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

    AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 28, 2005

                       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

                   FOR THE FISCAL YEAR ENDED NOVEMBER 30, 2004

                                       OR

             |_| TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE
                         SECURITIES EXCHANGE ACT OF 1934

              FOR THE TRANSITION PERIOD FROM _________TO _________

                          COMMISSION FILE NO. 001-31919

                                   ----------

                            NATURAL GOLF CORPORATION
                 (Name of small business issuer in its charter)

           ILLINOIS                                       36-3745860
(State or other jurisdiction of                        (I.R.S. Employer
incorporation or organization)                      Identification Number)

                           431 LAKEVIEW COURT, SUITE B
                         MOUNT PROSPECT, ILLINOIS 60056
                                 (847) 321-4000
               (Address, including zip code, and telephone number,
        including area code of registrant's principal executive offices)

                                   ----------

SECURITIES REGISTERED UNDER SECTION 12(B) OF THE EXCHANGE ACT:

<TABLE>
<CAPTION>
     TITLE OF EACH CLASS OF SECURITIES TO BE REGISTERED                  NAME OF EACH EXCHANGE ON WHICH REGISTERED
-------------------------------------------------------------   -------------------------------------------------------------
<S>                                                                      <C>
            Common Stock, no par value per share                                  American Stock Exchange
</TABLE>

SECURITIES REGISTERED UNDER SECTION 12(G) OF THE SECURITIES EXCHANGE ACT:

<TABLE>
<CAPTION>
     TITLE OF EACH CLASS OF SECURITIES TO BE REGISTERED                  NAME OF EACH EXCHANGE ON WHICH REGISTERED
-------------------------------------------------------------   -------------------------------------------------------------
<S>                                                                      <C>
                            None                                                            None
</TABLE>

      Check whether the issuer 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). Yes |X| No |_|

      Check whether the issuer has been subject to such filing requirements for
the past 90 days. Yes |X| No |_|

      Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B 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. |_|

      Issuer's revenues for its most recent fiscal year: $8,561,071

      The aggregate market value of the common stock held by non-affiliates
(assuming, for this purpose, that executive officers, directors and holders of
10% or more of the common stock are affiliates), computed by reference to the
closing price of such stock as of February 24, 2005, was $1,190,764.

      At February 24, 2005, 5,207,566 shares of the registrant's common stock
(no par value per share) were outstanding.

                       DOCUMENTS INCORPORATED BY REFERENCE

Part III - Portions of the Proxy Statement for the Annual Meeting of
Shareholders to be held on May 10, 2005 are incorporated by reference into Part
III hereof.

               Transitional Small Business Issuer: Yes |_| No |X|

================================================================================
<PAGE>

                            NATURAL GOLF CORPORATION

                                     INDEX

                                                                        PAGE NO.
                                                                        --------
PART  I.

     Item    1.   Description of Business                                      1
     Item    2.   Description of Property                                      5
     Item    3.   Legal Proceedings                                            6
     Item    4.   Submission of Matters to a Vote of Security Holders          6

PART II.

     Item    5.   Market for Common Equity and Related Stockholder Matters     7
     Item    6.   Management's Discussion and Analysis                         7
     Item    7.   Financial Statements                                        13
     Item    8.   Changes in and Disagreements With Accountants on
                     Accounting and Financial Disclosure                      13
     Item    8A.  Controls and Procedures                                     13

PART  III.

     Item    9.   Directors and Executive Officers of the Registrant          14
     Item    10.  Executive Compensation                                      14
     Item    11.  Security Ownership of Certain Beneficial Owners and
                     Management and Related Stockholder
                  Matters.                                                    14
     Item    12.  Certain Relationships and Related Transactions              14
     Item    13.  Exhibits and Reports on Form 8-K                            14
     Item    14.  Principal Accountant Fees and Services                      15

<PAGE>

                                     PART I

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This report contains  forward-looking  statements  within the meaning of Section
21E of the  Securities  Exchange Act of 1934,  and Section 27A of the Securities
Act of 1933 that  reflect our  current  expectations  about our future  results,
performance,  prospects and opportunities.  These forward-looking statements are
subject to significant risks,  uncertainties,  and other facets, including those
identified in "Risk  Factors"  below,  which may cause actual  results to differ
materially  from  those  expressed  in,  or  implied  by,  any   forward-looking
statements.  The  forward-looking  statements  within  this Form  10-KSB  may be
identified by words such as  "believes,"  "anticipates,"  "expects,"  "intends,"
"may," "would," "will" and other similar expressions.  However,  these words are
not the  exclusive  means of  identifying  these  statements.  In addition,  any
statements that refer to expectations, projections or other characterizations of
future  events  or  circumstances  are  forward-looking  statements.  Except  as
expressly required by the federal securities laws, we undertake no obligation to
publicly  update or revise any  forward-looking  statements to reflect events or
circumstances  occurring  subsequent  to the filing of this form 10-KSB with the
SEC or for any other  reason.  You  should  carefully  review and  consider  the
various  disclosures we make in this report and our other reports filed with the
SEC that attempt to advise  interested  parties of the risks,  uncertainties and
other factors that may affect our business.

For further information about these and other risks,  uncertainties and factors,
please  review the  disclosure  included in this report under the caption  "Risk
Factors."

ITEM 1. DESCRIPTION OF BUSINESS.

OVERVIEW

      We are a golf improvement company. We offer golf instruction and equipment
focused on  delivering a total system for  improving  the play of golfers of all
abilities.  We produce and sell instructional video tapes explaining our Natural
Golf swing system, offer golf schools through a network of instructors certified
to teach the  Natural  Golf  system,  and  manufacture  and sell golf  equipment
specifically developed for the golfer using the Natural Golf swing system.

      We market and sell  directly to consumers,  including the new golfer,  the
high handicapper, the good golfer wanting to improve, the occasional golfer, the
woman golfer and the golfer with bad back or  arthritis.  To attract  golfers to
the  Natural  Golf  system,   we  market  an  instructional  kit  that  includes
full-color-instruction  book and  instructional  videotapes  on the Natural Golf
swing and short game. Historically,  we have advertised these instructional kits
primarily through  infomercials  aired on cable and broadcast outlets and direct
response  print  advertisements  placed in national  circulation  newspapers and
magazines,  including USA Today, The Wall Street Journal, Golf Magazine and Golf
Digest.

      As a direct  marketer,  we have  developed  a  database  of  Natural  Golf
instructional  kit  purchasers as well as other golfers who have inquired  about
the Natural  Golf swing  system and its  benefits.  This  database  provides the
foundation for our direct marketing  campaigns to promote  attendance at Natural
Golf instruction  schools across the United States and the purchase of specially
designed, custom-fitted Natural Golf clubs. Our direct marketing efforts include
the Natural Golfer magazine,  a full-time  telemarketing staff, the Natural Golf
website,  e-mail mailings, and automated customer relationship management tools.
These  cost-effective  direct  marketing  programs attempt to capture all of the
golf-related spending of Natural Golf customers.

      We were incorporated on December 28, 1990 as an Illinois  corporation.  In
April 1997, Thomas Herskovits, our Chairman,  acquired a controlling interest in
us. As of January  1,  2001,  we split our  operations  into three  wholly-owned
subsidiaries,  of which Natural Golf  Corporation is the parent  company.  These
subsidiaries were established and divided based on source of revenue production:
Natural Golf Products for product sales  generated from  infomercials  and other
media advertising,  the Internet and telemarketing  efforts,  Natural Golf Field
Sales  for  product  sales  generated  from the  field  sales  group  consisting
primarily  of  certified  instructors,  and  Natural  Golf  Schools  for revenue
generated  from  golf  schools  and  instruction.  We  produce  and  manufacture
instructional kits, books and videos, golf equipment and accessories that are in
turn sold to our subsidiaries for direct sale to our customers.  During 2002, we
changed our fiscal year end from  December 31 to November 30. In December  2003,
we completed an initial public offering of 2.5 million shares of common stock.


                                       1
<PAGE>

RECENT DEVELOPMENTS

      The financial viability of the Company is dependent on generating positive
cash flows from  operations  and  raising  additional  funds.  Given the current
situation,  we cannot  assure  that we will be able to  continue  to satisfy our
obligations as they come due or satisfy the AMEX's listing standards.  If losses
continue  and the  Company  is unable  to raise  sufficient  capital,  liquidity
problems will cause the Company to curtail operations,  liquidate assets, and/or
pursue other  actions  that could  adversely  affect  future  operations.  These
factors  raise  substantial  doubt  about  the  Company's  ability  to  continue
operations as a going concern.

NATURAL GOLF SYSTEM

      Our swing system is similar to the swing of Moe Norman, legendary Canadian
golfer and a member of the Canadian Golf Hall of Fame. He won 54  tournaments in
the  1960s  and  1970s,   including  seven   consecutive   Canadian  PGA  senior
championships  starting in 1979.  Moe Norman is regarded as one of the best ball
strikers ever by the professional golfing community.

      The Natural  Golf swing  system  places the grip in the palm of the hands,
not in the fingers; and extends the arms to create a "single-plane  swing". This
reduces club head and body rotation,  creating a simpler, more "natural" motion.
The  stance is wider  which  tends to  minimize  the  turning  of the  hips.  In
September  1998,  we were awarded  United  States  Patent No.  5,803,827  for an
improved golf club head and an improved  method of swinging the golf club.  This
patent expires on January 15, 2015.

      Our swing  system has been  designed  principally  to improve  the average
golfer's handicap by improving accuracy, increasing distance and reducing strain
on the body. We believe that our swing system can be used effectively by the new
golfer, the high handicapper, the good golfer wanting to improve, the occasional
golfer,  the  woman  golfer,  and the  golfer  with  bad back or  arthritis.  We
conducted a survey of approximately 1,000 Natural Golfers in 2001 that indicated
a handicap  reduction of  approximately  25% to 40% over the course of the first
year playing on the Natural Golf system. The handicap reduction was greatest for
Natural  Golfers  who  attended a one-day  school and played with  Natural  Golf
clubs.

      The Natural Golf system  provides the foundation for nearly all of Natural
Golf's revenue in its three key segments:  instructional  kits, golf schools and
custom-fitted  golf clubs.  We believe  that we are the only golf  company  that
markets a full-range,  one-stop golf improvement  system from instructional kits
and videos to golf schools and clubs.

PRODUCTS AND SERVICES

      Most of our sales are derived from three key segments:

      INSTRUCTIONAL  PRODUCTS-We produce a wide range of instructional  products
      including videotapes, books, practice devices and accessories.

      GOLF SCHOOLS-Our golf instructional  courses or "golf schools" as they are
      referred to in the golf industry,  are staffed by certified instructors in
      approximately  162 major markets,  approximately  63 of which operate year
      round.  Golf Magazine  honored our golf schools as one of the "Top 25 Golf
      Schools" since 1999.

      CUSTOM-FITTED GOLF CLUBS-We manufacture custom-fitted golf clubs specially
      designed for the Natural Golf system.  Our Beryllium  Copper fairway woods
      were ranked "Best of the Best" by Rankmark,  an independent golf equipment
      laboratory,  in 2000 and were judged as a "Best  Performer" by GolfTestUSA
      Testing Laboratory in 2001. Beginning in September 2004, we began shipping
      custom clubs manufactured for our customers by Callaway Golf.

INSTRUCTIONAL PRODUCTS

      We introduce  customers to the Natural Golf system by advertising the sale
of an  introductory  instructional  package,  entitled 7 Minutes to Better  Golf
(TM).  The  previous  edition  of this  instructional  package  was known as the
Natural Golf Swing System (TM).

      The 7 Minutes to Better Golf instructional  package was completely updated
and  redesigned to help our customers  teach  themselves the basics of our swing
system. The package includes the following materials:


                                       2
<PAGE>

      o     7 Minutes to Better  Golf Book with over 120  full-color  photos and
            computer-modeled illustrations.

      o     7 Minutes to Better Golf Video  introducing  the  principles  of the
            Natural   Golf   "single-plane"   golf   swing  and   teaching   the
            easy-to-learn setup fundamentals.

      o     Drills Video putting the swing in motion to help the buyer learn.

      o     Playing Lesson Video to explain strategies on the course.

      o     Natural Golf Training Grip enabling a person to practice the Natural
            Golf grip and swing motions along with the video.

      In  addition to the 7 Minutes to Better  Golf  instructional  kit, we have
produced  various  videos for advanced  instruction in the Natural Golf system -
Natural Golf Driving for  Distance,  Natural Golf Faults and Fixes,  and Natural
Golf Short Game.  Hosted by Natural  Golf's top  teaching  professionals,  these
instructional  videos are intended for the self-learner  interested in more than
the basic teaching fundamentals included in the 7 Minutes to Better Golf.

GOLF SCHOOLS

      While we believe the 7 Minutes to Better Golf  instructional  package is a
highly effective teaching aid, the most effective way to master the Natural Golf
system is through face-to-face instruction with a Natural Golf certified trained
professional.

      We offer  schools in  approximately  162 locations  throughout  the United
States,  Mexico and Canada, with additional locations added according to demand.
Our   schools   are   typically   held  at  public   courses   (privately-owned,
municipally-owned,  and resort-type  courses) where we use a portion of the golf
course  facilities  on a per  diem  basis as the  demand  for our  schools  in a
particular location dictate.  Our schools are taught by one of our approximately
125  certified  instructors,  who  receive  a fixed fee for  teaching  a one-day
session  and  are   classified   as   independent   contractors.   They  include
approximately 38 PGA, Ladies PGA and Canadian PGA members.  In order to maintain
favorable  student-teacher  ratios  at  our  schools,  we  selectively  add  new
certified  instructors to meet demand.  The PGA has approved our instruction for
continuing education credit for PGA professionals.

NATURAL GOLF CLUBS

      Much  of  the   improvement   of  the  Natural  Golf  technique  over  the
conventional style is based on the unique "Natural Palm Grip".  Because the golf
club  is held in the  palm-instead  of the  fingers-Natural  Golfers  require  a
larger,  non-tapering  grip on their  clubs.  Virtually  all golfers  experience
improvement using the Natural Golf  technique-even with their own golf clubs-but
Natural  Golf clubs are  designed to work with the Natural  Golf swing to ensure
increased  effectiveness.  Other club design features  incorporated into Natural
Golf clubs include the longer shaft for greater club head speed and the adjusted
lie-angle to more perfectly align with the  more-upright,  single-plane  Natural
Golf swing.

      Although  many people have found that they have been able to use their old
golf clubs while  playing  the  Natural  Golf  system,  we have  developed a top
quality line of  custom-fitted  clubs that better fit the Natural Golf swing. We
own a number of U.S. design patents on our Natural Golf clubs.

      In 2004,  we entered into an agreement  with Callaway Golf Company to have
them produce for us a premium line of custom-made  golf clubs  including  irons,
drivers,  fairway  woods and wedges.  These  products  are  co-branded  with the
Callaway  Golf and Natural Golf brand names and began  shipping to our customers
beginning in the fourth  quarter of 2004.  We will continue to  manufacture  and
market our current line of Natural  Golf brand golf clubs.  On February 7, 2005,
Callaway  Golf  Company  ("Callaway  Golf")  delivered  notice to  Natural  Golf
Corporation (the "Company") of its intent to terminate the Custom Club Agreement
(the "Agreement")  entered into by Callaway Golf and the Company effective March
9, 2005,  unless the Company pays  outstanding  sums due Callaway  Golf prior to
that date.  If the Company is unable to obtain  additional  equity  financing or
complete a sale of the  Company,  it does not  anticipate  being able to satisfy
these obligations in a timely manner.

      We  believe  that club  sales are  driven  by our  certified  instructors'
ability to  demonstrate  to our golf school  students  the value of Natural Golf
clubs, by outbound direct marketing efforts to a growing customer database,  and
through  promotion  of starter  sets and demo clubs.  The growth in Natural Golf
club sales can be directly correlated to increased participation in Natural Golf
schools. Our certified instructors are paid a commission on the sales of Natural
Golf products and services that they generate.


                                       3
<PAGE>

MARKETING AND SALES

      Our   marketing   and  sales   strategy   is  focused  on  four   distinct
elements-marketing  and  selling  direct to the  consumer,  promoting  an entire
"system" to improve  one's golf game,  aggressive  direct  marketing  to promote
instruction and equipment sales, and an independent field sales group to promote
and sell our products.  The combination of these  approaches  differentiates  us
from competitors in the golf equipment industry.

      DIRECT TO CONSUMER  MARKETING  AND SALES -We market and sell direct to the
      golfing consumer. The majority of other golf equipment  manufacturers sell
      through mass merchandisers,  sporting goods chains,  independent  sporting
      and golf stores,  and golf pro shops. The larger golf instruction  schools
      may  market  directly  to  customers,  but they  generally  do not sell an
      improvement system that can produce additional high profit sales.

      SELLING A TOTAL GOLF  IMPROVEMENT  SYSTEM -We sell a total,  proven system
      for improving  the play of golfers of all  abilities.  Golfers  looking to
      improve  their game are first  introduced  to  Natural  Golf  through  the
      purchase of a relatively inexpensive instructional kit.

      DIRECT  MARKETING  PROGRAMS  TO  EXISTING  CUSTOMERS  -After  acquiring  a
      customer,  our strategy is to market the proven  success of our system and
      sell additional  higher margin products.  These direct marketing  programs
      include  telemarketing,  a  bi-monthly  magazine,  our  website and e-mail
      initiatives and other local promotions.

      EXTENDED FIELD SALES GROUP -Our independent  field sales team of certified
      instructors provide the critical local,  face-to-face selling opportunity.
      Instructors  have the  opportunity  to earn  income  from  providing  game
      improvement   instruction  and  selling   products  that  further  improve
      students'  play.  Although  the field sales team is expected to  undertake
      some local  marketing,  we use our direct  marketing  efforts to drive the
      golfer to the certified instructor.

      Currently,  we do not have the  capital  to execute  our direct  marketing
initiatives. Without this marketing, our sales will decline.

BACKLOG

      At November 30, 2004, we had  approximately  $72,000 of backlog of written
firm  orders for  products.  Approximately  half of this  backlog was shipped in
December and the balance will be shipped when there are adequate inventories. We
require payments for products at the time the order is placed.  Our backlog does
not include  unearned  school revenue that is collected in advance of the school
completion.

COMPETITION

      The golf equipment  industry is highly  competitive and dominated by a few
large  market  participants,  including  Callaway  Golf (which also owns the Ben
Hogan,  Odyssey and  Top-Flite  brands),  Adidas (which owns the Taylor Made and
MaxFli brands),  Nike, Fortune Brands (which owns the Titleist and Cobra brands)
and Ping.  These  companies  have better  brand  recognition  and  significantly
greater  financial  resources  than us.  Newer and smaller  companies  have also
entered the market,  including  Rossignol (which owns the Cleveland Golf brand),
Adams,  Wilson,  Mizuno,  and GenX Sports  (which owns Tear Drop,  Ram and Tommy
Armour brands), which has led to increased competition.

      Many of our  current  and  potential  competitors  have  longer  operating
histories,   established  reputations  and  greater  financial,   technical  and
marketing  resources  than  we  do.  This  may  place  us at a  disadvantage  in
responding  to our  competitors'  pricing  strategies,  technological  advances,
advertising campaigns, strategic partnerships and other initiatives. Many of our
competitors have well-established  relationships with our potential partners and
have extensive  knowledge of these industries.  These competitors may be able to
respond  more  quickly to new or emerging  technologies  and changes in customer
requirements and devote more resources to the development, promotion and sale of
their products and services than we can.  Finally,  we expect to face additional
competition   from  new  entrants  into  the  golf  school  and  golf  equipment
marketplaces because there are relatively low barriers to entry into them.


                                       4
<PAGE>

INTELLECTUAL PROPERTY; RESEARCH AND DEVELOPMENT

      We hold a  patent  related  to our  single  plane  swing,  which  requires
significantly  less  rotation,  making  the swing less  sensitive  to timing and
coordination.  United States Patent #5,803,827, dated September 8, 1998, expires
January 17, 2015 and  relates to the  integration  of a club head design and the
Natural Golf swing method.  United States Patent  #5,803,827  was submitted on a
pro se basis by the  inventor.  Our claim with  respect to this patent may be of
limited value because our swing method may be practiced using golf clubs that do
not meet the club head design  specifications set forth in the patent.  Further,
the golf club design  claims  under this patent are not  currently  incorporated
into our club  designs.  We own this patent  exclusively,  and no  licensing  or
royalties  are  paid by us to  third  parties  for the  manufacture  and sale of
products under this patent. We are not aware of any persons  infringing on these
patents,  or any  infringement  by us on the  intellectual  property  rights  of
others.  Although we cannot  prevent  others from using or practicing  our swing
method claimed under this patent,  we can prevent the  commercialization  of our
swing method under our Natural Golf  trademark,  and we have covenants under our
certified  instructor  agreements that restrict the use of our teaching methods,
processes and techniques following termination.

      We also  exclusively  own two design  patents on club head  designs.  U.S.
Design Patent  #388,144,  filed November 27, 1996 and issued  December 23, 1997,
covers the club head  design of our  History  Stick  sand  wedge and  expires on
December 23, 2011.  U.S.  Design Patent  #468,787,  filed  November 23, 2001 and
issued  January 14, 2003,  covers the club head design of our Pipeline irons and
expires on January 14, 2017.

      We own a registered trademark on "Natural Golf" for equipment and services
in the United States and Canada, and for equipment in the European Union. We own
a registered  trademark on Natural Golf for services in Japan.  Other registered
and/or pending trademarks include "A Lifetime of Better Golf", "Pipeline",  "Pro
Performance",  "Single  Plane",  "TI  Hammer",  "ST110" and  "Square  Tracking".
Various copyrights are also held on some of our golf instruction videotapes.  We
are aware of certain  parties  that own or have rights to use the  Natural  Golf
mark in  connection  with  golf  instruction  services  in parts of  Europe,  in
Australia and in other parts of the world.

EMPLOYEES

      We had 25 employees as of November  30, 2004,  of which 23 were  full-time
employees.  If needed, we are able to hire part-time labor for production during
the summer,  which is our peak sales season.  Our manufacturing and distribution
activities include the assembly of purchased golf club components, the packaging
of golf club sets,  and the receiving,  warehousing  and shipping of instruction
kits,  accessories,  books and videos and golf clubs. Production and duplication
of videotapes and instruction are generally handled on a contract basis.

      None of our  employees are covered by a collective  bargaining  agreement,
nor have we experienced a strike or other adverse work stoppage due to organized
labor.  We offer our  employees a benefits  package  that  includes  medical and
dental coverage,  disability  insurance,  stock options and a 401(k)  retirement
savings program.

      We also have a national network of approximately 125 certified instructors
who serve as independent contractors.

RAW MATERIALS

      The principal raw materials and components  used in the manufacture of our
golf clubs and equipment are shafts,  heads,  headcovers and grips.  We purchase
approximately  56% of our raw material golf  equipment  inventory from two major
suppliers. We purchase our club heads from vendors in Asia.

      We are not dependent upon any one supplier for raw materials or components
used  in the  manufacture  of our  equipment.  We  believe  there  are  adequate
alternative  sources of raw materials and components of sufficient  quantity and
quality.  Although we are not dependent on any  single-source  provider,  we may
experience  a  delay  in  replacing  one or more  of our  vendors  and we may be
required to pre-pay for shipments from a replacement vendor.

      Additionally,  we  purchase  finished  goods  from  a  supplier  that  has
threatened to discontinue  the production of a certain line of golf clubs due to
a lack of payment. Sales of this line of clubs are considered significant to the
Company's future short-term revenues.

ITEM 2. DESCRIPTION OF PROPERTY.

      The Company  leased  office and  warehouse  facilities  under an operating
lease agreement that expired  November 30, 2004. A new facility was leased under
an  agreement  that expires  December 31, 2005 and provides  both parties to the
lease the right to terminate the agreement  early.  From October 1, 2002 through
June 2004,  the Company had been  sub-leasing a portion of its office space to a
company  owned by an officer  and  director  of the  Company.  Income  from this
sub-lease  totaled  $24,000 and  $42,000 in fiscal 2004 and 2003,  respectively.
Total rent expense, net of this sub-lease income, was approximately $215,000 and
$199,000  for fiscal  2004 and 2003,  respectively.  Minimum  future base rental
payments are $106,000 in fiscal 2005.


                                       5
<PAGE>

ITEM 3. LEGAL PROCEEDINGS.

      There are no pending or, to our knowledge,  threatened  claims against us.
However,  from  time  to  time,  we  expect  to  be  subject  to  various  legal
proceedings, all of which are of an ordinary or routine nature and incidental to
our operations.  Such proceedings have not in the past had, and we do not expect
they will in the future have, a material  impact on our results of operations or
financial condition.

      We  provide a 30-day,  money-back  satisfaction  guarantee  on most of our
products.   Additionally,   we  provide  a  limited  2-year   warranty   against
manufacturer defects or workmanship on our golf equipment. Products produced for
us by Callaway Golf carry their standard warranty.

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

      We did not submit any matters to a vote of the  shareholders in the fourth
quarter of 2004.


                                       6
<PAGE>

                                     PART II

ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.

      On December 11, 2003,  we completed an initial  public  offering of common
stock,  no par value per  share.  These  securities  were  registered  under our
Registration  Statement  on Form SB-2 (Reg.  No.  333-107802).  Our common stock
trades on the American Stock Exchange under the symbol "NAX". Before our initial
public offering, there was no established public market for our common stock.

      As of  February  23,  2005,  there were 97  shareholders  of record of our
common stock,  based upon securities  position  listings  furnished to us by our
transfer agent.  We believe the number of beneficial  owners is greater than the
number of record holders  because a large portion of our common stock is held of
record through brokerage firms in "street name".

      We have not declared or paid any cash dividends on our common stock and do
not  intend to pay any cash  dividends  on the common  stock in the  foreseeable
future.  We  currently  intend to retain  future  earnings,  if any, to fund the
development  and  growth of our  business.  Future  dividends,  if any,  will be
determined by our board of directors.

      The following table sets forth the high and low closing bid quotations for
the common  stock for the fiscal year ended  November 30, 2004 since the initial
public offering.  The quotations reflect inter-dealer prices, without adjustment
for retail mark-ups, mark-downs or commissions and may not necessarily represent
actual transactions.

                        Fiscal year ended November 30, 2004
                                    High                 Low
                                    -----               -----
                   First Quarter    $5.00               $3.20
                   Second Quarter   $4.05               $2.90
                   Third Quarter    $3.10               $1.23
                   Fourth Quarter   $1.46               $0.30

ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.

      The following discussion and analysis provides information that we believe
is relevant to an assessment and  understanding  of our results of operation and
financial  condition.  You should  read this  analysis in  conjunction  with our
audited consolidated  financial statements and related note. This discussion and
analysis  contains  statements of a  forward-looking  nature  relating to future
events  or  our  future  financial   performance.   These  statements  are  only
predictions,  and actual events or results may differ materially.  In evaluating
such statements, you should carefully consider the various factors identified in
this report which could cause  actual  results to differ  materially  from those
expressed in, or implied by, any forward-looking statements, including those set
forth in "Risk Factors" in this Annual Report on Form 10-KSB.

OVERVIEW

      We are a golf  instruction  and equipment  company focused on delivering a
total system for improving the play of golfers of all abilities.  We produce and
sell instructional  video tapes explaining our Natural Golf swing system,  offer
golf  schools  through a network of  instructors  certified to teach the Natural
Golf system, and manufacture and sell golf equipment  specifically developed for
the golfer using the Natural Golf swing system.  Our  operations  are split into
three direct,  wholly-owned  subsidiaries.  These  subsidiaries were established
based on source of revenue production:

            o     Natural Golf Products  Corporation for product sales generated
                  from  infomercials and other media  advertising,  direct mail,
                  the Internet and telemarketing efforts,

            o     Natural  Golf  Field  Sales   Corporation  for  product  sales
                  generated  from the field  sales  group,  primarily  certified
                  instructors, and

            o     Natural Golf Schools  Corporation  for revenue  generated from
                  golf schools and instruction.

      Our  Natural  Golf  Products  subsidiary  markets  and  sells  all  of our
products,  as well as golf  instruction  services  for our Natural  Golf Schools
subsidiary  operations.  Natural Golf Products  uses various  methods to attract
golfers  to the  swing  system  and  purchase  the  initial  instructional  kit,
including  infomercials,  television and radio  commercials,  print advertising,
telemarketing and the Internet. It uses our marketing services, including direct
mail and e-mail  campaigns,  and the  distribution of a bi-monthly  magazine for
existing customers.


                                       7
<PAGE>

      Natural  Golf Field Sales  primarily  sells our  custom-built  golf clubs.
Natural  Golf  Field  Sales  also  sells  all of our other  products,  but these
non-equipment  sales  totals less than 10% of overall  Natural Golf Field Sales.
The  certified  instructors  who teach for Natural  Golf Schools sell golf clubs
primarily to those customers who attended  instruction  provided through Natural
Golf Schools.  In addition,  the instructors conduct club demonstrations to help
market and sell golf clubs to existing customers in their geographical area.

      Natural Golf Schools conducts our golf school operations.  It develops the
school  offerings  and the  content  of the  instruction,  selects,  trains  and
certifies the instructors,  and arranges for sites to hold the instruction.  The
primary  school  offerings  were  one-day and two-day  schools  held in over 150
locations.

      The Company's financial statements for fiscal year 2004 have been prepared
on a going concern basis,  which  contemplates the realization of assets and the
settlement of liabilities and commitments in the normal course of business.  The
Company has historically  reported net losses,  including  reporting a loss from
operations of $5,788,217 for fiscal year 2004, and has a working capital deficit
of $1,270,893 as of November 30, 2004.

      As contemplated in the IPO prospectus,  the Company used approximately 55%
of the $10.4  million  in net  proceeds  from its  December  2003 IPO to satisfy
indebtedness and obligations due, and used the remaining  proceeds  primarily to
fund major marketing initiatives during the fiscal year ended November 30, 2004.
The Company's heavy investment in these marketing  initiatives did not yield the
results that were anticipated.  As a result,  the Company generated  significant
operating losses.  In response to the lower sales volume generated,  the Company
has  significantly  reduced its overhead,  including 60% of our payroll cost, in
the fourth quarter of fiscal 2004 and is investigating  funding options and more
efficient customer acquisition  channels.  If substantial losses continue and/or
the Company is unable to raise sufficient capital, liquidity problems will cause
the Company to curtail operations,  liquidate assets, seek additional capital on
less  favorable  terms and/or  pursue  other such  actions that could  adversely
affect  future  operations.  These  financial  statements  do  not  include  any
adjustments  relating to the  recoverability and classification of assets or the
amounts and  classification  of liabilities  that might be necessary  should the
Company be unable to continue as a going concern.

LIQUIDITY AND CAPITAL RESOURCES

      Our  financing  activities  resulted in net cash of $7.1 million in fiscal
2004 as we completed an IPO in December 2003. As contemplated in the prospectus,
substantially  all of the debt then  outstanding has been repaid,  using cash of
$4.0  million in fiscal  2004.  Also in fiscal 2004 we paid  approximately  $1.6
million to satisfy  past due  obligations  to  vendors.  Additionally,  cash was
required to fund the losses generated from the current year operations. We had a
working  capital  deficit of $1.3  million as of  November  30,  2004 and a cash
balance of $400 as of November 30, 2004.

      We incurred  net losses of $7.4  million and $5.3  million for fiscal 2004
and 2003,  respectively,  and negative cash flow from operations of $7.0 million
for  fiscal  2004  and $0.7  million  for  fiscal  2003.  Prior  to our  IPO,  a
substantial  portion of our  operations  was  financed by the issuance of equity
instruments  attached to debt financing  that resulted in  significant  interest
charges.  While these were non-cash charges,  they still resulted in significant
expenses  being  reported  in our  Statements  of  Operations.  The cash used in
operations  for fiscal 2004 and 2003  reflects  $1.0  million and $1.8  million,
respectively,  of non-cash  interest expense  resulting from the amortization of
debt  discount  and  deferred   financing   costs  related  to  these  financing
transactions.  The cash used in  operations  for fiscal 2004 also  includes $0.5
million of  non-cash  expenses  related to the  issuance of warrants to purchase
175,000  shares  of  common  stock at an  exercise  price of $4.00  per share to
holders of certain  investor  notes during the first  quarter.  The cash used in
operations for fiscal 2003 includes $0.6 million of non-cash expenses related to
the expected  issuance of common stock and options in payment of talent services
related to an  infomercial.  Although we incurred a net loss in fiscal 2003, the
net  change in assets and  liabilities  contributed  positive  cash flow of $1.9
million.  The key reasons  for this change were an increase in accounts  payable
and  accrued  expenses  and a decrease  in  inventories  in fiscal  2003,  as we
financed a portion of our operations by extending  payments to vendors and other
service  providers  and by reducing the level of inventory  purchases due to our
limited access to cash during the fiscal year.

We did  not  experience  the  improvement  in  the  effectiveness  of our  major
marketing  initiatives  that we had  expected  would  yield  enhanced  cash flow
results in the third quarter of fiscal 2004.  Specifically,  the Company did not
experience an  improvement  in the  effectiveness  of its  infomercial,  nor the
response it expected from its television  series that aired in the third quarter
on The Golf Channel.  Therefore,  in the fourth quarter we took steps to address
our cash flow  needs  going  forward.  These  initial  steps  included  reducing
administrative  and  payroll  expenses,   and  pursuing  additional   financing.
Profitability  of our  operations has been and will continue to be determined by
our  ability to acquire  customers  in a  cost-effective  manner and to generate
sufficient  follow-on  sales of our  products  and  services.  We are  currently
investigating  alternative  methods and  structures  to acquire  customers  on a
profitable  basis.  The  financial  viability  of the  Company is  dependent  on
generating  positive cash flows from  operations and raising  additional  funds.
Given the current  situation,  we cannot assure that we will be able to continue
to  satisfy  our  obligations  as they come due or satisfy  the  AMEX's  listing
standards.  Furthermore,  it is likely that any financing,  if available,  would
result in significant dilution to our existing shareholders.  If losses continue
and the Company is unable to raise sufficient  capital,  liquidity problems will
cause the Company to curtail operations,  liquidate assets,  and/or pursue other
actions that could  adversely  affect  future  operations.  These  factors raise
substantial doubt about the Company's ability to continue  operations as a going
concern.


                                       8
<PAGE>

CONSOLIDATED RESULTS OF OPERATIONS

COMPARISON OF FISCAL 2004 TO FISCAL 2003

                       CONSOLIDATED FINANCIAL INFORMATION

<TABLE>
<CAPTION>
                                                             2004                               2003
                                                  ----------------------------       ----------------------------
                                                                   % OF TOTAL                         % OF TOTAL
                                                    AMOUNT         NET REVENUE         AMOUNT         NET REVENUE
                                                  -----------      -----------       -----------      -----------
<S>                                               <C>                    <C>         <C>                    <C>
Total Net Revenue                                 $ 8,561,071            100.0%      $ 9,744,221            100.0%

Cost of Sales                                       3,216,080             37.6%        3,811,933             39.1%

Gross Profit                                        5,344,991             62.4%        5,932,288             60.9%

Selling Expense                                     6,809,686             79.5%        5,798,320             59.5%
General and Administrative Expense                  3,912,646             45.7%        2,869,427             29.4%
                                                  -----------      -----------       -----------      -----------
   Total Selling, General and Administrative       10,722,332            125.2%        8,667,747             88.9%

Depreciation and Amortization                         410,876              4.8%          275,216              2.8%
</TABLE>

      Our net sales  decreased  approximately  $1.2  million,  or  approximately
12.1%, for fiscal 2004 compared to fiscal 2003. The decrease resulted  primarily
from the delay in the major fiscal 2004  marketing  initiatives  to generate any
significant  amount of new customers  until late June, well into the high season
for  golf  activity  in  the  United  States  and  Canada.  While  the  customer
acquisition  spending  resulted  in a $128,000  increase in net sales of initial
instruction  packages in fiscal 2004 compared to fiscal 2003, follow-on sales of
instruction  services and equipment  decreased primarily because we obtained the
majority  of our new  fiscal  2004  customers  in the  latter  half of our third
quarter.  Also, because significant  operating losses resulted from the customer
acquisition  spending in the third quarter,  further  marketing  efforts for the
fourth quarter directed at generating  follow-on sales from initial  instruction
package  buyers were  extremely  limited.  Net sales from  instruction  services
declined by $504,000 in fiscal 2004, as our school attendees dropped by 31%. Due
to the  lower  amount  of  school  attendees,  combined  with the  timing of new
customers  and our limited  resources to market to them,  sales of equipment and
related accessories also declined in fiscal 2004, by $793,000.

      Our gross profit percentage  increased from 60.9% for fiscal 2003 to 62.4%
for  fiscal  2004.  This  increase  was  primarily  attributed  to the use of an
extensive  gift  certificate   promotion  in  fiscal  2003  in  order  to  drive
instruction and equipment  sales.  The comparative  effects of this promotion on
gross  profit  percentage  were  partially  offset by  higher  cost of sales for
equipment in the fourth  quarter of fiscal 2004.  In September  2004 the Company
began offering Callaway Golf clubs to its customers that have been customized to
meet the requirements of the Natural Golf teaching method. Sales of these clubs,
which  represent a significant  portion of our club sales in the fourth quarter,
have a  lower  profit  margin.  Sales  of  this  line of  clubs  are  considered
significant to our future short-term revenues.

      Operating  expenses  increased by $2,190,000 in fiscal 2004, and increased
as a  percentage  of net sales  from  91.7% in fiscal  2003 to 130.0% for fiscal
2004.  The primarily  reasons for this increased  percentage  were the decreased
sales, the $1,043,000 increase in general and administrative  expenses,  and the
$1,011,000  increase  in selling  expenses  in fiscal  2004.  Of the  $1,043,000
increase in general and administrative expenses,  approximately $198,000 relates
to non-cash  equity charges,  approximately  $235,000  related to  non-recurring
charges due to the IPO and the  severance for a former  executive,  and $520,000
relates  to  the  cost  to  build  the  management  team,   increased  fees  for
professional  services,  additional insurance for directors & officers and other
expenses  related to  operating a public  company.  The  $1,011,000  increase in
selling  expenses  resulted  primarily  from a $1.7  million  increase  in media
spending to generate new customers,  occurring  principally in the third quarter
of fiscal 2004.  The current year  marketing  plan centered on an  eight-episode
television series airing on The Golf Channel in primetime from late June through
mid-August.   Significant  expenses  were  incurred  to  have  infomercials  and
short-form television ads airing in all three months while the television series
was airing. The increase in media spending was somewhat offset by a $0.5 million
decrease in 2004 for  infomercial  production  costs.  While we  developed a new
infomercial  in the first six months of fiscal  2004,  the costs  incurred  were
significantly  less than production costs in 2003. Selling expenses increased as
a percentage of net sales from 59.5% in fiscal 2003 to 79.5% in fiscal 2004. The
primary reason for the increase was that the  advertising  was less effective in
generating new customers.  The television  series in particular did not have the
impact we expected in bringing in a large number of new customers. Additionally,
a gift certificate promotion in 2003 generated significant sales in fiscal 2003.
This  promotion in 2003 had the effect of generating  sales with a lower overall
gross margin.


                                       9
<PAGE>

      While our depreciation  expense is not significant,  it increased $136,000
during  fiscal 2004.  This  increase was mainly due to the  amortization  of our
advanced  instructional series video masters commencing in late fiscal 2003. The
Company  amortizes  these costs using the  forecast  computation  method,  which
amortizes  such  costs as actual  revenue  is earned  over the  estimated  total
expected  revenues.  The Company reduced the future expected  revenues in fiscal
2004 based on current information.

RECENT ACCOUNTING PRONOUNCEMENTS

      In December 2004, the FASB issued SFAS No. 123(R),  "Share-Based Payment,"
which is a revision of SFAS No. 123,  Accounting for  Stock-Based  Compensation.
SFAS No. 123(R) is effective for public  companies  that file as small  business
issuers  for  interim or annual  periods  beginning  after  December  15,  2005,
supersedes  APB Opinion No. 25,  Accounting  for Stock Issued to Employees,  and
amends  SFAS No. 95,  Statement  of Cash Flows.  SFAS No.  123(R)  requires  all
share-based  payments to employees,  including grants of employee stock options,
to be recognized in the income  statement based on their fair values.  Pro-forma
disclosure is no longer an  alternative.  The new standard will be effective for
the company  beginning  March 1, 2006. We have not yet completed our evaluation,
but expect the adoption to have an effect on the financial statements similar to
the  pro-forma  effects  reported  in  Note  1  to  our  Consolidated  Financial
Statements.

      In November 2004, the FASB issued SFAS 151, Inventory Costs, which revised
ARB 43, relating to inventory costs.  This revision is to clarify the accounting
for abnormal  amounts of idle  facility  expense,  freight,  handling  costs and
wasted  material  (spoilage).  This  Statement  requires  that  these  items  be
recognized  as a current  period  charge  regardless  of  whether  they meet the
criterion  specified  in ARB  43.  In  addition,  this  Statement  requires  the
allocation of fixed production  overheads to the costs of conversion be based on
normal  capacity  of  the  production  facilities.  SFAS  151 is  effective  for
inventory  costs incurred  during fiscal years beginning after June 15, 2005. We
do not  believe  the  adoption  of SFAS 151 will have a  material  impact on our
financial statements.

      The FASB issued SFAS 153, Exchanges of Nonmonetary  Assets,  which changes
the guidance in APB Opinion 29,  Accounting for Nonmonetary  Transactions.  This
Statement amends Opinion 29 to eliminate the exception for nonmonetary exchanges
of  similar  productive  assets and  replaces  it with a general  exception  for
exchanges  of  nonmonetary  assets  that do not  have  commercial  substance.  A
nonmonetary  exchange has  commercial  substance if the future cash flows of the
entity are expected to change  significantly  as a result of the exchange.  SFAS
153 is effective  during fiscal years  beginning  after June 15, 2005. We do not
believe the  adoption of SFAS 153 will have a material  impact on our  financial
statements.

CRITICAL ACCOUNTING POLICIES

      The  policies  below  are  critical  to our  business  operations  and the
understanding of our results of operations.  In the ordinary course of business,
we make a number of estimates and  assumptions  relating to the reporting of our
results  of  operations  and  financial  condition  in  the  preparation  of our
financial statements in conformity with accounting principles generally accepted
in the  United  States.  Certain  critical  accounting  assumptions  affect  the
reported  amounts of assets,  liabilities,  revenues and expenses.  As a result,
changes  in these  estimates  or  assumptions  could  significantly  affect  our
financial position or our results of operations.  Actual results may differ from
these estimates under different assumptions or conditions as discussed below. We
believe that of the significant  accounting  policies used in the preparation of
our  consolidated  financial  statements,  the  items  discussed  below  involve
critical accounting estimates and high degree of judgment and complexity.


                                       10
<PAGE>

               REVENUE RECOGNITION AND ALLOWANCE FOR SALES RETURNS

      We recognize revenue in accordance with SEC Staff Accounting  Bulletin No.
101, Revenue Recognition in Financial  Statements (SAB 101), as amended. SAB 101
requires that four basic  criteria must be met before revenue can be recognized:
(1) persuasive  evidence of an arrangement  exists; (2) delivery has occurred or
services rendered; (3) the fee is fixed and determinable; and (4) collectibility
is reasonably assured.

      Revenue is recognized  from product sales when both title and risk of loss
transfer  to the  customer.  Generally,  both risk of loss and title pass to our
customers at the date of shipment via common carrier.  Sales are recorded net of
an allowance for sales returns. We offer a money-back  guarantee that allows the
customers to return most products,  within 30 days of receipt, for a full refund
of their original  product  purchase price, or exchange them for other products.
We estimate  product sale returns  based upon sales  levels,  historical  return
percentages and current  economic  trends.  If the actual costs of sales returns
significantly  exceed  the  recorded  estimated  allowance,  our sales  would be
significantly  adversely affected.  Revenue is recognized from sales of our golf
school  instruction  services  when the customer  has  attended the  instruction
program and our services have been rendered.  We credit deferred  revenue to the
extent  we  receive  payment  for  products  prior to  shipment  or prior to the
rendering of services.

                                   INVENTORIES

      Our  inventories  are  valued  at the  lower  of cost or  market.  Cost is
determined using the first-in,  first-out (FIFO) method.  Our inventory balances
consist of the material  costs of  unassembled  golf club  components  and other
products  bought and sold for resale  without  further  processing  or assembly.
These  balances  are written  down  periodically  to adjust for any  obsolete or
unmarketable  inventory as impairment of such inventories is identified.  If the
actual amount of obsolete or unmarketable  inventory  significantly  exceeds the
estimated  amounts,  our  cost of  products  sold  and  gross  profit  would  be
significantly adversely affected.

                                  INCOME TAXES

      Deferred income taxes are recognized for the expected tax  consequences in
future years for differences between the tax bases of assets and liabilities and
their financial reporting amounts, based upon enacted tax laws and statutory tax
rates  applicable to the periods in which the differences are expected to affect
taxable income.  Our significant  deferred tax asset is related primarily to our
net operating loss carry-forward. We have had net losses from inception and have
concluded  that it is more likely than not that our deferred tax assets will not
be realized  and as a result,  we have  provided a valuation  allowance  for the
total of our net  deferred tax asset at November 30,  2004.  The  estimates  for
deferred tax assets and the  corresponding  valuation  allowance require complex
judgments.  We periodically review those estimates for reasonableness.  However,
because the recoverability of deferred tax assets is directly dependent upon our
future  operating  results,  actual  recoverability  of deferred  tax assets may
differ materially from our estimates.

                      SEASONALITY AND ECONOMIC CONDITIONS

      Since consumers consider our products and services  discretionary spending
items,  we may be  adversely  affected by a sustained  economic  downturn in the
economy.  Our second and third quarters are generally  favorably affected due to
the peak golf season in the United States and Canada, our primary markets.

INFLATION

      We do not believe that inflation had a material impact upon our results of
operations during fiscal 2004 and 2003.

RISK FACTORS

      You should carefully  consider the risks,  uncertainties and other factors
described below because they could materially and adversely affect our business,
financial condition, operating results and prospects and could negatively impact
the market price of our common stock.  Also,  you should be aware that the risks
and  uncertainties  described below are not the only ones facing us.  Additional
risks and  uncertainties  that we do not yet know of, or that we currently think
are immaterial,  may also impair our business operations.  You should also refer
to the other  information  contained in and  incorporated by reference into this
Annual Report on Form 10-KSB, including our financial statements and the related
notes.


                                       11
<PAGE>

WE ARE CURRENTLY  INSOLVENT AND WILL NOT BE ABLE TO REPAY OUR  OBLIGATIONS  WHEN
THEY BECOME DUE WITHOUT  SIGNIFICANT  ADDITIONAL  FUNDING.  IF WE DO NOT RECEIVE
ADDITIONAL  FUNDING,  WE MAY NOT BE ABLE TO CONTINUE OUR OPERATIONS AS CURRENTLY
CONTEMPLATED.

      As of November  30,  2004,  we had a net working  capital  deficit of $1.3
million and a total stockholders' deficit of $.9 million. We may incur operating
losses  for the  foreseeable  future  and,  as a result,  we will not be able to
satisfy our obligations solely from cash generated from operations.  If, for any
reason, we are unable to make required payments under our debt obligations,  one
or more of our  creditors  may take action to collect  their debts.  Some of our
creditors hold security  interests in our assets and any  collection  efforts on
their behalf could impair our golf equipment manufacturing  operations,  network
of certified  instructors and our ability to fund marketing programs,  which may
ultimately force us to, among other things:

      o     discontinue or curtail our business operations;

      o     sell assets at unfavorable prices;

      o     refinance existing debt obligations on terms unfavorable to us; or

      o     merge,  consolidate or combine with a company with greater financial
            resources in a transaction that may be unfavorable to us.

      Our   accountants   have  included  a  paragraph  in  their  opinion  that
accompanies our audited  financial  statement as of November 30, 2004 indicating
that our net losses and deficits  raise  substantial  doubt about the  Company's
ability to continue as a going concern. The accompanying financial statements do
not  include  any  adjustments  that  might  result  from  the  outcome  of this
uncertainty.

WE EXPECT TO CONTINUE TO INCUR LOSSES, AND WE MAY NEVER BECOME PROFITABLE.

      We have incurred operating losses in most of the quarters in which we have
been in business.  Our total stockholders' deficit through November 30, 2004 was
$945,000.  We expect to continue to incur losses into fiscal 2005, and we cannot
be certain if or when we will become profitable.

WE NEED TO RAISE  ADDITIONAL  CAPITAL THAT MAY NOT BE AVAILABLE ON  SATISFACTORY
TERMS.

      We may be required to raise  additional  capital in the future to meet the
continued  listing  requirements  of The American Stock  Exchange.  We cannot be
certain that we will be able to obtain additional  financing on favorable terms,
if at all. If we cannot raise it on acceptable terms, we may not be able to fund
our marketing and  promotions  programs to generate  sufficient new customers or
adequately  invest in the business to grow it profitably or maintain our listing
on a nationally recognized exchange or quotation system.

OUR COMMON STOCK MAY BE DELISTED  FROM THE AMERICAN  STOCK  EXCHANGE,  WHICH MAY
HAVE A MATERIAL ADVERSE IMPACT ON THE PRICING AND TRADING OF OUR COMMON STOCK.

      Our common stock is quoted on the American  Stock Exchange  ("Amex").  The
Amex,  as a matter of policy,  will  consider the  suspension  of trading in, or
removal  from  listing  of, any stock  when,  in the  opinion  of Amex,  (i) the
financial  condition  and/or  operating  results  of  an  issuer  appear  to  be
unsatisfactory;  (ii) it appears that the extent of public  distribution  or the
aggregate  market  value of the stock has become so  reduced as to make  further
dealings  on the Amex  inadvisable;  (iii)  the  issuer  has  sold or  otherwise
disposed of its  principal  operating  assets;  or (iv) the issuer has sustained
losses which are so  substantial  in relation to its overall  operations  or its
existing   financial   condition   has  become  so  impaired   that  it  appears
questionable,  in the  opinion  of  Amex,  whether  the  issuer  will be able to
continue operations and/or meet its obligations as they mature.

      As of February  28,  2005,  we have not  received  any  notices  from AMEX
notifying us that they will delist us.  However,  we cannot assure you that Amex
will not take any actions in the near future to delist our common stock.  If our
common stock were delisted  from the Amex, we may trade on the  Over-the-Counter
Bulletin  Board and the  market  price  for  shares of our  common  stock  could
decline.  Further,  if our common stock is removed from listing on Amex,  it may
become more difficult for us to raise funds through the sale of our common stock
or securities convertible into our common stock.


                                       12
<PAGE>

OUR AGREEMENT WITH CALLAWAY GOLF MAY BE TERMINATED.

      On February 7, 2005,  Callaway Golf Company  ("Callaway  Golf")  delivered
notice  to us of  its  intent  to  terminate  the  Custom  Club  Agreement  (the
"Agreement")  entered into by Callaway Golf and the Company  effective  March 9,
2005,  unless the Company pays  outstanding sums due Callaway Golf prior to that
date.

      We are continuing to explore  alternatives  for new equity  financing or a
sale of the Company, either of which might allow us to pay outstanding sums owed
to Callaway  Golf.  If we are unable to obtain  additional  equity  financing or
complete a sale of the Company, we do not anticipate being able to satisfy these
obligations in a timely manner.

ITEM 7. FINANCIAL STATEMENTS.

      The financial statements with the reports of independent registered public
accounting firm, are included in this Form 10-KSB on pages F-1, et seq.

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

      None.

ITEM 8A. CONTROLS AND PROCEDURES.

      We maintain a system of disclosure  controls and procedures,  as such term
is defined in Rules  13a-15(e)  and  15d-15(e)  under the Exchange Act, that are
designed  to  provide  reasonable  assurance  that  information  required  to be
disclosed  by us in the reports that we file under the Exchange Act is recorded,
processed,  summarized  and reported  within the time  periods  specified in the
SEC's rules and forms, and that such information is accumulated and communicated
to our  management,  including our Chief  Executive  Officer and Chief Financial
Officer,   as  appropriate,   to  allow  timely  decisions   regarding  required
disclosures.

      We have  carried  out an  evaluation  under the  supervision  and with the
participation  of  the  Company's  management,  including  the  Company's  Chief
Executive  Officer and Chief  Financial  Officer,  of the  effectiveness  of the
design and operation of our disclosure controls and procedures. Based upon their
evaluation and subject to the foregoing,  the Chief Executive  Officer and Chief
Financial  Officer concluded that such controls and procedures were effective as
of the end of the period covered by this report,  in all material  respects,  to
ensure that  required  information  will be  disclosed  on a timely basis in our
reports filed under the Exchange Act.

      In designing and evaluating the disclosure  controls and  procedures,  our
management  recognized  that any  controls  and  procedures,  no matter how well
designed and operated,  can provide only  reasonable  assurance of achieving the
desired control objectives, and our management necessarily was required to apply
their judgment in evaluating the cost-benefit  relationship of possible controls
and procedures.  We believe that our disclosure  controls and procedures provide
reasonable assurance.


                                       13
<PAGE>

                                    PART III

ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

      Information with respect to directors and executive  officers  included in
the definitive Proxy Statement for the Annual Meeting of Shareholders to be held
on May 10,  2005  under the  captions  "Election  of  Directors"  and  "Security
Ownership of Certain Beneficial Owners and Management" is incorporated herein by
reference.

      The Company has adopted a code of ethics  applicable  to all directors and
employees,  including  the  principal  executive  officer,  principal  financial
officer and principal  accounting officer. The director code of ethics is posted
on the Company's website,  www.naturalgolf.com (under the "Corporate Governance"
caption  of the  Investor  Relations  page)  and a printed  copy of  either  the
director or employee codes of ethics will be delivered to anyone who so requests
by  writing  to the  corporate  secretary  at Natural  Golf  Corporation  at 431
Lakeview Court, Mount Prospect, IL 60056. Amendments to, or waivers of, its code
of ethics will be posted on its website.

ITEM 10. EXECUTIVE COMPENSATION.

      Information  with  respect  to  executive  compensation  included  in  the
definitive  Proxy Statement for the Annual Meeting of Shareholders to be held on
May 10, 2005 under the caption "Executive  Compensation" is incorporated  herein
by reference.

ITEM 11.  SECURITY  OWNERSHIP OF CERTAIN  BENEFICIAL  OWNERS AND  MANAGEMENT AND
RELATED STOCKHOLDER MATTERS.

      Information  with  respect to  security  ownership  of certain  beneficial
owners and management  included in the definitive Proxy Statement for the Annual
Meeting of Shareholders  to be held on May 10, 2005 under the caption  "Security
Ownership of Certain Beneficial Owners and Management" is incorporated herein by
reference.

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

      Information with respect to certain relationships and related transactions
included  in  the  definitive   Proxy   Statement  for  the  Annual  Meeting  of
Shareholders to be held on May 10, 2005 under the caption "Certain  Transactions
with Management and Others" is incorporated herein by reference.

ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.

(a)   The following exhibits are filed as part of this report:

      3.1*  Amended and Restated Articles of Incorporation of Registrant

      3.2*  Amended and Restated Bylaws of Registrant

      4*    Specimen stock certificate representing Registrant's common stock

      10.2* Registrant's 2003 Stock Incentive Plan

      10.4* Form of Indemnification Agreement

      10.5* Form  of  Registrant's   Certified   Instructor   Sales/Compensation
            Agreement

      10.6* Consultation  Agreement between Registrant and Robert F Lukasiewicz,
            dated September 5, 2003

      21*   Subsidiaries of Registrant

      31.1  Certification of Chief Executive  Officer Pursuant to Rule 13a-14(a)
            under the Securities Exchange Act of 1934.

      31.2  Certification of Chief Financial  Officer Pursuant to Rule 13a-14(a)
            under the Securities Exchange Act of 1934.


                                       14
<PAGE>

      32.1  Certification  of the Chief  Executive  Officer and Chief  Financial
            Officer  pursuant to 18 U.S.C.  Section 1350, as adopted pursuant to
            Section 906 of the Sarbanes-Oxley Act of 2002.

----------
*Incorporated  by reference from the Exhibits to our  Registration  Statement on
Form SB-2 (Reg. No. 333-107802).

(b)   Reports on Form 8-K

      On November 17, 2004,  the Company  furnished a current report on Form 8-K
      in  connection  with  the  Company's  entry  into  a  material  definitive
      agreement, the departure of a director and other FD Disclosure items.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.

      (1) AUDIT FEES.  The aggregate  fees billed by Hein & Associates  LLP, the
      Company's independent auditors,  during fiscal years 2004 and 2003 for the
      audits of the annual  financial  statements,  the reviews of the quarterly
      financial   statements  included  in  Forms  10-Q  for  the  corresponding
      quarterly  periods  or the  services  that  are  normally  provided  by in
      connection with statutory and regulatory  filings or engagements for those
      fiscal years totaled approximately $59,000 and $142,000, respectively.

      (2) AUDIT-RELATED FEES. The aggregate fees billed by Hein & Associates LLP
      for assurance  and related  services  that are  reasonably  related to the
      performance of the audit or review of the Company's  financial  statements
      that are not included in the "Audit Fees"  described  above totaled $0 for
      fiscal 2004 and 2003, respectively.

      (3) TAX FEES. The aggregate fees billed by Hein & Associates LLP in fiscal
      years 2004 and 2003 for professional services rendered for tax compliance,
      tax  advice and tax  planning  were  approximately  $35,000  and  $19,000,
      respectively,  and  consisted  primarily  of services  with respect to the
      preparation of federal and state income tax returns, advice with regard to
      federal and state income tax audits and income tax planning.

      (4) ALL OTHER FEES.  The aggregate fees billed by Hein & Associates LLP in
      fiscal  2004 and 2003,  other  than for the  services  reported  in "Audit
      Fees," "Audit Related Fees" or "Tax Fees" described above, were $0 and $0,
      respectively.

      (5) AUDIT COMMITTEE APPROVAL PROCEDURES. The Company's independent auditor
      reports to, and is engaged at the direction of, the Audit Committee,  with
      annual  approval by the  shareholders.  The Audit  Committee  has the sole
      authority to pre-approve all audit and non-audit  services provided by the
      independent   auditors  to  the  Company  and  acts  to  assure  that  the
      independent  auditors  are  not  engaged  to  perform  specific  non-audit
      services proscribed by law or regulation. The Audit Committee pre-approved
      all fees related to the independent auditor.


                                       15
<PAGE>

                                   SIGNATURES

      In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.

NATURAL GOLF CORPORATION


By:  /s/ Richard A. Magid
     -------------------------------------
         Richard A. Magid, Chief Financial
         Officer

Date:    February 28, 2005

      In accordance  with the Exchange Act, this Report has been signed below by
the  following  persons  on  behalf  of the  Registrant  and  in the  capacities
indicated, on February 28, 2005.

NAME                                 TITLE                            DATE
---------------------  --------------------------------------  -----------------


/s/ Thomas Herskovits  Chairman of the Board                   February 28, 2005
---------------------
    Thomas Herskovits


/s/ Richard A. Magid   Chief Financial Officer and Director    February 28, 2005
                       (principal financial and accounting
---------------------  officer)
    Richard A. Magid


/s/ Robert E. Baker    Director                                February 28, 2005
---------------------
    Robert E. Baker


/s/ Barry Ryan         Director                                February 28, 2005
---------------------
    Barry Ryan


                                       16
<PAGE>

                          INDEX TO FINANCIAL STATEMENTS

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM                      F-2

CONSOLIDATED BALANCE SHEET - November 30, 2004                               F-3

CONSOLIDATED STATEMENTS OF OPERATIONS -
   For the Years Ended November 30, 2004 and 2003                            F-4

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT -
   For the Years Ended November 30, 2004 and 2003                            F-5

CONSOLIDATED STATEMENTS OF CASH FLOWS -
   For the Years Ended November 30, 2004 and 2003                            F-6

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                                   F-7


                                      F-1
<PAGE>

             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTNG FIRM

Board of Directors
Natural Golf Corporation
Mt. Prospect, IL

We have  audited the  accompanying  consolidated  balance  sheet of Natural Golf
Corporation  and   Subsidiaries  as  of  November  30,  2004,  and  the  related
consolidated  statements of operations,  changes in stockholders'  deficit,  and
cash flows for the years ended  November 30, 2004 and 2003.  These  consolidated
financial  statements are the  responsibility of the Company's  management.  Our
responsibility  is  to  express  an  opinion  on  these  consolidated  financial
statements based on our audits.

We conducted  our audits in  accordance  with  standards  of the Public  Company
Accounting Oversight Board (United States). 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 Natural
Golf  Corporation  and  Subsidiaries  as of November 30, 2004 and the results of
their  operations and their cash flows for the years ended November 30, 2004 and
2003, in conformity with accounting  principles generally accepted in the United
States of America.

The  accompanying  financial  statements  have been  prepared  assuming that the
Company  will  continue  as a  going  concern.  As  discussed  in  Note 2 to the
financial statements,  the Company has suffered recurring losses from operations
and its total liabilities exceed its total assets. This raises substantial doubt
about the  Company's  ability to  continue  as a going  concern.  The  financial
statements do not include any adjustments  that might result from the outcome of
this uncertainty.


HEIN & ASSOCIATES LLP

Denver, Colorado
January 21, 2005


                                      F-2
<PAGE>

                    NATURAL GOLF CORPORATION AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEET

                             AS OF NOVEMBER 30, 2004

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

CURRENT ASSETS:
    Cash                                                                          $       400
    Accounts receivable                                                                67,538
    Inventories                                                                       675,954
    Prepaid expenses                                                                   33,697
                                                                                  -----------
         Total current assets                                                         777,589

PROPERTY AND EQUIPMENT, at cost:
    Equipment                                                                         302,174
    Product masters                                                                   327,042
    Software                                                                          176,290
    Furniture and fixtures                                                             67,084
    Leasehold improvements                                                             47,804
                                                                                  -----------
         Total property and equipment                                                 920,394
    Less accumulated depreciation and amortization                                   (545,372)
                                                                                  -----------
         Property and equipment, net                                                  375,022
                                                                                  -----------
OTHER ASSETS                                                                           53,999
                                                                                  -----------
TOTAL ASSETS                                                                      $ 1,206,610
                                                                                  ===========

                      LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
    Current portion of capital lease obligations                                  $    71,384
    Trade accounts payable                                                            995,105
    Deferred revenue                                                                  151,403
    Accrued expenses                                                                  830,590
                                                                                  -----------
         Total current liabilities                                                  2,048,482
                                                                                  -----------
    Long-term capital lease obligations, net of current portion                       103,738
                                                                                  -----------
TOTAL LIABILITIES                                                                   2,152,220
                                                                                  -----------
COMMITMENTS AND CONTINGENCIES (Notes 2 and 6)
STOCKHOLDERS' DEFICIT:
    Preferred stock, 2,000,000 and no shares authorized, none outstanding -
    Common stock, no par value, 18,000,000 shares authorized, 5,207,566 shares
    outstanding 21,375,596 Additional paid-in capital 3,645,254 Treasury stock,
    at cost (50,000) Accumulated deficit (25,916,460)
         Total stockholders' deficit                                                 (945,610)
                                                                                  -----------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT                                       $ 1,206,610
                                                                                  ===========
</TABLE>


                                      F-3
<PAGE>

                    NATURAL GOLF CORPORATION AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF OPERATIONS

                                                        FOR THE YEARS ENDED
                                                            NOVEMBER 30,
                                                   ----------------------------
                                                       2004            2003
                                                   ------------    ------------

NET SALES:
  Products                                         $  7,423,016    $  8,101,849
  Services                                            1,138,055       1,642,372
                                                   ------------    ------------
    Total net sales                                   8,561,071       9,744,221
                                                   ------------    ------------

COST OF SALES:
  Cost of products sold                               2,599,253       2,788,734
  Cost of services provided                             616,827       1,023,199
                                                   ------------    ------------
    Total cost of sales                               3,216,080       3,811,933
                                                   ------------    ------------

GROSS PROFIT                                          5,344,991       5,932,288

OPERATING EXPENSES:
  Selling expense                                     6,809,686       5,798,320
  General and administrative expense                  3,912,646       2,869,427
  Depreciation and amortization                         410,876         275,216
                                                   ------------    ------------
        Total operating costs                        11,133,208       8,942,963
                                                   ------------    ------------

LOSS FROM OPERATIONS                                 (5,788,217)     (3,010,675)
                                                   ------------    ------------

OTHER  EXPENSE:
  Interest expense                                   (1,569,464)     (2,267,711)
  Other expense, net                                    (24,217)        (25,085)
                                                   ------------    ------------
        Total other expense, net                     (1,593,681)     (2,292,796)
                                                   ------------    ------------

NET LOSS                                           $ (7,381,898)   $ (5,303,471)
                                                   ============    ============

NET LOSS PER COMMON SHARE (BASIC AND DILUTED)      $      (1.46)   $      (2.18)
                                                   ============    ============

WEIGHTED-AVERAGE NUMBER OF SHARES OUTSTANDING
    (BASIC AND DILUTED)                               5,039,585       2,433,360
                                                   ============    ============


                                      F-4
<PAGE>

                    NATURAL GOLF CORPORATION AND SUBSIDIARIES

           CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT

                 FOR THE YEARS ENDED NOVEMBER 30, 2004 AND 2003

<TABLE>
<CAPTION>
                                                                                                 COMMON
                                                                                                 STOCK
                                                     COMMON                      ADDITIONAL        AND
                                                     SHARES         COMMON        PAID-IN        OPTIONS
                                                  OUTSTANDING       STOCK         CAPITAL        ISSUABLE
                                                  ------------   ------------   ------------   ------------
<S>                                                  <C>         <C>            <C>            <C>
BALANCES, December 1, 2002                           2,265,838   $  8,714,682   $    626,932   $         --
   Payment of note principal and interest              247,666      1,383,194             --             --
   Settlement of compensation claim                      7,750         31,000             --             --
   Discount on debentures due to issuance of
     detachable warrants and beneficial
     conversion feature                                     --             --      2,019,087             --
   Discount on investor notes due to
     issuance of detachable warrants                        --             --         52,209             --
   Options issued in connection with
     marketing consulting agreement                         --             --         18,600             --
   Warrants issued in connection with
     endorsement agreement                                  --             --          7,000             --
   Warrants issued to placement agent in
     connection with debenture offerings                    --             --        134,271             --
   Common stock and options to be issued for
     infomercial talent                                     --             --             --        599,500
   Warrants issued to debenture holders to
     extend maturity date                                   --             --         66,700             --
   Imputed interest on advances from
     directors                                              --             --         16,250             --
   Net loss                                                 --             --             --             --
                                                  ------------   ------------   ------------   ------------

BALANCES, November 30, 2003                          2,521,254     10,128,876      2,941,049        599,500
   Initial public offering                           2,500,000     10,438,972             --             --
   Payment of interest on notes                         61,312        245,248             --             --
   Payment for infomercial talent                      125,000        562,500             --       (562,500)
   Employee compensation relating to options
     issued                                                 --             --        132,450             --
   Employee compensation relating to
     restricted share grant                                 --             --         66,000             --
   Compensation relating to options issued
     for consulting agreement                               --             --         17,300             --
   Warrants issued to holders of investor
     notes                                                  --             --        474,250             --
   Warrants issued in conjunction with leases -             --             --         14,205             --
   Adjustment to common stock and options to
     be issued for infomercial talent                       --             --             --        (37,000)
   Net loss                                                 --             --             --             --
                                                  ------------   ------------   ------------   ------------

BALANCES, November 30, 2004                          5,207,566   $ 21,375,596   $  3,645,254   $         --
                                                  ============   ============   ============   ============

<CAPTION>


                                                                                     TOTAL
                                                  TREASURY       ACCUMULATED     STOCKHOLDERS'
                                                    STOCK          DEFICIT         DEFICIT
                                                 ------------    ------------    ------------
<S>                                              <C>             <C>             <C>
BALANCES, December 1, 2002                       $    (50,000)   $(13,231,091)   $ (3,939,477)
   Payment of note principal and interest                  --              --       1,383,194
   Settlement of compensation claim                        --              --          31,000
   Discount on debentures due to issuance of
     detachable warrants and beneficial
     conversion feature                                    --              --       2,019,087
   Discount on investor notes due to
     issuance of detachable warrants                       --              --          52,209
   Options issued in connection with
     marketing consulting agreement                        --              --          18,600
   Warrants issued in connection with
     endorsement agreement                                 --              --           7,000
   Warrants issued to placement agent in
     connection with debenture offerings                   --              --         134,271
   Common stock and options to be issued for
     infomercial talent                                    --              --         599,500
   Warrants issued to debenture holders to
     extend maturity date                                  --              --          66,700
   Imputed interest on advances from
     directors                                             --              --          16,250
   Net loss                                                --      (5,303,471)     (5,303,471)
                                                 ------------    ------------    ------------

BALANCES, November 30, 2003                           (50,000)    (18,534,562)     (4,915,137)
   Initial public offering                                 --              --      10,438,972
   Payment of interest on notes                            --              --         245,248
   Payment for infomercial talent                          --              --              --
   Employee compensation relating to options
     issued                                                --              --         132,450
   Employee compensation relating to
     restricted share grant                                --              --          66,000
   Compensation relating to options issued
     for consulting agreement                              --              --          17,300
   Warrants issued to holders of investor
     notes                                                 --              --         474,250
   Warrants issued in conjunction with leases -            --              --          14,205
   Adjustment to common stock and options to
     be issued for infomercial talent                      --              --         (37,000)
   Net loss                                                --      (7,381,898)     (7,381,898)
                                                 ------------    ------------    ------------

BALANCES, November 30, 2004                      $    (50,000)   $(25,916,460)   $   (945,610)
                                                 ============    ============    ============
</TABLE>


                                      F-5
<PAGE>

                    NATURAL GOLF CORPORATION AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                                     FOR THE YEARS ENDED
                                                                                         NOVEMBER 30,
                                                                                 ----------------------------
                                                                                         2004            2003
                                                                                 ------------    ------------
<S>                                                                              <C>             <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
    Net loss                                                                     $ (7,381,898)   $ (5,303,471)
      Non-cash items included in net loss:
          Depreciation and amortization                                               410,876         275,215
          Amortization of debt discount/deferred financing costs                    1,013,772       1,763,183
           Imputed interest on director's advances                                         --          16,250
           Provision for doubtful accounts                                              4,997          (6,500)
         Warrants issued to holders of investor notes                                 474,250              --
          Employee compensation related to options and restricted share grants        198,450              --
          Compensation related to warrants and options issued for services             17,300          25,600
          Common stock and options to be issued for infomercial talent                (37,000)        599,500
          Common stock issued to settle compensation claim                                 --          31,000
    Changes in assets and liabilities:
      (Increase) decrease in assets:
         Accounts receivable                                                          (23,004)           (265)
         Inventories                                                                   28,941         350,074
         Prepaid expenses, deposits and other                                            (578)         95,247
      Increase (decrease) in liabilities:
         Accounts payable                                                            (705,205)        526,761
         Deferred revenue                                                             (70,769)       (184,509)
         Accrued expenses                                                            (888,017)      1,126,381
                                                                                 ------------    ------------
        Net cash used in operating activities                                      (6,957,885)       (685,534)
                                                                                 ------------    ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
    Cash purchases of property and equipment                                         (151,386)             --
    Increase in product masters                                                       (37,592)       (375,627)
                                                                                 ------------    ------------
         Net cash used in investing activities                                       (188,978)       (375,627)
                                                                                 ------------    ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
    Proceeds from issuance of common stock                                         10,931,188              --
    Proceeds from notes issued                                                        114,958         559,100
    Proceeds from debentures issued                                                        --       1,663,683
    Proceeds from equipment lease                                                     103,624              --
    Payments on notes payable                                                      (4,002,907)       (449,315)
    Debt issue costs incurred                                                              --        (220,091)
    Stock offering costs incurred                                                          --        (492,216)
                                                                                 ------------    ------------
         Net cash provided by financing activities                                  7,146,863       1,061,161
                                                                                 ------------    ------------
NET INCREASE (DECREASE) IN CASH                                                            --              --
CASH , at beginning of period                                                             400             400
                                                                                 ------------    ------------
CASH , at end of period                                                          $        400    $        400
                                                                                 ============    ============
SUPPLEMENTAL SCHEDULE OF CASH FLOW INFORMATION:
    Cash paid during the period for interest                                     $    240,362    $    152,630
                                                                                 ============    ============
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
    Conversion of notes to secured debentures                                    $         --    $    905,000
                                                                                 ============    ============
    Stock issued in payment of notes and accrued interest                        $    245,248    $  1,383,194
                                                                                 ============    ============
    Debt discount                                                                $         --    $  2,071,296
                                                                                 ============    ============
    Warrants issued in payment of financing costs                                $     14,205    $    200,971
                                                                                 ============    ============
    Computer equipment purchased through capital lease                           $     41,376    $         --
                                                                                 ============    ============
</TABLE>


                                      F-6
<PAGE>

                    NATURAL GOLF CORPORATION AND SUBSIDIARIES

                    NOTES TO CONSOLIDATED FINANCIAL STAEMENTS

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES:

      Nature of  Operations  - The Company is a golf  instruction  company  that
      provides a total system for playing better golf, including a grip, stance,
      swing and equipment different from conventional golf systems.  Most of the
      Company's  revenue is derived from three  sources:  selling  instructional
      products,   including  videotapes,   DVDs,  books,  practice  devices  and
      accessories;  conducting  golf  schools  in over 200 major  markets in the
      United States; and selling custom-fitted golf clubs specially designed for
      the Natural Golf swing.

      Principles  of  Consolidation  -  The  consolidated  financial  statements
      include the  accounts of Natural  Golf  Corporation  and its three  wholly
      owned subsidiaries,  Natural Golf Products Corporation, Natural Golf Field
      Sales  Corporation  and Natural  Golf  Schools  Corporation  (collectively
      referred to as the "Company").  All significant inter-company accounts and
      transactions have been eliminated.

      Cash  Equivalents  - For  purposes of the  statement  of cash  flows,  the
      Company  considers  all  highly  liquid  debt  instruments  with  original
      maturities of three months or less to be cash equivalents.

      Receivables and Credit Policies - Normally the Company  requires  customer
      payment  at the time of  sale.  In  connection  with  certain  promotions,
      however,  the Company offers a deferred financing  arrangement where up to
      three monthly payments can be made. Trade receivables primarily consist of
      obligations under these deferred arrangements, are uncollateralized and do
      not bear interest.  Management reviews trade receivables  periodically and
      reduces  the  carrying  amount  by a  valuation  allowance  that  reflects
      management's  best estimate of the amount that may not be collectable.  As
      of November  30, 2004,  accounts  receivable  are net of an allowance  for
      doubtful accounts of $12,500.

      Inventories - Inventories  are valued at the lower of cost or market.  The
      Company values all inventories  utilizing the first-in,  first-out method.
      Inventories  are reviewed  periodically  and items  considered  to be slow
      moving or obsolete are reduced to estimated net  realizable  value through
      an appropriate  reserve.  Inventories consist of the following at November
      30, 2004:

            Components - unassembled golf club parts      $ 516,128
            Finished goods                                  218,926
                                                          ---------
                                                            735,054
            Reserve                                         (59,100)
                                                          ---------

            Net inventories                               $ 675,954
                                                          =========

      Property  and  Equipment  -  Property  and  equipment  are stated at cost.
      Depreciation  is provided  over the  estimated  useful lives of the assets
      ranging  from  three to seven  years  using  the  straight-line  method of
      depreciation. Leasehold improvements are stated at cost and amortized over
      the remaining life of the lease, using the straight-line  method. The cost
      of normal  maintenance  and  repairs is charged to  operating  expenses as
      incurred.  Material  expenditures  that  increase the life of an asset are
      capitalized and depreciated  over the estimated  remaining  useful life of
      the  asset.  Upon  the  disposition  of  assets,   the  related  cost  and
      accumulated  depreciation are removed from the books and the realized gain
      or loss, if any, is recognized in the year of the disposition.

      Costs incurred to produce product masters are capitalized. Product masters
      are  principally  comprised of  production  masters for our  instructional
      materials, including videotapes, DVDs, books and related packaging. During
      fiscal 2004 and 2003 the Company  incurred  costs of $37,592 and  $375,627
      respectively  for its product masters.  The Company  amortizes these costs
      using the  forecast  computation  method,  which  amortizes  such costs as
      actual revenue is earned over the estimated total expected  revenues.  The
      Company  continues to modify future expected  revenues based on additional
      information as it becomes available.  Amortization  expense related to the
      video  product  masters  during  fiscal  2004 and 2003  was  $330,654  and
      $153,270, respectively. The unamortized costs of the video product masters
      were $110,840 and $403,901 at November 30, 2004 and 2003, respectively.


                                      F-7
<PAGE>

      Deferred  Financing Costs - The Company  capitalizes costs associated with
      the  issuance  of  debt  instruments.  These  costs  are  amortized  on  a
      straight-line  basis  over the term of the debt  agreements.  Amortization
      expense for deferred  financing costs was $265,319 and $380,743 for fiscal
      2004 and 2003, respectively.

      Accrued  Expenses  -  Accrued  expenses  consist  of the  following  as of
      November 30, 2004:

            Advertising                                             $192,878
            Payroll and commissions                                  131,375
            Reserve for credit card rewards and gift certificates    133,398
            Reserve for taxes                                        238,137
            Other                                                    134,802
                                                                    --------

                                                                    $830,590

      Revenue  Recognition and Sales Incentives - The Company recognizes revenue
      in  accordance  with  SEC  Staff  Accounting  Bulletin  No.  101,  Revenue
      Recognition in Financial  Statements (SAB 101), as amended by SAB 101A and
      101B. SAB 101 requires that four basic criteria must be met before revenue
      can be recognized:  (1) persuasive  evidence of an arrangement exists; (2)
      delivery  has  occurred  or  services  rendered;  (3) the fee is fixed and
      determinable; and (4) collectibility is reasonably assured.

      The Company  recognizes  revenue from product  sales when risk of loss for
      and title to its products pass to the buyer. Generally,  both risk of loss
      and title pass to the  Company's  customers  at the date of  shipment  via
      common  carrier.  The Company  also offers the right of return for certain
      products, for which the Company estimates a return allowance.  The Company
      recognizes revenue from golf instruction services when those services have
      been performed.  Deferred revenue represents customer  prepayments,  which
      are  recognized  as  revenue  when  product is  shipped,  or when the golf
      instruction  services  have  been  rendered  to  the  attending  customer.
      Generally,  the Company receives payment from its customers prior to or at
      the time the product is shipped or the service is rendered.

      The Company offers sales  incentives to customers from time to time.  Cash
      incentives  such as  discounts  or instant  rebates  are  included  in the
      determination of net sales. Company gift certificates or gift cards issued
      to  customers  at the time of sale for  another  product  or  service  are
      included in the  determination of cost of sales. The cost of incentives is
      recognized  at the  later  of the  date  at  which  the  related  sale  is
      recognized or the date at which the incentive is offered.

      Advertising  Costs -  Advertising  costs for the Company  are  expensed as
      incurred, including costs to produce infomercials,  television commercials
      and print  advertisements.  Advertising  charged to expense  during fiscal
      2004 and 2003 was $4,168,830 and $2,948,763, respectively.

      Research  and  Development  -  The  costs  associated  with  research  and
      development  for new products and  significant  product  improvements  are
      expensed as incurred. Research and development expense for fiscal 2004 and
      2003 was $107,000 and $78,000 respectively. These costs were primarily for
      new golf club design and related tooling.


                                      F-8
<PAGE>

      Comprehensive  Income  (Loss) -  Comprehensive  income is  defined  as all
      changes in stockholders' equity (deficit),  exclusive of transactions with
      owners,  such as capital  investments.  Comprehensive  income includes net
      income  or loss,  changes  in  certain  assets  and  liabilities  that are
      reported directly in equity such as translation adjustments on investments
      in   foreign    subsidiaries    and    unrealized    gains   (losses)   on
      available-for-sale  securities.  For fiscal 2004 and 2003,  the  Company's
      comprehensive loss was the same as its net loss.

      Stock-Based   Compensation   -  The  Company   accounts  for   stock-based
      compensation for employees using the intrinsic value method  prescribed in
      Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to
      Employees, and related interpretations. Accordingly, compensation cost for
      stock options  granted to employees is measured as the excess,  if any, of
      the quoted market price of the Company's  common stock at the  measurement
      date  (generally,  the date of grant) over the amount an employee must pay
      to acquire  the stock.  Following  the  guidance  of APB 25,  $132,450  of
      compensation  expense has been  recognized in the  consolidated  financial
      statements for fiscal 2004. Had compensation  costs for the Company's 2003
      Stock Incentive Plan been  determined  based on the fair value at the date
      of grant for  awards  under  this  plan  consistent  with the  methodology
      prescribed  under SFAS No. 123,  Accounting for Stock-Based  Compensation,
      then the  Company's  net loss  would have been  adjusted  to the pro forma
      amounts indicated below:

<TABLE>
<CAPTION>
                                                                               2004             2003
                                                                         -------------    -------------
<S>                                                                      <C>              <C>
            Net loss - as reported                                       $  (7,381,898)   $  (5,303,471)
               Stock-based compensation included in reported net loss          132,450               --
               Stock-based compensation per SFAS 123                        (1,148,952)              --
                                                                         -------------    -------------

            Net loss applicable to common stock - pro forma              $  (8,398,400)   $  (5,303,471)
                                                                         =============    =============

            Basic and Diluted:
              Loss per share - as reported                               $       (1.46)   $       (2.18)
              Per share effect of stock-based compensation included
                   in reported net loss                                            .03               --
              Per share effect per SFAS 123                                      (0.23)              --
                                                                         -------------    -------------

            Loss per share applicable to common stock - pro forma        $       (1.66)   $       (2.18)
                                                                         =============    =============
</TABLE>

      The Company accounts for stock-based  compensation for non-employees under
      Accounting  for  Stock-Based  Compensation  (SFAS No.  123).  SFAS No. 123
      requires that options,  warrants and similar  instruments that are granted
      to  non-employees  for goods and services be recorded at fair value on the
      grant date.  Fair value is generally  determined  under an  option-pricing
      model using the criteria set forth in SFAS No. 123.

      Income Taxes - The Company  follows  Financial  Accounting  Standard (FAS)
      109,  Accounting  for Income Taxes,  which requires an asset and liability
      approach to financial accounting and reporting for income taxes.  Deferred
      income tax assets and  liabilities  are computed  annually for differences
      between the financial  statement  and tax bases of assets and  liabilities
      that will result in taxable or  deductible  amounts in the future based on
      enacted  tax  laws  and  rates  applicable  to the  period  in  which  the
      differences  are expected to affect taxable income.  Valuation  allowances
      are established when necessary to reduce deferred tax assets to the amount
      expected to be realized.  Income tax (benefit)  expense is the tax payable
      or refundable for the period plus or minus the change during the period in
      deferred tax assets and liabilities.


                                      F-9
<PAGE>

      Net Income (Loss) Per Share - Basic earnings per share (EPS) is calculated
      by dividing  the income or loss  available to common  shareholders  by the
      weighted  average  number of common  shares  outstanding  for the  period.
      Diluted EPS reflects the potential dilution that could occur if securities
      or other  contracts to issue common stock were exercised or converted into
      common stock. Due to losses incurred, basic and diluted earnings per share
      were the same. Common stock  equivalents,  which are comprised of issuable
      securities,  options,  warrants and  convertible  debentures  and notes of
      2,139,215  and  1,697,667 as of November 30, 2004 and 2003,  respectively,
      have been omitted from earnings per share.

      Use of Estimates - The preparation of consolidated financial statements in
      conformity  with generally  accepted  accounting  principles in the United
      States of America  requires  management to make estimates and  assumptions
      that affect certain reported amounts and disclosures. Actual results could
      differ from those estimates.  Significant estimates include sales returns,
      inventory reserves and valuation  allowances  associated with deferred tax
      assets.  It is  reasonably  possible  that  estimates  will  change in the
      forthcoming year and revisions could be material.

      Financial  Instruments  - The  estimated  fair  value  of  cash  and  cash
      equivalents,  accounts  receivable,  accounts payable and accrued expenses
      approximate their carrying amounts in the financial  statements due to the
      short-term nature of these instruments.

      Based on the borrowing rates currently  available to the Company for loans
      with  similar  terms and average  maturities,  the fair value of long-term
      debt approximates its carrying value.

      Concentrations  of Supply - During  fiscal 2004  approximately  70% of the
      Company's  inventories  were purchased from four major  suppliers.  One of
      these major  suppliers has threatened to  discontinue  the production of a
      certain line of golf clubs due to a lack of payment. Sales of this line of
      clubs  are  considered  significant  to the  Company's  future  short-term
      revenues.

      Recent Pronouncements - In December 2004, the FASB issued SFAS No. 123(R),
      Share-Based  Payment,  which is a revision of SFAS No. 123, Accounting for
      Stock-Based  Compensation.   SFAS  No.  123(R)  is  effective  for  public
      companies  that  file as small  business  issuers  for  interim  or annual
      periods beginning after December 15, 2005,  supersedes APB Opinion No. 25,
      Accounting  for  Stock  Issued  to  Employees,  and  amends  SFAS No.  95,
      Statement of Cash Flows. SFAS No. 123(R) requires all share-based payments
      to employees, including grants of employee stock options, to be recognized
      in the income statement based on their fair values.  Pro-forma  disclosure
      is no longer an  alternative.  The new standard  will be effective for the
      Company,  beginning March 1, 2006. The Company has not yet completed their
      evaluation,  but expects the  adoption to have an effect on the  financial
      statements similar to the pro-forma effects reported above.

      In November 2004, the FASB issued SFAS 151, Inventory Costs, which revised
      ARB 43,  relating  to  inventory  costs.  This  revision is to clarify the
      accounting  for  abnormal  amounts  of  idle  facility  expense,  freight,
      handling costs and wasted  material  (spoilage).  This Statement  requires
      that these items be  recognized as a current  period charge  regardless of
      whether they meet the  criterion  specified  in ARB 43. In addition,  this
      Statement  requires the  allocation of fixed  production  overheads to the
      costs  of  conversion  be  based  on  normal  capacity  of the  production
      facilities.  SFAS 151 is effective for  inventory  costs  incurred  during
      fiscal years  beginning  after June 15, 2005. The Company does not believe
      the  adoption  of SFAS 151 will have a  material  impact on the  Company's
      financial statements.

      The FASB issued SFAS 153, Exchanges of Nonmonetary  Assets,  which changes
      the guidance in APB Opinion 29,  Accounting for Nonmonetary  Transactions.
      This   Statement   amends  Opinion  29  to  eliminate  the  exception  for
      nonmonetary  exchanges of similar productive assets and replaces it with a
      general  exception  for exchanges of  nonmonetary  assets that do not have
      commercial  substance.  A nonmonetary exchange has commercial substance if
      the future cash flows of the entity are  expected to change  significantly
      as a result of the  exchange.  SFAS 153 is effective  during  fiscal years
      beginning  after June 15, 2005.  The Company does not believe the adoption
      of SFAS  153  will  have a  material  impact  on the  Company's  financial
      statements.


                                      F-10
<PAGE>

2. LIQUIDITY AND CONTINUING OPERATIONS:

      The Company's  financial  statements  for the year ended November 30, 2004
      have been  prepared  on a going  concern  basis,  which  contemplates  the
      realization of assets and the settlement of liabilities and commitments in
      the normal course of business.  The Company has historically  reported net
      losses,  including a loss from operations of $5.8 million for fiscal 2004,
      and has a working capital deficit of $1.3 million as of November 30, 2004.

      As  contemplated in the Initial Public Offering  ("IPO")  prospectus,  the
      Company used  approximately  55% of the $10.4 million in net proceeds from
      its December 2003 IPO to satisfy  indebtedness  and  obligations  due, and
      used the remaining proceeds primarily to fund major marketing  initiatives
      during fiscal 2004.  The  Company's  heavy  investment in these  marketing
      initiatives did not yield the results that were anticipated.  As a result,
      the Company  generated  significant  operating  losses. In response to the
      lower sales volume generated,  the Company has  significantly  reduced its
      overhead, including employees, in the fourth quarter of fiscal 2004 and is
      investigating  funding  options and more  efficient  customer  acquisition
      channels.  Also,  subsequent  to fiscal 2004, a  significant  supplier has
      threatened  discontinuing  the production of a certain line of golf clubs,
      which is considered  significant for short-term  revenues.  If substantial
      losses continue and/or the Company is unable to raise sufficient  capital,
      liquidity problems will cause the Company to curtail operations, liquidate
      assets,  seek  additional  capital on less  favorable  terms and/or pursue
      other such actions that could adversely  affect future  operations.  These
      factors raise  substantial  doubt as to the Company's  ability to continue
      operations as a going concern.  These financial  statements do not include
      any  adjustments  relating to the  recoverability  and  classification  of
      assets or the  amounts and  classification  of  liabilities  that might be
      necessary should the Company be unable to continue as a going concern.

3. NOTES PAYABLE AND LONG-TERM DEBT:

      As contemplated in the IPO prospectus,  a portion of the proceeds from the
      IPO was used to pay debt  obligations.  As of November 30, 2003, there was
      debt outstanding of $3,168,244,  net of unamortized  discount of $748,453.
      During December 2003, the Company borrowed an additional  $114,958 from an
      officer and director.  Substantially  all of these balances were repaid in
      fiscal 2004.

      In  connection  with the  payment of interest  on certain  notes  payable,
      61,312  shares of common stock were issued to  noteholders  during  fiscal
      2004.

      In the fourth  quarter of fiscal  2004,  the  Company  leased  $145,000 of
      computer equipment and software under a new $250,000 lease line of credit.
      This lease requires 36 monthly payments of $4,900.  The Company granted to
      the  lessor  a  security  interest  in  all of  the  Company's  equipment,
      inventory  and  accounts  receivable  to secure  payment on the lease.  In
      consideration  of the  option to prepay  the lease,  the  Company  granted
      warrants to purchase 23,420 shares of its common stock at a purchase price
      of $1.50 per share.  The terms of this lease meet  certain  criteria  that
      require  the lease to be  capitalized  in  accordance  with  Statement  of
      Financial  Accounting  Standard No. 13, "Accounting for Leases",  with the
      related  equipment and software  being recorded in property and equipment,
      along with an offsetting amount recorded as a liability.

      As of November 30, 2004,  future  minimum  lease  payments  under  capital
      leases are as follows:

                    2005                                     $  89,950
                    2006                                        69,956
                    2007                                        45,718
                                                             ---------
                    Total payments                             205,624
                    Less imputed interest                      (30,502)
                                                             ---------

                    Balance as of November 30, 2004          $ 175,122
                                                             =========


                                      F-11
<PAGE>

4. STOCKHOLDERS' DEFICIT:

      On December 17, 2003,  the Company  completed an IPO of 2.5 million shares
      of  common  stock at $5.00  per  share.  The net  proceeds  from the stock
      offering,  after deducting  underwriting fees and offering expenses,  were
      $10,439,000.  The proceeds have been used to pay outstanding  obligations,
      develop new  infomercials and other  advertisements,  fund advertising and
      promotion campaigns and for working capital and other general purposes.

      In connection with the closing of the stock  offering,  the Company issued
      to its underwriter five-year warrants to purchase 250,000 shares of common
      stock at an exercise price of $8.25 per share.

      The Company's  2003 Stock  Incentive Plan (the "2003 Plan") was adopted by
      the Board of  Directors  on August 4, 2003 and  approved by the  Company's
      stockholders  on August 22, 2003.  The 2003 Plan provides for the grant of
      stock options, restricted stock and stock appreciation rights. The Company
      has  reserved  900,000  shares of common stock to be issued under the 2003
      Plan.  No awards can be made  under the Plan  after  July 1, 2013.  During
      fiscal 2004 options for 875,100 were granted at an average  price of $3.25
      under the Plan and  options  for 39,800  expired  at an  average  price of
      $3.20. The following summarizes the options outstanding as of November 30,
      2004:

                        Per Share
                        Number of    Exercise
                         Options      Price       Expiration Date
                         -------      -----       ---------------

                          94,000      $0.37             2011
                         451,300      $3.20             2011
                          35,000      $3.25             2011
                         155,000      $4.00             2010
                         100,000      $5.00             2010
                      ----------

                         835,300       $3.25
                      ==========       =====

            Of the options granted,  165,000 were granted with an exercise price
      below the market price of the stock at a fair value of  $443,050,  610,100
      with an exercise  price  equal to the market  price of the stock at a fair
      value of  $900,210,  and 100,000  with an exercise  price above the market
      price of the stock at a fair value of $246,000.

            In  connection  with an  employment  agreement,  an  officer  of the
      Company was to be granted  100,000  shares of  restricted  stock under the
      Plan that were valued at $500,000 and was to vest over a two-year  period.
      The  agreement  was amended in the first  quarter of fiscal 2004 to cancel
      this  issuance of stock  before the shares were issued.  Accordingly,  the
      Company recognized a non-cash compensation charge of approximately $66,000
      to reflect  compensation  expense for the period  before the agreement was
      amended.

            As of November 30,  2003,  the Company had reserved for the issuance
      of options to purchase  75,000 shares  exercisable at $10.00 per share and
      115,000 shares of common stock to certain individuals that participated in
      the Company's infomercial.  The Company had previously accrued a liability
      in connection with these shares. During the second quarter of fiscal 2004,
      the agreements  were amended so that a total of 125,000 shares were issued
      and the  obligations to issue options were  cancelled.  In connection with
      these  amendments,  a  $37,000  reduction  in  expense  relating  to  this
      compensation was recognized in the second quarter of fiscal 2004.


                                      F-12
<PAGE>

            Upon  completion  of the IPO,  the  Company  was  required  to issue
      175,000  warrants to purchase  shares of common stock at an exercise price
      of $4.00 per share to the holders of certain  investor notes. The warrants
      were valued in the aggregate at $474,250,  which was treated as additional
      interest  expense.  The fair value of the  warrants  was  estimated on the
      grant  date  using the  Black-Scholes  pricing  model  with the  following
      assumptions: common stock based on a market price of $4.75 per share, zero
      dividends, expected volatility of 80%, risk-free interest rate of 2.5% and
      an expected life of three years.

      In addition to the options issued under the Plan, the following summarizes
      warrants issued and outstanding as of November 30, 2004:

                                 Per Share
                Number of        Exercise
                Warrants          Price         Expiration Date
                --------          -----         ---------------
                 80,733            $0.01              2007
                 23,420            $1.50              2011
                949,762            $4.00       2007 through 2008
                250,000            $8.25              2008
             ----------

              1,303,915
              =========

5. INCOME TAXES:

        The Company's actual effective tax rate differs from the U.S. Federal
        corporate income tax rate of 34% as follows for the periods ended:

<TABLE>
<CAPTION>
                                                                            November 30,
                                                                          ---------------
                                                                          2004       2003
                                                                          ----       ----
<S>                                                                      <C>        <C>
            Statutory rate                                               (34.0)%    (34.0)%
            State income taxes, net of Federal income tax benefit         (3.0)%     (3.3)%
            Non-cash interest expense and other permanent differences      7.5%       9.5%
            Increase (reduction) in valuation allowance related to        27.8%      29.5%
                net operating loss carryforwards and change in          ------     ------
                temporary differences                                        0%         0%
                                                                        ======     ======
</TABLE>


                                      F-13
<PAGE>

      The components of the net deferred tax asset recognized as of November 30,
2004 are as follows:

            Deferred tax assets (liabilities):
                Current -
                    Inventory reserve                  $    22,000
                    Vacation accrual                        16,000
                    Allowance for sales returns              6,000
                    Allowance for doubtful accounts          5,000
                Non-current -
                    Net operating loss carryforwards     7,868,000
                    Options and warrants                   155,000
                    Property and equipment                  24,000

                Valuation allowance                     (8,096,000)
                                                       -----------

                    Net deferred tax asset             $        --
                                                       ===========

      The valuation  allowance was $5,916,000 at November 30, 2003 and increased
      by $2,180,000 for the year ended November 30, 2004.

      At November 30, 2004, the Company has approximately  $21,220,000 available
      in net operating  loss  carryforwards  which expire from 2006 to 2022. The
      benefit of the net operating loss  carryforwards  to offset future taxable
      income  may  be  subject  to  reduction  or  limitation  as  a  result  of
      limitations relating to a 50% change in ownership in the past three years.

6. COMMITMENTS:

      Operating  Leases - The Company  leased  office and  warehouse  facilities
      under an operating lease  agreement that expired  November 30, 2004. A new
      facility was leased under an agreement that expires  December 31, 2005 and
      provides  both parties to the lease the right to terminate  the  agreement
      early.  From  October 1, 2002  through  June 2004,  the  Company  had been
      sub-leasing a portion of its office space to a company owned by an officer
      and director of the Company.  Income from this sub-lease  totaled  $24,000
      and $42,000 in fiscal 2004 and 2003, respectively. Total rent expense, net
      of this  sub-lease  income,  was  approximately  $215,000 and $199,000 for
      fiscal 2004 and 2003,  respectively.  Minimum future base rental  payments
      are $106,000 in fiscal 2005.

      Purchase  Commitments - The Company has outstanding  purchase  commitments
      for inventory  components  for $133,000.  The Company  anticipates  taking
      possession of these items during 2005.

      Employee  Relations  - During the  fourth  quarter  of 2004,  the  Company
      substantially  reduced  costs  by  terminating  a  significant  number  of
      employees. Salaries for certain remaining employees were also reduced. The
      Board of Directors  retained the right to declare  employee bonuses in the
      future. No amounts have been accrued for bonuses as of November 30, 2004.

7. RETIREMENT PLAN:

      The Company adopted a 401(k) retirement plan effective August 1, 1999 that
      covers  substantially  all  employees  with at least  30 days of  service.
      Employees may contribute their eligible  compensation to the plan, subject
      to the limits of Section 401(k) of the Internal  Revenue Code. The Company
      is not required to make any  contributions  to the plan. No  contributions
      were made to the plan for fiscal 2004 or 2003.


                                      F-14
<PAGE>

8. BUSINESS SEGMENTS:

      The Company has  identified  its principal  business  segments as follows:
      sale of products  generated in the field (Natural Golf Field Sales);  sale
      of products through advertising and telemarketing (Natural Golf Products);
      and conducting  golf  instruction  (Natural Golf  Schools).  The Company's
      reportable  segments are  strategic  business  units that offer  different
      products/services, are managed separately, and require different marketing
      strategies.  The  Company  evaluates  performance  based on  results  from
      operations  before  income  taxes  not  including  nonrecurring  gains and
      losses.


                                      F-15
<PAGE>

<TABLE>
<CAPTION>
                                                                                2004           2003
                                                                            -----------    -----------
<S>                                                                         <C>            <C>
      REVENUE FROM EXTERNAL CUSTOMERS:
          Natural Golf Products                                             $ 5,132,414    $ 5,527,537
          Natural Golf Field Sales                                            2,290,602      2,574,312
          Natural Golf Schools                                                1,138,055      1,642,372
          Corporate                                                                  --             --
                                                                            -----------    -----------
               Total revenue from external customers                        $ 8,561,071    $ 9,744,221
                                                                            ===========    ===========
      REVENUE FROM OTHER OPERATING SEGMENTS, ELIMINATED IN CONSOLIDATION:
          Natural Golf Products                                             $   116,050    $   162,961
          Natural Golf Field Sales                                                3,771          5,094
          Natural Golf Schools                                                       --             --
          Corporate                                                           4,236,429      4,519,900
                                                                            -----------    -----------
               Total revenue from other operating segments                  $ 4,356,250    $ 4,687,955
                                                                            ===========    ===========
      OPERATING INCOME (LOSS):
          Natural Golf Products                                             $(4,163,199)   $(2,192,383)
          Natural Golf Field Sales                                             (445,832)      (611,835)
          Natural Golf Schools                                                 (810,063)      (811,596)
          Corporate                                                            (369,123)       605,139
                                                                            -----------    -----------
               Total operating loss                                         $(5,788,217)   $(3,010,675)
                                                                            ===========    ===========
      INTEREST EXPENSE:
          Natural Golf Products                                             $        --    $        --
          Natural Golf Field Sales                                                   --             --
          Natural Golf Schools                                                    1,468             11
          Corporate                                                           1,567,996      2,267,700
                                                                            -----------    -----------
               Total interest expense                                       $ 1,569,464    $ 2,267,711
                                                                            ===========    ===========
      DEPRECIATION AND AMORTIZATION:
          Natural Golf Products                                             $        --    $        --
          Natural Golf Field Sales                                                   --             --
          Natural Golf Schools                                                      965            966
          Corporate                                                             409,911        274,250
                                                                            -----------    -----------
               Total depreciation and amortization                          $   410,876    $   275,216
                                                                            ===========    ===========
      IDENTIFIABLE ASSETS:
          Natural Golf Products                                             $     3,313    $    28,238
          Natural Golf Field Sales                                               44,481          2,215
          Natural Golf Schools                                                    1,206          2,172
          Corporate                                                           1,157,610      2,106,819
                                                                            -----------    -----------
               Total identifiable assets                                    $ 1,206,610    $ 2,139,444
                                                                            ===========    ===========

      EXPENDITURES FOR LONG-LIVED ASSETS:
          Natural Golf Products                                             $        --    $        --
          Natural Golf Field Sales                                                   --             --
          Natural Golf Schools                                                       --             --
          Corporate                                                             188,978        375,627
                                                                            -----------    -----------
               Total expenditures for long lived assets                     $   188,978    $   375,627
                                                                            ===========    ===========
</TABLE>


                                      F-16