free interest of 5.75%;
expected life of the option of 5 years; and a zero dividend yield; volatility
.55. The weighted average fair value of options granted during 1998 and 1997 was
$1.60 and $0.96, respectively.

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.
<PAGE> 42
11. LEASE ARRANGEMENTS

The Company leases its corporate office space in Washington DC for use as
its corporate offices. The space consists of approximately 9000 square feet at a
cost of $10,000 per month. It is the Company's intention to use approximately
3000 square feet of the space and sublet the remainder. In January 1999, the
Company sublet approximately 2,500 square feet for $2,750 per month. The
Company's agreement is for seven years and any sublet of the Company's space
will be for seven years.

The Company leases approximately 2,000 square feet of office space in West
Palm Beach, FL for Complete Wellness Medical Centers, Inc. The lease is on a
month to month basis and costs approximately $2,100 per month. The Company's
weight loss subsidiary surrendered a lease on its administrative office space in
Trevose, PA in December 1998.

The Company leases substantially all its equipment including furniture,
fixtures and computers under various operating leases at a cost of approximately
$8,000 per month. The following table sets forth the Company's lease obligations
for each of the next five years and a lump sum balance for the remainder of all
the leases as of December 31, 1998:

<TABLE>
<S> <C>
1999 $241,000
2000 220,000
2001 250,000
2002 261,000
2003 261,000
Thereafter 165,000
-------------
Total Minimum Obligations $1,398,000
</TABLE>

The Company's weight loss subsidiary has lease arrangements with landlords
at each of its clinic locations. At December 31, 1998 the majority of the leases
were either in default or the subsidiary had judgments rendered against it for
delinquent lease payments. All weight loss center leases have been surrendered
to the respective landlords. The Company is endeavoring to settle all
outstanding amounts on a case by case basis. At December 31, 1998 the Company
had a provision for these lease obligations of approximately $2,400,000.

12. NET LOSS PER COMMON SHARE

The following table sets forth the computation of basic loss per share:

<TABLE>
<CAPTION>
1997 1998
---- ----
<S> <C> <C>
Weighted average common shares
Outstanding 1,703,808 1,892,045
Shares issued for nominal consideration
Prior to the Initial Public Offering 409,287 409,287
------------ ------------
2,113,095 2,301,332
Loss allocable to common shareholders ($4,176,433) ($9,668,018)
Basic loss per share ($1.98) ($4.41)

</TABLE>

During 1997 and 1998 options and warrants to purchase 306,107 and 249,558
of the Company's common stock, whose exercise price exceeded that of the average
market price during the year were excluded from the above calculation because of
the anti-dilutive effect their inclusion would have on loss per share.

13. RELATED PARTY
<PAGE> 43
In August 1996, the Company entered into a consulting agreement with
J.E.M, Inc. (JEM), the sole stockholders of which are Dr. Kaplan, the Company's
President and Chief Operating Officer, and his wife. Under the terms of the
consulting agreement, JEM agreed to provide advice and assistance to the Company
in connection with identifying and affiliating with chiropractors and their
existing chiropractic practices and identifying, acquiring, and/or managing
businesses engaged in providing services ancillary to those provided by
Integrated Medical Centers. The Company agreed to pay JEM $6,000 per month for
its services. The consulting agreement expires in August 1999 and may be
terminated sooner by mutual agreement of the parties, by the Company for
"cause," defined as a violation by JEM of any material provision of the
consulting agreement not remedied within 30 days after notification or JEM's
conviction of a felony, upon termination of the employment agreement between Dr.
Kaplan and the Company, or by JEM's failure to meet certain performance goals.
(See Note 15 - Subsequent Events)

In January 1998, the Company entered in an agreement with Stratus
Services, Inc ("Stratus"), an employee leasing and payroll company for the term
of one year, which is annually renewable. Under the terms of the agreement,
Stratus will provide the Company with leased employees and payroll services at
all the Company's locations, both at the parent and subsidiary levels. Two of
the principles of Stratus are Joe Raymond, Sr. and Jeff Raymond, who are the
father and brother respectively of Joseph Raymond, Jr. The Company believes that
the services provided by Stratus are at least as favorably priced as any other
company providing such services which the Company may contract with. (See Note
15 - Subsequent Events)

In August 1998 the Company entered into a consulting agreement with RVR
Consulting, Inc. ("RVR") for the term of August 1, 1998 through July 31, 1999.
The Company agreed to pay RVR $7,000 per month plus expenses to help the
Company identify problem areas in its operations and provide subsequent
solutions. Two of the principles of RVR are Joseph Raymond, Jr. and Sergio
Vallejo, who are also members of the Company's Board of Directors. (See Note 15
- - Subsequent Events)

14. CONTINGENCIES

Federal Investigation

Revenues from all Federal programs accounted for approximately 3% and 5%,
respectively, of the Company's net patient service revenues for the year ended
December 31, 1997 and 1998. Laws and regulations governing the Medicare and
Medicaid programs are complex and subject to interpretation. In November 1997
federal agents served search warrants and subpoenas on the Company and four of
its subsidiaries and affiliates. Company records and files were seized. If the
government review finds wrongdoing, the Company would be subject to significant
regulatory action including fines, penalties, and possible exclusion from the
Medicare and Medicaid programs. Any such action would be material to the
financial position of the Company and could have a materially adverse effect on
the results of operations and cash flows of the Company. The Company is not
currently aware of any pending or threatened allegations of potential wrongdoing
as a result of the investigation. Further, the Company believes that it is
substantially in compliance with all applicable laws and regulations.

Professional Liability

The Company has obtained an insurance policy that, subject to certain
conditions, provides both it and its subsidiaries medical malpractice insurance
and managed care errors and omissions insurance retroactive to the Integration
Dates of the Company's current Integrated Medical Centers and, one former
Integrated Medical Center. The policy provides coverage for $1,000,000 per claim
per Integrated Medical Center, subject to an aggregated limit of $3,000,000 per
Integrated Medical and Weight Loss Centers per year. The policy will also cover
the Company with respect to Integrated Medical Centers as they are opened. There
is no deductible under the policy.

The foregoing policy is a "claims made" policy. Thus, it provides coverage
for covered claims made during the policy's term but not for losses occurring
during the policy's term for which a claim is made subsequent to the expiration
of the term. Based on experience to date of the medical professionals
<PAGE> 44
employed, it is believed that potential losses on any claims incurred but not
reported would not be material to the Company's financial position.

Consulting Agreements

The Company has a consulting agreement (the Kats Agreement) with Kats
Management, LLC (Kats Management), a company that has represented to the Company
that it provides management and consulting services to over 600 chiropractic
clinics. Under the Kats Agreement, Kats Management agreed to advise and assist
the Company in (i) identifying and negotiating with chiropractors and their
existing chiropractic practices with which the Company might affiliate for the
purpose of developing additional Integrated Medical Centers and (ii) developing
Integrated Medical Centers. The Company agreed to pay Kats Management for each
agreement entered into by the Company with a chiropractor identified by Kats
Management (i) a commission equal to 5% of the Company's integration fee under
such agreement during the initial term of the agreement and (ii) a fixed fee not
to exceed $350. In addition, the Company granted Kats Management, subject to a
vesting schedule, non-qualified options to purchase 11,000 shares of Common
Stock under the Company's 1994 Stock Option Plan and paid Kats Management a
$100,000 bonus in 1997.

In August 1998 the Company entered into a consulting agreement with RVR
Consulting, Inc. ("RVR") for a term of August 1, 1998 through July 31, 1999. The
Company agreed to pay RVR $7,000 per month plus expenses to help the Company
identify problem areas in its operations and provide subsequent solutions. Two
of the principles of RVR are Joseph Raymond, Jr. and Sergio Vallejo, who are
also members of the Company's Board of Directors. (See Note 15 - Subsequent
Events)

Integrated Medical Centers

During the first quarter of 1999, the Company was managing an additional 7
Integrated Medical Centers and had signed contracts with Affiliated
Chiropractors to develop 16 additional Integrated Medical Centers. The Company
estimates the cost of fully integrating these new clinics to be approximately
$15,000 per clinic.

Continued Listing on the Nasdaq SmallCap Market

The Company's Shares and Warrants are listed on the Nasdaq SmallCap Market
and the Company must meet certain requirements in order to maintain this
listing. The requirements for continued listing include satisfying one of the
following conditions: (a) net tangible assets of at least $2,000,000 (b) market
capitalization of at least $35,000,000 or (c) net income of at least $500,000 in
the most recent fiscal year or in two of the last three fiscal years. The
Company has provided Nasdaq with details of its plan to increase its net
tangible assets to the threshold level and is in the process of executing that
plan. Implementation of the plan, however, has not been accomplished within the
timeframe originally envisioned. The Company has asked Nasdaq for an extension.
There can be no assurance that Nasdaq will grant the Company's request for an
extension and allow the Company's shares to remain listed while it works to
achieve compliance. Consequently, the Company's shares could be delisted from
the Nasdaq SmallCap Market at any time. In the event that the Company's shares
are delisted from the Nasdaq SmallCap Market, they could continue to trade on
the Nasdaq "Bulletin Board".

Year 2000 Issue

The Year 2000 issue is the result of computer programs being written using
two digits rather than four to define the applicable year. Any of the Company's
operational equipment or internal computer software that have time-sensitive
programs may recognize a date using "00" as the year 1900 rather than the year
2000. This could result in a system failure or miscalculations causing
disruption of operations, including, among other things, a temporary inability
to process transactions, send invoices, or engage in similar normal business
activities. Similar failures in the Company's medical clinics could result in an
impairment of revenue recognition due to significant future obligations,
impairment of future services provided by the Company's subsidiaries, or
potential other liability.
<PAGE> 45
The Company has been and is continuing to assess the implications on its
operations of the Year 2000 issue. At December 31, 1998, the process of
evaluation the Company's services, products and internal systems was underway
and is expected to be completed by June 30, 1999. At this time, the Company is
satisfied that all of its major vendors have or are in the process of verifying
to the Company their Year 2000 compliance. The Company's internal systems have
been updated, where appropriate to accommodate Year 2000 compliance. Any actual
impact of Year 2000 compliance on the Company's future results of operations,
capital spending, and business operations is not is not expected to be material.

15. SUBSEQUENT EVENTS

Imprimis Investors, LLC and Wexford Spectrum Investors, LLC (collectively
"Wexford"), as the holders of all of the Senior Convertible Preferred Stock in
the Company, had the right, pursuant to the Certificate of Designation,
Preferences and Rights for the Preferred Stock (the "Certificate"), to hold
majority representation on the Company's Board of Directors in the event that
the Company failed to redeem all of the Preferred Stock on or prior to January
3, 1999. In anticipation that the Company would not redeem the Preferred Stock,
Wexford requested that the Company hold a special meeting of its Board of
Directors (the "Special Meeting") to elect that number of nominees of Wexford
that would constitute a majority of the Company's Board. On January 4, 1999, the
Company held the Special Meeting, at which the Board of Directors voted to
increase the number of directors on the Board to 15 and elected eight nominees
of Wexford as directors.

At a meeting of the Board of Directors of the Company on January 3, 1999,
the Board passed a resolution to nullify the Company's acquisition of AIIA
Managed Care, Inc.(AIIA).

<PAGE> 46

At the Board meeting of March 4, 1999, the Company's Board terminated
the consulting contract of RVR Consulting Group, Inc. (RVR) with the Company.
The 150,000 warrants due to RVR under the terms of the consulting contract with
the Company were converted to 150,000 options to purchase common stock in the
Company. The stock options were to be priced at the intraday trading low of the
Company's common stock on Tuesday March 9, 1999.

Also at the March 4, 1999 Board meeting, the consulting agreement
previously approved by the Board, between the Company and Structure Management,
Inc. (Structure) was modified. Structure has a consulting agreement with the
Company to provide consulting services related to operation and financing of the
Company. Under the existing consulting agreement, Structure was granted 118,000
common stock warrants at a price of $2.00 each. The Board approved the
conversion of those common stock warrants to options for the purchase of common
stock in the Company priced at $2.00 per share. Following the conversion, the
options were exercised and the shares have been issued. The Company received
$240,000 for the exercise of these options.

Also at the March 4, 1999 Board meeting, the Board approved the
establishment of a consultants stock option plan (the 1999 Consultants Stock
Option Plan). From such a plan outside consultants could be compensated with
options to purchase common stock in the Company.

A motion was made to grant conditionally to Jeffrey Raymond 117,500
options to purchase common stock in the Company, pursuant to the 1999
Consultants
<PAGE> 47
Stock Option Plan, at the intraday trading low of the Company's common stock on
March 9, 1999. Following the grant of such options, Mr. Jeff Raymond exercised
those options and shares were issued. The Company received $146,875 for the
exercise of these options. Mr. Jeff Raymond is the brother of Mr. Joseph
Raymond, Jr., Chairman and CEO of the Company.

The Board made a conditionally grant of 237,500 options, from the 1999
Consultants Stock Option Plan to purchase common stock in the Company at the
intraday low trading price on March 9, 1999 to John Trevisan, a principal owner
of Texas International Investment, Inc. Following the grant of such options, Mr.
Trevisan exercised those options and shares were issued. The Company received
$296,875 for the exercise of these option.

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

On March 4, 1999 the Company dismissed Ernst & Young LLP ("E&Y"), as the
Company's independent public accountants and auditors, a capacity in which that
firm had served for approximately three years, and selected Amper, Politziner &
Mattia to replace E&Y in this role. The decision to dismiss the Registrant's
accountants and auditors was approved by the full Board of Directors. During the
two most recent fiscal years and the subsequent period through March 4, 1999,
the date on which E&Y was dismissed as the Company's independent public
accountants and auditors, there were no disagreements between the Company and
E&Y on any matter relating to accounting principles or practices, financial
statement disclosure, or auditing scope or procedures, which if not resolved to
E&Y's satisfaction would have caused it to make reference to the subject matter
of disagreement in connection with its report. In addition, Ernst & Young, LLP's
report on the Company's financial statements for the two fiscal years ended
December 31, 1997 and 1996 contained no adverse opinions or disclaimers of
opinion, nor were such reports qualified as to audit scope or accounting
principles.
<PAGE> 48
PART III

ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
WITH SECTION 16(a) OF THE EXCHANGE ACT

(a) Identification of Directors (See Note 15 - Subsequent Events)

<TABLE>
<CAPTION>
YEAR YEAR
NAME AGE FIRST ELECTED OF EXPIRATION
---- ------- ---------------- -------------
<S> <C> <C> <C>
C. Thomas McMillen... 46 1994 1999
E. Eugene Sharer..... 65 1996 1999
Robert J. Mrazek..... 52 1995 1999
James T. McMillen.... 52 1994 1999
Eric S. Kaplan, DC. 46 1997 1999
Sergio R. Vallejo, DDS 37 1998 1999
Joseph J. Raymond, Jr. 37 1998 1999
Frederick J. Simon (1) 44 1998 1999
</TABLE>

(1) Mr. Simon joined the Board of Directors in February 1998 and resigned his
directorship in June 1998. Mr. Simon is a senior vice president of Wexford
Partners, LLC.

(b) Identification of Executive Officers (See Note 15 - Subsequent Events)

<TABLE>
<CAPTION>
YEAR FIRST SERVED
NAME AGE AS OFFICER
---- --- -----------------
<S> <C> <C>
C. Thomas McMillen................................... 46 1994
Chairman of the Board and Chief Executive Officer
E. Eugene Sharer..................................... 65 1996
Vice Chairman
Eric S. Kaplan, D.C.................................. 46 1997
President and Chief Operating Officer
Michael T. Brigante.................................. 44 1998
Senior Vice President and Chief Financial Officer
Acting Secretary (12/4/98-2/18/99)
E. Scott Conover............................... 32 1998
Secretary (8/1/98-12/3/98, 2/18/99-3/22/99)
F. Ryan Knoll........................................ 30 1997
Secretary (11/1/97-8/1/98)
</TABLE>

C. Thomas McMillen, the Company's founder, has been the Chairman of the
Board of Directors and Chief Executive Officer since its formation in November
1994. He was also the President of the Company until April 1996. In 1993, Mr.
McMillen formed McMillen and Company, Inc., a health care consulting firm, and
subsequently from November 1993 through March 1994, assumed the role of Chief
Administrative Officer of Clinicorp, Inc., a publicly-traded physician practice
management company. Mr. McMillen was also a director of Clinicorp, Inc., from
January 1993 through December 1994. Clinicorp, Inc., filed for Chapter 11
bankruptcy protection in June 1996. From 1987 to 1993, Mr. McMillen served three
consecutive terms in the U.S. House of Representatives from the 4th
Congressional District of Maryland. He was named by President Clinton to
CO-Chair the President's Council on Physical Fitness and Sports in 1993 and
served until December 1997. Mr. McMillen is currently a member of the Board of
<PAGE> 49
Directors of CHG Inc., a subsidiary of Chemring Group, PLC, and North Atlantic
Acquisition Corporation (of which he is also the secretary and treasurer). Mr.
McMillen is the brother of James J. McMillen, a director of the Company.

E. Eugene Sharer has been Vice Chairman and a director of the Company
since July 1998 and April 1996 respectively. He relinquished the CFO title in
February, 1998, the COO title in November 1997 and the Presidents title in July
1998. From 1990 to 1995 he was President and Chief Operating Officer of R.O.W.
Sciences, Inc., a health research company. In August 1995, Mr. Sharer formed
Sharer Associates, a management consulting company. From 1989 to 1990 he was
Executive Vice President, Chief Operating Officer and Director of Iverson
Technology Corporation and from 1985 through 1988, he was President and Director
of Calculon Corporation and a Vice President of Atlantic Research Corporation,
the parent company of Calculon. Between 1980 and 1985, Mr. Sharer was Vice
President of the Systems Group at Computer Sciences Corporation.

Eric S. Kaplan, DC, has been President and a director since May 1998 and
April 1997, respectively. He served as Senior Director of Operations and
Development from August 1996 to April 1997. He was named Chief Operating Officer
in November, 1997. From June 1993 to August 1996, Dr. Kaplan was president of
two subsidiaries of Clinicorp, Inc., Medical Diagnostic Imaging of America and
Clinicare Wellness Centers. From 1978 to June 1993, he was the founder and owner
of six chiropractic, weight loss, and medical clinics in south Florida.

James J. McMillen, MD, has been a director of the Company since November
1994. From 1977 to the present, Dr. McMillen has been in private medical
practice in St. Joseph, Missouri. He is board certified in internal medicine.
Dr. McMillen is the brother of C. Thomas McMillen.

Robert J. Mrazek has been a director of the Company since January
1995.1993, Mr. Mrazek has been a legislative affairs consultant. From 1983 to
January 1993, he served five consecutive terms in the U.S. House of
Representatives from the 3rd Congressional District of New York.

Michael T. Brigante has been Chief Financial Officer since February, 1998.
Mr. Brigante briefly served as Acting Secretary from December 4, 1998 until
February 18, 1999. From January 1996 until January 1998 Mr. Brigante was the
controller of the Company. Mr. Brigante is an executive manager with over twenty
years of diversified financial experience with public and private companies. He
worked with the Thomas & Betts Corporation from 1978 through 1986 culminating
his tenure as controller. From 1987 to 1988, Mr. Brigante served as senior
manager of international financial systems with SeaLand Corporation. In 1988 Mr.
Brigante joined the MAC Group and served as chief financial officer and
controller until starting his own consulting firm in 1994.

ITEM 10. EXECUTIVE COMPENSATION

EXECUTIVE COMPENSATION (See Note 15 - Subsequent Events)

The following table sets forth information concerning the annual
compensation of the Company's Chief Executive Officer for services in all
capacities to the Company during the Company's last fiscal year.

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
ANNUAL
FISCAL COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY
--------------------------- ---- ------
<S> <C> <C>
C. Thomas McMillen................................... 1998 $ 150,000
</TABLE>
<PAGE> 50

<TABLE>
<S> <C> <C>
Chief Executive Officer
E. Eugene Sharer..................................... 1998 $ 150,000
Vice Chairman
Eric S. Kaplan....................................... 1998 $ 150,000
President and Chief Operating Officer
Michael T. Brigante.................................. 1998 $ 100,000
Senior Vice President Finance and Chief Financial Officer
E. Scott Conover................................ 1998 $ 100,000
General Counsel and Secretary (8/1/98-12/3/98,
2/18/99-3/22/99)
</TABLE>

No other executive officer received compensation in excess of $100,000
during the Company's 1998 fiscal year.

DIRECTOR COMPENSATION (See Note 15 - Subsequent Events)

The Company does not currently compensate, and does not anticipate
compensating its directors for their services as directors, except that each of
the Company's non-employee directors may receive a director's fee of $500 per
meeting for attendance at Board of Directors or committee meetings held after
December 1997. Additionally, they are granted 7,500 common stock options for
each year served which vest 50% in each of two years. In addition, each of the
Company's directors receives reimbursement of all ordinary and necessary
expenses incurred in attending any meeting or any committee meeting of the Board
of Directors. Currently, all directors hold office until the next annual meeting
of stockholders and until their successors have been duly elected and qualified.
The Company's executive officers are appointed annually and serve at the
direction of the Board of Directors, subject to the terms of existing employment
agreements.

EMPLOYMENT AGREEMENTS (See Note 15 - Subsequent Events)

In July 1996, the Company entered into an employment agreement with Mr.
McMillen providing for his employment, as Chairman of the Board and Chief
Executive Officer, for a term expiring in March 1999. The employment agreement
provides for an annual base salary for Mr. McMillen of $90,000 that increase to
$150,000 upon the closing of the IPO. All salary payments were accrued until the
closing of the IPO and paid with a portion of the net proceeds of the IPO. Mr.
McMillen may participate in all executive benefit plans and has the use of a
Company car. The agreement also provides, among other things, that if his
employment is terminated without cause (as defined in the agreement), the
Company will pay an amount equal to one year's base salary, payable over a one
year period. In September 1998, the Board of Directors extended Mr. McMillen's
employment contract for one year until March 2000 including the granting of
35,000 options to purchase the Company's Common Stock, subject to an increase in
the authorized options in the plan, priced at $3.1625 and vesting as to one half
in March 1999 and one half in March 2000.

In March 1996 the Company entered into an employment agreement with Mr.
Sharer providing for his employment as President and Chief Operating Officer for
a term expiring in March 1999. The employment agreement provides for an annual
base salary for Mr. Sharer of $150,000 effective upon closing of the IPO, and
for participation in all executive benefit plans, as well as an automobile
allowance of $1,000 per month. Mr. Sharer was granted options to purchase
116,667 shares of the Company's Common Stock at an exercise price of $0.03 per
share. On the date of such grant, 16,667 of those options were exercisable, of
which 10,000 were exercised in 1996. The remaining options were to vest in equal
installments on April 1, 1997, April 1, 1998, and March 31, 1999. Mr. Sharer
exercised his vested options of 40,001 in December, 1997 and 46,667 in December
1998. The agreement also provides, among other things, that, if his employment
is terminated without cause (as defined in the agreement) the Company will pay
to him an amount equal to one year's base salary, payable over a one year
period.

In March, 1996, the Company entered into an employment agreement with Mr.
<PAGE> 51
Brigante for his services as corporate controller for a term expiring on
September 30, 1999. The Employment Agreement provided for an annual base salary
for Mr. Brigante of $90,000 beginning January 1, 1997 and for participation in
all executive benefit plans plus an automobile allowance of $500 per month. Mr.
Brigante was granted options to purchase 40,000 shares of the Company's common
stock at an exercise price of $.03 per share. The options have vested as to
26,667 shares and will vest as to 13,333 shares on September 30, 1998. Mr.
Brigante exercised his vested options of 26,667 shares in December 1997 and his
vested options of 13,333 in February 1999. On February 23, 1998, Mr. Brigante
was elected to the position of Vice President of Finance and Chief Financial
Officer. His annual compensation increased to $100,000 at that time. In
September 1998 Mr. Brigante's contract was extended one year until September 30,
2000 and his automobile allowance was increased to $850 at that time. Also at
that time Mr. Brigante was granted 9,000 options vesting as one third on
September 2, 1998, one third on September 30, 1999 and one third September 30,
2000. The exercise price of the option grant was $2.03.

In August 1996, the Company entered into an employment agreement with Dr.
Kaplan providing for his employment as Senior Director for Operations and
Development for a term expiring in August 1999. The employment agreement
provides for a base salary of $4,000 per month, which was accrued until the
closing of the IPO. After such closing, Dr. Kaplan became entitled to an
automobile allowance of $500 per month. Dr. Kaplan was granted options to
purchase 46,667 shares of the Company's Common Stock at an exercise price of
$0.60 per share. The options have vested with respect to 46,667 shares of which
Dr. Kaplan has exercised 23,000. The agreement also provides, among other
things, that if his employment is terminated by mutual agreement or upon his
death or disability, the Company will pay an amount equal to $60,000, payable
over a six month period. On April 6, 1997, Dr. Kaplan became a Senior Vice
President and a director of the Company and in May 1998 became President of the
Company. In September 1998 Dr. Kaplan's contract was extended until March 31,
2000. At that time Dr. Kaplan was granted options to purchase 60,000 of the
Company's stock, 35,000 of which is subject to the increase in authorized option
in the plan, vesting one half as to June 30, 1999 and one half as to March 31,
2000.

In April 1998, the Company entered into an employment agreement with E.
Scott Conover providing for his for his employment as General Counsel for a term
expiring in April 2001. The employment agreement provides for an annual base
salary of $100,000 and for participation in all executive benefit plans plus an
automobile allowance of $350 per month. Mr. Conover was granted options to
purchase 15,000 shares of the Company's common stock at an exercise price of
$2.25 per share with such options vesting equally on each anniversary of his
employment agreement. In November 1998 Mr. Conover was granted an additional
10,000 Common Stock options at an exercise price of $3.75 per share. On February
18, 1999 Mr. Conover was appointed Secretary to the Company, and he resigned
from that position on March 29, 1999.

Each of the employment agreements with Messrs. McMillen, Sharer, Brigante
and Conover and with Dr. Kaplan requires the full-time services of such
employees. Mr. McMillen's employment agreement requires that he devote a minimum
of 40 hours per week to his responsibilities as Chairman and Chief Executive
Officer. The agreements also contain covenants restricting the employee from
engaging in any activities competitive with the business of the Company during
the term of such agreement and for a period of one year thereafter, and
prohibiting the employee from disclosing confidential information regarding the
Company.

STOCK OPTION PLANS

1994 Stock Option Plan. The Company's 1994 Stock Option Plan (the "1994
Plan") was adopted by the Company's Board of Directors and approved by the
shareholders of the Company in December 1994. The 1994 Plan was amended by the
Board of Directors, with shareholder approval, in 1995, so as to increase the
number of shares available under the 1994 Plan to 400,000 from 60,000. The
purpose of the 1994 Plan is to attract and retain qualified personnel, to
provide additional incentives to employees, officers, directors, consultants and
advisors of the Company, and to promote the Company's business. As of March 31,
1999, options to purchase 342,353 shares of Common Stock at a
<PAGE> 52
weighted average per share exercise price of $1.00 were outstanding. A total of
57,647 option to purchase shares of Common Stock were available for grant under
the 1994 Plan at that date. The 1994 Plan will terminate in April 2004, unless
sooner terminated by the Board of Directors.

The 1994 Plan provides for the grant of both incentive stock options,
intended to qualify as such under Section 422 of the Internal Revenue Code of
1986, as amended (the "Code"), and nonqualified stock options. The Board may
delegate administration of the 1994 Plan to the Compensation Committee. Subject
to the limitations set forth in the 1994 Plan, the Board of Directors (or the
Compensation Committee) has the authority to select the persons to whom grants
are to be made, to designate the number of shares to be covered by each option,
to determine whether an option is to be an incentive stock option or a
nonqualified stock option, to establish vesting schedules, and, subject to
certain restrictions, to specify the type of consideration to be paid to the
Company upon exercise and to specify other terms of the options. The maximum
term of options granted under the 1994 Plan is ten years. Options granted under
the 1994 Plan are nontransferable and generally expire 90 days after the
termination of an optionee's service to the Company.

Although no specific vesting schedule is required under the 1994 Plan,
options previously granted under the 1994 Plan have generally provided for
vesting in three equal annual installments. The exercise price of incentive
stock options must equal at least the fair market value of the Common Stock on
the date of grant, except that the exercise price of incentive stock options
granted to any person who at the time of grant owns stock possessing more than
10% of the total combined voting power of all classes of stock must be at least
110% of the fair market value of such stock on the date of grant.

1996 Stock Option Plan. In October 1996, the Board of Directors of the
Company, with shareholder approval, adopted its 1996 Stock Option Plan (the
"1996 Plan") covering up to 200,000 shares of the Common Stock, pursuant to
which officers, directors, employees, advisors and consultants to the Company
are eligible to receive incentive and/or nonqualified stock options. The 1996
Plan was modified as approved by the shareholders to 400,000 shares in June,
1997. The 1996 Plan, which expires in September 2006, is administered by the
Compensation Committee of the Board of Directors. The selection of participants,
allotment of shares, determination of price, and other conditions relating to
the grant of options will be determined by the Compensation Committee in its
sole discretion. Incentive stock options granted under the 1996 Plan are
exercisable for a period of up to 10 years from the date of grant at an exercise
price which is not less than the fair market value of the Common Stock on the
date of the grant, except that the term of an incentive stock option granted
under the 1996 Plan to a shareholder owning more than 10% of the outstanding
Common Stock may not exceed five years and its exercise price may not be less
than 110% of the fair market value of the Common Stock on the date of the grant.
As of March 31, 1999, options to purchase an aggregate of 344,000 shares of
Common Stock at a weighted average per share exercise price of $3.74 were out
standing. A total of 56,000 options to purchase shares of Common Stock were
available for grant under the 1996 Plan at that date.

1996 Restricted Stock Option Plan for Health Care Professionals. In
October 1996, the Board of Directors adopted, and the stockholders of the
Company approved, the 1996 Restricted Stock Option Plan for Health Care
Professionals (the "1996 Professionals Plan"), which expires in October 2006.
The 1996 Professionals Plan permits the Company to grant nonqualified stock
options to licensed health care professionals affiliated with the Company and in
most cases employed by a Integrated Medical Center. The aggregate amount of
Common Stock with respect to which options may be granted may not exceed 100,000
shares. The Board of Directors has delegated to the Compensation Committee the
authority to grant options under such a plan, to construct and interpret such
plan, and to make all other determinations and take all actions necessary or
advisable for the administration of such plan. The exercise price for options
granted under the 1996 Professionals Plan may be no less than 85% of the fair
market value of the Common Stock on the date of grant. Options granted under the
1996 Professionals Plan will expire no later than the tenth anniversary of the
date of grant. There have been 29,500 options granted under the 1996
Professionals Plan as of March 31, 1999, at a weighted average per share
exercise price of $2.70. A total of 71,500 options to purchase shares of Common
Stock were available for grant under the 1996 Restricted Plan at that date.
<PAGE> 53
The 1998 Outside Directors Stock Option Plan. In May 1998 the Board of
Directors adopted, and the stockholders of the Company approved, the 1998
Outside Directors Stock Option Plan ("1998 Board of Directors Plan") which
expires in May 2006. The 1998 Board of Directors Plan permits the Company to
grant stock options to non-employee members of the Board of Directors of the
Company. The aggregate amount of Common Stock with respect to which options may
be granted may not exceed 50,000 shares. Options granted under the 1996 1998
Board of Directors Plan will expire no later than the tenth anniversary of the
date of grant. There have been 45,000 options granted under the 1998 Board of
Directors Plan as of March 31, 1999, at a weighted average per share exercise
price of $3.39. A total of 5,000 options to purchase shares of Common Stock were
available for grant under the 1998 Board of Directors Plan at that date.

EXECUTIVE BONUS PLAN

Effective January 1, 1996, the Company established an Executive Bonus Plan
for Key Executives (the "Bonus Plan") to reward executive officers and other key
employees based upon the performance of the Company and such individuals. Under
the Bonus Plan, the Company has discretion to award bonuses in an aggregate
amount equal to 10% of the Company's pre-tax income for a particular fiscal year
(the "Bonus Fund"). The maximum amount of the Bonus Fund for any year is $5
million. Under the terms of existing employment agreements, which expire on
various dates from December 1998 through August 1999, the Bonus Fund has been
allocated as follows: 40% to Mr. McMillen, 30% to Mr. Sharer, and 30% to Dr.
Kaplan. Awards under the Bonus Fund are not exclusive of other bonuses that may
be awarded by the Board of Directors or the Compensation Committee from time to
time.

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
(See Note 15 - Subsequent Events)

The following table sets forth certain information regarding the
beneficial ownership of the Company's voting securities as of March 23,1999 by
(i) each shareholder known by the Company to be the beneficial owner of more
than 5% of any class of the Company's voting securities, (ii) each director of
the Company and (iii) all officers and directors of the Company as a group.
Except as otherwise indicated, the Company believes that the beneficial owners
of the securities listed below have sole investment and voting power with
respect to such securities, subject to community property laws where applicable.
(Calculations are as of March 23, 1999)

<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENTAGE
OF CLASS OF CLASS
NAME AND ADDRESS OF BENEFICIALLY OWNE BENEFICIALLY OWNED
BENEFICIAL OWNER
- ------------------------------------------ ------------------ ------------------
COMMON STOCK
<S> <C> <C>
C. Thomas McMillen(1)...................... 360,000 12.2%
666 11th Street, NW
Washington, DC 20001

Robert J. Mrazek .......................... 8,000 *
301 Constitution Ave., NE
Washington, DC 20002

Eric S. Kaplan (2)......................... 23,605 1.0%
27 Marlwood Lane
Palm Beach Gardens, FL 33418
</TABLE>
<PAGE> 54
<TABLE>
<S> <C> <C>
Michael T. Brigante (3).................... 40,000 1.4%
666 11th Street, NW
Washington, DC 20001

E. Eugene Sharer........................... 126,667 4.3%
666 11th Street, NW
Washington, DC 20001

James J. McMillen, MD ................... 6,000 *
4004 Miller Road
St. Joseph, MO 64505

Joseph Raymond, Jr(4)...................... 123,670 4.2%
666 11th Street, NW
Washington, DC 20001

Sergio Vallejo, DDS(5) .................... 22,200 *
666 11th Street, NW
Washington, DC 20001

All officers and directors as a group
(eight persons)............................ 710,142 24.1%
</TABLE>
- - ------------
* Percentage ownership is less than 1%

(1) Does not include 33,333 shares subject to stock options which became
exercisable in April, 1998 nor 16,666 options which become exercisable in July,
1998.

(2) Does not include 33,333 shares subject to stock options which become
exercisable in April, 1998, nor 33,326 options which become exercisable July,
1998.

(3) Does not include 4,000 shares subject to stock options which became
exercisable in April, 1998, nor 3,000 shares subject to stock options which
became exercisable in September 1998. Does not include 5,720 shares held in
trusts for Mr. Brigante's minor children.

(4) Does not include 150,000 options granted Mr. Raymond in March 1999.

(5) Does not include 3,000 shares held in trusts for Mr. Vallejo's minor
children. Does not include 150,000 options granted Mr. Vallejo in March 1999.

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Six of the Company's seven original Integrated Medical Centers under
management at January 31, 1997 were owned by Complete Wellness Centers, L.L.C.
("CWC, LLC"), a Delaware limited liability company. The Company was the managing
member of CWC LLC and owns 1% of its membership interests. The Company, as
managing member, had the authority and responsibility to make substantially all
management decisions for CWC, LLC. In addition, the holders at the time, of more
than 50% of the CWC, LLC membership interests granted the Company an irrevocable
proxy to vote their membership interests as the Company saw fit. The proxy was
valid for the life of CWC, LLC. As a result of these irrevocable proxies, the
financial statements of the Company and CWC, LLC are consolidated for financial
reporting purposes.

CWC, LLC had outstanding 13.3 Class A Units (membership interests other
than that of the managing member). The following officers and directors of the
Company or members of their immediate
<PAGE> 55
family held the following interests in CWC LLC: a trust for the benefit of Wilma
Sharer, the spouse of the Company's President and Chief Operating Officer, held
two Class A Units; a trust for the benefit of Virginia Brigante held 1/5 of one
Class A Unit; a trust for the benefit of Jacqueline Brigante held 11/50 of one
Class A Unit. Virginia Brigante and Jacqueline Brigante are the minor children
of Michael T. Brigante, the Company's Vice President of Finance and Chief
Financial Officer. Each such person or trust granted to the Company an
irrevocable proxy to vote such person's respective ownership interest in CWC
LLC.

On May 29, 1998 the Company, by unanimous consent of the Board of
Directors, agreed to purchase all of the outstanding units of Complete Wellness
Centers, LLC ("CWC,LLC"), a Delaware limited liability company, of which the
Company has a 1% equity interest and irrevocable proxies from a majority of
interest holders in the LLC. The acquisition was be accomplished by the issuance
of 77,821 shares of Common Stock valued at $200,000, based upon the average
closing bid price of the Company's Common Stock for the thirty (30) trading days
prior to June 1, 1998. Such shares are subject to SEC Rule 144, but have
piggyback registration rights. Former and current employees, directors, and
immediate relatives of management, owning 37.6% of the LLC's equity received a
discount to 26.32% of the $200,000 valuation of the LLC; the remaining investors
received the balance of the valuation on a pro rata basis in accordance with
their respective investments.

In August 1996, the Company entered into a consulting agreement with
J.E.M., Inc. ("JEM"), the sole stockholders of which are Dr. Kaplan, the
Company's Senior Vice President and a director, and his wife. Under the terms of
the consulting agreement, JEM agreed to provide advice and assistance to the
Company in connection with identifying and affiliating with chiropractors and
their existing chiropractic practices and identifying, acquiring, and/ or
managing businesses engaged in providing services ancillary to those provided by
Integrated Medical Centers. The Company agreed to pay JEM $6,000 per month for
its services. The term of the consulting agreement expires in August 1999 and
may be terminated sooner by mutual agreement of the parties, by the Company for
"cause," defined as a violation by JEM of any material provision of the
consulting agreement not remedied within 30 days after notification or JEM's
conviction of a felony, upon termination of the employment agreement between Dr.
Kaplan and the Company, or JEM's failure to meet certain performance goals.

At December 31, 1997, Dr. Milano, the former Vice President for Medical
Affairs, who resigned in January 1998, served as an officer, director, and the
sole stockholder of selected Complete Wellness Medical Centers. In all cases,
Dr. Milano, the Integrated Medical Center, and the Company entered into a Stock
Transfer Agreement (the "Stock Transfer Agreement") pursuant to which (i) Dr.
Milano agreed not to sell, encumber, or otherwise transfer the shares of stock
in the Integrated Medical Centers owned by her without the written consent of
the Integrated Medical Centers and the Company and (ii) the Company has the
right, following the provision of notice, to direct the transfer of all or part
of such shares to such transferee as it may designate for the sum of ten
dollars, provided that the transferee is licensed to practice medicine in the
appropriate State. In order to facilitate the transfer, the Stock Transfer
Agreement required the contemporaneous execution by Dr. Milano of a stock
transfer assignment, a resignation as an officer and director of the Integrated
Medical Center, and an Agreement for Sale of Business by Transfer of Capital
Stock under which Dr. Milano agreed to transfer her shares in Integrated Medical
Centers for the sum of ten dollars to a transferee to be designated by the
Company for this purpose. In accordance with the Stock Transfer Agreement, the
Company holds the stock transfer assignment, the resignation, and the Agreement
for Sale of Business by Transfer of Capital Stock in escrow. Additionally, the
Stock Transfer Agreement prohibits Dr. Milano, without prior written consent of
the Integrated Medical
<PAGE> 56
Center and the Company, from amending the charter or bylaws of the Integrated
Medical Center, agreeing to the merger or consolidation of the Integrated
Medical Centers with or into another corporation, dissolving or liquidating the
Integrated Medical Centers, authorizing the issuance of any additional shares of
stock of the Integrated Medical Centers, or approving any contract with Dr.
Milano herself, members of her family, or related parties. The Company and Dr.
Milano also entered into an indemnification agreement pursuant to which the
Company agreed to indemnify her from and against claims made against her in her
capacity as an officer or director of the Integrated Medical Centers.

The Company believes that all prior transactions between the Company, its
officers, directors or other affiliates of the Company have been on terms no
less favorable than could have been obtained from unaffiliated third parties.
Any future transactions with officers, directors, 5% stockholders or affiliates
must be for valid business reasons, be on terms no less favorable to the Company
than could be obtained from unaffiliated third parties, and be approved by a
majority of the independent outside members of the Company's Board of Directors
who do not have an interest in the transaction.

ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K

(a) All reports and exhibits contained therein as previous filing with the
Commission are incorporated by reference.

(b) Reports on Form 8-K.

March 15, 1999 Item 4 Changes in Registrants
Certifying Account
Item 7 Exhibits
March 9, 1999 Item 1 Changes in Control of
Registrant
Item 7 Exhibits
December 30, 1998 Item 1 Changes in Control of
Registrant
December 3, 1998 Item 5 Other Events
September 21, 1998 Item 5 Other Events
August 21, 1998 Item 5 Other Events
July 10, 1998 Item 5 Other Events
Item 7 Exhibits
June 3, 1998 Item 5 Other Events
Item 7 Exhibits
March 12, 1998 Item 5 Other Events
Item 7 Exhibits
February 9, 1998 Item 5 Other Events
Item 7 Exhibits
January 16, 1998 Item 5 Other Events
Item 7 Exhibits

SIGNATURES

IN ACCORDANCE WITH 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.

COMPLETE WELLNESS CENTERS, INC.
(Registrant)

By: /s/ MICHAEL T. BRIGANTE
-----------------------
MICHAEL T. BRIGANTE
CHIEF FINANCIAL OFFICER

March 31, 1998

IN ACCORDANCE WITH THE SECURITIES EXCHANGE ACT OF 1934, THIS REPORT HAS BEEN
SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE REGISTRANT AND IN THE
CAPACITIES AND ON THE DATES INDICATED.

/s/ JOSEPH J. RAYMOND Chairman of the Board, March 31, 1999
- ---------------------- Chief Executive Officer,
JOSEPH J. RAYMOND and Director

/s/ E. EUGENE SHARER Vice Chairman March 31, 1999
- --------------------- and Director
E. EUGENE SHARER
<PAGE> 57
/s/ SERGIO VALLEJO Chief Operating Officer March 31, 1999
- --------------------- and Director
SERGIO VALLEJO

/s/ FREDERICK B. SIMON Director March 31, 1999
- ------------------------
FREDERICK B. SIMON

/s/ ERIC S. KAPLAN President March 31, 1999
- --------------------
ERIC S. KAPLAN

/s/ KENNETH J. RUBIN Director March 31, 1999
- --------------------
KENNETH J. RUBIN

/s/ JOHN K. PAWLOWSKI Director March 31, 1999
- ---------------------
JOHN K. PAWLOWSKI
- --------------------------------------------------------------------------------
/s/ MICHAEL T. BRIGANTE VP Finance and March 31, 1999
- ----------------------- Chief Financial Officer
MICHAEL T. BRIGANTE

- --------------------------------------------------------------------------------

<ARTICLE> 5

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 444,963
<SECURITIES> 0
<RECEIVABLES> 12,021,607
<ALLOWANCES> 6,255,238
<INVENTORY> 53,405
<CURRENT-ASSETS> 6,324,172
<PP&E> 706,208
<DEPRECIATION> 336,625
<TOTAL-ASSETS> 6,725,738
<CURRENT-LIABILITIES> 10,713,609
<BONDS> 392,000
0
5,016,620
<COMMON> 409
<OTHER-SE> (9,396,900)
<TOTAL-LIABILITY-AND-EQUITY> 6,725,738
<SALES> 24,161,819
<TOTAL-REVENUES> 24,161,819
<CGS> 2,450,577
<TOTAL-COSTS> 2,450,577
<OTHER-EXPENSES> 28,719,892
<LOSS-PROVISION> 2,656,597
<INTEREST-EXPENSE> 2,771
<INCOME-PRETAX> (9,668,018)
<INCOME-TAX> 0
<INCOME-CONTINUING> (9,668,018)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (9,668,018)
<EPS-PRIMARY> 0
<EPS-DILUTED> (4.41)

</TABLE>