U.S. SECURITIES AND EXCHANGE COMMISSION
                            WASHINGTON, D.C.  20549
                                  FORM 10-KSB

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

   For the fiscal year ended August 31, 1997

            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.
                     (Name of Small Business Issuer in its Charter)

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

488 Madison Avenue, New York, New York              10022
(Address of Principal Executive Offices)          (Zip Code)

                              (212) 753-5511
------------------------------------------------------------------------------
          (Issuer's Telephone Number, Including Area Code)

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

                                Common Stock
-------------------------------------------------------------------------------
                              (Title of Class)

                                A Warrant
-------------------------------------------------------------------------------
                              (Title of Class)

                                B Warrant
-------------------------------------------------------------------------------
                              (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.  $62,885,464

         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. $7,599,018 as of November 15, 1997.

Documents Incorporated by Reference:  See Footnotes to Exhibits


<PAGE>



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 an emergency  first aid product 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"),  a New  York  corporation,  and  TheraCom
Integrated Medical  Communications,  Inc. ("TheraCom"),  a New York corporation.
These  acquisitions  have  significantly  expanded  the  scope of the  Company's
operations to include three new business areas,  each larger than its historical
business. These new businesses provide a wide variety of innovative services for
enhancing corporate productivity.

         The Company's subsidiary Journeycraft has two operating divisions.  The
X-Ceed  Performance  Group  division   ("X-Ceed")  provides  services  to  major
corporations   in  the   field  of   performance   improvement   and   corporate
communications,   including   pioneering   use  of  Internet   technology.   The
Journeycraft  Travel  Management  division   ("Journeycraft")   provides  travel
management for corporate customers. The Company's other subsidiary, TheraCom, is
engaged in training and communications in the healthcare industry along with the
creation and marketing of innovative products for patient education,  especially
in the women's healthcare field.

General

         Companies today operate in an increasingly  competitive global economic
environment. Companies which achieve increased productivity consistently survive
and prosper.  While reengineering efforts have gone to some length in increasing
productivity,  ultimately,  it's a company's  human  resources and  affiliations
which must  ensure  consistently  enhanced  productivity.  Corporate  executives
recognize that it requires training, communications,  motivation and recognition
to spur individuals to increase  performance.  The Company believes that through
its subsidiaries,  Journeycraft and TheraCom, it markets and provides a concrete
and sophisticated  array of services along with innovative  delivery vehicles to
assist  corporations  in a targeted  and  measurable  way to increase  personnel
productivity.

         The new  businesses  acquired  by the  Company  have  followed a common
approach. Each began with an established basic business:  sales awards programs,
improvement  of  communications  skills  of  healthcare  professionals  and  the
providing of sophisticated travel agency services. These basic businesses served
as platforms from which the Company  launched  expanded  services using advanced
information technology such as the Internet,  wider applications of its existing
services, and new, productivity enhancing products.


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         Set  forth  below  is a  detailed  description  of the  businesses  and
operations of the Company and its subsidiaries.

JOURNEYCRAFT SUBSIDIARY

         This subsidiary has two operating divisions, X-Ceed and Journeycorp.

X-CEED DIVISION

Business

         This division  assists  corporate  clients in establishing  performance
improvement programs, designed specifically for each client. While traditionally
performance improvement programs focused on increased sales, X-Ceed has expanded
the programs to enable  clients to achieve a higher degree of quality  assurance
and/or personnel motivation and consumer loyalty. Consumer loyalty programs have
become an  integral  and  extremely  successful  part of  marketing  efforts for
companies such as airlines, telephone and credit card companies, and the Company
is endeavoring to expand this service.

         Invariably, successful performance improvement programs entail an award
for the winning  participants.  Awards take the form of merchandise,  individual
and/or group travel, debit or credit cards and gift certificates. As part of its
services,  X-Ceed  analyzes the  demographics  of a program's  participants  and
arrives at the type or mix of awards  best  suited for the  corporate  client in
terms of the clients' budget  parameters and business  objectives.  Each program
devised by X-Ceed is tailor-made for the specific corporate client.

         Critical to the success of any performance  improvement  program is the
need for communication.  At the outset of any performance improvement program it
is necessary to communicate the business objectives and contest rules to program
participants  and  to  continue  to  sustain  a high  level  of  excitement  and
enthusiasm for the program's objectives throughout the life of a program,  which
can range from three months to one year.  This ensures that the program  sponsor
achieves  a proper  return of  investment.  Likewise,  it is  important  for the
program  participants to know their current standing or progress in the program.
X-Ceed has  recognized  that a sound awards program also serves as a vehicle for
training  to enhance the  company's  marketing  and  promotional  efforts.  Such
training can be directed to improvement of sales skills and product  familiarity
or achievement of high quality assurance.

         In September 1997, X-Ceed introduced  "Maestro",  a proprietary  Inter-
and Intranet software  technology which integrates the key functions of training
information,  motivation,  and sales tracking in one comprehensive  system.  The
technology  also enables  instant  monitoring  and measuring of  performance  by
management which is crucial to the success of any awards program. "Maestro" will
be made available as an option to X-Ceed's

                                      3

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corporate  clients  under  individual  license  agreements in  conjunction  with
X-Ceed's delivery of all or any of the performance  improvement-related services
such as awards,  training,  sales  tracking/reporting and group travel promotion
and communications.  The maximum licensing period is for one year and/or for the
life cycle of the  accompanying  performance  improvement  program  conducted by
X-Ceed  for a  customer  by  utilizing  Maestro  as the  delivery  vehicle.  The
licensing fee is subject to numerous  factors such as the extent of the client's
usage of  Maestro's  features  and the  extent  and  nature  of the  performance
improvement  program  delivered to the customer.  X-Ceed also charges  customary
service fees for the hosting and maintenance of web sites and  contractual  fees
for  customization of technology  features  outside the parameters  delivered by
Maestro.

         The Company  believes  that  Maestro  will in the future  significantly
increase the Company's market share of performance  improvement services,  which
is estimated at $3 billion  annually.  However,  there can be no assurance  that
Maestro will significantly increase revenues.

         X-Ceed  derives its  revenues  from both  service fees from clients for
establishing  and monitoring  performance  improvement  programs as well as from
mark-ups  on the  merchandise  and/or  services  provided  as  awards.  In  this
connection,  and with  respect to travel  related  awards,  the Company  sources
services such as hotel accommodations,  food and beverage, entertainment,  stage
production, and transportation. These services form the integral components of a
group travel program.  Such group travel program components are purchased at net
rates and marked up by X-Ceed.  With  respect to  non-travel  based  performance
improvement  programs involving awards for merchandise and/or gift certificates,
these items are  purchased by X-Ceed from  manufacturers  and/or  manufacturers'
representatives  at discounted  prices and are subject to  contractually  agreed
mark-ups.

         X-Ceed  provides  services to numerous  corporate  customers in various
industries  such  as  telecommunications,   office  equipment,  pharmaceuticals,
insurance  and  electronics.  A majority of its  corporate  customers are repeat
customers.

         In the fiscal year ended  August 31, 1997  ("fiscal  1997")  X-Ceed had
revenues of approximately  $36,850,000,  accounting for approximately 59% of the
Company's  total  revenues.  See "Item 6:  Management's  Discussion of Financial
Condition and Results of Operations." X-Ceed markets its services through direct
contacts by sales  representatives  with  corporate  sales,  marketing and human
resource  executives.  X-Ceed has 36  employees  with offices in Atlanta and Los
Angeles as well as its office in the New York City Headquarters.

         Approximately  66% of X-Ceed's  revenue  were derived from two clients:
one customer  represented 35% and another 31% of the division's revenues. A loss
of any one of these  customers  or a reduction  in fees paid by any one of these
customers could have a material effect on X-Ceed's  revenues in the future.  The
Company is concentrating on

                                     4

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building a wider client base but there can be no assurance that the Company will
be successful.

         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

         With respect to competition,  numerous  companies  provide incentive or
performance  improvement  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 also competes with corporations' internal motivation staffs and
efforts.  X-Ceed  competes on the basis of  innovative  programs,  price and the
quality of services.

JOURNEYCORP DIVISION

Business

         The  Journeycorp   division  provides   comprehensive  travel  services
primarily for business travel by corporate clients. Travel services include trip
planning,  reservations,  ticketing, and other incidental services. In addition,
the Company acts as a consultant  regarding  corporate  travel policy and travel
budgeting.  For these purposes the Company has created a management system which
analyzes a corporation's  historical  travel expenses data in order to develop a
definitive  corporate  travel  policy  and to enable  the client to budget on an
ongoing  basis.  The system also captures  travel  expense data and provides the
client with a program to plan,  account for and control travel and entertainment
expenses.  Like the X-Ceed division,  Journeycorp  uses Internet  technology and
software to facilitate  direct booking  through the Internet,  to access current
data via e-mail and to quickly create travel expense reports and analyses.

         The  basic  services,  such  as trip  planning  and  reservations,  are
delivered  through a variety of service  configurations.  Customers are serviced
out of a  Reservations  Center or via a  dedicated  group of  travel  counselors
located on a customer's premises ("on-site"). The Company maintains Reservations
Centers in New York City (2),  Chicago  (1), New Jersey (1) and Los Angeles (1),
and ten (10) on-sites. These services are supported by management functions such
as customer service,  MIS (Management  Information  Systems) and technology from
the headquarters location in New York City.

         Journeycorp derives its revenues primarily from commissions and fees 
generated from travel bookings, and from hotels, car rental companies and other
travel suppliers.  In

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addition,  a portion of the  Company's  revenues are derived from  management or
consulting fees charged to certain selected accounts.

         An  industry  journal  estimates  that out of  30,000  travel  agencies
Journeycorp's corporate travel business currently ranks between 35th and 40th in
size in the  United  States  with a  higher  ranking  position  in the New  York
metropolitan  area.  While the Company does not  concentrate  in any  particular
industries,  its client base  predominantly  consists of  companies in financial
services, entertainment and retail marketing, all of which tend to be located in
New York and California. The Company currently has several hundred clients which
include  Bloomberg  Financial  Services,  Inc.,  Schroeder & Co.,  Tiffany's and
Phillips Van Heusen.  The Company normally  formalizes its working  relationship
with  clients  through  agreements  which can range from one to three  years and
which are normally cancelable by either party upon 60 to 90 days notice.

         In fiscal 1997, Journeycorp had revenues of $11,571,000, accounting for
approximately  18% of the  Company's  total  revenues.  Journeycorp  markets its
services  through  direct  contacts  by sales  representative  with  executives,
targeted  direct  mailings,  and  participation  in  trade  shows.   Journeycorp
currently  has 125 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 at many clients and uses the services of a number of associated
independent travel agents.

Strategy

         The travel  industry is undergoing  its most crucial  transition  since
deregulation in the early 1970s. As a result of cost efficiency  initiatives and
capacity reductions of the major airlines along with enhanced technologies,  the
industry is shifting from a commission to a fee based  business.  In 1995,  most
major carriers capped domestic airline commissions at $50 per round-trip tickets
or 10% for round-trip  tickets below $500 of ticket value. In September of 1997,
major  airlines  followed  up with  reductions  of  domestic  and  international
commissions  to 8%. It is the airlines'  intention to shift  distribution  costs
from  the   carriers   to  the   corporate   customers.   In  the   absence   of
operations-sustaining   commission  income,   travel  companies  are  forced  to
supplement  revenues  with  management  and/or  transaction  fees charged to the
customers.

         Journeycorp  will  continue  to  reorient  its  customer  relationships
towards  fee-based  travel  management,   consulting  and  MIS  systems  with  a
particular emphasis on on-line technology to achieve internal  cost-efficiencies
and to assist customers in increasing the efficiency of their travel operations.
However,  in light of the drastic changes in the airline industry,  there can be
no assurances that the Company will be able to generate significant revenues.


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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 additions,  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.

         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 other competitors are significant larger
and have access to more extensive resources than the Company.

THERACOM SUBSIDIARY

Business

         The TheraCom subsidiary provides integrated training, communication and
data to the  healthcare  industry.  Traditionally,  meetings to provide  medical
information   to   healthcare   professional   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   manufactures   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  directly to patients  reduces usage of medical  services,  attracts
patients,  and helps create a cooperative  atmosphere that minimizes malpractice
litigation.  One successful  program  introduced by TheraCom has been a guide 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.


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         In fiscal  1997,  TheraCom had  revenues of  approximately  $9,162,000.
These  revenues  are derived  from one  customer,  Pfizer,  Inc.  TheraCom has 7
full-time employees and operates from an office in Glen Rock, New Jersey.

Strategy

         TheraCom  intends to expand its  healthcare  information  business  and
intends to expand its patients  education  business by creating new programs and
marketing its current  programs.  This latter effort is especially  important in
reducing the Company's  dependence on Pfizer,  Inc. Another  significant area of
expansion  will be  extending  healthcare  information  programs  to  healthcare
professionals such as paramedics, practical nurses, physicians' aides and others
who are becoming  increasingly  important  under managed  health care.  However,
there can be no assurance  that the Company will be  successful in expanding its
base.

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  healthcare  information  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.

WATER-JEL (the parent)

         Water-Jel's  business comprised the Company's  principal business prior
to the  acquisition of Journeycraft  and TheraCom as wholly owned  subsidiaries.
Water-Jel currently  manufactures and markets two product lines: the "Water-Jel"
first aid product line for burns, and the "WJ" generic creams and ointments.

         The "Water-Jel"  first aid product line consists of a line of emergency
first aid and fire blankets and burn dressings  primarily  marketed to industry.
The Company also offers two of its products,  "Water-Jel  Burn Dressing" and the
"Water-Jel  Burn Jel" on a limited basis to the consumer  marketplace.  The fire
blankets  provide   emergency  first  aid  to  burn  victims  and  help  trapped
individuals escape a fire.  "Water-Jel" sterile burn dressings provide emergency
first aid for victims who have small area body burns.  "Water-Jel Burn Jel" is a
topical gel  designed for minor spot burns and  "Water-Jel  UnBurn" is a topical
gel designed  specifically for sunburns.  "Water-Jel Cool-Jel" is a moisturizing
topical  cooling  gel which  can be used for  relief  of minor  burns,  cuts and
scrapes.

         The "WJ" brand generic  creams and ointments line consists of first aid
cream,  maximum strength  hydrocortisone cream and a triple antibiotic ointment.
The Company also provides private label packing to some of its customers.

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         The Company  markets its  products to the  domestic  and  international
industrial  market  and on a  limited  basis to the  consumer  marketplace.  Its
distribution is comprised of customers who are well established in the first aid
and safety markets.  The Company promotes its product lines through  advertising
in trade journals and representation in major trade shows.

         In  fiscal  1997,  Water-Jel's  sales  were  approximately  $5,296,000,
accounting  for  approximately  8% of the Company's  total  revenues.  Water-Jel
employs 25 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.

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  Blanket and Burn  Dressings  are medical  devices
subject to regulation by the FDA. The Company has effective filings of premarket
notification  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") drugs. 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  line and 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 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 the Company's products.  These marks and logos are
used on the packaging of the Company's products.

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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
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. One manufacturer,  Nortrade
International  Inc.  ("Nortrade")  offers a burn product line similar to that of
the Company's.  Management  believes that Nortrade does not pose any significant
competition.

         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,
combination of salve covered with sterile gauze and sterile pre-wetted  dressing
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-combusting.   Also,  Water-Jel  Burn
Dressings  come in a single  unit  and  maintain  their  moistness  longer  than
dressings pre-wetted only with water.


Item 2.   Description of Property

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

Location         Size and Nature of Facility                     Lease Expires

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

Carlstadt, NJ    Office, Factory 17,700 square feet                   1998
                 Warehouse, 9,600 square feet                         1999

Los Angeles      Office, 2,800 square feet                            1998

Atlanta          Office, 2,700 square feet                            2000

Chicago          Office, 3,000 square feet                            1999

Glen Rock, NJ    Office, 2,800 square feet                            2001

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<PAGE>




Item 3.   Legal Proceedings

         There is no material litigation  currently pending against the Company,
its officers or employees.


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, 1997.


Item 5.   Market for Registrant's Common Equity and Related Stockholder Matters

         The Company's Common Stock is traded on NASDAQ under the symbol "XCED."
The  Class A  Warrants  also  trade on  NASDAQ  under the  symbol  "XCEDZ."  The
Company's Class B Warrants were delisted from NASDAQ on March 23, 1995. They are
listed on the "Bulletin  Board" (the "Pink  Sheets")  under the symbol  "XCEDW."
There has been no market activity in the Class B Warrants.

         The  following  table  sets  forth the high and low bid  prices for the
Company's  Common  Stock and Class A Warrants for the periods  indicated.  There
were no prices  available for the Class B Warrants.  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
represent actual transactions. The following table gives retroactive effect to a
one-for-eight reverse stock split effected in November 1994.

                                                   High Bid      Low Bid
                  Common Stock

Fiscal Year Ended August 31, 1997
1st Quarter ended November 30, 1996                4   3/8       2   3/8
2nd Quarter ended February 28, 1997                3   3/8       1   3/4
3rd Quarter ended May 31, 1997                     2   1/4       1   1/2
4th Quarter ended August 31, 1997                  4   3/16      2  13/16

Fiscal Year Ended August 31, 1996
1st Quarter ended November 30, 1995                1  11/16       1    -
2nd Quarter ended February 28, 1996                3   3/8        1   3/8
3rd Quarter ended May 31, 1996                     5   3/4        2   1/4
4th Quarter ended August 31, 1996                  4   5/8        2   7/16


                                      11

<PAGE>



                  Class A Warrants

Fiscal Year Ended August 31, 1997
1st Quarter ended November 30, 1996                 2     -        1    -
2nd Quarter ended February 28, 1997                 1   1/16          7/16
3rd Quarter ended May 31, 1997                         11/16          5/16
4th Quarter ended August 31, 1997                   1   1/2           5/16

Fiscal Year Ended August 31, 1996
1st Quarter ended November 30, 1995                     13/32          9/32
2nd Quarter ended February 28, 1996                  1   3/4            1/4
3rd Quarter ended May 31, 1996                       4   1/2        1    -
4th Quarter ended August 31, 1996                    3   1/16       1  7/16

         As of November 15, 1997 the approximate number of beneficial holders of
the Common Stock of the Company was 4,400,  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 is  anticipated  that  any  earnings  will be used  to  finance  the
Company's growth.


Item 6.   Management's Discussion of Financial Condition and Results of 
          Operations

         During the fourth quarter of fiscal 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.  This  acquisition was accounted for as a
"pooling  of  interest."  Consequently,  the  Company's  fiscal  1996  financial
statements are based on the assumption  that the companies were combined for the
full year.

Results of Operations

         Net sales for the fiscal  years ended August 31, 1997  ("fiscal  1997")
and August 31, 1996 ("fiscal 1996")  approximated  $62,885,000 and  $54,864,000,
respectively,  representing  a 15% increase.  Net sales for all of the Company's
divisions  increased during fiscal 1997. The TheraCom  division,  with its Grant
and Speaker Programs to the healthcare industry,  and the X-Ceed division,  with
its ongoing Incentive Program and marketing of its Internet website  technology,
accounted for approximately 77% of the total increase.

         Cost of revenues for fiscal 1997 approximated $40,095,000 as compared 
to $34,933,000 for fiscal 1996, representing 64% of net sales in each period.  
Selling,

                                      12

<PAGE>



administrative  and general  expenses for fiscal 1997  approximated  $18,420,000
(29% of net sales) as compared to  approximately  $18,683,000 (34% of net sales)
in fiscal 1996. The decrease, as a percentage of sales, reflects the increase in
revenues  without  the need to expand  the  Company's  sales and  administrative
activities.  Research and development costs approximated $446,000 and $29,000 in
fiscal 1997 and 1996,  respectively.  The research and  development  activity in
fiscal 1997 was incurred in connection with X-Ceed's Maestro  software.  Maestro
is a proprietary  productivity  enhancing system utilized for managing training,
sales  tracking and  reporting,  awards and  recognition  programs,  and product
information for sales forces.

         Other  income  approximated  $260,000  and $453,000 for fiscal 1997 and
1996,  respectively.  The  decrease  reflects  a loss on  sales  of  investments
($20,000) in fiscal 1997 as compared to a gain  ($599,000)  in fiscal 1996,  and
costs and expenses of $253,000  incurred in connection  with the  acquisition of
Journeycraft and TheraCom.

         Net income in fiscal 1997 approximated $1,877,000, compared to $632,000
in fiscal 1996,  representing an increase of 196%. The increase reflects the 15%
increase  in sales and the  stability  of selling,  general  and  administrative
costs.

Liquidity and Capital Resources

         At August 31, 1997,  the Company had working  capital of  approximately
$10,042,000  as compared to  approximately  $7,964,000  at August 31, 1996.  The
increase is primarily  attributable  to fiscal 1997's net income.  Subsequent to
year end, the Company  entered  into an amended  credit  facility  with its lead
bank. The amended  agreement  provides for a $600,000 term loan bearing interest
at 1/2% over the bank's prime rate and a line of credit  facility of  $2,500,000
bearing  interest at the bank's prime rate. In addition,  the amended  agreement
provides for a foreign  exchange line in the amount of  $2,000,000  which may be
used to hedge  against  fluctuations  in foreign  currency.  The amended  credit
facility expires in December 1998 and supersedes any prior credit facility.  The
amended credit facility contains various covenants pertaining to the maintenance
of certain financial ratio  restrictions.  At August 31, 1997, the Company had a
loan balance in a long-term loan of $74,700 payable through October 2000.

         In October 1997 the Company extended the expiration date of its Class A
and B Warrants  from  October  30, 1997 to April 30,  1998.  All other terms and
conditions of the Company's Warrants remained unchanged.

         The  consolidated  statement of cash flows for fiscal 1997 reflects net
cash provided by operating  activities of $1,161,998.  This resulted principally
from  the  Company's  net  income  of  $1,876,620.  Net cash  used in  investing
activities was $126,000,  consisting of acquisition of property and equipment of
$150,000,  an increase in notes receivable of $100,000,  offset by proceeds from
the sale of  marketable  securities  of  $138,000.  Net cash  used in  financing
activities approximated  $1,139,000,  consisting principally of the repayment of
notes payable for $1,065,000.

                                   13

<PAGE>



         The Company  believes that it has adequate working capital for at least
the next  twelve  months of  operations.  As of August 31,  1997 the Company had
approximately  $7,230,300  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.


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.


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:

        Name                         Age         Position
-------------------                 -----   -------------
Werner Haase...............           60    Chairman and CEO
Nurit Kahane Haase.........           47    Senior Vice President
Norman Doctoroff...........           64    Director
John Bermingham............           58    Director

         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 five (5)  meetings in the fiscal year ended August
31, 1997 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.


                                   14

<PAGE>



         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.

         John Bermingham was elected on November 13, 1997 to serve as a director
of the Company until the next annual meeting of stockholders. Mr. Bermingham has
served as a consultant to the Company since April 1997. Mr. Bermingham  formerly
served as president and chief executive  officer of Rolodex  Corporation  during
1996 and through April 1997.  From 1993 to 1996 Mr.  Bermingham  was employed by
AT&T.  He held the position of  president  and chief  executive  officer of AT&T
Smart Cards Systems and Solutions,  a division of AT&T.  From 1982 through 1993,
Mr.  Bermingham  held  various  senior  executive  officer  positions  with Sony
Corporation of America.

         Based  solely on review of the  copies of such forms  furnished  to the
Company, or written  representations that no Forms 5 were required,  the Company
believes  that  during the fiscal year ended  August 31, 1997 all Section  16(a)
filing  requirements  applicable  to its  officers,  directors  and greater than
ten-percent beneficial owners were complied with.


Item 10.   Executive Compensation

         The following table sets forth information with respect to compensation
paid by the Company for the services to the Company during the three years ended
August 31, 1997 by the Company's Chief Executive Officer and three officers with
compensation in excess of $100,000.


                                       15

<PAGE>



                                            SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
<S>     <C>    <C>    <C>    <C>    <C>    <C>


                                                                          Long Term Compensation
                                        Annual Compensation                 Awards           Payouts

         (a)               (b)         (c)         (d)         (e)           (f)         (g)      (h)     (i)

                                                              Other          Re-                          All
                                                              Annual       stricted   Securities          Other
                                                              Compen-       Stock     Underlying  LTIP    Compen-
Name and                                                      sation       Awarded    Options/   Payouts  sation
Principal Position         Year     Salary($)    Bonus($)      ($)           ($)      SARs(#)       $       $
------------------         ----     ----------   --------     ---------   ----------  ---------- -------  -------
Werner Haase (1)(2)(3)     1997     $500,000    $300,000      $ 82,152        0          0        $ 0     $  0
Chairman and CEO           1996     $ 10,500    $ 22,250      $    0          0          0        $ 0     $  0
                           1995

Nurit Haase (1)            1997     $250,000    $    0        $    0          0          0        $ 0     $  0
Sr. Vice President         1996     $ 10,500    $ 63,900      $    0          0          0        $ 0     $  0
                           1995

Yitz Grossman (4)(6)       1997
Former Chairman            1996     $150,000    $    0        $ 71,000        0        100,000    $ 0     $  0
and Secretary              1995     $139,000    $  45,000     $ 15,000        0        100,000    $ 0     $  0

Peter Cohen (5)(6)         1997
Former President           1996     $111,000    $    0        $ 75,000        0        100,000    $ 0     $  0
                           1995     $100,000    $  45,000     $    0          0        100,000    $ 0     $  0
</TABLE>

(1) Werner Haase and Mr. Haase's wife, Nurit Kahane Haase, assumed their current
positions  with  the  Company  on July 2,  1996  following  the  acquisition  of
Journeycraft and TheraCom.  Information is given only for periods  subsequent to
July 2, 1996.

(2) On November 13, 1997, the Board of Directors, Mr. Haase abstaining,  awarded
a bonus of $300,000 to Mr. Haase based on the Company's  performance  for fiscal
1997.

(3)  Represents  premiums  for life  insurance  policies  paid by the Company on
behalf of Mr. Haase.

(4) Mr. Grossman resigned from his positions with the Company effective December
12, 1996.

(5) Mr. Cohen resigned as President,  Chief  Executive  Officer and Treasurer of
the Company  effective July 2, 1996. He continues to serve as Managing  Director
of the first aid division, which is not an executive officer position.

(6) During fiscal 1996, the Company  transferred certain life insurance policies
to Messrs. Grossman and Cohen which are included in "Other Annual Compensation."

         The aggregate  amount of personal  benefits  cannot be  specifically or
precisely  ascertained  and do  not,  in any  event,  exceed  $50,000  or 10% of
compensation as to any person. The Company offers health insurance to all of its
employees.  At present time the Company does not have any  retirement,  pension,
profit  sharing,  or  other  similar  programs  or  benefits  for its  executive
officers.

         The Company has not paid  remuneration  of any nature for or on account
of services rendered by a director in such capacity.


                                     16

<PAGE>



                     OPTIONS/SAR GRANTS IN LAST FISCAL YEAR
                              (Individual Grants)

                                   Percent of
                  Number of        Total Options/
                  Securities       SARs Granted
                  Underlying       to Employees    Exercise or
                  Options/SARs     in Fiscal       Base Price
Name              Granted (#)      Year            ($/Sh)      Expiration Date
   (a)            (b)              (c)             (d)               (e)

                  -0-               -0-             -0-

No options were granted to anyone during fiscal 1997.


                  AGGREGATED OPTION/SAR EXERCISE IN LAST FISCAL YEAR
                             AND FY-ENDED OPTION/SAR VALUES

<TABLE>
<CAPTION>
<S>     <C>    <C>    <C>    <C>    <C>    <C>

                                                                                                           Value of
                                                                                         Number of         Unexercised
                                                                                        Unexercised       In-the-Money
                                                                                        Options/SARs      Options/SARs
                                                                                         at FY-End         at FY-end
                                                                                             (#)               ($)

                                            Shares Acquired                             Exercisable/      Exercisable/
            Name                            on Exercise (#)        Value Realized ($)   Unexercisable     Unexercisable
         ---------                          ---------------        ------------------   -------------     -------------

WERNER HAASE, Chairman and CEO                       -0-                  -0-               243,750          $354,680
</TABLE>


All of the foregoing  options are  exercisable:  143,750 at an exercise price of
$1.52 and 100,000 at an exercise price of $2.19.

Employment Agreements

         In July 1996, the Company entered into a five-year employment agreement
with Nurit Kahane Haase effective as of July 1, 1996. The agreement provides for
annual compensation of $250,000 per year. In the event of a change in control of
the Company, Mrs. Haase is entitled to receive a one-time payment equal to three
times her then current  annual  compensation.  A change of control  includes the
acquisition of over 30% of the Company's stock, the sale or transfer of over 50%
of the Company's assets, or certain mergers or other combinations.

         In December  1996,  the  Company  entered  into a five-year  employment
agreement  with Werner  Haase  effective  as of January 1, 1997.  The  agreement
provides for annual compensation of $500,000 per year as well as the maintenance
of  various  insurance  policies.  In the  event of a change in  control  of the
Company,  Mr.  Haase is  entitled to receive a one-time  payment  equal to three
times his then current  annual  compensation.  A change of control  includes the
acquisition of over 30% of the Company's stock, the sale or transfer of over 50%
of the Company's assets, or certain mergers or other  combinations.  Mr. Haase's
agreement also entitles him to receive bonuses at the discretion of the Board of
Directors.

                                   17

<PAGE>




Stock Option Plans

         The Company has adopted  three stock option  plans.  The  Non-Qualified
Stock  Option Plan ( the "NQSO Plan")  which  expired on April 6, 1994  covering
187,500 shares of the Company's Common Stock, $.08 par value,  pursuant to which
officers and  employees of the Company  were  eligible to receive  non-qualified
stock options.  As of November 15, 1997,  options to acquire 128,125 shares have
been  granted  under the NQSO Plan at  exercise  prices of $1.52 per share.  All
options  granted under the NQSO Plan have been at exercise prices at least equal
to the fair market value of the Common Stock on the date of grant.

         Under the 1990 Stock  Option  Plan (the "1990  Plan") the  Company  may
grant to its  officers,  key  employees  and others who render  services  to the
Company,  options to purchase up to 187,500 shares of the Company's Common Stock
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  in the  case
non-qualified  options for such stock in the date of the granting of the Option.
As of November 15, 1997,  options to acquire a total of 170,000 shares have been
granted under the 1990 Plan at exercise  prices  ranging from $1.52 to $2.00 per
share.

         The 1995 Stock Option Plan (the "1995 Plan") operates on  substantially
the same terms as the 1990 Plan except that it includes option to purchase up to
500,000 shares of the Company's Common Stock. Any options granted under the plan
expire ten years from the date of grant.  The plan expires  March 1, 2005. As of
November 15, 1997 all available options had been granted under the 1995 Plan and
options to acquire a total of 467,000  shares remain  outstanding at an exercise
price of $2.19 per share.


Item 11.   Security Ownership of certain Beneficial Owners and Management

         The  following  table  sets forth  certain  information  regarding  the
beneficial  ownership of the Company's  Common Stock as of November 1997 by: (i)
each person who is known by the Company to own beneficially  more than 5% of the
Company's  outstanding  Common Stock;  (ii) each of the  Company's  officers and
directors; and (iii) all officers and directors of the Company as a group:

                           Amount and Nature of
Name and Address           Beneficial Ownership                 Percentage
Werner G. Haase (1)              2,525,625                         34.7%
488 Madison Avenue
New York, NY

Nurit Kahane Haase (1)          2,525,625                          34.7%
488 Madison Avenue
New York, NY


                                    18

<PAGE>



J. Morton Davis (2)               543,389                            7.7%
44 Wall Street
New York, NY

William Walters                   500,000                            7.0%
650 Fifth Avenue
New York, NY

Seneca Associates                 400,000                            5.7%
56 Rechov Rochild
Bat Yam, Israel

Yitz Grossman (3)                 600,250                            8.2%
40 Fulton Street
New York, NY

Norman Doctoroff (4)               25,000                            0.5%
81 Two Bridges Road
Fairfield, NJ

All officers and
directors as a group
(3 persons)                     2,560,625                           35.0%

(1) Consists of 1,131,875 shares of Common Stock owned by Mr. Haase,  options to
acquire 243,750 shares held by Mr. Haase,  1,112,000 shares owned by Mrs. Haase,
and 37,500 shares held jointly by Mr. and Mrs. Haase.

(2)  Consists  of 161,454  redeemable  Class A Common  Stock  Purchase  Warrants
("Class A Warrants")  and an option to purchase  81.6 Units owned by D.H.  Blair
Investment  Banking  Corporation  ("Blair"),  of which Mr. Davis is Chairman and
sole  stockholder.  Each Unit  entitles  the holder to acquire  1,666  shares of
Common  Stock and 1,666  Class A  Warrants.  Each Class A Warrant  entitles  the
holder to purchase one share of Common Stock and to receive one redeemable Class
B Common Stock  Purchase  Warrant  ("Class B Warrants") at an exercise  price of
$3.00  per  share  exercisable  prior to April 30,  1998.  Each  Class B Warrant
entitles  the holder to  purchase  one share of Common  Stock at $6.00 per share
prior to October 30, 1997.

(3) Includes shares  issuable on exercise of options to purchase  300,000 shares
of Common Stock.

(4) Represents  shares issuable on exercise of options to purchase 25,000 shares
of Common Stock.



                                      19

<PAGE>



Item 12.   Certain Relationships and Related Transactions

         In July 1996, the Company entered into a four-year consulting agreement
with Target Capital Corp. and Yitz Grossman, which went into effect on September
1, 1996 and terminates on May 16, 2000. Mr.  Grossman was Chairman and Secretary
of the Company at the time the agreement was entered into. Mr. Grossman resigned
as an officer  and  director  of the Company in  December  1996.  The  agreement
provides  for annual  compensation  of $150,000  per year and an annual bonus of
$30,000. Mr. Grossman is not required to devote his full time to the Company. In
the event of a change of control of the Company,  the  agreement  provides for a
one-time  payment equal to three times the then current annual  compensation.  A
change of control  includes the acquisition of over 30% of the Company's  stock,
the sale or transfers of over 50% of the Company's assets, or certain mergers or
other combinations.

         During fiscal 1997,  the Company sold 50,000 shares of Mark  Solutions,
Inc. ("MSI") and received net proceeds of approximately $100,000.  Subsequent to
fiscal 1997, the Company sold the remaining  balance of 195,000 shares of common
stock and received net proceeds of approximately $740,500. Mr. Grossman, who was
a director  and officer of the  Company,  was also a director of MSI at the time
these investments were made.

         In September 1996, the Company loaned  $100,000 to Multimedia  Tutorial
Services,  Inc, a publicly  traded  company of which Mr. Haase was a director at
that  time but has  subsequently  resigned.  This loan was  evidenced  by a note
bearing interest at 8% per annum, originally payable within 180 days of the date
of loan or earlier if additional  funding was raised.  In consideration  for the
loan, the Company  received  warrants to purchase a minimum of 200,000 shares of
common stock of the  borrower.  In May 1997,  the Company  extended the maturity
date of the loan until  September 30, 1997. In July 1997, the Company  through a
limited  offer  converted  its 200,000  warrants  into 150,000  shares of common
stock.  As of  November  30,  1997 the loan  remains  unpaid and the  Company is
pursuing  collection.  However,  as a  result  of  the  deteriorating  financial
condition of the borrower,  the Company  wrote off the  receivable at August 31,
1997.


                                      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.

                                         20

<PAGE>



         (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.

                          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 10, 1997

         Pursuant to the  requirements  of the Securities  Exchange Act of 1934,
this Report has been signed below on December 10, 1997 by the following  persons
on behalf of Registrant and in the capacities indicated.

                                   /s/ Werner G. Haase
                                   Werner G. Haase,
                                   Chief Executive Officer, Principal

                                   /s/ Norman Doctoroff
                                   Norman Doctoroff, Director

                                   /s/ John Bermingham
                                   John Bermingham, 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 
(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
(27)    Financial Data Schedule*
-----------------------------
     * 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-K 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, 1997



<PAGE>



                WATER-JEL TECHNOLOGIES, INC. AND SUBSIDIARIES

             REPORT ON AUDITS OF CONSOLIDATED FINANCIAL STATEMENTS

                       TWO YEARS ENDED AUGUST 31, 1997


                                  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,  1997 and the  related
consolidated  statements of income,  stockholders' equity and cash flows for the
two  years  ended  August  31,  1997.   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  consolidated  financial  position  of
Water-Jel  Technologies,  Inc. and  Subsidiaries  as of August 31, 1997, and the
results of their  operations and their cash flows for the two years ended August
31, 1997, in conformity with generally accepted accounting principles.





                                 HOLTZ RUBENSTEIN & CO., LLP


Melville, New York
November 14, 1997




                                F-1



<PAGE>



          WATER-JEL TECHNOLOGIES, INC. AND SUBSIDIARIES

                     CONSOLIDATED BALANCE SHEET

                          AUGUST 31, 1997
<TABLE>
<CAPTION>
<S>     <C>    <C>    <C>    <C>    <C>    <C>


         ASSETS

CURRENT ASSETS:
   Cash and cash equivalents                                                                      $    7,230,314
   Investment in marketable securities (Note 5)                                                          758,373
   Accounts receivable, net of allowance for
     doubtful accounts of $154,000 (Note 9)                                                            3,713,709
   Program costs and earnings in excess of customer billings                                           2,039,682
   Inventories (Notes 4 and 9)                                                                         1,364,510
   Prepaid expenses and other current assets                                                             334,589
                                                                                                  --------------
       Total current assets                                                                           15,441,177

PROPERTY AND EQUIPMENT, net (Note 6)                                                                   1,354,070
INVESTMENTS IN X-CEED MOTIVATION ATLANTA, INC. (Note 7)                                                  355,394
DUE FROM OFFICER (Note 8)                                                                              1,222,483
DEFERRED INCOME TAXES (Note 10)                                                                          231,000
OTHER ASSETS                                                                                             195,956
                                                                                                  --------------

                                                                                                  $   18,800,080

   LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
   Accounts payable and accrued expenses                                                          $    4,041,907
   Current portion of long-term debt (Note 9)                                                             39,200
   Income taxes payable, current (Note 10)                                                               358,933
   Customer billings in excess of program costs and earnings                                             914,561
   Deferred income tax liability (Note 10)                                                                44,500
                                                                                                  --------------
       Total current liabilities                                                                       5,399,101

LONG-TERM DEBT (Note 9)                                                                                   51,500
                                                                                                  --------------
ACCRUED LEASE OBLIGATION (Note 15)                                                                       816,000
                                                                                                  --------------

COMMITMENTS (Note 15)

STOCKHOLDERS' EQUITY (Note 11):
   Common stock, $.08 par value; authorized 12,500,000
     shares; 7,043,180 issued and outstanding                                                            563,456
   Preferred stock, $.08 par value; authorized 125,000
     shares; -0- issued and outstanding                                                                       -
   Net unrealized gain on marketable securities                                                          216,175
   Additional paid-in capital                                                                          9,717,568
   Retained earnings                                                                                   2,091,910
                                                                                                  --------------
                                                                                                      12,589,109
   Treasury stock, 10,000 shares                                                                         (55,630)

                                                                                                  --------------
                                                                                                      12,533,479

                                                                                                  $   18,800,080
</TABLE>

                                  See notes to consolidated financial statements

                                                        F-2


<PAGE>



                                   WATER-JEL TECHNOLOGIES, INC. AND SUBSIDIARIES

                                         CONSOLIDATED STATEMENTS OF INCOME



<TABLE>
<CAPTION>
<S>     <C>    <C>    <C>    <C>    <C>    <C>

                                                                                          Years Ended
                                                                                          August 31,
                                                                                  1997                  1996

REVENUES, net (Notes 13 and 16)                                             $   62,885,464        $   54,863,574
                                                                            --------------        --------------


COSTS AND EXPENSES (Notes 15 and 17) :
   Cost of revenues                                                             40,094,838            34,932,523

   Selling, general and administrative                                          18,420,233            18,682,728

   Research and development                                                        446,187                29,279
                                                                            --------------        --------------

                                                                                58,961,258            53,644,530
                                                                            --------------        --------------


OPERATING INCOME                                                                 3,924,206             1,219,044
                                                                            --------------        --------------


OTHER INCOME (EXPENSE):
   Interest and dividend income                                                    450,725               298,986

   Interest expense                                                                (81,020)             (126,478)

   (Loss) gain on sale of investments                                              (19,938)              598,589

   Equity earnings on investments                                                    8,510               203,463

   Merger costs and expenses (Note 3)                                                   -               (253,251)

   Loss on impairment of notes receivable (Note 12)                               (100,000)             (325,000)

   Other, net                                                                        2,137                56,962
                                                                            --------------        --------------

                                                                                   260,414               453,271
                                                                            --------------        --------------


INCOME BEFORE INCOME TAXES
   AND MINORITY INTEREST                                                         4,184,620             1,672,315


PROVISION FOR INCOME TAXES (Note 10)                                             2,308,000               922,000
                                                                            --------------        --------------


INCOME BEFORE MINORITY INTEREST                                                  1,876,620               750,315


MINORITY INTEREST IN INCOME                                                             -                118,000
                                                                            --------------        --------------



NET INCOME                                                                  $    1,876,620        $      632,315
                                                                            ==============        ==============


NET INCOME PER COMMON SHARE  (Note 11):
   Primary                                                                            $.26                 $.09
                                                                                      ====                 ====
   Assuming full dilution                                                             $.24                 $.09
                                                                                      ====                 ====

WEIGHTED AVERAGE NUMBER
   OF SHARES OUTSTANDING:
     Primary                                                                     7,332,468             6,992,347
                                                                                 =========             =========

     Assuming full dilution                                                      7,677,070             6,992,347
                                                                                 =========             =========


</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>
<S>     <C>    <C>    <C>    <C>    <C>    <C>

                                 Common Stock       Preferred Stock                         
                                 12,500,000 Shares   125,000 Shares                 Net         
                                 $.08 Par Value      $.08 Par Value             Unrealized     
                                 -----------------   --------------  Additional  Gain on     Retained
                                           Par               Par     Paid-in    Marketable   Earnings/    Treasury
                                 Shares    Value     Shares  Value   Capital    Securities   (Deficit)      Stock        Total

Balance, August 31, 1995         6,824,180  $545,934   -    $  -    $9,664,472  $ 547,955   $ (417,025)  $ (55,630)     $10,285,706

Transfer of shares in subsidiary 
   to minority shareholder            -         -      -       -      (122,852)     -           -             -            (122,852)

Issuance of stock by subsidiary 
    for services                      -         -      -       -       103,000      -           -             -             103,000

Exercise of options/rights         196,000    15,680   -       -        26,960      -           -             -              42,640

Marketable securities valuation
   adjustment (Note 5)                -         -      -       -          -      (240,507)      -             -            (240,507)

Net income                            -         -      -       -          -         -          632,315        -             632,315
                                 ----------  -------  -----  -----  ----------  ----------   ----------    --------     -----------

Balance, August 31, 1996         7,020,180   561,614   -       -     9,671,580    307,448      215,290     (55,630)      10,700,302

Exercise of options/rights          23,000     1,842   -       -        45,988      -           -             -              47,830

Marketable securities valuation
   adjustment (Note 5)                 -        -      -       -          -       (91,273)      -             -             (91,273)

Net income                             -        -      -       -          -         -        1,876,620        -           1,876,620
                                 ---------  --------  -----  -----  ----------   ---------  ----------    ---------     -----------

Balance, August 31, 1997         7,043,180  $563,456   -     $ -    $9,717,568  $ 216,175   $2,091,910    $(55,630)     $12,533,479
                                 ========== ========  =====  =====  ==========  ==========  ==========    =========     ===========

</TABLE>






             See notes to consolidated financial statements

                                F-4


<PAGE>



                 WATER-JEL TECHNOLOGIES, INC. AND SUBSIDIARIES

                  CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
<S>                                                                                              <C>

                                                                                          Years Ended
                                                                                          August 31,
                                                                                  1997                  1996
CASH FLOWS FROM OPERATING ACTIVITIES:
   Net income                                                                $   1,876,620         $     632,315
                                                                             -------------         -------------

   Adjustments  to  reconcile  net  income  to net cash  provided  by  operating
     activities:
       Loss (gain) on sale of marketable securities                                 19,938              (598,589)

       Gain on sale of equipment                                                        -                 (3,500)

       Loss on impairment of notes receivable                                      100,000               325,000

       Provision for losses on accounts receivable                                  26,905               312,135

       Minority interest in net earnings                                                -                118,000

       Contributed services                                                             -                 45,000

       Depreciation and amortization                                               460,613               539,551

       Equity earnings on investment                                                (8,510)             (203,463)

       Deferred income taxes                                                       450,500               543,170

       Changes in operating assets and liabilities:
         (Increase) decrease in assets:
           Accounts receivable                                                     574,672            (2,663,264)

           Inventories                                                            (261,769)               10,628

           Program costs and earnings in excess of billings                     (1,774,534)               67,905
           Prepaid expenses and other current assets                               (52,971)             (134,052)

           Other assets                                                             41,418               147,377

         Increase (decrease) in liabilities:
           Accounts payable and accrued expenses                                   770,848             1,350,096

           Income taxes payable                                                    138,745              (600,040)

           Customer billings in excess of program costs                         (1,207,535)            1,402,909

           Accrued lease liability                                                  22,000              (126,000)

           Other current liabilities                                               (14,942)              (19,506)
                                                                             -------------         -------------

       Total adjustments                                                          (714,622)              513,357
                                                                             -------------         -------------

       Net cash provided by operating activities                                 1,161,998             1,145,672
                                                                             -------------         -------------

CASH FLOWS FROM INVESTING ACTIVITIES:
   Investments in marketable securities                                            (26,775)              (70,940)

   Divestiture of consolidated affiliate                                                -             (3,128,182)

   Proceeds from sale of marketable securities                                     137,821               749,340

   Repayments from shareholders                                                         -                 75,000

   (Increase) decrease in notes receivable                                        (100,000)              150,000

   Proceeds from sale of property and equipment                                     13,053                15,000

   Acquisition of property and equipment                                          (149,845)             (237,274)
                                                                             -------------         -------------

       Net cash used in investing activities                                      (125,746)           (2,447,056)
                                                                             -------------         -------------

CASH FLOWS FROM FINANCING ACTIVITIES:
   Principal payments of long-term debt                                            (39,200)              (39,200)

   Repayment of notes payable                                                   (1,065,000)                   -

   Proceeds from notes payable                                                          -              1,065,000

   Advances (to) from affiliate                                                    (82,736)               89,493

   Proceeds from the exercise of warrants and options                               47,830                42,640
                                                                             -------------         -------------

       Net cash (used in) provided by financing activities                      (1,139,106)            1,157,933
                                                                             -------------         -------------

NET DECREASE IN CASH AND CASH EQUIVALENTS                                         (102,854)             (143,451)


CASH AND CASH EQUIVALENTS, beginning of year                                     7,333,168             7,476,619
                                                                             -------------         -------------


CASH AND CASH EQUIVALENTS, end of year                                       $   7,230,314         $   7,333,168
                                                                             =============         =============
</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, 1997

1.     Organization and Nature of Operations:

       Water-Jel   Technologies,   Inc.  (the  "Company")  began  operations  in
September 1979 as a manufacturer of emergency first aid fire blankets for burns.
The Company  later  expanded its  manufacturing  operations to include a line of
burn dressings, topical creams and generic creams and ointments.

       On July 2, 1996, the Company acquired  Journeycraft,  Inc. and Affiliates
("Journeycraft")  which  significantly  expanded  the  scope  of  the  Company's
operations.  Journeycraft's primary business is to provide solutions to critical
business issues of corporate  customers  through the development and application
of performance  improvement programs. In addition,  Journeycraft provides travel
management  services,  including  reservations  and  ticketing,  to  major  U.S.
corporations and also designs and implements training and communication programs
in the health care field as well as producing and marketing products for patient
education.

2.     Summary of Significant Accounting Policies:

       a. Principles of consolidation

          The  accompanying   consolidated   financial  statements  include  the
accounts of the Company and 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.

          On April 1, 1996,  the Company's  equity  interest in X-Ceed  Atlanta,
previously  represented 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 years ended August 31, 1997 and 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,
and the related costs, when the travel has commenced,  or when the group meeting
or incentive program is completed.

          For certain long-term seminar contracts, the  percentage-of-completion
method is used,  whereby  revenue,  and related costs, are recognized as work on
the contracts progresses.


                                   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 amortization 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.

           A  significant  portion of  revenue  earned by the  Company's  retail
corporate travel business segment is derived from commissions  earned on airline
bookings with major U.S.
and foreign airline carriers.

       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.

                                    F-7


<PAGE>



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

       h.  Impairment of long-lived assets

           In accordance  with  Statement of Financial  Accounting  Standard No.
121,  "Accounting  for the  Impairment of Long-Lived  Assets and for  Long-Lived
Assets to be Disposed of," an impairment  loss is recognized  whenever events or
changes in  circumstances  indicate that the carrying amount of an asset may not
be recoverable.

       i.  Stock-based compensation

The Company applies APB Opinion No. 25 and related interpretations in accounting
for stock-based  compensation to employees.  Stock compensation to non-employees
is  accounted  for at fair  value in  accordance  with  Statement  of  Financial
Accounting Standard No. 123, "Accounting for Stock-Based Compensation."

       j.  Research and development costs

           Research and development costs,  consisting of salaries and materials
related to software development, are expensed as incurred.

       k. 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.

       l.  Advertising costs

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

       m.  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.

       n.  Reclassifications

           Certain  reclassifications have been made to the financial statements
for the year ended August 31, 1996 to conform with the  classifications  used in
1997.

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  qualified 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.

       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.



                                        F-8


<PAGE>



4.     Inventories:

       Inventories consists of the following at August 31, 1997:

       Raw materials          $     401,534
       Finished goods               962,976
                              -------------
                              $   1,364,510

5.     Investment in Marketable Securities:

       At August 31, 1997, 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, 1997 and 1996, the net
change in the  valuation  adjustment  on  marketable  securities  classified  as
available-for-sale amounted to $(91,273) and $(240,507), respectively.

       The carrying  amounts of  investment  securities  as shown in the balance
sheet of the  Company  and their  approximate  values at August 31, 1997 were as
follows:

                                           Gross       Gross
                                           Unrealized  Unrealized
                                  Cost     Gains       Losses        Fair Value
Securities available-for-sale
   equity investments           $422,292   $347,288    $(11,207)     $758,373
                                ========   ========    ==========    ========

6.     Property and Equipment:

       Property and equipment,  at cost, consists of the following at August 31,
1997:

       Machinery and equipment                         $  2,120,014
       Furniture and fixtures                               522,285
       Software                                             152,426
       Transportation equipment                              56,251
       Leasehold improvements                               915,708
                                                          3,766,684
       Less accumulated depreciation and amortization     2,412,614

                                                       $  1,354,070

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 years  ended  August 31, 1997 and 1996
earnings from this investment approximated $8,000 and $203,000, respectively.

       Summarized financial position and results of operations of X-Ceed Atlanta
are presented below.
                                                            August 31,
              Assets                                           1997

       Current assets                                       $1,945,000
       Property and equipment, net                              40,000
       Other assets                                            136,000
                                                            ----------

           Total assets                                     $2,121,000
                                                           =============
                                F-9


<PAGE>



7.     Investment in X-Ceed Motivation Atlanta, Inc.:  (Cont'd)

       Liabilities and Shareholders' Equity

       Current liabilities                                  $  858,000
       Shareholders' equity                                  1,263,000
                                                            ----------

           Total liabilities and shareholders' equity       $2,121,000
                                                            ==========

                                                            Period
                                       Year Ended         April 1, 1996
                                       August 31,         to August 31,
                                          1997               1996
                                       -----------       --------------

       Revenues, net                   $2,532,000           $9,017,000
       Operating expenses               2,655,000            8,367,000
                                       -----------        -------------
       Operating (loss) income           (123,000)             650,000
       Other income                        79,000               32,000
                                       -----------        -------------
       (Loss) income before (benefit) 
          provision for income taxes      (44,000)             682,000
       (Benefit) provision for 
          income taxes                    (60,000)             275,000
                                      -------------       -------------

       Net income                       $  16,000           $  407,000
                                      =============       =============

       Loans of $276,000 from X-Ceed  Atlanta to the Company are netted  against
the investment in X-Ceed Atlanta as of August 31, 1997.

8.     Due from Officer:

       Due from officer represents a loan to the Company's  President.  The loan
is payable in annual installments of $100,000 commencing in December 1997. These
annual  payments  shall be first applied to accrued  interest,  with the balance
applied to reduce the principal.  The remaining unpaid principal and any accrued
interest is payable in full in December 2016.  Commencing  December 1, 1996, the
loan bears interest at 7.0% per annum,  prior to that the loan was  non-interest
bearing.

9.     Long-Term Debt:

       Long-term debt at August 31, 1997, consists of the following:

       Term loan payable in monthly installments of
         $2,767 plus interest through October 2000.(a)      $  74,700
       Term loan payable in monthly installments of $500
         plus interest at 9 1/2% through April 2000.           16,000
                                                            ---------
                                                               90,700
       Less current portion                                    39,200
                                                            ---------
                                                            $  51,500

       (a) The Company  has  available  a $250,000  term loan  facility of which
$175,000  remains  available at August 31, 1997.  Borrowings  bear interest at 1
1/4% over the bank's prime rate (8.5% at August 31, 1997).

       In addition, the Company maintains a line of credit with a bank. 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, 1997, there was no balance outstanding.

                                                        F-10


<PAGE>



9.     Long-Term Debt:  (Cont'd)

       In November  1997, the Company  entered into an amended  credit  facility
(the "amended  facility") with its bank. Under the amended  agreement,  the term
loan provides for a $600,00 term loan bearing  interest at 1/2% above the bank's
prime rate, and a line of credit facility of $2,500,000  bearing interest at the
bank's prime rate.  In addition,  the amended  agreement  provides for a foreign
exchange line, to hedge against fluctuations in foreign countries, in the amount
of $2,000,000. The amended facility contains various covenants pertaining to the
maintenance  of certain  financial  ratio  restrictions  and expires in December
1998.

       Annual maturities of long-term debt are as follows:

Year Ending
August 31,
   1998                                                   $  39,200
   1999                                                      39,200
   2000                                                      12,300
                                                           ---------
                                                          $  90,700
10.    Income Taxes:

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

                                         Years Ended
                                          August 31,

                                  1997                   1996
       Current:
         Federal              $   1,199,900           $    46,360
         States                     657,600               332,470
                              -------------           -----------
                                  1,857,500               378,830
                              -------------           -----------
       Deferred:
         Federal                    394,500               413,570
         States                      56,000               129,600
                              -------------           -----------
                                    450,500               543,170
                              -------------           -----------
                              $   2,308,000           $   922,000
                              =============           ===========

       The  Company's  provisions  for income taxes  reflects  benefits from the
utilization of net operating loss  carryforwards of  approximately  $386,000 and
$802,000 for the years ended August 31, 1997 and 1996, respectively.

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

       Deferred tax assets:
         Depreciation                                   $107,000
         Accrued expenses                                 42,000
         Accrued lease obligation                        343,000
         Allowance for bad debts                          63,000
         Amortization                                     38,000
         Other                                            63,000
                                                        ---------
                                                         656,000
       Deferred tax liabilities:
         Unrealized gain on marketable securities       (120,000)
         Investment in subsidiary                       (265,000)
         Deferred commissions                            (84,500)
                                                       ----------
                                                        (469,500)
       Net deferred income taxes                       $ 186,500
                                                       ==========

                                  F-11


<PAGE>



10.    Income Taxes:  (Cont'd)

       The  Company's  effective  tax rate for the years  ended 1997 and 1996 on
earnings differs from the Federal Statutory regular tax rate as follows:

                                                           Years Ended
                                                            August 31,
                                                     1997                1996

       Federal statutory rate                        34.0%               34.0%
       State taxes, net of federal benefit           15.0                15.0
       Adjustment of prior years' accrual             6.0                17.3
       Reduction of valuation allowance                -                (17.9)
       Federal income tax credits                    (1.5)               (3.0)
       Permanent differences                          1.7                12.1
       Other                                           -                 (2.4)

                                                     55.2%               55.1%
                                                    ======               =====

11.    Stockholders' Equity:

       a.  Stock options/warrants

           (i) The  Company  had a  non-qualified  stock  option  plan which was
terminated  in 1994.  The Plan  provided for the granting of options to purchase
not more than  187,500  shares  of common  stock to  employees  of the  Company,
including directors.

                 The  following  table  summarizes  the status of stock  options
outstanding under the plan:
                                          Number of             Option
                                           Shares               Prices

Outstanding, August 31, 1995                140,625           $1.52 - $2.32
Granted                                        -                  -
Canceled and expired                           -                  -
                                          ----------
Outstanding, August 31, 1996                140,625           $1.52 - $2.32
Granted                                        -                  -
Canceled and expired                        (12,500)              2.32
                                          ----------

Outstanding, August 31, 1997                128,125               $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.










                                    F-12


<PAGE>



11.    Stockholders' Equity:  (Cont'd)

       a.  Stock options/warrants  (Cont'd)

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

                                               Number of             Option
                                                Shares               Prices

Outstanding, August 31, 1995                   187,500               $1.52
Granted                                           -                  -
Exercised                                       (5,000)              $1.52
Canceled and expired                           (40,000)              $1.50
                                             ----------
Outstanding, August 31, 1996                   142,500               $1.52
Granted                                         32,500               $2.00
Exercised                                       (5,000)              $1.52
Canceled and expired                              -                  -
                                              ----------

Outstanding, August 31, 1996                   170,000           $1.52 - $2.00
                                              ==========

           (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.

           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
Canceled and expired                      (16,000)              $2.19
                                        ----------
Outstanding, August 31, 1996              484,000               $2.19
Granted                                        -                  -
Exercised                                 (17,000)              $2.19
                                        ----------

Outstanding, August 31, 1997              467,000               $2.19
                                        ==========

                 The  Company  has elected  the  disclosure-only  provisions  of
Statement of Financial  Accounting  Standard No. 123, Accounting for Stock-Based
Compensation  ("FASB  123")  in  accounting  for  its  employee  stock  options.
Accordingly,  no  compensation  expense  has been  recognized.  Had the  Company
recorded  compensation  expense for the stock options based on the fair value at
the grant date for awards in the fiscal years 1997 and 1996  consistent with the
provisions  of FASB 123, the effect on the  Company's  net income and net income
per share would have been immaterial.

           (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.


                                 F-13


<PAGE>



11.    Stockholders' Equity:  (Cont'd)

       a.  Stock options/warrants  (Cont'd)

                 On October 10, 1997, the Company  extended the expiration  date
of the Class A and B warrants until April 30, 1998.

                 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 consist 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.

           (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.

       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
shares in the twelve month period ended March 31, 1996.  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.

       d.  Common shares reserved at August 31, 1997

           Incentive stock option plans          661,000
           Non-qualified stock option plan       128,125
           Class A Warrants                    1,559,858
           Class B Warrants                    1,766,623
           Underwriters' units                   529,987
           Key employees' units                  420,000
                                               ----------
                                               5,065,593

       e.  Net income per common share

           Net income per common share has been  computed by dividing net income
by the weighted  average  number of common  stock and common  stock  equivalents
outstanding during each period. Common stock equivalents represents the dilutive
effect on the assumed exercise of certain outstanding options and warrants.


                              F-14


<PAGE>



11.    Stockholders' Equity:  (Cont'd)

       e.  Net income per common share  (Cont'd)

           In February 1997,  the Financial  Accounting  Standards  Board issued
Statement No. 128,  "Earnings Per Share" ("Statement 128"), which simplifies the
standards  for  computing  earnings  per share  previously  used and makes  them
comparable to international  standards. The statement is effective for financial
statements  issued for periods  ending  after  December  15,  1997,  and earlier
application is not permitted. Had the Company implemented the new pronouncement,
management  believes  that net income per common  share would have  increased by
$.02 for the year ended August 31, 1997.

12.    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 $100,000 and
$325,000 in the years ended  August 31,  1997 and 1996,  respectively.  The note
reduced in 1997 was due from a company affiliated with a director/officer of the
Company.

13.    Business Segments:

       The Company's major operations are in Performance Improvement and Medical
Communication, Travel Management Services and First Aid Products.

       The  Performance  Improvement  division  provides  solutions for critical
business issues to corporate  customers based on management  techniques  coupled
with award  programs,  while the  Medical  Communications  division  designs and
implements  seminars for  training  health care  professionals  and produces and
markets patient  education  programs.  The Travel  Management  Services  segment
provides  corporate  travel  management and consulting  services.  The First Aid
Products  segment   manufacturers  and  markets  products  which  consist  of  a
proprietary  burn care line and a line of generic  creams and  ointments  to the
industrial marketplace and on a limited basis to consumer markets.

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

                                                    Years Ended
                                                     August 31,
                                            1997                  1996
Revenue:
  First Aid Products                    $  5,296,000        $   4,223,000
  Travel Management Services              11,571,000           10,811,000
  Performance Improvement and
    Medical Communications                46,018,000           39,830,000
                                        --------------      --------------
                                        $ 62,885,000        $  54,864,000
                                        ==============      ==============

Operating (Loss) Income:
  First Aid Products                    $    696,000        $     (108,000)
  Travel Management Services                 937,000               801,000
  Performance Improvement and
    Medical Communications                 2,291,000               526,000
                                       --------------        --------------

                                       $    3,924,000        $    1,219,000
                                       ==============        ==============


                                F-15


<PAGE>



13.    Business Segments:  (Cont'd)

       Capital Expenditures:
         First Aid Products             $       89,000        $       52,000
         Travel Management Services             23,000                85,000
         Performance Improvement and
           Medical Communications               37,000               100,000
                                         --------------        --------------

                                        $      149,000        $      237,000
                                         ==============        ==============

       Depreciation and Amortization:
         First Aid Products             $      303,000        $      364,000
         Travel Management Services             74,000                67,000
         Performance Improvement and
           Medical Communications               83,000               109,000
                                         --------------        --------------

                                        $      460,000        $      540,000
                                        ==============        ==============

       Identifiable  assets  pertaining to the  industries as of August 31, 1997
are as follows:

       First Aid Products               $    3,172,000
       Travel Management Services            1,219,000
       Performance Improvement and
         Medical Communications              5,042,000
       General corporate assets              9,367,000

                                        $   18,800,000

14.    Fair Value of 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, 1997 approximates fair value.

15.    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>



15.    Commitments and Contingencies:  (Cont'd)

       a.  Lease commitment  (Cont'd)

           As of August 31,  1997,  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,

                          1998                              $     742,000
                          1999                                    625,000
                          2000                                    546,000
                          2001                                    533,000
                          2002                                    545,000
                       Thereafter                               3,500,000

           Rental expense approximated $866,000 and $956,000 for the years ended
August 31, 1997 and 1996, 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
$1,100,000.  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,

                          1998                         $  988,000
                          1999                            930,000
                          2000                            877,000
                          2001                            750,000
                          2002                            417,000
                       Thereafter                         500,000

       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  contribution approximated $13,600 and $22,000 for
the years ended August 31, 1997 and 1996, respectively.

       d.  Litigation:

           The Company is involved in various lawsuits and claims  incidental to
its business. 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.

                                       F-17


<PAGE>



16.    Major Customers:

       Revenues from two customers  approximated  33% and 21% and 24% and 20% of
total revenues for the years ended August 31, 1997 and 1996, respectively.

17.    Advertising Costs:

       Included in selling,  general and administrative expenses are advertising
costs of $203,000  and  $284,000  for the years ended  August 31, 1997 and 1996,
respectively.

18.    Supplemental Disclosures of Cash Flow Information:

                                               Years Ended
                                                August 31,
                                       1997                   1996

       Interest paid              $      81,020           $   126,478
                                  =============           ===========

       Income taxes paid          $   1,384,326           $   583,551
                                  =============           ===========

                               F-18