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

                                    FORM 10-Q

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

For the quarterly period ended  March 31, 1998

                                       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 CORPORATION
             (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 May 12, 1998 was:
                 Common Stock, $.01 par value, 11,786,116 shares



<PAGE>
                        PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
                        
                           HEALTH FITNESS CORPORATION
                    CONSOLIDATED BALANCE SHEETS (UNAUDITED)
<TABLE>
<CAPTION>
                                                                      March 31,      December 31,
                                                                        1998             1997
                                                                     ------------    ------------

<S>                                                                  <C>             <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents                                            $    795,322    $     81,639
Trade accounts and notes receivable, less allowance
   for doubtful accounts of $245,000 and
   $225,000, respectively                                               6,962,400       6,502,963
Inventories                                                               679,081         810,805
Prepaid expenses and other                                                491,569         533,321
                                                                     ------------    ------------
Total current assets                                                    8,928,372       7,928,728

PROPERTY, less accumulated depreciation of $1,041,390
  and $842,121, respectively                                            3,619,624       3,598,188

OTHER ASSETS:
Goodwill, less accumulated amortization of
  $1,428,569 and $1,276,287, respectively                               9,853,944       8,989,848
Noncompete agreements, less accumulated amortization
  of $335,016 and $279,639, respectively                                  876,834         932,211
Copyrights, less accumulated amortization of
  $52,110 and $40,944, respectively                                       617,890         629,056
Trade names, less accumulated amortization of
  $18,002 and $13,667, respectively                                       241,998         246,333
Contracts, less accumulated amortization of
  $68,609 and $48,194, respectively                                       151,390         171,806
Trade accounts and notes receivable, less allowance
  for doubtful accounts of $600,000
  and $650,000, respectively                                              655,815         679,376
Deferred financing costs, less accumulated amortization of $65,698      1,321,860
Other                                                                     397,012         556,736
                                                                     ------------    ------------
TOTAL ASSETS                                                         $ 26,664,739    $ 23,732,282
                                                                     ============    ============

LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
Trade accounts payable                                               $  1,308,523    $  1,873,472
Accrued salaries, wages, and payroll taxes                              1,556,598       1,779,200
Accrued earn-out                                                          533,444         533,444
Other accrued liabilities                                                 884,836       1,233,538
Current portion of long-term debt                                         435,484         503,540
Deferred revenue                                                        1,717,148       1,844,460
                                                                     ------------    ------------
Total current liabilities                                               6,436,033       7,767,654

LONG-TERM DEBT, less current portion                                    6,403,065       5,785,018

DEFERRED LEASE OBLIGATION                                                  18,270          31,170

COMMITMENTS AND CONTINGENCIES

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; 11,737,325 and 8,136,828 shares
   issued and outstanding, respectively                                   117,574          81,368
Additional paid-in capital                                             16,566,794      12,976,680
Accumulated deficit                                                    (2,812,451)     (2,842,379)
                                                                     ------------    ------------
                                                                       13,871,917      10,215,669
Stockholder note and interest receivable                                  (64,546)        (67,229)
                                                                     ------------    ------------
TOTAL STOCKHOLDERS' EQUITY                                             13,807,371      10,148,440
                                                                     ------------    ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                           $ 26,664,739    $ 23,732,282
                                                                     ============    ============
</TABLE>

See notes to consolidated financial statements.
<PAGE>
                  HEALTH FITNESS CORPORATION AND SUBSIDIARIES
                        CONSOLIDATED STATEMENTS OF INCOME
                                  (UNAUDITED)
<TABLE>
<CAPTION>

                                                 Three Months Ended
                                                      March 31,
                                               1998           1997
                                          ------------    ------------
<S>                                       <C>             <C>
REVENUES:
   Preventive health care:
      Health services                     $  5,134,919    $  4,284,067
      Health and fitness products            2,393,036       2,000,293
                                          ------------    ------------
                                             7,527,955       6,284,360
   Rehabilitative health care                2,536,453       1,949,073
                                          ------------    ------------
                                            10,064,408       8,233,433

COSTS OF REVENUES:
   Preventive health care:
      Health services                        3,896,435       3,262,338
      Health and fitness products            2,183,908       1,691,388
                                          ------------    ------------
                                             6,080,343       4,953,726
   Rehabilitative health care                1,785,288       1,621,299
                                          ------------    ------------
                                             7,865,631       6,575,025
                                          ------------    ------------

GROSS PROFIT                                 2,198,777       1,658,408

OPERATING EXPENSES:
   Salaries                                    947,049         487,697
   Selling, general, and administrative        915,673         662,604
                                          ------------    ------------
                                             1,862,722       1,150,301
                                          ------------    ------------
OPERATING INCOME                               336,055         508,107

INTEREST EXPENSE                              (313,929)       (128,861)
OTHER INCOME                                    20,141           2,685
                                          ------------    ------------
                                              (293,788)       (126,176)
                                          ------------    ------------
INCOME BEFORE INCOME TAXES                      42,267         381,931
INCOME TAXES                                    12,339         115,060
                                          ------------    ------------

NET INCOME                                $     29,928    $    266,871
                                          ============    ============

NET INCOME PER SHARE:
   Basic                                  $       --      $       0.04
   Diluted                                        --              0.03

WEIGHTED AVERAGE COMMON SHARES
   ASSUMED OUTSTANDING:
   Basic                                     9,727,060       7,570,689
   Diluted                                  10,035,237       7,916,257
</TABLE>


See notes to consolidated financial statements.
<PAGE>
                  HEALTH FITNESS CORPORATION AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (UNAUDITED)
<TABLE>
<CAPTION>

                                                                   Three Months Ended
                                                                         March 31,

                                                                    1998           1997
                                                               ------------    ------------
<S>                                                            <C>             <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income                                                     $     29,928    $    266,871
Adjustment to reconcile net income to net cash
   used in operating activities:
      Net gain on disposition of clinic assets                                      (64,142)
      Depreciation and amortization                                 508,814         315,484
      Deferred revenue                                             (127,312)       (168,530)
Change in assets and liabilities, net of acquisitions:
   Trade accounts and notes receivable                             (435,876)       (891,774)
   Inventories                                                      131,724         (66,996)
   Prepaid expenses and other                                        63,502         188,417
   Other assets                                                     112,930          (3,491)
   Trade accounts payable                                          (674,150)       (655,137)
   Accrued liabilities and other                                   (648,311)        465,607
                                                               ------------    ------------
         Net cash used in operating activities                   (1,038,751)       (613,691)

CASH FLOWS FROM INVESTING ACTIVITIES:
   Purchase of property                                             (23,916)       (583,691)
   Payments for acquisitions, net of liabilities assumed
      and cash acquired                                            (648,794)       (880,000)
   Payments in connection with earn-out provisions                                 (178,966)
   Payments in connection with noncompete agreements                               (120,000)
   Proceeds from sale of physical therapy clinics, net                              172,500
   Collection of non-trade notes receivable                          25,000            --
                                                               ------------    ------------
         Net cash used in investing activities                     (647,710)     (1,590,157)

CASH FLOWS FROM FINANCING ACTIVITIES:
   Increase in checks written in excess of bank balances                            520,727
   Borrowings under line of credit                                5,367,646         913,000
   Repayments of line of credit                                  (6,867,646)       (962,500)
   Repayments of notes payable                                   (3,862,508)           --
   Payment of financing costs                                    (1,025,048)
   Proceeds from long term debt                                   5,864,944       1,600,743
   Repayment of long term debt                                                      (13,591)
   Proceeds from private placement of equity                      2,785,024
   Proceeds from the issuance of common stock                       135,050         145,750
   Advances on notes receivable                                      (2,117)         (4,281)
   Payments received on notes receivable                              4,800           4,000
                                                               ------------    ------------
         Net cash provided by financing activities                2,400,145       2,203,848
                                                               ------------    ------------

NET INCREASE IN CASH AND CASH EQUIVALENTS                           713,684            --

CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR                       81,639            --
                                                               ------------    ------------

CASH AND CASH EQUIVALENTS AT END OF YEAR                       $    795,323    $       --
                                                               ============    ============
</TABLE>


See notes to consolidated financial statements.




<PAGE>

 

                   HEALTH FITNESS CORPORATION 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,  1997.  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, 1998 are not  necessarily  indicative of the operating  results for the year
ending December 31, 1998.

Certain reclassifications have been made to the consolidated statement of income
operations for the three months ended March 31, 1997. Such reclassifications had
no effect on net income or stockholders' equity as previously reported.

NOTE 2.    ACQUISITIONS

On February 27, 1998,  the Company  completed the  acquisition of all the issued
and  outstanding  stock  of  closely  held  Midlands   Physical  Therapy,   Inc.
(Midlands),  a Nebraska-based provider of rehabilitative  services. The purchase
agreement  contained a noncompete  provision  that covers a period of five years
and prohibits the former owners from directly or indirectly  competing  with the
Company.  In connection  with the  acquisition  of Midlands,  the Company issued
200,000  shares of common  stock valued at $362,500  and cash  consideration  of
$648,794.

The purchase agreement requires the Company to make annual payments up to 35% of
Midlands' net income from  operations,  as defined,  for each of the five fiscal
years ending February 28, 1999 through 2003. 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 $3.00. The
purchase  agreement  also  requires  the  Company  to make an annual  payment of
$25,000 for each of the three fiscal  years ending  February 28, 1999 to 2001 if
net income from operations, as defined, exceeds 20%.

The  purchase  agreement  also  required  the  Company to enter into  employment
agreements with certain key employees for a term of five years. These agreements
provide for minimum  aggregate  annual  salaries of  $200,000.  The Company also
granted stock  options to purchase up to 50,000  shares of the Company's  common
stock at $4.00 per share in connection with the employment agreements.

Assets acquired:
        Prepaid expenses                                     $       21,750
        Property                                                    196,789
        Excess of purchase price over net assets acquired (i)     1,013,618
                                                                 ----------
                                                                  1,232,157
Liabilities assumed:
        Notes payable                                               111,662
        Accounts payable                                            109,201
Common stock issued                                                 362,500
                                                                 ----------
Cash consideration paid                                      $      648,794
                                                                 ==========
--------------------

(i) The excess of purchase price over net assets acquired will be reviewed by an
independent, third party appraiser to allocate appropriate values to tradenames,
noncompete agreements and contracts.



<PAGE>

NOTE 3.   FINANCING

On February 17, 1998,  the Company  entered into a credit  agreement (the Credit
Agreement)  that provides for maximum  borrowings of $12.5 million.  Interest on
outstanding  borrowings  is  computed at the prime rate plus 7.0% with a minimum
rate of 15.5%.  The  Company is required  to pay  monthly  interest  payments on
outstanding borrowings at the prime rate plus 4.5% with a minimum rate of 13.0%.
The remaining interest is added to the outstanding borrowings as of the first of
the current month.  The Company is also required to pay a monthly  servicing fee
of $5,000 per month. The Credit Agreement is due on July 17, 1999.

The Company's borrowings under the Credit Agreement are limited to the lesser of
i) $12.5  million,  ii)  earnings  before  interest,  taxes,  depreciation,  and
amortization,   as  defined,  for  the  immediately  preceding  12-month  period
multiplied by 375%, decreasing to 350% by June 30, 1998, iii) 90% of revenue, as
defined,  for the immediately  preceding  13-week period, or iv) 90% of accounts
receivable  collections,  as  defined,  for the  immediately  preceding  17-week
period.

Borrowings under the Credit  Agreement are secured by  substantially  all of the
Company's assets and partially guaranteed by the Company's president. The Credit
Agreement  contains  various  restrictive   covenants  relating  to  changes  in
accumulated deficit, maintenance of fixed charge coverage ratio, minimum working
capital requirements, prohibits dividend payments, and other matters.

The Credit Agreement required the Company to pay a closing fee of $317,500,  pay
$212,991 of the lender's  expenses and issue 312,497  shares (the Shares) of the
Company's  common  stock  to  the  lender.  The  Shares'  value,  $343,747,  was
determined  based on the market value of the Company's common stock. In addition
to the costs above,  the Company incurred  incremental  direct costs of $513,590
relating to the Credit Agreement.  These costs have been capitalized as deferred
financing costs and amortized using the effective  interest method over the life
of the Credit Agreement.

The Credit  Agreement  also requires the Company to register the Shares with the
Securities  and  Exchange  Commission  by June  30,  1998.  If the  registration
statement  does not  become  effective  on or before  September  15,  1998,  the
interest rate increases by 1.0%.

The Credit Agreement  required a portion of the initial borrowings to be used to
repay the  Company's  revolving  line of credit,  term note,  and a portion of a
related party note. The remaining  portion of the related party note was paid on
February 20, 1998 with proceeds from the equity  offering on February 18 and 19,
1998 (the Equity Offering) (see Note 4).

NOTE 4.   STOCKHOLDERS' EQUITY

Issuance of Common Stock - In February 1998, the Company obtained gross proceeds
of  $3,300,000  of equity  financing  through a private  placement  of 3,000,000
units,  with each unit  consisting of one share of common stock and a detachable
warrant to  purchase  one-fourth  of a share of common  stock at $2.25 per share
(the Equity  Offering).  The warrants are currently  exercisable and expire four
years from the date of issuance.

In connection  with the private  placement,  the Company also issued warrants to
purchase  300,000  shares of common  stock to the  selling  agents.  The selling
agents'  warrants are  exercisable  from February 18, 1999 through  February 18,
2003 at $1.65 per share and contain a net value exercise  provision allowing for
the issuance of a lesser number of shares than  provided in the warrant  without
payment of the cash exercise price.

The Company incurred  issuance costs of $514,926 and will incur additional costs
in the future as the Company is required  to  register  the shares and  warrants
with the Securities and Exchange Commission by May 20, 1998.

During the three months ended March 31, 1998, the Company  received  proceeds of
$135,000  when holders of stock  options and warrants  exercised  their right to
purchase  a total of  108,000  shares  of  common  stock at a price of $1.25 per
share.
<PAGE>

NOTE 5. INCOME TAXES

The  provision  for income  taxes for the three  months ended March 31, 1998 and
1997 have been  partially  offset by a reduction in the valuation  allowance for
deferred taxes.

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 operations of the Company:
<TABLE>
<CAPTION>
                                                            Three Months Ended
                                                                  March 31,
                                          -----------------------------------------------------
                                               1998            %         1997            %     
                                          ------------       -----   ------------       -----  
<S>                                       <C>                <C>     <C>                <C>    
REVENUES:
   Preventive health care:
      Health services                     $  5,135,000        51.0%  $  4,284,000        52.0% 
      Health and fitness products            2,393,000        23.8%     2,000,000        24.3% 
                                          ------------       -----   ------------       -----  
                                             7,528,000        74.8%     6,284,000        76.3% 
   Rehabilitative health care                2,536,000        25.2%     1,949,000        23.7% 
                                          ------------       -----   ------------       -----  
                                            10,064,000       100.0%     8,233,000       100.0% 

COSTS OF REVENUES:
   Preventive health care:
      Health services                     $  3,896,000        38.7%  $  3,262,000        39.6% 
      Health and fitness products            2,184,000        21.7%     1,691,000        20.6% 
                                          ------------       -----   ------------       -----  
                                             6,080,000        60.4%     4,953,000        60.2% 
   Rehabilitative health care                1,785,000        17.8%     1,622,000        19.7% 
                                          ------------       -----   ------------       -----  
                                             7,865,000        78.2%     6,575,000        79.9% 

GROSS PROFIT                                 2,199,000        21.8%     1,658,000        20.1% 

OPERATING EXPENSES:
   Salaries                                    947,000         9.4%       488,000         5.9% 
   Selling, general, and administrative        916,000         9.1%       662,000         8.0% 
                                          ------------       -----   ------------       -----  
                                             1,863,000        18.5%     1,150,000        13.9% 
                                          ------------       -----   ------------       -----  
OPERATING INCOME:
   Preventive health care                      698,000                    733,000              
   Rehabilitative health care                   46,000                    106,000              
   Corporate                                  (408,000)                  (331,000)             
                                          ------------       -----   ------------       -----  
TOTAL OPERATING INCOME                         336,000         3.3%       508,000         6.2% 

INTEREST EXPENSE                              (314,000)       -3.1%      (129,000)       -1.6% 
OTHER INCOME                                    20,000         0.2%         3,000         0.0% 
                                          ------------       -----   ------------       -----  
                                              (294,000)       -2.9%      (126,000)       -1.6% 
                                          ------------       -----   ------------       -----  
INCOME BEFORE INCOME TAXES                      42,000         0.4%       382,000         4.6% 
INCOME TAXES                                    12,000         0.1%       115,000         1.4% 
                                          ------------       -----   ------------       -----  

NET INCOME                                $     30,000         0.3%  $    267,000         3.2% 
                                          ============       =====   ============       =====  

</TABLE>

<PAGE>

General.  The  Company  is  engaged  in two  principal  lines of  business:  (i)
preventive health care and (ii)  rehabilitative  health care.  Preventive health
care  includes the  development,  marketing  and  management  of  corporate  and
hospital-based  fitness centers (health  services) and the sale and servicing of
health and fitness products. Rehabilitative health care relates to the operation
of  physical  therapy  clinics  that  provide  a full  range  of  rehabilitative
services,  provides  occupational  health  (injury  prevention  and  work-injury
management  consulting  services) and a network of independent  physical therapy
clinics.

The  Company's   preventive  health  care  revenues  come  from  fitness  center
management and consulting  contracts (health services) and the sales and service
of health and fitness products.  The management and consulting contracts provide
for specific management, consulting, and program fees and contain provisions for
modification, termination, and non-renewal.

The  Company's  rehabilitation  revenues  come from  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.

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 .

Summary of First Quarter  Results.  For the quarter ended March 31, 1998,  total
revenues were up by $1,831,000, or 22.2%, from the quarter ended March 31, 1997,
with slightly less than one third of the growth coming from  acquisition.  Gross
profit as a percent of revenue improved almost 2 percentage points,  while gross
profit  dollars  increased  $541,000,  or 32.6%.  The  increase in gross  profit
percent was primarily due to the  acquisition  of  better-performing  businesses
offset by the sale of under-performing businesses in 1997. Operating expenses as
a percent of revenue increased 4.6 percentage points, or $713,000 and 62.0% over
the prior year period,  as the Company made  investments in its organization and
infrastructure.   Operating  income  as  a  percent  of  revenue   decreased  by
approximately  3  percentage  points  as the  investments  in  organization  and
infrastructure  more than  offset the  improvements  in gross  profit.  Interest
expense increased $185,000 from the prior year period due to the increased level
and cost of  borrowing.  Net income for the  quarter  ended  March 31,  1998 was
$30,000, a $237,000 decrease from the prior year period. The decrease was due to
the decrease in operating income coupled with the increase in interest expense.


<PAGE>

Revenues.  Revenues increased $1,831,000, or 22.2%, to $10,064,000 for the three
months ended March 31, 1998 from $8,233,000 for the period ended March 31, 1997.

Preventive health care revenues  increased  $1,244,000,  or 19.8%, for the three
months  ended March 31, 1998  compared to the same period in 1997.  The increase
was  primarily  due to the  annualized  effect of  adding a net of 24  corporate
fitness  center sites under  management  and the increase in sales of health and
fitness products of $393,000, or 19.7%.

Rehabilitative  health care revenues increased $587,000, or 30.1%, for the three
months ended March 31, 1998,  compared to the same period in 1997.  The increase
was  primarily  due to the  annualized  effect of the 1997  acquisitions  of the
Isernhagen  Companies  (February 1997),  K.A.M. (April 1997), Duffy & Associates
(May 1997) and Medlink  (August  1997),  the  acquisition  of Midlands  Physical
Therapy in February  1998 and the  increase in patient  visits at certain  other
clinics,  partially offset by the lost revenue on four under-performing  clinics
sold in January 1997 and seven  under-performing  clinics sold in May 1997.  The
newly acquired  businesses had revenues of $1,482,000 for the three months ended
March 31, 1998 versus  $279,000 for the three  months ended March 31, 1997.  The
eleven  clinics  sold had  revenues of $797,000 for the three months ended March
31, 1997.

Operating Income.  Operating income decreased $172,000 to $336,000 for the three
months  ended  March  31,  1998  from  $508,000  for the  same  period  in 1997.
Preventive  health care operating income decreased $35,000 from $733,000 for the
three months  ended March 31, 1997 to $698,000 for the same period in 1998.  The
decrease was due to lower  margins being  experienced  in the health and fitness
products  line of  business  versus the prior year.  Rehabilitative  health care
operating income  decreased  $60,000 to $46,000 for the three months ended March
31, 1998 from  $106,000 for the same period in 1997.  The decrease was primarily
due to the increase in expenses  associated with the  centralization  of certain
operations and  administrative  functions.  Corporate expenses increased $77,000
from $331,000 for the three months ended March 31, 1997 to $408,000 for the same
period in 1998. The increase was due to the  investments  made to strengthen the
management team.

Interest Expense.  Interest expense of $314,000 for the three months ended March
31, 1998  increased  $185,000  from  $129,000  for the same period in 1997.  The
increase was due to higher average borrowings and the effective interest rate in
1998 versus 1997.

Other Income.  Other income  increased  $17,000 from $3,000 for the three months
ended March 31, 1997 to $20,000 for the same period in 1998.

Income Taxes. Income taxes were calculated based on management's estimate of the
Company's  effective tax rate  partially  offset by a reduction in the valuation
allowance for deferred taxes.

Net  Income.  The  Company's  net income  decreased  $237,000 to $30,000 or $.00
diluted  net income per share for the three  months  ended  March 31,  1998 from
$267,000 or $.03 diluted net income per share for the same period in 1997.

LIQUIDITY AND CAPITAL RESOURCES

         The Company had working  capital of $2,492,000 at March 31, 1998 versus
working  capital of $161,000 at March 31, 1997.  The change was primarily due to
the  increase  in cash and  accounts  receivable  and the  overall  decrease  in
accounts payable and acrrued  liabilities.  For the three months ended March 31,
1998, the Company used $1,039,000 of cash in operating activities as compared to
$614,000  for the same  period  in 1997.  The  increase  in usage was due to the
reduction in trade  accounts  payable and other  accrued  liabilities  after the
revolving credit facility was in place.

On February 27, 1998,  the Company  completed the  acquisition of all the issued
and  outstanding  stock  of  closely  held  Midlands   Physical  Therapy,   Inc.
(Midlands),  a Nebraska-based provider of rehabilitative  services. The purchase
agreement  contained a noncompete  provision  that covers a period of five years
and prohibits the former owners from directly or indirectly  competing  with the
Company.  In connection  with the  acquisition  of Midlands,  the Company issued
200,000  shares of common  stock valued at $362,500  and cash  consideration  of
$650,000.


<PAGE>

In February  1998,  the Company  entered  into a  $12,500,000  revolving  credit
facility with Madeleine  L.L.C.,  an affiliate of Cerberus  Partners,  L.P. (the
"Lender").  The  credit  facility  is secured  by all of the  Company's  assets,
including its accounts receivable, inventory, equipment, and general intangibles
and is  guaranteed  in part  by the  Company's  President  and  Chief  Executive
Officer. The Company's ability to draw down on the facility is tied to a formula
based upon the Company's  EBITDA  (defined as earnings before  interest,  taxes,
depreciation and amortization), revenues, or collections, whichever is less. The
Company  paid the  Lender a  commitment  fee equal to 1.5% of the  total  credit
facility,  and a closing  fee equal to 1.0% of the total  credit  facility.  The
Company also issued to the Lender  312,497  shares of common stock.  The Company
pays the Lender a loan servicing fee of $5,000 per month. The advances under the
credit  facility  accrue  interest at a total rate of interest  equal to 7.0% in
excess  of Chase  Manhattan's  prime  rate  (but in no event  less  than  8.5%).
Interest  accruing at the rate of such prime rate plus 4.5% is payable  monthly.
Interest  accruing at the rate of 2.5% is added to the principal  balance of the
facility,  and will accrue  interest until paid. The credit facility is due July
1999.  The  credit  facility  is subject to  various  affirmative  and  negative
covenants  customary in  transactions  of this type,  including a requirement to
maintain certain  financial  ratios and limitations on the Company's  ability to
incur  additional   indebtedness,   to  make  acquisitions  outside  of  certain
established parameters, or to make dividend distributions.

         In  February  1998,  the Company  also  completed  the private  sale of
3,000,000  Units  at an  aggregate  offering  price  of  $3,300,000.  Each  Unit
consisted  of one share of common  stock and a warrant  to  purchase  one-fourth
(.25) of one share of common  stock at $2.25 per whole  share.  The  Company has
agreed to  register  the  shares for resale  and the  warrant  shares  under the
Securities Act as soon as practicable.

         Sources of capital to meet future  obligations in 1998 are  anticipated
to be cash provided by operations and the Company's  revolving  credit facility.
In order to conserve  capital  resources,  the Company's  policy is to lease its
physical  facilities.  The Company  does not believe  that  inflation  has had a
significant impact on the results of its operations.

Outlook

         The Company's  strategy is to continue to expand its operations through
acquisitions and same site growth.

         In its rehabilitative health care operations, the Company's strategy is
to continue to expand through  acquisitions and improve the profitability of the
physical  therapy clinics  acquired  through the  consolidation  of the clinics'
operating  expenses.  The Company intends to focus its  acquisitions on physical
therapy  clinics  primarily  located in secondary  markets in the central United
States.  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 shares of the Company's 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 arrangements.  It
is anticipated  that funds required for future  acquisitions and the integration
of acquired  businesses  with the Company will be provided from  operating  cash
flow, the Company's  revolving  credit  facility and the proceeds from potential
future  equity  financings.  Future  equity  financings,  if any,  may result in
dilution to holders of the  Company's  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.

         Rehabilitative  health  care  revenues  are  expected  to increase as a
result of  introducing  additional  physical  therapy  work sites at  additional
corporate  fitness  centers,  increasing  the number of physical  therapists  at
existing clinics, and potential  acquisitions of free-standing  physical therapy
clinics. Rehabilitative health care operating income as a percentage of revenues
is expected to increase as a result of the  Company's  investment  in  operating
systems that  centralize and streamline the billing and collection  functions of
the companies acquired to date. However,  the Company has experienced a time lag
in  successfully  implementing  these  systems  at some of the  acquired  clinic
locations.  The Company also expects to control its site  operating  costs while
improving site revenue performance resulting in operating income gains.

         In its preventive health care operations,  the Company's strategy is to
expand  through  the  addition  of  new   management   contracts  and  selective
acquisitions.

         Preventive  health care operating  income, as a percentage of revenues,
is  expected  to  increase  compared  with that  experienced  for the year ended
December 31, 1997 as the Company expects to control site costs.
<PAGE>

         Corporate expenses, as a percentage of revenues,  are anticipated to be
consistent with 1997 levels.

Accounting Pronouncement

In June 1997,  the  Financial  Accounting  Standards  Board issued  Statement of
Financial  Accounting Standards (SFAS) No. 131, Disclosures about Segments of an
Enterprise  and  Related  Information.  SFAS No.  131  redefines  how  operating
segments  are  determined  and requires  disclosures  of certain  financial  and
descriptive  information about a company's operating  segments.  The adoption of
SFAS No. 131 will increase the number of reportable segments for the Company. In
accordance with SFAS No. 131, the additional segment disclosure will be included
in the Company's Form 10-K for the year ending December 31, 1998.

Cautionary Statement

Portions of this Form 10-Q,  including  Management's  Discussion and Analysis of
Financial Condition and Results of Operations,  contain numerous forward-looking
statements that involve a number of risks and uncertainties. Further information
on various  factors that could cause actual  results to differ  materially  from
such forward-looking  statements are set forth in the Company's Annual Report on
Form 10-KSB.

                          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.

Item 2. Changes in Securities

During  the  quarter  ended  March 31,  1998,  the  Company  sold the  following
securities without registration under the Securities Act:
<TABLE>
<CAPTION>

                                                                                 Price per       Exemption Relied Upon
  Date          Amount                        Purchaser(s)                       Share/Unit
<S>           <C>          <C>                                                    <C>               <C>                       
2/18/98       2,000,000    Accredited investors purchasing in private              $1.10             Section 4(2)
                Units*     placement
2/18/98        312,497     Common Stock issued to affiliate of Company's            N/A              Section 4(2)
                           lender in connection with loan agreement
2/19/98       1,000,000    Accredited investors purchasing in private              $1.10             Section 4(2)
                Units*     placement
2/28/98        200,000     Common Stock issued to sellers of business as            N/A              Section 4(2)
                           part of purchase price
3/30/98         80,000     Common Stock issued upon exercise of warrant            $1.25             Section 4(2)
</TABLE>
--------------------------------------------------------------------------------

*Each Unit  consisting  of one share of Common Stock and  one-fourth  (.25) of a
warrant to purchase a share of Common Stock at $2.25 per whole share

During the quarter ended March 31, 1998, in addition to stock purchase  warrants
included in the Units described above, the Company issued the following options,
warrants, or other equity securities in consideration of services rendered or to
be rendered without registration under the Securities Act:
<TABLE>
<CAPTION>

                                                                            Exercise Price per       Exemption Relied
  Date          Amount           Type               Purchaser(s)                   Share                    Upon
<S>            <C>              <C>           <C>                                 <C>                   <C>
2/18/98         50,000          Warrant       Selling agent in private             $1.65                Section 4(2)
                                                      placement
2/19/98        250,000          Warrant       Selling agent in private             $1.65                Section 4(2)
                                                      placement
2/28/98         25,000          Option                Employee                     $4.00                Section 4(2)
2/28/98         25,000          Option                Employee                     $4.00                Section 4(2)
</TABLE>


<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

         See Exhibit Index immediately following signature page.

         (b)      Reports on Form 8-K

         No Forms 8-K were filed by the Company  during the quarter  ended March
31, 1998.


<PAGE>




                                   SIGNATURES


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

Dated:  May 15, 1998          HEALTH FITNESS CORPORATION


                              By            /s/ Loren S. Brink
                                Loren S. Brink
                                Chairman, President and Chief Executive Officer
                                (Principal Executive Officer)


                              By           /s/ Charles E. Bidwell
                                Charles E. Bidwell
                                Secretary, Treasurer and Chief Financial Officer
                                (Principal Financial Officer)


                              By           /s/ Michael P. Wise
                                Michael P. Wise
                                Vice President and Corporate Controller
                                (Principal Accounting Officer)

<PAGE>


                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549


                                  EXHIBIT INDEX
                           HEALTH FITNESS CORPORATION
                                    FORM 10-Q


    Exhibit No.       Description

     3.1       Articles of  Incorporation,  as amended,  of the Company -
               incorporated  by  reference  to  the  Company's  Quarterly
               Report on Form 10-QSB for the quarter ended June 30, 1997
     3.2       Restated By-Laws of the Company -- incorporated by reference to
               the Company's Registration Statement on Form SB-2 No. 33-83784C
     4.1       Specimen of Common Stock  Certificate --  incorporated  by
               reference to the Company's  Registration Statement on Form
               SB-2 No. 33-83784C
   *10.5       Company's 1995 Stock Option Plan, as amended through June 1997
    27.1       Financial  Data Schedule for 3-month  period ended March 31, 1998
               (in electronic version only)


*Indicates management contract or compensatory plan or arrangement.