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                     U.S. SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                   FORM 10-KSB

(Mark One)

         / / Annual Report under Section 13 or 15 (d) of the Securities Exchange
Act of 1934 (Fee required)

   For the fiscal year ended August 31, 1996

         / / Transition report under Section 13 or 15 (d) of the Securities
Exchange Act of 1934 (No fee required)

    For the transition period from __________ to __________

    Commission file number 0-13049

                          WATER-JEL TECHNOLOGIES, INC.
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                 (Name of Small Business Issuer in its Charter)

                   New York                                 13-3006788
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       (State of Other Jurisdiction of                   (I.R.S. Employer
        Incorporation or Organization)                  Identification No.)

  243 Veterans Boulevard, Carlstadt, New Jersey                07072
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   (Address of Principal Executive Offices)                 (Zip Code)

                                 (201) 507-8300
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                (Issuer's Telephone Number, Including Area Code)

         Securities registered under Section 12 (g) of the Exchange Act:

                                  Common Stock
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                                (Title of Class)

                                Class A Warrants
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                                (Title of Class)

                                Class B Warrants
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                                (Title of Class)

         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 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. / /

         State issuer's revenues for its most recent fiscal year. $54,863,574

         State the aggregate market value of the voting stock held by
non-affiliates computed by reference to the price at which the stock was sold,
or the average bid and asked prices of such stock, as of a specified date within
the past 60 days. $6,740,400 as of December 11, 1996.

Documents Incorporated by Reference: See Footnotes to Exhibits


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Item 1.  Description of Business

Introduction

         Water-Jel Technologies, Inc., (the "Company") is a New York corporation
established in September 1979 to develop, manufacture, and market products using
its Water-Jel gel as emergency first aid for burn injuries. The Company also
manufactures and markets a line of generic creams and ointments.

In July 1996, the Company acquired all of the outstanding stock of Journeycraft,
Inc. ("Journeycraft") and Theracom, Inc. ("Theracom").  These acquisitions
significantly expanded the scope of the Company's operations to include three
new businesses, each larger than its historical business.  These new businesses
provide a wide variety of innovative services for enhancing people 
productivity.  In addition to the original Water-Jel business, the Company's 
operations now include:

         X-Ceed Motivation, which provides services to major corporations in the
field of performance improvement and internal corporate communications,
including pioneering use of Internet technology for employee and customer
communications,

         Journeycorp Travel Management, which provides retail corporate
travel-related services, and

         Theracom Communications, which provides training, communication and
data to the healthcare industry.


General

         Companies today operate in an increasingly competitive global economic
environment in which constantly improving productivity is a business necessity.
While this has generated a host of management theories, fads, and buzzwords, it
is generally recognized that the core need is to help the people who make the
company go to work more efficiently and productively. Media accounts of
corporate efforts to achieve this have often focused on negative aspects such
downsizing and increasing work hours. However, many business leaders know that
the most effective ways of realizing increased people productivity are positive.
These include improving incentives, communications, training, information, and
work-related services. The Company believes that it provides one of the most
comprehensive varieties of services available to modern corporations for
enhancing their people productivity. These services are not the simple
"motivational" or "reengineering" efforts often advocated by modern management
consultants. Rather, the Company offers concrete, practical, customized services
to help companies' able people to do their work smarter and better.

         The development of the Company's three new businesses has followed a
common approach. Each began with an established basic business, respectively
sales award programs, a corporate travel agency, and arranging meetings for
health professionals with the financial support of pharmaceutical manufacturers.
These basic businesses have served as platforms from which the Company has

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launched expanded services using modern information technology, such as the
Internet, wider applications of its existing services, and new productivity
enhancing products.

X-Ceed Motivation ("X-Ceed")

         X-Ceed provides full-service performance improvement programs for major
corporate clients. Traditionally these programs have focused on incentive
programs for sales people. However, in recent years these programs have been
expanded to include non-sales employees, dealers, customers, and suppliers. Most
importantly, the Company has built from the base of its established incentive
program business into the provision of services for establishing and operating
Intranet programs for corporate clients which go beyond the scope of specific
incentive programs.

         According to an industry trade journal, spending on full-service
performance improvement businesses could exceed $6 billion in 1996 and has been
steadily expanding at 3% to 4% annually since the 1980s. Incentive programs
offer awards consisting of merchandise, special group travel programs, or
recognition memorabilia such as plaques, custom jewelry, clothing with corporate
insignia, and so forth. In addition, X-Ceed supplies ongoing communication
regarding the program. This consists of publicizing and promoting the incentives
to their target audience and providing information in tracking the performance

which is being incentivized. Areas of performance covered by the programs can
include sales results, customer retention, new product introductions, skill
improvement, and market share increases.

         These communications are critical to the success of an incentive
program since even the most elaborate merchandise catalog or travel brochure can
quickly become outdated or forgotten. X-Ceed has pioneered the use of dedicated
corporate Intranet sites to communicate information about incentive programs.
"Intranet" refers to the use of the Internet for internal corporate
communications. Using an Intranet site to communicate about incentive programs
permits X-Ceed to continuously update information about awards, to facilitate
award orders by taking them over the Intranet, to make the programs more
exciting through the use of interactive and multimedia programming, and most
critically, to supply a continual flow of information relevant to achieving the
performance being awarded.

         This last feature has permitted X-Ceed to expand its corporate
communication services beyond managing its incentive programs. Information
relevant to improving performance includes virtually every kind of information
which a company would want to communicate to its employees and affiliates such
as suppliers and customers. In addition to establishing an Intranet system,
X-Ceed can provide customized software which, in addition to operating incentive
programs, can process internal information in numerous ways, access external
databases, implement training and certification programs, and permit
communication directly between people on the "frontline" without having to be
processed through a central office. By maximizing access to information and
relating it to a company's incentive program structure, X-Ceed assists companies
in enabling as well as motivating their people to achieve successful results.

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         In the fiscal year ended August 31, 1996 ("fiscal 1996") X-Ceed had
revenues of approximately $35,455,000, accounting for approximately 64% of the
Company's revenues in fiscal 1996. In addition, X-Ceed's Atlanta office had
revenues of approximately $9,000,000 from April 1 to August 31, 1996 which were
not consolidated with the Company's revenues because the Company's ownership of
the Atlanta office decreased to 50%. See "Item 6 -- Management's Discussion and
Analysis or Plan of Operations -- Results of Operations." X-Ceed markets its
services through direct contacts by sales representatives with sales and human
resource executives. X-Ceed has 48 employees with offices in Atlanta and Los
Angeles as well as its New York City headquarters.

         Strategy. With established expertise and a body of custom software
products for setting up Intranet systems, X-Ceed intends to expand its internal
corporate communications services business as a product independent of its
traditional incentive business. In addition to offering diversification and
access to an expanding area of business activity, the Company believes that
internal corporate communications services offers better returns than the
traditional incentive business. Incentive services have traditionally been paid
for on the basis of a percentage of the awards used, whereas X-Ceed can charge
negotiated fees for its Intranet services. X-Ceed will also use its ability to
set up and manage Intranet communications to aggressively pursue expansion of
its incentive program business.


         Proprietary Information. The Company considers its Internet
technologies to be proprietary and protects its proprietary information with
standard secrecy agreements. The Company does not have, but intends to apply
for, copyright protection for certain of its proprietary Intranet software. The
Company may have limited legal recourse should this proprietary information be
disclosed publicly or to competitors.

         Competition. Numerous companies provide incentive program services,
some of which are significantly larger and have access to more extensive
resources than the Company. These include Maritz, Inc., Carlson Marketing Group,
BI Performance Services, and S&H Citadell. In addition, new competitors are
continually forming in the area of Internet services. X-Ceed must also compete
with corporations' internal motivation staffs and efforts. X-Ceed competes on
the basis of price and the quality of its services. Constant innovation in
service offerings is especially important in the area of Internet services.

Journeycorp Travel Management ("Journeycorp")

         Journeycorp provides comprehensive travel services primarily for
business travel by corporate clients. Travel services include trip planning,
reservations, ticketing, and other incidental services. In addition, Journeycorp
provides corporate travel policy consultation and management information systems
("MIS"). Journeycorp receives commissions and fees for travel bookings and
arrangements from airlines, hotels, car rental companies and other travel
suppliers. Journeycorp also receives management fees from certain business
travel accounts. Journeycorp's MIS services assist clients in managing their
travel and entertainment budgets. This expense management system captures travel
expense data and analyzes it in order to provide clients with a program to plan,
account for and control travel and entertainment expenses. Journeycorp also
seeks to combine orders of different clients in

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order to obtain volume discounts. Like X-Ceed, Journeycorp is using Internet
technologies and software to facilitate direct booking through the Internet, to
access current account data via E- mail, and to quickly create travel expense
reports, analyses, and accounting.

         An industry journal estimates that Journeycorp's corporate travel
business is 35th in size in the United States with a much larger market position
in the New York metropolitan area. In particular, Journeycorp emphasizes
industries such as entertainment, financial services, and retail marketing which
tend to be located in New York and California. These industries seem to require
more customized services than are generally available from centralized mass
reservation centers.

         In fiscal 1996, Journeycorp had revenues of approximately $10,811,000,
accounting for approximately 20% of the Company's total revenues in fiscal 1996.

Journeycorp markets its services through direct contacts by sales
representatives with executives, targeted direct mailings, and participation in
trade shows. Journeycorp has 118 employees with offices in Los Angeles, Chicago,
and Teaneck, New Jersey as well as two offices in New York City. In addition,
Journeycorp operates on-site offices at many clients and uses the services of a
number of associated independent travel agents.

         Strategy. In 1995, U. S. airlines imposed changes in travel agent
compensation which resulted in fees being paid on a per- transaction basis
rather than as a percentage of bookings. Journeycorp intends to continue to
reorient its business toward fee-based travel management, consulting, and MIS
systems with a particular emphasis on using Internet technologies to assist
clients in increasing the efficiency of their travel operations. In its
traditional corporate travel agency business, Journeycorp will strive to
maximize profitability by emphasizing higher margin travel through its regional
and industry specializations, including a strong emphasis on international
travel where the more lucrative travel agency commission structure remains in
place.

         Competition. Vigorous competition is encountered in the travel business
from more than 30,000 travel agents and direct sales by airlines and travel
suppliers in the U.S. and abroad. This competition is mainly based on service,
convenience and proximity to the customer and has increased due to several
factors in recent years, including the fact that a number of independent
agencies have been acquired by larger travel companies. Travel agency groups
also have increased services to regional and national business travel clients
and in other activities. In addition, many companies have established in-house
travel departments. Companies are also seeking alternative channels to make
travel arrangements, such as on-line vendors or in some cases "ticketless"
airline services that require booking directly with the airlines.

         American Express is the largest provider of corporate as well as other
travel services. Other major competitors in Journeycorp's regional markets are
VTS Travel, Direct Travel, and McGregor Travel Management. In addition to
American Express, many of the Company's

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other competitors are significantly larger and have access to more extensive
resources than the Company. The quality of service is a major area in which the
Company competes in addition to its ability to provide additional travel
management and MIS services.

Theracom Communications ("Theracom")

         Theracom provides integrated training, communication and data to the
healthcare industry. Traditionally, meetings to provide medical information to
healthcare professionals have been paid for by major pharmaceutical companies.
However, by law such meetings must be organized and controlled by independent

third parties. Theracom provides all the services necessary to organize such
meetings, such as locating speakers, publicity, and travel and meeting place
arrangements. Theracom also provides ongoing data flow and feedback to and from
pharmaceutical manufacturers and healthcare professionals such as physicians and
pharmacists.

         From this base, Theracom has expanded into providing healthcare
information services beyond these traditional channels. The most important of
these new areas is patient education. With increasing competition and cost
pressures, the healthcare industry has recognized that communicating medical
information to patients reduces usage of medical services, attracts patients,
and helps create a cooperative atmosphere that minimizes malpractice litigation.
One successful program has been information on menopause. Rather than simply
producing program materials, Theracom focuses on training healthcare
professionals at hospitals, public health agencies, managed care companies, and
corporate "wellness" departments in effective presentation of its programs. In
particular, Theracom focuses on making such programs interactive rather than
simply lectures.

         In fiscal 1996, Theracom had revenues of approximately $4,375,000,
accounting for approximately 8% of the Company's total revenues in fiscal 1996.
To date, Theracom has principally marketed its services through direct contacts.
It intends to also begin participating in trade shows. Theracom has seven
employees and operates from an office in Glen Rock, New Jersey.

         Strategy. Theracom intends to expand its healthcare information meeting
business by emphasizing ancillary information services such as continuing
education and feedback programs. Theracom also intends to expand its patient
education business by creating new programs and marketing its current programs.
This latter effort is especially important in reducing Theracom's dependence on
Pfizer, Inc., which to date has been its principal customer. Another significant
area of expansion will be extending healthcare information programs to
healthcare professionals such as paramedics, practical nurses, physician's aids
and others who are becoming increasingly important under managed health care.
See "Risk Factors -- Dependence on Few Customers."

         Competition.  The medical communication industry is large and diverse 
with extensive competition among many companies in both traditional medical
information meetings as well as patient education.  Advertising agencies are
major new competitors in the

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meeting business. These and many other competitors are significantly larger,
have been in existence longer, and have access to more extensive resources than
the Company. The quality of service, price and the innovative nature of its
programs are the major areas in which Theracom competes.

         To date, most of Theracom's business has come from one customer, and

Theracom has also competed by customizing its services to the particular
requirements of that customer. There can be no assurance that these specialized
services will be marketable to other customers without costly modifications.

Water-Jel Technologies ("Water-Jel")

         Water-Jel comprises the Company's principal business prior to the
acquisition of Journeycraft and Theracom. Water-Jel currently markets three
product lines, the Water-Jel First Aid Product Line for Burns, generic creams
and ointments, and single use containers of Visine.

         Water-Jel First Aid Product Line For Burns. The Water-Jel First Aid
Product Line consists of Fire Blankets, Burn dressings, Burn-Jel, UnBurn and
Cool-Jel. The Fire Blankets provide emergency first aid to burn victims at the
scene of a fire and during transportation to the hospital. They also can be used
to prevent small fires from spreading, to extinguish fires by wetting and
cooling, to handle hot materials, and to protect trapped individuals as they
escape a fire. Water-Jel Sterile Burn Dressings provide emergency first aid for
victims who have small area body burns. By packaging the Burn Dressings in a
laminated polyester foil packet, the Water-Jel Burn Dressing is easily
transported and stored. Water-Jel Burn Jel is a topical gel designed for minor
burns and Water-Jel UnBurn is a topical gel designed for minor sunburns. Both
combine the active ingredient Lidocaine, allowing fast relief of pain, with the
Company's Water-Jel gel, which cools and soothes the burn site or sunburn.
Water-Jel Cool-Jel is a moisturizing topical cooling gel which can be used for
relief of minor burns, cuts and scrapes by cooling the affected area and forming
a protective barrier. All Water-Jel First Aid products use the Company's
Water-Jel gel, which is made from tropical plant oils and is very effective in
quickly cooling and soothing burns.

         Generic Cream and Ointment Line. The Company has formulated a line of
generic creams and ointments. The line consist of a First Aid Cream with
moisturizing Aloe, Hydrocortisone Cream 1%, and Triple Antibiotic ointment.

         Visine Single Line. Pursuant to an arrangement with Pfizer Inc, the
Company began distributing Visine Singles unit dose eye drops to the industrial
marketplace in the second quarter of fiscal 1995. Visine Singles provide
individuals fast relief from dry irritated eyes by moisturizing and soothing.

         In fiscal 1996, Water-Jel's sales were approximately $4,223,000,
accounting for approximately 8% of the Company's total revenues in fiscal 1996.
Water-Jel's marketing efforts emphasize advertising in trade journals, a direct
mail campaign to industry

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groups, trade shows and conventions. Water-Jel employs 28 people, and operates
its manufacturing and warehousing from its 17,700 square foot facility located
in Carlstadt, New Jersey. The Company has an additional 9,600 square feet of

warehouse space available near its main facility.

         Strategy. Water-Jel has been working on the development of generic
creams and ointments as well as other complimentary products which would be
initially marketed to industry. It is also exploring the development or
acquisition of other products compatible with its business.

         Government Regulation. Water-Jel's products and manufacturing practices
are subject to regulation by the Food and Drug Administration ("FDA") as well as
by similar foreign authorities. FDA requirements include adherence to good
manufacturing practices, proper labeling, and either premarket notification or
premarket approval (depending on the category of product) prior to commercial
marketing in the United States.

         The Water-Jel Fire Blankets and Burn Dressings are medical devices
subject to regulation by the FDA. The Company has effective filings of premarket
notifications for these products under Section 510(k) of the Medical Device
Amendments to the Federal Food, Drug, and Cosmetic Act. Water-Jel's generic
creams and ointment, Burn Jel and UnBurn line are classified as over the counter
("OTC") drug. The Company has the necessary good manufacturing practice and
quality controls to manufacture such over the counter drugs in its facility.

         The Company is also subject to periodic inspections by the FDA relating
to good manufacturing practices. The FDA has the authority to require a
suspension of manufacturing operations if it finds serious deficiencies.
Additional regulation may, in the future, be imposed by Federal, state or local
authorities, particularly the FDA. Any new products will also be subject to
review of various regulatory authorities in virtually every foreign country in
which such products are offered for sale.

         Patents and Trademarks. As a result of research and development efforts
in modifying and improving the Water-Jel gel, in January 1995, the Company was
granted a patent for a synthetic fabric containing a therapeutic, non-toxic,
water-soluble and biodegradable gel used in the Burn Dressing product line. In
September 1996, the Company was granted a patent for a water-based formulation
which can be used for the treatment of sunburns. This product is marketed under
the name UnBurn. The Company has obtained United States and foreign
registrations for several trademarks for use on Water-Jel's products. These
marks and logos are used on the packaging of Water-Jel's products.

         Competition.  The market in which Water-Jel currently operates
is characterized by competition and rapid technological change.
Other firms, including Spenco Medical Corporation, C.R. Bard, Inc.
and Johnson & Johnson Products, Inc. manufacture and market fire
blankets, burn dressings and related fire safety products and have
been in business for a longer period of time, are better

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established, have financial resources substantially greater, and have more
extensive facilities than those which now, or in the foreseeable future, may be
available to the Company. While some segments of the market are dominated by
large manufacturers, other segments of the market are characterized by intense
competition among independent product manufacturers.

         In the opinion of the Company's management, the Company's burn first
aid products are superior to the dry "fire" blankets and antiseptic sprays,
combinations of salve covered with sterile gauze and sterile pre-wetted
dressings of its competitors. Water-Jel products cool the wound by removing
excess heat and loosen burned-on clothing. While dry "fire" blankets extinguish
a fire by oxygen deprivation or smothering, the Company's Water-Jel Fire
Blankets also remove excess heat from the victim's body and clothing by wetting
and cooling, thereby reducing the possibility of re-combustion. Also, Water-Jel
Burn Dressings come in a single unit and maintain their moistness longer than
dressings pre-wetted only with water.

         In fiscal 1995 Nortrade International, Inc. ("Nortrade") introduced a
product which attempts to duplicate the Company's First Aid Product Line for
Burns. The Company believes that it will be able to compete with Nortrade based
upon the Company's established customer base, superior customer service and its
ability to offer a more diverse range of products.

Employees

         The Company currently employs approximately 200 persons. Breakdowns by
division are given under the separate division descriptions above. The Company
is not a party to any collective bargaining agreements and considers its
relations with its employees to be good.

Risk Factors

         Although not usually included in a Form 10-KSB annual report, because
this is its first annual report since the acquisition of Journeycraft and
Theracom, the Company is including here certain risk factors relating to its
business.

         Competition. The markets in which the Company currently operates are
characterized by intense competition and rapid technological change. Competitors
include companies which are substantially larger and have greater resources than
the Company.

         Important competitors for X-Ceed include Maritz, Inc., Carlson
Marketing Group, BI Performance Services, and S&H Citadell. In addition, X-Ceed
competes with numerous smaller consultants and companies. In particular, new
competitors are continually forming in the area of Internet services. X-Ceed
must also compete with corporations' internal motivation staffs and efforts.
X-Ceed competes on the basis of price and the quality of its services. Constant
innovation in service offerings is especially important in the area of Internet
services. See "Market and Technological Change" and "X-Ceed Motivation --
Competition."

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         Journeycorp competes with numerous retail travel agents in providing
travel-related services to businesses. Major corporate competitors include
American Express and Carlson Marketing. The quality of service is a major area
in which the Company competes. In addition, competition based upon cost has
recently increased due to the trend toward fee-based compensation. See "Market
and Technological Change" and "Journeycorp Travel Management -- Competition."

         Theracom competes with many advertising agencies and communications
consultants which provide communications services to the healthcare industry.
Theracom competes on the basis of price and the quality of its services. To
date, most of Theracom's business has come from one customer, and Theracom has
also competed by customizing its services to the particular requirements of that
customer. There can be no assurance that these specialized services will be
marketable to other customers without costly modifications. See "Dependence on
Few Customers" and "Theracom Communications -- Competition."

         With respect to the Water-Jel emergency first aid products division,
other firms, including Spenco Medical Corporation, C.R. Bard, Inc. and Johnson &
Johnson Products, Inc. manufacture and market fire blankets, burn dressings and
related fire safety products and have been in business for a longer period of
time, are better established, have financial resources substantially greater,
and have more extensive facilities than those which now, or in the foreseeable
future, may be available to the Company. While some segments of the market are
dominated by large manufacturers, other segments of the market are characterized
by intense competition among independent product manufacturers. See "Water-Jel
Technologies -- Competition."

         Market and Technological Change. Several of the markets in which the
Company's products and services are being offered are undergoing technological
advances and other changes.

         In particular, the corporate travel business is changing from
commission to fee-based services in which corporate travel services providers
such as Journeycorp are paid fixed fees in lieu of commissions based upon the
volume of travel services purchased. In addition, airlines are reducing or
terminating the payment of commissions to travel agents. These developments have
tended to reduce the revenues available to travel service providers such as
Journeycorp. Also, the corporate travel business is experiencing technological
changes such as "ticketless" air travel and Internet- based reservation systems
which are tending to reduce the need for outside travel agents. These changes
are further accelerating the trend for travel services businesses to act as
consultants working for fixed fees rather than commission-based booking
agencies.

         A significant amount of X-Ceed's business is based upon the development
of innovative technologies for delivering incentive programs using the Internet.
The Internet is characterized by rapid technological advances which may render
X-Ceed's technologies out- of-date or obsolete.


         There is no assurance that the Company will be in a position

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to adapt to such technological advances and market changes.

         Dependence on Few Customers. Most of Theracom's services are supplied
to one customer, Pfizer, Inc. Of the revenues from X- Ceed's business, during
fiscal 1996 56% was derived from two customers, MCI International and Pfizer,
Inc. On a consolidated basis, Pfizer and MCI represented 24% and 20%,
respectively, of the Company's revenues during fiscal 1996. The loss of either
of these customers could materially adversely affect the Company's business and
prospects.

         No Contracts with Customers.  Generally, the Company does not have any
written agreements with its customers, or such agreements are terminable at 
will upon relatively short notice. Unexpected or other termination of relations
with significant customers could adversely affect the Company's business and
prospects. See "Competition" and  "Dependence on Few Customers."

         Market Acceptance for Company's Products and Services. The Company
believes that its ability to market its products and services requires educating
potential users as to their benefits and applications. This is particularly the
case for the Internet technologies developed by X-Ceed and the Water-Jel
jel-based products sold by the emergency first aid products division. No
assurance can be given that the Company will be able to successfully increase
the market for its products and services.

         Possible Need for Additional Financing. While the Company has
sufficient capital resources to conduct its current activities, it will require
additional financing in order to expand its current operations. There are no
definitive plans or arrangements in effect currently to obtain such additional
funds, which could consist of additional borrowing, the issuance of equity
securities on a private placement basis, or steps to encourage the exercise of
the Company's outstanding Redeemable Warrants. The timing and amount of any
additional financing that is required to continue the development and marketing
of the Company's services and products and for other purposes will depend on the
ability of the Company to improve its operating results and other factors. There
can be no assurance that any additional financing will be available to the
Company on terms acceptable to the Company or that such additional financing, if
available, would not result in substantial dilution of the equity interests of
existing stockholders.

         Limited Patents and Proprietary Information. The Company's X- Ceed
subsidiary has developed technologies for applying the Internet to employee and
customer incentive programs. The Company considers these Internet technologies
to be proprietary. The Company protects its proprietary information with
standard secrecy agreements. There can be no assurance that the parties to such

agreements, other than the Company, will not breach any of the provisions of
such agreements and that, in the event of a breach or threatened breach, the
Company will be able to enforce its rights under the agreements. Should the
Company's proprietary technologies be disclosed, the business and prospects of
the Company could be adversely affected. The Company does not have, but intends
to apply for, copyright protection for its proprietary X-Ceed technologies. The
Company may have limited legal recourse

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should this  proprietary information be disclosed publicly or to
competitors.  See "X-Ceed Motivations -- Proprietary Information."

         The design of the Company's Fire Blanket products was protected by
United States and foreign patents which were assigned to the Company in 1979 and
1985. The United States patent which protected a substantial portion of the
Company's technology expired in 1992. New competitors may now enter the
Company's markets. The Company may be materially and adversely affected if the
Company should fail to establish a secure market base before the entrance of
significant new competitors now that the original United States patent has
expired. See "Competition."

         In January 1995, the Company was granted a patent for a synthetic
fabric containing a therapeutic, non-toxic, water-soluble and bio-degradable gel
used in the Company's Burn Dressing product line. However, no assurance can be
given that this patent will prove enforceable or prevent others from marketing
products similar to, or which perform comparable functions as, the Company's
products. See "Water-Jel Technologies -- Patents and Trademarks."

         Government Regulation. The Company's emergency first aid products and
manufacturing practices are subject to regulation by the Food and Drug
Administration ("FDA") as well as by similar foreign authorities. The Water-Jel
Fire Blanket and Burn Dressing are medical devices subject to regulation by the
FDA. The Company's generic creams and ointment, Burn Jel and UnBurn line are
classified as over the counter drugs. FDA requirements include adherence to good
manufacturing practices, proper labelling, and either premarket notification
under section 510(k) of the Medical Device Amendments to the Federal Food, Drug
and Cosmetics Act or premarket approval (depending on the category of product)
prior to commercial marketing in the United States. The Company is also subject
to periodic inspections by the FDA relating to good manufacturing practices. The
FDA has the authority to require a suspension of manufacturing operations if it
finds serious deficiencies. Additional regulation may, in the future, be imposed
by Federal, state or local authorities, particularly the FDA. Any new products
will also be subject to review of various regulatory authorities in virtually
every foreign country in which such products are offered for sale. To the extent
that any new products which the Company may develop are deemed to be new
pharmaceutical or new medical devices, such products will require FDA and other
regulatory clearance and/or approvals prior to marketing. Such governmental
regulation may prevent or substantially delay the marketing of any products

developed by the Company, cause the Company to undertake costly procedures, and
furnish a competitive advantage to the more substantially capitalized companies
which compete with the Company. There can be no assurance that the Company will
have the requisite financial resources to complete the regulatory approval
process with respect to any new products which it may develop.

         Product Liability. To date, there have been no material claims or
threatened claims against the Company by users of its products based on a
failure to perform as specified. In the event that any claims for substantial
amounts were to be successfully asserted against the Company, they could have a
materially adverse

                                       12


<PAGE>



effect on the Company's financial condition and its ability to distribute its
products. The Company maintains $11,000,000 of general product liability
insurance. There is no assurance that this amount will be sufficient to cover
potential claims or that the present amount of insurance can be maintained at
the present level of cost.

         Dependence on Management. The Company is significantly dependent upon
the continued availability of Werner Haase, its Chairman and CEO. The loss or
unavailability of Mr. Haase to the Company for an extended period of time would
have a material adverse effect on the Company's business operations and
prospects. To the extent that Mr. Haase's services would be unavailable to the
Company for any reason, the Company would be required to procure other personnel
to manage and operate the Company. There can be no assurance that the Company
would be able to locate or employ such qualified personnel on acceptable terms.
The Company intends to obtain "key man" life insurance on Mr. Haase in the
amount of $1.5 million.

         Control. Werner Haase, the Chairman and CEO of the Company, and his
wife Nurit Kahane, who is a Senior Vice President of the Company, own 2,281,875
shares of the Company's Common Stock, representing approximately 32.5% of the
total shares outstanding. Mr. Haase also holds options exercisable to purchase
an additional 243,750 shares of Common Stock. The Company's by-laws state that a
simple majority of stockholders may constitute a quorum for a meeting of
stockholders and may effect any action requiring a vote of stockholders. There
are no requirements for supermajority votes on any matter, nor is there any
cumulative voting for directors. Therefore, Mr. Haase will be in a position to
substantially influence the election of directors and the conduct of the
Company's affairs. The control of the Company by Mr. Haase could serve to impede
or prevent a change of control of the Company. As a result, potential purchasers
may not seek to acquire control of the Company through the purchase of Common
Stock. This may tend to reduce the price of the Company's Common Stock and
Redeemable Warrants.

         Maintenance Criteria for NASDAQ Securities; Penny Stock Rules. The
Company's Common Stock and Class A Redeemable Warrants are quoted on the

National Association of Securities Dealers Automated Quotation System ("NASDAQ")
for the Small-Cap Market. To maintain its listing on the NASDAQ Small-Cap
Market, the Company must continue to be registered under Section 12(g) of the
Securities Exchange Act of 1934 (the "Exchange Act") and have total assets of at
least $2,000,000, total stockholders' equity of at least $1,000,000, a public
float of at least 100,000 shares with a market value of at least $200,000, at
least 300 holders, a minimum bid price of $1.00 per share and at least two
market makers. In addition, NASDAQ has proposed increasing the requirements for
maintaining a NASDAQ Small-Cap listing to require either: (1) net tangible
assets of at least $2,000,000, (2) a market capitalization of $35,000,000 or (3)
net income in at least two of the last three years of $500,000 and a public
float of at least 500,000 shares with a market value of at least $1,000,000.
There can be no assurance that the Company in the future will meet the
requirements for continued listing on the NASDAQ Small-Cap Market with respect

                                       13


<PAGE>



to the Common Stock or Warrants. If the Company's securities fail to maintain
NASDAQ Small-Cap Market listing, the market value of the Common Stock and
Warrants likely would decline and purchasers likely would find it more difficult
to dispose of, or to obtain accurate quotations as to the market value of, the
Common Stock and Warrants.

         In addition, if the Company fails to maintain NASDAQ Small-Cap Market
listing for its securities, and no other exclusion from the definition of a
"penny stock" under the Exchange Act is available, then any broker engaging in a
transaction in the Company's securities would be required to provide any
customer with a risk disclosure document, disclosure of market quotations, if
any, disclosure of the compensation of the broker-dealer and its salesperson in
the transaction and monthly account statements showing the market values of the
Company's securities held in the customer's accounts. The bid and offer
quotation and compensation information must be provided prior to effecting the
transaction and must be contained on the customer's confirmation. If brokers
become subject to the "penny stock" rules when engaging in transactions in the
Company's securities, they would become less willing to engage in such
transactions, thereby making it more difficult for purchasers in this offering
to dispose of their shares.

         No Dividends. The Company has not paid any cash dividends upon its
Common Stock since its inception and, by reason of its present financial status
and its contemplated financial requirements, does not anticipate paying any cash
dividends in the foreseeable future. It is anticipated that earnings, if any,
which may be generated from operations will be used to finance the operations of
the Company.

Item 2.  Description of Property

         The Company leases a variety of offices and facilities for its
operations as summarized below:


<TABLE>
<CAPTION>
Location              Size and Nature of Facility          Lease Expires
--------              ---------------------------          -------------
<S>                   <C>                                  <C> 
Carlstadt,            Office and factory, 17,700                1998
New Jersey            square feet,
                      warehouse, 9,600 square feet              1999

New York City         Office, 22,300 square feet                2008
                      Office,  1,100 square feet                1998

Los Angeles           Office,  2,800 square feet                1997

Atlanta               Office,  2,700 square feet                1997

Chicago              Office,  3,000 square feet                 1999

Teaneck,             Office,  2,100 square feet                 1997
New Jersey

Glen Rock,           Office,  2,800 square feet                 2001
New Jersey
</TABLE>


                                       14


<PAGE>



Item 3.  Legal Proceedings

         In June 1995, a lawsuit was commenced against the Company by Nortrade
International, Inc. ("Nortrade") in the United States District Court of Utah
(Case No. 2:95CV-565s). Nortrade also manufactures burn care products. The
lawsuit alleges that the Company engaged in various fraudulent and unfair
activities injurious to Nortrade's business, and seeks monetary damages and
injunctions prohibiting the Company from engaging in these activities, including
communicating with Nortrade's customers and the Federal Food and Drug
Administration regarding Nortrade's products. The lawsuit also seeks a
declaratory judgement that Nortrade's trademark does not infringe on the
Company's trademarks. In November 1996 Nortrade and the Company entered into a
Settlement Agreement regarding this lawsuit. The Settlement Agreement generally
provides that the litigation will be dismissed and that each party would give
the other party a general release. The Settlement Agreement also provides that
the Company grant Nortrade a non-exclusive license to utilize certain
trademarks.

         In April 1996, Robert Daniels filed a complaint on the Supreme Court of
the State of New York, New York (96601909) against the Company, Yitz Grossman

and Werner Haase (respectively a former director and a current director of the
Company). In March 1996, Mr. Daniels pleaded guilty in U.S. District Court for
the district of New Jersey (Case No. ADL/9500370) to one count of conspiracy to
commit wire fraud. In the complaint Mr. Daniels alleges that his employment was
suspended, but not terminated, because he has provided information to the United
States Attorney regarding alleged violations of law by defendants and that his
suspension breached an employment agreement and violated the New Jersey whistle
blower statute. He seeks approximately $100,000 in base salary, as well as
benefits, perquisites and bonuses, costs, punitive damages, recovery of alleged
losses relating to 128,125 stock options, and an injunction to reinstate his
employment and against retaliatory actions by the Company. The Company disagrees
with the allegations contained in the complaint. In April 1996, the Company sued
Mr. Daniels and others in the Superior Court of New Jersey Chancery Division,
Bergen County on claims relating to actions by Mr. Daniels following the
termination of his employment. Mr. Daniels has agreed to dismiss the New York
action without prejudice so that the claims can be litigated in the New Jersey
action. The case is currently in the discovery stage and a settlement conference
has been scheduled for February 1997.

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

         No matters were submitted to shareholder vote in the fiscal quarter
ended August 31, 1996.

Item 5.  Market for Common Equity and Related Stockholder Matters

         The following table sets forth the high and low bid prices for the
Company's Common Stock, Class A Warrants and Class B Warrants for the periods
indicated (the Class B Warrants were delisted on March 23, 1995). Information
for all periods is as reported by NASDAQ. The figures shown represent
interdealer prices, without retail mark-up, markdown or commission, and may not
necessarily

                                       15


<PAGE>



represent actual transactions. The following table gives retroactive effect to a
one-for-eight reverse stock split effected in November 1994.

<TABLE>
<CAPTION>
                                           High Bid      Low Bid
                                           --------      -------
<C>                                        <C>           <C> 
                         Common Stock

Fiscal Year Ended August 31, 1996
1st Quarter .....................           1 11/16       1  -
2nd Quarter......................           3  3/8        1 1/16
3rd Quarter......................           5  3/4        2 1/4
4th Quarter......................           4  5/8        2 7/16

Fiscal Year Ended August 31, 1995

1st Quarter......................           2  3/4        1   -
2nd Quarter......................           2  1/2        1  3/8
3rd Quarter......................           1 15/16       1  1/4
4th Quarter......................           1  1/8        1  3/16


                         Class A Warrants

Fiscal Year Ended August 31, 1996

1st Quarter .....................             13/32          9/32
2nd Quarter......................           1  3/4           1/4
3rd Quarter......................           4  1/2         1  -
4th Quarter......................           3  1/16        1 7/16
 
Fiscal Year Ended August 31, 1995

1st Quarter .....................            1  1/2         1/4
2nd Quarter......................            1   -          1/2
3rd Quarter......................              11/16       11/32
4th Quarter......................               7/16        3/8


                         Class B Warrants

Fiscal Year Ended August 31, 1996

1st Quarter......................               -           -
2nd Quarter......................               -           -
3rd Quarter......................               -           -
4th Quarter......................               -           -

Fiscal Year Ended August 31, 1995

1st Quarter......................              3/8         3/8
2nd Quarter......................               -           -
3rd Quarter......................               -           -
4th Quarter......................               -           -
</TABLE>



         As of November 25, 1996 the approximate number of beneficial holders of
the Common Stock of the Company was 5,500, based on information received from
the transfer agent and those brokerage firms who hold the Company's securities
in street name.

         The Company has not paid any cash dividends since its
inception.  By reason of its present financial status and
contemplated financial requirements, the Company does not
anticipate paying any cash dividends in the foreseeable future. It

                                       16


<PAGE>



is anticipated that any earnings will be used to finance the
Company's growth.

Item 6.  Management's Discussion and Analysis or Plan of Operations

         In July 1996, the Company acquired all of the outstanding stock of
Journeycraft and Theracom in exchange for 3,500,000 shares of the Company's
Common Stock. The acquisition was accounted for as a "pooling of interests."
Consequently, the Company's financial statements are based on the assumption
that the companies were combined for the full year, and the financial statements
of prior years have been restated to give effect to the combination.

Results of Operations

         Net sales for the fiscal year ended August 31, 1996 ("fiscal 1996") and
August 31, 1995 ("fiscal 1995"), respectively were approximately $54,864,000 and
$43,515,000, representing a 26% increase in net sales. The increase in net sales
was primarily due to growth of Theracom and an increase in X-Ceed's business
with MCI International.

         Net income in fiscal 1996 was $632,315 compared to $2,131,242 in fiscal
1995. The significant decrease in net income was due to several factors.
Non-recurring factors affected both years. Net income in fiscal 1995 was
enhanced by an income tax benefit of $601,000 which resulted from the
recognition of a non-recurring tax benefit from available net operating loss
carryforward. In contrast, in fiscal 1996, provision for income taxes was
somewhat higher than might be expected in the future because, among other
factors, the costs associated with the acquisition could not all be deducted for
income tax purposes although they had to be expensed. In addition, the Company
had non-recurring expenses in fiscal 1996 for acquisition costs in the amount of
$253,251 and a loss on impairment of notes receivable of $325,000, although
these items were offset by a non-recurring gain on sale of investments of
$598,589.

         Cost of revenues during fiscal 1996 were approximately $34,933,000 as

compared to approximately $24,888,000 during fiscal 1995, representing 64% and
57% of net sales, respectively. Selling, administrative and general expenses for
fiscal 1996 were approximately $18,712,000 (34% of net sales) as compared to
approximately $15,857,000 (36% of net sales) in fiscal 1995. The increase in
cost of revenues as percentage of net sales also adversely impacted net income
and was primarily due to increased rebates to Journeycorp customers and expenses
of developing X-Ceed's Intranet technology.

         In April 1996, the Company ceased being the majority owner of X-Ceed
Motivation Atlanta, Inc. ("XCA") as a result of a stock award to an officer of
XCA. As a result, effective April 1, 1996 the Company no longer consolidated the
revenues, assets, and liabilities of XCA in the Company's financial statements.
XCA's revenues for the period April to August 1996 were approximately $9
million. This cessation of consolidation will tend to reduce future revenues as
compared to prior periods when XCA's results were consolidated with the
Company's. However, the Company will

                                       17


<PAGE>



continue to recognize earnings on its equity investment in XCA, which were
$203,463 during the five month period from April to August 1996.

Liquidity and Capital Resources

         At August 31, 1996, the Company had working capital of approximately
$7,964,000 as compared to approximately $5,120,000 at August 31, 1995. The
increase was attributable primarily to net income, an increase in accounts
receivable, and the sale of marketable securities during fiscal 1996.

         The Company has available a $250,000 term loan facility of which
$109,000 remained unused at August 31, 1996. The term loan accrues interest at
1.25% over the bank's prime rate. The Company has available a line of credit
which bears interest at 3/4% over the bank's prime rate and has a maximum
borrowing limit of $750,000. The line is secured by the accounts receivable and
inventory of the Company. At August 31, 1996 there were no balances outstanding
under the line of credit. In addition, the Company has certain long-term loans
due in 2000 with monthly payments aggregating $3,267.

         The consolidated statement of cash flows for fiscal 1996 reflects net
cash provided by operating activities of $1,145,672. This results principally
from the Company's net income of $632,315. Net cash used in investing activities
was $2,447,056, consisting principally of $3,128,182 arising from the
divestiture of a majority interest in XCA. Net cash provided by financing
activities was $1,157,933, consisting principally of proceeds from notes
payable.

         The Company believes that it has adequate working capital for at least
the next twelve months of operations. As of August 31, 1996 the Company had
approximately $7,333,000 in cash and cash equivalents. While the Company has

sufficient capital resources to conduct its current activities, it will require
additional financing in order to expand its current operations. In order to
obtain such financing, the Company might seek to encourage the exercise of its
redeemable publicly traded Warrants or make a private placement of its
securities. The Company has at present no plans or arrangements to raise
additional capital by either method.

Inflation and Seasonality

         The Company has not been materially affected by the impact of inflation
nor are its operations subject to material variations due to the time of year.

Item 7.  Financial Statements

         The financial statements commence on Page F-1.

Item 8. Changes in and Disagreements with Accountants on Accounting
         and Financial Disclosure

Not Applicable.

                                       18


<PAGE>



Item 9. Directors, Executive Officers, Promoters and Control
Persons; Compliance With Section 16(a) of the Exchange Act

         The executive officers and directors of the Company are as follows:

<TABLE>
<CAPTION>
     Name                          Age       Position
--------------------              -----      ---------------------
<S>                                <C>       <C>
Werner Haase........               58        Chairman and CEO
Nurit Kahane Haase..               46        Senior Vice President
Norman Doctoroff....               62        Director
</TABLE>

     Directors are elected to serve until the next annual meeting of
shareholders of the Company or until their successors are elected and qualified.
The Board of Directors held one meeting in the fiscal year ended August 31, 1996
and also met informally and acted by written consents during the year. Officers
serve at the discretion of the Board of Directors subject to any contracts of
employment.

     Werner Haase has served as a Director of the Company since September 1987
and became Chairman and Chief Executive Officer in July 1996 following the
acquisition of Journeycraft and Theracom. For more than the past five years, Mr.
Haase has been a Director and Chief Executive Officer of Journeycraft. Mr Haase

is also a director of PureTec Corporation, a company which manufactures
specialty plastic products and is engaged in the recycling of post consumer
plastics and plastic injection molding, Multi-Media Tutorial Services, Inc., a
company engaged in the production and marketing of educational videos, and
Datatrend Inc., a company which refurbishes and resells computer equipment.

         Nurit Kahane Haase became Senior Vice President of the Company in July
1996 following the acquisition of Journeycraft and Theracom. For more than the
past five years, Mrs. Haase has been President of Journeycraft.

          Norman Doctoroff was elected a Director of the Company in May 1996.
Until 1995, he was President of Gemini Industries, a company engaged in the
production of consumer electronics accessories. Since then he has served as an
independent management consultant to Gemini Industries and other companies.

Item 10.  Executive Compensation

         The information set forth under "Election of Directors Executive
Compensation, Employment Agreements, Non-Qualified Stock Option Plan and 1990
and 1995 Stock Option Plans" in the Company's proxy statement with respect to
its forthcoming annual shareholders meeting is incorporated herein by reference
and made a part hereof in response to the information requested by this item.

Item 11. Security Ownership of Certain Beneficial Owners and
         Management.

         The information set forth under "Election of Directors Principal
Shareholders and Share Ownership of Officers and Directors" in the Company's
proxy statement with respect to its

                                       19


<PAGE>



forthcoming annual shareholders meeting in response to the
information requested by this item.

Item 12.  Certain Relationships and Related Transactions

         The information set forth under "Election of Directors Certain
Relationships and Related Transactions" in the Company's proxy statement with
respect to its forthcoming annual shareholders meeting is incorporated herein by
reference and made a part hereof in response to the information requested by
this item.

                                     PART IV

Item 13.  Exhibits, List and Reports on Form 8-K

         (a)      1.       Financial Statements and Schedules
                           The financial statements and schedules appearing

                           beginning on the following page are filed as part
                           of this annual report.

                  2.       Exhibits

                           The exhibits listed on the Index to Exhibits
                           following the Signature Page herein are filed as part
                           of this annual report by incorporation by reference
                           from the filings indicated in the footnotes to the
                           Index.

         (b) On July 12, 1996, the Company filed a report on Form 8-K reporting
the acquisition of Journeycraft and Theracom. The report included Item 1 --
Changes in Control of Registrant, Item 2 -- Acquisition or Disposition of
Assets, and Item 7 -- Financial Statements and Exhibits.

                                       20


<PAGE>




                                   SIGNATURES

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

                                            WATER-JEL TECHNOLOGIES, INC.

                                            By    /s/ Werner G. Haase
                                              ----------------------------------
                                                      Werner G. Haase
                                            Chairman and Chief Executive Officer

Dated: December 13, 1996

         Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been signed below on December 13, 1995 by the following persons
on behalf of Registrant and in the capacities indicated.

                                                  /s/ Werner G. Haase
                                              ----------------------------------
                                              Werner G. Haase,
                                              Chief Executive Officer, Principal
                                              Accounting Officer and Chairman

                                                  /s/ Norm Doctoroff
                                              ----------------------------------
                                              Norm Doctoroff, Director

                                       21



<PAGE>

Exhibits

(3)   (a) Articles of Incorporation (1), previous Amendments (3) (6) (7)
(3)   (b) By-laws of the Registrant(1) 
(4)   (a) Form of Common Stock(1) 
(4)   (b) Form of Class A Warrant(2) 
(4)   (c) Form of Warrant Agreement(2)
(10)  (a) Employment Agreement with Peter Cohen(5) 
(10)  (b) Assignments of Patent Rights(3) 
(10)  (c) Agreement dated July 13, 1988 between Trilling Medical Technologies,
          Inc., Yitz Grossman, Emanuel Trilling and Cary Trilling(4)
(10)  (d) Copy of Non-Qualified Stock Option Plan(1)
(10)  (e) Copy of 1990 Stock Option Plan(5)
(10)  (f) Copy of 1995 Stock Option Plan(8)
(10)  (g) Agreement and Plan of Merger dated as of May 17, 1996, by and
          among the Company, JCI, THI, JCI Acquisition Corp., THI Acquisition
          Corp. and Werner Haase(9)
(10)  (h) Employment Agreement, dated as of July 1, 1996, by and among the
          Company and Nurit Kahane Haase(9)
(10)  (i) Employment Agreement, dated as of December 11, 1996, by and among
          the Company and Werner Haase*
(23)      Consent of Holtz Rubenstein & Co., LLP*

-----------------------------
       * Filed herewith

(1)    Incorporated by reference from the Company's Registration Statement on
       Form S-18, File No. 2-90512-NY, initially filed with the Commission on
       April 12, 1984.

(2)    Incorporated by reference from the Company's Registration Statement on
       Form S-1, File No. 33-23910, initially filed with the Commission on
       August 23, 1988.

(3)    Incorporated by reference from the Company's Annual Report on Form 10-K
       for the fiscal year ended August 31, 1987.

(4)    Incorporated by reference from the Company's Current Report on Form 8-K
       filed with the Commission on July 22, 1988.

(5)    Incorporated by reference from the Company's Annual Report on Form 10-K
       for the fiscal year ended August 31, 1990.

(6)    Incorporated by reference from the Company's Annual Report on Form 10-K
       for the fiscal year ended August 31, 1991.

(7)    Incorporated by reference from the Company's Annual Report on Form 10-KSB
       for the fiscal year ended August 31, 1994.


(8)    Incorporated by reference from the Company's Registration Statement on
       Form S-8, File No. 333-01685, filed with the Commission on March 13,
       1996.

(9)    Incorporated by reference from the Company's Current Report on Form 8-K
       filed with the Commission on July 12, 1996.

                                       22



<PAGE>


                 WATER-JEL TECHNOLOGIES, INC. AND SUBSIDIARIES

             REPORT ON AUDITS OF CONSOLIDATED FINANCIAL STATEMENTS

                        TWO YEARS ENDED AUGUST 31, 1996

                                    CONTENTS

                                                                      Page

Independent auditors' report                                           F-1

Consolidated balance sheet                                             F-2

Consolidated statements of income                                      F-3

Consolidated statement of stockholders' equity                         F-4

Consolidated statements of cash flows                                  F-5

Notes to consolidated financial statements                         F-6 - F-18


<PAGE>


                          Independent Auditors' Report

Board of Directors and Stockholders
Water-Jel Technologies, Inc.
Carlstadt, New Jersey

We have audited the accompanying consolidated balance sheet of Water-Jel
Technologies, Inc. and Subsidiaries as of August 31, 1996 and the related
consolidated statements of operations, stockholders' equity and cash flows for
the two years ended August 31, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Water-Jel
Technologies, Inc. and Subsidiaries as of August 31, 1996, and the results of
their operations and their cash flows for the two years ended August 31, 1996,
in conformity with generally accepted accounting principles.


                                        HOLTZ RUBENSTEIN & CO., LLP

Melville, New York
November 14, 1996

                                  F-1


<PAGE>


             WATER-JEL TECHNOLOGIES, INC. AND SUBSIDIARIES
                                   
                      CONSOLIDATED BALANCE SHEET

                            AUGUST 31, 1996
<TABLE>
<CAPTION>
         ASSETS
         -----
<S>                                                                               <C>
CURRENT ASSETS:
   Cash and cash equivalents                                                       $    7,333,168
   Investment in marketable securities (Note 5)                                         1,055,673
   Accounts receivable, net of allowance for doubtful
     accounts of $154,000 (Note 10)                                                     3,646,124
   Inventories (Note 4 and 10)                                                          1,102,741
   Deferred income taxes (Note 11)                                                        343,000
   Prepaid expenses and other current assets                                              281,617
                                                                                   --------------
       Total current assets                                                            13,762,323

PROPERTY AND EQUIPMENT, net (Note 6)                                                    1,576,506
INVESTMENT IN X-CEED MOTIVATION ATLANTA, INC. (Note 7)                                    264,150
DUE FROM OFFICER (Note 8)                                                               1,222,483
DEFERRED INCOME TAXES (Note 11)                                                           218,890
OTHER ASSETS                                                                              338,826
                                                                                   --------------
                                                                                   $   17,383,178
                                                                                   ==============

     LIABILITIES AND STOCKHOLDERS' EQUITY
    ------------------------------------
CURRENT LIABILITIES:
   Accounts payable and accrued expenses                                           $    3,271,060
   Note payable, bank (Note 9)                                                          1,065,000
   Current portion of long-term debt (Note 10)                                             39,200
   Income taxes payable, current (Note 11)                                                220,188
   Customer billings in excess of program costs                                         1,187,786
   Other current liabilities                                                               14,942
                                                                                   --------------
       Total current liabilities                                                        5,798,176
                                                                                   --------------

LONG-TERM DEBT (Note 10)                                                                   90,700
                                                                                   --------------
ACCRUED LEASE OBLIGATION (Note 16)                                                        794,000
                                                                                   --------------

COMMITMENTS (Note 16)

STOCKHOLDERS' EQUITY:  (Note 12)

   Common stock, $.08 par value; authorized 12,500,000
     shares; 7,020,180 issued and outstanding                                             561,614
   Preferred stock, $.08 par value; authorized 125,000 shares;
     -0- issued and outstanding                                                                -
   Unrealized gain on investments reported at fair value                                  307,448
   Additional paid-in capital                                                           9,671,580
   Retained earnings                                                                      215,290
                                                                                   --------------
                                                                                       10,755,932
   Treasury stock, 10,000 shares                                                          (55,630)
                                                                                   --------------
                                                                                       10,700,302
                                                                                   --------------
                                                                                   $   17,383,178
                                                                                   ==============
</TABLE>
                See notes to consolidated financial statements
                                       
                                      F-2


<PAGE>


                 WATER-JEL TECHNOLOGIES, INC. AND SUBSIDIARIES

                       CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>

                                                                                         Years Ended
                                                                                         August 31,
                                                                            ------------------------------------
                                                                                 1996                  1995
                                                                            --------------        --------------
<S>                                                                         <C>                  <C>
REVENUES, net (Notes 14 and 17)                                             $   54,863,574        $   43,515,440
                                                                            --------------        --------------
COSTS AND EXPENSES:  (Notes 16 and 18)
   Cost of revenues                                                             34,932,523            24,887,886
   Selling, general and administrative                                          18,712,007            15,857,295
                                                                            --------------        --------------

                                                                                53,644,530            40,745,181
                                                                            --------------        --------------

OPERATING INCOME                                                                 1,219,044             2,770,259
                                                                            --------------        --------------

OTHER INCOME (EXPENSE):
   Interest and dividend income                                                    298,986               196,487
   Interest expense                                                               (126,478)             (123,016)
   Gain on sale of investments                                                     598,589                35,000
   Equity earnings on investment                                                   203,463                    -

   Merger costs and expenses (Note 3)                                             (253,251)                   -
   Loss on impairment of notes receivable (Note 13)                               (325,000)              (75,000)
   Other, net                                                                       56,962                    -
                                                                            --------------        -------------
                                                                                   453,271                33,471
                                                                            --------------        --------------

INCOME BEFORE INCOME TAXES
   AND MINORITY INTEREST                                                         1,672,315             2,803,730

PROVISION FOR INCOME TAXES (Note 11)                                               922,000               687,125
                                                                            --------------        --------------

INCOME BEFORE MINORITY INTEREST                                                    750,315             2,116,605

MINORITY INTEREST IN INCOME (LOSS) (Note 7)                                        118,000               (14,637)
                                                                            --------------        --------------

NET INCOME                                                                  $      632,315        $    2,131,242
                                                                            ==============        ==============

NET INCOME PER COMMON SHARE:  (Note 12)
   Primary                                                                            $.09                  $.35
                                                                                      ====                  ====
   Assuming full dilution                                                             $.09                  $.35
                                                                                      ====                  ====

WEIGHTED AVERAGE NUMBER OF
   SHARES OUTSTANDING
     Primary                                                                     6,992,347             6,172,513
                                                                                 =========             =========
     Assuming full dilution                                                      6,992,347             6,172,513
                                                                                 =========             =========
</TABLE>

                See notes to consolidated financial statements

                                      F-3
<PAGE>

                 WATER-JEL TECHNOLOGIES, INC. AND SUBSIDIARIES

                CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
                                   (Note 12)
<TABLE>
<CAPTION>
                                                      Common Stock           Preferred Stock
                                                    12,500,000 Shares        125,000 Shares
                                                     $.08 Par Value          $.08 Par Value        
                                                ----------------------    --------------------     Additional
                                                                Par                     Par          Paid-in 
                                                   Share       Value       Shares      Value         Capital 
                                                ----------  ----------    ---------  ---------    -----------
<S>                                              <C>        <C>           <C>        <C>          <C>  

Balance, August 31, 1994,                                                                                    
   as previously reported                        3,499,180  $  279,934           -   $      -     $ 9,633,335
                                                                                                             
Pooling of interest with Journeycraft, Inc.      2,225,000     178,000           -          -          70,255
                                                ----------  ----------    ---------  ---------    -----------
                                                                                                             
Balance, August 31, 1994, as adjusted            5,724,180     457,934           -          -       9,703,590
                                                                                                             
Transfer of shares in subsidiary                                                                             
   to minority shareholder                              -           -            -          -          48,882
                                                                                                             
Exercise of options/rights                       1,100,000      88,000           -          -         (88,000
                                                                                                             
Net unrealized holding gain on available-                                                                    
   for-sale securities (Note 5)                         -           -            -          -              - 
                                                                                                             
Net income                                              -           -            -          -              - 
                                                ----------  ----------    ---------  ---------    -----------
                                                                                                             
Balance, August 31, 1995                         6,824,180     545,934           -          -       9,664,472
                                                                                                             
Transfer of shares in subsidiary                                                                             
   to minority shareholder                              -           -            -          -        (122,852)
                                                                                                             
Issuance of stock by subsidiary for services            -           -            -          -         103,000
                                                                                                             
Exercise of options/rights                         196,000      15,680           -          -          26,960
                                                                                                             
Net unrealized holding gain on available-                                                                    
   for-sale securities (Note 5)                         -           -            -          -              -
                                                                                                             
Net income                                              -           -            -          -              - 
                                                ----------  ----------    ---------  ---------    -----------
Balance, August 31, 1996                         7,020,180  $  561,614           -   $      -     $ 9,671,580
                                                ==========  ==========    =========  =========    ===========
                                                                                                             
<CAPTION>                                              
                                                  Unrealized       Earnings/       Treasury
                                                     Gain          (Deficit)         Stock         Total
                                                  ----------     ------------    ----------    -------------
<S>                                               <C>            <C>             <C>           <C>
Balance, August 31, 1994,                     
   as previously reported                         $       -      $ (3,493,147)   $       -     $   6,420,122
                                              
Pooling of interest with Journeycraft, Inc.               -           944,880       (55,630)       1,137,505
                                                  ----------     ------------    ----------    -------------
                                              
Balance, August 31, 1994, as adjusted                     -        (2,548,267)      (55,630)       7,557,627
                                              
Transfer of shares in subsidiary              
   to minority shareholder                                -                -             -            48,882
                                              
Exercise of options/rights                                -                -             -                -
                                              

Net unrealized holding gain on available-     
   for-sale securities (Note 5)                      547,955               -             -           547,955
                                              
Net income                                                -         2,131,242            -         2,131,242
                                                  ----------     ------------    ----------    -------------
                                              
Balance, August 31, 1995                             547,955         (417,025)      (55,630)      10,285,706
                                              
Transfer of shares in subsidiary              
   to minority shareholder                                -                -             -          (122,852)
                                              
Issuance of stock by subsidiary for services              -                -             -           103,000
                                              
Exercise of options/rights                                -                -             -            42,640
                                              
Net unrealized holding gain on available-     
   for-sale securities (Note 5)                     (240,507)              -             -          (240,507)
                                              
Net income                                                -           632,315            -           632,315
                                                  ----------     ------------    ----------    -------------
Balance, August 31, 1996                          $  307,448     $    215,290    $  (55,630)   $  10,700,302
                                                  ==========     ============    ==========    =============
</TABLE>

                See notes to consolidated financial statements
                                               
                                      F-4
<PAGE>


                 WATER-JEL TECHNOLOGIES, INC. AND SUBSIDIARIES

                     CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>

                                                                                         Years Ended
                                                                                         August 31,
                                                                            ------------------------------------
                                                                                  1996                  1995
                                                                            --------------         -------------
<S>                                                                        <C>                    <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
   Net income                                                               $      632,315         $   2,131,242
                                                                            --------------         -------------
   Adjustments to reconcile net income to net cash
     provided by operating activities:
       Gain on sale of marketable securities                                      (598,589)              (35,000)
       Gain on sale of equipment                                                    (3,500)                   -
       Loss on impairment of notes receivable                                      325,000                75,000
       Provision for losses on accounts receivable                                 312,135                76,370
       Minority interest in net earnings                                           118,000               (14,637)
       Contributed services                                                         45,000                    -
       Depreciation and amortization                                               539,551               423,946

       Equity earnings on investment                                              (203,463)                   -
       Deferred income taxes                                                       543,170              (520,000)
       Changes in operating assets and liabilities:
         (Increase) decrease in assets:
           Accounts receivable                                                  (2,663,264)              (67,430)
           Inventories                                                              10,628              (258,932)
           Prepaid expenses and other current assets                              (134,052)             (157,930)
           Other assets                                                            147,377               (40,631)
         Increase (decrease) in liabilities:
           Accounts payable and accrued expenses                                 1,350,096               589,473
           Income taxes payable                                                   (600,040)              880,894
           Customer billings in excess of program costs                          1,470,814               818,249
           Accrued lease liability                                                (126,000)              (89,000)
           Other current liabilities                                               (19,506)              (31,566)
                                                                            --------------         -------------
       Total adjustments                                                           513,357             1,648,806
                                                                            --------------         -------------
       Net cash provided by operating activities                                 1,145,672             3,780,048
                                                                            --------------         -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
   Investments in marketable securities                                            (70,940)             (410,194)
   Divestiture of consolidated affiliate                                        (3,128,182)                   -
   Proceeds from sale of marketable securities                                     749,340               993,485
   (Advances) repayments from shareholders                                          75,000               (24,469)
   (Increase) decrease in notes receivable                                         150,000              (305,000)
   Proceeds from sale of property and equipment                                     15,000                13,616
   Acquisition of property and equipment                                          (237,274)             (407,763)
                                                                            --------------         -------------
       Net cash used in investing activities                                    (2,447,056)             (140,325)
                                                                            --------------         -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
   Proceeds from long-term debt                                                         -                166,000
   Principal payments of long-term debt                                            (39,200)              (54,944)
   Repayment of notes payable                                                           -               (675,000)
   Proceeds from notes payable                                                   1,065,000                    -
   Advances from affiliate                                                          89,493                    -
   Proceeds from the exercise of warrants and options                               42,640                    -
                                                                            --------------         ------------
       Net cash provided by (used in) financing activities                       1,157,933              (563,944)
                                                                            --------------         -------------
NET (DECREASE) INCREASE IN CASH AND

   CASH EQUIVALENTS                                                               (143,451)            3,075,779
CASH AND CASH EQUIVALENTS, beginning of year                                     7,476,619             4,400,840
                                                                            --------------         -------------
CASH AND CASH EQUIVALENTS, end of year                                      $    7,333,168         $   7,476,619
                                                                            ==============         =============
</TABLE>

                See notes to consolidated financial statements

                                      F-5

<PAGE>

                 WATER-JEL TECHNOLOGIES, INC. AND SUBSIDIARIES

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                        TWO YEARS ENDED AUGUST 31, 1996

1.   Organization and Nature of Operations:

     Water-Jel  Technologies,  Inc. (the "Company")  manufactures a line of
medical  products for the first aid treatment of burns. Its products include
fire blankets, sterile burn dressings and topical creams and ointments.

     On July 2, 1996, the Company acquired Journeycraft, Inc. and Affiliates
("Journeycraft"). Journeycraft provides retail corporate travel related
services, including reservations, ticketing and travel management for major U.S.
corporations and also organizes and operates meeting and group incentive
programs for corporations and medical professionals.

2.   Summary of Significant Accounting Policies:

     a.  Principles of consolidation

         The accompanying consolidated financial statements include the accounts
of Water-Jel Technologies, Inc. (the "Company") and all its wholly-owned and
majority-owned subsidiaries. Upon consolidation, all significant intercompany
accounts and transactions are eliminated.

         Investments in affiliates, representing 20% to 50% of the ownership of
such companies, are accounted for under the equity method. Under this
accounting, the investment is increased or decreased by the Company's share of
earnings or losses after dividends.

         For periods prior to the fiscal year ended August 31, 1996, X-Ceed
Motivation Atlanta, Inc. ("X-Ceed Atlanta") has been presented as a majority
interest (reflecting investment in excess of 50%) on a consolidated basis with
the minority interest indicated and adjusted.

         On April 1, 1996, the Company's equity interest in X-Ceed Atlanta,
previously representing a 59% majority interest, was reduced to a 50% ownership,
as a result of the Company transferring shares of its common stock in X-Ceed
Atlanta to the minority shareholder. As a result of this stock transfer the
Company's ownership in X-Ceed Atlanta was reduced to a 50% interest and
therefore, the assets, liabilities and operations of X-Ceed Atlanta after April
1, 1996 were not included in the consolidated financial statements for the
fiscal year ended August 31, 1996.

         b.  Revenue recognition

         Revenue from retail travel services is recognized upon the ticketing of
the related flights. The Company bills clients in advance for group meeting and
incentive programs and records such deposits on the balance sheet, as customer
billings in excess of program costs. The Company recognizes revenue, net of the

related costs, when the travel has commenced, or when the group meeting or
incentive program is completed.

         c.  Inventories

         Inventories are stated at the lower of cost (first-in, first-out
method) or market.

                                      F-6
<PAGE>


2.   Summary of Significant Accounting Policies:  (Cont'd)

     d.  Investments in marketable securities

         Equity securities having readily determinable fair values and all
investments in debt securities are classified and accounted for in three
categories. Debt securities that management has the positive intent and ability
to hold to maturity are classified as "held-to-maturity securities" and reported
at amortized cost. Debt and equity securities that are bought and principally
held for the purpose of selling them in the near term are classified as "trading
securities" and reported at fair value, with unrealized gains and losses
included in operating results. Debt and equity securities not classified as
either held-to-maturity securities or trading securities are classified as
"available-for-sale securities" and reported at fair value, with the unrealized
gains and losses excluded from operating results and reported as a separate
component of stockholders' equity. A decline in the market value of any
available-for-sale security below cost that is deemed other than temporary is
charged to earnings resulting in the establishment of a new cost basis for the
security.

         Gains and losses on the sale of securities available-for-sale are
computed on the basis of specific identification of the adjusted cost of each
security.

     e.  Depreciation and amortization

         Depreciation is computed using the straight-line method over the
estimated useful lives of the related assets. Amortization of leasehold
improvements is computed using the straight-line method over the estimated
useful lives of the related assets or the remaining term of the lease, whichever
is shorter. Maintenance and repairs of property and equipment are charged to
operations and major improvements are capitalized. Upon retirement, sale or
other disposition of property and equipment, the cost and accumulated
depreciation are eliminated from the accounts and gain or loss is included in
operations.

     f.  Concentration of Risk

         The Company invests its excess cash in deposits and money market
accounts with major financial institutions and in commercial paper of companies
with strong credit ratings. Generally, the investments mature within ninety days
and therefore, are subject to little risk. The Company has not experienced

losses related to these investments.

         The concentration of credit risk in the Company's accounts receivable
is substantially mitigated by the Company's credit evaluation process,
reasonably short collection terms and the geographical dispersion of revenue.
Although the Company generally does not require collateral, reserves for
potential credit losses are maintained and such losses have been within
management's expectations.

     g.  Income taxes

         Deferred tax assets and liabilities are determined based on differences
between financial reporting and tax bases of assets and liabilities, and are
measured using the enacted tax rates and laws that will be in effect when the
differences are expected to reverse.

         Deferred tax assets and liabilities are determined based on differences
between financial reporting and tax bases of assets and liabilities, and are
measured using the enacted tax rates and laws that will be in effect when the
differences are expected to reverse.

                                      F-7
<PAGE>


2.   Summary of Significant Accounting Policies:  (Cont'd)

     h.  Impairment of long-lived assets

         In March 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of,"
(FASB 121) regarding the impairment of long-lived assets, identifiable
intangibles and goodwill related to those assets. FASB 121 is effective
commencing with the Company's 1997 fiscal year. The Company does not anticipate
the adoption of this standard will have a material effect on its financial
position or results of operations.

     i.  Stock options

         In October 1995, the FASB issued Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation," (FASB 123) which
requires companies to measure employee stock compensation based on the fair
value method of accounting, or to use the intrinsic value method prescribed in
Accounting Principles Board Opinion No. 25 and to provide pro-forma footnote
disclosures under the fair value method in FASB 123. The Company will adopt the
new standard in fiscal 1997 and expects to elect the continued use of APB
Opinion No. 25.

     j.  Use of estimates

         The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and

disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

     k.  Advertising costs

         Advertising costs are charged to operations when the advertising first
takes place.

     l.  Statement of cash flows

         For purposes of the statement of cash flows, the Company considers all
highly liquid debt instruments purchased with a maturity of three months or less
to be cash equivalents.

     m.  Reclassifications

         Certain  reclassifications  have been made to the financial  statements
for the year ended August 31, 1995 to conform with the classifications  used in
1996.

3.   Merger With Journeycraft, Inc. and Affiliates:

     On July 2, 1996, Journeycraft became a wholly owned subsidiary of the
Company through the exchange of 3,500,000 shares of the Company's common stock
for all of the outstanding stock of Journeycraft. The merger qualifies as a
tax-free reorganization and was accounted for as a "pooling of interests." The
accompanying financial statements for fiscal 1996 are based on the assumption
that the companies were combined for the full year, and the financial statements
of prior years have been restated to give effect to the combination.

                                      F-8
<PAGE>


3.   Merger With Journeycraft, Inc. and Affiliates:  (Cont'd)

     Separate approximated net revenues and net income amounts of the merged
entities for the periods prior to the merger are as follows:

                                     Ten Months
                                        Ended              Year Ended
                                      June 30,              August 31,
                                        1996                  1995
                                   --------------        --------------
       Net revenues:                                                         
         Water-Jel                 $    3,354,000        $    5,029,000
         Journeycraft                  41,860,000            38,486,000
                                   --------------        --------------
                                 
                                   $   45,214,000        $   43,515,000
                                   ==============        ==============
                                 
       Net income:           

         Water-Jel                 $       73,000        $      787,000
         Journeycraft                     441,000             1,344,000
                                   --------------        --------------
                             
                                   $      514,000        $    2,131,000
                                   ==============        ==============
                             
     Merger costs of $253,000 were incurred and have been charged to operations
in the fourth quarter of 1996. The merger costs consist of legal, accounting and
investment banking fees.

4.   Inventories:

       Inventories consist of the following at August 31, 1996:

       Raw materials                                            $     804,123
       Finished goods                                                 298,618
                                                                -------------
                                                               
                                                                $   1,102,741
                                                                =============
                                                                      
5.   Investment in Marketable Securities:

     At August 31, 1996, marketable equity securities, which are classified as
available for sale securities, are valued at the fair value of the securities
and the unrealized gain on the securities, net of income taxes, are reflected in
stockholders' equity. During the years ended August 31, 1996 and 1995,
unrealized (loss)/gain (net of income taxes) on available for sale securities
amounted to $(240,507) and $547,955, respectively.

     The carrying  amounts of  investment  securities as shown in the balance 
sheet of the Company and their  approximate  values at August 31, 1996 were as
follows:

<TABLE>
<CAPTION>
                                                                  Gross             Gross
                                              Amortized         Unrealized         Unrealized         Fair
                                                Cost              Gains             Losses            Value
                                            -----------        -----------        -----------     -------------
       <S>                                  <C>                <C>                <C>              <C>
       Securities available for sale
         equity investments                 $   553,114        $   502,559        $        -       $  1,055,673
                                            ===========        ===========        ===========      ============
</TABLE>

                                      F-9
<PAGE>


6.   Property and Equipment:

     Property and equipment, at cost, consists of the following at August 31,

1996:

     Machinery and equipment                                 $   1,934,831
     Furniture and fixtures                                        622,793
     Software                                                      152,426
     Transportation equipment                                       56,251
     Leasehold improvements                                        863,593
                                                             -------------
                                                                 3,629,894
     Less accumulated depreciation and amortization              2,053,388
                                                             -------------
                                                             $   1,576,506
                                                             =============
7.   Investment in X-Ceed Motivation Atlanta, Inc.:

     The Company has a 50% equity interest in X-Ceed Atlanta which organizes and
operates group incentive programs for major corporations located primarily in
the Atlanta, Georgia area. For the year ended August 31, 1996 earnings from this
investment approximated $203,000.

     Summarized financial position and results of operations of X-Ceed Atlanta
for the period April 1, 1996 through August 31, 1996, are presented below.

                                                               August 31,
              Assets                                              1996
              ------                                         -------------
       Current assets                                           $1,562,000
       Property and equipment, net                                  62,000
       Other assets                                                181,000
                                                             -------------
                                                        
              Total assets                                   $   1,805,000
                                                             =============
                                                        
           Liabilities and shareholders' equity         
           -----------------------------------
       Current liabilities                                   $     558,000
       Shareholders' equity                                      1,247,000
                                                             -------------
                                                        
              Total liabilities and shareholders' equity     $   1,805,000
                                                             =============
                                                        
                                                                 Period
                                                              April 1, 1996
                                                              to August 31,
                                                                  1996
                                                             -------------
       Revenues, net                                         $   9,017,000
       Operating expenses                                        8,367,000
                                                             -------------
       Operating income                                            650,000
       Other income                                                 32,000
                                                             -------------

       Income before provision for income taxes                    682,000
       Provision for income taxes                                  275,000
                                                             -------------
                                                        
       Net income                                            $     407,000
                                                             =============
                                                        
       Loans of $359,000 from X-Ceed Atlanta to the Company are netted against
the investment in X-Ceed Atlanta as of August 31, 1996.

                                     F-10

<PAGE>

8.   Due from Officer:

     Due from officer represents a loan to the Company's President. The loan is
payable in equal annual installments of $100,000, including interest, commencing
in December 1997 through December 2016, when the remaining unpaid principal and
any accrued interest is payable in full. Commencing December 1, 1996, the loan
bears interest at 6.77% per annum, prior to that the loan was non-interest
bearing.

9.   Note Payable, Bank:

     Note payable, bank at August 31, 1996 consists of a promissory note bearing
interest at the bank's prime rate.  The loan was repaid in September 1996.

10.  Long-Term Debt:

     Long-term debt at August 31, 1996, consists of the following:

     Term loan payable in monthly installments of
       $2,767 plus interest at 1 1/4% over the
       bank's prime rate through October 2000. (a)                   $   107,900

     Term loan payable in monthly installments of
       $500 plus interest at 9 1/2% through April 2000.                   22,000
                                                                     -----------
                                                                         129,900
     Less current portion                                                 39,200

                                                                     $    90,700
                                                                     ===========

     (a) The Company has available a $250,000 term loan facility of which
$109,000  remains unused at August 31, 1996.  Borrowings  bear interest at 1
1/4% over the bank's prime rate (8.5% at August 31, 1996).

     In addition, the Company maintains a line of credit with a bank expiring in
January 1997. The line of credit bears interest at 3/4% over the bank's prime
rate and has a maximum borrowing limit of $750,000. The line is secured by
accounts receivable and inventory of the Company. At August 31, 1996, there was
no balance outstanding.


     Annual maturities of long-term debt are as follows:

                        Year Ending
                        August 31,
                        ------------
                           1997                   $    39,200
                           1998                        39,200
                           1999                        39,200
                           2000                        12,300
                                                  -----------
                                               
                                                  $   129,900
                                                  ===========
                                               
                                     F-11

<PAGE>


11.  Income Taxes:

     The provision (benefit) for income taxes is comprised of the following:

                                               Years Ended
                                               August 31,
                                  -----------------------------------
                                       1996                  1995
                                  -------------         -------------
       Current:                
         Federal                  $      46,360         $     752,251
         States                         332,470               454,874
                                  -------------         -------------
                                        378,830             1,207,125
                                  -------------         -------------
       Deferred:               
         Federal                        413,570              (512,000)
         States                         129,600                (8,000)
                                  -------------         -------------
                                        543,170              (520,000)
                                  -------------         -------------
                               
                                  $     922,000         $     687,125
                                  =============         =============
                               
     The Company has net operating loss carryforwards of approximately $965,000
which can be utilized to reduce future taxable income through 2006. The Company
has general business tax credit carryforwards of approximately $36,000 and an
alternative minimum tax credit of approximately $50,000. The current federal
provision is the result of the Alternative Minimum tax calculations.

     The net deferred tax amounts included in the financial statements consist
of the following:


       Deferred tax assets:
         Tax loss carryforwards                            $     328,000
         Tax credit carryforwards                                 87,000
         Accrued lease obligation                                389,000
         Allowance for bad debts                                  74,000
         Amortization                                             81,000
         Other                                                    46,000
                                                           -------------
                                                               1,005,000
                                                          
       Deferred tax liabilities                           
         Unrealized gain on marketable securities               (195,000)
         Investment in subsidiary                               (168,000)
         Deferred commissions                                    (80,000)
                                                           -------------
                                                                (443,000)
                                                           -------------
       Net deferred income taxes                           $     562,000
                                                           =============
                                                          
     The Company's effective tax rate for the years ended 1996 and 1995 on
earnings differs from the Federal Statutory regular tax rate as follows:

                                                            Years Ended
                                                            August 31,
                                                 ----------------------------
                                                   1996                  1995
                                                 ------                ------
       Federal statutory rate                      34.0%                 34.0%
       State taxes, net of federal benefit         15.0                  13.8
       Adjustment of prior years' accrual          17.3                   -
       Reduction of valuation allowance           (17.9)                (21.3)
       Federal income tax credits                  (3.0)                  -
       Permanent differences                       12.1                   -
       Other                                       (2.4)                 (2.0)
                                                 ------                ------
                                                
                                                   55.1%                 24.5%
                                                 ======                ======
                                                  
                                     F-12

<PAGE>

12.   Stockholders' Equity:

      a.  Stock options/warrants

          (i) The Company adopted a Non-Qualified Stock Option Plan which
provides for the granting of options to purchase not more than 187,500 shares of
common stock to employees of the Company, including directors. Pursuant to the
Plan, and at the Board's discretion, the options expire up to ten years from the
date of grant, and the exercise price will be determined by the Board of
Directors. Options granted under the Plan expire up to ten years from the date

of grant. The Plan terminated on April 6, 1994.

          The following table summarizes the status of stock options outstanding
under the Company's option plan:

                                               Number of             Option
                                                Shares               Prices
                                             -----------        ------------
           Outstanding, August 31, 1994          140,625        $1.52 - $2.32
           Granted                                    -               -
           Canceled and expired                       -               -
                                             -----------
           Outstanding, August 31, 1995          140,625        $1.52 - $2.32
           Granted                                                    -
           Canceled and expired                       -               -
                                             -----------
                                            
           Outstanding, August 31, 1996          140,625            $1.52
                                             ===========
                                            
          (ii) During 1990, the Company adopted an incentive stock option plan
(the "1990 Plan") which provides for the granting of options to employees,
officers, directors, and others who render services to the Company. Under the
terms of the Plan, options to purchase not more than 187,500 shares of common
stock may be granted, at a price which may not be less than the fair market
value per share in the case of incentive stock options or 85% of fair market
value for non-qualified options. The options expire up to ten years from the
date of grant.

          The following table summarizes the status of stock options outstanding
under the Company's 1990 plan:

                                                Number of              Option
                                                 Shares                 Prices
                                              -----------               ------
           Outstanding, August 31, 1994           187,500               $ 1.52
           Granted                                     -                    -
           Canceled and expired                        -                    -
                                               ----------
           Outstanding, August 31, 1995           187,500               $ 1.52
           Granted                                     -                    -
           Exercised                               (5,000)               $1.52
           Canceled and expired                   (40,000)                  -
                                               ----------
                                             
           Outstanding, August 31, 1996           142,500                $1.52
                                               ==========
                                             
          (iii) During 1995, the Company adopted an incentive stock option plan
(the "1995 Plan") which provides for the granting of option to employees,
officers, directors, and others who render services to the Company. Under the
terms of the plan, options to purchase not more than 500,000 shares of common
stock may be granted, at a price which may not be less than the fair market
value per share in the case of incentive stock options or 85% of fair market

value for non-qualified options. Any options granted under the plan expires ten
years from the date of grant. The plan expires March 1, 2005.

                                     F-13
<PAGE>

12.   Stockholders' Equity:  (Cont'd)

      a.  Stock options/warrants  (Cont'd)

          The following table summarizes the status of stock options outstanding
under the Company's 1995 plan:

                                                 Number of              Option
                                                  Shares                Prices
                                              -----------               ------
           Outstanding, August 31, 1995                -                $   -
           Granted                                500,000               $ 2.19
           Exercised                              (16,000)              $ 2.19
                                               ----------
                                            
           Outstanding, August 31, 1996           484,000               $ 2.19
                                               ==========
                                            
          (iv) In connection with a second public offering of its securities in
November, 1988, the Company issued Class A warrants. Each Class A warrant
entitles the holder to purchase one share of common stock and one Class B
warrant at an exercise price of $3.00 per share. Each Class B warrant entitles
the holder to purchase one share of common stock for an exercise price of $6.00
per share. Class A and B warrants are exercisable through October 1997.

           In addition, the underwriter for the second offering received an
option to acquire 106 units for an exercise price of $6,500 per unit. Each unit
consists of 1,666.625 shares of common stock and an equivalent number of Class
A warrants. The terms of the Class A and B warrants are identical to the
warrants issued in the public offering. The option expires in October, 1997.

           (v) In October 1994, the Company issued options to acquire 420,000
shares of common stock to its officers, directors and certain legal counsel.
These options have been issued outside of any of the existing plans and require
restrictive legend. The exercise price of these options are $1.52 and expire in
October, 2004.

          The above  transactions  did not result in any  compensation  cost, as
the exercise prices either equal or exceed the fair market value of the stock at
the date of issuance.

      b.  Stock options/rights

          In October 1993, an affiliate of  Journeycraft  granted a consultant
an option to acquire  175,000  shares of common stock at an aggregate  exercise
price of $1.  This option was exercised in January 1996.

          In March  1994,  Journeycraft  granted a  consultant  a right to

acquire  500,000  shares of common  stock for  consulting  services  provided. 
The consultant exercised the right in April 1995.

          In April  1995,  Journeycraft  issued  600,000  shares of common 
stock in  connection  with the  exercise  of an  option  issued in prior  years
as consideration for consulting services.

      c.  Stock bonus

          An employment agreement with an officer/shareholder of X-Ceed Atlanta
provided for the issuance of up to 25 shares (25%) of X-Ceed Atlanta common
stock if certain earnings levels were attained. The officer/shareholder earned 9
and 16 shares in the twelve month periods ended March 31, 1996 and 1995,
respectively. The additional shares earned by the officer/shareholder were
transferred from the Company stockholdings. The excess of the fair value of the
shares transferred over their book value has been recorded as an equity
adjustment.

                                     F-14
<PAGE>


12.   Stockholders' Equity:  (Cont'd)

      d.  Common shares reserved at August 31, 1996

          Incentive stock option plans                      666,500
          Non-qualified stock option plan                   140,625
          Class A Warrants                                1,560,858
          Class B Warrants                                1,766,623
          Underwriters' units                               529,987
          Key employees' units                              420,000
                                                       ------------
                                                
                                                          5,084,593
                                                       ============
      e.  Net income per common share

          Net income per common share was computed by dividing the net income by
the weighted average number of shares of common stock outstanding during each
period presented. The effects on income per share resulting from the assumed
issuance of certain reserved shares and the assumed exercise of stock options
and warrants in all period presented is anti-dilutive and, therefore, not
included in the calculations.

13.  Loss on Impairment of Notes Receivable:

     The Company has reduced the carrying value of notes receivable to reflect
the diminution of their value caused by the financial instability of the
borrowers. The reductions resulted in a charge to operations of $325,000 and
$75,000 in the years ended August 31, 1996 and 1995, respectively.

14.  Business Segments:


     The Company's major operations are in Burn Care Products, Corporate Travel
Services, and Performance Improvement and Seminar Services.

     The Burn Care Products segment manufactures and markets emergency first aid
products for burns, as well as generic creams and ointments to wholesalers and
retailers. The Corporate Travel Services segment provides corporate travel
management and consulting services. The performance improvement and seminar
segment provides performance improvement services, internal corporate
communication services and training to major U.S. corporations and the health
care industry.

     Revenues, operating income, capital expenditures and depreciation and
amortization pertaining to the industries in which the Company operates are
presented below.

<TABLE>
<CAPTION>
                                                                                   Years Ended
                                                                                    August 31,
                                                                       ------------------------------------ 
                                                                            1996                  1995
                                                                       --------------        --------------
<S>                                                                    <C>                    <C>
     Revenue:
       Burn Care Products                                               $    4,223,000        $    5,029,000
       Corporate Travel Services                                            10,811,000            10,539,000
       Performance Improvement and Seminar Services                         39,830,000            27,947,000
                                                                        --------------        --------------

                                                                        $   54,864,000        $   43,515,000
                                                                        ==============        ==============
</TABLE>



                                     F-15
<PAGE>


14.   Business Segments:  (Cont'd)

<TABLE>
<CAPTION>
                                                                                          Years Ended
                                                                                          August 31,
                                                                           -------------------------------------
                                                                                 1996                  1995
                                                                            --------------        --------------
<S>                                                                         <C>                  <C>
       Operating (Loss) Income:
         Burn Care Products                                                 $     (108,000)       $      165,000
         Corporate Travel Services                                                 801,000             1,305,000
         Performance Improvement and Seminar Services                              526,000             1,300,000
                                                                            --------------        --------------


                                                                            $    1,219,000        $    2,770,000
                                                                            ==============        ==============
       Capital Expenditures:
         Burn Care Products                                                 $       52,000        $      275,000
         Corporate Travel Services                                                  85,000                49,000
         Performance Improvement and Seminar Services                              100,000                84,000
                                                                            --------------        --------------

                                                                            $      237,000        $      408,000
                                                                            ==============        ==============
       Depreciation and Amortization:
         Burn Care Products                                                 $      364,000        $      246,000
         Corporate Travel Services                                                  67,000                66,000
         Performance Improvement and Seminar Services                              109,000               112,000
                                                                            --------------        --------------

                                                                            $      540,000        $      424,000
                                                                            ==============        ==============
</TABLE>


     Identifiable assets pertaining to the industries as of August 31, 1996 are
as follows:

      Burn Care Products                                         $    3,606,000
      Corporate Travel Services                                       1,361,000
      Performance Improvement and Seminar Services                    2,982,000
      General Corporate Assets                                        9,434,000
                                                                 --------------

                                                                 $   17,383,000
                                                                ===============

15.  Fair Value of Financial Instruments:

     In 1996, the Company adopted FASB Statement No. 107, which requires the
disclosures about the fair value of the Company's financial instruments. The
methods and assumptions used to estimate the fair value of the following classes
of financial instruments were:

     Current Assets and Current Liabilities: The carrying amount of cash,
     current receivables and payables and certain other short-term financial
     instruments approximate their fair value.

     Long-Term Debt: The fair value of the Company's long-term debt, including
     the current portion, was estimated using a discounted cash flow analysis,
     based on the Company's assumed incremental borrowing rates for similar
     types of borrowing arrangements. The carrying amount of variable and fixed
     rate debt at August 31, 1996 approximates fair value.

16.  Commitments and Contingencies:

     a.  Lease commitment


         The Company conducts its operations from leased space in various
locations throughout the United States. These leases (classified as operating
leases) expire at various dates through June 2008. Management expects that in
the normal course of business these leases will be renewed or replaced by other
leases.

                                     F-16
<PAGE>


16.  Commitments and Contingencies:  (Cont'd)

     a.  Lease commitment  (Cont'd)

         As of August 31, 1996, future net minimum rental payments under
operating leases having initial or remaining non-cancelable terms in excess of
one year are as follows:

                        Year Ending
                        August 31,
                       -------------
                           1997                  $     726,000
                           1998                        742,000
                           1999                        625,000
                           2000                        565,000
                           2001                        559,000
                        Thereafter                   4,066,000
                                                 -------------
                                                 $   7,283,000
                                                 =============

         Rental expense approximated $956,000 and $1,033,000 for the years ended
August 31, 1996 and 1995, respectively.

         The Company recognizes rent expense on its leases on a straight-line
basis. The excess of rent expense on a straight-line basis over the rental
payments made, is recorded as an accrued liability.
   
    b.   Employment agreements

         The Company is party to employment and consulting agreements with four
officers/ consultants which provide for annual salaries aggregating $1,105,000.
The agreements provide for a one-time compensation payment of three times the
current annual compensation in the event of a change in corporate control, as
defined.

         The aggregate minimum commitment under these agreements are as follows:

                        Year Ending
                        August 31,
                       -------------
                           1997                   $     938,000
                           1998                         988,000
                           1999                         930,000

                           2000                         877,000
                           2001                         708,000
                        Thereafter                      167,000
                                                  -------------    
                                                  $   4,608,000
                                                  =============
     c.  Retirement plan

         Journeycraft maintains a retirement plan which is a salary reduction
plan under Section 401(k) of the Internal Revenue Code. Participation in the
plan is voluntary, and any participant may elect to contribute up to 15% of
their earnings. Journeycraft will match 10% of the first 6% of the employee's
contribution. Journeycraft's contributions approximated $22,000 and $7,000 for
the years ended August 31, 1996 and 1995, respectively.

                                     F-17


<PAGE>


16.  Commitments and Contingencies:  (Cont'd)

     d.  Litigation:

         At August 31, 1996, there were lawsuits and other claims pending
against the Company. In the opinion of management, the ultimate liabilities, if
any, resulting from such lawsuits and claims, will not materially affect the
financial position of the Company.

17.  Major Customers:

         Revenues from two customers approximated 24% and 20% of total revenue
for the year ended August 31, 1996. No single customer accounted for more than
10% of total revenues for the year ended August 31, 1995.

18.  Advertising Costs:

         Included in selling,  general and  administrative  expenses are
advertising costs of $284,000 and $701,000 for the years ended August 31, 1996
and 1995, respectively.

19.  Subsequent Event:

         In September 1996, the Company loaned $100,000 to publicly traded
company affiliated to directors/shareholders of the Company. The loan is
evidenced by a note bearing interest at 8% per annum. In consideration for the
loan, the Company received warrants to purchase a minimum of 200,000 shares of
common stock of the borrower.

20.  Supplemental Disclosures of Cash Flow Information:

                                              Years Ended
                                              August 31,

                                   --------------------------------
                                      1996                  1995
                                   ----------          ------------  

       Interest paid               $  126,478           $   123,053
                                   ==========           ===========
                               
       Income taxes paid           $  583,551           $   331,153
                                   ==========           ===========
                               

                                     F-18