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

                                   FORM 10-QSB

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

For the quarterly period ended     March 31, 1997
                             

                                       OR

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

For the transition period from __________________ to ____________________

Commission file number:          0-25064

                      HEALTH FITNESS PHYSICAL THERAPY, INC.
             (Exact name of registrant as specified in its charter)

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

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

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

         Check whether the issuer (1) filed all reports  required to be filed by
Section 13 or 15(d) of the  Securities  Exchange  Act of 1934 during the past 12
months (or for such shorter period that the registrant was required to file such
reports),  and (2) has been subject to such filing  requirements for the past 90
days. [X] Yes [ ] No

         The number of shares outstanding of each of the registrant's classes of
capital stock, as of April 30, 1996 was:

                 Common Stock, $.01 par value, 7,679,922 shares

Transitional Small Business Issuer Format: [  ] Yes   [X] No

<PAGE>

                         PART I - FINANCIAL INFORMATION
Item 1.  Financial Statements
             HEALTH FITNESS PHYSICAL THERAPY, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                                   (UNAUDITED)
<TABLE>
<CAPTION>

                                                                                   December 31,             March 31,
                                                                                       1996                  1997
                                                                                       ----                  ----
<S>                                                                                <C>                    <C>   
ASSETS
------
CURRENT ASSETS:
    Accounts receivable, less allowance for doubtful accounts
        of $245,000 and $270,000, respectively                                      $ 4,656,876           $5,517,550
    Inventories                                                                         454,254              534,742
    Prepaid expenses and other                                                          433,413              244,996
                                                                                      ---------            ---------
        Total current assets                                                          5,544,543            6,297,288
PROPERTY (net)                                                                        2,185,335            2,411,568
OTHER ASSETS:
    Goodwill, less accumulated amortization of $961,424
        and $1,087,739, respectively                                                  9,376,367           10,231,382
    Noncompete agreements, less accumulated amortization
        of $84,874 and $106,815, respectively                                           346,976              445,035
    Trade accounts receivable not expected to be collected within one
        year, less allowance for doubtful accounts of $240,000 at both dates            640,000              780,000
    Other                                                                                85,676              201,441
                                                                                     ----------           ----------
                                                                                    $18,178,897          $20,366,714
                                                                                     ==========           ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
    Checks written in excess of bank balances                                       $    94,643          $   615,370
    Notes payable                                                                     2,090,000            1,440,500
    Trade accounts payable                                                            1,662,077              880,328
    Accrued salaries, wages and payroll taxes                                         1,302,770            1,609,900
    Other accrued liabilities                                                           622,182              657,198
    Current portion of long-term debt                                                   281,278              381,180
    Deferred revenue                                                                  1,577,186            1,426,756
                                                                                     ----------           ----------
        Total current liabilities                                                    7,630,136             7,011,232
LONG-TERM DEBT, less current portion                                                   576,490             2,936,684
DEFERRED LEASE OBLIGATION                                                               80,183                70,252
STOCKHOLDERS' EQUITY:
    Preferred stock, $.01 par value; authorized 5,000,000 shares,
         none issued or outstanding
    Common stock, $.01 par value; 25,000,000 shares authorized,
        7,173,293 and 7,679,122 shares issued and outstanding, respectively             71,733                76,791
    Additional paid-in capital                                                      11,693,617            11,878,427
    Accumulated deficit                                                             (1,795,689)           (1,528,818)
                                                                                   -----------           -----------
                                                                                     9,969,661            10,426,400
    Stockholder note and interest receivable                                           (77,573)              (77,854)
                                                                                  ------------          ------------
                                                                                     9,892,088            10,348,546
                                                                                   -----------            ----------
                                                                                   $18,178,897           $20,366,714
                                                                                    ==========            ==========
                 See notes to consolidated financial statements.
</TABLE>
                                                           
<PAGE>

             HEALTH FITNESS PHYSICAL THERAPY. INC. AND SUBSIDIARIES
                        CONSOLIDATED STATEMENTS OF INCOME
                                   (UNAUDITED)
<TABLE>
<CAPTION>


                                                                           Three Months Ended
                                                                                March 31,
                                                                      ---------------------------
                                                                        1996              1997
                                                                      --------          ---------

<S>                                                                   <C>              <C>    
REVENUES:
    Preventive healthcare                                             $5,407,625       $6,284,360
    Rehabilitative healthcare                                          1,567,307        1,949,073
                                                                       ---------        ---------
                                                                       6,974,932        8,233,433
COST OF REVENUES:
    Salaries                                                           3,893,284        4,430,093
    Equipment                                                          1,107,027        1,433,276
    Occupancy                                                            314,808          310,270
    Support                                                              279,790          401,386
                                                                       ---------        ---------
                                                                       5,594,909        6,575,025
                                                                       ---------        ---------

GROSS PROFIT                                                           1,380,023        1,658,408

OPERATING EXPENSES:
    Salaries                                                             498,988          487,697
    Selling, general, and administrative                                 547,030          726,746
                                                                       ---------        ---------
                                                                       1,046,018        1,214,443
                                                                       ---------        ---------
                                                                         334,005          443,965
OTHER (EXPENSE) INCOME:
    Interest expense                                                    (107,639)        (128,861)
    Other income                                                           2,853           66,827
                                                                       ---------        ---------
                                                                        (104,786)        ( 62,034)
                                                                       ---------        ---------

                                                                         229,219          381,931
INCOME TAXES                                                                -             115,060
                                                                       ---------        ---------
NET INCOME                                                           $   229,219       $  266,871
                                                                       =========        =========

NET INCOME PER COMMON
    AND COMMON EQUIVALENT SHARE                                      $       .03       $      .03
                                                                      ==========       ==========

WEIGHTED AVERAGE COMMON
   AND COMMON EQUIVALENT
   SHARES OUTSTANDING                                                  6,734,572        7,684,022
                                                                      ==========        =========

                 See notes to consolidated financial statements.

</TABLE>


<PAGE>

             HEALTH FITNESS PHYSICAL THERAPY, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (UNAUDITED)
<TABLE>
<CAPTION>

                                                                                            Three Months Ended
                                                                                                 March 31,
                                                                                         --------------------------
                                                                                         1996                  1997
                                                                                         ----                  ----
<S>                                                                                 <C>                   <C>   
CASH FLOWS FROM OPERATING ACTIVITIES:
    Net income                                                                      $  229,219           $  266,871
    Adjustment to reconcile net income to net cash
        provided by (used in) operating activities:
        Depreciation and amortization                                                  247,182              315,484
        Deferred revenue                                                               (26,646)            (168,530)
        Gain on sale of physical therapy clinics                                          -                 (64,142)
    Change in assets and liabilities, net of acquisitions:
        Trade accounts receivable                                                        1,189             (891,774)
        Inventories                                                                     (2,892)             (66,996)
        Prepaid expenses and other                                                     187,212              188,417
        Other assets                                                                  (146,672)              (3,491)
        Trade accounts payable                                                         (89,992)            (655,137)
        Accrued liabilities and other                                                    9,340              465,607
                                                                                     ---------            ---------
           Net cash provided by (used in) operating activities                         407,940             (613,691)
CASH FLOWS FROM INVESTING ACTIVITIES:
    Purchase of property                                                               (44,514)            (583,691)
    Payments for acquisitions, net of liabilities assumed
        and cash acquired                                                              (86,448)            (880,000)
    Payments in connection with earn-out provisions                                       -                (178,966)
    Payments in connection with noncompete agreements                                     -                (120,000)
    Proceeds from the sale of physical therapy clinics                                    -                 172,500
                                                                                     ---------            ---------
               Net cash used in investing activities                                  (130,962)          (1,590,157)
CASH FLOWS FROM FINANCING ACTIVITIES:
    Increase in checks  written in excess of bank  balances                               -                 520,727 
    Borrowings under line of credit                                                    550,500              913,000
    Repayment of line of credit                                                       (300,000)            (962,500) 
    Repayment of notes payable                                                        (883,984)                -
    Proceeds from long-term debt, net of  financing  costs                                -               1,600,743 
    Repayment of long-term debt                                                         (8,865)             (13,591)  
    Proceeds from issuance of common stock                                                -                 145,750 
    Advances on notes receivable                                                        (6,641)              (4,281) 
    Payments received on notes receivable                                                 -                   4,000
                                                                                     ---------            ---------
               Net cash (used in) provided by financing activities                    (648,990)           2,203,848
                                                                                     ---------            ---------
NET DECREASE IN CASH AND CASH EQUIVALENTS                                             (372,012)               -
CASH AND CASH EQUIVALENTS AT
    BEGINNING OF PERIOD                                                                 506,652               -
                                                                                     ----------           ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD                                          $   134,640           $   -
                                                                                     ==========           =========
                 See notes to consolidated financial statements
</TABLE>

<PAGE>

             HEALTH FITNESS PHYSICAL THERAPY, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)

NOTE 1.  BASIS OF PRESENTATION

The accompanying  unaudited consolidated financial statements have been prepared
in  accordance  with  generally  accepted  accounting   principles  for  interim
financial  information.  They  should  be read in  conjunction  with the  annual
financial  statements included in the Company's Annual Report on Form 10-KSB for
the year ended  December 31,  1996.  In the opinion of  management,  the interim
consolidated financial statements include all adjustments  (consisting of normal
recurring  accruals)  necessary  for the fair  presentation  of the  results for
interim periods  presented.  Operating  results for the three months ended March
31, 1997 are not  necessarily  indicative of the operating  results for the year
ending December 31, 1997.

NOTE 2.  ACQUISITIONS AND SALES

Acquisitions  - On February 7, 1997,  the Company  completed the  acquisition of
certain of the assets and  assumed  the  liabilities  of two related and closely
held companies: Isernhagen & Associates, Inc. and Isernhagen, Ltd. (Isernhagen).
Isernhagen,   Minnesota-based  companies,  provide  comprehensive  programs  and
services to professionals who work in industrial  rehabilitation and work injury
services. The purchase agreement contained a noncompete provision which covers a
period of five years and prohibits the former owners from directly or indirectly
competing with the Company. In connection with the acquisition, assets purchased
and  liabilities  assumed,  notes issued,  and cash  consideration  paid were as
follows:

     Assets acquired:
              Accounts receivable                              $      108,900
              Inventories                                              13,492
              Property                                                  9,159
              Noncompete agreement                                    120,000
              Excess of purchase price over net assets acquired     1,134,915
                                                                    ---------
                                                                    1,386,466
     Liabilities assumed:
              Accounts payable                                         72,792
              Accrued expenses                                         45,574
              Deferred revenue                                         18,100
                                                                       ------
                                                                      136,466
              Notes issued                                            250,000
                                                                      -------
     Cash consideration paid                                   $    1,000,000
                                                                    =========

     The Company  also agreed to issue  common stock with a value of $500,000 on
     February 7, 1999,  provided the former owners of Isernhagen are employed by
     the Company on that date.

     The notes  issued are  convertible,  subordinated  promissory  notes,  bear
     interest  at 8%, and are due May 7, 1998,  unless  converted  earlier.  The
     convertible,   subordinated  promissory  notes  and  accrued  interest  are
     convertible  at the  option  of the  holders  after  August 6,  1997,  at a
     conversion price of the lesser of 85% of the average bid price per share of
     the Company's common stock over the immediately preceding ten days or $4.00
     per share.

     The purchase agreement requires the Company to make annual cash payments of
     50% of net income from operations in excess of 25% of revenues, as defined,
     for each of the five fiscal years ending February 28, 1998 through 2002.

     The purchase  agreement also required the Company to enter into  employment
     agreements  with  certain key  employees of  Isernhagen  for a term of five
     years.  These agreements  provide for minimum  aggregate annual salaries of
     $195,000.  The Company also granted  stock options to purchase up to 70,000
     shares of the Company's  common stock at $4.00 per share in connection with
     the employment agreements.

                                                            
<PAGE>

     This  acquisition  has been  accounted  for  using the  purchase  method of
     accounting,  and the excess of purchase  price over net assets  acquired is
     being  amortized  over  15  years  using  the  straight-line   method.  The
     consolidated  statements  of income  include the results of  operations  of
     Isernhagen since February 1, 1997.

     The  following   unaudited  pro  forma  condensed  combined  statements  of
     operations  reflect the combined  operations of the Company and  Isernhagen
     for the three  months  ended March 31, 1996 and 1997,  adjusted for related
     financing  costs,  as if the  acquisition and the financing had occurred at
     the beginning of 1996. (Pro forma information  relating to the acquisitions
     in 1996 and the acquisition  and disposals discussed below are not included
     due to the  impact of the  acquired  companies  being  insignificant.)  The
     unaudited pro forma  condensed  combined  statements of operations  may not
     necessarily  reflect the actual  operations of the Company which would have
     resulted had the acquisition and related financing  occurred as of the date
     presented.   The  unaudited  pro  forma   information  is  not  necessarily
     indicative of future results of operations for the combined companies.

                                                          1996          1997
                                                          ----          ----
     Revenues                                          $7,344,000    $8,444,000
     Cost of revenues                                   5,926,000     6,686,000
                                                        ---------    ----------
     Gross profit                                       1,418,000     1,758,000
     Other expenses                                     1,187,000     1,460,000
                                                        ---------     ---------
     Net income                                       $   231,000    $  298,000
                                                       ==========     ==========
     Net income per common and common 
        equivalent share                              $       .03    $      .04
                                                       ==========     ==========
     Weighted average common and common equivalent 
     shares outstanding                                 6,925,000     7,751,000
                                                       ==========     ==========

     On April 9, 1997, the Company  completed the  acquisition of all the issued
     and outstanding  stock of closely held K.A.M.  Physical  Therapy  Services
     Corp.  (K.A.M.),  an Iowa-based  provider of rehabilitative  services.  The
     purchase agreement  contained a noncompete  provision which covers a period
     of seven years and  prohibits  one of the former  owners  from  directly or
     indirectly  competing with the Company.  In connection with the acquisition
     of K.A.M.,  the Company  issued  78,911  shares of common  stock  valued at
     $200,000 and cash consideration of $200,000.

     The purchase  agreement  requires the Company to make annual payments up to
     39% of net income from operations,  as defined, for each of the five fiscal
     years ending March 31, 1998 through 2002.  The annual  payment,  if any, is
     due in a combination of 50% in cash and 50% in the Company's  common stock.
     The  number of shares  issued in  connection  with the  annual  payment  is
     calculated by dividing the portion of the annual payment  payable in common
     stock by $3.50.

     The  purchase  agreement  also  required  the  Company  to  enter  into  an
     employment  agreement  with a key  employee  of  K.A.M.  for a term of five
     years. This agreement provides for a minimum annual salary of $100,000. The
     Company  also granted  stock  options to purchase up to 5,000 shares of the
     Company's common stock at $4.00 per share with this employment agreement.

     This  acquisition  will be  accounted  for  using  the  purchase  method of
     accounting,  and the excess of purchase price over net assets acquired will
     be amortized over 15 years using the straight-line method.

     In connection with the K.A.M. acquisition,  the Company also entered into a
     separate  noncompete  agreement with a former K.A.M.  owner. The noncompete
     agreement  required the Company to make a lump-sum  distribution of $75,000
     and prohibits the former owner from directly or indirectly  competing  with
     the Company for a period of five years.

     Sales of Physical  Therapy Clinics - In January 1997, the Company sold four
     underperforming  physical  therapy  clinics.  The total  sale  price of the
     clinics  exceeded the carrying  value of the long-lived  assets  associated
     with the clinics.  In 1996, the clinics generated revenues of approximately
     $1,325,000.


<PAGE>

NOTE 3.    DEBT

     On February  4, 1997,  the  Company's  term loan and credit  agreement  was
     amended  and  restated  (the  Amended  Agreement).  The  Amended  Agreement
     increased  the  $600,000  term note to $2.5  million,  subject  to  certain
     conditions,  and  extended  the due  dates  of the  term  loan and the $1.5
     million  revolving  line of credit to January  31,  2000.  The  Company has
     borrowings  of $2.5  million  under the term loan.  The term note is due in
     eight quarterly installments of $100,000, beginning January 31, 1998, and a
     final payment of $1.7 million on January 31, 2000.  Interest on outstanding
     term loan  borrowings is payable  monthly and is computed at the prime rate
     plus 6%. Revolving line of credit  borrowings are limited based on eligible
     borrowings,  as defined.  Interest on outstanding  revolving line of credit
     borrowings  is payable  monthly  and is computed at the prime rate plus 2%.
     Borrowings under the Amended Agreement are secured by substantially all the
     Company's assets and personally guaranteed by the Company's president.  The
     agreement  contains  various  restrictive  covenants  relating to quarterly
     minimum  levels of net  worth and net  income,  limitations  on  additional
     indebtedness and capital  expenditures,  prohibition on dividend  payments,
     and other matters.

     On February 7, 1997,  the Company  entered into  convertible,  subordinated
     promissory  notes  totaling  $250,000 with the sellers of  Isernhagen.  The
     notes issued bear interest at 8%, and are due May 7, 1998, unless converted
     earlier.  The  convertible,   subordinated  promissory  notes  and  accrued
     interest are convertible at the option of the holders after August 6, 1997,
     at a  conversion  price of the lesser of 85% of the  average  bid price per
     share of the Company's common stock over the immediately preceding ten days
     or $4.00 per share.  A value of $44,118 has been assigned to the conversion
     feature  based on the value of the  Company's  common  stock on February 7,
     1997.

     On April 7, 1997, the Company paid the  outstanding  balance of $15,000 and
     accrued interest on the unsecured  revolving line of credit providing up to
     $50,000 in financing.  Interest on outstanding borrowings under the line of
     credit was at 2.60% over the prime rate.

NOTE 4.    SHAREHOLDERS' EQUITY

     On January 30, 1997,  the Company  issued 292,829 shares of common stock to
     the  sellers  of  Fitness  Systems  as  a  portion  of  the  consideration,
     contractually  agreed upon , pursuant to the Stock Purchase Agreement dated
     March  24,  1995,  which  required  that the  aggregate  value of the stock
     consideration issued equal $1,200,000.

     During the three months ended March 31, 1997, the Company received proceeds
     of $145,750  when the  holders of stock  options  exercised  their right to
     purchase a total of 213,000  shares of common stock at prices  ranging from
     $.65 to $1.25 per share.

NOTE 5.    INCOME TAXES

     The  provision  for income  taxes for the three months ended March 31, 1996
     has been offset by a reduction  in the  valuation  allowance  for  deferred
     taxes.  The provision for income taxes for the three months ended March 31,
     1997 has been partially offset by a reduction in the valuation allowance.

NOTE 6.    INCOME PER SHARE

     Income per share of common  and common  equivalent  share was  computed  by
     dividing net income by the weighted  average number of shares of common and
     common equivalent shares outstanding during each period.

     For the three  months  ended March 31, 1997 this  amount  includes  230,943
     contingent  shares issued to the Sellers of Fitness  Systems on January 30,
     1997 and assumed to be issued to the Sellers of  Isernhagen  on February 7,
     1999.  Options and warrants  were not included as common stock  equivalents
     for the three months ended March 31, 1997 due to their antidilutive effect.


<PAGE>



     For the three  months  ended  March 31, 1996 this  amount  includes  40,000
     contingent shares assumed to be issued to the Sellers of Fitness Systems on
     April 6, 1996 according to the stock purchase  agreement  dated as of March
     24, 1995. Since the Company also  contractually  agreed with the Sellers of
     Fitness  Systems that if the average  closing  sale price of the  Company's
     publicly traded stock during the fourth  calendar  quarter of 1996 does not
     reach  at  least  $6.00  per  share,  the  Company  is  obligated  to issue
     sufficient  additional  shares of stock so that the aggregate  value of the
     stock consideration equals $1,200,000 based on the same three month average
     price   calculation,   accordingly,   this  amount  also  includes  257,143
     contingent  shares assumed to be issued to the Sellers of Fitness  Systems.
     Options and warrants were not included as common stock  equivalents for the
     three months ended March 31, 1996 due to their antidilutive effect.



<PAGE>

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

Results of Operations

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

                                                                          For The Three Months
                                                                              Ended March 31,
                                                         --------------------------------------------------------------------
                                                             1996                                     1997
                                                             ----                                     ----

<S>                                                      <C>             <C>                    <C>                     <C>
REVENUES:
   Preventive healthcare                                $5,408,000        77.5%                 $6,284,000               76.3%
   Rehabilitative healthcare                             1,567,000        22.5                   1,949,000               23.7
                                                        ----------        ----                   ---------               ----
      Total revenues                                     6,975,000       100.0                   8,233,000              100.0
COST OF REVENUES                                         5,595,000        80.2                   6,575,000               79.9
                                                         ---------        ----                   ---------               ----
GROSS PROFIT                                             1,380,000        19.8                   1,658,000               20.1
OPERATING EXPENSES                                       1,046,000        15.0                   1,214,000               14.7
                                                         ---------        ----                   ---------               ----
OPERATING INCOME (LOSS):
   Preventive healthcare                                   499,000                                 733,000
   Rehabilitative healthcare                               217,000                                 106,000
   Corporate                                              (382,000)                               (395,000)
                                                         ---------                               ---------
      Total operating income                               334,000         4.8                     444,000               5.4
OTHER EXPENSES, NET                                        105,000         1.5                      62,000                .8
                                                         ---------        ----                   ---------              ----
                                                           229,000         3.3                     382,000               4.6
INCOME TAXES                                                    -           -                      115,000               1.4
                                                         ---------        ----                   ---------              ---- 
NET INCOME                                             $   229,000         3.3%                $   267,000               3.2%
                                                         =========        ====                   =========              ====

</TABLE>

          General.  The  Company is engaged in two  principal  lines of business
     (segments):  (i) preventive healthcare and (ii) rehabilitative  healthcare.
     Preventive  healthcare  includes the developing,  marketing and managing of
     corporate  and  hospital-based  fitness  centers and selling and  servicing
     fitness equipment.  Rehabilitative healthcare includes owning and operating
     physical  therapy  clinics  that  provide  a full  range of  rehabilitation
     services, providing consulting, group buying, administrative, and marketing
     services to independent  physical therapy clinics, and provide occupational
     health consulting services to employers, insurers and others.

     The  Company's  preventive  healthcare  revenues come from  management  and
     consulting  contracts and agreements and the sales of fitness equipment and
     service.  The Company's  management and consulting contracts and agreements
     provide for specific management,  consulting,  and program fees and contain
     provisions for modification, termination, and non-renewal.

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

<PAGE>

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

          Revenues. Revenues increased $1,258,000 or 18.0% to $8,233,000 for the
     three months ended March 31, 1997 from $6,975,000 for the same period ended
     March 31, 1996. The increase in preventive  healthcare revenues of $877,000
     for the three months ended March 31, 1997 is due to the net addition of six
     fitness  center  management  contracts and the increase in sales of fitness
     equipment of $492,000.  The increase in rehabilitative  healthcare revenues
     of $382,000 for the three month period ended March 31, 1997,  when compared
     to the same period in 1996,  is primarily  due to the  acquisitions  of The
     Preferred Companies, an operator a national network of independent physical
     therapy clinics, and Isernhagen,  the providers of comprehensive industrial
     rehabilitation  and work injury programs and services,  and the increase in
     the number of patient visits at several  clinics,  partially  offset by the
     sale of  four  underperforming  clinics  in  January  1997.  The  Preferred
     Companies  and  Isernhagen  had  revenues of $416,000  for the three months
     ended March 31, 1997.

          Operating  Income.  Operating  income  increased  $110,000 or 32.9% to
     $444,000 for the three  months  ended March 31, 1997 from  $334,000 for the
     same period ended March 31, 1996. The increase in operating  income for the
     three  months  ended  March 31,  1996 is due to an  increase of $234,000 in
     preventive  healthcare,  partially  offset  by a  decrease  of $111,000  in
     rehabilitative healthcare and an increase of $13,000 in corporate operating
     costs.

     The increase in operating  income in  preventive  healthcare  for the three
     months  ended  March 31,  1997 is due to the net  addition  of six  fitness
     center management  contracts,  the increase in sales of fitness  equipment,
     and the  increase  in gross  margins  in  equipment  sales for this line of
     business.

     The decrease in operating income in the  rehabilitative  healthcare segment
     for the  three  months  ended  March  31,  1997 is due to the  sale of four
     underperforming  clinics  in  January  1997 and the  expenses  incurred  to
     improve the Company's management and information systems,  partially offset
     by the  increase  of patient  visits at several  sites and the  addition of
     Isernhagen in February 1997. Operating income in rehabilitative  healthcare
     for the three  months  ended March 31, 1997 did not  increase  commensurate
     with the  increase  in  revenues  for  this  segment  primarily  due to the
     expenses  incurred  to improve the  Company's  management  and  information
     systems.

     The increase in corporate  operating costs for the three months ended March
     31, 1997 is related to the  Company's  growth  strategy  which has required
     expanded services and support, increased personnel and expanded operational
     and financial systems.

          Other  Expense.  Other  expenses is comprised of interest  expense and
     other income.  Interest expense increased $21,000 to $129,000 for the three
     months  ended March 31, 1997 from  $108,000 for the same period ended March
     31, 1996. The increase of $21,000 was due to the higher average  borrowings
     and interest  rates in 1997 when compared to 1996.  Other income  increased
     $64,000 to $67,000  for the three  months  ended March 31, 1997 from $3,000
     for the same period in 1996.  The increase is primarily  due to the gain on
     the sale of the four underperforming clinics in January 1997.

                                       10

<PAGE>


          Income  Taxes.  Income  taxes were  calculated  based on  management's
     estimate of the  Company's  effective  tax rate.  The  provision for income
     taxes for the three  months  ended March 31, 1996 was offset by a reduction
     in the  valuation  allowance for deferred  taxes.  The provision for income
     taxes for the three months ended March 31, 1997 was  partially  offset by a
     reduction in the valuation allowance for deferred taxes.

          Net Income.  The Company's net income increased $38,000 to $267,000 or
     $.03 per share for the three months  ended March 31, 1997 from  $229,000 or
     $.03 per share for the same period ended March 31, 1996.

          Liquidity  and Capital  Resources.  The Company had a working  capital
     deficit of $2,086,000 at December 31, 1996 and a working capital deficit of
     $714,000 as of March 31, 1997. The change is primarily due to the decreases
     in accounts and notes payable and the increases in accounts  receivable and
     inventory, which are partially offset by the increases in checks written in
     excess of bank  balances  and accrued  salaries , wages and payroll  taxes.
     Notes  payable at March 31, 1997  consisted of  $1,440,500 on the revolving
     lines of credit.

     The  Company's  principal  sources of  liquidity  included  trade  accounts
     receivable of $5,518,000 and available borrowings of $74,500 on its line of
     credit at March 31, 1997.

     In February  1997,  the Company  entered into a second Amended and Restated
     Credit and Security  Agreement which provides for a line of credit of up to
     $1,500,000  at the prime  rate plus 2%, and a  $2,500,000  term loan at the
     prime rate plus 6%.  Management  believes the $1,500,000 line of credit and
     future  cash  flow  from  operating   activities  are  sufficient  to  fund
     operations at current  levels,  but that  anticipated  acquisitions  in the
     Company's rehabilitative business will require additional financing.

     In February 1997, the Company paid  $1,000,000 of cash and issued  $250,000
     of  subordinated  convertible  promissory  notes  in  connection  with  the
     Company's acquisition of the Isernhagen  Companies.  Such cash was provided
     by the Company's bank term loan.

     Sources of capital to meet  future  obligations  in 1997 and early 1998 are
     anticipated  to be future cash provided by  operations,  cash received from
     customers  prior  to  performing  the  related   services,   and  available
     borrowings under the Company's line of credit of  approximately  $75,000 at
     March 31, 1997.

     In order to conserve  capital  resources,  the Company's policy is to lease
     its physical facilities.  As of March 31, 1997, the Company has no material
     commitments to purchase capital assets.

     The Company does not believe that inflation has had a significant impact of
     the results of its operations.

          Outlook.   The  Company's  strategy  is  to  continue  to  expand  its
     operations  through  acquisitions  and  to  improve  profitability  of  the
     physical  therapy  clinics  purchased  through  the  consolidation  of  the
     clinics'  operating  expenses.  Management  anticipates  that the  purchase
     prices paid for future  acquisitions  will be similar to the prices paid to
     date and payment terms may be a combination  of cash,  notes  payable,  and
     where  appropriate,  shares of common stock, with a portion of the purchase
     price to be paid at closing and, where  appropriate,  a portion  contingent
     upon  achievement of earn-out  criteria.  As a result of government  health
     care regulations, however, the use in the future of notes payable, earn-out
     arrangements or Common Stock may be limited.  It is anticipated  that funds
     required for future acquisitions and the integration of acquired businesses
     with the Company  will be provided  from future  operating  cash flow,  the
     proceeds  expected  from future debt and equity  financings.  Future equity
     financings  may result in  dilution  to holders of Common  Stock.  However,
     there can be no assurance  that  suitable  acquisition  candidates  will be
     identified by the Company in the future,  that  suitable  financing for any
     such  acquisitions  can be  obtained  by  the  Company  or  that  any  such
     acquisitions will occur.

                                       11

<PAGE>

     As a publicly-owned corporation,  the Company has and will incur additional
     expenses due to being a public company.  The Company's growth strategy will
     require  expanded  patient  services  and  support,   increased   personnel
     throughout  the Company,  expanded  operational  and financial  systems and
     implementation of new control procedures.  These factors will affect future
     results and liquidity.

     Preventive  healthcare  revenues are  expected to increase,  on a quarterly
     basis in 1997,  as a result of adding  management  contracts  and increased
     sales of fitness equipment and soft goods.

     Rehabilitative  healthcare  revenues  are  anticipated  to  increase,  on a
     quarterly basis in 1997, as a result of performing physical therapy on-site
     at additional corporate fitness centers,  increasing the number of physical
     therapists  at existing  clinics,  and potential  acquisitions  of physical
     therapy  clinics.  See "Liquidity and Capital  Resources." In January 1997,
     the  Company  sold  one  physical  therapy  clinic  located  in San  Diego,
     California and three clinics located in Delaware.  These clinics  accounted
     for revenues of $1,325,000 in 1996. The Company  anticipates that this loss
     of revenue will be more than offset by the  Company's  acquisitions  of The
     Preferred Companies in December 1996, the Isernhagen  Companies in February
     1997 and K.A.M. Physical Therapy in April 1997.

     Preventive  healthcare  operating income is expected to increase due to the
     addition of corporate and hospital based management contracts and increases
     in fitness  equipment  and soft goods sales.  For the remainder of the year
     preventive  healthcare  operating income,  as a percentage of revenues,  is
     expected to remain consistent with 1996.

     Rehabilitative  healthcare  operating  income is  expected to increase on a
     quarterly basis as a result of recent and future acquisitions,  increase in
     patient  visits at  existing  clinics,  and  streamlining  the  billing and
     marketing functions of the companies acquired to date.

     Corporate  expenses,  as a percentage of revenues,  are  anticipated  to be
     consistent with the 1996 levels.

     The  foregoing   statements  contained  in  this  Outlook  section  of  the
     Management's  Discussion and Analysis of Financial Condition and Results of
     Operation involve a number of risks and uncertainties.  Some of the factors
     that could cause actual  results to differ  materially  include but are not
     limited to the following:

     Sufficiency  of Working  Capital.  As of March 31, 1997,  the Company had a
     negative  working  capital of $714,000 and checks written in excess of bank
     balances of $615,000.  The  Company's  ability to fund its working  capital
     requirements  in the future is dependent  upon its ability to generate cash
     flow from management contracts, equipment and soft goods sales, consulting,
     and physical  therapy fees.  Future  acquisitions may adversely affect cash
     flows from operating  activities due to average daily revenues  outstanding
     on physical therapy  clients'  accounts  receivable  ranging from 75 to 100
     days.  Therefore,  if for any  reason,  the  Company's  planned  operations
     require more capital than anticipated, revenues do not increase as planned,
     or operating  income is less than planned,  the Company may need additional
     financing  in order to maintain its  operations.  There can be no assurance
     that the Company would be able to obtain any required additional  financing
     when  needed or that such  financing,  if  obtained,  would be on the terms
     favorable or acceptable to the Company.

                                       12

<PAGE>

     Reimbursement. The profitability of the Company's rehabilitative healthcare
     services are dependent upon obtaining  reimbursement  for physical  therapy
     services from government  agencies and third-party  payors.  The healthcare
     industry is experiencing,  and the Company expects that it will continue to
     experience,   significant  changes  in  the  delivery  of  and  payment  of
     healthcare  services.  There is no  assurance  that  reimbursement  for the
     Company's  physical  therapy  services will remain at current  levels or at
     levels that render expansion in this service area economically attractive.

     Recent and Future  Acquisitions.  A principal  component  of the  Company's
     growth  strategy is to acquire  physical  therapy  clinics.  The successful
     execution of this strategy will depend on the Company's ability to identify
     and to appropriate acquisition  candidates,  to consummate such acquisition
     on terms  favorable to the  Company,  to retain and expand the revenues and
     profitability  of the acquired  contracts and clinics,  and to successfully
     integrate the acquired contracts and clinics into the Company's operations.
     There can be no assurance  that the Company will be successful in executing
     this strategy.

Accounting Pronouncement

     In February 1997, the Financial Accounting Standards Board issued Statement
     of Financial Accounting Standards (SFAS) No. 128, Earnings per Share, which
     is effective for interim and annual reporting periods ending after December
     15,  1997.  The  implementation  of SFAS No. 128 is  expected  to  increase
     earnings per share by an immaterial amount.

     SFAS No.  128  supersedes  Accounting  Principles  Board  Opinion  No.  15,
     Earnings per Share,  and replaces the  presentation of primary earnings per
     share with a  presentation  of basic  earnings per share.  It also requires
     dual  presentation  for all entities with complex  capital  structures  and
     provides guidance on other computational changes.

                          PART II. - OTHER INFORMATION

Item 1.  Legal Proceedings

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

     On April 17, 1996, a former employee filed a claim entitled  Julianna Gatza
     vs.  Health  Fitness  Corporation  and Hurley  Health  Services  before the
     Circuit  Court  of  Genessee  County  in the  State of  Michigan,  alleging
     wrongful  termination of employment and  discrimination.  The plaintiff has
     not claimed a specified amount of damages. The Company tendered the defense
     of  this  claim  to its  insurance  carrier;  and the  insurance  carrier's
     response  has been  that  there  would  be no  insurance  coverage  for the
     liability  represented by this litigation.  The Company believes this claim
     is without merit and will defend it vigorously.  The Company  believes that
     the  outcome of this claim will not have a material  adverse  effect of its
     financial position or results of operation.

Item 2.  Changes in Securities

     During the quarter  ended March 31, 1997,  the Company  sold the  following
     securities of the Company without registration under the Securities Act:
<TABLE>
<CAPTION>

                                                                                     Price         Exemption
     Date        Amount         Type           Purchaser(s)                        Per Share      Relied Upon
     ----        ------         ----           --------------------------------    ---------      -----------
     <S>         <C>            <C>            <C>                                    <C>          <C>    

     1/30/97     292,829        Common         Additional shares issued to previous   N/A          Section 4(2)
                 shares         Stock          sellers of business as additional
                                               purchase price
                                                                                                           
     2/7/97      $250,000       Convertible    Two sellers of business                *            Section 4(2)
                                Note
</TABLE>
     * convertible at lesser of 85% average bid price or $4.00 per share

                                       13

<PAGE>

Item 3.  Defaults Upon Senior Securities

         None.

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

         None.

Item 5.  Other Information

         None.

Item 6.  Exhibits and Reports on Form 8-K

         (a)     Exhibits


Exhibit No.      Description
-----------      -----------

     ***3.1      Articles of Incorporation, as amended, of the Company
       *3.2      Restated By-Laws of the Company
       *4.1      Specimen of Common Stock Certificate
     **10.1      Second Amended and Restated Credit and Security
                 Agreement dated as of February 4, 1997 by and between
                 the Company and Norwest Bank, N.A., together with
                 Revolving Note and Term Note attached thereto.
   ****10.2      Agreement of Purchase and Sale dated December 23, 1996 by and 
                 among The Preferred Companies, Inc., its shareholders, and 
                 Health Fitness Rehab, Inc. 
  *****10.3      Agreement of Purchase and Sale dated February 7, 1997 by and 
                 between Isernhagen & Associates, Inc. and Health Fitness Rehab,
                 Inc. 
  *****10.4      Agreement of Purchase and Sale dated February 7, 1997 by and 
                 between Isernhagen Ltd. and Health Fitness Rehab, Inc.
       27        Financial Data Schedule (in electronic version only)

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

*    Incorporated by reference to the Company's  Registration  Statement on Form
     SB-2 No. 33-83784C.

**   Incorporated by reference to the Company's Annual Report on Form 10-KSB for
     the year ended December 31, 1996.

***  Incorporated  by reference to the Company  Quarterly  Report on Form 10-QSB
     for the quarter ended September 30, 1996.

**** Incorporated by reference to the Company's Current Report on Form 8-K filed
     on January 7, 1997.

 *****Incorporated  by reference to the Company's  Current Report Form 8-K filed
     on February 21, 1997.
                                                           
                                       14

<PAGE>


(b)  Reports on Form 8-K

     On  January  7,  1997  the  Registrant  filed  a  Form  8-K  reporting  the
     Registrant's  acquisition  on December  23, 1996 of all of the  outstanding
     capital stock of The Preferred Companies, Inc., an Arizona corporation.  On
     February  21,  1997,  the  Registrant   filed  a  Form  8-K  reporting  the
     Registrant's  acquisition  on  February  7, 1997 of  substantially  all the
     assets of the  Isernhagen  Companies,  as amended by Form 8-K/A filed April
     23, 1997 to include the  requisite  financial  statements  of the  acquired
     business and pro forma financial information.

                                       15

<PAGE>

SIGNATURES

Pursuant to the  requirements  of  the  Securities  Exchange  Act  of  1934  the
     registrant  has duly  caused  this report to be signed on its behalf by the
     undersigned, thereunto duly authorized.

                                     HEALTH FITNESS PHYSICAL THERAPY, INC.


Dated:  May 13, 1997
                                     By: /s/Loren S. Brink
                                         Loren S. Brink
                                         Chairman, President and Chief
                                         Executive Officer



Dated:  May 13, 1997                By: /s/Don Paul Cochran
                                         Don Paul Cochran
                                         Secretary, Treasurer and Chief
                                         Financial Officer



                                       16